Stop playing it safe: The Finn Review January 2018
I don’t think there has ever been so much word on the street about one investment since perhaps the 17th century when tulips were all the craze in the Netherlands.
Yes, I am talking about Cryptocurrency.
I am rarely on social media these days but I hopped on Facebook recently and I couldn’t believe my eyes. Every Tom, Dick and Harry was expressing their views on Bitcoin or some other Cryptocurrency.
There were people, who I personally know have no experience with investing, sharing that they have gone all in and others who are now “so-called experts” who I wouldn’t trust with a bucket of water if my knickers were on fire – let alone with investment decisions!
Now I don’t want you to feel like I am negative on Cryptocurrencies, as I’m not really. You can see my views in my previously posted blog on whether you should start investing in crypto.
What I want to do is to use this as a live example to study the investor psychology curve, as I believe this will be the greatest opportunity in our generations investment history to learn it once and for all.
We are seeing this cycle play out quicker and repeat more often, than I have ever seen with any investment before.
My biggest concern for cryptocurrency right now is not if it’s a great investment or not. It’s about what is it going to do for the future investing behaviours of all the people who have invested in it.
We are either going to see people get addicted to the thrill of getting rich quick and expecting and chasing similar returns in the future. Or worse we’re going to see people scared to ever make an investment again because they got so burned in the volatility of the investment and ended up losing considerable amounts or all of their capital.
I am all for making speculative investments as long as they fit in my overall investment strategy and if I lose I don’t lose everything.
Anyone who is going all in I wish you the best of luck, but how are you going to feel if you end up being the fool?
History has proven that markets have a tendency to correct, so are you prepared for the next tulip mania crisis?
In February last year we increased exposure to Emerging Markets in portfolios through using the Exchange Traded Fund (ETF) IEM.ASX.
We are very happy that our investment thesis payed off with the investment returning 26.5% since our initial investment.
What are my views on Emerging Markets for 2018?
I still believe they are expanding and as such we will see cyclical support for EM equities. I recently had the pleasure of meeting the recently retired Ambassador to the U.S.A. in the Asia region. He gave me a number of great insights that he saw during his time there which greatly supports our view.
Back to School
Active versus Passive management.
There’s a lot of debate around what is better: active management or passive management.
Often the main debate is around fees and unfortunately, this can cause more harm than good as it can force you to be either an in or an out camp.
Today I’d like to educate you on how you can use both to your benefit in your investment strategies.
I believe real life examples are one of the best ways to learn, so let’s use the notable investment we discussed above.
IEM is a passive investment. The exchange-traded fund (ETF) seeks to track the investment results of an index composed of large- and mid-capitalisation emerging market equities. As it’s passive, its underlying investment cost is relatively cheap. We saw the benefit of investing in this investment last year as it has resulted in a return of 26.5%.
To demonstrate the benefit of active management, let’s look at where we funded the acquisition of this investment. We reduced exposure to Australian large capitalisation Companies. These still performed well over the same period providing a return of 7.5%. However, you can see that Emerging markets outperformed by 19%. This meant that through active management we resulted in part of the overall portfolio getting an extra 19% return.
Of course, you might ask why didn’t I shift the whole portfolio into IEM to reap the full benefits. This comes back to risk and our preferred default stance to passive investing. We are confident that regularly investing to a strategic asset allocation suitable to our generation is the most important element to meet your investment goals but we can help to accelerate these by making smart active decisions like this where we see opportunities.
Finn’s Fun Facts
The S&P 500 gained 27% in 2009 which is an epic year. Guess what percentage of investors thought it fell that year? 66%!!
This proves that perception and reality can be a long way apart.
One of my side hustles and passion projects is facilitating EO and YPO forum retreats.
I get the pleasure to lead some of the greatest leaders around the World and help them become better individuals, family members, business leaders, community members and to get more out of their forum experience. I often get asked what I do for them. If I had to sum it up, I would say that I help them to become more vulnerable in their communication.
Why do I focus so much on vulnerable communication?
The more vulnerable you are, the more real you are and the more you allow people to be able to help you and also gain insights from you. Most people I see in life are playing it safe, too scared to take any risk.
I believe playing it safe is the greatest risk you can take. It means that you are giving up the chance to be your authentic self and live your dream life.
I would like to ask you to think where in your life are you playing safe.
Are you playing it safe in your
- career aspirations?
I know you will find something straight away and I challenge you this month to commit to changing, stop playing it safe and live a little!
Who knows what will happen for you if you do.
Disclaimer: all information contained within this article is of a general nature and should not be relied upon when making financial decisions. Please consult a professional financial advisor or planner (like us!) before acting.