Put the kettle on!


29/11/2018 10:31:10 PM // Written by Phil Stockton

Put the kettle on!

“Once you've worked out the right portfolio, leave it the hell alone!“

Everyday, we get helpful suggestions on how best to invest our money and what we should be doing to our investments ‘armed’ with the latest piece of news or ‘finger in the air’ prediction.

In most cases you’d do well to ignore such ‘noise’, resist the temptation to look at your portfolio (to see how it reacted to said noise) and put the kettle on instead.  

“That’s okay for you to say.”

I hear you. Thankfully there are a few commentators who ‘have your back’ and are not trying to flog you a fund or some such. Abraham Okusanya is one of the good guys and his recent blog ‘The less you look (or the best managed volatility strategy in the world)’ gets to the heart of the matter (that’s his quote at the top!).

You can read the full piece here but in short Abraham counsels us not to look at our portfolios too often, suggesting once a year is about right, and that by doing so we will save a lot of angst along the way.

The genesis for Abraham’s blog was this tweet by Rick Ferri.

Abraham knows this to be true but set to work to confirm just that. What he found was that when he back tested four hypothetical portfolios with a global equity/bond split of 30/70, 50/50, 70/30 and 100/0, you can expect a negative return in one of every three-month period across the four portfolios when you check them monthly. However, when you resist the temptation to look at your portfolio each month and opt to check the valuation annually, you should only see a negative about once every six years.   




Pretty good, eh? Well, it gets better with time: checking every three years will result in a positive in nine out of ten yearly valuation checks.

What if you are ultra-brave and only check once every 5 years or 10 years? Well, you’ll find that you were right not to waste time looking at your monthly valuations.

Now, the above assumes that you invested via low cost passive funds, that the portfolios are re-balanced annually and that you pay 1% a year in fees. What if you invest via active managers? The same ‘smoothing’ principle applies: longer periods between valuation checking lowers volatility.

However, the evidence suggests that for active managers (bond and equity funds), they do worse over time. The nice folk at SPIVA keep an eye on this for investors worldwide, and their June 2018 scorecard of U.S. funds makes for telling reading. The full report is well worth a look and can be found here  - in it you‘ll find lots of fab tables such as the one below. As you can see, the chance of an active manager outperforming his or her respective benchmark diminishes drastically over time. Ouch.



Our blog ‘Index vs. Active - The Scorekeeper’ explains more about SPIVA and its importance.

After all that you might be wondering, “What is the right portfolio for me?” Well, the answer is often simpler that you might think, and you certainly don’t need to worry about perfectionism when investing your hard-earned cash. Renowned adviser Carl Richards explains why in this short video

Remember, your portfolio doesn't need to be complicated: You need to understand how it works, it needs to be broadly diversified and it needs to be made up of low-cost passively orientated funds. Keep emotions in check and rebalance periodically. You certainly do not need to look at the valuation each month, once a year is just fine. So, remember, “Once you've worked out the right portfolio, leave it the hell alone!“

We like simple. Let us know if you want to see just how simple investing can be.

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