Money To The Masses http://moneytothemasses.com Putting you in control Fri, 29 Apr 2016 10:26:19 +0000 en-GB hourly 1 How to choose the best estate agent to get your property sold http://moneytothemasses.com/owning-a-home/buying-or-selling-a-home/how-to-choose-the-best-estate-agent-to-get-your-property-sold http://moneytothemasses.com/owning-a-home/buying-or-selling-a-home/how-to-choose-the-best-estate-agent-to-get-your-property-sold#comments Wed, 27 Apr 2016 12:40:18 +0000 http://moneytothemasses.com/?p=22058 If you are looking to sell your property it is important that you employ an estate agent who will get you a quick sale at the best price. When you compare estate agents you shouldn't just focus on the fees charged but also on the estate agent's sales performance, otherwise you might be left waiting for months without any...

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Compare estate agentsIf you are looking to sell your property it is important that you employ an estate agent who will get you a quick sale at the best price. When you compare estate agents you shouldn't just focus on the fees charged but also on the estate agent's sales performance, otherwise you might be left waiting for months without any interest being shown in your property. Time spent researching and choosing the best agent to market your property will in the long run save you time, money and help you achieve the best sale price.

As a former Director of a leading estate agency below I tell you first the thorough way to compare estate agents, followed by the tool that does the hard work for you in seconds. The tool can let you compare estate agents based on price, the percentage asking price achieved and how quickly they sell houses.

How to compare estate agents

Research your area

  • Drive around your local area noting the estate agent boards outside properties, make sure you cover a reasonable area as the more boards you can record the better your research will be
  • Record this 'board count' under two headings one for 'For Sale' boards and another heading for 'Sold' boards
  • Once you have carried out this visual check you will not only have a reasonable feel for the main estate agents in your area by always an understanding who is main agent when it comes to actual properties sold.
  • Whilst not all properties on the market will have boards, this is due to the personal preference of the seller, estate agents are keen to get as many boards erected as possible as they provide free marketing in the area.

Research your local estate agents

  • The vast majority of properties for sale are listed on one or more of the property portals such as Rightmove or Zoopla so these property portals are a great place to continue your research of estate agents in your area
  • Search for estate agents in your area and check out their office locations and view there websites, this will give you a good feel for the quality of each agent.
  • Check how many properties each agent has listed and how active they are in your particular area
  • Look for agents that sell similar properties to your own as this could be proof that they have 'cornered the market' in a particular area or property type
  • If you are selling a particularly unusual or expensive property you may want to consider the larger national agents who specialise in your type of property
  • Ask neighbours with their property on the market their views on their particular agent, good and bad
  • Ask friends and family who live close by if they have any constructive views on estate agents in the area
  • Visit agents in your area to get a feel for the professionalism of the staff and the standard of their offices
  • Make an objective appraisal of the quality of each agents photos and property description and decide whether they would appeal to you as a potential buyer

Create your shortlist of potential agents

  • Once you have completed your research you will have a good idea who are the most successful estate agents in your area and potentials for your property instruction
  • Refine this list down until you have 3 agents who you are now going to found out a bit more about by arranging an appointment for them to visit your property

How to conduct an estate agent appointment

  • Try and arrange the 3 appointments either on the same day or as close as possible to each other so that you can make a comparison while each appointment is clear in your mind
  • By conducting your research you should already have a good feel for the value of your property so be wary of any agent who suggests a marketing price too far above the true value, this high figure is probably just a sales tactic to obtain the instruction and unlikely to be achieved
  • Ask each agent to justify the marketing price suggested by showing similar properties that have sold at a similar price
  • Ask each agent in turn to lay out their marketing plan for your property, how often and where will your property be advertised, how many prospective buyers do they have registered and do they use social media or other innovative marketing strategies
  • Ask each agent what property portals your property will appear on, don't instruct an agent who does not use either Rightmove or Zoopla as these are the market leaders
  • Next request proof of how many sales they have made recently in your area and what prices were achieved, this will give you a good idea of how successful they are in actually selling properties (you can also find out this information by using the tool below)
  • Ask each agent to tell you what actions they would take if your property was not selling, if reducing the price is their only suggestion then be wary of instructing them
  • When it comes to the fees each agent will charge don't be tempted by the cheapest agent as the old cliche goes 'cheapest is not always best', all fees will be negotiable so once you have made your choice of agent push for a reduction from the fee quoted
  • Each estate agent is likely to quote two levels of fee, one for sole agency and another for multi-agency, always choose the sole agency contract which will be the cheaper and better option as one agent is then totally focused on selling your property

Points on the estate agent contract

  • When you sign an agreement for an estate agent to market your property it will typically be for a period of 12 weeks. Don't sign a contract for longer than 12 weeks as this may leave you tied into a poor estate agent who is failing to sell your property with no option to leave until the contract runs its course
  • Don't sign a contract that gives the agent 'sole selling rights' as this will mean that you may be liable to pay their fee even if you sold your property to a family member or friend without the agent introducing them
  • Be wary of up front fees or fees that are charged even if a sale falls though or you withdraw your property from the market
  • Make sure you check if there are any extra marketing costs for items such as brochures

The estate agent comparison tool

Find the best and cheapest estate agent in your area in seconds

The tool below lets you compare estate agents based on price, the percentage asking price achieved and how quickly they sell houses. Just enter you postcode to get started.

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Should you sell in May and go away? http://moneytothemasses.com/8020-articles/should-you-sell-in-may-and-go-away http://moneytothemasses.com/8020-articles/should-you-sell-in-may-and-go-away#comments Wed, 27 Apr 2016 12:00:19 +0000 http://moneytothemasses.com/?p=19004 It's probably the oldest and most well known investment adage... Sell in May and go away, don't come back till St. Leger Day Or in other words, sell out of the stock market in May and stay in cash over the summer, before going back in at the start of September when the St Leger Stakes horse...

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sell in MayIt's probably the oldest and most well known investment adage...

Sell in May and go away, don't come back till St. Leger Day

Or in other words, sell out of the stock market in May and stay in cash over the summer, before going back in at the start of September when the St Leger Stakes horse race is run. The theory is that by doing so you avoid the more volatile summer months which historically have also tended to underperform the rest of the year.

2015 was the year to sell in May and go away!

The chart below shows that during the summer of 2015 (i.e. between 1st May 2015 and the St Leger Stakes on 12th September 2015) investors in the FTSE 100 would have lost over 11%. Based solely on last year it would seem Sell in May and go away is a sensible investment strategy. Yet one occurrence doesn't prove the rule. So has the adage worked historically and how did it come to be anyway?

Sell in May and go away 2015

Sell in May and go away 2015

The roots of Sell in May and go away

The roots of this adage probably lie in the days when the City brokers used to hang up their bowler hats for the summer and spend their profits watching sporting events. The result would be thinly traded markets (i.e far fewer trades) with lacklustre performance due to the increased volatility (the greater ups and downs caused by having fewer market participants). When the City returned in the Autumn so did their animal spirits and money which would drive up markets once again.

While those days are behind us it doesn't stop the world's media and commentators dusting it down every year to dedicate column inches to it. But does the seasonal effect actually exist or is this conventional wisdom complete nonsense.

Does the Sell in May effect actually exist?

While the days of endless summer holidays may be a thing of the past there still remains seasonal trends when it comes to money. From personal experience January to April were always peak months when it came to clients wanting to invest money. The summer was much quieter before things picked up in the Autumn once more , then slowing ahead of Christmas. Part of this is of course dictated by the tax year end being in April. Yet the leaner summer months is also a result of the 'I'll pick it up once I'm back off holiday' mentality.

If you look at the number of Google searches for the term 'investing' throughout 2014 (as shown in the chart below) the volume is 40% lower in the summer months (shown by the dot) compared to the Spring and Autumn. It's no longer just the City who switch off from investing in the Summer - we all do!

Screen Shot 2015-05-01 at 21.56.35

 

But does the Sell in May effect still exist in investment markets? The best piece of research on the matter, in my opinion, was carried out by Dr Ben Jacobsen. I won't bore you with the details but his key findings were:

  • The Sell in May effect was present in 36 out of 37 countries he looked at (so not just the UK).
  • It is strongest in European markets
  • There is evidence of the effect in the UK going back as far as 1694!

Can you make money from following it?

Now this depends on who you ask and over what timeframe you look. A recent study compared the returns of buying and holding the FTSE All Share index every year since 1986 versus selling out in the summer months. The findings claim:

  • The Sell in May approach outperformed only 34% of the time
  • Those following the Sell in May strategy over the full term would have made 9.8% a year on average
  • Investors who'd just stayed in the market would have made 10.9% a year

While I'm not dismissing the research it does depend on the timeframe and the asset you interrogate. I have previously carried out a more exhaustive piece of research myself on the topic using a host of different assets. One of the biggest conclusions I drew was that the lower risk or the more defensive an asset is the less likely 'Sell in May' is to work. Or in other words you'd be better off just staying invested. This observation has since been backed up by others...

A better way to Sell in May?

I was interested to read an article in the US titled This is a better way to ‘sell in May and go away'. In a nutshell it concludes that rather than Selling in May and going into cash you would be better off switching in to defensive shares (utility companies, drugs companies etc). More importantly this would beat buying and holding (i.e not Selling out in May but staying invested all year) as shown in the chart below. Interestingly, Interactive Investor pitched the same concept in The Telegraph last year but with examples of shares to buy - some of which outperform because they are seasonal businesses. They claim their Summer Portfolio would have made an annual return of 8.9% over the past decade between 2004 and 2014.


sell in may

So what should you do?

'Sell in May' is a fascinating phenomenon which is actually far more useful than people realise - but not as an investment strategy in its own right. As I pointed out earlier Sell in May is a natural extension of our own human behaviour and it clearly exists. Yet the fact it still exists despite everyone talking about it is the most interesting thing.

Remember that most of the studies on Sell in May are fairly recent yet the effect can be traced back as far as 1694. So for most of its existence people didn't have the evidence to determine its reliability yet believed it enough to form the adage anyway. Yet despite this investors don't follow it en masse because if they did then its effect would either be much more marked or it would have been arbitraged out of existence. Investors are emotional creatures and the reason they don't follow it also lies in their lack of discipline.

While Sell in May might not work all of the time, adapting it slightly by going into defensive sectors seems to improve its consistency. So why does tweaking Sell in May by buying defensives suddenly improve the results? If you read the research pieces they seem unsure as to why. Yet I believe the reason lies in three simple facts that most people overlook:

  • the fact that they have reviewed their portfolio at the start and end of summer
  • and they are buying stocks that perform well (or in other words applying a form of momentum)
  • they are using a process

This is exactly what 80-20 Investor is about, regularly reviewing your investment and applying our algorithm which harnesses the power of momentum.

So if Interactive Investor's Summer portfolio produced an annual return of 8.9% over the decade between 2004 - 2014 what would the process behind 80-20 investor have managed - the answer is 14.88%

Also bear in mind that putting your faith in just 5 shares, as in the case of the Summer Portfolio, is incredibly high risk. Instead by applying 80-20 Investor's process you are buying a number of funds containing shares from hundreds of different companies so reducing your investment risk yet increasing your return. In addition during the summer months the funds that you will naturally be buying will be investing in the shares of companies that are outperforming (i.e. defensives).

The proof: 2015 Summer Portfolio vs 80-20 Investor vs my actual £50k portfolio

It's all well and good talking about average returns during the decade between 2004 and 2014 but when the gloves were off in 2015 how did the various approaches fare? You can read Interactive Investor's analysis of their portfolio's result for yourself but to sum up:

In 2015 Interactive Investor's Summer Portfolio finished down over 8% versus a loss of 11% on the FTSE 100 while the 80-20 Portfolio finished down just 5% and my own £50,000 portfolio was down 5.2%. A convincing win for 80-20 Investor and my own real life £50,000 portfolio.

So should you Sell in May and go away? No. Why would you when there is a far more reliable and profitable investment process to follow.

 

(image by arztsamui - freedigitalphotos.net)

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Funds invest in shares, bonds, and other financial instruments and are by their nature speculative and can be volatile. You should never invest more than you can safely afford to lose. The value of your investment can go down as well as up so you may get back less than you originally invested.
Information provided by MoneytotheMasses.com/80-20 Investor is for general information only and not intended to be relied upon by readers in making (or not making) specific investment decisions.
Appropriate independent advice should be obtained before making any such decisions. Leadenhall Learning (owner of MoneytotheMasses.com/80-20 Investor) and its staff do not accept liability for any loss suffered by readers as a result of any such decisions.
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Estate agent comparison tool: Find the best & cheapest local agent in seconds http://moneytothemasses.com/owning-a-home/buying-or-selling-a-home/find-the-best-cheapest-local-estate-agent-in-seconds http://moneytothemasses.com/owning-a-home/buying-or-selling-a-home/find-the-best-cheapest-local-estate-agent-in-seconds#comments Tue, 26 Apr 2016 10:03:09 +0000 http://moneytothemasses.com/?p=22047 Compare local estates agent and find the one that will sell your house the quickest and with the cheapest fees    

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Compare local estates agent and find the one that will sell your house the quickest and with the cheapest fees

 

 

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Everyone’s financial Achilles heel http://moneytothemasses.com/news/blog/everyones-financial-achilles-heel http://moneytothemasses.com/news/blog/everyones-financial-achilles-heel#comments Mon, 25 Apr 2016 09:03:11 +0000 http://moneytothemasses.com/?p=22036 In this week's podcast (Episode 83) I reveal a scam that has seen UK consumers lose over £125 million. The reason for its success is that it's amazingly simple yet incredibly convincing. I once almost became a victim of the scam myself before I became suspicious. Technology is wonderful as it has made our lives...

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In this week's podcast (Episode 83) I reveal a scam that has seen UK consumers lose over £125 million. The reason for its success is that it's amazingly simple yet incredibly convincing. I once almost became a victim of the scam myself before I became suspicious.

Technology is wonderful as it has made our lives more efficient and our finances easier to manage. However it has created an Achilles heel which most people overlook. Our email inbox has become the centre of our financial universe. Whether it's utility bills, bank statements or even electronic receipts our online profile is controlled via our email. If you forget your online banking password you can just get the bank to reset it via email.

This means that if a fraudster gains access to your email account they literally have the keys to your life. By the time you realise your inbox has been compromised they could have cloned your identity or even emptied your bank accounts. If you want to see just how bad things can get read this account of how an email hacker ruined a journalist's life and then tried to sell it back to her.

That's why you should protect your email password more zealously than you do almost anything else. The problem is compounded by the fact that many of us now use smartphones that download our emails. The trouble is a lot of people don't have a PIN lock on their phone. That means that if you lose your phone the finder/thief will have unprecedented access to your life and finances. It's amazing how many people don't realise this and just focus on the inconvenience of losing their phone if they misplace it. Trust me, it's far more inconvenient to have to try and rebuild your credit report or fight with your bank to get your life savings back than it is to survive without a mobile phone for a few days.

We need to wake up to the fact that in making our lives easier technology has also made life easier for fraudsters. So before you do anything else today make sure you protect yourself by:

  • setting up a PIN lock on your phone
  • setting up 2 step-verification on your email accounts (if you are not sure how to do this then just google it alongside the name of your email client i.e. gmail)

 

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When will interest rates rise? – Latest predictions http://moneytothemasses.com/owning-a-home/interest-rate-forecasts/latest-interest-rate-predictions-when-will-rates-rise http://moneytothemasses.com/owning-a-home/interest-rate-forecasts/latest-interest-rate-predictions-when-will-rates-rise#comments Mon, 25 Apr 2016 09:01:39 +0000 http://moneytothemasses.com/?p=12789 This article is continually updated to bring you the latest analysis on when interest rates are likely to rise. Sign-up to our newsletter to receive updates to your inbox. At the bottom of this article I also tell you how to quickly calculate the impact of an interest rate rise on your own monthly mortgage payments....

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bank of england

This article is continually updated to bring you the latest analysis on when interest rates are likely to rise. Sign-up to our newsletter to receive updates to your inbox.

At the bottom of this article I also tell you how to quickly calculate the impact of an interest rate rise on your own monthly mortgage payments. Plus I explain why you should consider remortgaging before a new EU rule comes into effect and what you need to do now.

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MTTM Podcast 83: Stress testing your investment portfolio and the account switch scam http://moneytothemasses.com/news/podcast/mttm-podcast-83-stress-testing-your-investment-portfolio-and-the-account-switch-scam http://moneytothemasses.com/news/podcast/mttm-podcast-83-stress-testing-your-investment-portfolio-and-the-account-switch-scam#comments Mon, 25 Apr 2016 08:46:54 +0000 http://moneytothemasses.com/?p=22033 Listen to Episode 83 Click on the media player below to listen to Episode 83 of the MoneytotheMasses.com podcast. You can listen to other episodes by clicking on 'More Episodes'. Subscribe to the podcast You can also subscribe to the show via iTunes   Show transcript coming soon...

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Listen to Episode 83

Click on the media player below to listen to Episode 83 of the MoneytotheMasses.com podcast. You can listen to other episodes by clicking on 'More Episodes'.

Subscribe to the podcast

You can also subscribe to the show via iTunes

 

Show transcript coming soon...

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Best of the Sunday papers’ MONEY sections http://moneytothemasses.com/news/best-sunday-papers-money-sections http://moneytothemasses.com/news/best-sunday-papers-money-sections#comments Sun, 24 Apr 2016 06:00:48 +0000 http://moneytothemasses.com/?p=16650 24th April 2016 The Independent Travel money: top 5 holiday spending mistakes Brexit: What leaving the EU would really mean for your pocket Questions of cash: heavy fees on cashing in travellers' cheques at Santander The Telegraph EU ban on credit card fees backfires – you’ll still pay 2.5pc to spend Pensioners selling annuities for...

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24th April 2016

The Independent

Travel money: top 5 holiday spending mistakes

Brexit: What leaving the EU would really mean for your pocket

Questions of cash: heavy fees on cashing in travellers' cheques at Santander

The Telegraph

EU ban on credit card fees backfires – you’ll still pay 2.5pc to spend

Pensioners selling annuities for cash should take 'cost test', says watchdog

Does working fewer hours make you more intelligent?

The Sunday Times (subscription)

Trust me: I’m a tax trick even Blair and Osborne employ

Becky Barrow: Help with the elephantine task of caring for parents

What’s mine is yours - you can bank on it

Mail on Sunday

Seven tribes of savers: Which one are you - and which account is best for your needs?

From loo looting to runaway wheelie bins: The craziest caravan calamity insurance claims revealed

Could your work get you a new iPhone on the cheap? The employee scheme that claims it can save you a third off a mobile

The Observer

Apple scammers have their heads in the iCloud

A card-carrying fan of contactless, I'm now contactless-less – and it's not fun

The Uber scammers who take users for a (very expensive) ride

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Best of the Sunday papers’ PROPERTY sections http://moneytothemasses.com/news/best-of-the-sunday-papers-property-sections http://moneytothemasses.com/news/best-of-the-sunday-papers-property-sections#comments Sun, 24 Apr 2016 05:45:36 +0000 http://moneytothemasses.com/?p=16656 24th April 2016 The Independent Downsizing with style:this couple created a show-stopping home with space-saving design in their small London terrace What would your dream home look like? Britney Spears has put her 'spare' mansion in LA on the market for £6.3m The Telegraph Marathon property markets: the 26 host cities where house prices are...

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24th April 2016

The Independent

Downsizing with style:this couple created a show-stopping home with space-saving design in their small London terrace

What would your dream home look like?

Britney Spears has put her 'spare' mansion in LA on the market for £6.3m

The Telegraph

Marathon property markets: the 26 host cities where house prices are sprinting ahead

A rare glimpse inside One Hyde Park as luxury pad goes up for rent - a snip at £1.17m a year

Shakespeare's 400th deathday: where would the buy-to-let Bard invest?

Sunday Times (subscription)

30 best homes for sale: our pick of what’s on the market this spring

Moving on: The X Factor house

How well do you know your neighbours?

Mail on Sunday

Beware builders flogging shoddy new-build homes

House prices in Britain's biggest cities rise at strongest pace in 12 years

Post Office launches three best buy mortgage deals

The Observer

Homes that have appeared on screen - in pictures

Let’s move to Ripley, Derbyshire

Surreal estate: former air force building ready to live in - in pictures

 

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Stress test your portfolio in seconds http://moneytothemasses.com/8020-articles/stress-test-your-portfolio-in-seconds http://moneytothemasses.com/8020-articles/stress-test-your-portfolio-in-seconds#comments Thu, 21 Apr 2016 20:34:53 +0000 http://moneytothemasses.com/?p=22012 Investors, be they professional or DIY investors, don't give enough consideration to the downside potential of their portfolios. When engineers build a new skyscraper they don't just focus on reaching for the stars. In fact they pay more attention to the structure's ability to remain upright. How will the structure cope in high winds or an earthquake? How...

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Investors, be they professional or DIY investors, don't give enough consideration to the downside potential of their portfolios. When engineers build a new skyscraper they don't just focus on reaching for the stars. In fact they pay more attention to the structure's ability to remain upright. How will the structure cope in high winds or an earthquake? How much weight can it hold per square inch? This stress testing of materials and construction ultimately lays the foundation for the success of the project.

Building an investment portfolio shouldn't be any different. The trouble is that investors are always aiming for the stars and pay less attention to what will happen in times of market stress. Let's say the market fell by over 10% how would your portfolio fare? Bear in mind that if a portfolio falls by 50% it has to grow by 100% to just get back to where it started.

When equity markets are at or near all time highs the potential for a market fall is increasingly likely. Some of the largest investment banks and financial institutions will perform stress test scenarios to see how assets or markets will hold up. Don't forget the entire European banking system has undergone a number of stress tests to see how it would fare in another credit crisis.

Yet it has been impossible for DIY investors to stress test their portfolios in the same way. How can they test to see how their portfolio might react if global growth concerns rear their heads, or if China's economy implodes? How can they gauge how their portfolio will fare in an unknown Black Swan event?

In my previous research I have explained a number of ways you might protect your portfolio from certain events, such as a banking crisis. This has involved looking at key fund statistics and/or fund performance during similar conditions. Yet I've now taken this one step further and built a tool that can stress test any portfolio (and over 1,100 funds) in seconds. A tool which 80-20 Investor members can download and keep at no extra cost.

How to stress test your portfolio

The tool focuses on key measures which when combined show how your portfolio could perform under periods of stress. In each area a fund is awarded between 1 and 5 stars based on its:

Sharpe Ratio

The Sharpe Ratio is a measure of the excess return a manager is achieving for the risk they are taking. Therefore a fund which I've awarded 5 stars for its Sharpe Ratio takes more calculated risks and produces stronger returns. A fund with a 1 star rating will likely take excess risk for its investors and therefore is likely to struggle if markets fall.

Sortino Ratio

This is very similar to the Sharpe Ratio but places more emphasis on the manager's ability to manage on the downside.

Volatility

This is a measure of a funds dispersion of returns, or in plain English the variability in those returns. Think of it as a measure of how much a building is prone to wobble. The more prone it is (the higher the volatility) the more it will sway in an earthquake

Negative Periods

While the above measures focused on the short term this measure focuses on the last 3 years. It measure the number of months where a fund lost money. The lower the downside protection the more prone the fund is to periods of negative returns.

The next three factors are specific scenario stress tests. Each scenario occurred in the last three years and represent the three occasions when equity markets fell by more than 10%. The nature of each scenario is slightly different which gives the ability to assess how each fund performed during a given scenario and therefore how the fund may perform in the future under stress.

Taper Tantrum

Back in May 2013 the US Federal Reserve dropped the bombshell on the market that it was thinking about tapering off its money printing (QE) programme. The market reacted violently, falling by over 10% in a matter of weeks. This scenario provides a good stress test of how a fund may perform during a future episode where the market is shocked by central banks suddenly withdrawing their support from the market.

China worry

In August 2015 the market fell over 11% when everybody suddenly became worried that China's economy was slowing rapidly and that global growth was stuttering. This stress test gives insight into how a fund might perform, compared to its peers from the same sector, if concerns over Chinese or global economic growth panics the market again.

Bank sector worries

2016 got off to a dismal start culminating in the market becoming concerned that a new banking crisis was imminent. The market again fell by more than 12%. This stress test indicates how the fund may perform if a new banking crisis emerges.

How to use the stress tool

First of all download the Portfolio Stress Test tool (click enable macros when it opens). Then simply select the funds in your portfolio by clicking on the arrows that appear when you select one of the greyed out cells in column 'a'. You can scroll more quickly through the list of funds by using your keyboard. On a mac you can use Fn+Cmd+(down arrow). Unfortunately I don't know the keyboard shortcuts on a Windows PC so you will have to experiment. If you use the keys you have to select a funds by hitting enter.

If you choose a fund such as Fundsmith Equity you will see that it is in the Global sector. That means all the star ratings for each factor are in relation to the fund's global sector peers. To help scan across quickly the cells change colour with green being awarded to 5 stars and red for a 1 star. For numbers in between the colour ranges between the two.

So you are looking for cells to be as green as possible. That would indicate that the fund passes the stress test. In the final column is an average score across all factors so giving a fund a star rating out of 5 for its sector. So Fundsmith Equity gets an average score of 4.4 out of 5 which is very good. You can also see that the fund would probably fare better than its peers during a shock surrounding the withdrawal of central bank support or a banking crisis. However concerns over global growth would see it wobble. This is reflective of the fact that the fund has a tight focus on companies without excess borrowing (which is a problem in a banking crisis) and that have strong business models with a high certainty over growth (so are less risky in nature and don't attract the hot money from central bank QE).

The tool can take up to 20 funds and then give your portfolio an overall stress test rating out of 5. The tool deliberately doesn't focus on performance (the 80-20 algorithm and fund shortlists provide that) as it is all about testing the robustness of your fund choices. While we can't predict a Black Swan event the three scenarios were akin to Black Swans at the time they occurred. Therefore a fund that gets a strong rating in each would hopefully be more likely to withstand another type of unknown Black Swan event.

80-20 Investor Portfolio stress test

Interestingly if you run the Best of the Best Selection through the tool you will see many of the funds have very strong ratings. That's perhaps not surprising given that the algorithm identifies funds that have the potential to continue performing well. While investors may lament the fact that two of the stress events in the tool have occurred in the last year, on the positive side it does mean that they have an increased level of accuracy in predicting how a fund will perform in a similar environment.

 

(Photo by num_skyman via freedigitalphotos.net)

 

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MTTM Podcast 82: Can I trust my financial adviser? Investing or gambling & Freebies for over 60’s http://moneytothemasses.com/news/podcast/mttm-podcast-82-can-i-trust-my-financial-adviser-investing-or-gambling-freebies-for-over-60s http://moneytothemasses.com/news/podcast/mttm-podcast-82-can-i-trust-my-financial-adviser-investing-or-gambling-freebies-for-over-60s#comments Tue, 19 Apr 2016 09:44:39 +0000 http://moneytothemasses.com/?p=22005 Listen to Episode 82 Click on the media player below to listen to Episode 82 of the MoneytotheMasses.com podcast. You can listen to other episodes by clicking on 'More Episodes'. Subscribe to the podcast You can also subscribe to the show via iTunes   Show transcript coming soon...

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Listen to Episode 82

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Show transcript coming soon...

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