As with all investing, your capital is at risk. The value of your portfolio with Moneyfarm can go down as well as up and you may get back less than you invest. Past performance is not a reliable indicator of future performance. If you are unsure investing is the right choice for you, please seek financial advice.
If you started your investment journey – or made a specific investment – between the end of 2021 and the beginning of 2022, this article should be of interest to you.
Since my first steps into investment management back in 2006, one of the most important lessons I’ve learnt, and shared with my clients is the importance of having discipline, standing firm on your own time horizon, sticking to your plan and avoiding the noise.
I’ve had regular conversations with my clients asking for the specific reasons their portfolios show negative returns after one to two years of their initial investment, or close to initial investment for a relatively short period when their friends/family have had ‘good’ returns during the same period. It’s also a constant comment from my team that there are few clients that make the point they’ve made their own investment decisions with better results over the same time frame.
As a team, we have come to the conclusion that each situation is unique, and the importance of comparing situations like-for-like is crucial (the specific asset allocation has an implication on results, the amount invested and its regularity have an influence on final results, the type of investment vehicle has an impact on final results, the risk assumed, etc.).
I’m firmly of the opinion that before a strategy is implemented, an overarching plan must be agreed upon. One of the crucial variables in deciding a specific investment strategy is that every individual must be clear about the time horizon allocated to the investment. With that in mind, a common rule is to assume that ‘no less than five years should be considered when starting any ‘investment plan’.
We at Moneyfarm are very rigorous in assessing the time horizon of each of our customers before suggesting the most suitable investment for their own particular circumstances.
I’m a ‘visual’ person and it’s easier for me to understand a new concept – even more when investment-related – by reading the explanation and then looking at the visual representation through charts. As such, I’d like to use the charts from our website to show the returns for our low-medium risk (P3) and high-risk (P7) model portfolios, starting in January 2022, and then from January 2016 up to January of this year.
This I hope illustrates the importance of having an investment plan (the longer the time horizon the higher the capacity to assume risk), suitable to the investment strategy. This should help us avoid the ‘noise’ created by short-term behaviour that could result in a disinvestment that leads to a bigger loss of possible high returns, by sticking to your own time horizon.
You can find the interactive charts on our website and play with the different date ranges and risk levels by following the link here).
P3, Low-medium risk model portfolio Jan 2022 to Jan 2024
P3, Low-medium risk model portfolio Jan 2016 to Jan 2024
Moneyfarm returns net of fees since inception (01/01/2016) vs. average peer group performance over the same time period. These past performance figures are simulated. Past performance is no indicator of future performance. The allocations shown above are based on our model portfolios at a point in time, so they’re an illustration of how your actual portfolio might look. The exact composition may differ, if the value of your portfolio falls below c. £3,000.
The returns here are simulated using an assumed balance of £250,000, and the average management fee from our pricing model of 0.46% from 01/01/2016 to 31/10/2017 and 0.55% from 01/11/2017 to the 31/12/19. The returns are net of underlying fund costs and market spread. The returns are the total returns, so include all dividends. (Data Source: Bloomberg/xignite)
By looking at the two time periods for the same risk level, it’s a good example of why we should stick to our long-term time horizon.
P7, high-risk model portfolio Jan 2022 to February 2024
P7, high-risk model portfolio Jan 2016 to February 2024
Here we can see the same behaviour although with a different magnitude relative to the risk assumed.
Moneyfarm returns net of fees since inception (01/01/2016) vs. average peer group performance over the same time period. These past performance figures are simulated. Past performance is no indicator of future performance. The allocations shown above are based on our model portfolios at a point in time, so they’re an illustration of how your actual portfolio might look. The exact composition may differ, if the value of your portfolio falls below c. £3,000.
The returns here are simulated using an assumed balance of £250,000, and the average management fee from our pricing model of 0.46% from 01/01/2016 to 31/10/2017 and 0.55% from 01/11/2017 to the 31/12/19. The returns are net of underlying fund costs and market spread. The returns are the total returns, so include all dividends. (Data Source: Bloomberg/xignite)
In conclusion
To sum up my thoughts on this important subject, I’d recommend clients to always bear the following in mind when thinking about their investment portfolios:
- Stick to your own investment plan
- Have discipline
- Understand the importance of a long-term time horizon
- Avoid the short-term ‘noise’
- Look for professional guidance
- Assess your own plan and compare with similar conditions
- Regular reviews
But, as always, we are here to help support you in making the most of your savings and investments no matter your individual circumstances or financial goals. You can speak to a member of our team any time by booking an appointment online, or getting in touch with us via phone, email or live chat and we’ll be happy to help.
Miguel Muruaga: Miguel is an Investment Advisor Team Leader at Moneyfarm, having joined in June 2022 as a Senior Investment Consultant. Prior to joining Moneyfarm, Miguel worked in London as a Wealth Adviser for a Senior Practice from SJP and Openwork. Miguel began his career in financial services in the mid-2000s as a Client Manager at Zurich Financial Services. Most of his career has been within the Private Banking sector and Wealth Management, between Switzerland and the UK, with a vast experience managing HNWI. He has a BA in Business Administration with a major in Banking from UNIMET (Venezuela), and an MBA from IE Business School (Spain). He is a chartered member of the CISI.
*As with all investing, financial instruments involve inherent risks, including loss of capital, market fluctuations and liquidity risk. Past performance is no guarantee of future results. It is important to consider your risk tolerance and investment objectives before proceeding.
