Navigator have certainly got to know me in great detail, and in a sympathetic way – they’ve taken the trouble to understand my future hopes and plans.
Consultant, law firm
Here are the key beliefs that we bring to financial planning, both in the initial stage and over time:
On an even more fundamental level, our values should be evident in everything do. These are the things we will never compromise on.
Navigator will always…
To re-emphasise, if you ever feel that we have failed to live up to these standards we have set ourselves, please get in touch.
As a client, I can see that Navigator approach investment in an entirely professional way – not just in their dealings with me, but also with the investment providers. They really do fight my corner.
– Partner, law firm
There are two moments in a man’s life when he should not speculate: the first is when he does not have the means, the second is when he does.
– Mark Twain
As financial planners, Navigator’s role is to help you to manage the relationship between the risk of your portfolio and the amount of money you need to invest to achieve your objectives. It therefore goes without saying the more successful your investment experience is the happier you will be with your planning in general. In the past, putting faith in fund managers to use their expertise to deliver the desired returns seemed like the right thing to do. Indeed the fantastic returns of the 1980s and 1990s masked what was really going on in a client’s portfolio.
Clients and advisers became accustomed to returns well in excess of 10% on a regular basis and so very few of them cared, although most were unaware, that the charges and expenses on these funds were often 2% or 3% per annum. Today’s economic landscape is considerably different to those heady days, and investment returns are returning to their long term average. This means that they are predicted to be in single figures. Therefore, if inflation is likely to be steady at 2% or 3% and the charges amount to 2% or 3%, you will need returns in excess of 6% just to stand still! This could lead you to believe that it is even more important therefore to pick a highly skilled fund manager to pursue the best results possible.
The overwhelming academic evidence would suggest this is the wrong strategy and that exactly the opposite would be more productive. Three important studies into the factors determining a portfolio’s return concluded that on average 94% of the variability in returns was explainable because of the asset allocation. Only 4% was down to the fund manager selecting the right stocks and 2% was down to “timing” the market correctly. The problem is not necessarily that fund managers are unskilled. In fact, the opposite is true. There are now so many highly skilled fund managers deploying so much highly focused technology that in order to consistently ‘beat’ the market, a fund manager must consistently ‘beat’ all the other equally skilled professionals who, as a group, are the market. This is an insurmountable challenge.
There are two kinds of investor, be they large or small: those who don’t know where the market is headed, and those who don’t know that they don’t know. Then again, there is a third type of investor – the investment professional, who indeed knows that he or she doesn’t know, but whose livelihood depends upon appearing to know.
– William Bernstein
The reality is that no one can consistently predict the future. Therefore fund managers invest in the sectors and companies that they think will do best. Despite the fact that they spend vast sums on researching the same companies they often reach considerably different conclusions from the same data. This means they are infact speculating. In addition their objective is to outperform their peer group and therefore they will change their strategy and stock selection constantly in the pursuit of this goal. This can do great harm to your portfolio as it threatens one of the key principals of investing, which is diversification. It also ruins any hope that you and your planner had of achieving a stable asset allocation, which as mentioned earlier explains 94% of a portfolios performance.
The good news is that there is an alternative strategy. For years institutions and the rest of the world, particularly the US, have been taking advantage of Modern Portfolio Theory (MPT). At the heart of MPT is the conviction that asset allocation is the major determining factor of a portfolio’s returns. It is crucial to the achievement of your objectives that your planner sets the asset allocation and chooses asset class funds to populate your portfolio.
The further good news is that not only should a properly constructed asset allocation lead to a more successful and less stressed investment experience, it should also cost you a lot less. One of the reasons that you may not have heard of this before is that many of the funds used to construct a proper asset allocation are known as “asset class” funds and are passively managed. One of the reasons they cost less is that they often pay little or no commission.
Your choice is simple: you could construct a huge roulette wheel of the hundreds of active fund managers out there and “gamble” which one will have predicted the right firms, in the right sectors, in the right markets, at the right time and do it consistently every year. Alternatively you could simply take advantage of the vast amounts of academic research that has won Nobel Prizes, costs less and is bespoke to your individual requirements.
Our view is that casinos are for gambling not your future prosperity.
We believe that investors are in great danger of generating more wealth for fund managers than they do for themselves.
Between 1980 and 2005 the US stock market averaged a return of 12.5% per annum. Over the same time, the average mutual fund (unit trust in UK-speak) returned only 10%, because of the cost of fund management.
The annual difference compounded over time makes a huge difference. Over those 25 years, an investment in the S&P 500 starting at $10,000 would have grown to $170,800; the same money in the hypothetical average fund would only have achieved $98,200 – a difference of almost 74%!
Costs and taxes matter – enormously – and we believe in using low-cost index and passive funds where possible, so that the maximum possible return from each asset class accrues to our investor clients.
The costs of goods and servicing is continually rising. This means that, when you are planning for a future financial event, you need to take into account the effects of inflation.
The investment returns quoted in the media are “nominal” returns; that is, it’s the actual rate at which the investment performed. Nominal returns are all very well when comparing different investments, but when considering the longer term, they are not much use at all. For that, we use “real” returns.
Real investment returns are the nominal returns less inflation. For past performance, that’s easy enough to do – simply subtract the historic figure for inflation, which is publicly available on Government and many financial websites.
For the purposes of future financial planning, it important to deduct an estimate for inflation. Failure to do this will result in a huge underestimation of the amount of money needed to arrive at your financial objectives.