Kofi Annan, the former secretary-general of the United Nations, once said: “Knowledge is power. Information is liberating. Education is the premise of progress”.
Possessing a greater understanding of any challenge your clients might face in life is likely to positively benefit their eventual outcomes.
In the world of investment, there are those who act on instinct and try to predict the market in order to make quick gains. Then there are those who rely on evidence and historical data to guide their selections before adopting a “buy-and-hold” approach and waiting over the long term.
It is a bit like the tortoise and the hare — an important lesson for your clients to remember. Financial planning isn’t a race, it is a journey, and one that benefits from the passage of time.
Read on to discover three useful ways a smart investing approach might benefit your clients.
1. Smart investing relies on decisions backed by data and historical evidence to improve your clients’ odds and reduce risk
At Grey Parrot, our investment strategy is built around:
- Backing up investing decisions with cold, hard data
- Reducing risk by not chasing quick gains
- Focusing on the long term
- Putting our clients’ needs first, and potential solutions second.
We use historical evidence and carefully researched data to inform the suggestions we make to your clients. We are likely to encourage your clients to develop well-diversified portfolios and ensure our due diligence is done on any potential investments to reduce the potential for risk.
A recent report by Forbes highlights the importance of this approach. Many investors are likely to have seen news headlines about Disney+ reporting a loss in subscribers for the first time since they launched in 2019. If investors felt this signalled a decline for the company on the horizon, this announcement might have prompted them to sell shares to reduce potential losses.
However, the report by Forbes shows that if investors took the time to research the data behind Disney+ losing subscribers they would discover there’s more to the story.
Disney did outline losing 2.4 million subscribers worldwide in its 2023 Q1 earnings report. However, this was largely due to the firm losing 3.8 million subscribers in its South East Asia division, which includes India, Pakistan, and Sri Lanka.
These losses are attributed to Disney losing streaming rights to the Indian Premier League cricket matches, which was a popular part of the package in the region. In fact, globally Disney+ saw growth in the majority of markets and these gains elsewhere offset some of the losses felt in Asia.
Researching investments, understanding the reason behind potential issues, and ensuring the greater portfolio is diversified across different assets and markets can protect your clients from risk and keep them on track towards their long-term goals.
Understanding the reason behind Disney’s subscriber dip could mitigate any potential investing mistakes and provide gains in the long term when a blue-chip stock like Disney likely bounces back.
2. Smart investing simplifies your clients’ portfolio and emphasises transparency in their advisers’ choices
Transparency and honesty play key parts in a smart, evidence-based investment policy. Active investing — regularly buying and selling investments — can be incredibly time-consuming and make it difficult for your clients to easily understand the current state of their portfolio.
The passive “buy-and-hold” investing approach instead looks to invest wisely and retain assets over the long term, ignoring short-term fluctuations. This means that your clients can check in on their portfolios at any point and easily understand where their money is invested.
Active investing is more often used by advisers that work off a percentage-based model. In this fee structure, advisers take a percentage of their clients’ returns so are incentivised to drive profits for their clients, as the advisers are then likely to make larger gains themselves.
This can be riskier for your clients. The percentage-based charges also mean that as your clients’ investments grow over time, so do their advisers’ fees, even if no additional work is being done on the investment.
We believe this isn’t an honest or fair approach. So instead, we charge a fixed fee, adjusted for inflation.
This means, in 10 years’ time, even if the value of your clients’ investments have doubled, their fees won’t have changed in “real” terms.
Your clients will be left with more money to spend elsewhere — ensuring crucial outgoings such as rent, utilities, and insurance are covered — and anything leftover might be put towards living their dream lifestyle.
3. Smart investing adopts a passive, buy-and-hold approach that looks to produce long-term results
Remember: very few active fund managers beat the market in the long run.
Schroders reports that between 31 December 1999 and 31 December 2019 the FTSE 100 barely moved. However, had investors kept their stocks throughout the period and reinvested any dividends they could have seen returns of 122% over the 20 years.
Meanwhile, according to The Motley Fool, Fidelity analysed its clients’ portfolios between 2003 and 2013 and determined that the best-performing portfolios were owned by those who hadn’t touched their investments. Shockingly, many of these successful investors were actually already dead.
Now, we’re not saying dying is the key to a sound investment strategy. However, it does outline how a passive approach to investing can often deliver the best returns.
Smart investing focuses on the long term and patiently lets investments grow until they reach what is needed to fulfil your clients’ goals. At that point, we turn around to them and say: “Stop investing! You have enough. Go spend and enjoy your life”.
Get in touch
If you or your clients might benefit from the reduced costs, time-saving benefits, and boost to emotional wellbeing that a smart investing strategy delivers, it might be worth emailing us at info@grey-parrot.co.uk or calling 02039 871782.
Please note
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.
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