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Proactive investors will find much food for thought in this interview, where one top wealth executive reveals their top “money lessons learned” to

David Loudon has been Chief Executive of Quilter Cheviot investment management since 2015, having previously held the roles of Head of Investment Management and Head of Regional Offices. A self-described “equities man”, Loudon encourages investors to be realistic in matters relating to the stock market.

Diversify and be aware of your biases

Proper portfolio diversification is vital to manage risk and optimise returns, but is often neglected by self-directed investors. As Loudon explains, investors should have a firm grasp of where they might be over- or under-exposed to a certain market or asset class at all times. In particular, he advises people to avoid always gravitating towards their favoured types of investment:

You have to make sure you ‘don’t have all your eggs in one basket’ to ensure there is a buffer for difficult markets in one part of the world or a challenging asset class from time to time. At a simplistic level, draw up a pie-chart and divide it to ensure there’s an appropriate level of balance in your portfolio to cater for risk and return.

I myself have always been an investor in the equity markets, but there has to be discipline to ensure a good balance in portfolios. We’ve seen in the last few years the fixed interest market has been moving ahead strong against forecasts.

Beware of “hot tips”

Many people are likely to know someone professing to have made stellar returns on a certain investment and only too keen to share their “hot tips”. But while self-directed investors may often do well, people don’t tend to be so keen to talk about investments where things haven’t gone quite to plan.

Furthermore, an investment might have perfectly sound prospects, but still not be right for an individual. Beware of the self-professed investment expert who recommends an investment without understanding the entirety of an individual’s circumstances and attitude to risk, Loudon warns.

It often pays to stay on the side-lines

Tulips were the subject of one of history’s most famous asset bubbles, with single bulbs changing hands for the price of a house at the height of the seventeenth century mania for these flowers. Innumerable bubbles have followed and will continue to occur with almost clockwork regularity in one sector or another, yet investors often don’t want to see the signs. Sometimes, it pays to stay on the sidelines, Loudon argues.

I remember a good example in 1999/2000, clients were saying to me ‘Why don’t I hold any – TMT – technology, media, telecoms in my portfolio?’ The answer was that most investments in those particular areas of the stock market were, in our view, overvalued at that time.

Sure enough, the TMT bubble burst and many companies were worth a fraction of their values as we entered the new millennium. I remember companies falling from say £10 per share to 30p or less in a matter of months.

More recently Twitter has also been victim to a similar fate. The trend-setting social site was initially a popular choice for individual investors. However, as predicted, its inability to monetise its user base and continued unclear strategy in this area means it’s currently 39% down year-to-date, with its share price falling over 60% in the last 12 months.

As a firm of investment managers it is important we use our best endeavours to provide the very best investment proposition to all our clients and use our long established experience to avoid investments and sectors which appear to us to be overvalued.

Accept, as an individual investor, you cannot know everything

There is no doubt that the digital age has democratised information and empowered investors. Yet Loudon cautions the individual to bear in mind that professional investment houses have whole teams dedicated to certain asset classes or even individual sectors.

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At Quilter Cheviot, we invest in our people so there is always a specialist, often more than one, in all areas to cater for the whole investment spectrum across equities, bonds and collectives all over the world.

For an individual, however knowledgeable or indeed interested in a subject. It’s just impossible to know everything, so I always ask self-investors to bear in mind that the industry spends significant sums on research to provide an in-depth knowledge of the various components making up the stock market.

Recognise that proper portfolio management is a real commitment

During 2015 a fifth of affluent individuals coming to the site were “DIY-ers” seeking alternative ways of managing substantial portfolios they had built up. Like us, Loudon advises investors to recognise that “we all have different priorities” and that most do not have the time – or inclination – to go it alone long term.

Global markets move so quickly now that you need to be really fast on your feet to make sure you are follow every detail. The reality is that those with busy lives, are only able to devote a very fraction of their time to following quite complex markets.

For them, it has to be about diversifying – delegating responsibility to investment management companies which have the infrastructure and service to free investors to do the things they want, to manage their business careers, pursue a favourite hobby or even go on holiday!

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With a venerable history dating back to 1771, Quilter Cheviot Investment Management is a discretionary investment management firm that has a large network of regional offices across the UK.  View the full profile here – Quilter Chevior Investment Management profile , or to discover which wealth managers precisely suit your needs simply try our smart online tool.