It’s Difficult to Get a Return in These Markets! – That’s the opinion of many investors.
Although I am not sure why, unless you are investing in the same old, same old way you have been over the years. Well yes, then you may have a problem.
We get approached by a number of investors, who say they are unhappy with the returns they are getting on their investments. This often results in us providing a review for them and although this often indicates that they should reconsider their investment modelling, not everyone wants to change to a new adviser.
They have fallen into an investment “rut” and are seemingly happy to stay like that. They are seemingly happy for their investments to underperform as often they cannot make a financial connection between this underperformance and the level of their income when they retire.
That begs the question – why do investment portfolios often underperform? If investments are underperforming it generally indicates that there has been a complete absence of advice for the investment or pension portfolios over the years, or very occasionally poor advice.
On the other hand, it may simply mean that their current adviser has chosen a fairly widely diversified portfolio of low risk investments as he believes that is most suitable for his client.
What I have found, over the years, is that their current adviser is often right, as the psychology of almost all investors is that they would rather make a small profit than model their portfolio to maximise return.
After all, they don’t want to take a risk – do they! [See my previous blog on Investor Emotion.]
Or so, they are often told.
Yet managing risk is what investment is (almost) all about.
What many advisers are doing (well) is managing expectations, rather than managing investment risk.
So if your adviser has judged you right, you are putty in his hands, it is certainly better for the adviser, as this approach is “deemed” to be very compliant.
Compliance is very strict for advisers these days, so anything to get the Compliance people off the adviser’s back is surely welcome?
Going back many years (before compliance) those were the days – what first attracted me to the art of investment is that there is no price barrier to investing, you can choose to invest your cash in any investment you like. What I mean to say is, it does not cost you any more to invest in a top performing investment than to say put your money on deposit getting say 0.5% per year.
If you were buying a car however, you would pay a lot more for a performance car, than a normal saloon. With investment the barriers are both psychological and intellectual.
It’s the barriers to investing that often cause investors (without advisers) to sit back and do nothing. Even if you have an adviser, you may end up doing the same as you may feel confused by investment terminology , or you may play a passive role at any meetings ( remember it’s The Market Stupid, a few blogs ago).
Transactional Analysis states that people will choose one of three roles in any dialogue (or meeting) , either Adult, Child or Parent. This not only applies to adviser meetings but any dialogue between two or more people. You may wonder if I am going a little off subject, trust me (parent), I am not.
So many clients because they have little knowledge about investing automatically choose (child), so meekly accept what their adviser (parent) tells them.
Do remember it is OK to seek a second opinion on your investments and pensions….
Anyway let me get back on topic, what was it, oh yes – it is difficult to get a return on investments now!
That is what some investors believe but others express an alternative view – that stock markets are good now.
Well, stock markets are neither good nor bad; they are simply a collective reflection of the thoughts and actions of investors all over the world.
Surely though the investment markets must be good, as both the US and the UK are currently enjoying one of the longest bull market runs in history!
That’s great isn’t it!
Well, I regard this as a “DING-DING moment” or warning sign, particularly as the causation of the market pricing is more indicative of the low interest rates and printing presses of governments globally, rather than investment fundamentals.
Now some may regard me as a professional doomsayer, if so my doom-saying has proved very profitable for our clients. As despite the majority of advisers informing their clients not to panic when the Chinese Market started unravelling, we took our clients largely out of the market. And prior to Brexit we had formed special Brexit portfolios as a defensive measure, these were spectacularly successful. As within the portfolio mix we had included gold mining funds and some of our clients experienced a 60% profit on these in a reasonably short period of time.
So what should investors do now?
We are relatively cautious about investment markets generally, we are making recommendations to our private clients to invest in funds where we think there is a price advantage*, as well as our adjusted pre-Brexit portfolios, but also we are looking at increasing the weightings of investment with the fund managers that share our views on the market.
If you are approaching retirement, I would strongly advise that, particularly as investment markets are irrational, you take advice on both investing and the following right investment strategy both before and after retirement.
You may be interested in downloading our new guide on the Importance of investment Performance for Pensions if so CLICK HERE.
- typically some of the funds we are looking at have discounts of between 20 – 40% of true value.