013 INVESTING TOP TIPS AND MISTAKES TO AVOID

Investing tips. Managing volatility. Understanding risk. When to put in and when to take out. Choosing the best portfolio manager for you. Common mistakes.

Alexandra Buchan-Heelas is a Portfolio Manager and Director at W1M.
https://www.w1m.com/our-people/alexandra-buchan-heelas/

Lisa Conway-Hughes is a Chartered Financial Advisor, a Fellow of the Personal Finance Society and is founder of LCH/Wealth.

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Show Transcript

Lisa Conway-Hughes: Welcome to today’s podcast. Today is all about mastering wealth and we’re joined today by Alexandra Buchan-Heelas who is a portfolio manager at Waverton, and we’re going to talk about five top investing tips from a pro. So welcome Alexandra. Thanks for coming along.

Alexandra Buchan-Heelas: Pleasure, thanks for having me.

Lisa Conway-Hughes: So where should we start? I know we’re in safe hands. You’re the PAM Top 40 under 40 for portfolio managers in your industry. And not just once, but three times. So well done.

Alexandra Buchan-Heelas: Thank you. I’m blushing.

Lisa Conway-Hughes: And I hear that you look after almost half a billion of clients’ money on your own, so we need to pick your brains. Fire away. So let’s talk about market volatility. I think we’ve seen some real lows in the last few years and then some real highs. So it’s made us forget about the lows. How do you manage volatility in a portfolio?

Alexandra Buchan-Heelas: Yeah, it’s a real challenge. It’s one of the most complicated things psychologically to do when you’re running money or when you’re investing your own money. And I think ultimately the best way to think about volatility is that you have to look over the really long term. Over a very long period of time, equity markets have consistently provided six, seven, 8% compounded over time. But you don’t get anything for free. If you want to get that upside, you have to be willing to accept the volatility and the ride along the way.

Alexandra Buchan-Heelas: And the more risk you take on in terms of volatility, the more return you can get. So if you are going to invest in a higher risk way, you need to be aware going into it what the volatility might look like. And then mentally prepare yourself ahead for that volatility that will inevitably come.

Lisa Conway-Hughes: So just accept it?

Alexandra Buchan-Heelas: Yeah. To be honest, I think if you go in knowing what you want to achieve long term, understanding the investments that you hold, understanding what the volatility has looked like historically, you can prepare yourself and buckle up for the ride. The worst thing you can do is feel pressured to sell when volatility happens and when markets are weak. That’s the worst possible outcome.

Lisa Conway-Hughes: And I suppose if someone goes on Trustnet and looks up a fund they’re going to pick for themselves and they go back five years, they’ll still see Covid in there. So they can see when it’s bad. This is what it’s done in the past. They can imagine themselves in the shoes of that person who’s just lost ten, 15, 20% overnight.

Alexandra Buchan-Heelas: Yeah, that’s exactly it. So in our initial client questionnaires when we start looking after a new client, we say, how would you feel if your portfolio fell by 20%? Because it’s not just about the pound, shilling and pence. It’s actually about your reaction. You have to put yourself in those shoes. First and foremost, are you still going to be able to pay your electricity bill and put food on the table? That’s got to be covered first. Second, are you going to panic and sell? If that’s the case, you need to go lower on risk, because the worst case scenario is selling at the lows.

Alexandra Buchan-Heelas: During Covid, markets fell by 20 odd percent in very short order. But they also rebounded really quickly and not long after hit all-time highs. So if you’d sold in March or April and then panicked about getting back in, it would have been incredibly difficult psychologically.

Lisa Conway-Hughes: And I did read that we feel the pain of a loss twice as much as we feel the joy of the same gain. So we have to be prepared that psychologically we’ll try to sabotage ourselves.

Alexandra Buchan-Heelas: Exactly. It’s called loss aversion in behavioural finance. As you say, the downside hurts more than the upside gives joy. My advice during volatile periods is do your best not to look at your app or log in to your website. Put it in the back of your mind. Have faith in your investments and the long-term outcome for equities. Try to ride it out. And ideally buy more if you can.

Lisa Conway-Hughes: The best thing to do is the opposite of what you feel. If markets are weak, that’s the time to buy. If they’ve been strong, that’s the time to take some profits.

Alexandra Buchan-Heelas: Exactly, although it’s counterintuitive.

Lisa Conway-Hughes: I’m sure some people are probably wondering: what’s the difference between a portfolio manager and an IFA? So I’ll explain my bit, and you explain yours. My job is to look at someone’s overall financial situation, their assets, and the plan they want. Then I put those pieces in place: pensions, ISAs, investment accounts. Then I find the right investment manager for them. Some track the market, some have someone like you, and some do both.

Alexandra Buchan-Heelas: Yes. We just do that one part of the puzzle. Where you look at the whole picture, we focus on the portfolio. What’s the purpose of the money, what’s the outcome, what risk can you take? Then we invest to achieve that. We’re active managers — we pick companies to invest in or avoid to get the best return over the long term.

Lisa Conway-Hughes: I spend a lot of my time looking at who’s good in your industry. And it’s not just about performance, but also fit. Some firms won’t really look at you unless you’ve got £5 or £10 million. So if you’re a layperson, how do you even begin to know who’s good?

Alexandra Buchan-Heelas: There are websites with directories. Once you’ve narrowed it down, look at performance after fees, relative to peers, and of real portfolios, not just models. Look at performance in both positive and negative years. Service is also crucial. You don’t want to be a tiny fish in a big pond. Ultimately, this industry is about trust. Do you trust your adviser when they tell you to hold on during volatility? That relationship is vital.

Lisa Conway-Hughes: And what about websites people should look at?

Alexandra Buchan-Heelas: PAM is one. Another is Find a Wealth Manager, which matches you to firms based on your details.

Lisa Conway-Hughes: Can we get some gossip? What are the worst mistakes you’ve seen people make before you rescue them?

Alexandra Buchan-Heelas: The worst is selling when they panic. We saw it in 2008 and a bit in Covid. That’s permanent capital loss, which is far worse than volatility. Another mistake is having too much in one company — often where someone works, or their parent worked. We reduce that single exposure to diversify and protect them.

Lisa Conway-Hughes: I see that with clients who get stock in Google or Microsoft through work, plus trackers that already overweight tech. They end up doubling up.

Alexandra Buchan-Heelas: Exactly. Concentration risk is common. Another mistake is turning investing into gambling, putting everything into one stock or theme. Statistics say you need at least 20 stocks for diversification, ideally 30–40. That spreads risk. Tech has been the only game in town, but if it turns, you need other holdings to balance it.

Lisa Conway-Hughes: So the first tip is manage volatility. What other tips would you give?

Alexandra Buchan-Heelas: Understand risk: volatility, capital loss, liquidity. If you need money short term, don’t invest it long term. Be adventurous if you can, but diversify. Don’t just chase momentum.

Lisa Conway-Hughes: And what about clients in the accumulation phase, building wealth? How do you get them to grow it sensibly?

Alexandra Buchan-Heelas: Monthly saving helps — out of sight, out of mind. If it’s invested straight away, it doesn’t feel like it’s yours. For withdrawals, we say 2–2.5% under age 60, a bit more over 60. More than that risks eroding capital.

Lisa Conway-Hughes: I usually get clients to pay into a general investment account through the year, then top up ISAs and pensions at year-end for tax efficiency. Though I spoke to a lady today who overpaid her pension by £30,000 and got a tax charge. Sometimes it’s better to wait until the end of the year.

Alexandra Buchan-Heelas: Yes, pensions are even more valuable now with National Insurance rises.

Lisa Conway-Hughes: Any last tips?

Alexandra Buchan-Heelas: Don’t just think UK. Think global. The UK market is heavy in energy and mining, while the US has tech and services. The US now makes up nearly 70% of global equities. That’s huge. Diversify globally.

Lisa Conway-Hughes: And how do you manage currency risk?

Alexandra Buchan-Heelas: We don’t hedge equity currencies — too complex and risky. But we keep bonds, cash, and alternatives in sterling, which reduces risk. Many companies hedge themselves anyway. Recently, having more dollars has helped UK investors, especially since Brexit.

Lisa Conway-Hughes: Well, thanks for all the tips. I’m sure everyone’s brains are full. We’ll have you back again.

Alexandra Buchan-Heelas: With pleasure.