It's personal - Davy's holistic approach to investing

The noted US financial adviser and writer, Nick Murray, has spent his career trying to enhance investors' understanding of what they are investing in and how they should think about the role their investments play.

In his book ‘Simple Wealth, Investible Wealth’ he wrote:

"A portfolio is not, in and of itself, a plan. And a portfolio that isn’t in service to a plan is just a form of speculation; it can have no other goal than to beat most other people’s portfolio.

But 'outperformance' isn’t a financial goal. An income you don’t outlive – to cite one critical example – is a financial goal. If your portfolio 'outperforms' mine, such that I run out of money when I’m 76, and you don’t run out of money until you’re 82, it isn’t going to matter much when we’re both 85, sitting on a park bench without two nickels to rub together between you."

When it comes to ensuring that your financial priorities are clearly expressed and that your investments are functioning in support of this, we believe there are three key questions that every investor should be able to answer:

1. What do I own?

2. Why do I own it?

3. How long am I going to own it for?

These are the same questions that we ask ourselves as we review our portfolios on an ongoing basis. A clear thesis is required for each holding and there are clear expectations as to what it should do from a risk and return point of view and what would cause us to change course. This is because we have stated objectives for our portfolios and any action is carried out in reference to this. We think the same framework is highly applicable to individual investors.

What do I own?

For some investors this proves to be a challenge as they have adopted an approach of buying a random collection of products over the years and struggle to piece the aggregate together. Assuming this step has been dealt with then it is about understanding the nature of your portfolio. What is it trying to achieve, and do I know when it has done well or not so well? Even those who understand what they are investing often spend too much time on this step and fail to address questions two and three.

Why do I own it?

This is the critical question and one that we believe should tie in fully to a financial plan with clearly expressed goals. Whether the portfolio is focused on short-term liquidity needs, long-term income replacement or focused towards more aspirational investments, there needs to be a clear line between the approach adopted and what it is doing for you in the context of your financial life.

How long am I going to own it for?

In a financial plan we develop with clients, the time horizon requirements for funds generally run to multiple decades. As investors we are paid to take risk and the reason we earn these returns is that there are periods of time when it is very uncomfortable to stay the course. No one likes these risks but if your investments are aligned correctly and you understand what you own then these scenarios can be dealt with. The key aspect here for investors is to understand that a significant change in strategy should be driven by changing needs in your life and not some short-term market movements.

It’s personal

While we believe the above framework is applicable to every investor, the degree to how assets are allocated across various needs, solutions or timeframes all depend on you. The best way to establish your priorities and goals is to start a conversation with your Davy adviser.