It has been eleven years since the Global Financial Crisis (GFC) in 2008. This event has changed the economy of the world, the mindset of investors and the investment philosophy of Providend today.
Watch this video as Christopher Tan, CEO of Providend, shares the lessons we have learnt from the GFC to help our clients achieve a more successful investment experience.
Hello everyone. Thank you very much for watching. Today, I would like to share with all of us something that I seldom share with people outside of Providend.
You see, back in 2003 when we first started giving advice to our clients, the investment philosophy that we adopted was actually quite different from what we practice today. After we have created portfolios for our clients, allocating their monies to different asset classes such as equities, bonds, so on and so forth, from time to time, we might shift from equities to bonds or bonds to equities or to other asset classes based on our Chief Investment Strategist’s market outlook.
Also, in executing the asset allocation, we used actively managed funds. Those funds whereby the fund manager, based on their prediction, will move from one asset class to another.
Well, everything worked well until the Global Financial Crisis (GFC) of 2008. That strategy failed us badly. You see, the GFC of 2008 was one of the worst crises in our generation and perhaps the second worst crisis over the last century, just after The Great Depression.
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I can’t fully describe the feeling of how it felt going through the GFC of 2008 because only those who have really managed money and who have advised clients would understand that feeling.
Every morning when you wake up, you wake up to very bad news. You wake up to markets going down. You wake up to financial institutions potentially going bankrupt. And even some European countries almost unable to repay their debts. It was a very scary time. Not just for the clients but for us. To try to time the market, to try to guess where the markets are going to go at that time is just crazy. Almost impossible to get it right.
And to make it worse, even if you decide to stay invested, the funds that you invest in, the fund managers, they might not stay invested. They might move their money to cash already because they are also afraid.
And for us to make matters worse, one of the bonds started behaving very weirdly because the bonds were supposed to stabilise the portfolio but it didn’t. And to our horror, when we asked the fund manager to give us a list of the securities that they invested in, we found out that although it was a global bond fund, they invested a lot into emerging market debt and that cost the price, the performance of the bond funds to be very bad.
In the end, we had to sell off that bond fund and that bond fund actually closed down. After the GFC, we told ourselves that we will never EVER let this thing happen again to us and to our clients.
Three lessons we learned. Firstly, to try to time the market, to try to guess where the market is going to go, to try to decide whether it’s better to invest in equities or bonds is just a futile attempt.
Secondly, we’re not going to take fund managers’ risk especially for those managers who try to predict where the markets are going and the cost is very high.
And thirdly, you see, there is a great need to coach our clients to help them stay invested through a very bad crisis.
After twenty years of being in this industry, we know what works and we now know what doesn’t work. And that is why today, at Providend, our investment philosophy is one whereby we stay invested regardless of market situation. It is a strategy that has been proven through scores of evidence that it works. And the instrument that we use, we use those instruments that do not predict where the markets are going and particularly instruments that are very low in cost.
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We only use two instruments – Vanguard and Dimensional. And the third thing that we do today is that we spent a lot of time, before even a crisis happened, to risk coach our clients. We believe that through this, clients will have a better chance of a successful investment experience.
If you want to find out more about how you can invest through Providend, please do contact us. Thank you very much once again for watching this video.
We do not charge a fee at the first consultation meeting. If you would like an honest second opinion on your current investment portfolio, financial and/or retirement plan, make an appointment with us today.