When we get to April, I’m always inclined to think of the rain that we often call April Showers, and I can’t help but think back to when I was growing up. Our playing was rarely interrupted by the odd shower and in truth I barely remember it raining very much when I was young.
It’s funny how children never seem to worry about the rain yet as adults we duck for cover when we feel the first drop of rain. As we get older, our outlook on many things changes, we start off believing we’re invincible and after the children arrive a sense of our own mortality starts to creep up on us.
In the world of finance & investment we find our changing outlook on life manifests itself in several different ways, although most particularly in terms of the risks we are willing or able to take. Most of us have insurance for everything from cars to phones and often our lives too. We may have medical insurance cover or travel insurance and even insurance for critical illness.
This very risk averse approach to life is often disproportionate to the risks we actually face, which can make insurance a very profitable business for some companies. However, we tend to think of the consequences of things going wrong – “what happens if” and judging by how often I drop my phone, insurance tends to be a safer option.
If we are investing money, there are lots of biases that drive what we do – for example, UK expats based in Asia still have a tendency to hold predominantly UK shares and assets denominated in sterling. Similarly, US expats favour dollars and Scandinavians favour euro assets etc. This “home bias” is very well researched and documented to illustrate it’s often not a good idea.
The most recent example of the impact of this home bias on UK expat investors was when sterling based investments fell relative to other currencies after the UK voted to leave the EU. Anyone holding sterling assets or with a sterling based income, suffered a 20% fall in the non-sterling purchasing power of their assets or income.
If we look back to just after the financial crisis in 2008 those with sterling would have been buying over 66 baht with every pound of income or capital. Quite a lot less than I received on my first visit to Thailand, although still much more that the 42 baht I would get now. There have been similar falls for holders of euros and Australian dollars.
In contrast, those with USD assets or income have not suffered any relative fall in purchasing power over the same period and would be much more wealthy in Thailand compared to their European and Asian peers.
You can probably imagine that the phone in our office rang off the hook on Friday 24th June 2016, the day after the Brexit vote. Clients were concerned about the value of their investments and wanted to know what to do next.
After a short chat about the investment values, the advice on what to do next was simple – nothing. You see, one of the things that you would expect to get from a properly regulated and professionally qualified financial adviser is good advice. In our experience, good regulation, better qualifications and a professional firm will lead to much better outcomes. We find this is because of the things we learn in our training and also what comes with experience in a professional firm, for example, the value of diversification and the importance of actually giving advice. Too many advisers often take orders from clients and don’t give advice for fear of losing a client relationship. Sometimes what clients want to hear is different from what they need to hear. Often when we meet a client for the first time we find that they may have been investing on a DIY basis or dealing with an unregulated adviser. This has often led to poor outcomes or investments that are not ideal in terms of the charges incurred. In some cases, the investments and the advice has been unsuitable leading to complete losses.
For our clients, based in lots of jurisdictions around the world, the impact of Brexit, US – China trade policy and slower global growth has been much less than they expected. This is down to the client specific approach and layers of diversification across currencies, geographies, investment styles, asset classes and managers. In our experience the time to be aware of possible shocks and to prepare for them is at the time investment decisions are made and not when the crisis strikes.
This is very much the approach we all take in our lives, day to day, by taking out insurance or carrying an umbrella in anticipation of April showers. What surprises us is that this cautious approach is often disregarded when it comes to investing. Too much of our money in British pounds or Euros, a concentration in a small number of UK securities. Or more bizarrely, all of our investments in a series of unregulated high risk funds.
As we head towards summer in Europe and some of us start to think about putting away heavy coats and brollies, save a thought for your savings and investments. Are you prepared for the next shock, is there too much concentration in what you own. Do you need to seek out good regulated advice?
Remember, the time to buy an umbrella is before it starts to rain.
Author: Chris Bryans
Featured in The Expat Magazine.