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investment
portfolios and platforms..... |
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what are wrap platforms?
Wrap Platforms, Wrap Accounts and Wraps are a new way to administer
your investments. Wraps enable private clients and their professional
advisers to streamline portfolio administration significantly,
allowing both parties to concentrate on the more important matters
of achieving their financial plans, goals and aspirations.
What’s included?
Almost all investments and pensions can be catered for via a Wrap
and, in the future, probably mortgages as well. The diagram below
shows more:
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How do Wraps work?
Wraps make use of 21st century technology, which is unhindered by
financial product providers’ high cost old ‘legacy’ products
and administration platforms. Wraps use secure internet systems
to streamline investment transactions, administration and service,
whilst also enabling a single helicopter view of all your investments.
What are the benefits?
Wraps will revolutionise the UK investment and financial planning
market place due to the range of benefits that they offer private
clients and their professional investment advisers.
Benefits include:
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- Wide range of investment
options, ensuring personally designed portfolios
- Wide
range of tax planning wrappers to meet changing financial needs
- Single fee structure removes commission bias
- Access to institutional investment funds can halve the cost of
investing
- Very low transaction costs enable investment decisions to be made
on merit
- Timely transactions enable effective asset allocation
- Ease of administration gives you time for life and your Certified
Financial Planner professional time for you
- A single statement removes the need for overflowing filing cabinets
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Are they secure?
Wraps are very secure. Your assets are held on your behalf by a major
financial institution. For some aspects of the Wrap you also
benefit from protection under the Financial Services Compensation
scheme. Your personal data is kept private using firewalls and
encryption techniques. Wraps are as secure as any other investment
solution.
Which Wrap does L.A.D. use?
We use whichever Wrap is most appropriate for our clients’ current
and anticipated future needs. Typically this will be dependent on
the value of your investment portfolio, the tax shelters required
and your financial goals.
Are Wrap investments guaranteed to make money?
Unlike most investment portfolios Wraps can be tailor made for your
needs. If you need very low risk investments a Wrap can be suitable,
although if higher risks are required this can be accommodated too.
Some investments via a Wrap can be as low risk as a bank account
but even they are not 100% guaranteed!
Is a Wrap for me?
This depends on your circumstances, but in many cases the answer
will be yes because the potential benefits are considerable for most
people. But a Wrap will not deliver these significant benefits without
an integrated and personalised Financial Plan. |
Portfolio Planning
Asset Allocation
Once the decision has been made to invest in equities and that
the investment should be in index funds, the next step is to ensure
that the overall structure of your portfolio is appropriate.
The landmark study, Determinants of Portfolio Performance, published
in the Financial Analysts Journal in 1986 suggested that well over
90% of investment performance is derived from asset allocation
decisions, not market timing or stock selection. These
findings were confirmed in the follow up study by Brinson, Beebower
and Singer in 1991, and numerous subsequent academic studies have
reached similar conclusions. |
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Further studies by Ibbotson Associates
et al 2000 also showed that 91% of investment returns were derived
from asset allocation, where stock selection only delivered 5%
of returns, market timing 2% and other factors 2%.
The importance of asset allocation is reinforced by the Myners Report
of March 2001 into institutional investment in the UK, commissioned
by the Chancellor of the Exchequer. Part of the review defined best
practice codes for pension fund decision-making, one of which stated:
“The attention devoted to asset allocation decisions should fully
reflect the contribution they can make to achieving the fund’s investment
objective”.
It is now generally accepted that strategic asset allocation is by
far the most important determinant of portfolio performance. This
is the process of allocating your capital across a range of different
asset classes, such as cash, fixed interest, property and equities.
This is not simply a question of diversification, although spreading
risk amongst different asset classes is clearly important. The optimum
split between these asset classes depends on your personal objectives
for the portfolio and on the risk of failure that you are prepared
to take over your chosen timescale.
The effect of diversification can be shown by the following graph: |
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The graph shows that holding two assets
which are not positively correlated smoothes the overall return
of the investor.
Change your financial future. |
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