6 key steps to a successful investment strategy


Over the last couple of months, you’ll have read about the broad considerations relating to retirement planning and the subject of inheritance and estate planning and practical ways we can help.

This month, we take a similar, overarching approach to the subject of investment planning.

Investments are at the core of your financial planning for your future. Get your strategy right, and you can look forward to being able to do all the things you’ve always wanted. Get it wrong, however, and you could be faced with an uncertain future.

Here are six key steps to developing a successful and robust investment strategy.

1. Defining your goals and objectives

How you invest your money – your accumulated pension funds and other financial assets – is the engine that drives your financial plan.

At the outset, your investment strategy and how you manage your money shouldn’t be about simply targeting specific growth rates over certain time frames. These variables need context and meaning. Without which, for example, why do you need 5% net from a balanced risk portfolio?

An often-missed initial investment planning step involves establishing what your ultimate objectives are and how you’re going to invest to meet those needs. That must be the starting point of any discussion.

At a high level, you may be investing to give yourself financial freedom to ensure that, further down the road, you’re able to make choices about what you want to do, rather than be overly restricted in terms of what you can afford.

That freedom can relate to where you live, how long you must work, and what you’re able to do once you’ve stopped work.

Once you’ve established those crucial drivers, it’s much easier to build an effective plan around them.

Part of this step is also defining why you’re investing. There are a multitude of different reasons. These could include:

  • To accumulate liquid assets to invest in a company
  • Funding your children’s education
  • Purchasing an asset, such as a property
  • Funding your retirement
  • Giving yourself and your loved ones a comfortable lifestyle.

Reasons can be even more simple than that, however. I remember meeting a client for lunch in a very nice restaurant some time ago. He revealed that his reason for investing was that in retirement he wanted to able to eat in restaurants like the one we were in, without having to look at the prices on the right side of the menu.

Once you have established your needs, you can build an overarching plan to meet those needs. A single plan, or portfolio, can contain different investment types. Parts of that portfolio can be invested differently, with varying levels of risk and time frames.

For example, investing to fund your children’s education is likely to be a shorter time frame than investing for your retirement.

2. The importance of investment diversification

Once you’ve defined your goals and established your needs, the next thing is to start building your investment portfolio.

This could involve both existing assets and new investment money added, either on an ad hoc basis or with regular contributions.

One key rule when it comes to investment choice is not to put all your eggs in one basket. Diversification across different investment sectors and geographic regions can be crucial to investment success. At a simple level, it means that any losses incurred because of downturn in one particular sector or region can potentially be offset with gains in another.

3. Your attitude to risk and capacity for loss

Your choice of funds and other investment vehicles should be based on your attitude to investment risk. In other words, how much risk you’re prepared to tolerate in return for the investment growth required to achieve your goals.

Bear in mind that your attitude to risk is likely to change over time. When you’re in the “accumulation” phase of your investment journey you’re likely to be prepared to accept more risk than when you get closer to retirement.

Equally important is your capacity for loss. This is the amount of investment loss you can accept without it impacting on your overall standard of living. As with your attitude to risk, this could vary over time – and your investment strategy will change to take account of it.

4. Understanding your investment timescales is crucial

As we’ve already touched on, timescales are also an important factor.

Any investment horizon of less than five years will usually entail a less adventurous attitude when it comes to choosing where to put your money.

For longer periods you can afford to take more risk knowing that, over time, markets tend to show long-term growth that mitigates any short-term volatility.

5. Balancing passive and active investment

You may well have seen commentary suggesting that there is an ongoing debate between passive and active investment.

In reality, it’s not really a binary choice between the two options. Both are likely to have their place in any well-crafted investment portfolio.

For example, passive investment is often a better option in a well-known and stable market. In an underdeveloped sector, stock-picking by an active fund manager, backed by a strong research team, can be more effective.

There are also different types of both kind of investment.

Active funds can be invested purely for growth, or to provide regular income. They can also be managed aggressively or defensively, depending on the sector, external influences, and any number of other factors.

The passive investment sector includes pure single-index trackers and funds that track a basket of different indexes – maybe in one particular market sector. There are also passive funds with an element of fund manager intervention and different levels of equity exposure.

6. Reviewing your investments

Once your portfolio is up and running, the job doesn’t end there.

We would always caution you against constantly checking the value of your holdings. This is likely to result in you overreacting to good or bad short-term performance, when the most effective strategy is usually to do nothing.

However, it is important to regularly review both your investments and the strategy that underpins them. We would usually recommend a thorough and detailed review at least annually.

Through this review process, we work with you to check you’re on track to meet your goals.

By using cashflow modelling, we’ll be able to see if you need to make any changes, and also create some “what if?” scenarios – such as a stock market fall – to check your plans are robust enough to withstand any outcome.

Get in touch

If you think we can help you with your investment strategy, please get in touch.

You can contact us by email or, if you prefer to speak to us, you can reach us in the UK on +44 (0) 208 0044900 or in Hong Kong on +852 39039004.

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