What’s Marco’s Job?…
People often see my role as solely being responsible for their investments. Certainly, I recommend appropriate investments for clients but there’s a lot more to it than that. I’m a financial planner, not an investment adviser. There’s a difference.
A financial planner works WITH a client to help them achieve their goals, regardless of what the investment markets do. An investment adviser makes judgements and decisions (otherwise known as guesses) based on what they believe the markets will do. Sometimes they’re right and sometimes not. An investment adviser is ONLY interested in the money. I’m not!
I’m interested in your life. What’s important to you. Who’s important to you. What you want to do with the rest of your life and if your money’s going to be able to support it. Only when I have a deep understanding of what makes you tick, can I then recommend an investment strategy that’s aligned to YOU. I don’t seek returns for the sake of returns. That’s fool’s gold and usually ends in tears.
Anyway, back to investing…
The Nuts & Bolts…
What’s investing in its basic form? Well, on one side there are investors (that’s YOU) who need to put their money somewhere whilst they’re not spending it. They need some growth to either protect against inflation or to pay for some big plans for the future! On the other side there are companies, or governments, who need money to growth or invest.
The investor buys in to those companies and, hopefully, shares in the growth (hence the term ‘shares’). Alternatively, the investor lends money to those companies (or governments) in the expectation of getting a return through interest paid on the loan (these are called bonds).
Some companies go bust and some governments default (remember Greece!). That’s where the risk comes in. There are no guarantees with investing! The hope is that most stay solvent and do well enough to reward you, the investor, through dividends on growth or interest on loans. Make sense so far?
Millions of people every day, including stockbrokers, city traders and most fund managers that look after things like your pensions and ISAs are buying and selling shares and bonds in the expectation (or hope) that their decisions are right and they make money for their clients. More to the point, they hope they make money for THEMSELVES! This is how the capital market works.Where It Gets Messy…
Unfortunately, between the two sides, there’s a jungle; the investment industry. This not only makes things more complicated than they really need to be from a practical level, it also means there’s a motivation to create and sell financial products to make profits. Often HUGE profits.
These profits have often been hidden in complicated investments or in mountains of paperwork that nobody (with a life) reads. Charges are deducted from the product and, therefore, the pain of the fees is often cushioned, but if those fees had to be paid by the investor writing a cheque, they’d soon sit up and take notice! You need to understand who’s helping you and whose NOT!
Let’s Look at The Evidence…
Mountains of evidence has been amassed over decades to try to understand if the costs of having expensive investment management helps or hinders investment growth. The evidence isn’t looking too good if you’re an investment manager.
I’ll spare you reams of statistics but the evidence strongly leans towards the view that, after the costs of investment management, the returns an investor would receive are lower than what the market would generate if a ‘buy and hold’ strategy was adopted.
Cost is King. In the investment world (unlike most other disciplines), cheap doesn’t mean bad. Indeed, the more expensive the cost of investing, the less likely the investor is to receive a positive outcome.
Stop the Tinkering
Too many ‘gurus’ claim to be able to beat the market. To get better returns, just for you, than everyone else is getting… to be able to make the right calls on what’s going to happen… to be able to ‘time’ when to buy and when to sell. It sounds good in the films but the reality is somewhat different.
If you owned a very well spread, low cost investment that had a good mix of shares and safer stuff, there’s every chance you’d be better off in terms of long-term growth than those guys and gals in their expensive offices (that investors are paying for!) who claim to be able to look in to their crystal balls and predict the future. Where were they in the credit crunch?
Don’t Take It from Me…
Have you heard of Warren Buffett? I hope you have. He’s the most successful investor in the history of the universe! Here’s a few things he’s had to say:
“Someone is sitting in the shade today because someone planted a tree a long time ago”
“The big money is not in the buying and selling but in the waiting”
“In the business world, the rear view mirror is always clearer than the windshield”
“The stock market is a device for transferring money from the impatient to the patient”
I could go o but, hopefully, you get the gist…
Tying It All Together…
I hope I’ve made sense here. Quite simply, a sensible investment strategy is VERY important but it can be achieved in a far simpler way than investment companies might lead you to believe.
For those of you who know me, I spout on about this a lot but that’s only because I’m passionate about it. I hate seeing people pay more for their hard earned money than they need to, particularly when the added value by paying these higher costs is questionable to say the least.
Keep it simple and keep it sensible. That’s my mantra when it comes to investing and, in my view, it should be yours too. Do you REALLY want to spend your time second guessing what’s going on with YOUR money?
Be cautious about how you invest, especially if the money you’re investing is going to support you for the rest of your life. It’s not all about getting rich, it’s about doing sensible things in the right way at the right price to give you a great chance of success.
I care about you living a great life without running out of money. Isn’t that what the vast majority of us want anyway? Getting to that place involves some sensible investing decisions and the ability to adapt to what the investment markets (and life generally) throws at us.
We don’t need to complicate it with industry jargon, expensive offices and lingo you don’t understand. Keep it simple and understand what your money’s for and how it’s being managed.
Until next time…