This is a common question I hear from clients these days. Business owners can have cash build up within their business or as a result of a business sale. Executives or professionals may have maxed out on their pensions and need a way to deploy cash during their strong earning years. Others are planning to draw pension benefits and need to invest their Approved Retirement Fund (ARF).
2020 produced positive equity market returns despite a global pandemic and markets have continued to push ahead so far this year (as at 20/03/21). So, people understand there is a risk investing at a time when the temperature of the market is elevated any yet feel torn…observing recent strong returns on the one hand and increasingly incurring a charge for holding cash on the other.
MSCI All country world index total returns for euro investor 31.12.19 to 19.3.21
Invest purposely and with patience
Invest purposely and with patience sums up our advice at the moment. This approach involves:
- Developing a plan and investment framework which can accommodate your interests and high potential ideas built around a foundation that is well constructed and diversified.
- Understanding where markets are at today.
- Having a clear set of investment beliefs and values to help you filter through the maze of funds and solutions we are all being sold.
- Avoiding behavioural mistakes.
Our clients tend to be time poor and only get to focus on investments intermittently, if at all. That can lead of knee jerk reactions / decisions and makes people more susceptible to the next “pitch” from money managers or to do nothing. These are examples of behavioural mistakes.
Where markets are at today
I found myself agreeing with a summary contained in a recent Howard Marks memo* so I have summarised some key points below:
- The economic outlook is positive.
- The Fed and other Central Banks want to keep interest rates low but may struggle to do so.
- Inflation stayed low following the financial crisis and while short term inflation seems contained the ability to keep it under control longer-term is uncertain.
- The temperature of the market is elevated.
- Valuations are reasonably high relative to history. High multiples are explained by low interest rates but dependent on continued low rates.
- Expected returns are low (and indeed negative for some traditional safe assets like cash and government bonds).
- Markets are likely to be volatile.
For a more detailed view on markets you can read our Strategic Insights.
*If you are interested in markets and have never read Howard Marks memos…I recommend them and here is a link Memos from Howard Marks (oaktreecapital.com).
And finally
Investing purposely and with patience does involve a trade-off between accepting modest returns short term in exchange for:
- An element of downside protection now;
- Creating the time and space to take advantage of lower prices, if there is a significant fall in markets; and
- Peace of mind…having a plan that enables you to sleep well at night.
At the end of the day money needs to be managed. The decision is whether you do that yourself (and commit the required time) or have someone help you.
