Investors love good stories. In recent years, many of these stories have centred around innovations that have fundamentally changed the way we live our lives. Some examples might include the release of the original Apple iPhone in 2007, the delivery of Tesla’s first electric cars in 2012 and the launch of Amazon Prime’s same-day delivery service in 2015 . No doubt, many of you will have had conversations with friends and family around the successes, failures, and prospects of some of the world’s largest firms and the goods and services they offer. In this note, we take a deeper look at the ‘Big Five’ tech companies – Amazon, Apple, Alphabet (Google), Facebook and Microsoft – through the lens of the long-term investor.

In what has been a turbulent year thus far, some larger firms have come through the first - and hopefully last - wave of the ongoing pandemic relatively unscathed. Those investors putting their nest eggs entirely in any combination of the ‘Big Five’ would appear to have done astonishingly well relative to something sensible like the MSCI All-Country World Index, which constitutes 3,000 of the world’s largest firms . At time of writing, Amazon’s share price has fared best, increasing 75% since the beginning of the year.

 Figure 1: The 'Big Five' have held up well so far this year

Data source: Morningstar Direct © All rights reserved. Returns in GBP from 01/01/2020 to 22/07/2020.

These types of firms tend to struggle to stay out of the headlines for one reason or another. Perhaps as a result, many of the investment funds found in ‘top buy’ lists - such as the one on AJ Bell’s Youinvest platform - have overweight positions in one or more of these stocks. The final column in the table below shows the weight of each ‘Big Five’ stock as it stands in the MSCI All-Country World Index.

If an investor were to adopt a purely passive investment strategy that owned each company as its proportional share of the world market, the final column would be that investor’s top 5 portfolio holdings at time of writing. Many of today’s most popular funds are making big bets on one or more of these companies, anticipating that the past will repeat itself moving forwards.

Table 1: AJ Bell's top traded funds in the past week

Data source: Morningstar Direct © All rights reserved. AJ Bell for top traded funds between 15/07/20 – 22/07/20.

Sticking to the long-term view

The challenge for these managers, and others making similarly large bets, is that these are portfolios that will be needed to meet the needs of individuals over lifelong investment horizons, which for the vast majority of people means decades, not years. With the benefit of hindsight, managers who have placed their faith in these firms have stellar track records since Facebook’s IPO in 2012, as the table below highlights.

Table 2: ‘Big Five’ performance since Facebook’s IPO

Data source: Morningstar Direct © All rights reserved. Returns from Jun-12 to Jun-20.

An interesting exercise would be to investigate the outcomes of these firms over a longer period of time, for example 30-years seems more prudent. This is somewhat difficult given that 30-years ago, 3 of these firms did not exist, Mark Zuckerberg was 6-years old, Apple came in at 96th on Fortune’s 500 list of America’s largest firms and Microsoft had just launched Microsoft Office .

A partial solution to this problem is to perform the exercise from the perspective of an investor in 1996, which is the start of Financial Times’ public market capitalisation record . The ‘Class of 96 Big Five’ consisted of General Electric, Royal Dutch Shell, Coca-Cola, Nippon Telegraph and Telephone and Exxon Mobil. The chart below shows the outcomes of each firm over the past 26-years. A hypothetical investor with their assets invested in either Coca-Cola or Exxon would have just about beaten the market over this period, those in Royal Dutch Shell, Nippon Telegraph and Telephone and General Electric were not so lucky.

This experiment is illustrative only, one look at the chart below is enough to see that almost no investor would want to stomach the roller coaster ride they would have been on in any one of these single-stock portfolios.

Figure 2: The winners do not necessarily keep winning

Data source: Morningstar Direct © All rights reserved

Summary

The beauty of the approach you have adopted is that judgemental calls such as these are left to the aggregate view of all investors in the marketplace. No firm is immune to the risks and rewards of capitalism; be it competition from Costco or Walmart taking some of Amazon’s market share, publishing laws causing Facebook to apply heavy restrictions on its users or some breakthrough smartphone entering the marketplace that is years ahead of Apple – remember Nokia?

Rather than supposing that firms who have done well recently will continue to do well, systematic investors can rest easy knowing that they will participate in the upside of the next ‘Big Five’, the ‘Big Five’ after that and each subsequent ‘Big Five’. Those who can block out the noise of good stories and jumping on bandwagons are usually rewarded in this game.

Figure 3: Your eggs are in many baskets

Source: Albion Strategic Consulting. For demonstrative purposes only.

Risk Warning This newsletter does not constitute financial advice. Remember that your circumstances could change and you may have to cash in your investment when the value is low. The value of your investment and any income from it can go down as well as up and you may not get back the original amount invested. Past performance is not necessarily a guide to the future. If you are in any doubt you should seek financial advice.

One of the hardest concepts to grasp in investing is that a ‘good’ company is not always a better investment opportunity than a ‘bad’ company. If we believe that markets work pretty well – not unreasonable given that few investment professionals beat the market over time - and that they incorporate all public information into prices pretty quickly and efficiently, all of the ‘good’ and ‘bad’ news should already be reflected in these prices.  A ‘good’ company will have to do better than the aggregate expectation set by the market for its share price to rise and vice versa.  If a ‘bad’ company is in fact a less healthy company, it may have a higher expected long-term return, as risk and return are related.  

It is perhaps evident that if the market incorporates the aggregate forward-looking views of all investors, it becomes very difficult to choose which companies, sectors, and geographic markets are likely to do best, going forward.  In an uncertain world, where stock prices could move rapidly, and with magnitude, on the release of new information - which is itself a random process – then it makes good sense to ensure that an investment portfolio remains well diversified across companies, sectors and geographies.  Take a look at the chart below that illustrates how deeply diversified a globally equity portfolio can be.

 Figure 1: If you do not know which stocks are going to outperform well, own them all

Source: Albion Strategic Consulting. Data: Morningstar Direct © 2020. All rights reserved.

The concentration risk in the US’s S&P500, is quite different.  

Figure 2: The US’s S&P500 is increasingly concentrated in a few names. 

Source: Albion Strategic Consulting. Data: Morningstar Direct © 2020. All rights reserved.

Given that all the future promise of a company is already reflected in its price today, it is quite a risk betting a large part of your assets on just a few names, concentrated, for example, in the technology sector.  The top 8 technology stocks in the US now have a larger market capitalisation than every other non-US market except for Japan.  Dominance of companies, sectors and markets ebb and flow over time.  Who is the next Amazon?  What regulatory pressures could these dominant companies face?  Is Donald Trump’s recent rage against Twitter the start?  No-one knows.  By remaining diversified, you will own the next wave of market leaders as they emerge and dilute the impact of ebbing companies.  Whilst it is always tempting to look back with the benefit of our hindsight goggles and wish we had owned more (take your pick), US tech stocks, other growth stocks, gold etc., what matters is what is in front of us, not what is behind us.  

‘The safest port in a sea of uncertainty is diversification.’

Larry E. Swedroe, Investment Author

Risk Warning This newsletter does not constitute financial advice. Remember that your circumstances could change and you may have to cash in your investment when the value is low. The value of your investment and any income from it can go down as well as up and you may not get back the original amount invested. Past performance is not necessarily a guide to the future. If you are in any doubt you should seek financial advice.

What is the impact of this pandemic on my investment portfolio? And what can you do to protect your future wealth?

As always, I will remind you we cannot predict the future. That is not our job. But what we can do is try and find similar issues in the past and see what strategy we can adopt today.

I have just finished reading ‘Dying of Money’ which was written by Jens Parsson. It tells the history of the German inflation after World War I and the US inflation after World War II. How they happened and what you can do to protect your wealth from events like this. The interesting one for me was the German inflation.

The Germans lost the war, as we know, but based their finances leading into the war and during the war on the basis that they would win. War was followed by reparations and then the Spanish Flu pandemic. The Germans broke with the gold standard and entered a period of money printing. Initially this led to a boom in the economy and very little inflation to speak of, but suddenly inflation got a grip and in a very short period the German Reichsmark became worthless. You could order a cup of tea and by the time it was served to you it was 20% more expensive.

After WWI, the Reichsmark was worth 23 cents to the $1. By the end of 1923, the Reichsmark was 1,000,000,000,000 to a $1! If you were a German depositor or a lender, you lost it all.

The money supply was the main issue. There were many reasons why the supply of money changed, but if you print more money, creating more notes, you make what you have worth less. To give a simple example. Let us say that the entire spare cash in the world is £1 and it is owned by one person. Let us also say that the only thing you can buy is a field of grass from someone else. There is nothing else to buy, just that one field of grass. Then the field, theoretically could be worth £1. If I now print another nine notes and give £1 each to nine more people as spare cash, we now have £10 in total available, but there is still only one field to buy. What is the field worth now? So, what can we learn from this:

• The nine people who got £1 each for doing nothing probably felt very happy!

• The first person to have a £1 saw his purchasing power reduce by 90%.

• The owner of the field retained their purchasing value.

Okay, that is a simple example, but we know that borrowing and spending in the western world and the printing of money; quantitative easing (QE), has been going on for years now. This virus has pushed all this out even further. There is no deposit interest to speak of and a great way of clearing all this debt, which cannot possibly be paid back in any reasonable length of time, is probably a savage bout of inflation.

So, who came out okay from the German Inflation, US inflation and my example? It was the people who owned real assets; shares in companies, home owners, land owners. Holders of precious metals as well. People who owned stuff.

Who lost? Those people who owned the money; bank depositors, cash and lenders.

And the big winners; Government and borrowers. Debts gone – happy days!

I believe we are now in unchartered territory. But history has shown that while shares can go up and down in value (as we have seen in recent months), they can be a good store of future long-term wealth, offering some inflation protection. There has never been a stock market that has gone bust, but there are several currencies that have disappeared!

Max Tennant

Risk Warning This newsletter does not constitute financial advice. Remember that your circumstances could change and you may have to cash in your investment when the value is low. The value of your investment and any income from it can go down as well as up and you may not get back the original amount invested. Past performance is not necessarily a guide to the future. If you are in any doubt you should seek financial advice.

It seems logical to believe that the performance of a country's stock market is linked to the state of its economy. After all, if GDP growth is strong, company profits are good, and that should help share prices.

Economic prospects are even often used to identify which stock markets are likely to perform in future. If a country is experiencing positive GDP growth, then investors are encouraged to see it as a good place to put their money.

What the evidence reveals

Yet several studies have shown that this link is actually weak. A comprehensive analysis of 21 countries over more than 100 years by the authors of the book Triumph of the Optimists found mixed results between GDP growth and stock market performance.

An MSCI analysis in 2010 found similar results. Most notably, for the 60 year period from 1958 to 2008, Spain and Belgium enjoyed real growth in their economies of between 3% and 4% per year, yet the real returns from their stock markets over this same time were negative.

One of the clearest examples of the potential breakdown between a country's economic performance and that of its stock market has been Japan. Since 1989 the country has grown its economy at over 1.5% per year, yet the Nikkei 225 Index is still well below its December 1989 peak. That is a period of more than 30 years in which Japan's GDP growth has not been reflected in broad market returns.

A closer look

This doesn't only occur over the long term either. It can also be play out from year to year.

The tables below, which consider the last 90 years of GDP growth in the US, make this clear. On the left are the 15 calendar years during this period in which US growth was weakest, and on the right are the 15 years in which it was strongest.

What stands out is that in more than half of the worst years, returns from the stock market were still positive. In six of them, the S&P 500 was up more than 20%, even though GDP growth was zero, or negative.

Not quite as striking, but nevertheless noteworthy, is that even in some of the best years for the US economy, the stock market fell. Incredibly, in 1941, when GDP growth was 17.7%, the S&P 500 declined 12.8%.

Understanding the gap

It is clear from these studies that the state of a country's economy should not be seen as a guide for how its stock market is likely to perform. As MSCI notes, there are three main reasons for this.

“First, in today’s integrated world we need to look at global rather than local markets. Second, a significant part of economic growth comes from new enterprises and not the high growth of existing ones; this leads to a dilution of GDP growth before it reaches shareholders. Lastly, expected economic growth may be built into the prices and thus reduce future realized returns.”

Investors should therefore be cautious about basing their decisions on economic data. This has even been apparent in the UK over the past five years.

The story in London

Since 2014, the local economy has mostly staggered along at growth rates below 2%. Yet, the FTSE All Share Index has delivered an annualised return of 9.4%, which in today's low inflation environment is a real return of close to 8%.

If an investor had stayed out of the market due to fears around Brexit and the country's general lack of economic momentum, they would have missed out on this period of growth.

Similarly, those who argue that the US stock market is going to continue to show good returns almost always base their argument at least in part on the fact that the US economy is still strong. As history is shown in the case of Japan, however, a growing economy does not necessarily equate to good returns for investors on the stock market, particularly if share prices are already high.

Trying to guess which markets may or may not deliver the best returns in future based on the economic prospects of the country in which they are based is therefore not a way to investing success. Investors are far better off building a strategy diversified across markets that they can stick to no matter the economic environment, and reap the rewards over the long term.

Photo by Vlad Busuioc on Unsplash

This year marks the 300th anniversary of one of the world's most famous financial catastrophes: the South Sea Bubble. It is a story with complex origins, but the pattern of events in 1720 has unfortunately been repeated in similar ways many times since.

It is not necessary to know all the details to appreciate what happened in London three centuries ago. However, it is worthwhile to look at how ordinary people were drawn into mistakes that left many of them ruined.

Money from nothing

At the start of 1720, stock in the South Sea Company was changing hands at £128 per share. The company was only moderately profitable, and the trade it ran between Britain and South America was small.

Its directors, however, were full of stories about how the riches of that continent were ready to be brought to Europe. Since the South Sea Company did have exclusive rights to provide the Spanish colonies with slaves, and to send one trading ship to the continent per year, these stories did have a kernel of credibility. They were, however, easily inflated.

The South Sea Company's main business had always, in fact, been supporting the British national debt. Since 1711 it had provided millions of pounds in funding to the government by selling its own shares.

It had become so important to the state that King George I was appointed as the company's governor in 1718. In 1719 it agreed to restructure more than half of the national debt in a way that would reduce the government's interest payments.

Growing interest

This gave the company room to issue even more shares on the public market. To make them more attractive, the directors not only pushed the idea that its South American trade was set to take off, but also came up with a scheme that allowed investors to buy these shares in instalments rather than having to pay the full price upfront.

This made them available to many more people, a lot of whom had no real idea what they were buying. They were however seduced by the rising share price and the tales of South American wealth.

By February, shares had climbed to £175, and in March they reached £330. May took the stock to £550.

Not wanting to miss out on this opportunity, more people bought more shares, and the price went up further. In August, the stock was up almost ten times in just eight months, at over £1 000, and the euphoria was at its peak.

However, just as suddenly as it had began, the bottom fell out of the market. At the price being asked, there were simply no more buyers.

Within months, demand for the shares collapsed. By December, the company's shares had slumped back to £124 and many people had lost huge amounts of money.

Repeating history

The lesson most often associated with this series of events is that investors should be wary of anything that becomes a 'sure thing' in popular opinion. Almost everybody was certain that shares in the South Sea Company were only going to keep going up, and the rapidly rising price appeared to confirm their view.

The danger is that when this kind of thinking takes hold, it does become a self-fulfilling prophecy for a while. The price of South Sea Company shares kept going up because people kept buying them. However, at some point the limit of buyers will be reached, and from there the crash back down can be brutal.

The more subtle lesson, however, is that most of the ordinary investors who were buying the company's stock did not know or understand what they were buying. Not only was trade in shares still novel to them, but they did they not appreciate that the South Sea Company's shipping operations were not its main focus. They also had no idea of the complexities involved in its relationship with the British government.

A recent Bloomberg article noted how more and more ordinary investors today are buying complex financial products that have become available to them due to technology. These include forex, leveraged exchange-traded products and cryptocurrencies.

These products are not necessarily going to create bubbles, but they do seem 'sexy' because they can make rapid gains. This, however, is exactly what makes them dangerous. Anything that can go up quickly can can down just as quickly, and these sudden price movements can be devastating.

The South Sea Bubble should stand as a reminder that successful investing is not about chasing the most exciting opportunities. It is actually the opposite: be boring. Diversify, keep your costs down, and let the market do its work over time.

Photo by Annie Spratt on Unsplash

Some financial professionals are dismissive of academic research, arguing that it’s too far removed from the realities of today’s financial markets. True, academic models are, by their nature, theoretical. But that doesn’t mean investors can’t learn practical lessons from them.

In this video, Gerard O’Reilly from Dimensional Fund Advisors briefly explains what those lessons are.

You can find plenty of helpful videos like this one in our Video Gallery. Why not have a browse?

Video transcript:

When we talk about evidence-based investing, what we’re really referring to is academic evidence.

Some financial professionals are dismissive of academic research, arguing that it’s too far removed from the realities of today’s financial markets. True, academic models are, by their nature, theoretical. But that doesn’t mean investors can’t learn practical lessons from them. Here’s Gerard O’Reilly from Dimensional Fund Advisors.

“Academics come with models of the world, and those models are usually incomplete. But what do you learn from the models? You gain insight about the real world. The models have to be incomplete for you to learn from them, but you do learn. You can gain insights about better ways to invest, better ways to structure portfolios, so that when you come to the real world, you’re better equipped and have better frameworks to make rational investment decisions.

“So academia, by its nature, has to simplify the real world so that you can understand the real world better. But that’s the beauty of how academics approach the problem: they simplify it just enough so that it’s real enough to be interesting, but understandable enough so that you learn something. “

Dimensional is possibly unique among asset managers in that everything it does is based on empirical evidence. Over the years, the firm has worked with some of the most famous names in academic finance.

Gerard O’Reilly explains: “Gene Fama, who won a Nobel prize a few years ago, is an academic that we have been very closely related to since the founding of the firm. Along with Kent French who’s a co-author and a very close collaborator with Gene Fama. And what we’ve used from their work, and they have shared their work with us and the world over time, is really the intuition that their work has given to us about prices - securely prices reflecting information.

“Other academics are academics like Robert Merton, who also won a Nobel Prize, Myron Scholes has also won a Nobel prize - and their work has also given us tremendous insights, whether it’s in lifecycle finance or in how to structure portfolios. So they’re to name just a few of what I would call some of the great academics in finance, and there’s many more that we’re associated with and that we work with. But the work that they have done has really led to some big innovations in the field of practical investing that I think Dimensional has been able to use to the benefit of our clients.”

The most famous contribution that Fama and French have made to our understanding of the financial markets is the so-called Three-Factor Model, and an updated version, the Five-Factor Model. In a nutshell, Fama and French have demonstrated how certain types of stocks — for example, value stocks, small-company stocks and stocks of firms with high profitability - tend to outperform the market as a whole, over the long term.

Gerard O’Reilly elaborates: “We think that there are differences in expected returns across stocks and across bonds. How do you identify those? With the intuition from the Three and Five-Factor Model. Lower price, higher-expected cash flows, higher-expected returns.

“So, we say, how do we structure portfolios? Let’s look for low-price stocks relative to some fundamental measure of firm size, high-expected cash flow i.e. high profitability. That’s higher-expected returns, less overweighting those stocks.”

It’s not necessary for investors to have a detailed understanding of the work of Fama and French, but it pays to use an adviser who does have that level knowledge. Academic research really does provide us with insights that you, as an investor, can benefit from.

Picture: Alfons Morales via Unsplash

In a recent research paper entitled 'How to increase the odds of owning the few stocks that drive returns', global asset manager Vanguard revealed a telling statistic. Between 1987 and 2017 just under half of the 3 000 largest stocks listed in the US delivered a negative return.

Over this 31 year period, 47.4% of companies in the Russell 3000 Index saw their share prices decline. Some of those went bankrupt, delivering a negative 100% return.

What's more, the return of the median stock over these three decades was just 7%. In other words, if you picked the average stock, your return was insignificant.

This was over a period when the total return from the Russell 3000 Index was 2 100%. As the chart below illustrates, this performance was driven entirely by just 7.3% of stocks that returned over 1 000%.

Source: Vanguard, Wealth Logic LLC

Needles in the haystack

Of course, this is something of an over-simplification. Just because a stock declined over a full 31 year period, doesn't mean that it didn't make significant gains in between.

For instance, Superdry's share price may be 80% down from its 2018 peak, but an investor who bought the stock in mid-2012 and sold out of it before it collapsed could still have earned a return of 700% or more. It was, therefore, still possible to make a big return, even though Superdry's performance since listing is ultimately negative.

However, the broad lesson holds: there is an extremely small pool of persistent winners in the stock market. An investor picking a share at random is far more likely to under-perform the market over the long term than to out-perform it, and has almost a 50% chance of losing money.

This illustrates how difficult it is to be a successful stock picker. There are very few companies that are going to deliver a long term out-performance. It may be possible to beat the market through buying and selling stocks like Superdry at the right time, but that comes with additional risk. If you get it wrong, the consequences can be severe.

Fewer needles, more haystack

Research from the National Bureau of Economic Research (NBER) in the USA also suggests that not only are the 'winning' companies rare, but they are becoming even more so. A 2016 paper entitled 'Is the U.S, public corporation in trouble?' found that, on average, listed companies in the US have become larger, but they have also become less profitable.

Profitability is one of the key factors in share price returns, as investors are effectively buying a share of the company's future earnings. The higher those earnings are likely to be, the more investors will be willing to pay.

What the NBER found, however, is that the profitability of the market as a whole is being driven by a smaller and smaller concentration of companies.

“Over the last 40 years, there has been a dramatic increase in the concentration of the profits and assets of US firms,” the NBER authors note. “In 1975, 50% of the total earnings of public firms is earned by the 109 top earning firms; by 2015, the top 30 firms earn 50% of the total earnings of the U.S. public firms. Even more striking … we find that the earnings of the top 200 firms by earnings exceed the earnings of all listed firms combined in 2015, which means that the combined earnings of the firms not in the top 200 are negative.”

The growing concentration of not just earnings, but many measures of corporate strength among listed companies is illustrated in the table below:

Source: National Bureau of Economic Research

Compare this against the table below, which shows how, on average, profitability has fallen significantly over this 40 year period:

Source: National Bureau of Economic Research

What are your chances?

“Though performance has worsened for the average firm, the winners have done very well,” the study points out. “One way to see this is that four new firms entered the list of the top five firms by market capitalization in 2015, relative to 1995. Specifically, Apple, Google, Microsoft, and Amazon replace AT&T, Coca Cola, General Electric, and Merck. In 2015, these four firms combined had earnings of $82.3 billion, representing 10 percent of the earnings of all public firms combined.”

This shows just how small the pool of 'winning' stocks has become. Successfully identifying them beforehand would be extremely profitable, but it is also becoming more and more difficult to do.

Photo by Chris Liverani on Unsplash

Suppose that you needed to rent a car for the weekend, but you could not find a rental company able to guarantee the kind of vehicle you were going to get. You could be given anything from a Citroen C1 to a Mercedes A class, and you would not know what it was going to be until you showed up to collect the keys.

While this scenario might be disconcerting, at least choosing which firm to use should be straightforward. All else being equal, you should go with whoever charged you the lowest fee.

This is common sense when none of them can be certain of what they will be able to deliver. There is no point in paying more if you can't be sure that you are going to receive extra value for that money.

Yet, this is how the fund management industry has worked for decades. Active managers have been charging high fees for their products even though there is no way anybody can be sure of the outcomes that they are going to be able to produce.

What are active managers selling?

The rationale for this is that active managers offer the potential to out-perform the market. That is their selling point – you pay more because active management is the only way that your money can grow ahead of the benchmark. This is why so many investors and advisors fret over performance tables and fund ratings.

However, every genuine fund manager in the world is very careful to point out that not only is past performance no indicator of future returns, but that no level of performance is ever guaranteed. Given the vagaries of the market, it is simply impossible for anybody to know how any fund is going to perform into the future.

This hasn't, however, stopped active managers from promoting out-performance as their unique selling point. It was what almost every active manager in the world strives to deliver.

The irony is that this is obviously unobtainable. It is impossible for every active fund to out-perform. Simple mathematics dictates that if the benchmark is the average return from all active managers, then there must always be under-performers.

What does the evidence show?

As an increasing amount of research continues to show, these under-performers are actually the bulk of the market. Far more active managers are on the wrong side of average than the right side of it.

The most recent S&P Indices Versus Active (SPIVA) scorecard shows that over the 10 years to the end of June 2019, only 25.66% of UK equity funds out-performed the S&P United Kingdom BMI. In other words, just under three-quarters did not.

SPIVA scorecards calculated in markets around the world all show similar patterns. So too does Morningstar's Active/Passive Barometer.

Although this is only calculated for the US market, the most recent Morningstar barometer shows that only 23% of all active funds in the US beat the average of passive funds over the past decade. For US Large Blend Equity Funds, the figure is only 8%.

Where is the value for money?

Given this success rate, it should be obvious to active managers that what they are selling is not deliverable. It is much like a car rental company charging you for a Mercedes A class, even though it is likely that you would actually be given one. A company that did that would surely find itself out of business fairly quickly.

Yet, active fund managers continue to sell the idea of out-performance, even though more and more investors and advisors have begun to understand the research – that beating the market is extremely difficult to do, and improbable over the long term.

That is why there is now more money invested in passive funds than in active funds in the US. That milestone was reached in August last year.

Investors and advisors appreciate that the value proposition of index tracking funds is one that actually can be delivered consistently – to produce the return of the market, minus fees. It is understandable, straightforward, and reliable.

It is like the comfort of going to a car rental company and being given the keys of the vehicle that you actually booked. You should, after all, get what you pay for.

Photo by AbsolutVision on Unsplash

Have you read any market forecasts for 2020 yet? There is something about the turn of the calendar year that brings out the thumb-suckers in the media as sage reflection on the year just past gives way to blue-sky speculation about the coming 12 months.

To be sure, there is an economic element in this. Newsrooms tend to thin out over the holiday season as staff are told to clear accumulated leave. Media outlets stockpile think-piece fodder from bankers and brokers to fill the gaps between the ads for a few weeks. End-of-year specials are a popular go-to feature.

This is why you are confronted with clickbait headlines at this time like “Ten Big Economic Surprises for 2020” or “Five Stocks You Can Count on in the Coming Year” or “Your Armageddon Portfolio: Bunker Down with these Shares”.

Last year’s predictions

Actually, there were plenty of these types of headlines around Christmas 2018 following the global equity markets’ worst calendar year performance in seven years. The US-China trade war was heating up, the Brexit saga was roiling markets and there was mounting evidence of a significant global economic slowdown in the pipeline.

So on New Year’s Eve 2018, CNN pitched in with a guest economist’s column titled How Populism will Cause a Crisis in Markets in 2019.  The argument was that the impossibly simplistic solutions enacted by populist politicians to the post-GFC stagnation in developed economies would come home to roost in the coming year.

How things panned out

The analysis appeared sound, but a year on and we’re still waiting for the promised reality check. Equity markets have experienced double-digit gains in 2019. The US market has kept breaking records, to be up more than 20%. Against most expectations a year ago, bond markets have had another stellar year, with yields reaching unchartered territory.

To be fair, expectations that 2019 would mark a brutal reckoning for markets were widely held. In December 2018, a survey by Natixis Investment Managers said two thirds of institutional investors believed the US bull market would come to an end in the coming year.

The biggest threats cited were geopolitical disruptions, such as Brexit and trade wars, while rising interest rates were also seen as posing a significant risk.

A year on and those issues grind on. Markets vacillate according to every tweet from Donald Trump, though the UK election has taken some of the wind out of the Brexit issue. As for interest rates, they have spent most of the year falling, not rising.

The growth slowdown also triggered a wave of downgrades by major brokerages and banks in late 2018. Barclays won headlines when it lowered its year-end target for the S&P-500 to 2750 from 3000, citing bearish retail investor sentiment and slowing growth outside the US. Actually, they got it right first time and should have stuck to the original call because the index was above 3100 going into December, or about 25% higher over the year.

The cataclysm that wasn’t 

Every year, you see these calls go awry, perhaps none so spectacularly as the headline-grabbing line from the Royal Bank of Scotland in early 2016, telling clients in a research note to ‘sell everything’ in anticipation of a “cataclysmic” year in markets.

“Sell everything except high quality bonds,” the bank told clients. “This is about return of capital, not return on capital. In a crowded hall, exit doors are small.” 

It would have been a shame for those investors who followed that advice, because global equity markets delivered a return of about 8% that year in US dollar terms. In fact, the total return of equity markets from early 2016 to late 2019, as measured by the MSCI All Country World Index was more than 40%.

Opinions are soon out of date

The truth is everyone can have an opinion about the market outlook, but that’s all they are — opinions. And the problem with writing economic commentary on the run is you are always responding to news. Within a day of writing it, it’s usually out of date.

To be sure, there is still a case for economic analysis. The problem arises when you try to connect long-term analysis to short-term speculation about market direction. Markets respond to news based on the collective expectations of millions of participations. This is another way of saying all those opinions are already reflected in prices.

In any case, an economic or market forecast is inevitably based on a bunch of underlying assumptions, anyone of which can be thrown awry by events. Nothing really is constant, which is why forecasting is such a tough and unforgiving business.

Don’t indulge 

The media’s need for big market calls that attract eyeballs is easy to understand. We’re naturally drawn to the idea that someone out there can see the future clearly. The reality, unfortunately, is that no-one can. Everyone is guessing. 

Seasonal speculation is fun and diverting. But you’re better off choosing something else to indulge in.

Picture: Denise Karis via Unsplash

In most relationships it tends to be the male partner who makes the financial decisions.

Yet in many respects women are better at dealing with issues of personal finance than men. There’s certainly plenty of evidence to suggest that women, on average, are more successful at investing.

Why, then, do so many women shy away from finance and investing?

In this video, Dr Moira Somers, a financial psychologist at the University of Manitoba, gives some interesting pointers.

You will find plenty of helpful videos like this one in our Video Gallery. Why not have a browse?

Video transcript:

Robin Powell: Research into couples and their personal finances consistently shows that it still tends to be men who make the investment decisions.

But women tend to have a different attitude towards investing, and when they are involved, they often make better choices.   

Dr Moira Somers is a financial psychologist at the University of Manitoba.

Moira Somers: My understanding of the current research is that women are much more conservative investors. They often wait far too long to get into investing. When they do start investing though, they tend to have better returns than men, because they are more prudent. They don’t seek the extreme reward end of the spectrum. They are content with more modest returns and they tend to achieve them. 

RP: Surveys repeatedly show that money is one of the main causes of stress. Women are especially prone to worrying about it.

MS: Another gender difference is that women tend to stress more about money. They will acknowledge that they lose sleep more often than men do. And, sometimes, that’s because they do not have sufficient knowledge of their own family finances. They’re not the ones in control. You know how sometimes it’s harder to be a passenger in the car than a driver? You’re glad somebody else is driving but you still have absolutely no control about what’s happening. So, it’s a different kind of stress. 

RP: So, a lack of knowledge about investing is one reason why women aren’t more involved in investment decisions. But Dr Somers says there’s another key factor.

MS: When we survey them, when we work with them to say: “How come this isn’t so easily transferable for you? You have brilliant skills in household management, why is this not translating into the broader financial picture?” And some of it, frankly, has to do with mistakes that advisers make. There are some real big turn off’s, real big mistakes that just leave women feeling stupid and embarrassed and uncomfortable and so they vote with their feet.  

RP: Having the wise counsel of a good financial adviser is extremely valuable. There are signs that the advice profession is starting to serve women better than it has in the past, but there’s plenty of room for improvement.

So, don’t be put off by negative experiences. Find an adviser you trust and feel comfortable with. 

You can find out more about Dr Somers’ work via her website, moneymindandmeaning.com.

Check out more of the latest news from IFAMAX:

Pay less attention to weather forecasts

A little encouragement goes a long way

Weekly round-up: Week 48, 2019

Picture: Alice Donavan via Unsplash

It’s not mentioned often enough in the financial media that many of the keys to success as a long-term investor derive from qualities that are distinctly out of tune with the times. These include patience, discipline and crucially, delayed gratification — a readiness to prioritise distant rewards over instant ones.

In fact, the times we’re living in are almost antithetical to long-term investment. We are overwhelmed by choice. We are told we can have everything we want right now. And, if we can’t afford it, we can put it all on the plastic and worry about paying for it later.

All gain-no pain has a ready market 

The fact is there’s a ready market for the notion of all gain-no pain. Witness the dieting magazines that promise their subscribers perfect bodies with little expense or effort other than the cover price and sticking reminder listicles on the refrigerator door.

It works similarly in the investment world. Much of the financial services industry, and the media that serves it, wants people to believe in the idea that investment returns come down to “hot tips” and easy shortcuts. The giveaway pitch is “high returns with low risk”.

A dissenting view about the instant gratification, you-can-have-it-all-right-now economy has been memorably expressed by Charlie Munger, the business partner of legendary investor Warren Buffett and a man known for turning conventional wisdom on its head.

We can’t stand to wait

“Waiting helps you as an investor and a lot of people just can’t stand to wait,” Munger once said. “If you didn’t get the deferred-gratification gene, you’ve got to work very hard to overcome that.” 

Perhaps it’s due to the nature of modern consumer capitalism, which runs on encouraging people to pursue an endless and unquenchable cycle of externally generated desires. In other words, the notion of delayed gratification is out of tune with the times we live in.

But the ability to forgo today’s desires for the prospect of longer-term fulfilment is one of the most elemental requirements for success as an investor. Buffeted by media noise and the lure of short-term returns, we have to be able to resist the temptation to tinker.

Again, as Munger put it: “People are trying to be smart. All I am trying to do is not to be idiotic, but it’s harder than most people think.” 

One in five don’t plan for the long term at all

Just how hard it is was highlighted in a recent report by the UK online wealth management firm MoneyFarm, which looked at why as a society we seem to find it so difficult to invest in our future wellbeing and are so easily distracted by short-term temptations.

The research found that 21% of Britons don’t plan for their long-term future at all. And a further quarter (25%) think less than six months ahead. Five years was the furthest that most people (29%) currently plan for.

The causes of this short-termism are many, the report says, including a surfeit of choices and a subconscious view that by opting for one we limit our own freedom. Another factor is that thinking about our long-term future creates anxiety, which we treat with instant consumption.

How do we deal with it? The report recommends a number of strategies, such as imagining the most positive outcome from a change in our financial behaviour and consciously thinking about the biggest obstacles to our getting there.

Social support is important

Another underrated technique is galvanising social support around our goals from friends, family and professional advisers. The need, as Munger says, to wait patiently, to not do stupid things and to stay focused on a long-term goal is hard to do alone.

But the first step is setting the goal and building a plan to achieve it.

You can download the full MoneyFarm report here.

Check out more of the latest news from IFAMAX:

Pay less attention to weather forecasts

How women view money and investing differently

A little encouragement goes a long way

By Robin Powell

Make no mistake, this is a landmark week in the history of British fund management.

Yes, there’ve been City “stars” who have fizzled out over the years. But surely none has crashed to earth in quite such dramatic fashion as Neil Russell Woodford CBE.

Woodford, it was revealed earlier this week, has been fired from his flagship fund, Woodford Equity Income, which was gated in June after years of dismal performance, and the fund shut down. The fund’s assets are to be liquidated, but according to the FCA  investors will have to wait until January to get their money back. Suffice it to say, it will be substantially less money then they originally invested. It has since been announced that Woodford’s company, Woodford Investment Management, is to close down completely.

An industry shaken to its core 

Adrian Lowcock, head of personal investing at Willis Owen, summed it up when he told the Financial Times: “We have seen the complete demise of the most famous fund manager the UK has seen for years… This collapse is on a par with the implosion of New Star at the height of the financial crisis, and it will shake the funds industry to its core.”

It is indeed a rude awakening — including for Mr Lowcock, who in previous roles at Architas and Hargreaves Lansdown was one of Woodford Equity Income’s most outspoken advocates.

I’ve spent some time in the last few days looking at what was written about Woodford and the Equity Income fund at the time of the fund’s launch in June 2014 and in the months that followed. What is so extraordinary is not just how much coverage there was, but the fact that it was almost universally positive. There were frequent references to “the Oracle of Oxford” and Britain’s answer to Warren Buffett”.  Even the BBC described him as “the man who can’t stop making money”.

The role of Hargreaves Lansdown

What’s also very noticeable is how much of the coverage emanated from Hargreaves Lansdown.

Interestingly, many of the articles published on the platform’s website around that time have since been removed, but many remain. In one, the company’s founder Peter Hargreaves calls Woodford “one of the most gifted fund managers I have ever met”. Other HL commentators lauded his ability to “get the big calls right” and to “shelter money from the worst of market falls”.

Mark Dampier, Hargreaves Lansdown’s head of research, was quoted again and again in both the trade and mainstream press. One distinguished newspaper even gave him his own weekly column.

Dissenting voices 

Yes, there were a few dissenting voices. I regularly wrote on The Evidence-Based Investor about the folly of joining the stampede into Woodford’s funds. Indeed a journalist Financial Times journalist later contacted me to say thank you for persuading him and his partner to take their money out before it all went pear-shaped.

But those of us who did express concern — Paul Lewis from BBC’s Money Box was another one — were drowned out by Woodford enthusiasts. Responding to my suggestion that the academic evidence concludes, overwhelmingly, that winning funds are all but impossible to spot in advance, a well-known adviser wrote an extraordinary article in The Scotsman headlined Academics know nothing about investing.

I don’t mean to sound smug or clever. I had no reason to believe that Woodford would perform quite as badly as he did. I was just pointing out that the odds were heavily stacked against him beating the market on a cost- and risk-adjusted basis over any meaningful period of time.

Substantially worse off today 

In the event, Woodford wasn’t just beaten by the market; he was absolutely trounced by it. Apart from the worry that his investors have had to endure, and will continue to do so, they are substantially worse off today than if they had simply ignored the hype and invested in a low-cost index tracker.

Let’s hope that this whole sorry episode makes people think rather more carefully before entrusting their money to a heavily marketed active fund manager. 

But memories are short. This is just the latest in a long line of investment fiascos, and it won’t be the last.

Check out more of the latest news from IFAMAX:

Pay less attention to weather forecasts

How women view money and investing differently

A little encouragement goes a long way

Robin Powell is a freelance journalist and editor of The Evidence-Based Investor.

Every investing style has its time in the sun. In the past decade, the sun has shone brightly on high-relative price ‘growth’ stocks, while relatively cheap ‘value’ stocks have remained deep in the shadows, neglected and unloved.

This has sparked a vigorous debate among investment professionals about whether growth stocks, like formerly pasty-skinned holidaymakers falling asleep on Mediterranean beaches, have had too much of a good thing, or whether value is out of favour for good.

Certainly, there is a significant body of research showing there is a long-term premium available for investors who tilt their portfolios away from glitzy growth toward less fashionable value stocks — ones with low prices relative to fundamentals like earnings or book value.

The problem is that no one has worked out either when and where that premium will kick in. Of course, that hasn’t stopped some of the world’s best fund managers from trying to unlock a pattern, but most admit that timing is a fool’s game.

As to why growth stocks (Amazon, Apple, Microsoft etc.;) have enjoyed such a run, there are several theories. One is that the era of central bank-led cheap money lifts the relative attraction of the expected strong future cash flows of growth stocks. This is known as the hunt for yield.

Another theory is that in an era of stagnant economic growth and significant technological disruption of many industries such as retailing and media, the share prices of traditional capital-intensive businesses risk becoming permanently depressed. This is known as the “value trap”.

A third theory is that the growth of so-called "passive" investing, in which funds just seek to track an index instead of making active bets on individual stocks and sectors, has created a self-perpetuating cycle in which high priced growth stocks just become more and more inflated.

But these explanations, however persuasive on the surface, still overlook that long periods of underperformance for value are not unheard of and, in any case, don’t really tell us anything about what might happen next.

They also neglect to consider that the problem is not so much that something has gone wrong with the value premium, but that growth has had quite an exceptional decade.

Analysis by Dimensional Fund Advisors shows that while growth’s annualised compound return of 16.3% in the past decade was much stronger than its return over 90 years of 9.7%, the performance of value in the most recent 10 years at 12.9% was close to its long-term average.

A second point is that much of the attention on the value-growth conundrum has focused exclusively on the US market, when in fact the value premium has been positive in many other markets over the past decade, including New Zealand, Singapore, Canada and Australia.

As well, in past periods when value has turned, it has done so in spectacular fashion, such as after the tech wreck of the early 2000s.

We can draw a few conclusions from this. One is that the evidence still points to a long-term premium from value. That doesn’t mean it will be there every year or even decade. Of course, if it was predictable, it wouldn’t exist. It would be arbitraged away.

A second conclusion is that these premiums aren’t uniform across different markets. That argues for global diversification. At some point value will kick in somewhere, so if you spread your net sufficiently wide, you’ll capture it.

A third conclusion is that you do not have to be focused entirely on value anyway. You can hold in your portfolio a mix of large, small, growth and value stocks. You might tilt your portfolio to value, but you can still get the benefit of growth when it is having its time in the sun.

Finally, consider this. The spread between value and growth stocks, measured by book-to-market ratios is now as wide as it was in 1992, when Professors Eugene Fama and Kenneth French published the landmark paper which highlighted the value premium.

That means the potential for outsized returns is greater now than it has been for some time. But as Warren Buffett says, you need to be patient and you must know that you can live with the ride in the meantime.

Value eventually will find its place back in the sun. But no one knows when.

Check out more of the latest news from IFAMAX:

Pay less attention to weather forecasts

How women view money and investing differently

A little encouragement goes a long way

Picture: Sebastien Gabriel via Unsplash

A perennial temptation for investors is the urge to quit the market at the top and to get back in at the bottom. While the lure of market timing sells millions of books and is standard fodder for financial television, the reality rarely lives up to the promise.

History is littered with the failed dreams of market timers. Less than five years after the nadir of the financial crisis, some pundits were saying US stocks were over-valued. Another five years on and the market had gained more than 60%.

Not even the gurus have much of a record. Back in 1996, Federal Reserve chairman Alan Greenspan warned of "irrational exuberance" in the stock market. But we now know that the market went on climbing for three years before the dot-com bubble burst.

Even if your logic about valuations is impeccable, there’s no guarantee the market will come around to your view. As someone once said, markets can stay irrational longer than you can stay solvent.

But the most overlooked challenge with market timing is that it requires you to make TWO correct decisions: Firstly, you must get out at the right time. Secondly, and often more challengingly, you must know when to get back in.

Think back to the global financial crisis. Plenty of people were throwing in the towel by early 2009. But how many got back in in time to enjoy the big bounce that followed in the second and third quarter of that year?

The fact is markets don’t move in a straight line and big gains (and losses) can come in relatively short periods. Not even the professionals have much of a track record in successfully negotiating these unpredictable twists and turns.

So, if market timing is a mirage, what can you do? Here are five alternative options that make more sense — and none requires you to possess a crystal ball.

1. Take a long-term perspective

"The historical data support one conclusion with unusual force,” the index fund pioneer Jack Bogle once wrote. “To invest with success, you must be a long-term investor." Instead of trying to time the ups and down of the markets, why not simply change your time horizon? Over the very long term, patient investors have almost always been rewarded. Of course, not everyone can take the long view. Those, for example, who are about to retire or who need to access their money in the next two or three years, don’t have that luxury. But if you don’t need it for, say, 15 years of more, you can afford to look at the big picture.

2. Construct a portfolio for all market conditions

Everyone should have a balanced asset allocation — certainly a mix of stocks and government bonds, and perhaps property as well — that matches their capacity for risk. A defensively-minded person may only have 50% of their portfolio in stocks, with the rest in bonds. The right mix also depends on your age, goals and circumstances. Whatever your risk capacity, diversification is key. Spreading your risk across different asset classes and geographies will reduce the impact of a steep decline in one particular market. Ultimately, it’s your asset allocation that is going to be the most important driver of your investment outcome.

3. Periodically rebalance your portfolio

Generally, the less you tinker with your portfolio the better. That’s not to stay you shouldn’t touch it at all, but any changes you do make should be done in a strategic, structured and disciplined way that reflects your needs and circumstances. A good discipline to adopt is to rebalance your portfolio periodically, to restore your original asset allocation. This means, every year or so, selling sone of the winners and buying some of the losers. It seems counter-intuitive, but effectively it forces you to sell high and buy low, which is just what you should be doing. It's a much better strategy than falling victim to knee-jerk responses to the latest bout of market volatility, which inevitably involve emotional, short-term decision-making.

4. Pound cost average

Another option, if you really are worried about the stock market and want to reduce your risk, is “pound cost averaging”. Say, for example, you have a sizeable sum of money — an inheritance, say — that you want to invest. Instead of going all in and investing the full amount in one go, you can drip feed small amounts into the market over a period of time. Incidentally, financial economists don’t think this approach makes much of a difference from an investment perspective and you might end up with slightly lower returns. But it’s a useful way of helping you sleep at night and minimising regrets.

5. Increase the size of your cash reserve

Finally, another strategy could to consider is to hold a larger cash reserve — either within your portfolio or in another account. Everyone should hold enough cash to cover around six months of living expenses, in case of unexpected medical bills, or losing a job, for example. But nervous investors may prefer to hold rather more than that. The advantage of increasing your cash reserve is that, in the event of a market downturn, you can see it as a buying opportunity and use your extra cash to increase your market exposure.

SUMMARY

In summary, timing the market — while superficially an attractive idea — is fraught with danger. If you get lucky, great, but there’s no method to it. We’ve seen that not even the gurus are much good at it.

The good news is that second-guessing the market just isn’t necessary. With the right outlook and a methodical process, you can achieve better results — and enjoy a smoother ride along your investment journey.

Check out more of the latest news from IFAMAX:

Pay less attention to weather forecasts

How women view money and investing differently

A little encouragement goes a long way

Picture: Veri Ivanova via Unsplash

Here at IFAMAX we’re big fans rugby fans and we can’t wait for the start of the Rugby World Cup. The build-up to the tournament has got us thinking about rugby as an analogy for investing, as our latest article explains.

Much of what the media focuses on when reporting on finance are the fortunes of individual companies. For an individual long-term investor, however, the danger with this approach is missing the wood for the trees. 

Naturally, the media likes stories about companies because they change all the time and they often boil down to people issues. That’s fine, but what matters to you more as an investor is the performance of broad ‘asset classes’, not individual securities.

An asset class is a category of investments that share similar characteristics and perform different functions in a diversified portfolio.

Let’s use rugby as an analogy. The forwards tend to be bigger and stronger. Their job is to gain possession of the ball and protect it when they do. The backs tend to be smaller and faster. Their job is to use that possession won by the forwards and score points.

This is a bit like the roles of bonds and stocks in a diversified portfolio. Like rugby forwards, bonds don’t tend to move very fast. They’re defensive in nature. But without them in your portfolio, you might not see much of the ball.

Shares, or equities as professionals call them, tend to be more like backs. They move around a lot more. But they also keep your wealth scoreboard ticking over.

Equities differ from bonds in another way. When you buy them, you’re becoming a part owner of the company. Whereas when you buy a bond, you’re more like a creditor. You’re lending the entity money, but you’re not an owner.

The sources of your returns in equities are twofold. First, there’s the chance that your shares will rise in value as the company grows and prospers. Second, there is the possibility of you getting a share of the profits in the form of dividends.

With bonds, there are two sources as well. As with shares, there’s the chance of capital growth (the price goes up). But there are also the regular interest payments you get for owning the bond. This is why bonds are often referred to as “fixed income”.

Bonds are seen as a more defensive investment because as a creditor, you rank ahead of shareholders in the event the company goes bust. But that doesn’t mean there aren’t risks associated with bonds. There’s always the chance the company will default on its obligations. Plus, your fixed income may not be so valuable if interest rates rise.

Within bonds, there are also varying levels of risk. Unlike shares, bonds are also issued by governments as well as by companies. Government bonds, particularly the top-rated ones, are seen as less risky than corporate bonds, but at the cost of a lower return.

And we can divide those categories up even further. Not every government bond is considered safe as houses. Think back a few years ago to what happened to Greek bonds during the Eurozone crisis.

But broadly speaking, equities tend to be more volatile than bonds over the long-term. And for that reason, the expected returns for investing in shares tend to be higher. This is called the equity premium and relates to the compensation that investors expect in return for having to put up with a bumpier ride.

But just as a rugby team composed entirely of fleet-footed backs without forwards to defend possession would be a risky proposition, being 100% in shares is not always wise either, unless you are very young with a low balance and can ride the ups and downs.

Ultimately, your bonds-shares split will depend on a range of factors like your age, risk appetite, life circumstances and goals. Most importantly, it comes down to what you can live with. If the portfolio is so volatile that you can’t sleep, it may be time to review it.

Naturally, these decisions are best made in consultation with a financial professional who knows you, understands your situation and can offer a detached view – sort of like the role of a referee in a rugby match. This person’s job is to ensure the game flows, the rules are followed and that no-one gets hurt.

Oh, we almost overlooked the forgotten asset class. This is cash. It comes in the form of bank term savings accounts, with higher rates of interest, or money market funds that combine short-term loans to the government, known as Treasury bills.

To return to our rugby analogy, you could think of cash as your reserves bench. It’s there if you need it in a hurry, though you may never call on it. The returns over the long term are less than equities and bonds, but in some years, cash can do better than both. Ultimately, though, cash is an asset class for savers rather than investors.

Finally, there’s been a lot of interest recently in so-called alternative investments beyond listed stocks, bonds and cash. These include commodities, hedge funds, private equity and even collectibles like fine wine, classic cars and rare art.

These alternatives all have their own merits, but they have disadvantages too, like a lack of transparency (you can’t see the risks clearly) or relative illiquidity (you can’t easily turn them into cash when you need it) or high fees (particularly for hedge funds).

Most advisers, like a good rugby coach, will tell you to build the bulk of your portfolio around the solid platform of stocks, bonds and cash, along with some property. 

Now time for kick-off!

Check out more of the latest news from IFAMAX:

Pay less attention to weather forecasts

How women view money and investing differently

A little encouragement goes a long way

Picture: Thomas Serer via Unsplash