How we invest
Investment advice is not a service bolted onto the plan here — it is the work the firm grew out of. Our portfolios aim for attractive long-term returns while carrying less volatility than the conventional approach, by drawing returns from a much wider range of sources than shares and bonds alone.
The aim
The aim of our investment approach is to…
01The method
… draw returns from a wide range of complementary sources, rather than the two that a conventional portfolio leans on.
02The effect
… so that the portfolio moves about less than one dominated by shares and bonds, and falls less far when markets turn.
03The outcome
… and still generate attractive returns over the long term. That is what the risk is being taken for.
Diversification has been called “the only free lunch in investing”. Done effectively, it can lower how much a portfolio moves about without giving up attractive long-term returns.
Why the usual approach falls short
The conventional portfolio rests on two things: shares to generate the returns, and high-grade bonds to steady them. How much sits in bonds depends on the investor's appetite for risk — the more risk they want to carry, the fewer bonds they hold.
This is a perfectly sound long-term strategy and we would not argue otherwise. Most advice firms offer a version of it, and any investor can assemble it themselves from cheap market trackers on a direct-to-consumer platform.
Its weakness is structural. With only two real sources of diversification, a portfolio's returns are dominated by what those two markets do — and shares and bonds sometimes fall together, as they did through the inflation shock of 2022. The record of deep falls is not a short one: the financial crisis of 2008, the bursting of the tech bubble in 1999, the Covid spring of 2020, to name only the recent ones.
Advisers often try to widen the diversification inside those two pillars — a value fund alongside a growth fund, perhaps a technology or healthcare specialist. These can be very good funds in their own right and still move closely with the equity market they came from. We have seen countless portfolio reports from other advisers and wealth managers, full of colourful charts showing a long list of holdings that turn out, on inspection, to be highly correlated with one another.
How we build it
Our research ends in a range of 5 model portfolios rather than a separate portfolio invented for each client. Each aims at a combination of capital growth and income, and each typically holds more than twelve funds or investment vehicles. They differ from one another in one respect only: how much volatility each is built to carry.
Working from models is a deliberate choice, not an economy. It means every client gets the same thinking at the same time — we do not keep our “best ideas” for a favoured few. Which model we recommend depends on what the money is for, when you will need it, and how much movement you can live with in the meantime.
Everything we use is a fund or investment vehicle the Financial Conduct Authority classes as suitable for retail investors. The unusual thinking is delivered through entirely ordinary vehicles: no unregulated schemes, no exotic instruments, no fads.
We research the managers, construct the portfolios and adjust them as conditions change — the same work Francois did professionally for more than twenty years. At many firms this is outsourced; here it is the heart of the service.
A long list of holdings is not diversification. We choose strategies because they behave differently from the markets around them and from each other, so that the portfolio as a whole does not depend on any one thing going right.
Where the portfolios sit
The range is ordered by the volatility each portfolio aims for over the long term — volatility being simply how much a portfolio's value swings about, up and down. LRWA B1 aims for around 8%, which is roughly 45% to 60% of global stock market risk. LRWA A1, which targets the most volatility of the 5, still targets less of it than global stock markets carry. That is by design: the goal is attractive returns reached with less movement, not the most movement we can justify.
In order of the volatility each aims for, highest first: Global stock markets; LRWA A1; LRWA A2; LRWA B1; High-grade bonds; LRWA B2; LRWA C1.
The value of investments and the income from them can fall as well as rise and you may get back less than you originally invested. Past performance is not a reliable indicator of future results.
The risks
All investment carries risk: to earn more than a bank deposit pays, you have to take some. Our approach does not avoid that, and we would rather set out plainly where the risks sit — including the one place we probably carry more of it than a conventional portfolio does.
01
The risk that matters most — an investment that loses its value with little hope of recovering it. We spread across more than twelve vehicles, each holding many underlying securities, and use only funds the regulator deems suitable for retail investors. Almost without fail, where UK retail investors have suffered devastating permanent losses, they had put money into unregulated schemes, or concentrated a large part of their savings in a single investment. To be fair, we expect every good adviser to avoid both.
02
The most common way risk is measured, and the one investors actually feel. Sharp falls tempt people into selling at the bottom; long rises tempt them into over-committing at the top. Reducing volatility is what the whole approach is aimed at — by drawing returns from many complementary sources rather than two. It reduces the movement; it does not remove it.
03
Not being able to get at your money when you need it. Liquidity can disappear quickly: property funds that cannot sell buildings fast enough to meet redemptions, or equity funds that have drifted into unlisted shares. We aim to hold as little of this risk as possible, and where we judge the reward worth it, to take it through vehicles such as investment trusts — where you can normally still sell, though possibly at a discount.
04
Here we probably carry more than a conventional portfolio, and we would rather say so than leave you to find out. The models are unlikely to use borrowing or derivatives directly, but several of the specialist funds inside them do — a manager with a view on the dollar against the euro may express it through a currency forward. Retail fund regulation places strict limits on this, and our research aims to avoid funds that use it heavily. On balance we believe these instruments lower the portfolio's volatility rather than add to it.
The value of investments and the income from them can fall as well as rise and you may get back less than you originally invested. Past performance is not a reliable indicator of future results. Every fund we recommend comes with the regulator's standardised summary of its risks, and we pass those to you as part of our advice.
Ethical and ESG investing
We do not currently run a portfolio with a specific ethical or ESG focus, and we do not score or label our portfolios as such. We care about the substance — the environment, good governance — but we will not let ratings, labels or awards decide what counts as a good investment and an acceptable risk for a client.
Part of the reason is practical. Many of the strategies we use resist classification altogether: it is not obvious what a green interest rate would be. And restricting the portfolios to highly rated funds concentrates them in particular sectors, which cuts against the diversification the whole approach depends on. We remain sceptical, too, about how much “green-washing” the ratings still absorb.
None of that is an argument against ethical investment in principle. We are happy to share the ESG ratings of what we hold, and we would like in time to offer something that does not compromise the aim.