How to invest with confidence
The outcome of your investments is firmly out of your (and our!) control. There, I’ve said it. This is possibly not going to be the most popular thing I say, especially as a financial planner, but let’s be honest, it’s the truth.
When it comes to investments, we’d all love to know how our choices are going to perform. The reality, however, is that this just isn’t true and any suggestion that there’s someone out there who can tell us what our investment returns will be, is clearly just nonsense.
Let’s change how we talk about investments
But that said, there are plenty of ways that can help us all invest with confidence, even if there are no guarantees. It feels however, that sometimes, the market approach misses the mark.
Why, for example, do we spend so much time discussing past performance? Why does the media focus on the top performing funds? And why do we buy funds that have begun to perform well in the hope that they will continue to provide positive returns? There are a number of reasons – we’re fuelled by this unobtainable goal of being able to predict outcome, but also these figures are relatively easy to come by and, importantly, easy to understand. But in reality, they are rarely demonstrative of how things will progress.
Rather than just past performance, it would be far more insightful and relevant for you to take into account the risk of the capital you are investing versus the potential rewards. Rather than just looking at the top performers, let’s understand the underlying principles of how the fund management team invests.
We also need to consider how the investment will most likely perform in a more volatile market – we’ve seen our fair share of volatility of late; and let’s benchmark it against an appropriate sector average, rather than against a standard one such as the FTSE or Standard and Poor’s.
And why the obsession with looking back?
We also believe strongly in the value of looking forward, not just looking back. As such, one of the key things to do is to look at what the objective of the fund is and what it’s designed to do – for example, it may not be an instant big hitter, so fails to catch our eye, but may in fact give better returns long term.
When all these things are taken into account, we are much more likely to not only better understand our investment, but also be able to make choices that are really right for us. And to us, this is always a win. As a wise US president once said ‘the best way to predict the future is to create it.’
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.
Your home is at risk if you do not keep up repayments on a mortgage or other loan secured on it.
This article is distributed for information purposes and should not be considered investment or other advice or an offer of any product / security for sale. This article contains the opinions of the authors but not necessarily the firm and does not represent a recommendation of any particular security, strategy or product. Information contained herein has been obtained from sources believed to be reliable, but is not guaranteed.
Please contact us before you transact. Errors and omissions excepted.