Investors have been warned against becoming star-struck by ‘Hollywood’ growth as they negotiate the most promising path for their personal finances.
Speaking at the latest edition of the AB Money Forum on Monday, Lewis Delaney, executive managing director, IFA, guarded against so-called ‘get-rich-quick’ schemes and, instead, advocated a more measured approach to investing, with a particular focus on the longer-term.
He said for those looking to make 40 percent on their investments annually, then they “need to speak to a stock broker”.
“My job as a financial planner is to do the boring stuff. I would rather make someone 5 percent every single year as opposed to make them 40 percent and lose them 10 and then make them 5 and lose 10 again. That’s not how it works,” he said.
“We know investments don’t grow in a straight line, but we can try our very best to make that as smooth as possible for people and give them an accurate representation and accurate projection of where that fund value is going to go,” he added.
Joining Delaney on the panel session was Carol Glynn, finance coach, Conscious Finance Coaching, who said there was room for speculating with investments, but these had to be balanced according to the risk people are willing to accept.
Carol Glynn, finance coach, Conscious Finance Coaching
She said: “We need to let go of that excitement element or what I do sometimes with my clients is say, if you want that let’s set aside a small portion of your portfolio that you can essentially play with.
“You can go in the more exciting investments or the potentially high risk ones that you may win and you may lose, but it’s a small enough proportion that you can sleep at night and that if you lose then you’re still safe – you have your long-term portfolio in place.”
At the start of the coronavirus pandemic in 2020, markets dropped by between 20 and 40 percent in some instances as investors were consumed by panic, leading to “twitchy finger” syndrome.
But Delaney explained why it’s best to adopt a long-haul strategy when it comes to investment.
“We see our investments go down ten percent and we get that twitchy finger to sell it because we’re worried about where the bottom is. As a financial advisor that’s where our value is because we say ‘look, leave it alone’. We take the emotion out of it because that’s our job,” he said.
Lewis Delaney, executive managing director, IFA
“If the market goes down, it’s going to go back up. Look at the last ten years, look at the last 20 years, we’ve never had three years of consecutive negative growth in the S&P or FTSE. So just let the market ride out where it is, let it go through its peaks and troughs,” he added.
And rather than looking at ‘get-rich-quick’ schemes, he advised instead relying on compounding interest, allegedly described by the great Albert Einstein as “the eighth wonder of the world”.
Delaney said: “You’re better off to have that compounding effect by having five percent every single year. The reason is, you’re getting growth on top of growth on top of growth. So your $100,000 grows to $105,000, but then you’re getting five percent on $105,000.
“That compounding interest, although it may be a small amount initially, in terms of growth, it may not look so Hollywood, with massive peaks and troughs, it’s a lot more efficient for a financial plan, especially if we’re talking about retirement planning. If you’re planning on retirement and that’s 15 years away and you’re making that compound five percent, that can be all you need to do it.”
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