We met with a potential client recently who had the same size portfolio as he had in the year 2000.
I was celebrating the turn of the Millennium with my closest friends in The Worm’s Head Hotel on the Gower Peninsula. My hangover lasted a day or so and the related embarrassment for several years afterwards.
By contrast this person was embarking on a quarter of a century hangover and was still embarrassed to this day.
It is hard to emphasise just how difficult it is to keep an invested portfolio at the same value over those 25 years. Invested in the global stockmarket it would now be worth 4.5 times as much. Each £1,000,000 would be worth £4,500,000. Even if it was just invested over the last 15 years it would be worth 4 times as much and the last ten years, twice as much.
It is actually worse than this though because the ‘buying power’ of this portfolio has nearly halved in this time due to inflation. So the portfolio hasn’t stayed stable but has actually gone backwards. Truly extraordinary.
So how was this achieved?
Well the money was invested with a major international bank into their choice of investments (no financial planning was included). The strategy chosen was one of tactical active management. So the following happened:
- The bank guessed what the best asset class was going to be and kept getting it wrong.
- They traded frequently leading to high trading costs.
- The trading meant selling loss making investment to chase the ‘next hot investment’.
- They left the portfolio exposed to currency movements.
- They didn’t plan for tax and so tax ate into the capital when it had to be paid.
- They charged a large ongoing percentage fee which ate into what growth was achieved.
Sadly it might be the worse example we have ever seen but we have seen active managers, actively manage away market growth over the last 5 and 10 years.
So what is the solution?
The unusual thing about investing is that paying more, buys you less. Investing in global markets in a low-cost manner and leaving well alone is the best way to grow (or re-grow) your portfolio. This leaves your adviser to focus on the real value add; planning your financial future, managing your tax exposure and keeping you from making money mistakes.
If you are with an investment manager who is charging you a percentage and not giving you financial planning, get in touch.
We are currently looking after clients like you, from our offices in Hook, Hampshire and nationwide.