Lesson #2 of our Top 10 Investment Principles
It is important in life to know what you are good at and what you are not.
Its also important to know what your priorities are so that you spend your time on the most important things.
For us as financial planners, we know the equation for the value we add. The research says financial planners can add between 3% and 4% pa to your returns. If you want to read more about our value equation, please click here http://www.absolute.sydney/our-philosophy
Understanding this equation means we can focus on the activities that add most value to our clients. Things like, asset allocation, cost effective implementation, portfolio rebalancing, behavioural coaching (sticking to a long-term plan and not panic selling and greed buying), tax effective strategies.
What you don’t see in here is stock selection and timing the market. That’s because research shows that these activities add little long-term value.
Hence, we stick to our knitting. We spend time understanding our clients goals and fears. We create long term strategies to achieve their goals and avoid their fears.
We project manage implementing their holistic financial plan. We manage their money in simple tried and tested ways (see lesion #1) so they can sleep easy at night an optimise their chances of success and minimise their chances of failure.
By taking the lead on all of these things, we give our clients back time so they can spend it on more important things, relationships, hobbies, holidays, etc.
What we don’t spend time on is micro stock picking, buying and selling stocks or fund managers.
Investing is a full-time job that requires time, skill and access to expensive research and so we outsource this activity to managers with proven track records of successful investing over the long term.
We then let time and the “8th wonder of the world” (compounding returns) do the heavy lifting. And this is where behavioural coaching comes in. It can seem attractive to “fiddle” with your investments…sell this, buy that.
Typically though, most of the fiddling destroys long term value compared to sticking with a tried and tested strategy (see lesson number 1).
Finally, we also recommend our clients stick to their knitting. If they are good at their job or business we recommend they focus their time and energy making money doing that, or doing whatever else adds most value to their life.
We don’t believe in spending time trying to be to be a jack of all trades and beat the full-time investment professionals on a part-time basis.
@Paul Barrett of Absolute Wealth Advisers is one of Australia's most experienced Private Wealth Managers. He is a financial expert in high net wealth divorce, estate management and inheritance. Contact him here