STRATEGIQ WEALTH

CRAIG'S THREE THINGS ON THURSDAY

So what does the evidence tell us about the best away to approach investing?

TRYING TO PREDICT THE FUTURE DOES NOT WORK
The investing world is full of people trying to convince us that they can invest your money better than the next person. They also try to convince you that they can pick shares in such a way that they exceed the average return of the stock market.

That might be their aim, but the evidence tells us that they will most likely fail.

Let us look at professional investment managers that invest in Australian shares and try to beat the performance of the ASX200. (The ASX200 is an index that measures the combined performance of the largest 200 companies on the Australian Stock Exchange)

What we know is that 80.79% of professional investment managers underperformed the ASX200 over the last 5 years (data to 31 Dec 2019). Yes, over 80% of investment managers would have done better if they simply made no choices at all and just bought the 200 largest companies. In short, people are paying some investment managers big dollars in fees with an 80% chance they will make poor decisions and leave themselves worse-off. That is crazy!

To see the evidence, go to www.spindices.com. You will also discover that investment manager underperformance is consistent across the world.

THE COST OF INVESTING MATTERS
What the above statistics tell you in that the higher the fee you pay for your super fund or investment, the more likely you are to get a worse result. If the fee is higher, the investment managers has to perform even better to outperform the general stock market.

The lesson is this; if you see high fees being changed by an investment manager or super fund, they have just given you a great indicator that their likelihood of underperformance is high.

YOUR INVESTMENT PHILOSOPHY SHOULD BE SUPPORTED BY REAL EVIDENCE
The good news is that you can invest in a way that is backed by academic research and driven by real evidence. Not surprisingly, you will find this philosophy consistently across all the investment advice I give my clients. After all, chasing higher returns based on a 80% chance of underperformance would be crazy!