A Financial Planner is not an Investment Specialist…

A lot of my friends ask me things like, “where should I invest my money then?”, “which is the best fund out there” or my favourite, “what’s the next bitcoin I can invest in?”.

As a Financial Planner, and not an investment specialist, I respond by saying “I have no idea”. That is not strictly true. I am sure I do have a few ideas. They’re probably just wrong.

My ability to look into the future is as limited as the next man. BUT, crucially, over the long term, I have found an investment philosophy & behavioural coaching methods that have made the clients I work with, very wealthy.

The research around stock pickers or professional investors actually making a solid, above benchmark return in a 1-year period is a bad read. And who are the good investors who do smash a 1-year period, who then maintain that for more than 3 consecutive years compared to their peers? Well, there are hardly any to write home about.

So, if trained professional investment specialists or traders, struggle to keep above average returns for longer than 3 years, what chance does a fella with a beard, terrible barnet and a lust for life have?

So, how DO you invest, I hear you ask? Good question. Well, firstly, you need to know what you’re investing for, which can sometimes be a tad more difficult to uncover than you might think (*hint* this is where a financial planner DOES add value). Anyway, if you don’t have a purpose for investing, your heart won’t be in it and you’ll find it harder to stay the course when it counts. Secondly, you should consider my *4* top tips when considering the core of your investments:

  1. Don’t try to be too clever - just buy the global stock market (using tracker/index funds), keep costs low and let your funds soar over the long term. You are very, very, very unlikely to get the next Apple, Netflix or Facebook before it goes big and you risk losing it all. You are, however, very likely to get all of those three, plus all the other great companies of the world and all the next soon to be great companies, if you just invest in the market average.
  2. Diversification is your friend - no one knows for certain who the next big winner will be. So, you need to globally diversify your investments, over many different asset types. There is a lot more to this of course, but always think “have I got too many eggs in one basket?”
  3. Keep plenty of cash for the right dodgy times - investing in a globally diversified portfolio will have risks associated with it. Markets will go up and down. Over the long term, markets will always win. Over the short term, volatility will occur and the money will bounce around. To avoid becoming a distressed seller, keep plenty of cash in deposit to avoid having to sell your investments when they’ve fallen in value.
  4. Stay in the market; it is about time in the markets, not timing them - people panic when markets drop and a typical play is ‘take the money out and hold in cash to avoid things dropping further’. The research around this is remarkable. Spoiler alert - it’s not a successful tactic. Ride out the market, up and down, and you will win. Be too clever and try to time it, you’ll likely lose.

 

Passing thoughts: if I knew the answer to “what’s the next bitcoin?” I probably wouldn’t be writing this blog.

 

Alfie Mullan, August 2018