We believe, and know from our long experience, that without discipline our clients’ investments can fall prey to their emotional decisions resulting in significant losses. Our process, the Aspire Wealth Mentoring Program™ , focuses on using strategies appropriate to not only your specific life situation and goals but also your personal preferences to financial matters. These strategies are based on years of market analysis and are designed to lower portfolio risk in addition to minimising any fees and taxes you might pay over time.
Our investment style is primarily based on a Passive Investment approach which is totally different from the way that most people invest i.e. through an active management strategy based on using heavily marketed fund managers. A Passive Investment strategy, on the other hand, is an approach through which an investor invests in accordance with a pre-determined strategy that doesn’t entail any forecasting such as attempting to use market timing or stock picking.
The focus is to minimise investing fees and to avoid the adverse consequences of failing to correctly anticipate the future. This is usually done by mimicking the performance of an externally specified index through buying into one or more ‘index funds’.
In its simplest form, an index fund is established by purchasing securities in the same proportion as in the stock market index. In the United States, indexed funds have outperformed the majority of active managers, especially as the cumulative fees they charge are very much lower than active managers. They are also able to have significantly greater after-tax returns. Of the active managers that may beat the index in particular years, investors still have the problem of discerning how much of the outperformance was due to skill rather than luck, and which managers will do well in the future. Considering that there are, at present, some 32,000 unit funds worldwide the task of finding a consistent top performing fund manager is near impossible and can usually only be identified historically.
Using indexed funds our approach has been to develop a range of different portfolios, all of which have been demonstrated to have related risk and reward measures. This allows us to educate our clients as to the risk for the potential return targeted and then agree with them the most appropriate portfolio structure.
A further key element in running a passive investment strategy is the regular rebalancing towards the selected portfolio components in order to reduce overall volatility and risk and therefore smooth out investment returns.
By tracking an index, an investment portfolio typically gets broad diversification as well as minimising various investment fund management fees. With low management fees, an investor in such a fund would have higher returns than a similar fund with similar investments but which had higher management fees and/or turnover and/or transaction costs. This means that Passive Investors avoid the types of fees that an Active Fund Manager charges, which typically are:
- The Annual Fund Management fee payable to the fund manager. This can range in value between 1% and 1.5% p.a. depending on the specific type of fund. This fee is embedded into the unit fund pricing and is therefore an invisible expense as it is part of the fund performance.
- The Total Expense Ratio (TER) which can range from 0.35% p.a. to 0.75% p.a. depending on the size of the fund and reflects custodial costs and administration that the fund manager is charged internally by their own investment settlements staff.
- The costs associated with the dealing charges for shares, bonds and property purchases as well as any stamp duty that relates to purchases. The higher the turnover of the fund i.e. the more active it is, the higher these costs will be. On average, a typical retail equity fund would turn around 80% of their holdings in any one year based on UK and USA experience. A study by the UK Financial Regulator (FSA) in 2001 estimated that 1.44% p.a. of the fund is lost through such transactions. Morgan Stanley, in a more recent study of US mutual funds investing in Europe, estimated that such costs can rise to 1.91% p.a. This is because such trades will involve both a sale of an original stock and a buyback of a replacement stock with associated costs of stockbroking commission and possibly stamp duty.
For further information you can ring us directly on 01-8455827 (+353 1 8455827 for international enquiries) or email us at email@example.com