What is the Investment Outlook

What’s the Investment Outlook?

Covid-19; What is the Investment Outlook?

Covid-19 is first and foremost a human tragedy

While markets were aware of COVID-19 in China, the catalyst for the market drop in late February was when the virus hit Europe. Then it became clear it was now a global issue. As a result of the ongoing COVID-19 crisis, global equity markets fell 30% from their Feb 20th high. Recent recovery means markets have rebounded and are now around -15% from the same levels. A 60/40 global multi-asset portfolio, which consists of 60% stocks and 40% government bonds, is down 5 – 6% over the last 12 months. Not a favourable result, but not the end of the world either.

Stock Market Expected Returns

Stock market share prices are based on an expectation of future company earnings, earnings over the next 30 years, not just over one year. We expect these earnings will suffer for between 10 and 20 months. A global recession is now evident. Investment markets and market-related investments will recover. The expected return of global stock markets remains over 5% pa. This expected 5% pa is very attractive relative to global bonds expected return at less than 1% pa. It looks likely that the massive government and central bank stimulus packages and QE will keep bond rates lower for longer. In the short-term, the movement in the Stock Markets are driven by opinions, sentiment, and fear. However, over the long-term, the global trajectory is upwards, and increasing markets are driven by one thing: earnings.

Patience is rewarded

After an investment market fall of over 20% (bear market), the average recovery period has been 15 months. The last four bear markets have been followed by 10.9 years, 12.8 years, 4.8 years, and 9.8 years of global investment market growth, respectively. The Fama/French research graph below shows that the average US Investment market return after a 20% market decline is 11.65% pa over the following five years.


What Next?

Our emotions will certainly be tested. Working from home, cocooning, and social distancing have and will be challenging on many fronts. Investment market performance can test feelings also. Even in the worst historical markets, stocks never declined as quickly as they did last month. There may be several bear market rallies that give investors a sigh of relief, only to see a move to lower prices.

Reasons for realistic optimism.

Equities are attractive versus most other asset classes. Financials and real estate sectors are likely to come under pressure. Technology and sustainable, climate change industries will prosper. Emerging Markets are the geographic region most likely to flourish quickest. The recovery is expected to be reasonably quick, once a solution to the virus is discovered. A few countries have begun to ease some lockdown restrictions, including two of the worst affected, Italy and Spain.

Days or Decades?

We are very aware of both the local and global issues, particularly around employment and cash-flow, for both individuals and small businesses. As Financial Planners, we try to help you`focus on your lifestyle over the coming years and decades. We try to help you stick to the plan even when its uncomfortable, so that your pensions and investments will provide the lifestyle you are looking for in future years. Sometimes the daily news headlines can be overpowering. A little more time for activities such as gardening, painting, exercising in the fresh air, even parenting, is good for the soul, and even Mother Nature is benefiting in this Covid-19 crisis. In our opinion, cautious optimism is a better view than pessimism and negativity. I think it’s safe to say that 2020 is not turning out like any of us expected, or hoped. The past 90 days have been challenging in many different ways. It is likely the trajectory of the next decade will be upwards and onward, with many bumps and hollows along the way, just like normal. In the meantime, we are here to help. Does anyone else miss Brexit? Read More: What To Do If Investment Markets are in Freefall

Pat Leahy, Certified Financial Planner.

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Compound Interest, 8th Wonder of The World

The 8th Wonder of The World

A Simple Idea.

Charlie Munger, the vice chairman of Berkshire Hathaway says, “Take a simple idea and take it seriously”. The simple idea that should be taken seriously by every investor is the ability to earn compound interest on your savings over the coming decades.

Compound Interest and College Fees

Let’s look at a simple example. We all want to give our kids, or even our grandkids, the best possible start in life and a good education is half the battle. However, education, particularly third level education does not come cheap. College fees may be free, but other costs certainly add up. Conservative estimates suggest annual costs vary, but begin from €10,000 to €12,000. Currently, the monthly child benefit amounts to almost €300 per month for two kids. Take the following scenario: 

  • Save €300 per month.
  • Investment strategy is market related.
  • Timeframe is for 10 years.
  • Assume annual interest rate, net of costs, is 5% per annum.
  • No indexation of contribution applies here.

Compound interest adds €11,544 to the value of your investment. We’ll leave you contemplate the difference between this and the current deposit based returns, which are small fractions of 1% per annum. Simple interest would have added €1,800 over the 10 years.

Snowball Effect

Think of compounding as like a snowball rolling down a steep hill. As it gathers more snow along the way, momentum increases and the ball becomes deeper and broader as it moves forward. Compound interest is amazing but just like most things in life, there’s no free lunch. The simple truth is that it takes a long time to work. To get the rewards you have to stick with it and stay the course during good times and bad. Problems arise with the snowball if you start making withdrawals, a 10 year horizon rather than a 10 month plan is required.

Investment Plans @ 5% p.a.

Focusing on trying to grow your wealth by compounding is a key element of any investment plan. The same applies with retirement plans. Just take a look at the graph below which JP Morgan Asset Management created to illustrate the power of compounding. One line shows the example of somebody starting to save at 25, let it be for retirement. This clever person that starts to save at 25 years old, accumulates circa €284,000 more in retirement funds than the person that starts at 35 years old. The 35 year old has still done well!

Investment Returns – What to Expect From Here.

Perhaps you are wondering about the 5% return piece of this jigsaw. Complex investment options can give the illusion of control. Our theory is that advice doesn’t have to be complicated to be good. Equities have delivered the best investment returns for investors over the long-term. Despite various recessions, business progress has been the order of the day in developed and democratic countries. Equities, which are essentially a collection of businesses, have reflected this.

The MSCI World Index has generated 10 year annualised returns of 7%, 6% and 12% for each of the last 3 decades, respectively (see table below). In our view the easiest way to ensure that a portion of your money will compound at a consistent rate over the coming decades is to invest in a strategy that gives you exposure to world equity markets.

We help you invest in portfolios that focus on large and medium sized companies that are globally diversified. Focusing on dividends plus dividend growth is, in our opinion, the most reliable way to invest in and make money from equities over the longer term. This applies particularly in today’s extraordinary bond market environment, where so many Euro government bonds have negative yields.

Meanwhile, European investment markets remain some 35% below its March 2000 highs, while Emerging Markets equities remain some 25% below their October 2007 highs. Japan is still 45% below its 1989 peak. The world is still concerned about global trade wars, rising Middle East tensions, Brexit, a slowing global economy, a possible recession next year, slowing industrial production, earnings estimates being revised down, possible impeachment of President Trump, etc. 

We do understand these fears, but perhaps investors are too negative in their views. In summary, while we are very aware of the global issues out there. Cautious optimism is a better market view than pessimism – Just look at the investment returns below for the disciplined investors availing of the eighth wonder of the world (Albert Einstein).


Pat Leahy, Certified Financial Planner.

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Investment Book Recommendation

The Little Book of Common Sense Investing
by John C. Bogle is probably the only investing book you’ll ever need to read. At the 2017 AGM of Warren Buffet’s company, Jack (John) Bogle was introduced as the “person who has done the most for the American investor.”

What is the Investment Outlook

What’s the Investment Outlook? Covid-19; What is the Investment Outlook? Covid-19 is first and foremost a human tragedy While markets were aware of COVID-19 in China, the catalyst for the market drop in late February was when the virus hit Europe. Then it became clear...

Step 2 – A Guide to Successful Investing


Step 2: A Guide To Successful Investing

Pat Leahy, Certified Financial Planner

Looking back over the last decade, if you had the ‘misfortune’ of investing in a fund that tracks the performance of global stock markets (MSCI All Country World Index) you would have experienced a temporary decline of -38% for the calendar year 2008. If you had the ability to remain invested, your money would have recovered, and your initial investment would have grown by 129%, as at the end of April 2019.

Step 2 – A Guide to Successful Investing

Keeping your Emotions in Check

Ben Graham, the legendary investor once said, “The investor’s chief problem, and even his worst enemy, is likely to be himself”. In theory, investing is relatively straight-forward, but it is not always easy, simply because money is emotional.

Psychologists have found that here are typically four conditions that can lead to poor decision-making:

  • When there is incomplete information.
  • When the problem is complex.
  • When we interact with others.
  • When we are involved in a stressful situation.
  • The above conditions are all met when we invest. How can we help make better investment decisions?

Nobel Prize-winning psychologist Daniel Kahneman showed in his research that because of a bias called the affect heuristic, the human brain is very quick to make decisions based on intuitive feelings or hunches that require little thought. As we are continuously bombarded by information, this decision- making process, that Kahneman calls System 1, works wonderfully well for mundane everyday decisions. Unfortunately using System 1 type decision-making is never ideal when investing.

Kahneman also found that there was another part of the brain that is effective in using logic to make more reflective, clearer, and thoughtful decisions. He called this system 2, where people take the time to slow down and avoid making impulsive decisions. Slowing down and making long-term decisions is a start but it isn’t the only difficulty we face.

The hardest thing of all is to not get emotionally involved. We have a panic button which springs to life at perceived danger. When stock markets fall, or recessions are predicted we panic-sell. Interestingly, humans are fascinated in trying to seek patterns where none exist, a concept known as pareidolia. This is particularly acute when we try to look for and try to make sense of the movements in the stock market.

Learning to deal with your emotions is a crucial part of successful investing. Investing isn’t only about understanding what to invest in, it’s also about understanding how our own natural human inclinations and cognitive biases can wreak havoc on our decision-making process. You might be thinking to yourself that I’m a reasonably smart person. Surely, I’m smart enough to avoid these biases! Unfortunately, we are all prone (including financial planners & investment advisors!) to them.

Here’s what Henrik Cronqvist & Stephan Siegel had to say in their book, “Why Do Individuals Exhibit Investment Biases?”

“We find that a long list of investment biases for example, the reluctance to realize losses, performance chasing, and the home bias are human, in the sense that we are born with them. Genetic factors explain up to 45% of the variation in these biases across individuals. We cannot find any evidence that education is a significant moderator of genetic investment behavior.”

Emotional intelligence and an understanding of behavioural biases have a huge influence on us all. The simple message is that learning about biases will help you become a better investor.

If we can help you further, do let us know.

As always do not hesitate to contact Infinity Financial Planning with any questions or queries that you may have by emailing pat.leahy@infinityfinancial.ie

Kind regards,

Pat Leahy

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Step 1: A Guide To Successful Investing

Step 1: A Guide to Successful Investing
Pat Leahy, Certified Financial Planner

Good morning,

Trying to understand financial markets by tracking the daily media headlines (Brexit, Trump, China etc) can become a distraction for those who want to build long-term investment solutions. We have recently compiled a Short Guide to Successful Investing.

A Guide to Successful Investing: Step 1

Understand How Markets Work

Over the long-term, which we define as over 10 years, the two most important factors that drive investment returns are:

1. The increase in long-term dividends,
2. Earnings growth of companies that make up the market.

How much people are willing to pay for those earnings and dividends will change constantly. In the short-term, this will lead to speculation and sometimes wild gyrations in the value of the stock market. Even in the medium-term, the long-term average market performance is made up of many periods of that are decidedly below average. We are often asked why the stock market increases over time.

Investors should plan for frustrating periods, volatility, uneven results, and even a stock market crash. Over time though, investors will continue to value the stock market based on the income they receive (dividends) and capital appreciation (fuelled by earnings growth). Successful investors know how the stock market works and are prepared to “stay the course” and continue to invest to reap the long-term financial rewards. See the cumulative return figures below over the 10 year, 20 year and 30 year period as evidence of the rewards, which successful investors, pay attention to:
The over-riding lesson here is that successful investing involves learning to deal with your emotions and being aware of behavioural biases. Try to remember that today’s media headlines are unlikely to have any significant bearing on the long term value of your investment. Successful investing is about time in the market and emotional intelligence to ‘stick with it’. Start with a strong market related philosophy and understand the drivers of return over the long term.

Have a Very Happy Weekend.

We will follow up with Step 2 in the near future.

As always do not hesitate to contact Infinity Financial Planning with any questions or queries that you may have by emailing pat.leahy@infinityfinancial.ie

Kind regards,

Pat Leahy

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Will I have enough?

Will I have enough?


Will I have enough?

Pat Leahy, Certified Financial Planner

Welcome to the latest edition of the Infinity Financial Planning newsletter.

Time never stands still. Everything in the world seems to be moving at a quicker pace than before. Nowadays, the most common question we answer for the people we deal with is ‘Will I have enough?’. We are continuously looking for ways to improve how we answer this question and add proper value. As Certified Financial Planners we are continuously evolving. Information gathered and used in the right way can help create a realistic financial plan.

5 Ways Infinity Financial Planning Add Value:

1. Truly Independent & Objective Advice

For many of us, money, although we may not what to admit it, is a very emotional subject for us and our families. It often hard to talk about, difficult to make decisions about, and it’s particularly difficult to make totally objective decisions. Part of the value of having a trusted advisor is a second opinion, someone who is completely independent of you or your family, who can provide advice without emotional attachment. In our experience, most individuals benefit greatly from an independent source of advice that allows you to focus on enjoying life instead of worrying about money.

2. Confidence

Our initial complimentary consultations typically begin with a discussion about your investment portfolio, and your insurance policies. This transpires over time to a relationship that covers every aspect of your financial life. We try to give you the confidence and reassurance to know that while you are above ground, what type of lifestyle you can afford, and furthermore if you weren’t around, that your family would be taken care of.

By using lifetime cash-flow modelling tools we help you create a financial plan that matches your priorities and fits your lifestyle.

3. Asset Allocation

Considerable academic studies have shown that over 90% of variations in funds’ investment returns were attributable to the underlying strategic asset allocation. Setting an appropriate strategic portfolio mix, between equities, bonds, and other asset classes, is a starting point for all our clients before considering investment selection. This important decision will have a big impact on your investment outcomes.
“Wealth isn’t primarily determined by investment performance, but by investment behaviour.” Nick Murray

4. Behaviour

When asked how the stock market will perform, the financier JP Morgan said that “it will fluctuate”. We recognise that while investing is a long-term activity, the long-term is made up of a series of short-terms which can be difficult for investors. Because investing evokes emotion, we look to help you maintain a long-term perspective and a disciplined approach. We aim to help our clients to handle periodic volatility without abandoning their investment plan.

5. Tax

There are distinct measurable benefits to enlisting the services of a Certified Financial Planner, including disciplined rebalancing and tax loss harvesting. Also, the allocation of assets between taxable and tax-advantaged investment accounts, is one area we can add value each year, with an expectation that the benefits will compound through time. Deciding where to allocate assets from a taxation perspective is crucial to a client’s overall financial plan.

How we invest

“To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework”

Benjamin Graham, (1894-1976) Legendary American Investor, scholar, teacher, and author of the book, “The Intelligent Investor”

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