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Waterfall news

mistake 1: don’t trust current strategies are currently performing is arguably a high-risk strategy.
data sets without proper well. But an experienced and
scrutiny knowledgeable manager will know People inherently feel the need to act
Traditionally, returns from equities are that the current trend is not the norm. when things are not going according
higher than those from cash since they Older data sets can also lose their to plan. However, investors need
tend to price in a risk premium. From relevance. Therefore, you cannot simply to consider that when investment
time to time you could expect lower rely on data alone to make decisions. managers work on long-term expected
risk assets like cash to outperform A mixed bag of experience, expertise, returns, periods of underperformance
equities, but you would not expect industry knowledge, different are usually factored in as part of
this over extended periods of time. viewpoints, and strategies puts you in our decision-making process. When
Equities have been under pressure a better position to make investment we work on 40-year projections
for a while, which has skewed the decisions. statistics can be deceptive, for equities, for example, we make
traditional risk-return dynamic in and it is critical that the hypotheses provisions for several corrections to
asset classes. The underperformance that data presents are tested by take place over this period. volatility
of equities has also filtered through experienced research teams. When and market corrections are completely
to more historic returns in funds, data works for you, it’s great. When it normal stock market behaviour,
making more conservative mandates deceives you, it can be disastrous. and therefore we employ strategies
outperform more aggressive ones. that can help to smooth periods of
If you were to rely solely on current mistake 2: excessive changes underperformance over the long-term.
data sets, you could conclude that a to asset allocations in
more conservative strategy is the best portfolios conclusion
bet, even though current patterns Making excessive, emotional changes Mistakes are a natural and valuable
are contrary to what we would to your portfolio in response to data part of your learning curve as an
traditionally expect. since equities can be costly - for example, moving investor – provided you are willing
have underperformed in the short to capital out of equities completely to learn from them. Doing so is often
medium term, we have noticed many into cash while timing the market what sets the professionals apart from
investors moving their investments incorrectly. While most people the amateurs. For the average investor,
from growth assets like equities to understand the risks of investing in the best route may well be to stick to
more conservative products like cash. equities, investors need to understand a financial plan that was devised with
that investments in cash run the risk a specific goal in mind. The highest
But will the next five years look the of not beating inflation over time. risk is deviating significantly from the
same as the past five years? Anybody since the aim of investing is to grow plan, abandoning proven investment
can look at the same data sets and your wealth in real (after-inflation) philosophies along the way. Work with
see that conservative managers or terms, cash as a long-term investment an adviser to help you stay on track.

sTEvE BuIssINNE FrOM PIxABAY
12 Waterfall Issue 1 2020