Updated: Dec 7, 2020
Money is like a bar of soap: every time you touch it, it gets smaller.
A globally diversified investment portfolio is not an apartment in Lusk. It’s not a private
equity investment Bucharest, and it’s not an all-consuming, follow-the-paper-trail set-up
that becomes a full time job.
When you are looking at setting up a solid investment portfolio, there are a few simply
principles you need to follow:
Where is the evidence that this strategy works over the long term?
Are the fees reasonable?
Who minds my savings and investments?
What is the worst case scenario if investment markets crash?
If you follow these principles, you are now in the top 30% of investors, but to get into the
top 5% ranking of investors, it’s worth considering the following:
1. Knowing the difference between Active and Evidence-based investing
Active - Expensive, high turnover, based on a small number of people with the skill/luck to
predict the future, outcomes vary massively, recommended based on past returns with no
proven link to future returns, impossible to explain returns to clients other than ‘they got it
wrong’ or ‘they got it right’
Evidence-based – reasonable value, low turnover, based on theoretical and empirical
academic research, systematically constructed and implemented, transparent and
defensible when having to explain returns to clients.
2. Consider the factors between the two investing styles
Active – Performance , Star Manager (Key-person risk / single point of failure), team tenure,
research team, star rankings – Invest to win.
Evidence-based – Return required to achieve financial goals, risk profile and characteristics
of returns – invest to provide long term returns to achieve long term expenditure needs.
3. Buy-and-hold investment strategy, or actively trade in volatile times?
Always take the long view; any news in the market has already been incorporated into the
price of the underlying investment.
If you have found an investment strategy you can stick with through the good times and
bad, evidence points towards you making a higher annual return of c. 2%. On a €500,000
pension fund, this equates to more than €600,000 extra over a 20 year period…
The heavy lifting is done by actively earning the money, but by engaging these principles,
you will catapult yourself into the top 5% of all investors. Follow TMAs W.I.S.D.O.M in Wealth Management methodology to achieve your financial goals.
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