The 2018 FIFA World Cup is now behind us and I am still smarting from Belgium’s defeat of Brazil. During my recent visit to Russia with my brother Michael to attend my 7th FIFA World Cup Finals, I reflected on the similarities between investing and coaching a World Cup Football Team.
Football coaches need to make tactical decisions during matches in a similar manner to investment advisors who update their investment recommendations for their clients. We all saw examples at the “Finals” where the less favoured team with a clear and coherent strategy was able to defeat their more fancied opponents.
Here are some factors for investors when considering how to adjust their investment portfolios.
- Asset Allocation: The mix of investments between: stocks, real estate, bonds and cash should be reviewed, at least quarterly. Stocks should also be classified among Jamaican Main Market; Jamaican Junior Market; US Large Value; US Small Value; US Large Growth; US Small Growth; Foreign Developed; and Foreign Emerging. These different sub classes have different risks. Bonds can also be classified among Short Term; Intermediate Term; and Long Term, for both Jamaican, US and foreign markets.
- Expense Ratio: Investors should be aware of the percentage of their gross return that is paid to the asset manager. JN Fund Managers has positioned itself to have the lowest “expense ratio” in the Jamaican securities and asset management industries. We believe that the JN Mutual Funds provide the best value for investors.
- Portfolio Overall Rate of Return: The rate of return should be calculated over several periods, such as: one, three, or five years; and, be net of all fees and charges.
- Benchmark Return for Portfolio: A combination of benchmarks for the stock, bond and real estate portfolios is required. The benchmark allows the investor to gain a sense of the performance of the portfolio. Note that, sometimes using the wrong benchmark is worse than no benchmark at all.
- Compare Benchmark for Each Security to the Return Achieved for Each Asset Class: When individual securities lag behind the appropriate benchmark for an extended period, then the investor should question why the security remains in the portfolio.
- Tax Efficiency of Assets: Each investor should consider their individual tax circumstances and obtain the requisite advice from a competent professional.
I believe these metrics can help in monitoring investment portfolios to make better investment decisions. Finally, this recent World Cup reminds me that investors – like football coaches – need to keep their emotions in check in order to make optimal decisions.