Client Essays
Note: All the essays below are available for download and private sharing by HUM Premium members. We aim to add two original client essays per month. Alternatively, individual essays can be purchased for £49 +vat. Essays are 650 words long, on average.
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What Game Are You Playing?
As January was drawing to an end the financial press was gripped by the story of a group of rebellious internet-based stock market traders taking on the giants of the hedge fund industry at their own game. A few hedge funds had taken significant bets on the demise (and share price decline) of a company called GameStop - an American video game retailer…
Your Most Important Investment Decision
If all you had to go by was the information presented in the financial media, you’d be forgiven for believing that to be a successful investor you needed to know which companies were best to own, and that you had to be able to forecast market cycles. Calling the tops and bottoms, which no one can.
Love Your Stranger
One of the common human conditions that bind us together is a desire for a better future, one in which we are independent, able to provide for our family's needs, help others, and leave a financial legacy to the next generation.
The way to this life is fairly simple, and not a secret to most. By living within our means and investing the rest, the future described above is within reach of most people.
The Mirage of Certainty
The world is collectively heaving a sigh of relief as larger numbers around the world are being vaccinated. Mask mandates are being lifted in many places, and we are even seeing a limited number of spectators at a few sporting events. With most of the developed world heading into summer, many are calling the coming months the Summer of Love (a throwback to the 1967 social phenomenon).
The Importance of a Margin of Safety
The human brain is powerful but subject to limitations. For this reason, we have evolved to have a collection of cognitive biases. These are systematic errors in thinking that occur when we process and interpret information around us, and it affects the decisions and judgments that we make.
One of these biases is overconfidence. This is the tendency we have to be more confident in our own abilities than is objectively reasonable.
A Life Lived on Purpose
It's easy to forget that money is a means to an end, not the end itself. Having a healthy interest in money is great, but overly focusing on it can distract you from its real purpose. One way to view money is as ‘fun vouchers’, if it can’t be enjoyed what’s the point. Money is also a tool to help others, whether they be dependent family or someone in need.
There’s Beauty in Simplicity
As we grow up and experience more of the world we learn that a topic typically gets more complicated as we dive deeper into it.
For example, supply and demand is a concept most of us can grasp quickly, but having a deep understanding of how these variables are affected by changes in interest rates, inflation and trade relations requires further study.
Don’t Neglect The Golden Goose
Financial planning can be thought of as the art and science of making financial trade-offs under conditions of extreme uncertainty.
The biggest uncertainty is not knowing how long we will live for, and how healthy we'll be while we're still around. Being a responsible adult with healthy habits can put the odds in your favour, but disaster still strikes from time to time.
How Many Good Summers Do You Have Left?
The change of seasons is a welcome reminder that we're not living in a never-ending now. Time marches on, and it waits for no one. Whether you find yourself on your way into, or out of, another Summer, it is a good time to reflect on the shortness of time.
2021: The Year That Was
As the year winds down to a close it is an opportune time to restate a few of our deeply held beliefs and make a few key observations about what we experienced in the financial markets this year.
We know that for many of you 2021 was a disappointing year. Hopeful of a return to normal, we instead experienced an extension of last year.
Who Do You Want To Be A Hero To?
The start of a New Year, one fresh with possibilities, seems like the perfect time to turn over a new leaf. We know that there are things we should start doing, things we could do better, and things we probably need to stop.
The Permanent Challenge of Temporary Declines
Investment markets were kind to investors in the year 2021. Despite continued uncertainty around how the ongoing pandemic would impact society and the world’s economies, markets worldwide gave investors above-average returns.
More significantly, there were almost no periods of significant declines.
Your Financial Fortress
Empires fall for many reasons, but one of the surest ways to ruin is by letting the enemy inside the city walls. For this reason, fortresses are built to protect the people from unfriendly forces outside.
While it may not be visible, your family’s hard-earned wealth is under constant attack from forces wishing to reduce or destroy it.
Ukraine & Your Retirement
A lot has unfolded across the Russia-Ukraine border in the last few days. While much of the information reaching us is no doubt clouded by the fog of war, it’s saddening that so much suffering is being experienced. While the note below touches on the possible financial ramifications of such an event, let us not be blinded to the terrible loss and destruction felt by many who are on the ground.
Your Most Important Transition (Retirement)
We face many important transitions during our lifetime. Arguably, the most important one of these is the transition from our working life into retirement.
We go from being busy, respected for being an expert in our chosen field, and waking up every day with a purpose to a blank page from which to craft our new life. We go from saving money and building wealth to needing to withdraw from our nest egg.
Congratulate Your Past Self
In theory, being a successful investor is easy. Spend less than you earn, invest the difference for three decades, and draw down what you need in retirement. The education, resources and tools needed to do this have never been more accessible. We’re practically drowning in information.
In practice, however, being a successful lifetime investor has never been more challenging.
Two Steps Forward, One Step Back
Hopefully, you are blissfully unaware of what’s happening with the world stock markets. Not following them too closely is the correct approach for most investors. However, if you have not already, it’s likely that you will start seeing headlines bringing your attention to things other people want you to be worried about.
You’re Buying Units
Being a wise investor requires an understanding that market cycles are an inevitable part of investment markets and our personal investment journeys. We've learnt from history that having the ability to behave rationally during times of both fear and greed is the best predictor of whether an investor will achieve life-changing long-term returns.
2022 Mid-Year Review
At the mid-year point of another eventful year, we’d like to reflect on what has already happened and consider how we might approach the rest of 2022, especially as it pertains to your financial planning.
Doing this provides an opportunity to revise our core beliefs with the hopes that we can continue to act sensibly during a time of extreme uncertainty.
Run To The Pumps
As a species, most of us are fairly bright. Yes, we do some strange things, but most of our actions are reasonably rational.
Our survival instinct means we often think about ourselves before paying attention to what others need, and we notice how the world around us affects what is good for us. This is particularly true when something affects our wallets. When there’s money on the line, we notice and respond accordingly.
Finding The Signal Within The Noise
It is often said that good financial planning is simple but not easy. The core concepts of spending less than we earn, investing for our unknown future, and insuring against health disasters can be understood by anyone.
When we are in the frame of mind to make decisions that are good for our future selves, we tend to act responsibly. Unfortunately, when we return to the daily grind, it is not long before we lose sight of the things that matter. In these moments, we behave in ways that hurt our ultimate goal - our family's financial future.
The Case For Rational Optimism
The corporations in charge of our news consumption have long known that bad news is better for business than good news. Appealing to our base human instincts, the saying "if it bleeds, it leads" has become a de-facto motto for all but the most respected media corporations.
It's not difficult to understand how this has come about. With business models built around advertising revenue, selling more papers was necessary to sell advertising. Advertising brought in revenue which resulted in a profit.
The Key Planning Issues in Simple Terms
In our modern world, we overcomplicate most things in our lives. The complexity has a way of taking on a life of its own, and it doesn't take long before we are seemingly unable to remember our original intentions.
This usually leads to confusion and poor decision-making that moves us no closer to where we want to be. It's no coincidence that Simon Sinek's TED Talk explaining the concept of the Golden Circle (starting with "why") has become the cult classic it has.
The Allure of Certainty
Four months after world markets made new lows, investors can be forgiven for hoping that the stock market would have recovered by now and consigned the January to June bear market to history's pages.
Instead, as central banks continue to fight elevated inflation with interest rate increases, we find markets extending the June lows into fresh declines.
Good Investing Should Be Boring
While most investors are happy to be as far removed from the technical details of their investment portfolios as possible, preferring to spend their time doing what they love, a subset of investors likes to get involved in the finer details.
Some do this because they are interested in learning more about investment markets, others because they've long been fascinated with this field. However, there is a subset of investors for whom this activity is about something else: looking for excitement in an area unlikely to fulfil their desire for adventure.
The Market Doesn’t Care Who’s in Power
Boris Johnson. Liz Truss. Rishi Sunak. Three UK Prime Ministers in three months. Add to this the succession to the throne of King Charles in September, and there's been more than enough change for anyone's liking.
While this may cause concern for those who would prefer their ruling party to be a beacon of stability in an otherwise uncertain world, it may not have the financial consequences some are concerned about.
The Power of Compounding
Working in the financial services industry, we are confronted with the power of compounding on a daily basis. We see clients who make it work for themselves (investments) and clients who make it work against themselves (debt).
We also see how this phenomenon affects every area of life, most notably health, fitness, career and relationships. Our minds, being linear thinking machines, find it very difficult to grasp the true power of what compounding can lead to in our lives.
What We’ve Learnt in 2022
After two years in which all of our attention was focused on Covid-19 and its impact on our lives, 2022 has been a welcome return to the type of concerns that consumed us before March 2020.
Rather than daily updated counters of infections and deaths, we've returned to our previous news diet of election polls, a soccer World Cup, and (unfortunately) war zone death tallies. For most of us, it's been a return to our daily lives of family, work, and pleasure.
Exchanging Habits
As advisers to many successful families, we come to observe the inner life workings of clients who range in age, background, careers, and levels of wealth. As a result, we get a good view of people and their habits. Over time, you learn that a person’s daily habits compound to determine much of the results we observe in their life. Yes, luck plays a part, but luck would have no impact without habits.
The Case For Equities
The start of a new year is a wonderful time to re-establish the few fundamental principles that guide us on our journey towards lifetime financial success, which is what ultimately provides independence, freedom, and opportunity to our families.
Two Approaches to Personal Finance
The world is becoming busier and busier as each year passes. We’re more connected than ever before, and notifications bombard us from the moment we wake up until we fall asleep. We’re encouraged to be moved by tragedies occurring halfway around the world while struggling to stay on top of our own commitments and challenges. We no longer need to clock in because we never clock out.
Eight Billion Consumers
The world’s population is believed to have crossed the eight billion number for the first time in late 2022. The previous milestone of seven billion was reached as recently as 2011. This spectacular growth is thanks, in part, to the remarkable progress we have made in the areas of infant mortality and longevity over the last few decades.
The Waiting Place
Global equity markets are currently in the great unknown between a recent Bear Market low (a 20% decline from the previous market high) and the previous all-time high.
For many investors, this raises the question of where markets will go next. Will it continue its recovery and make new highs, or will it start a new decline which would be the third in four years? Emotionally, this uncertainty and lack of direction can feel worse than the certainty of a decline.
Hearts Over Charts
The process of investing is dull and boring. Choosing investment funds, making regular contributions to them, and keeping an eye on how they perform. It’s all numbers-based, with a few charts thrown in for good measure.
Investment charts shouldn’t really put a spring in your step. However, the outcome of investing is where the magic happens. The outcome of investing has real-world consequences.
Three Killer Traits For Financial Success
The financial and investing journey is similar to competitive sports. Both endeavours require you to make skilful decisions under pressure with a calm mindset, and very often, your biggest competitor is yourself.
One aspect in which they differ is that when it comes to investing, thinking is often more important than doing. In fact, it can be argued that the best investors do less rather than more. Given this, the investor's mindset is crucially important in determining lifetime success.
The Investor’s Two Constant Temptations
Smart long-term investors generally have a good understanding of the mindsets and behaviours that lead to financial success. They diligently act on a solid plan and have thought through the various trade-offs that all financial decisions demand.
However, even the best of us are still human. While the principles of smart investing may be simple to understand, they’re certainly not easy to act on consistently.
Pearls of Wisdom from A Modern Genius: Key Lessons for Investors
In the pursuit of personal growth and financial success, it is easy to become laser-focused on traditional strategies and conventional wisdom.
And, while we are committed to only recommending and implementing tried and trusted investment strategies, we do see the value in learning from the great minds in other fields.
Asking Better Questions
The journey to financial success is often fraught with anxiety and uncertainty as we struggle to identify the most effective path towards our desired lifestyle. With countless investment options, complex economic conditions, and unique personal financial situations, selecting the best course of action can feel overwhelming.
The Great Distractions
There are a few ways in which investors distract themselves from their long-term plans. The most common way is to fall prey to the cycles of fear we all fall into when a major world crisis or market downturn arrives. In these moments, the fear of uncertainty leads investors to become short-term focused, often abandoning the discipline and patience that long-term success requires.
Regret Minimisation as a Decision-making Tool
Financial planning has a feedback loop longer than most other disciplines. The consequences of our decisions can take decades before they become fully evident to us. This period can be filled with uncertainty, doubt, and the fear of making mistakes.
Having seen many people arrive at retirement with less than they need, this reality is especially clear to us.
Persevering Through the Early Years of Wealth Creation
Young investors often embark on their wealth creation journey because they have grasped the power of compounding returns in theory and want to see it in practice. However, the early stages of this journey can be deflating as the expected growth is slow in coming. You diligently contribute money to your investment pot, but the balance seems insignificant.
2023 Mid-Year Review
The halfway mark of a calendar year is an excellent time to take stock of what happened during the first six months. Learning from the past is a key habit in helping us navigate the financial challenges we will face in the future. It’s only by internalising these lessons that the mature investor can learn to say with confidence in the face of a crisis, “It’s never different this time.”