When I meet investors who are having their money managed by our competitors, it often strikes me how worried they are about their portfolio. What will happen when the Federal Reserve puts an end to Quantitative Easing? Will European unemployment decline anytime soon? How will China handle its demographic and environmental challenges? What are the right stocks and sectors for the year ahead? Today, I would like to discuss what causes anxiety among investors in general and how PWL liberates its clients from investment worries and provides them confidence in their portfolio.
Sources of Anxiety
Investors are anxious mainly because they believe successful investing requires forecasting. Their malaise is easy to diagnose, as even top professionals can’t forecast markets reliably. Investors cannot handle the pressure from this impossible task. Even worse, managing investments based on predictions leads to stock picking, market timing, active trading and concentrated bets. All these behaviors amplify anxiety, because portfolio risk is out of control and the investor knows it.
Why are PWL Investors at Peace?
PWL places great emphasis on communicating its strategy, so our investors are aware that their portfolio risk is managed rigorously. By diversifying portfolios to the extreme (PWL clients hold on average the equivalent of 7,000 stocks in 50 countries) with index and index-like funds, we remove the risk of a large loss resulting from the demise of a company, a sector or a country. Risk is under control and investors are relieved from the false obligation to forecast markets.
PWL also helps clients seek higher returns by capturing risk premiums. A client can decide to have more equity and less bonds in his/her investment policy and as a result, capture more of the so-called equity risk premium. We also place emphasis on value and small cap stocks, which are solidly documented to deliver risk premiums.
Lastly, PWL evaluates continuously the expected returns of asset classes, so we can set client expectations correctly and, when appropriate, invest a bit more in the asset classes with higher expected returns.
The Bottom Line
PWL provides structure, order and a scientific approach to investment. Portfolio values can decline during periods of market stress but over the medium to long term, they are sheltered from permanent losses. Our clients are aware that risk is under control and they are confident in their portfolio. By keeping emotions in check, PWL provide investors with a liberating experience.