Our Investment Philosophy

When putting together a financial plan that will help maintain your preferred lifestyle, it will quickly become obvious that you are either on track or your not. If you are on track then we may suggest you only save in safe bank account type investments. After all why take unnecessary risk, if you are already have enough to fund your preferred lifestyle? In the majority of occasions we are advising clients to reduce investment risk. It’s amazing how many people have risky investments when they don’t need them.

If you’re not on track there are many different options to try, one of which is to take more investment risk. If you decide to adopt this approach we will recommend a company called 7IM and their AAP funds.

We like their “passive” approach to investing and the cheaper fees that this brings. The performance mirrors that of markets i.e. it’s neither better nor worse. Although investment performance can not be predicted, the fees can!

7IM AAP funds have an annual fee of only 0.5% per year compared to a typical “active” manager who can be as much as 3% per year. Looking at the following table it would be difficult to convince anyone to pay 2.5% per annum more when in circa 80% of occasions the active fund manager will not beat the market. 

Percentage of Actively Managed Funds Underperforming the Index

Why Use Indexing?

How Hidden Costs Impact Wealth

A Total Expense Ratio (TER) is not the total of all the costs incurred in your investment. Undisclosed costs can have a large impact and are a key reason that circa 80% of active fund managers underperform their benchmark (see diagram).

The management fees and administration and custody expenses that are disclosed in the TER could be considerably outweighed by the hidden costs incurred by the active trading of portfolios: trading commissions, bid/ask spreads and market impact costs all detract from performance. These costs increase with higher portfolio turnover (trading activity) and when investing into more illiquid securities.

The cost savings of indexing compound over time with a dramatic effect on the end value of your investment. Frontier is committed to keeping transactional costs as low as possible, providing an additional tailwind of performance.

Read the latest 7IM investment opinions in the following adobe file (Click here).

NBS Financial Planning Ltd are Independent Financial Advisers authorised and regulated by the Financial Services Authority No. 497373.