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Two must-read books for investors – Gregor Logan

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Mark Dampier, head of research at Hargreaves Lansdown has just published an excellent book, ‘Effective Investing‘, outlining how the reader can take control of their own finances. Whilst suggesting a discussion with a professional is always a good starting point, he rightly points out that the development of online platforms, greater tax incentives such as ISA’s and free research available online have made the process of looking after one’s own finances much easier, although not entirely effortless. Even if you invest through a professional, reading this book will equip you with a much better understanding of what is being done on your behalf and improve your ability to question both the process and outcome.

Should you be setting out on a journey of self-investing, Mark lays out in a reader-friendly, logical way: how to go from blank sheet of paper to being fully invested in carefully chosen, actively managed funds suitable to your investment objectives and risk tolerance. He suggests the choice of which funds to buy is as important, if not more important, than getting your asset allocation right. He offers help and assistance in reducing the “bewilderingly large” number of funds down to a few that you might sensibly own.

Lars Kroijer in his also excellent book ‘Investing Demystified‘ starts out with a different and contrasting theory; that the markets are actually quite efficient and seeking to be one of the few who does manage to outperform is most likely to end in tears. With this as the key premise of his investment methodology, he suggests that by deciding on a sensible asset allocation, which is in turn invested through low cost tracking funds, you are much more likely to meet your expectations. The certainty of compounding of the added return from very low fees more than makes up for the chance of outperformance from actively managed, but high fee funds. He too then takes the reader on a journey from theory to fully invested practice.

These two writers agree on many aspects of investing, the critical difference is whether it is worth paying more in the hope, not certainty, of achieving above market returns from the funds you own.

One way to assess who has been correct historically is to back test the aggregate results of the wealth managers in the City. By doing what is referred to as attribution analysis one can determine and compare how much of a portfolios return comes from asset allocation (i.e., the percentage in equities, bonds, property and cash) and the return actually achieved form these assets, commonly known as stock selection. The results are unequivocal, using the same asset allocation, the low fee, index tracking solution offers superior returns. Although in theory the professional should be able to choose funds that outperform, in practice, in aggregate, they choose funds that underperform after fees of course.

Do it yourself multi-asset global portfolio – Gregor Logan

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I am often asked by friends how they should invest their spare capital. Typically I seek to avoid giving a specific answer on which share, fund or country is the best place to be invested. Instead, I recommend they find a good adviser, such as an IFA .

The adviser would then do a pretty lengthy fact find to determine the appropriate investments based on time frame, volatility and expected returns. Tax planning would also be considered, primarily whether a pension or ISA might be used.

The end result will typically be a cautious, balanced or adventurous portfolio, characterised by the percentage exposure to equities (volatile) , bonds (presumed to be less volatile) and commercial property. A smallish percentage might also be recommended in alternative assets, such as hedge funds.

Or, if they are willing to do a bit of work themselves it is possible to save a lot of fees by building a multi-asset, global portfolio with reasonable risk/return characteristics themselves. It is now pretty easy, inexpensive and not very time consuming.

Over the last 20 years there has been significant growth in the number of investment platforms, or online shops for shares or funds, which give even modest investors access to a wide range of funds with online research functions to help identify which funds to buy.

Barclays, Bestinvest, Charles Stanley, Fidelity and Hargreaves Lansdown all score well in investor surveys for cost, service, range of features and breadth of investment choice

At the same time there has been a proliferation in the number of passive products that simply seek to replicate the returns of an index or benchmark, but at a much cheaper fee.

So simply open an account with a platform and buy a few index tracking funds to give you the appropriate multi-asset/global exposure. As an unsophisticated investor how do you determine what is the optimum asset allocation, you might reasonably ask?

The easiest way is to mimic the professionals. The average asset allocation of cautious, balanced and adventurous portfolios managed by most UK wealth managers is now published and freely available every month.

For the adventurous, it is 55% equities (25 UK; 30 rest of world), 13% government bonds, 7% corporate bonds, 10% property, 15% absolute return.

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Welcome to my website. I'm Gregor Logan, an independent management professional with over 35 years of experience in all asset classes, including equities, bonds, property, private equity, alternative assets and bonds. I previously held senior-level roles at MGM Assurance, Pavilion Asset Management and New Star Asset Management.

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