How We Manage Money

Produce Growth OR Protect Capital

As someone builds their capital, and gets nearer the time when they need to draw on it, avoiding large investment losses becomes more important than making investment gains. A 50% investment loss can take several years to recover from, affecting plans to withdraw money to live on. Missing out on 5-10% of new investment growth might not make a huge difference to the situation.

Investment markets tend to have ‘bad year’ at least once every 10 years – think about October 1987 (Black Friday); 1997 (Asian Crisis); 2000 (DotCom Bubble); 2007 (Credit Crisis); 2020 Covid-19.

Our aim is to try and avoid capital losses, we then have to take less risk when seeking to make positive returns. Almost all other investment approaches involve seeking to maximise capital growth but this leaves capital open to a market falls.

 We can illustrate these two approaches as follows:

 Approach 1 – Growth Model

This is the approach taken by most investment managers and advisers, who do not try and time markets but, instead, invest largely unchanged regardless of whether markets are going up or down. The level of investment risk taken decides whether the portfolio fits a particular risk rating such as Defensive, Cautious, Balanced or Adventurous.

 Approach 2 – Schaefer Capital Model

An investment of £1,000 is invested with the aim of avoiding large investment losses by using a stoploss system that triggers a sale of a fund when it falls beyond a certain point. This means a lower amount of growth is needed, and the portfolio can therefore take less risk over the whole investment period.

The chart assumes the Growth portfolio makes 10% pa gains for 9 years and loses 30% in year 10; you can place the gains and loss in any order, the result is the same. To match that result, the Capital approach has to make 3.53% pa average growth for 10 years. You can immediately see that the Capital approach takes much less risk over the 10 years (target 3.53% pa growth) as opposed to the Growth approach (targets 10% pa growth for the whole 10 years).

Our portfolio approach

We offer two portfolio approaches for Comprehensive Service clients:

 1.      The ‘Capital’ portfolio approach

 The Schaefer Wealth Management Capital Portfolios (Defensive, Cautious, Balanced and Adventurous) have been designed to mitigate volatility by actively reducing exposure to equities in uncertain times.  These portfolios are suitable for clients willing to sacrifice some investment growth in order to reduce the loss of capital from market falls. 

 2.      The ‘Growth’ portfolio approach

 When you invest in a growth portfolio you participate in the market and accept the volatility that comes with that – both on the upside and the downside.  The portfolio is designed to remain invested over the longer term and ‘ride out’ any potential volatility.

 The Growth portfolios will be invested in accordance with an agreed risk profile and will not deviate from this.  This obviously provides the opportunity for greater returns, but also the greater potential for the value of your investment to go down.