Using data and analytics to help reassure your clients

With the high levels of market volatility seen over recent weeks many of the conversations advisers are having with their clients are focused on the strategies available to help mitigate the risks of falling markets. It’s also an important in times like these to reiterate to clients why they should continue to invest for the long term and not react to short term panic.

31 March 2020

Investing for the long term

Pound-cost averaging is a key strategy to help smooth out market volatility and avoid having to rely on the luck of timing markets correctly. However, whilst trying to explain to a client the benefits of a phased investment approach rather than investing a lump sum can be tricky in a rising market, it can be an even harder conversation with markets having just experienced record falls. Being able to visualise the effect in charts allows you to communicate your advice more effectively.

There are a couple of tools within FE Analytics which can help you illustrate this point to clients. The Regular Saving Chart and Performance Line Charts demonstrate visually how pound-cost averaging can smooth your returns over time and cushion some of the risk of a falling market.

The Regular Saving Chart below shows how a regular investment of 500 a month can provide growth with more consistent returns over the long term.

In comparison, the following Performance Line chart clearly demonstrates how investing a full lump sum in one go leaves an investor more exposed to market movements. The portfolio has experienced a bumpier ride over the year as well as greater loses during falls in October and March.  

In times like these it’s more important than ever to show the rationale behind the advice you give your clients. FE Analytics allows you to analyse and demonstrate the performance of different portfolios in different scenarios, giving you a platform to explain your advice and ensure the advice you have given is auditable.

Short term needs

Clients who rely on their investments to provide an income may have found their portfolios in danger of being damaged beyond repair over recent weeks. It’s important to ensure the income they take is sustainable, as over-ambitious regular withdrawals during a downturn can devastate their future returns.

Many financial planning tools aren’t able to demonstrate this adequately but with the FE Analytics’ Withdrawal Chart you can review the impact that drawing down at different levels of magnitude has on the underlying capital in an investment.

The below chart shows the impact on growth of a portfolio recovering in value after the referendum downturn in 2015, where there was £500 per month being withdrawn.

This can be compared to a portfolio where withdrawals have been reduced to £200 a month over the same time frame, clearly demonstrating the benefits of reduced income expectations.

FE Analytics is a one-stop shop for all your investment research and analysis, portfolio construction, due diligence and ongoing monitoring. It gives you access to over 300,000 instruments and allows you to research from a full range of index and sector benchmarks.

It includes a huge range of sophisticated charting tools to help you analyse performance, ratios, holding information and risk. You can compare any instrument against another so you can understand the effect of proposed changes to a portfolio and calculate a potential reduction in yield over customisable time periods and growth rates.

Book a 30-day free trial

We are offering advisers a 30-day free trial for a limited time only, so you can try FE Analytics out as part of your own advice process. If you'd like a live demo or to book your free trial, get in touch and speak to one of our specialists. 

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