At Goodbody, we believe it is important to adopt clear and consistent investment principles. Because we accept in advance that markets will always experience periods of stress and volatility, we hold that a well-diversified portfolio - invested over a suitably long time horizon - is critical to achieving investment goals.
Asset allocation is the most important element of our diversification and risk management process. Put simply, we look at the expected returns for the different asset classes – equities, bonds, property – and create an optimal mix appropriate to a given investment strategy.
Not all asset classes move together, so approaching them this way helps to smooth overall returns. A portfolio that is diversified in this way can achieve a more appealing risk-reward balance than any asset class on its own.
Strategically, a combination of world equities and euro area bonds can deliver a full range of expected returns with a high degree of diversification across asset classes, regions and currencies. We can also add property or specialist strategies to the asset mix to further improve the expected return and volatility profile. Our equity portfolio construction is further diversified across a selection of preferred sectors, regions and currency.
The other important element of our diversification and risk management process is time. Our time horizon is multi-year, which means we aim to remain invested over the full length of the economic cycle.
We do not try to time the market. Instead, we make a phased entry – usually in four steps over a 12-month period, but this can vary based on market conditions. This means we aren’t committed to any single entry point. Ideally, pockets of volatility will provide opportunities to allocate capital at attractive prices.
Once invested, time works in favour of the portfolio. Our strategy assumes the bulk of capital will remain invested over the long term. In addition to capturing earnings growth and the accumulation of dividends, long-term investment harnesses the simple power of reinvesting and compounding. This is a very important and often under-rated contributor to investment return.
Finally, we closely monitor risks and review the attributes of the entire portfolio on a regular basis to make sure it remains appropriate for the client’s investment goals.