Steve Thaxter- Senior Partner and Principal Adviser
Sovereignty Wealth Partner
This is the second article in a series designed to help you get the very best out of your financial adviser. If you’re already a client of Sovereign Wealth Partners, hopefully you’ll recognise the process and feel empowered to revisit these conversations with us at any time. Your aim is to be confident that you can live an extraordinary life backed by wealth that’s beautifully aligned with everything that’s important to you.
Remember though, extraordinary advice partnerships are elusive. So the conversations are probably not what you’d think.
Conversation 2: So what will my investment returns be?
This is such a great question! Easy to ask, hard to answer. Your adviser’s answer will be truly enlightening. And here, we’re not just talking about Sovereign Wealth Partners advisers, we’re talking about any financial adviser you come across, anywhere.
Firstly you’ll get some indication if they’re a real financial adviser or not. If, for example, they look you in eye and confidently trot out a tantalising high number, perhaps two digits or more, they’re probably a fraudster. Not a real financial adviser. And then they’ll allude to the secret sauce that makes them so sure. A whiz bang product or an amazing trading strategy. Either way, our best advice is to run away. In the investment markets, no secret sauce product or trading strategy beats the rest consistently*. I agree though, it’s hard to ignore the get-rich-quick route. We all want to get richer, we’re pre-programmed to trust the “experts” who can radiate confidence in future outcomes.
Back to our conversation, if the answer comes without reference to your timeframe or the risk you’re willing to take, then they could be incompetent, perhaps lazy, or less interested in you than their favourite financial products. On that note remember that no one walks into a Toyota showroom and comes out with a BMW. It doesn’t matter how knowledgeable the sales representative is, if your adviser works for a financial product manufacturer, there’s inbuilt bias somewhere. And by my reckoning, they’re not a real financial adviser.
And if their answer is a prediction about the next 3 months or a year, they’re making it up or drinking some else’s cool-aid. Short term predictions are dangerous and often dangerously wrong. Look at any of the experts predictions for 2020. Who would have guessed? Like flipping a coin, it’s best not to make big bets on short term predictions.
The valuable conversation is this: – in the short term no one can consistently predict investment returns. Booms and busts are driven by what happens that wasn’t foreseen, not by what was. We can hypothesise, sound clever and have fun talking about what’s going to happen next. But it’s like flipping a coin. Your investment portfolio needs to withstand good and bad short term returns. You need to be able to stay the course and sleep well at night. The comfort is that over the very long term, for example, periods of ten years or more, average investment returns can be quite accurately estimated by experts for each different investment type and, by extension, for well-constructed, well-diversified portfolios. If your time horizon for investment is long, like the rest of your life, then this information is useful to know. It’s actually the only way you can answer important questions, like how much you can spend on your current lifestyle, how much to save for your retirement and how much you’ll be leaving in your estate. So, if your adviser’s process ignores long term return expectations, it’s unlikely they can help with your long term wellbeing.
A real financial adviser won’t be too fixated on short term returns. But they’ll be very interested in expected long term investment returns. Because it’s their job to use them, discuss them with you and help you make better financial decisions.
Look out for more important conversations in future Sovereign newsfeeds.
*What does work is a smart process that you can live with and is followed consistently in both good and bad times.