Do you understand your investments?
I got an unsolicited email the other day pitching a investment to me (all financial advisors get these all the time). This opportunity is "offering clients and advisers an alternative and defensive way of playing large/mega cap global equities...the Fund happens to be 20%+ undervalued in our view and a good time to be looking at it."
Wow, large and mega cap companies that are 20%+ undervalued!!! All the other fund managers I have spoken to say that large caps are expensive given the generally strong stock market more or less since the financial crises.
I don't understand
The email directs me to the attached brochure; which is 4 pages, including a cover page and the last page which is a bio on The Team. In the details of the fund itself, I am told:
I honestly don't understand what that means. The highlighted parts are mine because they set the alarm bells ringing. I do know that structured notes are debts using derivatives. And a derivatives value is dependent on an underlying asset, which leads me to believe that the fund doesn't own any stock but buys derivatives, hence the use of "our underlying equities" I have no idea what "Stock baskets (of 3 stocks – “worst of”) or Indices are used" actually means. I can guess but that is all it is. I clicked onto their website to get more details but got "Our website is coming soon". ??♂?
This is not a unique offering. There are loads of similar products in the Irish market, each as complex and confusing as each other. The companies that sell them make huge amounts of money out of them so they will continue to sell these incredibly complex product to unsuspecting investors.
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Keep it simple
The more complicated the investment, the more prone it is to failure. Standard Life's absolute fund GARS was an extremely complicated fund. I remember going on a day long course that explained how it worked (usually a new fund has a 1 hour presentation for its launch). That fund was recently shut down after years of underperformance.
Invest in open ended investments in the main asset classes. Buy stocks, bonds, property and cash. All of these asset classes will work for you while you hold them (we don't recommend commodities as they don't make a return while you hold them).
When you buy equities through a fund, you are a tiny owner in the best companies around the world. You don't just hold a few companies, you invest in hundreds that give you diversification. If the stock market goes up or down, your investment goes up or down. There's no cheating it. You take the rough with the smooth. Falls are a part of investing, accept it is part of the journey. The same applies to bonds, property and cash.
Invest in a diversified portfolio of quality assets and if you stay invested for long enough, you will make money.
And if you don't understand how your money is invested, don't invest!
Steven Barrett
02 September 2024