What an evening that was. I was in a magnificent chateau with some top bankers in the city of Paris enjoying an atmosphere full of history. Arches forming the sky of a twenty meter high room stretching a good few hundred meters in length. Ecclesiastical in nature, the edifice stood mighty and its wooden floor instilling a sense of Versailles. If the walls could only talk, I thought to myself while looking around and listening to the key speakers. Many a parties must have been celebrated and deals made in this magnificent estate.
Recently I was invited to an investment conference with the subject ‘Alternatives to the low saving returns’ The conference took place at one of the most prestigious palaces in Paris and was geared toward individuals looking for alternatives to the meager saving rates.
I’ll realize every opportunity I get to learn about new investment possibilities and I love meeting interesting people I can learn from. No different this time. When I received the invitation, I was hoping for just that. And out of all the speakers of the evening one was indeed immensely interesting and sophisticated. It was the president of one of the most distinguished and oldest investment firms in the world. His thoughts were certainly nothing new to any investor, but it was interesting to hear how global developments influenced their firm’s investment decisions. From base rates to political changes, regulatory pressures to macro-economic changes, this gentleman addressed a multitude of issues related and influencing investing in the markets.
Other speakers were unfortunately less engrossing. Amongst them a fund manager and an investment advisor. Please don’t get me wrong, they certainly knew their areas, but the knowledge they shared with the invitees was no more than what you would occasionally read in the Financial Times, New York Times, the Wall Street Journal, or the Guardian.
But then again, maybe it was just me: I was simply expecting too much, more presidential than money manager talk. I had anticipated an interesting exchange about the economy and investing. These speakers, on the other hand, were more interested in winning new clients for their funds.
Recalling the basics
Even the least exciting or insightful moments can teach us something new or allow us to discover something worth sharing. Thus, my initial intention was satisfied: I learned a few new things and was reminded of some of the questions investment firms and banks will ask when you open a portfolio and you consider investing with them:
- What’s your financial and investment goal?
- What’s your investment horizon?
- What’s your investor profile?
These are indeed really important questions. The longer one invests, the less they are things you will be asking yourself as your investment goals and focus shift slightly and become more embedded in your thinking and acting. But for those just entering the investment world or those filling their savings accounts, they are certainly questions worthwhile asking.
What is my investment horizon is a question that applies to even very experienced investors.Do I buy assets for the long-term or do I expect a quick return?
Similarly, what’s my financial and investment goal is a question that endures, although in a slightly different form, over your investment career. While for those starting out the question is likely to be more: Am I saving for my retirement, buying a house, purchasing a car, holiday, or a gadget, for the experienced investor the questions tend to be do I want a regular income (dividends, rental income) or see my assets hold great upward potential?
The third question what’s my investor profile is rather irrelevant for experienced investors. It is a bit like asking a professional tennis player whether he is right or left handed. But for those just starting out this is certainly something very important to ask yourself: do I feel happy to take big risks or do I prefer to know that next year I still have at least the same amount of money and potentially earned just a few percent in return. But I think that even for the more experienced investor, straying too far from your preferences and personal comfort zone is not advisable. Do what you do best and become even better at it. That is my life’s motto. It is great to learn, but we will always excel at those things that we already know extremely well and that carry little ambiguity.
Learning something new
The wonderful thing about any encounter and experience in life that you can always learn something new. While there was relatively little in terms of investment knowledge, I now know that one third of French savings are parked in some sort of life insurance yielding 2.5% gross interest. More than most regular savings accounts, but hardly impressive. In fact, after taxes and other costs the actual return was just above 1% unless the investment is untouched for at least four years but no longer than eight years. Seriously? 1% and you can’t touch your money?
If those savers had put their money into one of the various government subsidized and tax-efficient (0% tax for many of them) saving accounts, they would have earned about the same with no risks involved (as the presented life insurance products were primarily investing in the stock or bond market) and could have accessed their money at any time.
In a chart they proudly presented their life insurance fund outperformed the tax-efficient vehicles by 10% in six year. That’s before tax, however. After tax that equated to roughly 6% in six years or in other words, a 1% performance above the entirely free and safe government backed saving accounts. Hardly worth the extra hassle of not being able to access your money.
Take investing into your own hands
Throughout the presentation the fund manager kept emphasizing why their services and expertise are so important for investors to enjoy higher returns. Undoubtedly, he wasn’t telling a lie, but not the entire truth either, as the example above shows.
There is absolutely no question that some are extremely busy or feel really insecure and are better off leaving investment decisions to professionals. However, the majority would be better served by taking investing into their own hands. Earning a return 1% above savings account is no rocket science. In fact, any property investor, shareholder, and even bondholders who have bought bonds before the low interest rates are earning a multiple of that. And it is you who gets to decide when to access your money, not the terms and conditions you agreed on when signing on to an actively managed investment vehicle.
Even if you opt for an easier option than investing in individual assets and go for an ETF. But take your investment journey into your own hands.
For my part I still had a great time at the Chateau and would always go back to enjoy the atmosphere. But when it comes to investing I prefer to trust my own expertise.