Nest Egg: A tale of two investors
I HAD two meetings over the course of the last fortnight with two clients both of which had very different outcomes from their investments.
The major differences in the performance of their investments were caused by two factors – time and fear of losing money.
Let’s have a look at Investor A who has been my client since I started Tara Financial Partners just over seven years ago.
This man is in his early 80’s and one of his investments was made in 1981 long before I ever met him. He invested IR£10,000 in an investment bond 40 years ago and just left it alone since, never touched it.
Today, it’s worth just a little over ten times the amount he invested – over €127,400. Even better news though – he invested IR£10,000 in another one in joint names with his wife also so, he has two of them that he hasn’t touched.
Now I’m guessing not a huge amount of people in Ireland had a spare IR£20,000 to invest with a 40-year investment horizon in the early Nineties but the lesson here is to invest your money that you do not need for the long-term and walk away. It’s the tinkering with it that stops the compounding and paying tax on any gains every time you sell and jump into a new investment. There’s no doubt that his investment had periods of volatility and underperformance too, but the key is to ignore all that and just keep it invested. Compounding takes care of the rest for you; it couldn’t be simpler.
Let’s look at Investor B who an existing client asked me to have a chat with to see if I could put some shape on his financial future. He had a few properties with some debt on them that there wasn’t much I could advise him to do other than consider selling them now that prices have risen significantly in the last 18 months. However, he did manage to make decent pension contributions through the years and had €195,000 in his personal pension. The only problem was that he had no financial advisor in his corner through the years other than one guy who he said ‘sold’ him the pension 10 years ago.
That’s the problem with our industry still where some financial advisors are quite happy to ‘sell’ a financial product, make their commission and then disappear. Clients need to review their financial policies & plans every year and require guidance from us if anything has changed for them.
Anyway, because he didn’t have a financial advisor to consult with in March 2020 when the Covid-19 pandemic sent markets crashing for a few weeks, he switched from his growth/high-risk fund choice in his pension to a very low risk fund. Of course, we now know that Central Banks and governments around the world pumped money into the system to shore up confidence in markets and all the higher risk funds (fully exposed to equities) went the whole way back up again, and even higher.
So, his pension went from roughly €220,000 to €195,000 in 2020 (a loss of c. 11%), when if he did nothing at all, his pension would have been worth around €290,000 (an increase of c. 32%) by now. That’s a difference of over 43% by meddling with it because he got nervous and did not have a pro in his corner.
Conor Martin can be contacted by emailing email@example.com / www.tarafinancial.ie