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"Aside from the activity I see, what else is happening with my investments?"

By Sam Instone - May 22, 2024

"Aside from the activity I see, what else is happening with my investments?"

Most financial life managers earn their clients inestimable multiples of any fees charged, by helping them properly structure their finances in an organised manner, invest appropriately, and stay invested through difficult periods.

This is the type of action you SEE, in the form of calls and meetings. 

Meeting your financial goals, so that you and your loved ones are free to live the lives you want, requires high-quality, sage, ongoing guidance. 

But on top of this 'on the surface' activity, you need a robust, well-diversified, long-term investment strategy. The construction and maintenance of this, along with its ongoing detailed governance, is the responsibility of your chosen firm's Investment Committee.

This is the action you DON'T see (unless you ask to). 

In most walks of life when you employ a professional or craftsman, you expect a little bit of ‘action’ for your money.

NOW is generally better than LATER, and MORE is generally better than LESS.

However, this generality does not apply in some areas.

Take the case of a doctor, for example, where a patient comes into the surgery with a very sore throat and flu-like symptoms.

Today, many doctors feel under increasing pressure from patients to provide some ‘scientific’ solution – such as the prescription of anti-biotics - to their ailments and some feel cheated when the advice they receive is simply to take a couple of paracetamol tablets and go to bed for a day or two.

Do we doubt the training, experience and wisdom of the doctor because of the advice we receive?

Hopefully not.

After all, science tells us that anti-biotics don’t work on viruses, only bacteria.

These same pressures apply to investment fiduciaries, like us, when it comes to investing.

Adopting an evidence-driven, systematic approach to investing can sometimes feel as if there is not much portfolio ‘action’.

The evidence tells us not to try to time when to jump in or out of markets, pick individual stocks, or chase recent ‘hot’ funds, but to set a long-term strategy, populate it with excellent funds and rebalance it regularly.

That takes much of the ‘action’ out of the portfolio.

It would be wrong to think that this is the result of a set-and-forget strategy.

Above the surface, it can seem that not much is going on.

But that's far from reality.

Duck above the water (2)

The seeming lack of investment activity on a portfolio from one period to the next hides the considerable time, effort, and discipline that goes into achieving this for our clients.

Our Investment Committee sits at the heart of this effort and one central question drives it efforts:

‘Does the investment approach adopted still provide our clients with the greatest chance of a favourable investment experience, based on the latest evidence, theory and fund products available to us?'

The Investment Committee should always be open to challenge the status quo.

That said, the evidence in support of a systematic approach is highly compelling and any small portfolio changes that may arise are likely to be evolutionary, rather than revolutionary.

In reality, the Investment Committee is paddling away furiously to make sure that client portfolios remain robustly structured, issues and concerns are raised and resolved, and that the incumbent funds used still remain best-in-class choices.

Duck below the water

Ongoing oversight is both regular and robust:

Investment committee

Less is more when it comes to investing

It takes fortitude and discipline to stay calm at times of market crisis, to remain invested and to rebalance your portfolio, if necessary.

It takes fortitude and discipline not to chase ‘hot’ parts of the markets (bitcoin, gold, tech stocks, etc.) or ‘hot’ managers, or to restructure your portfolio to take advantage of perceived short-term opportunities and challenges or giving up on certain parts of the diversified portfolio that happen to be suffering at any point in time.

It also takes fortitude and discipline to keep meeting with clients and to tell them again that, despite the fees they pay, their portfolio doesn't need changing (remembering that most of the fee relates to the financial planning work and advice they receive rather than the management of their portfolio).

We'll never change a portfolio just to look busy, but only when the change actually improves it.

The genius is in the simplicity - and it will get you far better results.

In the immortal words of the investment legend and author Charles Ellis:

‘In investing, activity is almost always in surplus.’

Perhaps we should amend this slightly to:

‘In investing, activity is – except for within the Investment Committee – almost always in surplus.’