Finding an investment manager you trust

In the current environment of high inflation and high interest rates, and while the markets feel subdued, it’s natural to question the returns you’re getting and, perhaps, the value your current investment manager is providing.

While I’d agree that now could be an opportunity to hold your investment manager to task, I’d argue that they should be judged not only on performance but on the support they provide when times are tough. If you’re among the many looking to switch investment managers, here are some points to remember.

Focus on the big picture and your long-term goals

It is widely accepted by the investment community that the biggest driver of long-term investment performance is having the capacity, both emotionally and financially, to stay invested for as long as possible. Reacting strongly to short-term losses, can cause you to miss out on long-term gains.

The power of leaving a carefully constructed and diversified portfolio is perhaps best expressed by looking at an example from history. Someone who invested in the FTSE ALL share from 31 December 2007 (amid the global financial crisis) and remained invested until 31 July 2023 would have seen a return of 124%. Had they missed the 10 best days during this period, their return falls to just 17%!

Please remember past performance is not necessarily a guide to the future and should not be relied upon.

Since bad periods are inevitable, look for support through them

The journey for balanced investors over the last 18 months has been largely an unpleasant one, with more lows than highs. If we look back to the final months of last year, when returns continued to languish in negative territory against the backdrop of rising global tensions in the Middle East, one could be forgiven for capitulation.

However, those who endured the market volatility and resisted the temptation of the interest available on cash were duly rewarded when more than a year’s worth of cash returns was delivered in just two months.     

Did your investment manager arm you in terms of expectations and confidence in the approach needed to weather the storm in these dark moments? The true value of having a professional manage your investments comes when times are hard, and they communicate and make themselves available to you for support and reassurance.

Beware of promises of positive returns

As renowned economist John Kenneth Galbraith so aptly put it, “There are two kinds of forecasters, those who don’t know and those who don’t know they don’t know”.  The simple truth is that no one truly knows what will happen and I would much prefer to put my trust in a proven long-term strategy than someone’s self-professed skill in stock-picking and timing.

Approach with caution those of my peers who lean too heavily on performance and draw your focus on potential returns. The practitioners who have the courage to accept and understand what they cannot control are much less prone to those emotional human biases that so often disrupt a perfectly robust investment strategy.  

“Perfect” isn’t attainable but “trustworthy” is

The term ‘satisficing’, coined by political scientist Herbert A Simon in 1956, describes a strategy for making decisions in situations where there is no clear optimal choice. Instead, one aims for a choice that is both satisfying and sufficient. I’ve found myself in a situation to use this approach when selecting a primary school for my daughter (I’m told it’s one of the first potentially life-defining choices to be made, but they all seemed, well, fine…?).

The same could be said of choosing an investment manager. I like to think we are usually personable and knowledgeable, so how do you choose the right one for you? At the risk of diminishing my own role, it really all comes down to trust. It’s vital to find someone you feel comfortable with and are confident has your best interests at heart.

For the record, I chose a school for my daughter based on my impression that the children seemed happy and the headteacher knew all their names. I believe that the value of personal relationship can’t be overstated.

Speak up if a relationship isn’t working

Above all else, please never suffer in silence. If your investments are worrying you, I would wholeheartedly encourage you to reach out to your incumbent provider to see what solutions they can offer.

You may ultimately decide that switching investment managers is the right choice for you, in which case you are welcome to get in touch to find out more about our service. We would gladly take the opportunity to get to know you and understand your goals before making any recommendations.

To contact or read more about Ross Collinge, visit his biography here.