The Muirfield Financial Services Investment Committee recently completed its half-yearly update. As such, we thought it would be a good time to reiterate some of the investment philosophies that we use when making investment decisions on client portfolios.
We believe this is particularly relevant given the recent volatility in markets as a result of North Korea’s missile testing. We have included a link, here, to an article by AMP Chief Economist Shane Oliver who wrote about the implications for investors of the recent threat of war with North Korea.
In his article, Mr Oliver highlights the following key points:
- Tensions with North Korea have visibly increased causing volatility in share markets.
- The risk of war has grown, but a diplomatic solution remains most likely. Despite this, there could be more volatility before a solution is found.
- From a historical perspective, initially, shares are adversely affected by the uncertainty of wars (or threatened wars) due to the potentially significant economic impact. However, shares tend to rally well before a conflict is over.
Mr Oliver writes, “While there is a case for short-term caution, the best approach for most investors is to look through the noise and look for opportunities that North Korean risks throw up”.
This is in line with our recent investment committee discussions, which stated, “We continue to preach the benefits of diversification. With growing uncertainty, both locally and internationally, we believe it is beneficial to spread the risk amongst the asset classes. We’re also aware of the benefits of staying invested over the long-term and the importance of not making decisions based on short-term ‘noise’”.
Muirfield Financial Services Investment Beliefs
When constructing client portfolios, the Muirfield Financial Services Investment Committee adheres to a number of ‘Investment beliefs’ to ensure our portfolios are robust. These beliefs consist of the following:
Our aim is to minimise risk, not seek outperformance
Our client portfolios are relatively conservatively invested compared to other providers. Whether by only having 60% Growth assets for a ‘balanced’ investor (compared with 70%+ for many other providers) or investing in Blue Chip shares via the SMA Blue Chip Top 20, our underlying investments are chosen with capital preservation and minimising risk in mind.
A long-term approach is generally used to construct client portfolios unless specifically requested by the client
Whether you are 50 and starting to dream about retirement, just retired or have been enjoying retirement for a number of years it is likely that your retirement savings will need to generate returns above current bank interest rates (which are currently under 2%) for you to enjoy a comfortable retirement. The most recent statistics show that on average a 65-year-old Australian will live for another 18.22 years (Male) and 22.05 years (Female). That’s a potentially long retirement and the reason we invest for the long-term.
Diversification is important to ensure more consistent investment outcomes
One of the most effective means of reducing risk is to diversify your portfolio. Diversifying across a range of investments and asset classes reduces the risk within a portfolio. Diversifying is particularly important because one asset class or manager may perform well and counter the poor performance of another.
Like most investors, we understand the need for diversification. With rare exception, very few people are keen to put “all their eggs in one basket”.
Asset Allocation, not individual stock-picking, is the best determinant of long-term performance
Whilst picking the right share might make you rich, the opposite goes for picking the wrong share! We prefer to focus on Asset Allocation and ensure portfolios are diversified amongst the asset classes to provide more consistent portfolio outcomes.
Containing investment costs in our portfolios is important
Where possible, Muirfield tries to minimise the investment costs in a portfolio. The way we minimise costs may be via index funds which track an investment index or via low-cost Exchange Traded Funds. While minimising cost is an important factor, we are willing to choose more expensive, but good managers who consistently outperform (after fees) their comparable index and peers.
We do not try and time the market, nor do we overreact to short-term market fluctuations
Almost no one ever accurately picks the top of the market, nor do they predict the bottom. Generally, people sell based on fear (when the market has already fallen) and buy based on greed (when the market is already growing).
Our philosophy not to time the market was well exemplified when we elected not to take action both after the Brexit vote and when Donald Trump was elected. Despite short term corrections on both occasions, markets very quickly rebounded and reached new highs.
We are not investment experts, accordingly we:
- Review external research from qualified experts
- Outsource investment management to qualified experts
Muirfield is a relationship and advice business. We see our biggest skills and the areas where we add value, as our approachability and ability to provide our clients with quality and accurate financial advice. This means we are constantly ensuring we are on top of changes to taxation, legislation, Centrelink, and superannuation law amongst many others. Accordingly, we prefer to leave the key investment decisions to the experts who are monitoring world markets on a day to day basis.
Whatever your financial goals might be, it is important to ensure you have a structured investment strategy that will allow you to reach those goals. Advice and support from Muirfield Financial Services will help provide you with the peace of mind that allows you to do the things you enjoy in life without having to worry about the day to day happenings of world financial markets.
 “Australian Life Tables 2010-12 — Australian Government Actuary.” Who Are We? — Australian Government Actuary, www.aga.gov.au/publications/life_table_2010-12/.