With the current, much awaited stock market setback, it seems an opportune time to focus on our long term investment goals. We all understand our investments fluctuate on a daily basis, but when there is a setback we are psychologically challenged. However it helps to remember that it is usually a very good time to invest for the long term, when the media whips up a frenzy and becomes the messenger of doom and gloom.
As investment advisers we understand that we can’t change the wind direction, but with skill and experience we can trim our sails to get maximum forward motion.
So over the last 12 months but more importantly over the longer term, how can you judge how well we have managed your hard earned life savings? Well you look to see how we performed relative to other advisers you could have chosen. That’s where the AFI index on Trustnet can be useful. To quote;
The Adviser Fund Index is made up of the recommended portfolios of a panel of leading UK financial advisers. Based entirely on the funds actually recommended to clients, the AFI Aggressive, AFI Balanced & AFI Cautious portfolios carry real-life credibility, and provide insight in terms of the benefits of holding top quality funds.
Click here to see the AFI methodology – Click here to see the AFI panelists
So basically this is the consensus return of the funds offered by the top wealth managers in the UK. If we recommended the same funds your investment performance would equal these benchmark returns before costs. But we don’t recommend the same funds, so we will either have fallen short of our peer group benchmarks or we will have beaten them. – I’m happy to say we have beaten them.
So before you look at the performance figures below it is important to understand we are not assessing Apples v. Apples. Why?
- The AFI indices do not show the returns investors actually receive. They merely show the publicised returns of the funds used by the advisers. These publicised performance figures omit many costs which are deducted after these figures are produced. They include administration costs, research costs, trading costs etc. These non-disclosed charges can take a sizeable bite out of the growth you receive. They can be between 0.5% and 2.0%p.a.
- Secondly these funds need to be held somewhere, so there are platform fees to deduct. These are around 0.3% alone
- Thirdly the AFI returns shown are before you have paid for any ongoing financial advice and management. This equates to around 1% p.a.
Instead we decided to use the WYSIWYG approach. What You See Is What You Get. We calculate the actual returns in your accounts after all trading costs, administration, platform custody charges and of course our 1% per annum fees.
So rather than inflate our growth figures to match the opaque way the industry works, we have left the analysis below as our Transparent Apples v the industries Misleading Pears.
All the figures below end 6th October 2014.
1 year returns
Our Cautious |
AFI Cautious |
|---|---|
| 5.36% | 5.80%* |
Our Moderate |
AFI Moderate |
| 6.98% | 5.85%* |
Our Aggressive |
AFI Aggressive |
| 7.32% | 4.89%* |
*If you want to convert to a like for like basis you should deduct around 2% off the AFI Indices.
3 year compound returns
Our Cautious |
AFI Cautious |
|---|---|
| 7.19% p.a. | 8.66% p.a.* |
Our Moderate |
AFI Moderate |
| 10.51% p.a. | 9.65% p.a.* |
Our Aggressive |
AFI Aggressive |
| 11.46% p.a. | 10.76% p.a.* |
*If you want to convert to a like for like basis you should deduct around 2% a year off the AFI Indices
So all in all over the last year and for the preceding 3 years we have comfortably beaten our peer group. We don’t spend our money on expensive funds. We control our costs and let the markets themselves do the heavy lifting.