<p>During our espresso session last week, we shared the findings of the 2023 Personal Finance and Wealth Management Survey. With about 360 respondents, the data generated was robust both in terms of our ability to undertake correlations and generate meaningful insights for practical use. The report will be shared over the coming days. During the session, participants raised questions in relation to personal finance and this paper will provide a perspective on some of these. A popular query concerned the effectiveness of wealth managers in generating adequate returns. As it happens, the extent of returns is really not contingent as much on the ability of wealth advisors, but rather the risk appetite of investors. Products available in the market are standardised and a decent investment manager should offer a scrupulous understanding of these. The choice consequently falls upon the investor as to what products to subscribe. This determines returns. Equity investments tend to be volatile and consequently come with higher yields or losses. Debt, on the other hand, is more enduring.</p><p>However, what is important to note is that certain debt instruments provide higher returns than others. This is based, essentially, on the underlying nature of securities in the fund manager’s basket. Those that are better rated would logically come with low yields and those that are poorly rated offer bigger ones. It is therefore necessary for investors to examine the issue based upon their risk appetite. Unrated paper, frequently called junk bonds, should offer returns several percentage points higher than something that is ‘triple A’ rated, but comes with proportionately high levels of risk.</p><p>Wealth managers are aware of product offerings and play a critical role in leading an investor in the appropriate direction. They receive commissions based on the products they promote, creating a potential incentive to prioritise their own financial gains over selecting investments that align best with an investor's risk-return profile. There are on offer a variety of products which consist of clean equity, debt or a combination of the two. Hybrids are popular because of taxation rules, as tax on capital gains on equity enjoy better treatment than on debt. Moreover, there are on offer multi-asset funds comprising of debt and equity hybrids, but also include other asset classes such as gold, real estate investments and so on. These products provide flexibility to fund managers to move money between asset classes. However, in order to choose products, it is crucial to recognise the underlying securities in each asset class to comprehend risk. Fund managers usually provide details on historical performance, but that is like diving a car looking at the rear-view mirror. Robust returns over the past 2-3 years cannot guarantee a similar performance going forward. Like life itself, which comes with ups and downs, fund managers have spells of few good years, followed by a few bad ones.</p><p>As a younger generation of people begin taking punts, real estate is giving way to finance. Financial markets bring several advantages, including instant fungibility and strong returns. Real estate, on the other hand, does not necessarily guarantee that the markets will remain on an upward trajectory. Most importantly, commercial and residential property are hard to sell. The markets now offer instruments called ReITs (Real Estate Investment Trust) where an investment takes an exposure to real estate but without the headache of managing it. Exits from such investments are as simple as trading in shares.</p><p>Our report on personal finance is an exhaustive assessment of the way individuals invest, the methodology and instruments they prefer, the returns they have achieved over the past few years and expect to do so in the near future. It provides a concise commentary on investor behaviour and market prospects going forward.</p>
<p>During our espresso session last week, we shared the findings of the 2023 Personal Finance and Wealth Management Survey. With about 360 respondents, the data generated was robust both in terms of our ability to undertake correlations and generate meaningful insights for practical use. The report will be shared over the coming days. During the session, participants raised questions in relation to personal finance and this paper will provide a perspective on some of these. A popular query concerned the effectiveness of wealth managers in generating adequate returns. As it happens, the extent of returns is really not contingent as much on the ability of wealth advisors, but rather the risk appetite of investors. Products available in the market are standardised and a decent investment manager should offer a scrupulous understanding of these. The choice consequently falls upon the investor as to what products to subscribe. This determines returns. Equity investments tend to be volatile and consequently come with higher yields or losses. Debt, on the other hand, is more enduring.</p><p>However, what is important to note is that certain debt instruments provide higher returns than others. This is based, essentially, on the underlying nature of securities in the fund manager’s basket. Those that are better rated would logically come with low yields and those that are poorly rated offer bigger ones. It is therefore necessary for investors to examine the issue based upon their risk appetite. Unrated paper, frequently called junk bonds, should offer returns several percentage points higher than something that is ‘triple A’ rated, but comes with proportionately high levels of risk.</p><p>Wealth managers are aware of product offerings and play a critical role in leading an investor in the appropriate direction. They receive commissions based on the products they promote, creating a potential incentive to prioritise their own financial gains over selecting investments that align best with an investor's risk-return profile. There are on offer a variety of products which consist of clean equity, debt or a combination of the two. Hybrids are popular because of taxation rules, as tax on capital gains on equity enjoy better treatment than on debt. Moreover, there are on offer multi-asset funds comprising of debt and equity hybrids, but also include other asset classes such as gold, real estate investments and so on. These products provide flexibility to fund managers to move money between asset classes. However, in order to choose products, it is crucial to recognise the underlying securities in each asset class to comprehend risk. Fund managers usually provide details on historical performance, but that is like diving a car looking at the rear-view mirror. Robust returns over the past 2-3 years cannot guarantee a similar performance going forward. Like life itself, which comes with ups and downs, fund managers have spells of few good years, followed by a few bad ones.</p><p>As a younger generation of people begin taking punts, real estate is giving way to finance. Financial markets bring several advantages, including instant fungibility and strong returns. Real estate, on the other hand, does not necessarily guarantee that the markets will remain on an upward trajectory. Most importantly, commercial and residential property are hard to sell. The markets now offer instruments called ReITs (Real Estate Investment Trust) where an investment takes an exposure to real estate but without the headache of managing it. Exits from such investments are as simple as trading in shares.</p><p>Our report on personal finance is an exhaustive assessment of the way individuals invest, the methodology and instruments they prefer, the returns they have achieved over the past few years and expect to do so in the near future. It provides a concise commentary on investor behaviour and market prospects going forward.</p>
