Our Statement of Investment Principles

.

#1 Investing is for meeting long-term goals; saving is for short-term goals.

Money that investors may need in the short-term (five years or less) should be kept in short-term investments which protect capital. Clients should only consider investments in the stock market or corporate bonds when they have money to put away to help meet a longer-term objective.

#2 Broad diversification helps to reduce risk.

Diversification in investing refers to the process of spreading out risk. The most prudent approach to minimising risk and maximising the probability of achieving a market return is to hold the entire market index.

#3 An investor’s most important decision is selecting the mix of assets to be held in a portfolio, not selecting the individual investments themselves.

Deciding on the mix and proportion of stocks, bonds, and cash in a portfolio is critically important – much more so than deciding on individual assets or funds. To work out the asset allocation that’s best for each individual, investors need to consider factors such as their financial needs, their tolerance of risk and the length of time they want to invest.

#4 Consistently outperforming the financial markets is extremely difficult.

Economic uncertainties, random market movements, and the rise and fall of individual companies mean it is extremely difficult for anyone – including professional investors – to beat the market in the long term. An active manager buys or sells shares (or bonds) in order to meet a particular investment objective. Therefore, actively managed funds typically have higher operating and transaction costs which can eat into returns. So we believe it makes sense to begin by considering low cost funds that follow an index.

#5 Minimising cost is vital for long-term investment success.

Costs matter a great deal because investment returns are reduced pound for pound by the fees, commissions, transaction expenses and any taxes incurred. Investors as a group earn somewhat less than the market return after subtracting all those costs. Therefore, by minimising costs, investors improve their odds of meeting their investment objectives.

#6 Investors should know how each investment fits into their plans, and why they own that particular asset.

Investors need to be clear why they own each particular investment. Knowing the characteristics of each investment and the role it plays in a diversified portfolio increases investors’ chances of selecting suitable investments that can be held for the long term.

#7 Risk has many dimensions and investors should weigh ‘shortfall risk’ – the possibility that a portfolio will fail to meet longer-term financial goals – against ‘market risk’, or the chance that returns will fluctuate.

In the long run, what matters most is whether your investments enable you to meet your objectives. Earning enough to meet objectives is much more important than whether investments suffer interim declines or trail a market benchmark. But many investors react only to market risk. They may bulk up on stocks during when markets are doing well, taking on more market risk than they realise. Conversely, they’re tempted to reduce allocations to stocks in response to market downturns. In truth, to achieve long range goals, most investors need to accept some level of risk from equities.

#8 Market-timing and performance chasing are losing strategies.

Market-timers who buy and sell frequently, hoping to ‘catch the wave’ as securities rise and fall, need to be very sure that their timing is right.Otherwise, they stand to lose money from market movements while also paying significant transaction costs.

As many investors say: it’s time in the markets that counts, not timing the markets. Also, market fashions change – often very suddenly. There is no guarantee that a performance-chasing strategy, asset class (a type of investment such as stocks, bonds or cash), or fund that has performed well will continue to perform well next year, next month – or even tomorrow.

#9 An investor should not expect future long-term returns to be significantly higher or lower than long-term historical returns for various asset classes and subclasses.

The major asset classes (equities, bonds, cash investments) have long histories and well established risk/reward characteristics. When estimating future returns for asset classes or sub-asset classes, long-term historical returns are a good place to start. We expect that the long-term return for equities will be higher than that for bonds, and that bond returns will, in turn, exceed returns on cash investments over long periods.

However, investors should always remember that no method for predicting market returns is perfect. Past performance is not a reliable indicator of future results.

#10 Focus on what you can control. To have a better investment experience, you should focus on the things you can control.

It starts with an adviser creating an investment plan based on market principles, informed by financial science, and tailored to a client’s specific needs and goals.

Along the way, an adviser can help clients focus on actions that add investment value, such as managing expenses and portfolio turnover while maintaining broad diversification.

Equally important, an adviser can provide knowledge and encouragement to help investors stay disciplined through various market conditions.