When navigating past icebergs, it pays to remember that what’s hidden underneath can matter a lot more than what you see on top!
Similarly in investing, we can sometimes focus too much on the potential upside and forget the hidden downside. “Average” investment returns over several years always seem to be positive – yet a single large loss (such as many investors experienced in the GFC) can wipe out so much of your capital that it can be very hard to recover (particularly if you are approaching, or already in, retirement). For example, to recoup a 50% loss, you need to earn a 100% return on your remaining investment– which can be pretty hard to do, especially if you need a lump sum soon, or are drawing income!
Traditional investment managers largely ignore this issue. They construct investment portfolios based on a range of assumptions about how asset classes will behave: using risk, return and diversification assumptions often based on very long-term averages. These assumptions may hold true when you are looking at periods of 15-20 years or so, but are frequently found wanting in timeframes that matter to investors.
Profile’s objectives-based investing approach aims to deliver real returns to investors throughout the market cycle. To do this, we employ a flexible and dynamic approach to asset allocation, matching our strategies to our investors’ timeframes based on fundamental economic as well as technical analysis, overlaid with a strong focus on investment valuations.