Our Investment Philosophy
“The real risk is not knowing what you are doing.”
- Warren Buffett
At Prosperity Wealth Management, we understand that not everything is about money. We realise that Money is a tool, a means to an end, not the end itself. However, what money does is allow people to become better providers for themselves and their families. It provides more choices and options. It is this ability to have options and make these choices that bring true wealth and happiness.
It is this focus on true wealth that drives our financial planning approach. Our investment philosophy is no different; we are focused on helping our clients protect their wealth and giving them the opportunity to grow it in the long term.
Our Investment Philosophy, incorporating our core investment beliefs, is as follows:
We will always Engage with you.
It is important that you are comfortable with the investment decisions we make on your behalf.
We will engage you thoroughly so that you understand exactly what and where you are investing. The decisions around your portfolio will always be made in consultation with you.
This philosophy is borne out of our long-term experience delivering results for clients, driven by thorough research. We understand the trust our clients place in our services. It is, therefore, critical that we ensure you always have clarity about where, how and why, your money is invested.
Our aim is always to answer the question, “Would I invest my mother’s funds in this asset?” if the answer is “No”, then why would I invest your funds in that asset?
We Believe Markets Work.
We believe markets are efficient, meaning all available information and opinions about a stock are factored into the price. There is no reliable way to predict the future or act on information before the rest of the market.
It’s difficult to beat the market consistently and just as challenging to pick investment managers that can. So, instead of trying to beat the market, we let the market work for our clients.
We believe in Risk Versus Reward.
We believe the greater the risk taken, the greater the expected reward (the return) should be.
This is the essence of taking risks. However, we also believe that not all investments deliver a return that justifies the risk involved. For this reason, both the risk and potential returns of an investment will be considered and weighed against your objectives, risk tolerance, and investment time frame. We will try to avoid exposing your capital to additional risk when there is little additional expected return.
Costs Matter.
We believe in maximising growth and, where possible, minimising costs.
However, fees and costs are a necessary and important part of the investment equation; although we cannot eliminate them, we aim to minimise them by selecting the most modern, cost-effective platform solutions that use technology to drive down costs and reduce fees.
Through experience, we know that there is no positive correlation between the cost of an investment manager and the expected returns. When the costs of research, analysts and trading are factored in, net returns usually decrease.
This is why we use a sound platform and product selection process to identify the most cost-effective platforms and build portfolios that limit the need for unnecessary transactions, keeping costs as low as possible without compromising quality.
Diversification is Essential.
Diversification is essential to reduce risk.
We will design diversified portfolios and utilise the best mix of investments to achieve the desired outcomes. We use diversification to ensure we spread investments widely, using a range of investment options, funds, and types to design a portfolio that matches client-specific circumstances, goals, and objectives.
Discipline is Crucial.
Discipline in investing is critical to success. Emotion, lack of insight, excessive risk-taking, and other common behavioural mistakes compromise returns and can devastate an investor’s net worth.
We will ensure our clients are aware of and understand the behavioural risks inherent in investing and assist them in avoiding making these mistakes by ensuring they understand the investment strategy and helping them stay the course.
Investing is a long game with many ups and downs, but we believe patience, persistence, courage, and faith will get them there in the end.
Asset Allocation Affects Performance.
Different asset types provide different returns and risks. Investing in an asset mix linked to your objectives, investment time frame, and your need for capital growth is the smartest way to invest.
An appropriate asset allocation reduces volatility, which can also enhance returns. Our philosophy is also driven by our belief that the most important investment decision you can make is not which investment to buy but rather how assets should be allocated based on your investment objectives, circumstances, and attitude to risk.
Our strategies are designed to help capture growth when the market is rising and protect capital when the market is falling. We strive for a deep understanding of the fundamental aspects of the economy, markets, and instruments in which we invest.
We keep abreast of current events, and we will closely monitor each portfolio and adjust Asset allocation as the market cycle evolves. By monitoring market trends and adjusting allocation accordingly, we can more effectively manage risk and preserve your investments during times of market volatility.
Timing is important.
Timing of investment decisions and implementation is important. We will manage the investment implementation process and invest when opportunities exist, not simply just because cash may be available.
We will implement your investment strategy at a pace that achieves the best outcome for your tax position, circumstances, and cash flow, considering our position in the different stages of the market cycle. See the economic clock and the sentiment roadmap for an explanation of this cycle.
For years, the “buy and hold” method of investing was the rule of thumb for many investors and their advisors. However, an increasingly global economy and dramatic fluctuations in world markets have underscored the vulnerability of many portfolios during down market cycles.
Many investors approaching retirement don't have time to wait for their assets to recover from losses, and withdrawing assets during a down cycle can cost dearly, potentially derailing their retirement plans.
Therefore, we believe a tactical and strategic approach is important to investment management.
Investing is a Science.
We believe an investment strategy should be based on science and independent academic research. It should be tested against new research and updated with the latest discoveries in market behaviour and economics., and an investment manager whose process is not transparent or logical should be avoided.
We also believe that a strategy that cannot be explained or is based on a ‘gut feel’ is just not appropriate.
Income is Important.
As retirement approaches, we will take into consideration a growing need for income generation. On average, at least half of investment returns are generated from high-yielding income securities (form dividends).
This percentage often increases over the longer term, particularly in sustained low-growth periods or periods of high volatility.
We believe generating income is critical to your portfolio and should never be underestimated.
Our retirement-specific portfolios are built to take advantage of this.
Education is Power.
We believe our role is to nurture your Investment knowledge through our journey together and act as behavioural coaches to protect you from making poor, emotionally reactive financial decisions.
We will Nurture your Knowledge.
We will ensure, as much as possible, that you fully understand what we do for you and how their investments work. We will strive to ensure you are engaged in the process and ultimately understand everything we do as much as possible.
Coaching is Essential
We will coach your thinking so that we can succeed in changing behaviours that would otherwise prevent you from achieving your investment goals.
We will act as a behavioural coach utilising the 3 ‘P’’s approach to Financial Advice, which consists of:
- Plan - Ensure that we always have a written financial plan in place,
- Proactive - Ensure that we are proactive in coaching your behaviours before a change in market conditions makes it necessary and
- Positive—Be Positive, which means understanding that you will want to make emotional decisions about investments. As we instinctively know, one of the main benefits of having a financial adviser is that the investments we are entrusted with are not our own, allowing a certain detachment. This allows us to serve as an emotional circuit-breaker, providing positivity, objectivity, and support when needed.
To speak to our team about your Investment needs, click here.