While reaching for the stars is typically a good thing, the share price of Virgin Galactic recently plummeted to earth, according to the Nasdaq stock index. It revealed at the beginning of February 2022 that the space company’s share price had dropped 85% from its highest point in the previous 52 weeks.
You may not be surprised given the shaky start to stock market performance in January 2022. According to the New York Times, the S&P 500 index dropped 5.3% in January 2022 and the tech-heavy Nasdaq fell 18.5% from its highest point in November 2021.
While both the S&P 500 and the Nasdaq have made gains during February, and Virgin Galactic’s shares may rally in the future, all the above remind us that investments can go down as well as up. This is why DIY investing can be extremely hazardous to your clients’ wealth.
If you’re a solicitor or accountant with clients who invest, discover why working with a financial planner could boost their money’s potential growth and reduce its exposure to risk.
1. Investments are well diversified
One of the biggest risks of DIY investing could be a lack of diversification. This is where investments are spread across several economic sectors, asset classes and geographic regions to ensure all your client’s financial “eggs” are not in one basket.
Diversification means that if one sector or region a client’s money is in does not perform well, it’s countered by the stronger performance of other sectors and regions. To demonstrate this, consider the following article by This is Money at the end of 2021.
It revealed that the stock market winners of 2021 included big tech companies, luxury watch makers and publishers, while cinema chains and retailers struggled. If your client had invested in all these sectors, it would have offset the losses made if they’d only invested in the last two.
This is why financial planners typically diversify, to reduce the effects of a market downturn on your clients’ money.
2. Money is exposed to the right level of risk
Key to a financial planner’s work is to understand the level of risk a client is happy to expose their money to. This is then used to identify investments that maximise growth potential while providing as much protection against a market downturn as possible.
A planner will also ensure that the level of risk your client wants to take is appropriate for their circumstances, to help avoid any future financial headaches.
3. Clients have a sounding board to ensure the right decision
Working with a financial planner means your client has someone on hand to provide useful advice, feedback and guidance. This could help them avoid potential decisions they later regret, such as a knee-jerk decision to sell investments when the market takes a downturn.
Doing this can negate any chance of a client’s money recovering when market then recovers.
A study by Quilter in 2019, which was published in the Telegraph, makes for interesting reading. It found that investing without a financial planner could cost your client up to 11.3% in potential gains every year.
Working with a financial planner provides peace of mind
As you can see, working with a financial planner allows your client to make informed decisions when it comes to investing. According to research by Royal London, those who worked with a planner felt more confident about their finances and had a greater understanding of financial concepts.
Furthermore, they had fewer concerns regarding their financial future.
Get in touch
If you have a client who may be interested in discussing investments, and how we could help, please contact us at hello@ardentuk.com or call 01904 655 330. As award-winning specialists in financial planning, we’ll create an investment strategy that helps your client reach their long-term goals.
Please note
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
