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Short term thinking does not deliver in the long-term

Business on the goCapital is at risk.

We live in a world of 24-hour news with information feeding instantly to screens that bombard us from walls, desks and our phones. As a result, we’re increasingly connected to the wider world we live in – a trend that’s broadened our perspectives in some ways but can narrow them in others if we’re not careful.  Nowhere is this more apparent than in the world of investment.  A tweet from the President can move the market in seconds, the speed and severity of some reactions making it hard to focus on anything other than the short term.

Avoid a narrowing perspective

We think this is a mistake – yes, be aware of near-term opportunities and risks, but never lose sight of the perspective that really matters – the long-term one.  After all, as individuals we are rarely investing to achieve an outcome in the next days, weeks or even months.  More sensibly, investments are made with a longer-term objective in mind, which might be an income in retirement or growing a pot of savings to help the kids through university, for example.

Getting the right mix

It’s the long-term goals our clients are aiming for, as well as tried and tested investment principles, that form the basis of how we manage our portfolios. Keeping these to the fore of our thinking helps us turn down the distraction of short-term noise.  Diversification is perhaps the most fundamental as spreading your portfolio across a host of different investments provides two key benefits:

  1. Tapping into a range of opportunities for income or growth.
  2. Tempering the impact of losses in any single area.

Contrasting income and growth

Secondly come tactical moves, where active adjustments can be made to account for near-term opportunities and risks. Just now, with the UK economy under a cloud of uncertainty, perhaps trimming exposure for some time makes sense.

Get active

This leads us to another principle – that of active management and its potential to add real value over the long term. Such is our conviction here that we spend most of our time and effort picking the best active fund managers.  After all, it’s been proven almost impossible to reliably predict broader asset moves from year to year, but we firmly believe that talented specialist managers can add value within their fields of expertise on a consistent basis.

People power

Interestingly, this brings us full circle. Our clients are people saving for a future outcome and we try never to lose sight of that.  At the same time, the underlying managers we entrust our clients’ savings to are also people – understanding what makes them tick, how they think and work forms a key element of our investment process. Again, long-termism is important because we want to invest early with managers building what we believe will be a long and impressive track record that benefits our clients.

Delivering income for our clients

Gary Potter, co-head BMO Multi-Manager

Past performance should not be seen as an indication of future performance.

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. Julian Stevens 15th May 2019 at 10:03 am

    Quite so. The trouble is that, despite one’s best efforts to explain this, there will always be a few clients who, having claimed to have taken this on board before signing on the dotted line, panic and cash out (or stop their ongoing contributions) in the wake of a couple of negative portfolio valuations. Regardless of what they say, they remain implacably wedded to the expectation that Unit Trusts are some sort of turbo-charged cash investment that will only ever go up and never down. For clients such as those, there’s nothing you can do.

  2. Trevor Harrington 21st May 2019 at 2:20 pm

    An individual’s time horizon changes, often dramatically, for all the reasons mentioned, and whole lot more besides.

    You would not be surprised to discover that a client who previously was focused on a 25 year time horizon, to include repaying his mortgage, and securing a pension, and educating his children, suddenly collapses into a time horizon of tomorrow morning – when he has just been told that he has some horrible disease.

    Also, as I have said recently in these pages, and in many other places over the last 30 years, long term planning is difficult to engender in the clients mind, when successive Governments have removed great chunks his and his wife’s state pension, destroyed his private and company pensions, failed to provide medical care, failed to provide a proper education for his children, and cancelled all state long term care.

    The complete and utter failure of Governments to meet their financial promises and assurances to the public, has destroyed people’s belief in long term planning, despite the heroic efforts of Advisers like ourselves, over decades and decades, even when faced with the regulators endeavours to erase us from financial life.

    The very first thing that needs to be done, probably in the entire western world but certainly in the UK, is to rebuild people’s confidence in Government, and Government responsibility. A very good start would be to face the establishment feeding frenzy in pension benefits, which is directly responsible for the massive reduction in state pension benefits, and increased state retirement ages.

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