Investment Returns! Who is Responsible for Delivering It

The investment journey has four primary stakeholders. They are the investor, the wealth advisor, the investment manager, and the market.

The Market is the environment in which the first three work. The market represents the cards that are given to investors, and they must maximise the returns within the constraints of that hand. Therefore, portfolio returns should be compared with an appropriate index representing the market. Individual investors, on the other hand, are conditioned to think in absolute return terms. Since absolute returns are critically dependant on the direction of the broad market, the market is both the environment and an important stakeholder in delivering (absolute) investment returns.

In its simplest formulation, the investor’s decision matrix with respect to the market is a binary one – to participate or not to participate. Once he decides to participate in the market, then the investor is subject to market forces he has no control over.

Given this background, the choice for the question at hand is thus between the first three stakeholders.

The investor is at the Centre of the Investment Process

The investor is the most critical participant in her investment journey. Many investors look to the wealth advisor, or the investment manager to play a leading role in the investment process. Investors assume that they play a limited role – and simply follow the “experts” (the wealth adviser & investment manager) thinking that these experts know more than the investor. Nothing could be further from reality – the investor has the most important role, and the role of the wealth adviser/investment manager should be one of a researcher, advisor and coach. Every investor is unique and has a unique set of financial objectives and constraints, which only the investor himself know. Critically, it is the investor’s money – and only the investor will treat it with the respect and care that it deserves.

Focus on Risk in addition to Returns

Most investors, most wealth advisers, and all investment advertising focus almost exclusively on one side of investing: returns. But there is a more important side, especially for investors – risk, particularly the risk of permanent loss of capital. For long term success in investment, avoiding permanent capital loss is even more critical than returns. Please put this statement to memory – an investment that falls 50% needs 100% growth to return it to the original value.

How does the Investor get to the Centre of the Investment Process?

The first step of getting back in the centre of an investing process is to know oneself, particularly the intellectual capability and emotional makeup. The former comprises of technical skills: understanding economics, the ability to analyse sectors and companies, the ability to gain investment insight from varied and extensive data and information. The latter is the ability to maintain one’s composure despite the ups and downs of the market. Every investor is unique – and has differing technical and emotional capabilities. Do not emulate someone with different capabilities (especially your wealth advisors), rather find your sweet spot that lies within your zone of competence (technical abilities) and zone of comfort (emotional abilities). Do not stray far from either zone – as that is a recipe for investment disaster.

Once you have identified your zone of comfort, clearly lay out your investment policy (your wealth advisor should be able to help you here the most). Some questions to consider:

  1. What risks are you willing to take?  Say you are investing to put money aside to buy you dream home in two or three years. Can you afford to invest your hard-earned money in stocks (even well-diversified) where you can lose 25-40% of your principal in the short run? Do not take unacceptable risks. Draw your Lakshman Rekha.
  2. Think how you will react if the market drops by 50%.  Everyone feels they will be able to handle a market correction well, until it happens. Do not be unrealistic – market risk is real, and you should anticipate it.
  3. How knowledgeable are you about the vagaries of investing in the financial markets? The markets are capricious and not a one-way bet.
  4. What are your sources of capital and income? How important is your portfolio to your overall financial position? This is extremely important.
  5. What would happen if your portfolio value dropped by 25%? By 50%? By 75%? Would you need to change lifestyle?

Are there handy tools to help the Investor?

We have argued that the Investor is at the centre of the investment triangle. He has primary responsibility for delivering investment returns. To help him deliver returns, he can and does take the help of a Wealth Advisor and an Investment Manager. Wealth Advisors and Investment Managers have a large informational advantage over the usual investor as they are full time in the marketplace. The investor needs an aid or tool to help him close this information advantage with the Wealth Advisor or Investment Advisor. A tool that will equip him to have a more informed conversation with the Advisor and the Manager.

Qfinr is one such tool. In subsequent blogposts we will discuss the “how” of the question of delivering investment returns using the diagnostic and other tools available in Qfinr. To see more, please click on

Qfinr has been designed to put the investor in the centre of the investment process. Qfinr has a range of tools to help you in this journey to take back control of your investment policy. Our unique risk profiler, the portfolio analyser, the stress test are all tools for you to get a better understanding of your portfolio. By defining your investment philosophy, you can focus on what really matter: a well thought through, realistic, achievable goal of setting and meeting you own long -term investment objectives.

Qfinr Powering Intelligent Investment Decisions.