Engage investment philosophy...

I’ve wanted to write a piece about our investment philosophy for a while now. I often write about the human side of financial planning and how we work with and help our clients on a day to day basis – but this time I thought it might be useful to give some insight around the investment side of financial planning.

As per usual I’m going to try and keep things very simple and easy to understand.

As a business we manage money for families and, whilst it’s rarely the most important aspect of our service, people do trust us to look after their wealth and help it grow over the medium to long term. And we don’t take that responsibility lightly.

So, when it comes to investing, what do we believe in and why?

First and foremost, we believe in an evidence-based investment philosophy. We believe that the empirical research, carried out by some of the most respected economic Nobel Prize winning economists is the way forward. This research strongly and consistently indicates that it is extremely difficult for any one person or company to ‘beat’ the market for a sustained period of time.

In simple terms, this means that the evidence shows that leaving money invested in a portfolio for 10+ years and allowing it to grow naturally is likely to have a greater return than if someone was timing the markets – predicting growth/decline and buying and selling to take advantage of these changes. Also people underperform the assets they invest in due to making errors of judgement in when to be bold and when to be cautious.

This is where we go back to the human element of advice. As advisers we advocate that it is time in the markets, not timing the markets that is important. People have to give the markets time to do their thing and this can take years and even decades. It is extreme discipline that will win the day for investors and we manage our clients’ behaviour around this.

In all likelihood, you will experience temporary declines in the value of your investments for sustained periods, for example 2/3/4 years, potentially longer. They then might have 5/10 years of high growth and once you average out the returns, you’ll see just how well the markets reward your patience & discipline. Again, it’s a simplification but the point is, you won’t get linear returns, but you need linear behaviour!

We invest using two global financial powerhouses, Vanguard & Dimensional Fund Advisers (DFA). Vanguard are the second biggest manager in the world with c$5trillion in assets & DFA manage around $500billion. We invest in a portfolio of funds, created by these two firms which are diversified, global strategies. We use FinaltyiQ to provide the market data and analysis to give clients fact sheets and a historical view on performance. The wider point is that we take what we think are two of the best investment managers in the world and use their research & data to shape our clients’ investments. We make sure the costs are low and we keep things simple, as this is what we believe to be in our clients’ best interests.

In one of our next few blogs I’ll touch on the effects of compound interest on long term investing and why it’s dubbed the 8th wonder of the world.

Finally, we would be delighted to share our investment & return data should anyone want to see it. Please get in touch – hello@engagefs.co.uk