Your guide to
investing

If you wish to manage your own investments, here are some resources that could help you. However, DIY investing is not as simple as it might sound. 

Independent financial expert DALBAR’s annual analysis of investor behaviour shows that the average DIY investing underperforms the S&P 500 by 4.2% per year for the last 20 years. 

There are 5 reasons why DIY investors’ returns fall short:

1. Emotions like ‘fear’ and ‘greed’ drive DIY investor behaviour.

When markets dive, it's natural to want to get out quickly. When they’re rising fast, it’s normal to want to ride that wave. But that means buying high and selling low, the exact opposite of a good investment strategy and it’s exactly what most DIY investors do.

One study that looked at how different investing styles would have fared over any 20-year period, found that the best strategy was to invest your cash as soon as it's available, and then hold what you purchased for the long-term.

That’s precisely what DIY investing fail to do time and time again.

Any Chartered Financial Planner, who can protect you from your own emotions, will more than cover their annual fee via the higher returns you’ll get from staying invested.

2. It’s hard to remain constantly motivated.

The inability to be relentlessly, tirelessly committed to a plan can affect your finances.

As Chartered Financial Planner Stuart Ritchie explains: "I help clients make better decisions about their wealth – and I encourage them to get things done. 

“I’m persistent, patient and at times a psychologist! 

“But I get results my clients are delighted with. I've yet to see an app or a DIY investing platform that offers any of these literally value-added services!”

When investing, choose an adviser who won't consume your money with hidden commissions, who won’t make decisions in their own best interests to the detriment of yours, and who won’t charge excessive fees. 

3. How much do you know about costs and taxes?

Are you an international tax expert?

Have you any idea how much expense ratios and trading commissions are costing you? 

Do you know the difference between accumulation and distribution share classes?

Do you know how to invest strategically to cut costs and taxes?

A decent fee-based financial planner can help you with your investing and much more…

And what they save you in taxes and excessive fees will more than cover their annual fee. 

Our colleague Stuart saved Kristian 5.73% in fees on just one of his investments. This meant Kristian got great results for the first time in years.

Find out if he could do the same for you with one of these.

4. Balance and diversification

Everyone knows diversification is critical when investing…but did you know that your age and risk tolerance should also influence how you diversify?

How often do you rebalance your investment portfolio?

Have you factored in the holdings of other people in your household too, and how these affect your overall investment mix as a family?

You need to look at the combined investments in all accounts – and know that if your allocation is off, you'll either be taking more risk than you're comfortable with or earning less than you could be.

Paying for professional investment management is worthwhile – because it means pacing the market instead of underperforming it.

Here are a few real-life examples >>

5. Time is not on your side

Have you got a job – or plenty to keep you busy if you’re retired?

Perhaps you have family as well, who demand your time and with whom you like to spend time?

For Stuart and his team of Wealth Advice professionals, investing and financial planning is their profession, their passion and their full-time job…

Which is why their clients don’t waste money on commissions and taxes, remain balanced, are diversified and in the market for the long-term.

If you don’t want to underperform, don’t get into DIY investing.

If you want better results, and the peace of mind while investing, make sure you deal with a Chartered Financial Planning company.

And if you want to see if we can cut your fees and increase your portfolio’s performance, get a full diagnostic analysis of your holdings with an X-Ray Review™.

Ever heard of an investing black hole?

Essentially, your money is sucked in…

And never seen again.

Hawking, Einstein and Newton dedicated their lives to studying and understanding black holes.

This natural phenomenon has such a strong gravitational pull that it sucks up everything in its path.

But these don’t just exist in science.

They’re in financial services too.

Our client, Andrew, is all too familiar with them.

He moved to Dubai from London in 2016.

His company set him, his wife and children up handsomely with relocation, housing, schooling and healthcare costs all paid for.

With more disposable income, he hoped to invest more and possibly retire early to spend time with his family.

Unfortunately, as a busy, high-earner in Dubai, he became an easy target for unsolicited sales calls.

A charismatic financial salesperson contacted him, offering to meet at a nearby coffee shop to chat about his investment options.

Andrew was won over.

He withdrew his £600,000 pension and invested all of it into the offshore bond recommended by the trusted salesperson.

However, his investment hadn’t grown in two years – despite a raging bull market.

Those inflation-beating returns he was promised were nowhere in sight.

With his retirement and family’s financial future on the line, he desperately sought a second opinion.

After scrutinising his investment, the results were shocking.

Andrew is a clever man.

A professional.

But he unknowingly agreed to a 10-year lock-in period, paid his ‘adviser’ an initial 7% product commission and 4% on the underlying investments…

An eye-watering 11% (£66,000) disappeared into the abyss on the day he transferred his money.

But this was only the tip of the priceberg for him.

He was charged:

• Establishment fee 1.83% pa for five years
• OCF of funds 2.32% (AMC 1.75%)
• Portfolio management/advice fee 1% pa
• Admin charge £428 per annum (0.07% on £600,000)
• Transaction charge £25 x 10
• Total = circa 5.2%+ pa

It gets worse.

If Andrew withdrew his funds within the initial charging period of 10 years, exit penalties would apply.

It was clear, the damage was done.

The 5 stages of grief followed.

Denial.

Anger.

Depression.

Bargaining.

And eventually acceptance. 

But, truth be told, the damage wasn’t irreparable.

The Middle East is littered with similar stories caused by a financial services industry that’s systemically broken.

While he couldn’t make up contractual losses, he could move on.

The journey would be difficult.

It would begin with a simple chat about him and his life, not about money…

Read similar real-life stories here >>

Confusion abounds this question because the 'industry' says one thing, but the evidence says another.

The truth is, there are only two choices. One works and one doesn’t…

So, don’t be baffled by the range of investment funds and managers, or the number of financial advisers or even commodities in the world when you begin your investment journey.

Just choose between passive and active. One works and one doesn’t…

As Benjamin Graham, the economist, investor and teacher of Warren Buffet said:

“The individual investor should act consistently as an investor and not as a speculator.” 

In financial economics there is a theory called the Efficient Market Hypothesis (EMH).

It maintains that market prices reflect all available information and expectations. 

So a stock’s current price is the best approximation of a company’s intrinsic value.  

Any attempts to identify and exploit stocks that are mispriced will most likely fail, because stock price movements are random, and largely driven by unforeseen and unforeseeable events.

Of course mispricing can occur, but there’s no predictable pattern for this. 

So this hypothesis suggests that no active fund manager will ever be able to consistently beat the market over long periods of time – unless by complete chance, of course. 

Therefore, stock picking, market timing and active investing cannot ever be reliably depended upon to add enough value to outperform a passive investment strategy.

That’s the science behind what is actually, just common sense.

Passive investing means:

1. not having to waste time stock picking and market timing;
2. ignoring the short-term randomness of the markets (we call this noise);
3. having a structured, diversified portfolio, balanced to manage risk; and
4. positioning a portfolio for long-term growth in the capital markets.

Science has changed every aspect of our lives including how we communicate, travel, shop and even invest. And the technology keeps improving.

In the financial world, planners who don't keep up, often fall behind and sell their clients short. 

Before computers, there was no way people could possibly understand what drives the markets.

New technology allowed researchers to dive deep into the data to analyse the behaviour of security prices.

One such researcher was Eugene Fama.

He developed a new framework to study financial markets, along with Kenneth French, and has been honoured with a Nobel prize in Economic Sciences for his work.

Their research underlies all of Dimensional Fund Advisor's thinking and helped develop the firm's process.

Widely regarded as the "father of modern finance," Fama has brought an empirical and scientific rigor to the field of investing.

Transforming the way finance is viewed and conducted, which you may know as evidence-based investing.

Dimensional Fund Advisors is currently the eighth-largest fund company.

It manages assets exclusively for institutional investors and the clients of a select group of fee-based advisers.

Those assets were worth $579 billion as of September 2019.

So why haven’t you heard of them? 

The firm does no advertising and is primarily owned by employees and directors.

This helps keep fund expense ratios very low. 

DFA’s board members, directors, and consultants represent a “who’s who” in the world of financial economics, including Eugene Fama and other Nobel Prize-winning laureates, Robert Merton and Myron Scholes.

DFA does not develop or recommend investor portfolios.

Instead, this work is left up to the planner chosen by the client.

Development of highly efficient portfolio models requires a thorough understanding of Modern Portfolio Theory (MPT).

The principal goal of MPT is to achieve the greatest return for the amount of risk taken (or, conversely, to minimise the risk in a portfolio targeted to achieve a specific return).

Doing so requires combining asset classes in the investment portfolio to achieve effective diversification.

The only free lunch in investing.

This is accomplished by measuring the correlation between specific asset classes that demonstrate a historically high rate of return and combining the asset classes in such a way that portfolio volatility is minimised.

Global diversification of the investment portfolio protects investors from a downturn in any single asset class.

Domestic or foreign.

DFA-based portfolios typically contain more than 9,000 securities in 44 countries.

Dimensional adds value over benchmarks and peers through a dynamic and robust investment process that carefully structures and implements portfolios to target higher expected returns. 

By evolving with advances in financial science, the firm has delivered impressive long-term results for clients. 

Which is why so many institutional clients and big companies use it.

And why it’s a well-kept secret.

The driving factor behind Dimensional's outperformance comes from their ability to have an exposure that is more sensitive to the market, size, and relative price premiums. 

Of course, past performance is no guarantee of future success.

But looking at the evidence helps put things in perspective.

A systematic investment approach is the way forward.

It keeps investors disciplined and patient even through the most challenging times...

Because they believe in the enduring power of the markets.

They believe in their strategies and that their portfolio is working for them no matter what.

It's why during the volatile period of 2008-2012, US mutual funds saw outflows of $535.7 billion and Dimensional saw inflows of $34.4 billion.

Having a strategy you trust is vital when you are investing.

It will give you the clarity and confidence needed to control your financial future.

As Nassim Taleb explains in his book Antifragile:

“A complex system, contrary to what people believe, does not require complicated systems and regulations and intricate policies. Yet simplicity has been difficult to implement in modern life because it is against the spirit of a certain brand of people who seek sophistication so they can justify their profession.”

International investing is investing via a wide range of potential strategies, to capitalise on advantages offered outside your home country.

It’s an approach to investing that increasing numbers of international professionals and expatriates are exploring, particularly since it has become far easier to do so with the emergence of index trackers and exchange-traded funds (ETFs).

The term 'offshore investment' is synonymous in many people’s minds with illegally 'stashing cash' out of reach of the taxman. In actuality this is just a myth perpetuated by the media.

Offshore investing and international investing are one and the same: the terms are used interchangeably.

Offshore simply means a jurisdiction or country other than the one in which you’re living.

As an organisation, we believe that unless your needs are complex, or the sums involved are significant, (in excess of £250,000), then it may be best for you to try DIY investing.

There are many potential advantages to investing offshore if you’re an international professional; the following are just the most commonly accessible:

1. Offshore investment growth potential

The fastest growing economies in the world are in emerging nations across the planet – to cash in on that growth you have to take your investment to where it’s happening.

Emerging countries with rapidly advancing economies have a burgeoning middle class, who are building wealth and hungry to consume and acquire.