However, historical performance is often a poor indicator of future performance, potentially exposing investors to a portfolio that will not generate future returns similar to what it has done in the past. The key to successful investing lies in genuinely understanding the investment process, the risk metrics involved and having a clear understanding of current and future macro-economic changes.
Putting together an investment portfolio clearly requires deep thought and plenty of skill. A well-chosen portfolio will remain strong on the whole, even in situations where there are issues that impact the market negatively. Having investments in funds that are lowly correlated - and thus optimally diversified - is critical, as it reduces the amount of risk involved. Investing in a range of funds that adopt the same overarching view of the market will only mean that in a situation where the market takes a turn for the worse, all your funds will struggle equally.
The importance, therefore, of a well-versed and highly skilled fund manager cannot be overestimated. Apart from their ability to carefully construct a well-balanced portfolio with a diverse range of funds and their capacity to provide you with regular advice about your investments, it is part of their job to stay on top of what is happening to your portfolio and understand the impacts a changing market can have on your investment returns.
A good fund manager will be constantly aware of what is happening not only within their portfolios, but also externally in the market and the world in general. Such a manager should have a long-term orientation with regard to the investment horizon and a clear understanding of the markets. Moreover, he should also understand the performance challenges his portfolios face and be able to advise investors on what can be done to maximise their returns.
It should also be remembered that when it comes to guiding the investment process, fund managers have access to expert investment models that are not available to the general investor.
Moreover, investors could greatly benefit from a multi-management approach to fund management, as this will ensure they get the benefits of excellent diversification through combining investment styles that are lowly correlated to one another and hence provide exceptional diversification benefits. Multi-management means that you have separate managers that each manage a separate portion of the fund's total assets. In this way, you are provided with a fund that delivers security, stability and performance as your eggs are not all placed in a single basket.
In addition, an Asset Management Due Diligence should be completed by your asset manager, in which the fund manager's process is analysed in depth prior to any investments taking place, in order to ensure that only those funds that are understood inside and out are invested in. This protects retail investors from fund managers that don't have robust investment processes in place.
Although investing your money is a good way to grow your wealth, it can easily appear to the layman be a complicated and highly involved process. This, however, is not the case if you choose to work with experienced and skilful fund managers that understand the market, are aware of the risk metrics and comprehend the benefits of diversification.
