Time to panic (or is it?) with the new ‘Quarterly Reporting’

Recent changes in financial services rules have meant that many providers are now obligated to report on your investments every quarter, not annually.

Surely this change is a good thing? So why then has it led to an increase in phone calls and email traffic from concerned clients to their financial advisers?

Should doctors and dentists be concerned about Quarterly Reporting?

For sure, the greater transparency that quarterly reporting brings in general can be of benefit to many investors. But, it can also raise alarm bells for some where a tiny snapshot of time and performance does not represent the real long-term performance.

Anyone who contacts their financial adviser with their concerns is absolutely doing the right thing. It gives us a chance to put the information in context and increase your understanding of your investment strategy. Greater knowledge is never a bad thing, especially when it comes to your finances!

The short-term view: 3 months vs 6 months performance

Let’s look at 2018 so far by way of example. In the first 3 months of the year, a number of investors’ portfolio reports were showing negative returns. This understandably created some consternation for many medics and dentists.

For illustrative purposes, I’ll use the FTSE 100 Index (of which several portfolios have substantial or significant holdings) to highlight the issue.

It shows a drop of more than 10% between the end of December 2017 and the end of March 2018. Of course, the reports that were sent to investors at the beginning of April 2018 showed the impact this drop had on their various portfolios. Worrying reading indeed if it was taken as a standalone indication of how well your portfolio is doing!

However, by the 26th July 2018, there was a very different set of figures to view as the table below shows. The FTSE 100 had almost recovered all the lost ground and a lot of portfolios were back in positive territory. You may need to scroll left and right if you’re viewing the table below on a small screen.

Date Index Position¹
December 29th 2017 FTSE 100 7687.77
March 26th 2018 FTSE 100 6888.69
July 26th 2018 FTSE 100 7663.17

The longer-term picture: 1 year vs 3 year vs 5 year performance

When you look at the performance of the FTSE 100 Index over significantly longer periods, it’s another story altogether as the table below succinctly shows. You may need to scroll left and right if you’re viewing the table below on a small screen.

Date Index 1 Year Performance² 3 Year Performance² 5 Year Performance²
June 2018 FTSE 100 9.4% positive 30.4% positive 41.5% positive

Of course, investing in equities is a long ball game. The curve will not be linear for most investment portfolios and is not suitable for everyone.

So should you just ignore the quarterly reports you get?

In short, no! The message we are conveying here is not to ignore the information provided in your quarterly reports but that you need to put it into context. For many doctors and dentists, that context is whatever your overriding longer-term objective is.

Would you just take one match of a football season to judge the performance of a team for that year? No you wouldn’t, and the same principle applies when judging the performance of your investments.

Investing in equity related investments always carries risk – your investment may fall as well as rise and you may not get back what you put in. Whilst there is no guarantee of future performance, taking a longer-term view will hopefully help facilitate the potential rewards.

Even so, it is still important to ensure that your investments are aligned to your attitude to risk. If you feel uncomfortable with your current investment risk level, you should contact your adviser. Things change. People change. And your portfolio can be altered at any time to suit your new situation and/or appetite for risk.

With equities comes volatility in the markets. Whilst this makes for more of a roller coaster ride, every roller coaster has its upsides…but that’s a story for another day!

Do you think the new Quarterly Reporting rules benefit investors or simply create behaviours that can be damaging to companies and investors alike? Let us know by adding a comment below.

¹ London Stock Exchange; ² FTSE Russell Factsheets

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