Investing in the stock market now: will I or won’t I

3 May 2020

Many of our customers are able to accumulate money every month / quarter. Or there is a gift from the parents, or there is an inheritance. Anyway: with a savings account that no longer yields you are forced to decide whether you also accept the costs of the bank account or whether you nevertheless accept the risk that (a part of) your assets may become less so that you can achieve some return. The Dutch tax authorities have also announced changes to their rules that will take effect in 2021. The choice is not made easier for many.
Not to discourage immediately, but if you are going to invest, that is not free. And, as my father said, “you have to pay for quality”. I mean that if an asset manager has to work harder to keep your investment risk as close as possible to your objective, the costs of doing that are higher than if you follow the AEX index. So costs are a good selection criterion. Costs can be grouped into asset management costs (including supervision-related costs; the laws and regulations in this area are not childish nowadays and differ per country), consultancy costs (if you think you can do everything yourself, this is modest; do you want to more regularly than once a year understand what happens with your investment?), if you use an offensive risk profile (you take considerably more risk than if you have a defensive profile), the portfolio often needs to be adjusted to “re-balance” your return perspective hence transaction costs are higher. We bring ALL costs (from the manager AND of the funds in which you invest) into view for clients, so that we also see whether the return expectation of the provider is really interesting or whether it is better to go for that index investment. And can you get out or is it Hotel California (“You can check out any time you want but you can never leave”; Eagles)?
You should not actually invest if your horizon is less than 12 years old. That has to do with the recovery time if there is a decrease. So do not do it if you have planned a substantial release in two years for which this money is essential.
Then the important question comes with which risk you want to invest. No return without risk. A questionnaire is used to estimate your risk capacity (can you absorb a setback or are you dependent on the expected return and capital invested?) and your risk perception (can you still sleep if you see rates fall after a virus outbreak? Do you become very greedy if you have had an investment gain of 10 weeks?). If all goes well, the conclusion is in line with your gut feeling. This is the most interesting part for us consultants. There are really surprises here. People who thought they should be defensive and vice versa. It is wonderful to find out in these conversations what is really important.
Finally, the product; where do you get into? There are very interesting, understandable investment strategies nowadays that are implemented by experienced clubs. We like to work with managers who have something to lose if things go wrong. Not only reputation but they also have to invest. If you are in pain, they have it too. And they work harder to earn it back. This story becomes even longer as I elaborate on the products. It is important for you to know that there is a product for every strategy. Simple rule: if it is not understandable, it probably does not suit you.
To answer the question: that depends on your situation. Good investment solutions are available for every circumstance, every purpose. But it is custom work.
Two good customers decided to join two weeks ago. All steps taken carefully, a substantial amount transferred to the investment manager and then the message that the Corona virus had also infected the stock markets. You then think: no! The asset manager saw the volatility rise and decided to wait. They only told me that the next day. That brought a smile to my face.

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