One of the most common misconceptions that I encounter when meeting new clients for the first time – pipped narrowly at the post by the idea that investors must have a large amount of money to invest - is that they must sign up to a single investment strategy, for life, and stick to it for better or worse. Sadly I think that this is a misunderstanding that the investment industry must be guilty of fuelling as it is very different to how other similar areas of life are perceived. When I buy a house, I do not commit to live in that particular house forever. As my family grows (or flies the nest), as my lifestyle or tastes change, I can move to a new house that better suits my needs. The same is true when I buy a car, or go on holiday – I am under no obligation to go back to the same destination forever more; although us humans do tend to be creatures of habit! Investment strategy selection should be flexible and provide you with the option to change as your circumstances change.
To give a simplified example, an 18 year old looking to save a nest egg for their future may have a long time frame and can therefore tolerate a bit more volatility along the way. Their focus may be just to grow the value of their investment and the funds may perhaps be added to as and when. As said 18 year old ages, their focus may change - for instance they may now be considering how to pay for their children's education or looking to pay down a mortgage. This, in turn, will be different from their objectives as they age further and look towards drawing down on a pension, or perhaps supplementing their income to assist with day to day expenses - at this point their tolerance for capital volatility may have reduced as their investment time frame has shrunk. In this very simple illustration, the client’s objectives have evolved and an investment strategy that suited at the time of initial investment would almost certainly not achieve their objectives at all of the different stages of their life.
A similar and connected question arises when people are planning for their succession. ‘What if my children have different objectives to mine?’ ‘Will the process of amending be simple for them?’ ‘I don’t want them to be stuck in a complex situation that they don’t understand’. More and more I find people to be increasingly proactive about their estate planning and keen to leave matters in order for their loved ones. Of course, the last thing that one wants is to leave a maze of complexity for relations to unwind at an already difficult time.
At Ravenscroft Investment Management our primary job is to understand our clients’ objectives and ensure that these are achieved via our investment selection. We are acutely aware that people’s circumstances change and we aim to make switching between investment strategies simple and inexpensive. As we often remind our investors... it's your hard earned money and it needs to work for you!
Article GSY Life February 2017