These days, everyone is an investor. This could involve a superannuation account, shares, an investment property or even a term deposit. What most people do not realise though is just how many choices there really are, let alone which choices are the best for them. Helping clients make the right investment choices is a big part of what we do.
First the bad news:
- We can’t control markets
- We don’t know when the perfect time to buy is
- We don’t know when the markets are about to fall
- We don’t know which investment is going to be best next year
- No one else does either
Now the good news:
None of the above stops us from being successful investors
It is by understanding what we can and can’t control that we can identify which investments are going to be the most likely to provide us with a successful investment experience. Our goal is not to shoot the lights out and get a great one year return. Our goal is to build a portfolio that gets the job done over 10 or more years and does so without taking unnecessary risk.
One of the advantages of being independent is we can use any investment we believe is appropriate. We are not pushed into using only the products of a particular institution. This means we can look at the big picture before deciding what investments to recommend to our clients.
Incredibly, when you look at the big picture, around 78% of professional share investors achieve a below average return over 5 years.
If most of the professional managers who charge a fee for the skill and experience picking stocks are getting below average performance, what chance does a mum or dad investor have. If they were just flipping coins when making investment decisions, luck alone says 50% should beat the average. The reason professional investors don’t is because the costs associated with researching shares, paying wages, buying and selling stocks all outweigh the benefits. It is extremely difficult to beat the market reliably when costs are taken into account.
Given the above, we think it is nearly impossible to pick investments that will consistently beat the market, particularly when taking into account taxes, fees, key person risk. Fortunately, there is what we think is a better alternative.
Instead of spending all our time, energy and money trying to beat the market, we can capture the market instead. There are investments available whose sole job is to deliver the same return as the market for a very low cost. They don’t rely on picking the best stocks because they are exposed to all the stocks in the market. It also means they don’t need to chop and change all the time which means less tax and fewer transaction fees. This means we get a more consistent return close to the market average and this in turn frees up clients to get on with their life without worrying about what’s happening to their investments.