An investment strategy focusing on needs

The traditional theory about how to build an investment portfolio is based on one simple, but  extremely troublesome, premise. That is, the returns from the various investment sectors in which one invests are predictable (hopefully over the timeframe which one invests).

We are in the midst of one of those extreme economic events. Not necessarily unprecedented, but certainly extreme. It is during these periods that we are inclined to reflect on the robustness of the processes we employ on our clients behalf.

Myles Wealth Management has observed that traditional investment theory is all too often been found badly wanting during periods where we experience major investment market dislocations. While many in the investment industry discount these events as mere short term phenomenon our experience suggests these periods of extremity occur more often than most expect and often last longer than most expect.

Let us assure you that trying to encourage a 70 year old retired couple to focus on the long term, while academically defensible, is a tough tale to tell, especially in the midst of a financial storm!

Traditional investment theory may well be the correct starting point for institutions, like the NZ Super Fund, which has a genuinely long, 50 year time horizon and doesn't have any commitments to meet in the immediate future. But, put bluntly, it will not deliver the results that ordinary people generally seek in with their retirement capital.

For the families we deal with at Myles Wealth Management, the process of effectively managing their wealth requires a different starting point and a different process for managing their money than that used by big institutions and most financial advisers.

Myles Wealth Management has spent the last few years researching and developing what we call The LifeWealth Investment Strategy. The LifeWealth Investment Strategy is a proprietory, needs-based advice process formulated to help clients define, quantify and then achieve their financial and lifestyle needs.

Our research, and that of behavioural finance more broadly, has identified that our clients tend to have a hierarchy of 6 main financial and lifestyle needs. While they can often talk generally about these needs they have never considered just how much wealth will be required to meet each need. The key needs we have identified are:

Only once we have worked with our client to define and then quantify exactly how much wealth they will require to meet each of these needs do we progress on to constructing a discrete investment portfolio built specifically to meet each need.

While not every client will not end up with 6 needs portfolios, every client will end up with a series of investment portfolios built specifically around their needs, not those of the investment managers or those defined by some esoteric investment theory.

Research has shown that investors do greatest harm to themselves if their investment strategies do not take account of their behavioural tendencies. They become concerned that movement in investment markets is unduly impacting their (often ill-defined) lifestyle objectives. They can not see how their portfolio is structured to meet their needs. As a consequence they tend to buy high and sell low, often incurring unnecessary capital losses.

Study of these behaviours has lead to the development of a field of economics known as "Behavioural Finance". This body of research has been drawn on in the development of the LifeWealth Investment Strategy.

In the investment management of our clients' portfolios, Myles Wealth Management employs three simple philosophies:

1. Preserve our clients capital comes first
2. Make a return, over time, above what can be achieved at the bank
3. Repeat number 1!

These philosophies are again built on the behavioural observations we have made in our 40 plus years in the business of advising New Zealand families. That is, while our clients generally seek to achieve a return above that achievable at the bank it is their retirement capital we are working with and consequently their most important aim is to ensure they do not endure permanent capital losses.

We have generally achieved that aim over the last two or three tumultuous years and our clients are as a result well positioned to meet their more immediate cashflow needs and participate in the next phase of the investment cycle (of which we are incidentally quite optimistic).

Having an advice framework such as the LifeWealth Investment Strategy allows us, as advisors, to concentrate on the real issues of importance with our clients. This is much more about the management of your wealth - i.e. how much they plan to save, how much they plan to spend and when they plan to spend it -  than it is about whether to buy or sell the next "hot" share or corporate bond. In short, it is about the client, their wealth and their life, not the short term gyrations of investment markets.

We know little about what may occur in investment markets over the shorter term other than they are highly unpredictable. What we do know about at Myles Wealth Management is helping our clients define the structure of their investment portfolio - using their unique and dynamic lifestyle needs as the blueprint.

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