By Nicos Cotsapas
Expert answers to investment questions
Q: A friend told me she is happy with her advisor, who has been “delivering 10 per cent per annum with only medium risk”. She has done so for the last two years and is very happy. This is exactly what I want – is there anything I need to consider?
A: Yes – always think twice when your decision potentially involves a too-good-to-be-true offer. Risk is sometimes measured by considering the excess return over the risk-free investment. With the current risk-free investment offering 1-2 per cent at best, a target of 10 per cent pa (i.e. 8 per cent plus more than the risk-free rate) implies huge risk. Even without considering risk, historically, no traditional asset class has consistently managed to generate double digit returns. So if you take into account the fees that you will be paying, it would be very difficult to achieve such returns. The chances are that your friend has not been in the same plan for a complete cycle (i.e. 5-8 years), and she might be in for a surprise down the road. Critical judgement is needed to separate honest offers with doable (but not always attractive) returns from too-good-to-be-true offers.
Q: Why should one invest with you?
A: Choosing an investment company is not easy; you must decide what attributes are most important to you. We are transparent – both in what we invest in and in the fees that we charge. We are knowledgeable and down to earth. We understand markets, how much they have to give and how much they can take away. We have extensive international investment experience, not usual in Cyprus, and pride ourselves on our personalised service. We stay in touch during both good times and bad times, and also provide 24/7 access to you.
Of course, none of these matter if your expectations are not met. This is why, right from the beginning, together, we come up with a plan that is both feasible and as safe as your investment profile will allow – always striving for the most cost-efficient way of implementation.
Q. I have an investment with an IFA and I am not too happy with the returns and service. Would I be penalised for changing and how much would it cost?
A: We shall assess your current plan and determine if it is both suitable and cost-effective for you. If there are exit penalties, we would probably suggest that you stay put. The current plan’s fees will remain the same. We charge one per cent per-annum for managing the portfolio. All very transparent.
Q: I have cash available for investment but two financial companies that I have asked for ideas from both suggested life company products that tie up my money for five or eight years. If I pull out before these terms, there is a surrender penalty. I might need my money before these terms. Are there alternatives?
A: Yes. We also manage clients through Interactive Brokers. The benefits are: easy online application in the client’s name; safety as IB has a higher credit rating than most life companies and most banks; inexpensive with costs up to 10 times cheaper than life companies and private banks; top technology; no exit penalties and no time commitment and low initial entry level – €50K or equivalent in GBP, USD or CHF.
Q. There are thousands of investment products, how do you choose which ones to invest in?
A. Not only are there are thousands of investment products, once you start exploring some of these, you will find that there are almost as many different firms and vendors that market them in different capacities (including Investment Banks, Private Banks, Fund Houses, Brokers, Custodians, Insurance Companies and Other Intermediaries). Performance is the most critical but hardly the only criterion. Other than management fees, there are different layers of fees and costs to consider and there may be hidden risks related to the providers and/or the products.
So where do we start when choosing products? Well, there is no “one-size-fits-all” in today’s marketplace and which products are best for you will depend on your needs, investing style, available resources, timeframe and attitude to risk. Answering these questions first will help us define your investment profile based on which we will choose to allocate your portfolio amongst the main asset classes: Equities, Fixed Income, Alternatives and Cash. Then we will try and choose the right combination of assets to fill in those classes so that expected returns are targeted, while relevant risks and costs are minimised. You will be surprised to know that not many products (out of the thousands) make it through our due-diligence process, when we start assessing suitability, transparency, liquidity, relevant costs, risk and performance vs. peers coupled with legal and compliance checks.
Nicos Cotsapas is a partner of Cyprus-based Elgin AMC and Swiss-based Elgin Group LLC.
Opinions expressed in this article are those of the author and do not constitute financial advice in any way. Please visit www.elginamc.com for more information. If you would like further information on how to structure your portfolio, please send an email to [email protected] or call 70000065
In the last six months during which my articles appeared in the Sunday Mail, I have received quite a few emails from readers. Below I share (and address) more of my readers’ questions. As in the previous Q&A’s I have removed reference to specific names.