Investment Kindergarten

Capital Investments

One would think that the investment of Capital would be a great pleasure for the vast majority of reasonably intelligent individuals. After all they had either, accumulated the amount through savings, made a profit in some transaction, inherited it or won it somehow, all positive situations…Yet it rarely is. A recent study in the USA which was commissioned by a group of financial institutions determined, that depending on how the amount was gained, IE earned, inherited or won, etc. influenced how it would be used. A lot of their findings were not surprising… those that had won it, were more risk takers, those that had earned it much less so. Those that had inherited an amount from a favourite Uncle would normally treat it as a nice “windfall” experience and use it to enhance their quality of life. Those who inherited a large sum as part of the patrimony and tradition of a family would rarely access it, instead they would hold and oversee it in revered trust, ensuring that it could be passed eventually on down their family to their children and beyond.

The major surprise was that they found the vast majority of those surveyed felt they had made poor decisions and even pragmatic individuals invested unwisely, often after being worn down by telephone salesmen/brokers. The survey cited specific examples but the one that stood out, referred to the five top record breaking Mutual Funds in the US between 1994 and 2004. They found that the majority of investors, 64%, sold at a loss. How could this be possible, with such top performing funds? The study showed that these funds are naturally more volatile. Most investors “jumped in” or were persuaded to buy when the funds were doing well and they sold in panic when the funds were undergoing an adjustment, down much lower than when they bought. The vast majority of investors did not gain the excellent returns possible, for the simple reason that their emotions ruled their decisions about when to buy or sell rather than forming an investment plan, based on logic and adhering to it. The individuals surveyed were further asked “if they would ever make a business decision using the same criteria”; the virtual unanimous reply was a resounding NO!... Further clarifying their answers by stating that “even although business decisions are inherently risky, they are generally made logically, with well defined risk parameters and exit points and the overall expectations are governed by commonsense”.

Successful investing is boring! No matter that many of our Portfolio clients expect to out perform all benchmarks, the structure of their investment portfolios is predicated within either their knowledge base and/or their commonsense beliefs.

For example, we addressed above “Retirement Planning” and its importance as a base for most. For some people it will represent the only main investment they can ever create, simply because their income stream will never permit them to develop further investment programmes without seriously affecting their ongoing quality of life. It therefore is imperative that the programme they choose allows them a favourable format to invest occasional capital, IE, a few thousand dollars of annual bonuses and some supplementary savings where the best investment choices are available and include tax, security and flexibility features. Surprisingly, some accumulated investment programmes are being marketed which actually penalise small capital investments. A little homework, pragmatically applied at the initial stage, will not only insure the best choice is made, but provide considerable initial cost savings and extra annual gains going forward.

Capital investors fall into three distinct categories, which are basically determined by the amount to be invested… Those below $25,000USD, those more than $25,000 but under $100,000USD and those above. It is grossly unfair but, in nearly every case, the larger the amount ,the better opportunities to minimise ongoing expenses and the greater the choice of both investment selection and access. Notwithstanding those facts, our association with the major internationally renowned investment houses and financial institutions provides the access to a sufficiently diverse product range to ensure the necessary portfolio variants are available to meet the most discerning investors likely investments needs.

Once the amount and general concept has been established, the choice of investment falls within two spheres; also each individual investor’s attitude must be identified. Most investors, mindful of the important part these investments make in an individuals overall portfolio, seek to educate themselves to the point where they at least are in control of the general philosophy of the money invested. Others seek Anglo Offshore International Group to completely manage all decisions and selections. It’s a client’s choice. However, it should be noted that it is easier for the client to achieve their financial objectives if they are part of the selection and decision making process. Simply put an investor is less likely to be affected by short term market fluctuation if, as part of the initial portfolio construction or future rebalancing selection processes, an understanding of the behavioural tendencies of the market sectors is selected.

Why is that important? Well, there are a number of reasons! Let me use Warren Buffet’s “Wiltshire” investment vehicle. Thirty years ago, a share was valued at $600USD; today it is worth over $100,000USD. I do not suggest that many of these exist going forward, however, a $50,000USD portfolio which experiences 8% annual growth will more than double every ten years therefore in twenty years reach $200,000USD; 10% average each year, Circa $300,000USD; 12% average, over $400,000USD. This is simple mathematics and many of our clients have multi million dollar portfolios.

The data from the plethora of surveys undertaken, supports the following conclusion, that bad investment decisions; whether selling on correction falls, or selling too soon once gains have been achieved are generally caused by a lack of the calm pragmatism which is only achieved if some level of basic understanding prevails in the investor. No matter the size of the initial investment, a considerable amount of money accrues and, eventually, it will be used to sustain future quality of life standards, when one is retired. This is an important factor and serious decisions regarding investment selections must be made from time to time and they will be made on larger and larger amounts. Anglo Offshore International Group understands these facts and as such service our clients with sufficient regular information and market oversight reviews to ensure our clients have the tools to take a full part in overall strategy decisions to ensure targets are defined and achieved.

Investment Portfolios can be constructed to meet every standard and combination required by each investor. Some seek access to every market and all possible investment types; others desire a vehicle with a simpler and much smaller selection pool, yet incorporating wide risk and investment spectrum. All however should include “no reporting status requirements” as well as no tax liabilities until withdrawal or encashment, in addition to basic benefits. Therefore whether one is looking to place occasional capital surpluses or commence the creation of a sophisticated capital programme, a Portfolio will serve you and your family while you live and long after you are gone. It is a facility to create a legal, flexible and secure entity that puts you in charge of your financial future while minimising the administrative chores. You can transfer and incorporate existing holdings of any freely traded investment, cash, stock, share, security etc., within a quality designed portfolio, reducing paperwork, while in most cases also eliminating all ongoing reporting obligations to your tax authority.

Serious money needs seriously thought out solutions to meet specific objectives… Ensure that you have the best! Contact us to arrange a meeting where your status can be assessed and where necessary tailored solutions are created to meet your needs.

Next: Lessons To Be Learned