Naïve people believe that all investment advisers are the same. Most may be, but certainly not all.
Did your investment adviser protect your super and investments before the GFC or Dot Com bubble? Has your investment adviser worked through a plan to protect you when the next GFC occurs and share (and possible real estate) markets drop by 30% or more? This is a real risk for everyone; but particularly the Baby Boomers (those born between 1946 and 1961) who may not be able to recover financially from this 'sequencing risk' (risk of a large loss before they withdraw their retirement cash flow).
In chapter 4 'New Paradigms' of my latest book 'Invest Wisely and Grow Rich' I exposed many outdated (20th Century) paradigms of investing that the vast majority investment advisers still cling to; that may cause their clients lose money. These include: ignoring both the 'virtuous cycle' and what I coined the 'vicious cycle' of the US stock market; is the US share market American?; Empire change; a new 'economic clock'; is 'volatility' the Robbin Hood of our age?; and outdated 'Risk Profiling'. My future blogs will cover some of these subjects. Now, I will concentrate of the A, B, and C's of investment advice.
The A, B and C's of investment adviser advice!
Alpha
'A' stands for Alpha, which is the amount that your investment(s) exceed (or underperform) a market index (being the S&P/ASX 200 or MSCI world share indexes. etc.) Many industry and retail super funds (and even investment portfolios) often mirror the share and bond indexes. The same result can be achieved much cheaper using Exchange Traded Funds (EFT's).
Many fund managers consistently outperform share indexes for decades; creating Alpha for their investors. Imagine someone between 30 and 50 with $100,000 in super to invest for the rest of their life (and even their partner's life). Had they invested in the MSCI (world) share index for 40 years ended 2016, they would have over $535,000 (at about 10% monthly compound return). Had they increased their return to 13.5% they would have over $2,145,000. Who keeps the $1.6 million? The person who invested with the investment adviser who derived Alpha to beat the market. One of the fund managers who my clients invest with achieved returns very similar to this example.
Beta
'B' stands for Beta, which measures risk compared to the market itself (being a Beta of 1). Some use Beta as comparison of the risk of being in a particular market like the Australian or US share market or not. Good investment advisers will obtain the same return as the market with a Beta value under 1. This means you get the same return with less risk. 2016 was the most volatile share market in 80 years. With negative interest rates and world debt continuing to explode; prepare yourself for the next GFC in coming years.
The Australian S&P/ASX200 share market is about 85% higher than it was after its GFC trough (six years ago). The US NASDAQ technology index has risen over 400% over the same period. You can work out the compound return on the ASIC MoneySmart website using their compound interest calculator or via the links on the free Wise Investment Advisers App on my website if you (currently only for iOS).
Do you (or your investment adviser) have a plan to protect your super and investments before the next GFC? If not, then you should talk to an adviser from a company like my company Wise Investment Advisers who will.
Commitment
'C' stands for Commitment. Did your investment adviser or super fund charge you fees when the world share markets approximately halved in the 18 month downturn of the last GFC? Will they charge you when you lose money in the next GFC? Our company Wise Investment Advisers' Commitment to you is that we will rebate our fees in any tax year that our clients lose money subject to some reasonable provisos.
All investment advisers are not the same!
