“The real risk is not knowing what you are doing.”
- Warren Buffett
At Prosperity Wealth Management, we understand that not everything in life is about money. We understand that Money is a tool, a means to an end, not the end itself. However, money allows people to become better providers for themselves and their families. It provides more choices and options. It’s this ability to have these options and make these choices that bring true wealth.
It is this focus on true wealth that drives our financial planning approach. Our investment philosophy is no different, focused on helping our clients protect their wealth and giving them the opportunity to grow it long-term.
Our Investment Philosophy, incorporating our core investment beliefs, is as follows:
We will always Engage.
It is important that our clients are comfortable with our investment decisions. We will engage with our clients thoroughly so that they understand exactly in what and where they are invested. Decisions around their portfolio will always be made in consultation with them.
This philosophy is borne out of our long-term experience delivering results for our clients, driven by thorough research. We understand the trust our clients place in our services. It is, therefore, critical that we ensure our clients always have clarity about where, how and why their money is invested.
Our aim is always to answer the question, “Would I invest my own mother’s funds in this asset?” if the answer is “No”, then why would I invest my client’s 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 difficult to pick investment managers that can.
Instead of trying to beat the market, we let the market work for our clients.
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 a risk.
However, we also believe that not all investments deliver a return that justifies the risk involved. For this reason, both the risk and potential return of an investment will be considered and weighed against client objectives, risk tolerance and time frame. We will try to avoid making the mistake of exposing the client’s capital to additional risk when there is little additional expected return.
Fees Matter
We believe in maximising growth and, where possible, minimising fees. However, fees 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 to keep 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 client objectives, time frame, and 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 a client can make is not which investment to buy but rather how assets should be allocated based on the client’s attitudes, 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 will strive for a deep understanding of the fundamental aspects of the economy, markets, and instruments in which we invest. We will 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 client’s 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 our client’s investment strategy at a pace that achieves the best outcome for them, their tax position, circumstances and cash flow whilst considering our position in the different stages of the market cycle, Economic clock and sentiment roadmap.
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 simply 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.
We believe a tactical and strategic approach is important to investment management.
Investing is a Science.
Investment strategy should be based on science and independent academic research. Any strategy should be tested against new research and updated with the latest discoveries in market behaviour and economics.
An investment manager whose process is not transparent or logical should be avoided. A strategy that cannot be explained or is based on a ‘gut feel’ is not acceptable.
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). Over the longer term, particularly in sustained low-growth periods or periods of high volatility, this percentage often increases.
We believe generating income plays a critically important role in your portfolio and should never be underestimated. Our retirement-specific portfolios are built to take advantage of this.
Education is Power.
We believe it is our role to nurture our client's Investment knowledge and act as a behavioural coach to protect our clients from making poor, emotionally reactive, financial decisions.
Nurturing Knowledge
We will ensure our clients fully understand what we do for them and how their investments work. We will strive to ensure they are engaged in the process and ultimately understand everything we do as much as possible.
Coaching
We will coach our clients' thinking in such a way that we succeed in changing behaviours that would otherwise prevent them from achieving their goals.
We will act as a behavioural coach utilising the 3 ‘P’’s approach to Financial Advice, which consists of:
- Plan - Ensuring a written financial plan is always put in place,
- Proactive - Ensuring we are proactive in coaching our client behaviours before a change in market conditions makes it necessary and
- Positive - Being Positive, understanding that clients make emotional decisions about investments but realising that one of the main benefits of having an adviser is the fact that the investments we are entrusted with are not our own, therefore allowing a certain detachment, which in turn allows the adviser 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.