Why use an Investment Manager?

As a high-net-worth individual, protecting your wealth – particularly in the face of volatile and fluctuating markets – is an important element in your overall investment strategy. Working with an investment manager can ensure that long-term growth continues, despite short-term disruptions and market fluctuations.

WEATHERING THE STORM OF MARKET DISRUPTIONS

In early 2020, when the COVID-19 pandemic swept across the globe, markets dropped by 30%. This was not the first time that international events impacted the global markets, nor will it be the last. In 2016, the UK referendum on whether to stay a member of the European Union or exit the EU placed pressure on the pound sterling. Between 2007 and 2009, the entire world was impacted by the Global Financial Crisis and in 2001 the tech bubble burst.

In each of these cases, the market recovered, and long-term investment strategies were largely unaffected. The damage was felt more by short-term investments and investors who reacted to the market.

“The 2016 pressure on the pound in the UK is an example of how a short-term reaction can impact investments,” explains Andrew Sheppard, Wealth Advisor, International Wealth and Investment, Standard Bank. “When these events happen there is a drop in the market, but then the market forms a view and carries on as normal. 

“Investors who have sold their shares face the biggest challenge. They keep expecting things to get worse, and instead they gradually improve. Now they are faced with a dilemma. If they buy back into the market, they do so at a loss. And so, they wait for the market to bottom out again. In the case of the Brexit vote in 2016, the market corrected a couple of times, most notably in Q4 2018, but didn’t suffer another big disruption until COVID-19 in 2020. Some Investors who came out of the market in 2016 were still out years later, missing four years’ worth of growth and dividends.”
 

PROTECTING LONG-TERM WEALTH THROUGH LONG-TERM STRATEGIES

Warren Buffett is considered one of the most successful long-term investors of the 20th and 21st centuries. One of his principle rules is both simple and straightforward: be fearful when others are greedy and greedy only when others are fearful. In other words, do not react to prevailing moods in the market. Unfortunately, this is often easier said than done, and it’s one of the main reasons to work with an investment manager. 

Here are three ways to protect your long-term wealth, ensure you stick to your investment goals and build a robust portfolio of investments that can weather short-term market fluctuations.
 

1. Stick to your fundamentals
Individuals who have built wealth through their businesses typically use investment vehicles to protect that wealth and grow it further. This requires an investment strategy based on specific long-term goals.

“Market volatility happens,” says Sheppard. “When markets are disrupted, the first thing we do is sit down with our clients and review their long-term goals and the fundamental principles we have based their investment strategies on. It’s tempting to ignore investment strategies when markets go down, but short-term reactions can have long-term consequences. 

“Reviewing your fundamental principles, the goals of your investment and ensuring that funds are still aligned with your overall purpose ensures that you stay on track and that your long-term investments weather any unpredictability in the markets.”
 

2. Be proactive, not reactive
“The strategy we follow with our clients is to buy quality, hold it for a long time and diversify. A core investment strategy allows us to invest in some higher risk speculative investment that could potentially earn higher returns,” explains Sheppard. “known as core and satellite investing. Core holdings are invested in global companies and stable investments. They are designed to protect wealth and while they are unlikely to see 20% growth, they are also less likely to suffer a 20% loss.

“The key is that even speculative investments should not be reactive. Instead, they should align with an investor’s fundamental investment strategies.”

Sheppard uses Tesla’s stock as an example of speculative versus reactive investments. A speculative investor might include Tesla stock in their portfolio because they are interested in technology businesses. It’s a long-term strategy that may yield high results. However, a reactive investor will purchase Tesla stocks simply because of market sentiment, which has nothing to do with a company’s financials and everything to do with current trends. These investors are buying in when stock prices are already rocketing – in Tesla’s case stock values doubled in six months – without any guarantee of returns. It’s not necessarily a bad investment, but luck will play a large part in the outcome.

Sheppard’s advice is to ensure that you are following a set of fundamental principles when making investment decisions, instead of following short-term, reactive market sentiments that offer no guarantees for portfolio growth or protection. 
 

3. Work with wealth investment experts 
Private investors can sometimes rely on newspapers, market news and online resources to inform investment strategies and decisions. The challenge is that these sources are reactive. “For our investment managers, one of the biggest benefits they have on their side is time. They’re able to analyse markets and determine key trends without relying on information after the fact. Our experts are connected to international markets and able to protect the global exposure and interests of our clients,” says Sheppard.

One of the most important benefits that investment managers offer their clients, however, is support. “Our clients have worked hard to build their wealth, which has often involved a fair amount of risk-taking. The long-term protection of wealth requires a far more measured strategy. We protect what our clients have earned and are there to bounce ideas off and research any areas that our clients are interested in. We also ensure that their portfolios always align with the fundamental plan we have put in place and that our clients are not exposed to too much volatility.” 
 

Disclaimer

Standard Bank Jersey Limited is regulated by the Jersey Financial Services Commission and is a member of the London Stock Exchange. Standard Bank House, 47-49 La Motte Street, St Helier, Jersey, JE2 4SZ. Registered in Jersey No 12999.
This document does not constitute an invitation or an inducement to engage in investment activity and is presented for information purposes only. Investment should only be undertaken following the receipt of advice from an appropriately qualified investment professional.
The value of investments may fall as well as rise and investors may get back less cash than originally invested. Prices, values or income may fall against the investors’ interests and the performance figures quoted refer to the past, and past performance is not a reliable indicator of future results. Investments may be quoted in foreign currencies and investors should be aware that the changes in rates of exchange may have adverse effects on the value, price or income of the investments.