Investment – It’s the Market Stupid!
Investment – It’s the Market Stupid! – The UK equity market has been hit and global investment markets aren’t looking as good either. It’s times like this that investors question whether they should sell off their investments, until times get better.
So the “investment behaviour cycle” starts again, we often make investment decisions based upon how we feel rather than what we know, resulting in investment sell offs, these occur because a sufficient number of investors “sort of know they are doing the wrong thing by selling now” but they prefer to take a small loss – “rather than lose all of their money”.
Falling stock markets scare investors and Rising stock markets attract investors.
Despite knowing deep down that selling low and buying high will lead to under-performing investment portfolios and making financial losses, investors do it anyway.
Investors need to stop doing this if they wish to obtain different results.
Emotions prevent investors making rational decisions, instead they “rationalise” their poor decisions.
Increasingly investors are turning to financial advisers to assist them manage their investment and pension portfolios.
Typically their adviser may provide a highly diversified collective investment portfolio as his service offering often split between what are known as passive investments and active investments, they will often include one or two ETF’s to demonstrate that they really know their stuff.
When the stock markets fall, they will say something like “well my job was to diversify your investments and reduce overall risk and markets rise and fall – you just have to put up with that”.
We have received a video from a very well-known coach to Financial Advisers, that says that clients of advisers who give out this story may not be too happy, as essentially the investment adviser is saying – “It’s the market stupid!”.
The financial advisory coach then goes on to give several techniques to advisers that they can use to make their clients feel happier about market losses.
I wonder is that really enough, surely their advisers should have got it right in the first place?
What value are the investment advisers bringing to the table, if any?
Although diversification is necessarily a part of portfolio planning , don’t advisers need to add more to the equation, if not then how do they justify their fees?
Another option used by some Advisers is to pass the responsibility for investment decisions onto a third party, such as Stockbroker or Discretionary Fund Manager. Clients may be impressed with fancy brochures and a fancy name but do the results stand up to scrutiny?
I do not like advisers who attempt to control their clients by using fear tactics, so that when the clients complain about poor results or wanting to improve their performance, there is one emotion that is often use to control their clients – FEAR.
A phrase that is often used is “you don’t want to take any RISKS do you?” And “that’s the only way you can improve investment performance is to take more RISKS!”
Call me unreasonable if you like, but I would like to tar and feather all advisers that use this type of tactic to control their clients!
Pretty much the same as how I used to feel about advisers that peddled the falsehoods of insurance companies, when selling endowment policies.
WHAT GETS RESULTS
Asset Allocation can be responsible for up to 87% of the return of an investment portfolio. However to get proper results from asset allocation requires hard work (so not simply carrying out a Risk profile and allocating a mix of funds that comply with this). Considerable research is required to determine:-
- the best geographic area to invest in
- the best type of fund within that area
- the best funds that fit the above
So using a pin to select funds is not advised and simply relying upon past performance is unlikely to achieve best results.
A good adviser should take an active stance and selects asset classes that are likely to increase, rather than simply leaving the client at the mercy of the markets.
The adviser should also find funds (within the selected asset class) that are likely to increase, you might think that surely all advisers are doing this, yes and no, to do this effectively takes a lot of time and research and the inclusion of funds that are not blindingly obvious.
TALK IS CHEAP
If you are an investor and take comfort from investing with a large brand, such as a Stock Broker or large Discretionary Fund Manager and leave all decisions with regard to your future to them, that is fine. There is nothing wrong with that, providing they do not give you the “it’s the market, stupid” story, or a more sophisticated version of that, when markets turn downwards.
We have thirty years plus practical experience of assisting clients with their pension and investment portfolios. For us, it is important for the client to be involved in the investment process.
Our service is pro-active, so we make regular changes to portfolios (rather than a simple re-balance every six months). We utilise trend investing techniques, our own investment research and tactical asset allocation.
We actively encouraged clients to move to safety funds in 2015 and also earlier this year established Brexit Ready portfolios in advance of the recent referendum. We did so as a defensive measure but the results have been both pleasing and profitable.
How have your investment and pension portfolios been doing?
We are happy to provide a health check on your investment and pension portfolios and a prescription if required!