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Playing the long game

Times of struggle can pave the way for new priorities

The pandemic crisis and the imposed limitation of movement made us reflect on what’s more important in life. Now that we are facing a new normal in the way we work, live and play, we are all eager to make sure that our current actions and behaviour continue to be on the right path. More so than ever we want a healthy and safe future for ourselves and our loved ones. This translates to all aspects of life including our finances. You may even be rethinking your current investment strategies – Shall I stay invested or flee the market given the uncertainty ahead?

Head vs Heart

Over the past few months, we have seen governments rolling out supportive policies and plans to revive economies, businesses laying off their workers or evolving their business models to fit current market needs. It is easy to become preoccupied with day-to-day market trends and fluctuations, and to make hasty decisions during volatile periods.

Doubts arise, and we question our investment portfolios – trying to analyse and predict the market. But rises and falls are part of stock market life. Focusing on the big picture rather than short-term noises is important. People feel the pain of losses more than they enjoy the pleasure of gains. One of the most important things is that you don’t overreact and sell stocks and shares when they’re down. Typically when there are periods of market volatility or where prices fall, it’s often a time to consider adding more to your investments rather than selling them.

Warren Buffett famously said that he likes his stocks the way he likes his socks: on sale

A useful investment insight to keep top of mind is that selling funds when they are down is rarely the best approach. We have seen throughout time that staying invested is typically more beneficial in the long term.

Weather the storm & persevere

Every decade or so we see markets resetting and throughout history societies experience global financial crises crippling their economies: the 1929 Great Depression, the Asian financial crisis of 1997, the dot-com bubble crash in 2002 followed by the crash of US housing bubble in 2007. We’ve been through difficult times before, and we’ve seen how timing the stock market is virtually impossible.

The importance of staying invested

Ending wealth values after market decline

Source: Morningstar. Past performance is no guarantee of the future results. This is for illustrative purposes only and not indicative of any investment. The market is represented by the Morningstar US Market Index. Cash is represented by the 30-day U.S. Treasury bill.

As you can see from the chart above, research by Morningstar1 revealed what would have happened to $100 invested in 2000, through the 2008 global financial crisis and up to 2020. If an individual had stayed invested, their $100 would have grown to $311 but by moving into cash, this investor would have lost out on the market growth following the recession. Even exiting the market for a single year, this investor would potentially have lost around $108. You can imagine the significance with larger investments. Typically we have seen that the best policy is to stay fully invested over the long term and to remain focused on long-term investment objectives.

We have also seen that investing a fixed amount on a regular basis into a long-term savings plan can help smooth out stock market movements. This is often referred to as “unit cost averaging”. A good example of such a prudent investment approach is seen in markets such as Australia and South Korea where investors tend to make automatic contributions to their investments and were more successful versus other markets with different investment strategies.2

By saving a fixed amount on a regular basis, individuals are reducing the risk of investing a large amount in a single investment at the ‘wrong’ time.

1 ©2020 Morningstar. All rights reserved. The information, data, analyses and opinions presented herein do not constitute investment advice; are provided as of the date written, solely for informational purposes; and subject to change at any time without notice. This content is not an offer to buy or sell any particular security and is not warranted to be correct, complete or accurate. The Morningstar name and logo are registered marks of Morningstar, Inc. This content includes proprietary materials of Morningstar; reproduction, transcription or other use, by any means, in whole or in part, without prior, written consent of Morningstar is prohibited.

2 December 2019 – Morningstar Mind the Gap 2019 report titled “A Report on Investor Returns Around the Globe”

The cost of market timing

Risk of missing the best days in the market: 1999 – 2019

Source: Morningstar. Past performance is no guarantee of future results. This is for illustrative purposes only and not indicative of any investment. The market is represented by the Ibbotson® Large Company Stock Index.

Stay the course: Look ahead

As dedicated investors, it is normal to have doubts and question our investment decisions at every market movement and trend. We simply want to ensure our investments are protected – why not.

However, it is always prudent not to react too quickly and speak to your financial adviser to review your investment portfolios on a regular basis to ensure they are in keeping with your future goals. You don’t know what prices are going to do next month or next year but one thing that’s guaranteed is that prices are going to move around.

For long-term investors, it is important not to flee the market in a panic, but rather embrace the turmoil as an investment opportunity – you are likely to be better off in the long run.

David Kneeshaw – CEO of IFGL

Message from the CEO – September 2020

Moving forward

As you will know by now, Friends Provident International (FPI) is now part of International Financial Group Limited (IFGL). As the CEO of IFGL, I am delighted that the transaction is now complete and have the opportunity to speak to you.

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Passing on wealth

We need to start talking about succession planning

The Chinese saying, “Wealth never survives three generations” is an ancient wisdom that is still applicable in the modern world. According to the annual UBS/PwC Billionaires report, 70 per cent of billionaire wealth dropped below the billion-dollar mark once it went beyond the first-generation, and a further 20 per cent was gone by the end of the second-generation.

A recent study by RBC Wealth Management shared that we are about to witness the largest transfer of billionaire wealth worldwide – an estimated USD 2.4 trillion is due to change hands in the next two decades. What’s alarming about this, is that fewer than one in every three high net worth families have established a complete wealth transfer plan.

People procrastinate about succession planning for various reasons. Common reasons include concerns that passing on wealth may leave beneficiaries less motivated or cause a divide in the family. Furthermore, it could be a tricky topic to broach with familial relations, business associates and partners – particularly in Asia, where many believe that discussions about the death of a loved one or the handover of a business can bring bad luck.

If these echo your sentiments, fret not! One possible solution could be to engage a professional financial advisor to guide you through the process.

Without proper succession planning, wealth may disappear

A good succession plan should mirror your assets, covering all bases across estate planning, investment planning, wealth transfer and even charitable giving, and enable an orderly transition process that retains asset value whilst ensuring they get passed on to your chosen beneficiaries. Conversely, lack of planning could leave family wealth and financial assets exposed to probate costs, complex inheritance laws and regulations, leading to the disappearance of wealth. It could also cause emotional distress for your loved ones if disputes and power struggles occur within the family.

Succession planning is a complex process, made increasingly so with the rise of a demographic of mobile individuals with overseas investments and cross-border assets.

To further complicate things, such assets would likely be subjected to multi-jurisdictional legal, compliance and tax issues which could cause value erosion when transferring wealth across generations.

But how should you start? Here are a few important considerations to note as you kick start your succession planning journey:

  • Do you have up to date and professionally drafted wills in place, in all the countries where your assets are based?
  • Have you carefully assessed and chosen investment solutions that can help you avoid situations where probate delays payments to your beneficiaries? Examples of which include FPI’s international protection, savings and investment products which are designed to allow our customers’ assets to be passed seamlessly to chosen heirs.
  • Will your estate be subjected to country inheritance tax on your death and if so, what is your exposure to it?
  • Should you involve your children or other successors earlier on in the process to ensure sufficient preparation time? These may include financial education and practical experiences

Given the complexity involved, succession planning is best done under professional guidance from financial advisers. Financial advisers are trained to help you construct a succession plan that factors in and navigates these issues with ease. As a neutral and independent party, they are also well-placed to work with you and your family to facilitate understanding of the succession line and how assets can be distributed.

Plan early for greater peace of mind

With the right approach and proper guidance, succession planning – as well as conversations about them – need not be uncomfortable or complicated. It is important to factor in succession planning as you plan for your future, and to start thinking about it from an early age. By having clear arrangements in place to protect your wealth and loved ones, you will be free to enjoy life with less worry, secure in the knowledge that your financial planning has been taken care of.

Steve Weston - CEO FPI

Steve Weston – CEO FPI

Message from the CEO – October 2019

Planning for the future

At Friends Provident International (FPI), our business is all about planning for the future. Our customers might be planning for their family’s future, be that for school, university, getting onto the property ladder or for their own retirement.

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