Anyone pursuing a strategy has to give it time to reach the goals that have been set. But when it comes to investing in particular, many find it hard to stick consistently to the course they've chosen. Philipp Dobbert, Head of Wealth Management at Quirin Privatbank and at quirion, explains why staying power is a decisive success factor.
Anyone who keeps switching lanes in a traffic jam rarely reaches their destination faster. What about investing: if one market is performing better than my portfolio, should I quickly shift money there?
That would be a bad idea. To stick with the traffic-jam image: I see that things are moving a bit faster in the other lane and switch. No sooner have I done that than it backs up more there, and I want to go back. In investing, too, I sometimes see that things are heading upward more dynamically elsewhere. But no one knows for how long. You only ever know that in hindsight — yet I have to invest my money looking ahead, into an uncertain future.
Why do so many nonetheless find it hard to stay on the course they've chosen when investing?
If I'm not pursuing a real strategy, or am not truly convinced by it, price movements keep putting me under emotional pressure to act. That makes me susceptible to supposedly good tips. And many people earn good money when investors constantly change their portfolios. Anyone out for commissions has little interest in advising a steady-handed investment strategy. On top of that, false hopes are often raised. Actively managed funds, for example, have been advertising for decades with the promise of achieving better returns than the market by deliberately selecting the "right" securities. Yet this rarely succeeds. And even more rarely over longer periods. But even chance successes feed the hope that tomorrow's winning stocks can somehow be identified in advance. That, however, can't be done systematically — hopes are dashed, portfolios reshuffled once again.
What does that mean for the investment strategy?
If I want to invest systematically, I have to diversify my portfolio as well as possible. Because only then is the balance of expected return and risk right. In addition, the portfolio has to match my investment horizon and my personal risk appetite. Both are prerequisites for reaching my investment goals with a high degree of probability and mustering the patience to see the strategy through. The investment goals should, of course, be realistic.
And what expectations for returns are realistic?
Unfortunately, the cliché of the financial market as a casino, where you multiply your stake in no time at all, still persists. Most people burn their fingers with such speculation and lose a lot of money. Over the long term, a realistic return expectation — for a globally diversified equity portfolio, for example — averages around six to seven percent per year. In some years the portfolio will be in the red, in others it might achieve twice that return. But the more consistently the portfolio is diversified and the longer the money is invested, the more likely it is that the targeted average returns can be achieved.
Are you sure about that?
No one can give you a guarantee of one particular return on the equity market. Return is the reward for the risks you take on, and these can materialise in very different ways. Diversification, however, can limit the risks. In our ETF portfolios, we largely eliminate what are known as unsystematic risks — the dependence on individual securities, sectors or countries — and concentrate on the market return. And that, over the long term, is no coincidence. The equity market doesn't develop in a vacuum. Shares are stakes in companies and their economic development. The economy worldwide is geared towards growth. That's why the equity markets, on the whole, rise over the long term.
Even if reaching your investment goals demands patience: when does it make sense to change something about your own investment strategy?
Only when something changes in your own risk profile or in your financial wishes and goals. On our application journey, you can check this from time to time, free of charge and with no obligation. There, we specifically ask about the investment horizon and your tolerance for price fluctuations. We give concrete figures for this. If I answer the questions honestly, the outcome is an investment proposal that fits my profile exactly.
