Financial Planners & Market Forecasters: The Difference
Financial planners and wealth or market forecasters often get put together in the eyes of the public.
However, their roles and approaches to financial planning & investing are very distinct.
As a financial planner I can help you build a robust portfolio, retire comfortably, and protect your loved ones from financial ruin.
My focus is on aligning your plan with your individual goals, risk tolerance, risk capacity and life stage.
Rather than predicting market movements, I build you a diversified portfolio designed to grow over time.
A wealth or market forecaster, on the other hand, are more speculative.
They attempt to predict market trends and economic events to capitalise on potential gains.
This approach is inherently riskier and resembles an attempt to âtime the marketâ, which is notoriously difficult even for seasoned professionals.
A body of evidence exists and is available to support the theory that the market cannot be timed on a consistent basis.
The Key Difference Lies In The Approach to Investing
Our approach is towards a disciplined, long-term strategy that doesnât rely on uncertain predictions.
It instead will focus on time-tested principles of asset allocation and diversification.
We understand that while markets are influenced by world events, the precise outcomes and timing are unpredictable.
For instance, few, if any financial experts predicted the onset of the global pandemic in 2019 and the ensuing market reactions.
Furthermore, few, if any predicted the sharpness and speed of the resultant market recovery!
Itâs important to understand that working with us isnât about outguessing the market.
It is about preparing for a number of scenarios and making informed decisions that can help protect and grow wealth over the long term, irrespective of unforeseen events.
By focusing on the elements within our control â such as your behaviour â we can aim to position you to achieve your financial objectives regardless of market fluctuations.
Human behaviour plays a Pivotal Role
Successful investing for everyone is about staying the course, and being consistent.
This is easy to say but very hard to do because in practice, our emotions can be difficult to control.
You are emotionally tied to your own money.
Investors may act out of fear, greed, following the herd or media bad news frenzy.
This can lead to overreactions such as panic selling or irrational exuberance.
During times of crisis, the rush to liquidate assets can lead to sharp market downturns.
Conversely, excessive optimism in the face of positive news can inflate asset bubbles.
These scenarios can create risks for investors.
This is where the role of a financial planner becomes crucial
As financial planners, we understand how our clientsâ psychological makeup can affect their behaviour.
We guide you to make decisions that are based on your plan, rather than in the heat of the moment.
As well as that, this will help you avoid the common behavioural biases that can lead to poor investment decisions:
Over confidence
In the context of investing, this refers to a personâs unwarranted faith in their own intuitive judgment and cognitive abilities.
It’s the belief that they can consistently predict the future of the markets or the performance of particular stocks better than average, often leading to excessive trading and risk-taking.
Recency bias
Recency bias can lead people to give greater importance to recent events, performance or information when making decisions.
This is rather than taking into account the full context or a longer historical perspective.
Loss aversion
Loss aversion is a concept found in behavioural economics.
This suggests that people are more likely to prefer avoiding losses than acquiring equivalent gains.
For instance, someone would probably be more upset about losing âŹ50 than they would be happy about finding âŹ50.
Rebalancing your portfolio
One of the core strategies we employ to counteract emotional decision-making is to establish a clear investment policy statement.
Your investment policy statement includes predefined guidelines for rebalancing your portfolio at regular intervals.
Rebalancing a portfolio is the process of realigning the weightings of the assets within it.
This ensures that decisions are made systematically and align with your long-term objectives rather than in reaction to market noise.
Rebalancing is done at regular time intervals (such as once a year).
It’s a discipline that will help you to stay on track to reach your long-term financial goals without taking on undue risk.
Our Approach
At Fortitude, we have an investment philosophy that defines our investment recommendations.
It is underpinned by 5 key principles:
- Short term markets can’t be predicted
- Timing the market doesn’t work
- Risk and return are related – you cant have long term return without short term volatility
- Diversification is essential
- Investor discipline is crucial – your behaviour is key
Point number 1 – we don’t predict markets so don’t ask us to.
For our clients, this ensures a consistent and repeatable approach and above all long term success.
Summary
As financial planners, by focusing on this approach and following facts rather than emotions, we help you to navigate through inevitable market turbulence and stick to your plan.
Sticking to a well-crafted investment strategy will yield better results over time than attempting to outguess market reactions to world events, even though it’s might be tempting to try it!
Note I said above ‘inevitable market turbulence’.
This is because no matter how well markets are performing at a given time, turbulence will arrive at some point.
Get in touch
Contact us and take the first steps to getting your finances in order.
Email us at info@fortitudefp.ie or click below to schedule an introductory call at our expense.
Why not visit our insights page.
A multitude of information on various financial subjects covering all aspects of saving, investing, financial planning, protection and pension advice.
Our blog posts are intended for information purposes only and should not be interpreted as financial advice.
You should always engage the services of a fully qualified financial planner before entering any financial contract.
To discuss engaging the services of Fortitude Financial Planning please email us at info@fortitudefp.ie.
Fortitude Financial Planning Ltd will not be held responsible for any actions taken as a result of reading these blog posts.
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