Investing is Simple, but Not Easy

Some of the Everlake team attended the PortfolioMetrix LEAD Symposium in Cape Town this May.

The event brought together some of the world’s top financial advisors to share ideas and challenge the norms in pursuit of a positive evolution of financial advice.

We’ll be sharing some insights and thoughts from the event with you over the next few weeks.

Here our PortfolioMetrix colleague, Edden Kift, shares some key points relating to successful investing, that were highlighted at the event. 

Sound Strategy & Decisions

“To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights or inside information. What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.” – Warren Buffett.

Often regarded as a maze of uncertainties and risks, investing can leave many overwhelmed and unsure how to navigate the financial markets. It may even lead to costly inaction, or destructive overreaction. However, with a sound strategy and mindset, achieving success in investing is not as elusive as it may otherwise appear. As Warren Buffest states, our emotions are often our own worst enemy. They can hamper our potential success at investing. In this blog, we explore several key factors that contribute to winning at investing.

Value of Financial Advice

Several studies have been conducted in an attempt to quantify the value of financial advice. In most instances, findings indicate that investors who engage the services of a financial adviser enjoy significantly superior investment outcomes compared to those who do not. Financial advisers with the appropriate skills and expertise can guide investors in making well-informed decisions. And tailored decisions that are unique and relevant to clients leading to more reliable outcomes.

The so-called Dalbar study is a widely recognised and ongoing research study that examines investor behaviour and the performance of mutual fund investors. It reveals a significant disparity between the returns generated by these funds and the investors who invest in them. It is frequently referred to as the Behaviour Gap which most often results from emotional decision-making and impulsive actions. The study underscores the importance of remaining disciplined and avoiding emotional reactions to market volatility. It is not uncommon for investors to make bad investment decisions based on fear, greed or by blindly following the herd. They may also react impulsively to short-term market fluctuations. As difficult as it may be, remaining composed during tough market conditions is one of the most effective ways of avoiding the destruction of wealth.

Consistency

Consistency is another key ingredient for successful investing. While it’s tempting to chase high returns or follow the latest investment craze, sustainable success lies in steady, consistent performance and without necessarily being the best performer over shorter periods. Given that forecasting where markets may be headed is near impossible, ensuring that an investment portfolio is well engineered to reliably navigate what at times may be an uncomfortable investment journey is critically important.

Rebalancing

The somewhat technical concept of strategic asset allocation involves spreading one’s investments across different asset classes to create a balance between the risks that may be needed to be taken to achieve the desired investment outcomes and making it a journey that does not result in excessive discomfort for an investor. Rebalancing a portfolio back to its optimal allocations from time to time plays a significant role in driving portfolio stability and delivering more reliable investment outcomes.

Conclusion

Winning at investing is achievable. Not allowing our emotions to negatively impact the outcome is where discipline is needed. Having a financial adviser as a guide and a sounding board on that investment journey may be the greatest aid to ensuring a successful investment result.