First Wealth excel in ARC investment risk review

The question of investment risk is one that plays out in every area of life. We all make some 3,000 decisions a day. Cross the road at the lights or dart between the traffic? Take the new job or hope for promotion? Put your money in this investment, or that one? We can’t help with the first two questions – but we can with the third – because some new, independent analysis says we’re pretty good at risk. Let us explain …

Ratings approval

How much do you value independent reviews?

Would you take an Uber without checking the driver’s rating? Would you hire a tradesperson without consulting Checkatrade?

According to Trustpilot, one of the most popular sources of reviews on financial and other companies, with more than 260m of them, some 89% of global consumers check online reviews in their buying journey. Chances are you’ve heard of these independent raters.

We’re going to mention a company you likely won’t have heard of, but which carries even more importance in our world: Asset Risk Consultants (ARC).

Who are ARC?

ARC are a team of experts who measure companies like us. After all, we’re confident we’re doing a good job. And confident enough to say so. But nothing quite beats someone else proving it.

In industry speak, ARC measures “the real-world experience of investors that have their wealth professionally managed”. So, we got them in to make sure we’re on track.

They look at risk: this the danger that what you or we expect to reasonably happen, doesn’t happen. It cannot happen by a little, or not happen by a lot.

Risk sounds esoteric – but it’s quite easy to measure.

A little less investment risk, a little more return please

And this is what the investment risk measurers told us about our EBI portfolios. By way of example, the money we’re managing for clients in our P70 portfolio is 0.85 times as risky as a pure equity portfolio.

We try hard to aim for stock market style returns, or better, but with less risk. Turns out it’s 15% less risky.

ARC looked at 125 months’ worth of data overall. That’s just over a decade – and in that time we returned 143.6%.

In practical terms…

Say I invested £1,000 in the FTSE 100 a decade ago (at a value of 5062). At the time of writing my money would be about £1,807 (a value of 9145) – an 80.7% return

The First Wealth P70 portfolio they measured – which is broadly representative of our client experience – would have grown to £2,436.

That’s also a better rate than at least 90% of the other wealth management companies they measured.

We’re very pleased with this – and we hope you are too.

Mind games

We do what’s called evidence-based investing.

We’ve looked at what has done consistently well over 20-40 years, and we do more of the same. This is a long-enough period to not get unduly rocked by the dotcom bubble, the financial crisis, or the COVID-related crash.

It helps us avoid hype. For example, lots of investment firms imply a promise of beating the market. They’ll advertise this on taxis, at train stations and in your Sunday newspapers. But evidence says such active managers hardly ever ‘beat the market.’

It also helps you avoid FOMO. Just imagine a friend texts: Rolls Royce is up 66% this year, did you buy it? ME Group – formerly Photo-Me – is up 55%. What about that?

It’s galling to miss out on a bargain. But selecting individual shares can be a lottery. Like Burberry Group? It’s down 50% year-to-date. Think Kazakh oil and gas majors might be a good bet? You’d have lost 98.06% of your money in Nostrum over the last three years.

The evidence says spreading or diversifying your money is a sure enough way to spread investment risk and minimise the impact of such duds.

Ultimately, it’s all about placing the facts in front of your emotions.

Bring the noise

We’re reading a fascinating book: Noise. It’s about the distractions that drag us away from truly empirical decisions.

“Not only do [professional forecasters] disagree with each other, they disagree with themselves,” say the authors, before presenting volumes of evidence from business, the justice system, asylum claims, healthcare, forensic science, and other areas of life.

It’s a useful reminder of the power of evidence and independence.

We’d be happy to share what Asset Risk Consultants said about us. We’d also be delighted to talk about how we might help you. Please get in touch on hello@firstwealth.co.uk or 020 7467 2700.

1. https://uk.business.trustpilot.com/reviews/build-trusted-brand/4-things-every-business-owner-should-know-about-the-state-of-reviews

2. https://www.assetrisk.com/research/the-arc-indices/

3. https://uk.investing.com/equities/trending-stocks

4. https://www.amazon.co.uk/Noise-Daniel-Kahneman/dp/0008308993

This document is marketing material for a retail audience and does not constitute advice or recommendations. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested.