Why You Can’t ‘Beat The Markets’

Do take 2 minutes and watch this short video.In ‘The Wisdom of Crowds’, James Surowiecki explains how groups can be remarkably intelligent – often more so than the smartest people in them.  This is particularly relevant to the price of individual stocks, or indeed other financial assets that are efficiently traded in a broad open market.  Dimensional Fund Advisors call this ‘The Power of Markets’, and in the above video they elegantly explain why you can’t beat the market – because the price is already ‘right’ on the basis of known information and crowd wisdom.

Who Cares What Happens in the Markets Today?

Think for a moment, if you will, about the job of a financial journalist. Typically, a salaried journalist needs to write something every day, otherwise he doesn’t get paid. Many financial journalists are in this situation; and the subject they have to write about is what the markets are doing right now. That means, even if there is nothing substantially newsworthy in the markets, they still have to create headlines.That’s why you’ll often see headlines like: Prices dip on profit taking from Friday’s gains. Does this actually tell us anything useful at all? Prices were up before and now they are down. This is the financial-world equivalent of reporting that forgetful Mr Jones misplaced his car in the multi-storey, or that Elvis is still dead.If you’re a day-trader, or a very short-term investor, then probably yesterday’s stockmarket movements will be important to you. But if you are a long term saver and investor, then almost certainly the market’s fluctuations from one day to the nex…

Reduce Risk, Remove Stress, and Access Market Returns

Click the icon on the right to download this article as a PDF.Dollar Cost Averaging II - How Any Investor Can Reduce Risk, Remove Stress, and Access Market Returns, Even In Times Of Market Volatility One of the first principles of financial planning is to ensure that the worst case scenario doesn’t happen. Ultimately, this is a fundamental reason for diversification. Notwithstanding all the mathematics and academic research behind portfolio construction and investment strategy, one thing nobody wants to suffer is a disastrous life-impacting financial loss.So what is ‘risk’ exactly? Well, it means different things to different people. In the world of financial academics, a common tool is variance measured as the standard deviation of thirty-six annualised monthly observations. This is the statistic used on many fund fact-sheets, and for example a fund with a standard deviation of 20% is deemed twice as volatile (twice as ‘risky’) as a fund with a standard deviation of 10%.However, rese…

Warren Buffet on Hamburgers

Source: Warren Buffett, the most successful investor in the world in the Berkshire Hathaway Chairman’s Letter 1997I’m saving for the long term - should I be worried if share prices fall?“A short quiz: If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef? Likewise, if you are going to buy a car from time to time but are not an auto manufacturer, should you prefer higher or lower car prices? These questions, of course, answer themselves.“But now for the final exam: If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period?“Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. In effect, they rejoice because prices have risen for the ‘hamburgers’ they will soon be buying.“This reaction makes no sense. Only those…

The Law Of Economists

The First Law of Economists: For every economist there is an equal and opposite economist.
The Second Law of Economists: They’re both wrong.
Side note: When an economist says the evidence is “mixed,” he or she means that theory says one thing and data says the opposite.

Asset Allocation for the Ordinary Investor

In less than 15 minutes find out about a simple but proven method for constructing your portfolio from the top down

Inflation, Compound Growth, and the Time Value of Money

I have $100 to give you. Do you want it now, or in four year’s time?If you’re like most people, you’d rather have $100 now than wait to receive it in the future. You want the utility of that $100 now, for whatever purpose you choose - whether it’s to spend in the department store, save at the bank, or pay off your credit card. (Of course, if there was no such thing as inflation and no such thing as interest, and you didn’t actually need $100 right now, then maybe $100 in a four years time is equally fine. But let’s get back to the real world…)Financial modelling techniques such as Discounted Cash Flow (DCF) and Internal Rate of Return (IRR) reflect the truth that $100 has more value now than in a year’s time, because we can put it to work for us.Inflation Erodes Real Value Let’s suppose that retail inflation (Consumer Price Index, CPI) is 5%. So a box of groceries that costs $100 today, will cost $105 in one year. Inflation will have eroded the purchasing power of your cash. And if i…

How to Read a Fund Fact-Sheet

Has your adviser given you a factsheet on a recommended fund, and you need to understand what the terms mean? If so, read on …The fund factsheet is an essential document for the private investor. Unfortunately, the information contained in a factsheet - and the way it is presented - is not controlled in the same way as it is in a fund prospectus (a prospectus is a legal document). In essence a factsheet is marketing literature. Only a tiny fraction of investors ever read the formal prospectus for a fund, that’s why it’s especially important to be able to read a fund factsheet correctly, and if necessary to read between the lines.Key Contents Of A Factsheet Most fund factsheets will contain some or all of the following:Fund Name Many funds are commonly referred to by a short or abbreviated version of the full fund name. Hence it’s important to make use of the identifying codes (see below).Fund Management Company & Domicile The fund management company is structured and regulated acc…

Your Assets Have Nowhere To Hide - What You Need To Know About The CRS

Tax planning for international investment is an extremely complex subject and you should always get expert advice to suit your circumstances. The following article is designed to give only a brief overview of the topic, and is not tax advice.
Essential information about AEOI (Automatic Exchange of Information) and the CRS (Common Reporting Standard) Background Professional expatriates - engineers and scientists, business managers, consultants, and entrepreneurs, have for decades travelled the world following their careers. Taking international opportunities as they come along. Sometimes staying put where they land, but more often moving on again in a few years. When one project or career phase is complete, it’s time to seek out the next. Sooner or later, ending up back home; in line with the demands of children’s education, career or retirement objectives, or perhaps the need to care for parents.In planning for the future, it is perfectly normal that as expats we seek to put our hard-e…

Savings and Investment Plan Growth Calculator

Q:  If I save $1000 per month for ten years, at an average net growth rate of 5% per annum, how much will my savings fund be worth?or how about…
Q:  If I save $2500 per month for twenty years, at an average net growth rate of 8% per annum, how much will my savings fund be worth?Calculate how much your funds will grow, using this Savings Plan Growth Calculator. All you need do is enter the amount to save each month, and the annual growth rate, and the spreadsheet does the rest.Download  Ideal savings and investment plan growth calculator.
Example output:

The Ultimate Retirement Planning Calculator

What’s your number?What is your target age for retirement?
How much income will you need?
What size retirement fund should you have?
How much do you need to save to get there?Basic financial planning for retirement is straightforward, you just have to follow the right steps.This calculator - built on an Excel spreadsheet and very easy to use - will guide you through the process. Please download and try it!Download the ultimate retirement planning calculator.

How Much To Save - A Rough Guide

If you haven’t yet started to save for your retirement, the following can be used as a basic guideline.Based on some typical assumptions, including:You plan for 80% replacement of pre-retirement pre-tax income, adjusted for inflation and with a high likelihood of being sustained for up to 30 years (retirement at age 65) State pension or other income will provide 25% of your retirement income needs each yearStarting early is important, because once you start, the same savings goal applies until you retire. For example, if you start saving roughly 12% of your income in your mid-20s and have the discipline to maintain your savings plan, you shouldn’t have to increase that percentage as you go through your 30s, 40s and so on.The above table is of course just a general guideline. Your financial advisor will work with you to create your personalised savings plan aimed at meeting your individual financial objectives.

Dollar Cost Averaging

How Regular Savings Create Gains From A Falling MarketDollar Cost Averaging is a strategy in which an investor places a fixed dollar amount (or indeed any other currency) into a given investment such as a unit trust, on a regular basis. The investment generally takes place each and every month regardless of what is occurring in the financial markets. As a result, when the price of a given investment rises, the investor will be able to purchase fewer units. When the price declines, the investor will be able to purchase more units.Millions of investors around the world employ a dollar cost averaging strategy because it offers the following benefits:It’s an attractive option for investors who want to contribute to their investment portfolios on a regular basis. It eliminates the issue of ‘market timing.’ As a result, an investor’s returns will be determined more by the overall trend in a given fund as opposed to the investor’s specific entry price. In addition, it helps investors reduce …

Your First Meeting With A Financial Adviser – What To Expect

It’s easy to find financial advisers in any major international city; most of us will be happy to spend some time with you in an introductory meeting. Take advantage of this, and meet more than one.Financial advisers are by no means all the same - we vary in age, experience, qualifications, as well as any specialist areas of knowledge. So ask questions, chat, and see if you feel comfortable with the adviser during the introductory meeting. Can you see yourself working with this person for the long term? Is there rapport? Of course you can always change advisers at any time, but it’s best to get it right from the outset.During the introduction, the adviser will tell you about his firm, about his own background, and his (or her) approach to working with clients. He’ll also explain how he is remunerated. Most Financial advisers that serve the offshore/expatriate market are remunerated by commissions from the financial institutions, but you may also have the option for a fixed charge, or …

I Don’t Need A Financial Adviser!

“I don’t need a financial adviser - I can do everything myself.”If you hear yourself thinking this - great! Because it’s almost certainly true. Every single one of my clients has the intelligence and common sense to do what I do.  Though in general, they don’t have the time to commit to this important subject.Often I hear this phrase from people who’ve never worked with a professional adviser before, and never sat down with one to find out what’s on offer. I think maybe it could be down to a misunderstanding of the role.As A Manager, Do You Have Problems Delegating?Pretty much every senior manager I know has earned his or her position by being good, often excellent, in previous roles. That means that the Sales Director was probably a great salesman before. The CFO was probably a great management accountant. The Technical Director was a great systems analyst. The Marketing Director could probably still turn out great advertising copy. In fact, each could excel doing the job of everyone…

Jurassic Coast Walk – Christmas 2017

My son and I walked from Weymouth to Swanage along this World Heritage Coastline.   About 50km over 3 days, including some very steep cliff paths.