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Small margins count… welcome to Dynamic Planning, powered by DBW

Without stating the obvious, it is clear that our main goal as investment managers is to ensure our returns meet our client objectives. In other words, to ensure that they help our clients live the lives they want to live. Sounds a little cheesy, we know, but ultimately that is the reality.

It has always been our aim to maximise returns whilst minimising risk. This means we do not take speculative risks with our client’s money; we are not trying to compete to be number one in terms of returns. Investing after all is an infinite game. Plus, let’s not forget, if you choose your own metrics anyone can claim to be ‘the best’. What we aspire to achieve are sustainable returns. Taking a longer-term perspective via buying quality investments, whilst holding a tactical overlay to allow us to accelerate or reduce risk depending on the market environment. This is a consuming and thought-provoking strategy (more so during a pandemic!), though its one we are hugely passionate about.

Over the next five years, (at least) we are expecting a continuation of very low cash rates. There is a push by governments across the globe to stimulate economies in the hope that growth can push inflation while also aiming to devalue the levels of global debt which have heightened significantly this year. There is of course no guarantee they will be successful. What it does mean however is that cash returns and fixed income portfolios are going to find life very tough to achieve a meaningful contribution towards positive returns. It also means that if you hold cash and fixed income securities, then there is a significant danger that your future buying power erodes, assuming inflation does push through. This is likely to become increasingly more challenging over time for clients who are of a cautious risk profile; in order to get meaningful returns we will have to consider taking on greater investment risk to achieve their objectives.

A key question for clients to consider is always their time horizon. The answer to this can help you decide the level of risk you are comfortable taking. It is no revelation that if you have a 20 year time horizon before needing to access funds, you can take a greater level of risk than the client whose income is required in the foreseeable future.

So, we have been doing some thinking about current markets and the opportunity and threats that stand before us. Our new strategy is not ground-breaking, though we believe it offers clients who are close to, or currently, drawing an income the ability to add a layer of stability to their portfolio. More importantly though, it adds a layer of opportunity for increased growth. They will need both in the environment that we are moving into.

Here then lies our creation of ‘Dynamic Planning’ – our new investment product designed to balance clients’ needs between growth, capital protection and reliable income. We aim to align your different time horizons and objectives with your investments.

So, what might this look like? Well by way of example, your short-term income requirements (the income you require from your investments over the next 3-5 years) might be invested via our DB Wood Very Low Risk portfolio. This portfolio has an excellent track record of providing stable robust income, irrespective of whether another global pandemic arrives. The aim is to reduce the risk of loss, and to keep your forward income safe no matter what the world throws at us. The main portion of your portfolio would remain in your central risk profile, however the long end of your portfolio (funds not needed for at least 10 years), would take on greater risk exposure through our Medium / High or High risk portfolio. Typically, clients might hold 15% of their portfolio here. The key with this is that if the growth excels it will become a larger part of your overall investment. So we will rebalance every year back to your original holding, consolidating the growth in the main body of your portfolio, whilst conversely if there is a reduction in value, and a smaller holding, we will rebalance back to 15% via buying more, taking advantage of the lower price. The annually refreshed allocations on a back tested basis show that that this has a longer-term effect of optimising your returns, and we feel this is going to be of high importance over the years ahead.

If you’d like more information on Dynamic Planning, please do not hesitate to contact your advice team who will be happy to go through this with you and help determine if it’s a service you could benefit from. In the meantime, you can look forward to next week’s update; we will be reporting on our November performance and talking about the changes we have been making within your portfolios following the positive vaccine developments this month.