Markets have been flat for 12 months. Listening to clients and seeing what investors have had to say, there’s a lot of talk about different types of investment strategies.
We’ve even received some enquiries from clients who are currently with bigger investment firms.
At times like these, I think the best thing a financial adviser can do is be really clear in their beliefs and the principles that inform their approach to wealth creation, so investors (new and old) everywhere can decide whether those philosophies sit right and resonate with them.
As a financial adviser, here are 10 core principles I believe in when it comes to wealth creation.
1. Simple beats complex. But complex looks impressive.
I looked at a new portfolio recently and it contained 33 funds. Many of the funds overlapped each other and could have been replicated in a simple low-cost index fund.
sometimes I think the reason complexity is there is to justify high investment fees.
2. Self-control is best investor trait.
If you are invested in the right portfolio, trading shares or watching Bloomberg daily adds very little. It rarely beats someone who checks their portfolio once a year.
Talking through your investor emotions, sound-boarding decisions, and basing action on logic is a better way to spend your time.
3. You can solve a problem today or ones in the future. You can’t have both.
If you need your money to last 30 years, a proper investment in equity markets will make you feel unhappy for periods of time. Accept that.
If you want your portfolio to make you feel happy all the time – hold cash. But it won’t solve problems in the future. Such as portfolio longevity.
4. Markets drive returns. And portfolios don’t operate in a vacuum.
It’s important to understand what’s unique about your portfolio performance and what is just happening with the overall markets at any given time.
If it’s raining everywhere all at once, everyone gets a bit wet.
5. Nobody knows what will happen next. It’s estimated there are now over 6 million companies that you can trade at any one time.
The stock market is the aggregate value of millions of trades every hour, from thousands of investors, all with different reasons for buying or selling at any point in time.
The system is too complex to predict. If we’re honest, nobody knows what tomorrow, next week, or next month means for the market.
Markets work for investors but they are impossible to predict.
6. The best leveller is a long-term horizon. Portfolios don’t work perfectly all of the time. Six months can make a huge difference.
One investor can be up 10% and the other down 5% but their entry might only be months apart. Timing does matter but can’t be predicted.
But time equalizes and is the best form of hedge against risk. Give your portfolio 10 years and whatever is wrong – 10 years will fix it if you hold a diversified and global portfolio.
7. Every few years your portfolio will be incinerated. The price of long-term growth is temporary annihilation.
Perhaps once every 5 years in a big way and at least once a year in some way. Nobody likes to see it. Every investor has to accept it.
8. Optimists make the best investors. I believe the stock market is the greatest generator of wealth on this planet. And the future will be better than the present.
If I didn’t, what would be the point of investing?
9. Doing nothing is usually the best investment decision. If you continually do nothing and you decide every day to do nothing, you have made numerous decisions.
Deciding to do nothing across a lifetime (as opposed to trying to actively manage your investment portfolios according to what’s happening in the market) is still
hundreds of decisions made.
10. A good plan that you follow beats a great one you don’t. There are many plans that will work. There are many ways to build wealth, generate income, live a good life.
But we don’t all need to do it the same way. And that’s a good thing. Good investing should reduce the swings between winners and losers.
Everyone can win if they invest early, diversify, and stick to a good plan. Good is more than enough.