E16. Asset Allocation - Time in the market versus Timing the market?

Fiduciary Wealth Team

We often hear so called experts professing to be specialists in asset or investment management claim that those who remain invested for the longer term achieve the best returns. This seems a perfectly logical statement, save for the fact, and this is why the assumption is flawed, that it presupposes that investments should remain static over the period. It is not uncommon for self proclaimed investment experts to put together a random selection of funds, with no structure to the investments or an asset allocation strategy to bring some stability to the portfolio.

You should not be fooled by promises of regular reviews, all it means is that they will sit down with you to discuss performance, but the investments often remain unchanged. They will probably tell you that these are “long term” investments to disguise the fact they have no asset management skills. You may have come across tax advisory firms that sell you a perfectly legitimate tax efficient structure yet struggle to balance risk and reward to achieve your income or growth objectives. Some firms will simply outsource the asset management to a third party to avoid responsibility for the mismanagement of your pension or investments. Does this sound familiar?

It is not altogether unusual for some advisers to place all your investments in a single investment fund with no downside protection. It is simple and easy to administer and they make the same level of commissions and fees. It saves them time and trouble and their evident lack of investment management skills are not put to the test and exposed. Some advisers will sell you illiquid funds such as viaticals etc. on the basis they pay consistently high returns however they do not warn about the high risks involved and that the investments are hardly suitable or appropriate for pension funds particularly large lump sum investments. You only get to know about the risks once it is too late! Does this sound familiar?

Of course one thing is to manage the assets in a proactive manner and quite another is to continuously churn the portfolio a practice associated with the more aggressive private banks to generate fee income. Well in our view this practice is no better than what we described earlier. Have you seen your investment returns whittled down by high turnover costs?

Well going back to our original discussion about the difference in approach between “time in the market” versus “timing the market” those who support the view that investments are long term will say that proponents of “timing the market” are just trying to be clever and that clients often end up being disappointed and significantly worse off. We would argue that the main stock markets such as the FTSE100, Eurostoxx50 and Dow Jones Indexes have largely range traded since the year 2000 consequently passive long term investments have demonstrably failed to deliver a positive return.

The detractors incorrectly assume that it is just about exit strategies and that it is impossible to second guess short term market movements. A view that is clearly outdated and which fails to recognise the rigorous investment process involved. Dynamic asset allocation strategies require regular re-balancing of asset class exposure in response to changing market conditions to minimise inherent portfolio risks and capture returns.

What would you rather have passive or dynamic asset management? If you are dissatisfied with the returns on your investments &/or pension funds or lost faith in your investment adviser call our helpline now by Tel: 956 796 911 or email