In the long term, the main risk affecting an investment is inflationary risk. Over such a timescale, equities (shares) have historically provided most inflation protection, whilst the spending power of money held on cash deposit has been reduced. In order to protect your long term financial needs, it is necessary to have sufficient exposure to investments which provide a hedge against inflation as well as offering good prospects for growth.

On the other hand, the main short term risk affecting your investments is stockmarket risk. This may be the result of normal fluctuations in market prices or, from time to time, the effect of a stockmarket crash on an investor's short term financial security. However, this is actually only a risk if you need to withdraw the capital during the period when share prices are depressed.

The questions we usually face as advisers are “Is now a good time to invest?”, “Which way is the stockmarket heading?”, “What return will I receive in the next twelve months?” Any response to these questions can only be an opinion as no one actually knows. Our basic belief as to how and why Equity Markets work is born out by the The 50th Edition of the Barclays Equity - Gilt Study 2005 which shows that over the last 105 years, UK equity returns have averaged 5.1% over inflation. This compares to a return for gilts over the same period of 1.1% over inflation and only 1% for cash.

The table below from the same study bears out the same picture even more clearly. Over the longer term, equities have far outperformed other asset classes, even when taking into account major market corrections such as those in the early 1930s, 1973-1974 and 2000-2002.

It is interesting to note that when five year annualised returns of the FTSE All-Share index are looked at from 1956-2004, there are only two five year time periods out of a total of 45 when returns were negative. These were the periods 1970-1974 when the FTSE All-Share index fell 20% and 2000-2004 when the market fell 8%. If after the 1970-1974 slump investors had held their cool, they would have been rewarded with a rise of 116% in 1975. (figures from the Dimensional Fund Advisors Matrix 2005).

In advising where to invest your savings, we need to ensure that you have sufficient non-stockmarket assets to enable your funds to weather both a stockmarket crash and a recession. We therefore work on the basis of having the correct amount of lower risk assets (such as cash fixed interest and property investments) to ensure that your capital and income requirements can be met without having to touch the equity part of your portfolio during a period of recession or poor stockmarket performance.

By managing all of your investment assets, we are able to monitor the balance of the portfolio between cash, property, fixed interest investments and equities on an ongoing basis in order to ensure lifetime financial security as well as capital growth.