DFO Yearbook — 2021

I’m very happy to present the 2021 edition of our DFO Financial Yearbook, which is meant to provide a robust context for long term investing. Especially in my early years as an investor, I was wondering, which realistic long term returns I should strive to achieve in the public markets. In the 1990s such information was difficult to come by and even today, most clients of private and priority banks will not receive such information from their relationship managers. As I’ve now had my fair share of investment successes and mistakes, I’m well equipped to share this experience, so that new generations of investors as well as more experienced investors who are looking for context, can be helped.

The fourth edition of our DFO Financial Yearbook comes at an important time as many investors are experiencing significant portfolio drawdowns after having lived through a period in which high returns seemed easily attainable and especially new investors thought that money virtually multiplies overnight. Evidence based long-term equity returns of 7-9% p.a. seemed rather uninspiring for this generation of investors, as they saw a random selection of hyped-up securities rise by that much within a day or a week. Now they’re experiencing the opposite, many of the great ideas of 2020/2021 have lost more than 80% and may never recover. Long-term annual returns of 7 to 9% p.a. seem like a dream as even globally diversified equity indices have lost much of the gains of the last two years. Even bond markets, that are typically meant to stabilize equity portfolios are disappointing with material mark to market drawdowns.

What these developments show is the fact that financial markets are very volatile in the short term and unpredictable. Only if investors keep their nerves, when markets are tough, they will be able to benefit from the generous rewards of global financial markets and can compound their savings at attractive rates. In the absence of such cool mind, investors will reshuffle or sell their securities at the wrong time and go in circles with uninspiring outcomes. I have seen this time and again in private banks, and I’m keen to help producing better outcomes. Our DFO Financial Yearbook shows very clearly, that patient long term investors, who are focusing on sensible and globally diversified strategies, don’t lose money, beat inflation, and enjoy attractive equity risk premia, no matter the size of their individual wallet.

All it takes is to combine global stock and bond investments in a way that fits your individual context. Andre Kostolany, a popular investment expert of the 1990s used to say: ‘first, you need to experience the pain, only then you will be allowed to enjoy the gain.’ This statement stems from experience, and I can very much relate to it. Whilst we do our best to help clients manage their emotions, we can’t force them to stick to sensible investment (re)solutions. What we do know, is that global financial markets are generous to the sensible and patient investor. We therefore want to provide an investment framework, which helps to take better decisions. As we want to make sure that our information can be acted on, we’re only displaying indices that can be invested in, at low cost.

I hope that the 2021 DFO Financial Yearbook will help you understand certain facts better, so that you can establish a sensible strategy and then stay the course. We will obviously always be at your disposal if questions arise!