I have learned about portfolio theory back then when I was at college. It is deemed to be a quite an important topic relating to investment and finance. I remember that I came across the word 'investment' even before learning about it in college. My dad has a lot of experiences on investments as he has already been doing it for 25 years. He taught me to not invest all my money on one particular investment, but to diversify them.
I came across a news on Queen Elizabeth II's portfolio's investment and found it to be quite interesting. Here is a little background-
Queen Elizabeth II is the longest-reigning monarch in the British history today. According to an analysis by Bloomberg Billionaires Index, her personal fortune is estimated to be $425 million, while $75 million of it consists of her investments. According to Financial Times, most of her investments are UK equities, art, property, UK bonds and sterling bills.
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| Image source: (Financial Times, 2015) |
As you can see from the graph above, the returns on investments have increased over the years since 1952 up to today. The highest return from the investments is the UK equities, followed by art, property and others.
I am impressed with how artworks can have such big returns on investment. As much as I know from the graph, it is seen as one of the best assets over the years (even bigger return than property). Financial Times states that it is making 3% a year above inflation, which means it has resulted in good amount of profit. It is also said that the price of art at London sales has risen. It proves to be quite a good investment. Kudos to the Queen for having artworks as one of her investments and collection. I believe that prices of artworks will continue to rise as they age. As quoted by Telegraph (2015), "the global art market is booming, with last year's sales reaching a record £37bn, a 7pc year-on-year increase and a little above the 2007 high of £35bn, according to the most recent figures from the European Fine Art Foundation (TEFAF)". If i have the money, I would invest in artworks too, as there are chances of getting better returns in the future.
Queen Elizabeth II has also invested in British housing. I truly believe that the price of British (especially London) housing would rise in the future as you can see from the graph below:
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| Graph showing the prices of London housing property Source: Telegraph UK 2014 |
The graph shows that the price of London housing increased sharply since early 2009. The overall price of UK housing is also increasing. Is investing in British housing a good idea? In my opinion, it 'can' be. Few months ago, I have read news regarding the housing crisis of London. London property has been an attraction for foreigners to invest in. London has been suffering from a severe shortage of housing. According to YouGov survey, it is said that almost half of Londoners think wealthy people from overseas buying top-end property as an investment has been the main cause of London house price boom. Therefore, house prices have been rising rapidly over the years. Furthermore, average house prices have rose to over 15 times more than average incomes. This made renting property in London to be very expensive which can result in faster return on investment. Fact: London housing has risen up to 44% over the past seven years (Financial Times, 2015). This happens in other parts of Britain as well. Yes, I can't deny the fact that there might be risks in investing such big sum of money on housing. Who knows house prices are gonna fall late this year or next year? We can't be 100% optimistic about it.
When it comes to investments, we would picture them going up and up. Of course I wouldn't invest if I believed that I was going to lose money, but a degree of realism is useful. We need an appreciation of the risk involved. Although history might show rises over the long term investment, however we have to be prepared that it may go down the next day/ month/ year. Potential growth is not the same as promised growth. With the credit crunch crisis on 2008, Queen Elizabeth has also lost an amount of money. There is never a guarantee of positive returns on investment.
Everything sums up to a question: is portfolio investment a good idea? Well, it really depends. But if you ask me, I would be more on the 'yes' side. I believe the theory about don't put all eggs in just a basket. With more investments, the lower the risk of you losing everything. There is at least some backups if one or two of them has gone bad. Personally, I think it would be more reasonable to invest in projects with lower risk even if it means there will be lower returns. Also, the investments that I am going to make, I would make sure they are not co-related to each other to avoid risks of losing more.How people invest depends on what kind of risk taker they are. Therefore, there is no real answer to that question.
Sources:
http://www.ft.com/cms/s/0/1c728c46-5634-11e5-9846-de406ccb37f2.html#axzz42iBIGV6G
http://www.telegraph.co.uk/news/uknews/theroyalfamily/3386353/The-Queen-asks-why-no-one-saw-the-credit-crunch-coming.html
http://www.bloomberg.com/news/articles/2015-09-08/the-longer-she-reigns-the-less-wealthy-queen-elizabeth-ii-looks
http://www.theguardian.com/society/2015/mar/14/britain-housing-crisis-10-ways-solve-rowan-moore-general-election
http://www.ft.com/cms/s/2/8ef50668-63b3-11e5-9846-de406ccb37f2.html#axzz42iBIGV6G
http://www.telegraph.co.uk/finance/personalfinance/investing/11519612/Beware-the-risks-before-investing-in-the-booming-art-market.html
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