Investment Planning

Let the Markets do the heavy lifting

By | Investment Planning, News

If you didn’t know better you may assume, probably because of constant media noise, that Stock markets globally have virtually ceased trading, and just given up. Actually, they haven’t and many of our clients have seen really good market recoveries lately. That clients have listened to and accepted the logic behind our investment philosophy is extremely reassuring to us. It has meant sitting tight, taking advantage of recent downturns, knowing that ‘this too shall pass’.

We are acutely aware that many investors will not have experienced the levels of recent volatility, however, I personally have been through around 7 of these ‘Black Swan’ events so feel confident we know what works to get people and families through the times. It really resonated with me when new National Treasure, Colonel Tom Moore said: “For all those people who are finding it difficult at the moment: the sun will shine on you again and the clouds will go away,”. Captain Tom may not know all the academic research behind key investment principles, like the one below about letting Markets work for you, but I couldn’t have put it better myself. He’s been around you know!


Let the markets do the heavy lifting

In investing, there are two main sources of potential returns. The first is the return that comes from the markets and the second is the return generated through an investor’s skill. At its simplest, there are two main ways in which an investor can try to deliver a better return than the market return; time when to be in or out of the markets (known as market timing, tactical asset allocation or sometimes a ‘top-down’ approach), or to pick individual stocks (known as stock picking, security selection or sometimes as a ‘bottom-up’ approach). This gives us the four main combinations of strategies set out in the figure below.

Figure 1: Four main strategies exist – they are not equal in effectiveness

Trying to beat the market – through either market timing or stock picking – is a tough game, with very few winners, and in our view is not a game worth playing. That positions our own approach in the bottom right quadrant, where we and other sophisticated investors use the information in the empirical evidence to employ an approach with the greatest chance of delivering a successful outcome. We avoid trying to market time or pick stocks. We just let the markets do the heavy lifting.

Letting the markets do the heavy lifting on returns will take a great weight off your shoulders; you no longer need to worry about picking the right stock, the right manager or deciding if you should be in or out of the markets. We are always happy to chat about some of the overwhelming empirical evidence in support of our approach, so if you feel you want to know more then call us on 01869 331469.


How to battle investment fear & bias

By | Investment Planning

As we write this, the global markets are still in a period of great uncertainty. Even as European nations tentatively begin reopening their schools and business, COVID-19 still hangs over the economy and stock exchanges. Many investors, already bruised from 30% market falls in the first quarter of 2020, are looking ahead with trepidation, wondering if things will get better. If they do not, moreover, how can an investor muster the mental fortitude to stay true to the investment strategy they agreed with their financial adviser?

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Should you change investment strategy in a volatile market?

By | Investment Planning

It’s often hard enough to stay true to the investment strategy agreed with your financial adviser during “good times” in the market. When the economy is unstable and markets are fluctuating, however, holding course is usually even more difficult. The temptation to withdraw from falling stocks, jump onto rising ones or redistribute your asset allocation can be very strong – especially if following the media or if you believe others around you are doing so.

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How do I diversify properly?

By | Investment Planning

A diversified portfolio (set of investments) spreads your money across different asset types and investment opportunities. There are many benefits to doing this, as opposed to concentrating your money on a small group of investments. Here at WMM in Oxford, we point clients to the fact that this approach helps to reduce your investment risk; after all, if one investment performs badly but the others don’t also suffer, then your portfolio is shielded from further damage during times of market volatility.

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2020 market outlook – should we be concerned?

By | Investment Planning

Here at WMM in Oxfordshire, our financial planning team has received many enquiries about the prospects for the stockmarket in 2020. Almost certainly, these concerns have been driven by alarmist headlines about global recession from the UN, or worldwide debt crisis from the World Bank. These fears will have been stoked more recently by the outbreak of the COV19 virus which threatens to push countries such as Singapore into recession, and which could cost the global economy as much as £217bn in the first quarter of 2020.

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Diversification: Why & How To Do It

By | Investment Planning

If you’ve ever watched Dragon’s Den, you’ll have noticed that Peter Jones, Touker Suleyman and the other investors look to invest in multiple companies. Each show might focus on a handful of investment opportunities, but looking at each of the Dragon’s investment portfolios as a whole, each one would feature multiple companies and asset types.

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How to keep market volatility in perspective

By | Investment Planning

Whether you have been investing for a while or are just starting out, the fluctuations of the stock market can be a frightening thing. Cash can be comforting in comparison; its value is somewhat predictable. Yet in today’s world of low-interest rates, you’d be lucky if your cash managed to beat inflation. Realistically, to generate any meaningful investment returns in 2020 you need to look beyond cash to other asset types, which inevitably carry greater risk.

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6 Tips to Sidestep Investment Mistakes

By | Investment Planning

This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult us.

Even the very best, most experienced investors make mistakes. The great Warren Buffett, for instance, claims that he regrets some of the decisions he made over the years. A case in point was his purchase of Berkshire Hathaway stocks in the 1960s, a self-described “vindictive mistake” which he estimates cost him $200bn.

It’s important to recognise that if you invest in the markets for any length of time, you’re likely to make some mistakes. The point is to try to identify the ones that can be prevented, especially those which require the extra, impartial eyes of an experienced financial planner. In this short guide, our financial planning team here at WMM will be sharing six common investor mistakes, and what you can do about them:


#1 Investing in something you don’t understand

It’s unlikely that any of us can ever fully understand every investment in our portfolio. Each fund comprises multiple companies, for instance, each of which has multiple dimensions to it; profiles of business owners, cash flow forecasting, profit and loss, operational differences, distinct customer bases and different stages of product development/maturity. Understandably, few ordinary investors have the time to get their heads around all of this.

With that said, it’s important to have at least a basic understanding of your investments. Which sectors do the companies within your funds operate in, for instance, and how do they make their money? Do you know the primary differences between investing in bonds and equities? Perhaps your current financial adviser has recommended you invest in something, and you feel uneasy as you don’t quite understand what it is they’re suggesting?


#2 Allowing emotions to rule

If you look at your investment portfolio and notice one of your ‘Index’ funds starting to plummet, how do you react? Typically, many people start to panic and some even try to pull their money out before they “lose any more”. This kind of reactive investment approach is one of the worst things you can do, however.

Quite often, pulling money out during these moments can cause more harm than simply staying in the market to ride out the storm. If you feel yourself getting nervous during this kind of market volatility, take a deep breath and take a step back. Have these sorts of movement happened before? Did the markets eventually climb back up again? Quite often, the answer is yes.


#3 Trying to time the market

On the other side of the coin, another common investment mistake we often see is “pre-empting the market.” Here, you might pull money out of a stock before you think it’s about to fall in price. Or, you might commit capital towards a stock which you anticipate will imminently rise. This is essentially what professional active fund managers do on behalf of their clients. Unfortunately, it is notoriously difficult to do consistently well. Even experienced fund managers typically fail to time the market effectively over the course of many years. Again, stay in the market. Don’t try to time it.


#4 Not diversifying sufficiently

Earlier in 2019, many investors were unfortunately hit by the decline and eventual closure of Neil Woodford’s flagship UK Equity Fund. At its peak, it was valued at £10bn, and eventually fell to about £2.9bn before investors’ money was locked due to the fund’s suspension. Those who put most or all of their eggs into this basket would have felt the financial pain very acutely. Those who had their capital spread out across multiple asset classes and funds, however, would have been shielded from significant damage. It’s a reminder that diversification is key to a long term, successful investment strategy. Putting your faith into one “hot stock” or fund is a big risk.


#5 Relying on past performance

It’s important to consider how successfully different funds and investment opportunities have delivered strong returns for their investors in the past. However, it’s a common mistake to assume that good past results will determine what happens in the future. Other factors are also important to consider with your financial planner, such as a fund’s fundamentals. Again, the Neil Woodford fund is a good example. Despite outperforming the FTSE All Share throughout the early 2000s, his UK Equity Fund is now closed. One important reason widely acknowledged for this was the fund’s high reliance on unlisted assets.


#6 Forgetting fees and inflation

There are numerous forces which can erode your investment returns if you are not careful. Inflation, for instance, erodes the real value of the money in your investments. This is one reason why regular savings accounts in 2019 tend to offer such poor value for those looking to grow their wealth. After all, if you have a 1% return from interest but are facing a 2% inflation rate, you are actually losing money. A lot of investors fail to take inflation into account when analysing the preservation and growth of their wealth. Be careful not to neglect this yourself.

Investment management fees are another area where investors can sometimes fail to notice the erosion of their returns. Actively-managed funds can be particularly expensive since they need to employ an active fund manager who regularly buys and sells investments (transactions which, themselves, are often taxed and these costs are passed on to the investor). Again, speak to your financial planner to ensure that you are not paying more than is absolutely necessary when it comes to managing your investments.

If you are interested in starting a conversation about your portfolio, then we’d love to hear from you. Get in touch today to arrange a free, no-commitment consultation with a member of our friendly team here at WMM.

Reach us on 01869 331469


6 More Tips to Protect Your Portfolio

By | Investment Planning

This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult us.

The unfortunate nature of money and investing is that they are always at risk. Cash stored under your bed might be caught in a house fire. Property investments might fall in value, and equity investments might go down. The point is this: risk is tied up with all kinds of capital. The crucial task of the investor, however, is to learn how to mitigate these risks and live with them.

One of the great advantages of constructing a strong investment portfolio is that it helps to spread out your risk. Yes, your equities might go down in value during a bear market. Yet until you actually sell your shares, you haven’t actually “lost” anything. In the meantime, if you hold fixed-income securities (e.g. government bonds), cash investments and other “low-risk assets” then these can also help your portfolio to ride out the storm.

With that said, it would be a mistake to claim that simply putting your money into an investment portfolio effectively “shields” your money from all disasters. Many people make costly decisions about their investments – possibly out of fear or panic – and often come to regret them later. Here in this article, our financial planning team here at WMM will be sharing six common mistakes made by modern investors and some thoughts on how to avoid or minimise them.


#1 Don’t follow the crowd

Within particular circles of friends, family and colleagues, it is easy to become tempted by talk of the latest “hot stock” which everyone seems to be piling onto. Whilst human beings naturally want to follow the crowd due to herd mentality, it’s important to tell yourself during moments of rush like these: “Just because everyone is doing it, doesn’t make it a good idea.” Remember the bursting of the Dot Com Tech Bubble, where thousands of investors speculated on tech firms during the 1990s and $5 trillion in market capitalization was lost by 2002.


#2 Don’t watch your investments every day

This might sound like a strange point. After all, shouldn’t you keep an eye on how your portfolio is performing? Yes, of course, you should. Yet most people find it unhelpful to regularly watch their investments as they go up and down. Logging into your portfolio obsessively is likely to cause you to focus on short-term performance rather than long-term growth, which can lead to impulsive and costly decisions. Log in every month or so, some even say annually is a good option, but just try to avoid compulsive checking.


#3 Don’t over-commit to one opportunity

An age-old maxim amongst financial planners, but an important one regardless: “Don’t put all of your investment eggs in one basket.” As great as property might look at a given moment as an investment, resist the urge to commit all of your capital to that one market. Gold might look good at various points in time, but think carefully before committing vast sums to that one asset. The same applies to equities and cash. Speak to your financial planner about how to appropriately diversify and avoid unnecessary risk exposure.


#4 Stay in for the long-haul

If you plan to invest for less than five years, then you risk crossing the barrier from investing into speculating or even gambling. Only in very specific circumstances might it be appropriate to consider investing some of your money over a shorter time frame (e.g. sophisticated investors weighing up an asset-backed, time limited opportunity). Always seek professional financial advice about how to build an effective, balanced portfolio for long-term wealth preservative and growth.


#5 Rebalance regularly, at least every 12 months

Whilst it is generally unwise to obsess daily over your investment performance, it is a good idea to check your portfolio at least once a year to make sure you are still on track towards your financial goals. It might be that your equities have performed particularly well, for instance, and you need to rebalance your portfolio so that it is not sitting outside of your established risk tolerance. Or, perhaps your financial planner has identified poor fundamentals in one or more of your funds, placing your equities at unnecessary risk. Here, you might speak to them about moving your capital across into alternative funds which offer similar potential for generating returns.


#6 Breathe and tame your emotions

One of the investor’s biggest enemies is their own emotions. Fears over a dreaded, imminent market fall can lead people to “panic selling”, which can lead them to miss out on vital growth opportunities for their wealth should these not transpire. The excitement that a particular stock is about to “rocket upwards” can lead to impulsive buying, which might not later pick up and could even take a nosedive. In moments when you read headlines about the markets which cause you to start panicking or get worked up, try to breathe and gather your thoughts. Ask yourself some calm, rational questions before rushing to any investment decisions:

  • Have I seen volatility in the market like this before, or is it unusual?
  • Generally speaking, is it a good idea to make investment decisions out of emotion?
  • Do I need the money in my investments anytime soon, or can it sit where it is?
  • Do I expect my portfolio to always go up, or should I expect it to sometimes go down?
  • Is this something I should speak to my financial planner about?


Final Thoughts

If you want to start a conversation about your financial plan or investment strategy, then we’d love to hear from you. Get in touch today to arrange a free, no-commitment consultation with a member of our friendly team here at WMM.

Reach us on 01869 331469


6 Myths of Ethical Investing, Busted

By | Investment Planning

This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult us here at WMM in Oxford.

The environment is climbing up the agenda in 2019. During the December UK general election campaign, for instance, The Labour Party made it a core pillar of their campaign, calling for a “Green Industrial Revolution”. ITV also ran its first-ever leaders TV debate on climate change, titled “Emergency On Planet Earth”. In the financial sector, “ESG investing” (environmental, society & governance) is also moving more into mainstream discourse.

Here at WMM, it’s a particular topic of interest for our clients who are interested in making their portfolio more ethical or environmentally-friendly. Yet, it’s fair to say that many misconceptions still circulate about ESG, ethical and social impact investing. In this short guide, we’ll be tackling some of these myths head-on. If you’d like to know more about ESG investing or want to discuss your investment strategy with us, please get in touch to arrange a free consultation:

Reach us on 01869 331469


Myth #1: You need to be rich to invest in ESG

There seems to be a widespread perception that you need to be a philanthropic millionaire to be able to invest in “green opportunities”. The image is often of a young, idealistic investor with more money than sense, throwing money to the wind at individual ethical startups which have a high minimum investment barrier. The good news is that you don’t need to be super-wealthy to start diversifying your portfolio to include ESG investments. There are many “sustainability funds”, for example, which you could speak to your financial adviser about.


Myth #2: All investments labelled “green” are ethical

Just like other things in life, a fund or other investment is not necessarily “green” or “ethical” simply because it has these labels in their name. This is where working with an experienced financial adviser can offer great value. They can help you dig under the surface and look at the real composition of the fund sitting under the label.

Remember, people also have different opinions about what qualifies as an ESG investment. For some, it will be important to not just avoid certain markets or sectors (e.g. tobacco, arms or oil), but choose funds or companies which are actively combating climate change. Other people will be happy to simply invest in funds where companies are limiting their carbon footprint. The important thing is to do your due diligence and build a portfolio which you are comfortable with.


Myth #3: Making money is less important than values

Whilst we do not wish to diminish the importance of protecting the environment, it’s crucial to make the point that ESG investing is not about charity. Profits and investment returns matter. The common perception that “values beat profits” often feeds into the widespread belief that ESG investing provides lower returns compared to non-environmental funds. In other words: “To do the right thing with your money, you need to sacrifice your opportunities for wealth growth.”

Whilst past performance is not a guarantee of future returns, we should note that many ESG and other environmental funds have matched other ‘Non-ESG funds’ performance and often surpassed them. Indeed, investment platform AJ Bell researched some of the top ethical funds earlier in 2019 and found that nearly three-quarters outperformed their non-ethical counterparts.


Myth #4: There’s no difference between ethical funds

Many people believe that most if not all of the ESG and environmental funds on the market essentially contain the same investment opportunities. This perception is often accompanied by the impression that there simply aren’t many successful, growing companies with an ESG agenda which these funds can choose from.

Quite often these beliefs are rooted in a particular idea about ethical investing – i.e. it is mostly concerned with protecting the environment. However, ethical investing goes much further than that. There are companies which pursue ethical values in areas such as pornography, gambling and alcohol, for instance. ESG investing, in particular, broadens the agenda from a narrow focus on the environment to also include companies which try to make a positive impact on their staff, local communities and industry practices.


Myth #5: ESG investing is a bigger time commitment

There is often an impression that it takes more effort to invest in ethical companies and funds, since you need to check their credentials to ensure they reflect your values. Whilst this does add a bit more due diligence, investing in ethical funds is very similar to investing in non-ESG funds. Your financial planner can help you check the fundamentals of the fund, as well as the individual companies which it comprises. Unless you are a sophisticated investor interested in “Dragon’s Den-style” investing in individual companies, working with ESG and other social impact funds should not add a significant burden of due diligence.


Myth #6: Ethical investing is for idealists

Some people look down on ethical investing, seeing it as an option for less serious investors. For them, this investing style is more of a fringe activity often done by those with over-sensitive consciences. Yet this view is increasingly becoming untenable. Ethical investing is moving into the mainstream with each passing month. Just this year in 2019, for instance, the National Trust told the public that it would move its investments out of fossil fuels. More and more people care not just about their investment returns, but the ethical credentials of those investments too.


Final Thoughts

If you want to start a conversation about your financial plan or investment strategy, then we’d love to hear from you. Get in touch today to arrange a free, no-commitment consultation with a member of our friendly team here at WMM.

Reach us on 01869 331469