The US election looks to many (including me) like a choice between the Devil and the deep blue sea.
My extensive research concludes that either Trump or Clinton will win: beyond that, everything is uncertain. Whichever way the election goes, world stock markets could well have kittens, to use a technical phrase.
Such times can be deeply unsettling - nobody enjoys seeing the value of their investments fall, however temporarily. But most of my clients' portfolios span decades. For many families, their financial plans are powered by investments that will likely extend over 30 years or more.
Long Journeys Are Made Up of Lots of Little Steps
Click above to open presentation in new window
In a 30 year period, there are 10,950 individual days. Think about that for a second. In that context, how important (or not) are the next two or so days?
In time, the US election will be just another "event", just another (potential) blip. Until the next one comes along, as it invariably will.
The short presentation to the right (or click here) may help put the above ramblings into context. Time is a great healer, especially with your investments.
In terms of your financial well-being, what happens today and tomorrow is - honestly - pretty irrelevant. What happens over the decades is what matters.
If your financial plan spans decades then time is on your side. Let time work its magic.
Below is a cut 'n' paste from an email sent to all clients this morning.
We all get way too many emails. This is one of the reasons I don't bombard you with them. However, we live in interesting and unsettling times presently, and I hope you forgive this unsolicited entry to your "Inbox"!
Obviously, I am touching base with you on the back of last Thursday's EU Referendum result. Whichever way you voted, the outcome is what it is.
Let's quickly recap: UK markets, sterling etc went up strongly a week or so before 23rd June 2016. Although no-one really knows what individual factors drive markets,
It remains one of life's oddities that the very people who must invest are typically those least inclined to do so. Many such people choose to shun investment "risk", preferring instead the illusory safety of cash.
This is probably very true at the moment: markets are apparently volatile; one can almost hear the waves of relief as nervous "investors" sell their portfolios to cash until things "settle down".
Like more and more of us I no longer read the printed press. Yet I know what the newspaper money supplements will be full of at this time of year: useless - useless - financial forecasts for 2016.
How do I know this? Because it happens every year; it is as guaranteed as the sun rising in the east, as certain as that extra dose of misery unveiled in the Christmas Day East Enders episode.
But if these forecasts really are useless, how come they come around, again and again?
Stock markets around the world probably went up and down over the last few months. The fundamentals behind these movements were thought to be people buying shares and other people selling them.
If you would like to get more regular drivel like this then simply Google “financial advisers who send out pointless monthly market updates”. You will find literally hundreds of them. Take your pick.
The inspiration for this piece comes from US based adviser Alan Roth. In a recent blog he pretty much summed up everything that is wrong with my profession's fixation on investor "attitude to risk".
Here is the process: you plod through a questionnaire given to you by your adviser; the adviser feeds the answers into a bit of software; hey presto, you are told that your attitude to risk is 8 out of 10, or “balanced”, or “low-risk” or some other meaningless grading.
It is meaningless because a risk score simply pretends to know demonstrates how much pain someone can bear to take when markets fall.
But just because you theoretically can mentally stomach a large loss in your portfolio does not mean you have to. This is because - on its own -the risk attitude questionnaire bears no relation to the actual return that a client needs to get to achieve her life goals.
For example, if your portfolio simply needs to “earn” 3% a year to maintain your lifestyle then why on earth would you be in a portfolio that carries the potential return and commensurate risk of, say, 8% a year?
A risk questionnaire, as seen yesterday
Advisers that answer with "my client's attitude to risk score indicated that was the ideal portfolio" are just doing half a job.
Even worse, imagine a “cautious” risk profile client, advised to invest in a portfolio that will ensure he runs out of money before he runs out of life. What is the biggest risk for all of us? A temporary dip in the value of our investments (because markets go down as well as up) or a permanent drop in lifestyle when we run out of money?
Risk assessment questionnaires and their ilk are only ever the starting point of a conversation about your investments. Far more important is the return you need to get on your assets so as not to run out of money during your lifetime. When you know this figure then you can construct a portfolio that has the best chance of achieving it (in no way guaranteed etc).
If the resulting portfolio is too racy (or too cautious) for you, then adjust accordingly and accept the consequences on your lifestyle. But remember: markets generally recover from falls; time is a great healer. However if you run out of money in later life then all the time in the world will not save you: the dosh is gone and it ain't coming back. That is real pain.
A short term paper loss or a long-term drop in living standards? The choice is yours!
Most purported financial journalism is just advertising, held together on the page with reheated topics and lazy copy.
And an awful lot of that lazy copy (or “financial porn”) is designed to titillate, to sow seeds of doubt, or to get the reader to take action of some sort. Invariably these urges - if acted upon - do more harm than good.
Then, sometimes, you read something that is not so much financial porn as plain baffling. So it was with a recent article from Mark Dampier of Hargreaves Lansdown. For the record, I think this brand is fabulous; not so much for what they do but how they do it: the marketing, website and whole “customer experience” is second to none.
Mr Dampier’s article began by saying how investors have had an uneasy ride since the financial crisis of 2007-9.
To which I thought: “Say what?!” Watch this BAFTA nominated video to find out why: it only runs for a few minutes (though you may think it feels longer).
What should you take out from this?
In essence, when it comes to financial services. do not take things at face value: challenge; question; interrogate. If you do not wish to do this yourself then get a financial planner to do it for you.
Because the surest way to get diverted off your financial plan is to be influenced by external factors that do not have your interests at heart.
"K.I.S.S" - Keep It Simple, Stupid. If only: the language of financial advice seems perpetually caught in a fog of obfuscation, double meanings and jargon.
Why though? It does NOT have to be this way. Solid financial planning is NOT rocket science. Rocket science is rocket science, as this clip demonstrates.
For investors, the take-out from the Cass report is to remember to “K.I.S.S.”, to keep it simple.
Unfortunately, many people and institutions in financial services seem keen to perpetuate the myth that dispensing financial advice is akin to rocket science.
This, dear reader, is complete and utter horrocks.
Proper financial planning has four simple constituents.
Everything else is just noise: lazy copy emailed in to wedge between the insurance company adverts.
1) Have A Plan
Think about what you want from your life. Then have an educated guess at what this lifestyle will cost, for the rest of your days. Finally, work out how you are going to fund this (petrifyingly enormous) amount. In other words, work out your “Number”.
2) Stick To Plain Vanilla
Boring, mainstream financial products: for most people, that is all they need to use to achieve their life goals. Think ISAs, collective funds, personal pensions. Really, that is probably all you need. If you speak to an adviser who blinds you with rocket science about some "can't fail" product or investment, remember what Mr Einstein said: "If you can't explain it simply, you don't understand it well enough."
And, for my sake, punch such an adviser on the nose: When these "can't fail" products do fail, it is Muggins here who picks up the bill.
3) Keep An Eye On Costs
As the Cass research shows, there is little to gain from trying to identify the next star manager. But there is lots to lose, in terms of cost, missing market gains, poor stock decisions and so forth. Make sure your adviser has a stated, methodological investment philosophy. And make sure your adviser invests his money where he wants you to stick yours.
4) Stick To The Plan
This is the toughie. A place where emotions enter stage left and reason scarpers stage right. Where there will always be reasons to save less, to spend more: you needed that gadget, this holiday, those Global kitchen knives (highly recommend these beauties, BTW).
As well, there will be nasty periods when your investments plummet in value - guaranteed. You will wobble, maybe lose your resolve and consider scrapping your plan, vowing never to enter “the markets” again.
In terms of your long-term financial health the biggest enemy can often be you. Or rather, your reaction to events. We help our clients to stay on course, "on plan". After all, it's not rocket science.
In our view, educated investors are happier investors.
In this post we outline our approach to investing client money. It will help you understand what we do (and why) with your investments.
To start, please watch the documentary below (not our work in any way). This is split into eight bite size segments. Grab your phone, tablet, PC or laptop and watch these as and when you can. You will learn an awful lot about the beliefs that underpin the advice we give to all of our clients.
Our "Statement of Independent Investment Principles (SIIP)" expands on the above and shows simulated performance for our range of Model Portfolios. For the record, past performance really is no guarantee of likely future returns.
