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EBI Series: Let Markets Work For You

In a time of ongoing uncertainty, it can pay to not get consumed by information that’s not backed up by data and facts. When it comes to financial planning, those who ignore the market noise and invest with a long-term goal, will often find that they get the rewards they seek. Many expect a solid return on the capital they provide while the equity and bond markets have historically delivered that growth of wealth that even offsets inflation.

Letting Capitalism Do The Hard Work

From an investment perspective, it’s important to leave capitalism to do the hard work. Although many currently believe that capitalism lacks credibility, the fact is that it continues to be a robust economic system that has adapted through the years and has delivered impressive developments and innovation. And despite the apparent doom and gloom, the world’s economy continues to grow every single year. Investors are able to take advantage of some of that innovation and the associated reward by investing in the markets. This can be done as a part owner of a company or through shares and receiving dividend payments and even benefiting from a rise in share prices.

Creating Your Investment Portfolio

When the time comes to building your investment portfolio, there is not one single solution that delivers success. Therefore, a diverse portfolio will have the right structure whereby assets have long-term potential. What this means is that in the short-term, some of these assets might not perform too well but others will perform well. What is important is to recognise that markets will perform in the way they want to and there is no possibility of having any element of control over them but there are ways to prepare for this by diversifying properly and managing your portfolio’s overall risk.

Evidence Based Investment Portfolios

Following the establishment of a portfolio, further value is added by financial planners that is not widely recognised. With a long-term portfolio structure in place and the selection of best-in-class funds to help execute the strategy, it is common to see that not a lot changes from one period to another. This can leave investors feeling as though they are not getting value for money from their financial planners.

However, this is far from the truth because in the background, regular Investment Committee meetings monitor performance to either continue on the same path or to look at making changes to the portfolio structure. With a more complex portfolio that has a large number of funds and a high level of activity, the more likely it is to see an unsuccessful outcome. When it comes to investing, a longer-term view and less activity is more preferable than taking a short-term view.

The Importance Of Rebalancing

An appropriate level of risk is established once a portfolio has been created. As time passes, the balance between growth assets that carry an element of risk and defensive assets can often drift apart. This leads to rebalancing, which involves investors selling those assets that have performed and purchasing more that have not performed as well.  The main objective behind rebalancing is to gain some control over risk while not necessarily improving returns. This is because rebalancing trades ensures that portfolios are still set up for long-term gains. This is achieved through reversing deviations that come from differences in the performance of asset classes. Therefore, rebalancing does require confidence and will power but this, along with a well-diversified portfolio, in the long-term will enable the markets to do all of the work for you.

Interested in learning more about Evidence Based Investing?

Working with a financial planner who has a vast amount of knowledge of the history of the market and has the ability to make financial decisions impartially is vital. Get in touch to learn how our team of financial planners in Hong Kong can help you by creating a bespoke evidence-based investment strategy tailored to your needs and interests.    +852 2598 6777

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