Long term investing isn’t a luxury everyone has
A good yard stick for a portfolio fit for all conditions is its average performance over the longer term
The obvious and golden rule of managing client assets, which I was taught at an early stage in my career, is – aim to make your clients healthy investment returns but whatever you do, don’t leave them with less than they started with.
In the ripping bull market of the last decade that’s been so achievable its almost not worth mentioning. Alas in 2022, with this market having all the hall marks of a 2008 style crash, losses are becoming an uncomfortable truth.
But who does suffer in this market? High net worth’s or average Joe’s?
Who loses in these markets?
Sure, high net worth individuals’ losses in pounds and pence will be eye watering but in aggregate its likely not causing enough pain for a change in lifestyle. In fact, for many in this category these markets are usually seen as a time to dial up the risk.
Average Joe’s are absolutely in the cross hairs when it comes to losses but with such a broad range of appetites to risk and investment styles it’s difficult to say who’s wearing what losses.
It’s really a more appropriate question to pose in terms of client age, i.e. young vs old and the stage at which investors are at in their investment life cycle. For those saving at the start of their journey this market should be seen as a positive – a rare chance to see the stock market on sale.
"Sure, high net worth individuals’ losses in pounds and pence will be eye watering but in aggregate its likely not causing enough pain for a change in lifestyle
Younger clients not needing to draw down on their assets for decades should rightfully be rubbing their hands together right now.
Yes, there remains a huge amount of trepidation in committing hard earned cash to invest at a time like this, but you do not have to be a fund manager to know phrases like “be greedy when others are fearful”, or my personal favourite by Nathan Rothschild, “buy on the sound of cannons and sell on the sound of trumpets”.
Buying into weakness
I have always loosely translated this to “invest with your head in a bear market and with your heart in a bull market”. If one is serious about investing for the long term then this sell off, like so many before it, should be a chance to sensibly and rationally buy into the weakness of the stock market when its on sale and reap the rewards further down the line.
Working with a good adviser can be worth its weight in gold when it comes to making the right decision in retirement
Alas the focus of my attention is on those older clients who are approaching retirement, those who are coming to the end of their investment lifecycle.
The need for income in retirement is paramount and drawing down on one’s pot in a bear market erodes value much faster than the same drawdown in a bull market, but without the option to make it all back in five years’ time when the market roars back.
Working with a good adviser can be worth its weight in gold when it comes to making the right decision in retirement. Compartmentalising one’s portfolio into hard cash for today and investments for tomorrow should allow one to drawdown on cash without pulling from investments which are falling in value thus reducing one’s ability to benefit from that bull market bounce back.
"Likewise, short dated fixed income and cash have proven to be good stores of value and essential in providing that short-term cash drawdown
The challenge in these markets for a multi asset DFM like TAM is how to ensure our model portfolios meet the needs of both long-term investors and short-term investors.
Investment approach
A manager can, on the one hand, invest into a portfolio of long-term ideas such as selective areas of the ESG market, disruptive innovators and economic powerhouses like China that can anchor strong long term performance drivers.
Then barbell this with investments specifically designed to outperform in a bear market such as volatility funds like Amundi Funds Volatility World which, save for commodities, is one of the best performing investments in 2022.
Likewise, short dated fixed income and cash have proven to be good stores of value and essential in providing that short-term cash drawdown.
Inflation protected assets such as inflation linked bonds and infrastructure have also been good shorter-term investments to both protect from steep losses as well as protect against inflation eroding that hard earned pot of cash.
A good yard stick for a portfolio fit for all conditions is its average performance over the longer term. One isn’t looking for a manager who “shoots the lights out”, nor is one looking for a manager who wants permanently low volatility returns.
Simply speaking, to TAM, good performance is found in consistency, in knowing your manager’s approach and trusting their ability to sail through the short-term volatility and, over the longer term, deliver you some strong compounded gains from the success stories of the next generation.
James Penny is chief investment officer at TAM Asset Management
Link to original article