principles of effective investing.
The 8 principles that guide all our investment decisions with the aim of delivering the returns you need for your future plans.
1. keep it simple
The investment world has a terrible reputation for being complex, and it certainly can be. We however aim to cut through the complexity and Keep It Simple as much as possible.
Complexity normally does three things when it comes to your investments:
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It adds more cost.
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It adds more risk.
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It adds more time.
All things you would like to keep to a minimum.
We want you to understand what you’re invested in and why. That way you will feel more confident and in control of your money, not confused or bamboozled.
When making investment and advice decisions for you, we always consider: will this decision add more complexity? If yes, will clients get clear benefits or value from increasing the complexity?
Most of the time added complexity is only justified for meaningful tax planning, increasing returns or reducing risk. All of which needs to be backed up by evidence, clear rationale and be easily explained - otherwise we believe it is better to Keep It Simple.
Simple is nearly always better. But if it's going to be complicated, then make sure the problem is worth the complexity. A great deal of time is wasted creating complex solutions to relatively unimportant problems.
2. don't try and pick 'The Winners'
Here we are talking about the ability to select the right companies to invest in. Each week, each month, each year there will be those companies on the stock market that perform well ('The Winners’) and those that perform less well ('The Losers’).
Now, of course in an ideal world we would always like to pick the winners (and we’re certainly not saying that we should try and pick the losers), however, the problem lies in being able to spot ‘The Winners’ ahead of time. This is incredibly difficult, and the evidence suggests almost impossible to do on a consistent, skilled basis. This is true for the untrained, novices investing their own share portfolio, as well the highly educated, well paid professionals managing other people’s money for a living!
This is why we choose a more passive, systematic approach. With this, instead of trying to pick ‘The Winners’ we have the philosophy that you should invest in nearly all the biggest and best companies in the world. Aiming to effectively capture the average returns the global stock market has to offer.
Now, you may say “I don’t want just average” but, by taking this approach consistently, after 10 years the research shows you will outperform 90% of professional investors who are trying to pick ‘The Winners’. So in the end, by avoiding ever being below average, your investment returns will be well above average!
Don’t look for the needle, buy the haystack.
3. time, NOT timing
You can’t time the market, so we don’t bother trying. You might get it right once or twice but trying to do it consistently will cost you in the long run in both missed returns and dealing costs.
Research shows that if you miss out on the best days of investment returns by timing the market wrong it will have a material impact on your long-term performance. So why take the risk?? Just stay invested.
It is the length of time invested in the great companies of the world that will drive your returns and success, not the timing of these investments. So invest early, invest often, sit tight and stay invested!
Think of your investments like a bar of soap. The more you touch it,
the less you will have.
4. risk and return go hand-in-hand
If you want higher returns, you need to take more risk. If you want lower risk, you need to accept lower returns. This is the most important decision for you and us when deciding how much risk to take with your investments.
Within a diversified investment portfolio, the biggest determinate of your returns and risk (volatility) is the proportion of equities you hold in your portfolio compared to bonds. It is almost nothing to do with timing or picking ‘The Winners’.
We therefore focus most of our effort on getting the balance of equities and bonds right for you and your plans as this will have the biggest bearing on your investment experience.
The compromise for high returns is increased risk, you can’t have it both ways.
5. diversification is your best friend
Spread your investments far and wide. You should be invested in 1000+ companies in a variety of different industries, of different sizes from across the world.
When it comes to investing, diversification is known as ‘the one free lunch’. Done efficiently, it provides the greatest level of return for the lowest level of risk. It means if one company fails you will barely notice. It’s the safest way to invest and makes the chance of permanent capital loss minuscule, i.e. all the biggest companies across the world would have to fail at once - which is incredibly unlikely!
This is why our approach is to only use well diversified investment funds, meaning all that good diversification is done for you. This way you can be invested across thousands of different companies and bonds by owning just a handful of funds – regardless of the amount invested.
Many eggs (companies and/or bonds) in many baskets (countries and industries) from a small number of farms (investments funds).
6. think sustainably and ethically
As a planet we need to be heading towards a sustainable way of living. If this is the future, the companies that we invest in on your behalf should be focused on those that are more sustainable and doing good, as well as aiming to exclude those that are having a negative impact on society.
Ethically too, we do not feel it is right to profit from companies that are some of the worst polluters in the world, produce devastating weapons, or make tobacco products.
We therefore seek to strike the right balance of investing sustainably and ethically for our clients whilst not making compromises on return expectations. We hope you share the same opinion as this is the only way we invest our clients money.
The truth is: the natural world is changing and we are totally dependent on that world. It provides our food, water and air. It is the most precious thing we have and we need to defend it.
David Attenborough
7. costs matter
In most walks of life you ‘get what you pay for’, however, when selecting investment funds, this is rarely the case and you more often than not, you ‘don’t get what you pay for’.
Here we are largely talking about choosing low cost, passive funds over more expensive, active funds. Active funds can typically charge over 1% per year more than the equivalent passive fund in order to try and pick ‘The Winners’ and provide higher returns. However, as we have seen, 90% of the time after 10 years, they don’t achieve underperform (Principle 2). So over the long run you are ultimately paying more, for less!
This is not insignificant either, and over longer time periods, small additional costs add up as you not only miss out on the return in the first year, you miss out on the compound returns that additional cost could have provided in future years. For example, a 1% higher cost on a £100,000 investment earning on average 6% per annum before costs would be approximately £130,000 LESS after 30 years. That’s a big difference to your future spending power.
It’s sadly impossible to invest without some degree of costs, however, in every decision we make we focus on keeping costs down whilst ensuring you’re getting value for money. It is only going to eat into your returns if not!
Beware of little expenses; a small leak will sink a great ship.
8. ignore 'The Noise'
Put another way, we ignore anything that seeks to distract us from our long-term investment philosophy. And it is our job to encourage you to do the same. Such distractions (aka noise) will typically trigger a reaction from two very powerful emotions: fear and greed.
The media loves to provoke fear. Fear grabs eyeballs. Fear sells. When there is trouble in the stock markets, or with the economy or in politics the media will dramatise it to make it seem worse than it is. To make it feel more permanent than it is. When it comes to your investments it our job (and yours too) to ignore this and know that through all the wars, crises and market crashes the global stock market has always recovered and humanity has continued to progress. Selling your investments at these times simply means we will be selling at a loss and likely miss the subsequent, inevitable, recovery. This is wealth destruction and to be avoided at all costs.
Similarly, we do not get overconfident or greedy when things are going well. And you shouldn’t either. Triggers for this may be the next get rich quick scheme, the next ‘hot stock’ (e.g. Apple, Amazon or Tesla) or a sustained period of market rises. Again, this will be amplified by the media and likely a few of friends, family and colleagues too. Don’t get distracted by this. Remember ‘get rich quick schemes’ often make people poor just as quickly and if you are buying a share because of a ‘tip’ or media news you are likely buying in at the highest price, the top of the market, and just making the person who sold it to you rich. History has shown us that stock markets provide excellent returns over time; you won’t need to chase additional returns and in doing so you are adding greater risk and potentially gambling with your financial plans.
Put simply: control your emotions. The stock markets go up over time, so you only lose money through your behaviour. Being greedy and/or fearful because of ‘The Noise’ will mean you end up buying high and selling low. The quickest way to destroy your wealth.
The investor’s chief problem – and even their worst enemy – is likely to be themselves.
our investment partners.
EBI Portfolios
We have partnered with EBI Portfolios to deliver our client investment proposition.
They provide a wealth of investing expertise backed by analysis of decades of market data, Noble Prize-winning research and robust evidence.
Plus, their portfolios don't just aim to provide effective investing outcomes they also do this in a way that is ethically and sustainably minded - aligning to our philosophy and values.
