Sometimes we hear from Investors complaining that their portfolio has delivered lesser return than the funds which some other advisor is suggesting.
Yesterday I got one such call from an investor. He complained that his portfolio delivered only 11% compounding over a period of 10 years, whereas the funds which one bank RM was suggesting have delivered 14% compounding return.
I think he is not alone in having such a predicament.
Investors have to realise that their overall portfolio which consists of properly diversified investment avenues will always underperform the best performing funds of the day. It’s very easy for any advisor to take out funds that have delivered top notch returns and show this little googling as his/her advisory calibre. But will this result in long lasting outperformance? Very unlikely! Important thing is to design the portfolio in such a way that it should meet your financial goals without giving you any sleepless nights. So in that sense you have to focus on a return that is commensurate with your risk and financial goals profile. Blindly focusing on chasing the best performers on the basis of recent past returns will most likely backfire.
In a properly diversified portfolio, some funds are periodically bound to underperform and that should not only be accepted but welcomed. If the chosen funds are fundamentally good then periodic underperformance is a sign that your portfolio is well diversified and covers all spaces. On the other hand, obsession that all the funds should compete for best possible return in every time frame is not the best way of managing money.
In my opinion, the role of the advisors is to discover the inner world of the investors ( their financial goals, risk profile, disciplined saving and right asset allocation) rather than chasing ever-changing places of so-called best performing funds.
Manoj Pandey
CFP
