My name is Jill Turner and I work hard to make financial planning engaging. It might seem strange that an investment professional states, “that I care more about how my clients are doing than how the markets are doing”, but let me explain what I mean in this article, which is an expanded version of the latest sixty second presentation to my business referral group.
My inspiration came from what has affectionately become known as the patchwork quilt, to the left. Designed for investment professionals, it graphically represents the rise and fall of different asset classes, ( e.g Gold, UK Smaller Companies, Property, Large US companies etc. ) showing the percentage growth or loss in any given calendar year. If you're struggling to see the small print, it might be handy to download a full page version here and refer to as I go through two, possibly polar extreme examples, of investment journeys that both start at the beginning of 2005. At least you will be able to check my calculations.
For our first journey, let's dust off our crystal ball and chase the investment returns. At the beginning of 2005, we invest £1,000 in Japan and benefit from a cracking return of 40.49%. It would be tempting to stay put and hope for a repeat of these gains but along with our crystal ball we have a nephew working in the City who gave us the inside track that markets were getting tricky. So we sell our Japan fund and invest everything into Gold where we remain until the end of 2008. We managed to keep our powder dry, ready to invest on the gun fire and surely enough as equity prices fall we sell our Gold funds and buy into a UK Smaller Company fund. We stay with this asset class until the end of 2013 and our £1000 has become £8,439 in nine years.
An extraordinary return, an average of 93.7% per annum but remember we were relying on our crystal ball.
But it could have been so different. It's the beginning of 2005 and we open the Sunday papers. There in the money section journalists tells us that Japanese funds are the winners for 2005 and as luck would have it, we get a good return. That's great we file the annual statement and look forward to similar returns next year and the next. As we haven't reviewed our arrangements we don't realise that our Japanese fund has gone down three years in a row. Okay its not too bad, we grit our teeth and hold out for a gain but after another year of losses we get impatient and sell our fund, keeping everything in cash where inertia takes hold and there we remain until the end of 2013. An overall loss of £118 or 1.3% each year and our £1,000 is now worth £882.
So where does this leave me as an adviser and my clients.
I can't influence the markets. My role as a financial planner is strategic planning. This includes working out how much volatility you can tolerate, why you are saving or investing, what timescales you have allowed, recommending an asset allocation and calculating the expected returns and therefore how much you need to save to achieve your goals. Can we second guess the markets or effectively time the markets and know where and when to invest? Maybe with the use of technology, information feeds, inside knowledge, constant monitoring of the markets, talking with politicians about impending changes in legislation and monetary policy. But do we have the time that all of this takes and can my clients in turn afford extra fees for all the extra time this takes? And if its that straightforward to chase returns by switching in and out of different asset classes, why aren't all funds chasing “the next big thing”?
High risk, that's why.
The majority of clients will have their needs satisfied with model portfolios or multi manager multi asset funds, where funds and assets are selected to work together, to create the broadest diversification and to harness expertise across the various asset classes as well as different market conditions. This in turn helps to reduce volatility and give a smoother client journey. Where my clients have more bespoke needs we work in partnership with a number of discretionary fund managers. With market monitoring and outsourced investment solutions taken care of I can devote my time and concentrate on what I do best, caring about how my clients are doing.
How easy do you find it to make investment decisions ? Get in touch and tell us about your investment successes and disasters or use the comment section below for a free copy of "Our Guide to Investing".
Jill Turner 26th June 2014
Whilst reading the blog articles please be aware of the following:
Welcome to the blog curated by Jill Turner. The pages are not intended to give advice, they are just the real life stories from a real life financial planner and the wonderful people I get to meet.
I want the pages to be engaging, informative and purposeful.
The information contained within this blog is based on our understanding of current government proposals and tax
law, both are liable to change in the future.
Jill Turner is a member of the Personal Financial Society