So how important is performance?
We have previously talked about the importance of having a sound financial plan in place – which will be unique to you and your life’s journey. What will also be exclusive to you are the underlying investments that help you achieve your plan. Without a plan you cannot determine what these investments will look like or how you need them to perform. These investments and their inherent performance will vary for each of our clients, what is right for some clients won’t be for others, that is why we say don’t look at performance in isolation.
You will always hear a lot of background noise in the press and the media regarding performance but like a lot of news this is a distraction from the important facts and can lead people in the wrong direction.
Chasing performance is a trap that many people fall into without knowing what they really need to achieve. It is important to take time at the outset to really understand your goals and how and if you can achieve them.
Focusing on performance doesn’t tell you if you’re on target to achieve your financial goals. It’s one of many indicators to help direct you, but without a good financial plan, you have no idea if you’re heading in the right direction. You might be happy with your portfolio’s current performance, but that doesn’t mean you are prepared to ride the wave when the markets fall.
You may often hear fund managers being hailed as heroes based on the performance they have achieved. While this maybe outstanding, it is with good reason that we always state past performance is not a guarantee of future performance. It may be an indicator but not one you can rely on.
Many people compare the performance of their investments with benchmarks such as the FTSE 100, however investments aligned with the FTSE 100 may not be appropriate for you. It may not have the right combination of shares, gilts and bonds that will help you to achieve your goals or that you are comfortable with. So, save yourself the worry and focus on what’s important for you and what you can control.
Another discipline a financial plan provides is taking a long term view and not making impulsive decisions based on what is going on around us. Several studies have shown that investors as a group tend to underperform because they chase performance. This can mean they will buy investments that have recently performed well and are therefore at a high price and sell those that have not performed well when their value maybe at rock bottom. Making knee jerk decisions can often contradict your long term goals, it is much more beneficial to stay with your lifetime plan.
Of course, we will always consider performance however the main focus must be on what is important to you. This will mean that you are more likely to reach your personal goals with less to worry along the way …………….and as a result enjoy life!