Our portfolios incorporate how to maximise the chances of long-term investment success. This means nothing if we do not invest for the long term.
We built our investment process on the belief that over the long term, the global economy will reward those who invest in it with suitable returns. We also believe the investment strategy a client can stick to is the best one for them.
But why would someone not stick to an investment strategy if it gives them a good chance of making money?
One reason we might not do so is that investing can be like riding a rollercoaster, and we might want to get off.
By seeking higher returns from a portfolio, we become less sure about what it will do over the short term. A portfolio’s value can go down as well as up, and market falls are part of investing. The more often you look at your portfolio, the more likely you are to see a loss.
Humans are hard-wired to focus on falls in the value of their portfolio. Newspaper headlines, commentators, the evening news, and social media amplify the discomfort.
The simplest way to feel better is by switching into cash. There would be total control over how much returns will be tomorrow and the next day. Over a decade, the cost of doing this could be huge.
Another reason is that we try to change the ride.
The challenge with owning a well-built portfolio is part of it will always underperform. Underperformance does not mean the portfolio needs to change. It just means some markets (or parts of markets) are zigging while others are zagging. This is the very essence of diversification.
It can be easy to want to reject this and adjust a portfolio. You are never too far away from a prediction about what will happen to markets. Certain investments might go up so we should buy more of them. Some might go down so we should sell them.
The truth is nobody can consistently predict what will happen tomorrow let alone next year. Predictions which come true are more down to luck than insight. Making one short term move will create the need for more to happen and getting one of these wrong could ravage returns. This link shows how market timing is tricky even when we have an inkling of what is going to happen.
Finally, we might have to get off if we need to be somewhere else.
If we are in a high-return seeking portfolio and we need to take money out early, it may be the worst time to do so.
We help our clients stick to the right portfolio for them for the long term.
One way we do this is by ensuring the portfolios we recommend fit perfectly with their overall financial plan. We look to have as much information about our clients as possible and update it regularly. This information includes the plans they have for their money, their financial situation. It also covers how they have invested in the past. We also take a lot of time to assess the level of uncertainty they might be willing to take with their money.
When clients have concerns, we always gently remind them of both of their financial plan and our investment process. The simple truth usually is if they were to come on board with us today, our recommendations would be no different.