Many of you reading this short note will have, at some time, travelled down to Devon for a lovely summer break amongst the rolling fields, moors and beautiful beaches of this somewhat remote county.  

Only a few will have ventured into Plymouth, the famous naval seaport and home to Sir Francis Drake (that famous Elizabethan pirate who so vexed our Spanish friends by stealing their gold) and the site of the departure of the Mayflower with the pilgrims on board heading to America 400 years ago. Even fewer will know that it was the place of an amazing insight into the powerful nature of crowds, which provides us with a wonderful world picture of how markets operate.

In 1906 a Victorian gentleman named Sir Francis Galton attended a livestock fair aptly named The West of England Fat Stock and Poultry Exhibition in Plymouth. One of the many attractions at the fair was a guess the weight of the ‘dressed’ ox on display (similar to the game of guessing how many cookies are in the glass jar). The competition attracted 800 people all paying 6d (half a shilling) to write down their guess, name and address on the back of the ticket. The nearest guess to the actual weight would win a prize. The fair, as you can imagine, attracted many sorts, from the general public (old and young) to farmers and butchers.  

Being a statistician, amongst many other things, Galton bought the used tickets off the stall holder. Of the 800, 787 were usable. Back home he analysed the guesses and published his finding in Nature, March 7, 1917 in an article titled ‘Vox Populi’. His remarkable finding is illustrated below.  

Figure 1: Guessing the weight of the ox – the ‘crowd’ got it more-or-less spot on.

Source: Albion Strategic Consulting

The range of guesses was wide (-133 lbs. below the average to +86 lbs. above it), the participants were varied, and the numbers involved were quite large. The ‘crowd’ in aggregate showed ‘wisdom’ compared to its individual participants.

This story provides a great insight into how modern financial markets work. The markets are made up of many players, from individual DIY investors, day traders, stockbrokers, hedge funds, fund managers, sovereign wealth funds, endowments and other institutional investors. Each investor holds their own view on the future prospects for a specific security, such as the price of BP or Apple shares. Some will like a stock and others not. They cannot both be right.  

The market – given all the information available to it – settles on an equilibrium price for every stock. This price will move, sometimes dramatically, as we have seen recently as the ‘market’ reaches a new equilibrium price, given the new information that it has collectively processed.

At times like these, some investors are prone to running ‘what if’ scenarios in their heads such as: ‘if companies are in trouble because their revenues have been cut off, then they will renege on their property lease terms and the landlords will suffer.  It seems likely that things will get worse over the coming weeks. If property landlords are in trouble that might lead to problems in the banking sector’. It all sounds plausible. They may then be tempted to sell out of property or banks or even equities altogether. The crucial mistake is that they forget that they are not the only person to have thought this through and these very sentiments and views are already reflected in the current price of listed commercial property companies, bank stocks and the markets in general.  

Markets will move again – down or up – based on the release of new information, which in itself is random. Second guessing random events is futile. You may make a guess and be lucky but that is speculating not investing. Accepting the ‘wisdom’ of the market helps us to challenge ourselves as to whether we really have superior insight relative to everyone else. It seems unlikely. As Charles Ellis, the wise sage of investing from the US, states:

‘In investing, activity is almost always in surplus’.

Activity based on guessing – particularly when it relates to shorter-term issues that sit well within your true investment horizon – is best avoided.

Next time you pass Plymouth on the A38, reflect on one of its great historical events, The West of England Fat Stock and Poultry Exhibition of 1906. 

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Risk warnings:

This article is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy or investment product.  Information contained herein has been obtained from sources believed to be reliable but is not guaranteed. 

Past performance is not indicative of future results and no representation is made that the stated results will be replicated.

Errors and omissions excepted.

For those who may well have missed the details of the budget, as COVID has usurped all other news.  We have been writing this piece annually and this year is no exception, with significant changes to add further complexity to pensions in the Chancellor’s Spring budget. 

Between 2010 and 2011, the pension annual allowance fell from £255,000 to £50,000 and then dropped to £40,000 in April 2014.  The tapered annual allowance rules kicked in on 6th April 2016, when those with taxable earnings over £210,000 per annum were limited to pension contributions of £10,000 gross each tax year.

However, one of the groups that was most effected by the taper was the NHS. This has resulted in some doctors receiving high tax bills or seeing their future pension benefits reduced, making many reluctant to take on additional overtime.  To counter this in the Budget the Chancellor announced the following changes:

• The two tapered annual allowance thresholds (threshold and adjusted) have each been raised by £90,000. 

• Under the budget changes, for those on the very highest incomes, the minimum level to which the annual allowance can taper down will reduce from £10,000 to £4,000 for anyone with earnings of £312,000 or more.

The table below shows the new Tapered Annual Allowance (TAA).

The good news is that there is still one relief in place to help those affected by TAA, this is known as carry forward.

The table below shows how a high earner who has been paying £10,000 a year into their pension and the carry forward available to them in 2020/21.

• Make sure you avoid an annual allowance tax charge by reducing your monthly pension contributions.  If like many, you were previously making monthly pension contributions of £667 (net) to cover your £10,000 annual allowance (gross) - be careful if your adjusted income in now in excess of £300,000 as the taper reduces even further to just £4,000 per annum for incomes of £312,000 or more.

If you would like to discuss pension contributions and retirement plans, in light of these changes, please contact us.  We are here to help you get the most out of your pension and find alternatives for retirement savings if necessary.

William Buckley

Financial Planner

will@ifamax.com

Risk warning: This does not constitute financial advice.  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.                                                 

In my time as a financial professional, I have seen many downturns, some more significant than others. I started work in this world of finance in May 1988 and since then these are the ones that have stuck in my head:

1990 Recession (Personally very painful - anyone with a mortgage at that time will never forget it!)

1997 Asian Banking Crisis (Debt, too much of it)

1998 Collapse of Long-Term Capital Management (Overconfidence)

2000 Dot-com Crash (Some stuff way too expensive)

2008 Banking Crisis (These happen periodically and will again)

2012 Grexit (Should have happened, but didn’t)

2016 Brexit (Should not have happened. Mostly felt in currency so far)

2020 Covid-19 (We could add oil to this and a recession - possibly)

Problems, obstacles, disasters, however we want to call them, they always happen and always will do. They are so difficult to predict in advance. As an investor, you should always expect a significant event every three or four years. Is this Covid-19 significant yet? Will it become more significant? I don’t know.

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So, from an investment perspective, what should we do now?

Nothing. For now, we say you should do nothing. Why? We cannot predict the future. We can only tell you what we know today and what happened yesterday. We cannot tell you much about tomorrow, other than it will come. We don’t know tomorrow’s price for anything!

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Are you retired, or about to retire?

What we will have done already, is to make sure that if you need an income in retirement, either now or soon, don’t worry. Our portfolios hold short-dated bonds (this is typically money lent to high quality governments). These are the defensive assets and they will now be appreciating in value. While ‘investors look for a safe haven’ as the media likes to describe it, you’ve already got it built in.

During the banking crisis of 08-09 (the biggest event of those listed above, so far), these short-dated bonds enabled our clients to:

1. Draw money in retirement without touching any real assets (shares and property).

2. And when stock markets got very cheap (March 2009), we were able to sell some of these bonds and buy more shares at bargain prices.

Put simply, if you are due to retire in the next few years, or you are already retired; by holding an investment portfolio that contains these short-dated bonds within it as defensive asset; you should be fine. But if you are not sure please give us a call, we welcome it. 

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Are you saving for the long term?

I think the answer is in the question. Long term, equity markets have delivered great returns. If your investment time horizon is 10, 20, 30 years or more. Don’t worry. All the events I mentioned before end up looking like mere blips when you look backwards. I am 54 now (ouch) and the 1990 recession was horrible at the time, but looking at it now:

If I invested £1,000 in the FTSE All Share in 1988 (when I started work in finance), by the end of 2018 it would be worth £11,882 (30 years on).

If I waited until the 1991 to make the same investment, and thus avoid the market downturn on news of a recession that will occur in the future (market fell 17% in 1990), I would now be sitting on £9,049

Source: Dimensional Fund Advisers Matrix Book 2019

So, keep investing regularly and ignore the short-term noise. Don’t turn yourself into a short-term investor if you have a long-term investment horizon.

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But there is one big difference!

All the other falls had nothing to do with your health, or the wellbeing of your family, friends and other loved ones. Follow the Government advice and we hope everyone stays safe and well.

One of the reasons why people find investing harder than they should is that human beings are hard-wired to focus on the here and now. We’re much more concerned about immediate threats than longer-term dangers such as failing to save enough money for retirement.

In this video, Professor Arman Eshraghi, an expert in behavioural finance at Cardiff Business School, explains how to develop a more disciplined approach to investing for the future.

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

Video transcript:

Human beings are hard-wired to focus on the present.

We’re finely attuned to the immediate threats around us. What we’re not quite so good at is dealing with long-term dangers, like not saving enough money for retirement. Professor Arman Eshraghi is an expert in behavioural finance.

He says: “When it comes to events that happen in the long-term, whether it’s going into retirement, etc. we don’t plan for them sufficiently because we don’t see them as sufficiently close.”

Thankfully, help is at hand in the form of financial technology, sometimes called fintech for short. The technology enables us to automate our retirement saving, so we put aside a set amount each and every month without even thinking about it.

Arman Eshraghi says: “Fintech applications basically can allow you to automate your decision to invest in the markets without much thinking, so you really make a decision once, you make a commitment once, and then effectively, the process of investment gets automated — let’s say, every 20th of the month.”

Starting to save early for retirement is very important. But we should also increase the amount we put away each month as our income goes up.

Committing to increasing our pension contributions as time goes by is another very valuable discipline.

Arman Eshraghi says: “Research by some economists in the US shows that there are techniques like “save more tomorrow”, so this is Richard Thaler, for example, who has talked about “saving more tomorrow”, which effectively means that you make the decision to invest a base level and then, effectively, you add to it a little bit every month. And without noticing the pain, let’s say. And then over time, this grows into a significant amount of investment which would then hopefully be a source of income for the long-term and for retirement.”

So, don’t give yourself an excuse to spend money that you should be saving for retirement. If you haven’t done it yet, automate your investing now.

It’s easy to do, and in the years ahead, you’ll be very glad you did it.

Picture: Aaron Burden (via Unsplash)

There is plenty of evidence to show that mindfulness has a range of health benefits. But can it also help us to become better investors?

Someone who thinks so is the financial writer George Kinder, who has practised mindfulness for more than 50 years. In this video, he explains to Robin Powell how focussing on the present moment and being in touch with our feelings can help investors make more rational decisions.

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

Video transcript:

The last few years have seen a big increase in the popularity of mindfulness.

Mindfulness is a state of mind created by focusing on the present moment, while calmly acknowledging and accepting our feelings, thoughts, and bodily sensations.

George Kinder is a financial writer, and trains financial advisers. He has practised mindfulness for more than 50 years.

He says: “So it’s a training in paying attention. And you’re paying attention in here. You’re paying attention, in a way, to who you are. You’re paying attention to these moments where you feel wonderful, these moments where you feel frustrated, these moments where you feel fearful or anxious or guilty or shameful, which we all have as human beings.

“The primary practice that is taught in mindfulness is to really focus on the present moment, which as you know is impossible to do because it keeps disappearing on you. But what that does is that it makes you much quicker in the moment, much clearer in the moment, much more capable at a moment’s notice to focus and be present, so you’re really much more alert.”

One of the mistakes investors commonly make is they allow their emotions to get the better of them.

By making you more aware of your emotions, mindfulness can help you control them.

George Kinder says: “The most common pattern in investing is not to buy low and sell high, which is the smartest thing to do. The most common pattern in investing is that we all buy high, when everybody’s enthusiastic about something, and then we sell low when everybody’s pessimistic about something. So what happens, that’s driven by greed and fear. What mindfulness does is it creates more patience, more equanimity, more quietness, less reactivity. So you’re more able to be here, be present.

“My main recommendation would be to, if you aren’t doing mindfulness, get a practice going. And if you are, I would double your practice time. And I think the third thing is find an advisor who’s trustworthy, because they will help settle you down. They have listening skills inside of them and they’ll help settle you down so you don’t make foolish mistakes.”

Mindfulness isn’t for everyone. And although it looks easy, it actually isn’t. It requires plenty of practice.

But if you invest the time required to learn it, George Kinder says you won’t regret it.

Picture: Dingzeyu Li (via Unsplash)

Sustainable & responsible jewellery

March newsletter 2020

Ifamax's view on Sustainability

Could you give us a little introduction to yourself?

“I am a self-employed designer/maker of Fiona Lewis Jewellery. I live in Chipping Sodbury, a pretty Cotswold market town that has independent shops, cafes, pubs and bars. It is well worth a visit for an afternoon out. I love the countryside in all winds and weathers, the peace and space provide my inspiration… my mind is constantly forming shapes and movement into designs, and probably a source for a lifetime of jewellery and some more!

When I am not working, I am walking, travelling abroad, sewing, gardening, socialising, and spending time with my fabulous partner David, who encourages me in everything I do. My son and daughter are both creative so family conversation is often about our next projects. I keep chickens, and Prudence the cat who has decided the feral lifestyle is not for her, she prefers my sofa and a warm lap. ”

Tell me about how you came to be a jeweller?

“I attended a senior school where the pupils were all taught metalwork. I found my niche and was in my element during those lessons; forging, using the lathe, soldering and cutting, and unusually for me was top of the class. However, to my great disappointment, when the time came to select my options, I was informed Engineering and Metalwork was the ‘boys only’ option. I was disappointed to say the least but I stored in my mind some idea that one day I would revisit metalworking. In 2010 after quite a few decades of waiting for the right time, I booked an evening class in silversmithing. I learned to design and make jewellery and my passion for metalwork was reignited. Within 18 months, and due to popular demand from friends wanting to buy from me, I was selling my creations. I have continued to refine my skills, design, make and sell my jewellery in my online Etsy shop and through my Facebook page.”

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How do you define yourself?

“I am a magpie for shiny metal, and beautiful stones but also have a passion for a sustainable, responsible approach to my business. The gold and silver I use is either recycled by my suppliers, or I reuse my customers’ gold to create bespoke pieces for them. I source diamonds and precious stones from ethical suppliers and use recycled materials in packaging.”

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Tell me about the evolution and range of your styles of jewellery.

“I began by making jewellery that was inspired by nature and my love of the outdoors. Over time, I have concentrated on pure form, and more contemporary abstract shapes. Learning to set my own stones is a challenge, but also a delight, those are my hands that have touched each piece from start to finish. I make everything using traditional methods of silversmithing, using hand tools. I love the forged shaped look, and adding droplets of gold, the technical term for ‘droplets’ is an unromantic ‘granulation’. Adding the sparkle of my favourite diamonds and sapphires creates a unique, contemporary look in a piece.”

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What is the greatest recognition of your work so far?

“I talk to my customers and like to have a feel for who I am making for… so my recognition is from them, their reviews and feedback. I think this review is one of my favourites so far:”

“From the very moment I saw her work, I knew Fiona was the person I wanted to make a very special gift for my daughter. The communication between Fiona and myself was brilliant as she responded positively and instantly knew what I envisaged. Her patience and eagerness to supply me with a pendant that would match my idea was amazing; nothing was too much trouble. Once Fiona had confirmed all the details, she gave me a time frame and the pendant was made and dispatched within the time. It arrived securely packaged and beautifully presented in a gift box. The pendant is exquisite and has surpassed my hopes and wishes. It is a piece of art and will be treasured for years to come. If the reader needs someone with skill and vision, Fiona is this person”.

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What can we expect next from you?

“I will soon be learning to carve wax to create shapes to be cast. In my imagination I have a variety of beautiful, tiny birds that will become gold and silver jewellery, I am sourcing tiny black diamonds for little beady eyes, and peacock sapphires to flush set on wings.

My dream is to create a collection of kinetic jewellery and boxes with meaning; to celebrate life, a lost love, a friendship, special moment or emotion etc. I would incorporate a series of cogs or perhaps a chain to provide movement. Doors would open, hearts would spin and birds fly around the sun. Yes, there I go again…. Another lifetime and more of ideas!”

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Best of luck with your endeavours Fiona and thank you for being this months client in the spotlight.

If any other clients would like to feature in a future newsletter with a story, profile, charitable fundraising or discussion on a topic you would like to share please do get in touch.

All asset classes are important to us, and cash is just one of them. To enhance our service model, Ifamax has partnered with Insignis.  Insignis Cash Solutions is an innovative cash management solution that complements your asset portfolio by looking after your cash. 

Cash is different to your other assets due to its liquidity and return potential. This service allows you to get a better return than you would at a traditional high street bank, while still allowing you to determine what liquidity requirements suit you.

The great benefit of using this service is that it is done with a single sign in procedure, making it as easy for you as possible.

Insignis use a number of secure UK-based financial banks to invest your cash. All the banks used have FSCS protection, which is currently £85,000 per bank, per individual.   This gives our clients a variety of options, depending on the capital amount and term requirements.

The service is aimed towards those that typically hold high cash balances as the minimum account size is £50,000.

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How clients will benefit:

• Client remains the beneficial owner at all times

• A single sign-up procedure, giving you access to multiple bank accounts

• Interest rate monitoring and cash account management

• The ability for Ifamax to manage the service on your behalf (if required)

• View your live cash portfolio online

• Their assets being safe and secure

• Individuals, Companies, Trusts or Charities

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It’s very important that you have absolute trust in your financial adviser. But how do you go about choosing one?

In this video, Herman Brodie, an expert on the adviser-client relationship, says the first priority is to establish that an adviser is thoroughly competent.

But, he says, whether you can trust someone or not is a very personal decision, and ultimately only you can decide whether a particular adviser is right for you.

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

Video transcript:

Just as you need to trust your doctor, you also need to trust your financial adviser. Financial author and consultant Herman Brodie is an expert in adviser-client relationships. Trusting your adviser, he says, will give you much more peace of mind.

"So, if I trust my adviser or I trust my asset manager, the riskiness of the whole enterprise we’re doing together is actually diminished. So my level of anxiety is reduced. Now, a lot of bad things can result when we are overanxious about the engagements we are involved in. And financial markets are fraught with all of the kinds of things that we as human beings find the most disagreeable. And this often leads us to do precisely the wrong thing at the wrong time. Now if we perceive the whole riskiness of the engagement to be reduced because we trust the person who we’ve confided with our assets, then, of course, this brings an enormous amount of reduced stress for clients."

Sadly, some advisers in the past have proved themselves to be far less worthy of trust than others. If trust in your existing adviser has broken down, it’s very different to rebuild.

Brodie says: "So when you get advisers, for example, pushing products that are very expensive when there are cheaper alternatives, or because they are tied to a particular product issuer. Or even in medical professions, where doctors have been seen to be prescribing particular medicines because they are taking kickbacks from the pharmaceutical company. It’s evidence therefore that they are actually not acting in my interests at all, they are acting in their own selfish interests. And this damages the perception of benevolence. And those perceptions are very very difficult to recover."

Herman Brodie says there are two components to trusting an adviser. The first is a conscious decision: Is the adviser competent? The second is more sub-conscious: Does the adviser have my very best interests at heart? Ultimately, he says, you have to trust your gut instinct.

"So at least with the conscious part of that evaluation, in terms of, you know, the skills and training, and let’s say the fiduciary responsibilities that that adviser takes on board. On paper, that adviser must stack up, so the competence measure must at least be satisfied. But, whether you are going to perceive that person as benevolent or not, it’s largely non-conscious, I cannot tell you how you are going to feel about somebody.

"Who I’m going to be able to be open with is probably going to be somebody different to you. And as a consequence, you just have to go with your gut. There is no secret formula for identifying benevolence. Everybody sees benevolence in a slightly different place."

So, you should choose an adviser who is clearly competent, but also one who will put your interests ahead of their own. Only you can decide if someone ticks both boxes.

Picture: Zdeněk Macháček via Unsplash

I cannot tell you how bad things will get in the future for this virus or tell you how much it will affect your investments. My advice as always is to simply sit tight. If it gets really cheap, there is a potential opportunity and we will advise accordingly.

I have produced a table below to show how world equity markets have performed in recent epidemic scares.

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MSCI World Index: World epidemics and global stock market performance.

Source: Charles Schwab, Fact-set data for 1,2&3 month performance. Dimensional Matrix Book 2019 for That year and 1 year later. The MSCI Index captures large and mid-cap representation across 23 developed markets countries. With 1,646 constituents, the index covers approximately 85% of the free float-adjusted market capitalisation in each country.

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So how should we approach the news about COVID-19, better known as the coronavirus. We know that human beings are finely attuned to what we see as an immediate threat. It’s how we evolved. But it isn’t always helpful.

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What about the impact on your investment portfolio?

Stock markets fell heavily in the last few days and there’s no shortage of market “experts” in the media warning of further “turmoil” to come.

But the simple fact is that they just don’t know. Yes, coronavirus could develop into a global pandemic. Or it could blow over in a matter of months. In any event, predicting what impact all the different possible eventualities might have on the economy, let alone the financial markets, is nigh on impossible.

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Focus on what you can control

A very important principle in investing is to focus on what you can control and let the rest go.

You have no control over coronavirus or the markets. Unless you’re a professor of epidemiology, don’t kid yourself either that you have any unique insight into how the virus might develop. And remember markets could go sharply up or down from where they are now for reasons totally unrelated to COVID-19.

But, if you’re anxious about the markets — and it’s a natural human reaction to be so — please feel free to give us a call.

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“If history teaches us anything, it’s that great investment gains go to those who are diversified, optimistic and patient. In other words, if you spread your investment bets widely, favour stocks and have a long-time horizon, good things should eventually happen.”

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

Two children decided to compete to see who could grow the most luxurious garden. Both Peter and Paula prepared the ground, laid down the seeds and watered the soil. Three years later, Peter’s garden had barely grown, while Paula’s flourished.

What was the difference? Peter was impatient. Coming back the next week after planting the seeds he was disappointed there was little movement. He decided to dig it all up and start again. Paula added water and fertiliser and waited.

This cycle continued over the years. Peter decided at one point there was not enough sun, so chopped down an overhanging tree. The soil dried up under the full sun and baked hard. Paula decided to leave well enough alone with her garden.

The difference in approach between these two aspiring gardeners is evident every day in the share market. Many investors, having assembled their portfolios, insist on fiddling. They respond to news, second guess themselves and churn their holdings.

The Peters of the investment world chase past returns, pick up on investment fashions and are impatient for quick results. The Paulas leave their asset to grow, knowing that compounding will do much of their work for them.

Of course, this isn’t to say the second group of investors are totally passive. They come back every six months or so and do some pruning in the form of rebalancing. They water, weed and fertilise the investment garden with new cash as it comes to hand.

But the more successful gardeners are systematic in their approach. They focus on the basic elements and what is within their control. For the most part, they let nature take its course. And they exercise discipline along the way.

This is part of a series of blog posts in which we use illustrative analogies to simplify the often-complex world of investing. Take a look at some of the previous articles below:

Pay less attention to weather forecasts

Why stick with a losing proposition?

Why you should ask the audience

Generally speaking, it’s good to have a positive outlook on life. But too much optimism, or overconfidence, can be a problem, particularly when it comes to investing.

In this video, Lisa Bortolotti, Professor of Philosophy at the University of Birmingham, explains why investors need to be realistic.

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

Video transcript:

Generally speaking, it’s a good thing to have a positive outlook on life, and to be reasonably optimistic about the future. It’s better for our health and mental wellbeing for a start. But there are potential pitfalls too. Lisa Bortolotti is Professor of Philosophy at the University of Birmingham and an authority on the dangers of overoptimism and overconfidence.

“I think, where you see the negative effect is where you have context, where things are so complicated that being optimistic about your competence or your performance leads you to making mistakes and taking too many risks. So, finance is an obvious case. Finance is very complicated. You need to take into account the relative value of different options and the idea that you will make the best decision because you’ve made a very good decision in the past where you tend to think your previous luck as skill makes you too confident about the decision you make and less likely to listen, maybe, to other people and take into account different factors.”

A tendency towards optimistic bias or unrealistic optimism is part of the human psyche. It’s the way we’ve evolved. Behavioural experts have identified different dimensions to it. One of these they refer as the Illusion of Control.

As Bortolotti explains, “The Illusion of Control is when something is happening and we witness the thing happening and we tend to think that we are actually interfering with what is happening and determining the outcome. I think, in the financial world it’s possible that we may think that we will be able to know whether a certain company will be successful or whether certain rates will go up or down. And this capacity, that we think we have to predict how things will go, will make us make decisions that are more bold and do not take into account other factors that we should factor in.”

Another aspect of optimism bias is the so-called Illusion of superiority. In other words, thinking we’re better than we actually are.

“The superiority bias, which is also called the 'Better Than Average Effect’, is the idea that we tend to think of ourselves as better than average - in a number of domains. So, we may think that we are more attractive, smarter, more generous as well. Now, The better than average effect has been observed across the board and it normally works in combination with the optimism bias to make us make predictions about the future that are too positive, too rosy, because if I think that I have a lot of skills and a lot capacities and I think that things that are negative will not happen to me, then I will think that I can control what happens in the future, and I can determine a future that is happy for me.”

Again, it’s good to be optimistic and confident to a point. In fact, you need to have a positive view of the future to invest in human enterprise in the first place. But be realistic, and don’t overestimate your ability to outperform other investors.

Picture: Benjamin Davies via Unsplash

Andy, his wife Sally and their son Jack, have been Ifamax clients since early 2018. After qualifying as an accountant following university, Andy then worked his way through the financial services industry as a sales and commercial director.

After becoming disillusioned and bored with corporate life Andy, Sally and a couple of friends set up their own financial claims business from their bedroom in 2004.

By 2008 they had 45 staff, a turnover of £7m and an average customer satisfaction score of 9.5 out of 10. It was this great feedback from customers that Andy notes as one of the most enjoyable parts of being in business.

When the time came to exit the business, they did consider selling but;

“thought the purchaser were unlikely to have the same customer focus that we did. We decided it better to bring in a couple of directors to allow us to take a step back and eventually wind the company down.”

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So how has all this led to Andy running around in a 10kg Rhino suit?

“One thing that defined me was that I was hugely overweight as a child and reached 18 stone at 17. I then lost 6 stone over a few months when I was 18. This was my biggest achievement in life (bigger than the business and running achievements).

Not only did it change my life completely and gave me confidence but also taught me that I had the determination to do the things I wanted to.”

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For this reason Andy sees running as massively important for both keeping off the weight he lost when he was young and as a continuing challenge for himself. After clocking up over 60 marathons and ultras all over the world for the last 30 years, he has now decided that it makes sense to challenge himself even further!

“I am getting slower but still like to look for a new challenge. I’ve never run a marathon in costume and the rhino costume is iconic so it seemed an obvious step. I contacted the charity in August last year to apply to run for them. Since then I have learned a lot more about the plight of the rhino. It staggers me that in this day and age we are still cruel to and slaughtering animals for totally unnecessary reasons and monetary gain.

Rhino horns are used in traditional medicine and as a sign of wealth. We have eliminated 95% of rhinos and 3 of the rhino species are on the endangered list. By running in the marathon and doing talks in schools I hope I can do a little bit to raise awareness of the rhino and what’s being done to stop rhinos, and other animals facing a similar plight, becoming extinct”

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When Andy first sent over pictures of him wearing the suit itself we were all surprised at how big, heavy and uncomfortable it looked and it appears that after taking it out for a practice trot last week he has confirmed it is all three.

“It moves around a lot, has limited visibility and is big and hot. It changes your running style and you have to hold the head when you to keep it still which quickly makes your arms ache!! I really hope that it’s not too warm on marathon day. Little wonder the charity said not to run too much in it before London because it might put me off doing the marathon itself.”

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Andy hopes to raise an impressive £5,000 for Save the Rhino International and all at Ifamax wish him well in trying to reach that target, the many training runs to come and indeed the big day itself on Sunday 26th April.

If you would like to read more information on Andy’s fund raising and ongoing training efforts please feel free to visit his Just Giving page by clicking the button below:

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Good luck Andy and thank you for being our first client in the spotlight.

If any other clients would like to feature in a future newsletter with a story, profile, event or indeed some charitable fundraising of your own please get in touch.

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

There’s been a big increase in interest in sustainable investing in recent years. But what exactly do we mean by sustainable investing? And, if we invest with our conscience, can we expect to receive lower returns?

Robin Powell explores these issues in this short video, with the help of Dan Lefkovitz from Morningstar.

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

Video transcript:

An important development in the financial industry in recent years has been the growth of sustainable investing. But what exactly does it mean? Here’s Dan Lefkovitz from Morningstar:

“We define sustainable investing rather broadly. We consider it to be a long-term investment approach that incorporates environmental, social and governance criteria - ESG. And, it can range from sort of old-fashioned, exclusionary screening, like you might’ve seen in an ethical or socially responsible fund. Avoiding stocks of alcohol, tobacco or gambling companies, perhaps coal. It can also be just integrating ESG factors into the overall investment analysis. And that sort of integration is actually the most popular form of sustainable investing today.”

Passively managed funds are very cost-effective, but, by definition, they generally invest in the whole market. So, is there a conflict between passive investing and sustainability? Dan Lefkovitz says, on the contrary, they complement each other well.

“It’s interesting, you might think that, but in fact, we’ve recently seen quite the opposite. So, we’ve seen big passive investment managers, the likes of BlackRock, Vanguard, and StateStreet become a lot more active with the companies that they own, simply because they are replicating an index. Now you are seeing passive investment managers who have to own these companies and feel like they’re sort of suck in a long-term relationship with no option for divorce, be more active when it comes to their ownership.”

If you want to combine passive investing with sustainable investing, there are funds available — particularly exchange-traded funds — that effectively do both.

Lefkovitz says: “We actually think that sustainable investing lends itself very well to index funds and to exchange-traded funds. The kinds of positive and negative screens that are typically employed with sustainable investing actually fit very well in index and exchange-traded fund format. There also seems to be an alignment between the demographic that sustainability appeals to and the exchange-traded fund. Younger investors like sustainability and they also like exchange-traded funds.”

Of course, all investors are ultimately looking for good returns. So, is there is a price to pay for investing with your conscience?

“The number one frequently asked question we get about sustainable investing is: “Do you sacrifice returns if you are investing sustainably?”. And, interestingly, maybe in theory if you’re limiting your universe and not investing in certain companies because they’re not sustainable, that would be limiting. In practice, our data show, that sustainable funds perform on par with their non-sustainable counterparts. There is even some evidence to show, that sustainable investing leads you to companies that are poised for outperformance.”

That’s it. Thank you to Dan Lefkovitz from Morningstar.

Picture: Shawn Bagley via 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

Regret has been cited by Nobel laureate Daniel Kahneman as probably the greatest enemy of good decision-making in personal finance. It is often the driving force behind panicky attempts to time the market, buying at the top or selling at the bottom. It can prompt us to place a far greater weight on the possibility of suffering a loss than the prospect of a win.

Landmark research by Kahneman and his partner Amos Tversky in the 1970s found that when confronted with several alternatives, people tend to avoid losses and choose the sure wins because the pain of losing is greater than the joy of an equivalent gain.

We prefer the safe option

In one famous experiment, students were given the choice of winning $1000 with certainty or having a 50% chance of getting $2500. Most people will choose the safe option of money in hand. Conversely, when confronted with the choices of a certain loss of $1000 versus a 50/50 chance of no loss or a $2500 loss, people tend to choose the gamble.

In other words, we tend to switch from opting for risk aversion when it comes to possible gains to risk-seeking behaviour when it comes to avoiding losses.

Asymmetric choices

What’s more, regret, at least in the short term, tends to be stronger when it relates to acts of commission than of omission — in the former case, the things we did do and in the latter case the things we didn’t do.

As an example of omission and commission, imagine Jane has held a particular stock for some time. She thinks about selling it but does not follow through. The stock subsequently slumps in price. In contrast, John sells his stock, only to see it rally.

In the first case, the example of omission, or inaction, leaves Jane feeling less regretful than in the second case, John’s example of commission, or action.

Put another way, there is an asymmetry to our choices when confronted with uncertainty than is assumed by traditional rational choice theory in which human beings are cast as automatons carefully weighing the costs and benefits of their decisions.

We’re less logical than we think

The fact is we are not the logical decision-makers we assume ourselves to be. Instead, we are highly susceptible to behavioural biases that cause us to place a greater weight on the possibility of losses than on the prospect of gains – even when the statistical odds of the competing outcomes are identical.

We would rather secure a guaranteed lesser win than opt for the choice of getting more or possibly ending up empty-handed. And given a choice of two bad outcomes, we’re more likely to roll the dice to avoid the worse one.

This is why many people remain doggedly loyal to a particular bank, for instance, even when they are being ripped off by inferior service and excessive fees. It also explains why many people won’t cut their losses and dump a losing stock (because they’ll regret it if it bounces back afterwards).

Regret risk is frequently seen in bull and bear markets. In the case of the former, with stock averages hitting repeated record highs, there’s a natural tendency to want to hold back for ‘more certainty’. In the case of the latter, we want to wait to see the bottom before we wade in.

We’re not good at probabilities

In all cases, we imagine we are carefully calculating probabilities when, in reality, we are slave to our emotional instincts and resorting to mental short-cuts to justify our decisions ex-post.

Kahneman’s approach to regret risk in wealth management is to seek a balance between minimising regret and maximising wealth. That means planning for the possibility of regret and understanding clearly the range of possible outcomes beforehand.

Why an adviser helps

Of course, there is no one right answer here and that’s because everyone is different. It’s also why it is so important to have a financial adviser who can map out the range of eventualities and test clients’ potential reactions to each one.

Everyone has investment regrets. They’re part of being human. The important thing is to learn to get over them, so they don’t derail your decision-making process.

Picture: Sarah Kilian via Unsplash

There’s a big dose of uncertainty out there as we approach the new year — about Brexit, about the impact of climate change, about what Mr Trump will say or do next.

That’s showing up in consumer sentiment in places like the UK and Australia (though in the US it’s proving resilient). People are reluctant to spend money when they don’t know what lies ahead.

With sometimes confusing signals, how can we find the clarity to make decisions for our personal finances in 2020?

The best advice is to focus on what you can control yourself, and not to worry about things that you can’t do anything about. With that in mind, here’s a list of things to think about as we enter the new year.

1. Don't put off until tomorrow what you can do today

Your first task for the year should be to review your finances. First, understand your current situation. Second, write or review your budget. Third, set some new goals for 2020. Having goals makes budgeting much more fun.

To do: Check out a budget planner on an independent money site, like this one.

2. The sooner you start, the better

When it comes to savings and investments, time is your friend. Compounding is a powerful investment principle that means the earlier you start to save the more your savings will grow. Over time, interest is earned on not only your money but on the interest you’re earning on that money.

To do: If you need a bit of a nudge to save more for your retirement, play around with a retirement savings calculator to see the impact of even a small increase.

3. What goes up might come down

Always bear in mind the worst-case scenario — no matter how unlikely it may seem at the time. It's easy to be an optimist about taking on debt when interest rates are low.

To do: Stress test your finances – how long could you cope if your income was interrupted?

4. A pound saved is a pound earned

By not spending, you not only have that money in your hand but also the potential to turn it into more. Let’s say you have a car lease and it’s ready to be rolled over. When you’re not paying upfront it’s much easier to go for the 2020 model with all the extras. But perhaps you’d be better off, financially, buying a more “sensible” model and putting the money left over to work elsewhere. (Did we mention retirement savings?)

To do: As a first step, divert some of your pay packet – or more of your pay packet – to a high(er) ­interest online savings account.

5. Neither a borrower nor a lender be

You’d be surprised what debt collectors see: people going to the wall not for a £500,000 mortgage but over relatively small credit card debts. People tend to understand what their mortgage commitment is but can be a bit sanguine about smaller debts. Be mindful when you use your credit card – think about whether that purchase, and the associated debt, is something you really need.

To do: Obtain a copy of your credit report and check it not just for blemishes but for accuracy.

6. No pain, no gain

If you do have credit card debt, don't be lulled into a sense of complacency by the minimum repayment on your credit card statement. If you’re paying just 2% or 3% off your card when the interest on the debt is close to 20% (yes, really), it could take years to clear, at the cost of significant interest payments over time.

To do: Work out how long it would take to pay off your credit card paying only the minimum here.

7. You get what you pay for

Insurance should be part of the picture when your review your finances. But whether it's income protection, life, health or even car and travel insurance, don't select a policy just because it's the cheapest. A cheap travel policy may seem a bargain until you find that you can't claim for stolen cash or the full value of your camera, for instance.

To do: Do you need more insurance this year to cover increasing liabilities, or less because you've paid off the mortgage and the kids have left home? Try this life insurance calculator.

8. Be prepared

Why have an emergency fund when you've got a credit card? Because if you use the plastic all you're doing is putting the problem off for a month (and a bit). Financial advisers suggest having at least three months' living expenses set aside – and up to 12 months’ worth if your job is insecure.

To do: Check the terms of your income protection insurance – when does it kick in, and when does it drop out?.

9. If it ain't broke, don't fix it

Lastly, it’s great to review your personal finances at least once a year, or whenever circumstances change. But don’t feel like you have to change something, just for the sake of it.

If everything’s working, there’s nothing wrong with doing more of the same in 2020.

Happy New Year!

Picture: Jude Beck (via Unsplash)