Strategy v Tactics When It Comes to Investing Your Money

Our clients and readers will be familiar with the fact that, fundamentally, there are two schools of thought when it comes to investing your hard earned money. We are firmly in the camp which acknowledges that by and large, markets are pretty efficient and rather than try to predict which assets/markets to hold or sell, we take a long term view (as for many of our clients we are taking a 20 to 50 year investment horizon).  In so doing, it makes sense to have a very broadly diversified, international portfolio, which is cheap to run and essentially tracks the relevant markets. 

We have written and shared much on this over the years, which I shan’t repeat here, however, it is interesting to see the net of costs impact of our strategic, disciplined, buy and hold, evidence based approach, compared to the tactical, buy and sell, judgemental approach of active fund managers and stock brokers.

Below is an excerpt from research and analysis undertaken of many thousands of portfolios by an independent research company covering the 10 years to the end of September this 2018.

As the asset allocation of our Balanced portfolio straddles the boundaries of two of their indices, I have, for the sake of fairness, compared it to both of their aggregated net of costs indices returns, which represent the many portfolios they analyse, over 1, 3, 5 and 10 years. Almost all of the managers in their indices are discretionary (that is to say, they are constantly making judgements as to what to buy/sell/hold and what sectors/markets to increase/decrease their asset allocation to).

Time                     Manse Portfolios              Index A                          Index B

                         (60% Equities)             (40-60% Equities)       (60-80% Equities)

1 yr                            6.03%                             3.1%                               5.2%

3 yr                          26.4%                              20.3%                            29.7%

5 yr                          42.38%                            27.7%                            38.0%

10 yr                        90.9%                              71.2%                            95.2%

As you can see, by not trying to second guess the markets and avoiding the costly, emotional mistakes many investors and their advisers make, over time, it tends to lead to a better outcome for the investors. It also begs the question as to the purported added value they are charging for.

You may say ah yes, those are the averages but what of the more successful managers, whose results are dragged down by the less successful managers in the above indices. A fair point and one I shall answer below.

Time                     Manse                      Top ¼ ile                        Top ¼ ile

                       (60% Equities)        (40-60% Equities)        (60-80% Equities)

1 yr                       6.03%                           4.1%                               5.6%

3 yr                       26.4%                         23.9%                             31.8%

5 yr                       42.38%                       31.9%                             40.8%

10 yr                     90.9%                         88.2%                           111.1%

It is also worthy of note that the above are all net of fees, yet, for many of our clients, we also provide full financial planning for that, whereas many discretionary managers do not. Get in touch and see how we can provide you with financial peace of mind.

Karl Lavery

Director