Wealth management wisdom examined by the experts

Investors hear all kinds of received wisdom from various sources. Some stands for the ages, while elsewhere more nuance is needed. Here, a selection of wealth management sayings and principles are examined by the experts.

“Someone’s sitting in the shade today because someone planted a tree a long time ago.”

Olivia West, Private Client Manager at 7IM, says: “This is one of Warren Buffett’s most famous quotations; he is talking about the long-term nature of his investment process (he also said “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes”).

“I’ve always liked it because really it relates to everything we do: we are constantly talking to clients about the importance of putting plans in place now to protect their finances and their future, and about a long-term, diversified investment strategy to deliver that plan. The sooner the plan is put in place and the better it, and the investment strategy behind it, is, the greater the likelihood of enjoying the broad dappled shade of a well rooted, solid tree in future.”

7IM - olivia west

Olivia West

Private Client Manager at
7IM

The sooner the plan is put in place and the better it, and the investment strategy behind it, is, the greater the likelihood of enjoying the broad dappled shade of a well rooted, solid tree in future

Baking inflation into financial targets

Rebecca Cretney, Investment Counsellor at Nedbank Private Wealth, says:A key piece of planning for our clients is cash flow planning. It helps them understand what they’re spending now, what they are likely to spend in the future and how that affects their future finances.

“But, as inflation raises its head again, what figure should we be including to account for inflation? The traditional number lots of wealth planners use is around the 2.8% mark, given it’s the historic average for the last 30 years. Others believe it should be lower, in line with more recent inflation levels. However, we believe it’s a number which varies according to the spending patterns of each individual, given no client is ever likely to see their own inflation rate follow the published consumer price index.

“Understanding what is important to you, and seeing how the cost of those goods and services fluctuate, is far more likely to ensure you can enjoy life long into the future and not worry about running out of money.”

Understanding what is important to you, and seeing how the cost of those goods and services fluctuate, is far more likely to ensure you can enjoy life long into the future and not worry about running out of money

Nedbank Private Wealth - Rebecca Cretney

Rebecca Cretney

Investment Counsellor at
Nedbank Private Wealth

“Markets climb a wall of worry.”

Rosie Bullard, Portfolio Manager at James Hambro & Partners, says: There are always plenty of reasons for not investing. People had been forecasting the end of the last bull market for years, but I’ve not met anyone who called it correctly or for the right reasons. It reminds me of Donald Rumsfeld’s famous ‘known knowns, unknown knowns and unknown unknowns’ quote.

“Focus on the threats you understand, diversify to protect yourself from the threats you know but can’t quantify and hold an element of insurance in your portfolio to protect you from the shocks that come from nowhere. History tells us that if you do this you will be fine over the long term, so don’t waste energy fretting or let yourself be paralysed by anxiety.”  

James Hambro & Partners - Rosie Bullard

Rosie Bullard

Portfolio Manager at
James Hambro & Partners

Focus on the threats you understand, diversify to protect yourself from the threats you know but can’t quantify and hold an element of insurance in your portfolio to protect you from the shocks that come from nowhere

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Top Tip

This piece makes clear how much expertise – and experience – is necessary to see which pieces of received wealth wisdom should be observed (and how far). Beware any simplistic views, make sure maxims aren’t outdated and ensure real relevance to you. Through us you can speak to a selection of experts to examine your strategy fast and free, so why not check your thinking?

Lee Goggin - Co-Founder

Lee Goggin

Co-Founder

“The consensus is always right, until it is very wrong.”

Tom Becket, Chief Investment Officer at Punter Southall Wealth, says: “The last few years have shown that for much of an investment cycle you should simply mimic what the investment masses are doing. In the last five years, that has been lots of tech, lots of expensive growth, lots of duration in fixed interest and being as passive as possible. The entrenched belief is that this is now the investment solution that is vital forever.

“However, as major inflection points in markets show, such as in 2000 and 2007, when the tide turns and sentiment changes, sticking with the same as everyone else becomes very painful and the outperformance evaporates. Taking a balanced view and persisting with investment on the other side of the equation normally pays off, just as we have seen at the start of 2021.”

However, as major inflection points in markets show, such as in 2000 and 2007, when the tide turns and sentiment changes, sticking with the same as everyone else becomes very painful and the outperformance evaporates

Thomas Becket - Psigma Investment Management

Tom Becket

Chief Investment Officer at
Punter Southall Wealth

“You can only feed the ducks when they’re quacking.”

Colin MacKenzie, Director, Investment Management at Arbuthnot Latham & Co., Limited, says: “This jocular saying actually holds several serious truths. It’s a reminder of the benefits of diversification and recycling profits, or not having too great an exposure to a particular asset, sector or theme after a period of significant outperformance.

“Also, if a particular asset, sector or theme has performed extremely well over a period, it is as a result of more buyers than sellers during that time. Therefore, it is better to ‘feed’ some of your holding into the market as it rises, while the ducks are quacking, rather than seeking to ‘force feed’ your holding into a market when the buyers (or ducks) have had their fill and all but disappeared from the pond!”

Arbuthnot Latham - Colin Mackenzie New

Colin MacKenzie

Director, Investment Management, at
Arbuthnot Latham & Co., Limited

It is better to ‘feed’ some of your holding into the market as it rises, while the ducks are quacking, rather than seeking to ‘force feed’ your holding into a market when the buyers (or ducks) have had their fill and all but disappeared from the pond!

The 4% withdrawal rule

John Williams, Head of Wealth Planning at Nedbank Private Wealth, says: “As a rule of thumb, many retirees believe that drawing down 4% from their pensions and savings each year is a good approach to adopt. The view is that 4% provides you with sufficient income and ensures that you are not eating into your capital. This makes sense given no one knows how long they will live in retirement, what unexpected costs could be incurred and what the real ‘shape’ of our spending might be.

“But even if you follow it exactly and withdraw 4% in the first year, and then adjust that figure going forward for inflation, the rule remains too simplistic – something even its ‘inventor’ (Bill Bengen) has himself acknowledged. This is because it was developed in the 1990s, based on 50-year stock and bond returns between 1926 and 1976, and involves a number of assumptions which do not necessarily translate to modern markets, especially in the current low yield world.

“As such, our view is that 4% is too high unless you’ve completed a wealth plan and appreciate what your cash flow forecast is, not least as your investment returns may not be providing enough to replenish your invested wealth given the cautious portfolio approach many retirees take.”

Our view is that 4% is too high unless you’ve completed a wealth plan and appreciate what your cash flow forecast is, not least as your investment returns may not be providing enough to replenish your invested wealth given the cautious portfolio approach many retirees take

Nedbank Private Wealth - John Williams

John Williams

Head of Wealth Planning at
Nedbank Private Wealth

Important information

The investment and financial strategy explanations contained in this piece are for informational purposes only, represent the views of individual institutions, and are not intended in any way as financial or investment advice. Any comment on specific securities should not be interpreted as investment research or advice, solicitation or recommendations to buy or sell a particular security.

We always advise consultation with a professional before making any investment decisions.

Always remember that investing involves risk and the value of investments may fall as well as rise. Past performance should not be seen as a guarantee of future returns.

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