The Black Swan Capital core investment principles
Anyone that has worked with us will know the core principles that drive the advice we provide to expats in Europe. Here are our six principles that we apply to all our clients and to our own investments. By considering these six components, and in this order, you will be on the right track to making good investment decisions.
Note, we don’t start with return, in fact we consider other core principles that can have a more substantial impact on your investment before we get to the details of potential return on your investment.
It may seem obvious that a potential investment is compliant, and from the position of our intern al research, it is. However, what is compliant and appropriate for one person might not be for another. This is especially so for Americans. For example, an investment structure that may be appropriate for a British person living in the Benelux, might be inappropriate or non-compliant from a tax perspective for a US person living in the same place with similar needs.
If a potential investment cannot pass the compliance test, there is no point in considering the other factors, it is rejected.
Wherever possible, we recommend you always have liquidity in your investments. This means if there is an emergency, you can get your hands on your funds, without penalty or undue delay. In the past, many investment structures would lock people in for up to 20 years and if they tried to access their money, they would be heavily penalised. We believe these structures for the most part, are not appropriate for most modern-day expats and so we always ensure that you have the security of liquidity. There are also some investment solutions specifically for Americans in Europe that require you to have your investments locked up until retirement age in order to be compliant. A personal pension structure can be a good option and the right decision for some people, but it is not the only option. You don’t necessarily have to lock your investments away until retirement.
We believe this is one of the most important factors for all international and expatriate clients. One thing we have observed repeatedly in decades of looking after clients, is that life changes! This is particularly true for expats. If you are living in Europe, there is a chance you will move on to another location, or back to your home country. The timing of this can sometimes be sprung upon you. We make sure there is a high level of portability, so you do not have to liquidate your investments if you move, depending on where you move to. For the most part, you should be able to continue your investment plans and take your investments with you.
We follow the philosophy of taking on the lowest level of volatility or market risk required to achieve one’s objectives. Volatility or risk is not bad per se, it is essential to generate returns on investment. What we are suggesting here is that the investment does not adopt more risk or volatility than is needed to achieve your goals.
Consider these questions:
- How does a particular investment correlate with your personal risk profile?
- How does it fit with your goals and objectives?
- How does that investment compare with its peers?
These are factors we consider when assessing investments for each of our clients.
5. Cost & Value
The cost of an investment is obviously important but many of the costs can be hard to understand. You should always look for the OCF or TER (the OCF is the Ongoing Charge Figure which is the replacement term for TER, which meant Total Expense Ratio). This is the total cost of an investment. We prefer investment structures that can take advantage of wholesale pricing and cost-efficient underlying investment structures. This can result in relatively lower costs of management which is passed on to you, the investor. Lower cost translates in higher returns and you achieving your goals.
It is not as simple as cheaper is better. We differentiate very clearly between cost and value. In undertaking our analysis, cost comparisons of otherwise very similar investment structures can result in significant savings, which translate as higher net returns, for our clients.
As an investor look out for less obvious costs like currency costs, commissions built into investment structures, potential exit fees, the magnitude of management fees etc.
Finally, we come to returns. Performance is not just about top line return, it is about how you achieve that return. Ultimately it is net return that you generate: your investment performance returns less the costs of creating those returns. Similarly, when considering returns, it is important to see how the returns were generated, relative to risk adoption. We need to ensure the potential investment performs well in absolute terms and in relative terms both in a performance ranking and also performance for a given volatility level. Of course, you also have to consider the restrictions, and an investment that may generate strong returns, but which requires money to be locked away for extended periods, compromising your liquidity, may not be worth it.
Considered together, the Black Swan Capital investment principles are a useful guide to make informed and smart investment decisions that can meet your needs and allow for contingencies. That is, good net returns and peace of mind.