Investment returns have been good over the last year or two; by and large your account values have never looked so buoyant.
In fact, I have found myself feeling quite smug about it, which I took to be a warning of sorts. So I decided we should remind ourselves of a few key points:
- We are not investment geniuses / gurus / wizards / sages.
- We simply capture the returns on offer as efficiently as we can.
- Investment returns are important only to the extent they strengthen your plan, leaving you less likely to outlive your money. “High returns” is not an objective in itself.
- Disappointing returns will occur and persist for some time. You have healthy cash balances to see you through these periods.
- We accept the good and the bad. We don’t know what comes next, our crystal ball is no better than yours.
- Success comes from sticking to your plan through the thick and the thin.
- That is what you pay us for – discipline, not investment returns.
Model portfolio changes…
We have now moved from advisory to discretionary investment permissions, and you have received an updated Client Agreement to reflect this.
In our December Investment Committee Meeting we flagged the possibility of making changes to the model portfolio in line with where we feel things are. The Investment Committee met on 19 January 2021 and agreed changes to the model portfolio.
Our view is that as a global economic recovery starts, and gathers pace, we should adjust our equity holdings by leaning more in favour of emerging market companies and smaller companies. Both should perform relatively better than larger companies in developed markets. However, we want to be mindful of overall portfolio volatility.
It is the size of the ups and (especially) downs that can leave us feeling queasy. The ups and downs (volatility) are ESSENTIAL to produce the inflation-beating returns you need to enjoy incomes that keep pace with inflation. Therefore we EMBRACE volatility and hope for regular doses of it, but not so much of it that you end up doing anything daft.
To help avoid that we have increased the allocation to bonds to offset the increased volatility of having more emerging market and smaller companies.
The changes described above have been made wherever possible without creating a tax liability. If you have not yet agreed to discretionary permissions you will be emailed separately to ok these changes.
This table shows you the before and after picture:
|Emerging Mkt Companies||10%||20%|
|Cash||As required to meet your needs|
The long-term data tell us that we can EXPECT (very, very important word) both “before” and “after” to produce the same returns, volatility and maximum drop in value. So why make the changes?
The answer is, in our opinion, as above – a global economic recovery should favour smaller companies in developed countries and companies in emerging markets, therefore we should lean in that direction. Once the recovery is at its fullest you can expect us to lean back towards larger companies in developed countries.
Should you wish to discuss any of the above please let me know and we can arrange a call or Zoom.
Also, we are running an investment webinar on Tuesday 26 January at 11.30 am where we will discuss these changes. Should you wish to join us please CLICK HERE.
future proofing your finances
Town Close are expert financial planners. Our goal is the same as yours – to help you do the things that are important to you in the time you have remaining.