How best to invest?
Investments
Establishing and maintaining an investment portfolio is often key to achieving financial independence. Experience, expertise and rigorous academic research are deeply embedded into our investment process.
Why Invest?
People are now living longer and working longer, it’s never been more important to make our money work for us, and investment is one way of achieving this. Consider your money in terms of food storage: some you’ll keep in the larder for immediate consumption, some in the fridge for easy access, and some in the freezer, for the future.
We’ll help you work out what’s suited to your own individual circumstances. Whether it’s investing in the stock market, saving in a bank or building society, or anything else, we’ll ensure you always make informed decisions. With us, you can rest assured your portfolio will always be designed and maintained with your goals and needs in mind, so you can enjoy a secure future.
Our investment philosophy
Making prudent decisions about your assets and building on what you have is key to securing your financial future. Research shows that the long-term investor will ultimately be rewarded for investing their capital into the system.
You can expect to receive a fully transparent, evidence-based service that’s also cost-effective. At Gibson Financial Planning, we don’t bet and speculate, and we don’t try to predict future market movements or pick winning stocks. The evidence shows that no-one can successfully do either of these things consistently, or beat the market by trying to do them. It’s important to distinguish between speculating and investing.
Traditionally, investors pay fund managers to out-perform the markets by attempting to predict market movements, as well as spotting and benefitting from ‘mistakes’ made by the market. Too often however, they get it wrong and the costs of their transactions on an investor’s behalf greatly reduces the return an investor could have had by simply holding onto their portfolio and not trying to time the market. We seek to greatly reduce the unnecessary and costly risks of ‘active fund management’.
Research shows the markets generally get the pricing of individual stocks correct. So, rather than trying to find and capitalise on market ‘mistakes’, an investor will be better served by focusing on capturing the returns offered by the markets in all conditions.
If the markets weren’t efficient, then a good fund manager should be able to beat them over time. A study by Michael Jensen in 1968 showed there is no more out-performance by fund managers that could be expected by chance.* More recently, many studies have come to the same general conclusion, that when taxes, trading costs and fees are deducted from an average actively managed fund, they don’t beat the markets.
Knowing that market timing doesn’t work, that traditional speculative investing is costly and unlikely to succeed, Gibson Financial Planning can build you an investment portfolio, designed to generate the positive expected return owed to you by capitalism.
Academic research proves that the majority of your portfolio’s growth will come from asset class investing:
Research proves that risk and return are related and that greater returns will be accompanied by increased portfolio risk. Risk can be mitigated in a portfolio by diversifying and investing in a mix of fixed income and equities. The proportions of each sector and the sub-asset classes within are determined by how much return a client needs and how much risk they’re prepared to take. This is where we differ from many advisory firms – by mapping out your financial future, we can tell you how much of a return you need on your money and will build a portfolio to suit.
Not all risk is worth taking and academic research has shown those which are most likely to be rewarded. Two world-renowned economists, Fama and French, showed that market out-performance can be achieved by tilting the focus of an investment portfolio towards smaller stocks and value companies**. This approach will increase the risk for a client’s portfolio, but the research indicates that it’s risk which carries a reliable reward.
Costs are critical and returns can be greatly reduced, and in some cases wiped out, by high trading costs and turnover rates in a portfolio. By reducing these costs, the savings will positively affect the investor’s return.
Our clients benefit from our disciplined approach and from steering clear of speculation and instead investing with a proven approach based on solid economic theory and empirical evidence.
*Michael C. Jensen, “The Performance of Mutual Funds in the Period 1945-1964”. Journal of Finance 23, no. 2 (May 1968): 389-416
**Eugene Fama and Kenneth French, “Common Risk Factors in the Returns of Stocks and Bonds”.
Call us today on 028 7035 1164 for more details about our independent financial advice, or to book a free initial consultation.
