I have just completed 30 years as a financial adviser.

One would hope that the suggested 10,000 hours of experience required to become “expert” has been exceeded. However, the investment world is continually evolving.

Over that time different styles of investing have emerged, and even new forms of investment have evolved (e.g. cryptocurrency). Being part of a fast-paced profession is stimulating, sometimes stressful, but always interesting.

I have a friend who is a lover of jazz. He explains his appreciation of the genre by referencing the saying “less is more”. I have come to understand that it takes great skill to appreciate what really matters and separate the “essentials” from the less important things which might be categorised as “side shows”. There are a lot of side shows in the investment world.

When thinking about a topic, it was the “less is more” concept that came to mind. My self-imposed challenge is to identify just three essential principles that will help people achieve their financial goals.

Capture the power of doubling

The concept of doubling is simple; it is merely the time it takes for an investment to double in value. It is primarily driven by the nature of the investment held.

Sharemarkets have historically returned an average of 7-10% per annum over long periods of time. This means that your share-based investments should double in value every 7 -10 years. Although, it is important to remember that it isn’t linear – sometimes the sharemarket may go up 20% or down 20%, but it does mean it is reasonable to expect an average doubling period of 10 years for a share-based portfolio. In some periods it will be shorter; in other periods longer.

Each asset class has its own doubling rate. Shares have one of the shortest average doubling rates, cash has the longest, with most others in the middle.

To achieve a fully funded retirement (i.e. a retirement where you have the same degree of financial choice that you enjoyed before you retired) you will need to have a high degree of exposure to the doubling power of shares.

Our savings capacities alone are unlikely to allow us to build the capital base we need to enjoy a fully funded retirement. It is essential that we harness the “doubling power”.

Time is the multiplier

The longer you are invested, the more time there is to capture this doubling phenomenon.

Life can easily get in the way of starting an investment programme, but the sooner you start the longer you have to capture the power of doubling. After 40 years at 7.2%, $10,000 doubles four times and becomes a substantial $160,000.

Forty years may sound a long time but, for many KiwiSaver investors, 40 years will be their minimum investment timeframe. Many of us will be retired for 30 years or more.

Don’t chop half-grown trees

People understand that it makes no sense to harvest a crop when it is only half grown.

Yet, in investment terms, I see people do it all the time. In other words, they sell out of an investment when it is undervalued. They end up buying high and selling low – a wealth destruction story.

When people are building their wealth (pre-retirement) it is largely fear that drives this sell reaction. An advisory relationship (with education and a written plan) has been proven to reduce this risk.

For retired people who are drawing on their portfolios, it can be a consequence of a mismatch between an asset class and the intended time horizon. This can result in undervalued assets being sold to fund an immediate expense.

To avoid this, withdrawals for living expenses should be held in assets which are capital stable, where their value cannot be suppressed by market forces. Cash is the best example of this.

Given the fact that our increasing life expectancy means we are living for longer in our retirement, the power of doubling is also required in our retirement years. The proportion held in shares may be reduced but the doubling power of shares is still needed to protect the purchasing power of our capital for possible consumption in the latter part of our retirement.

There is of course more to developing a robust investment programme than I have covered here. But if I have to choose just three concepts to help people change their investment and life outcomes, it would be: “Capture the power of doubling”, “time is the multiplier”, and “don’t cut down half-grown trees”.

In a noisy investment world, I have learnt that less is more.

 – Peter Ashworth is a principal of New Zealand Funds Management Ltd and is a Dunedin-based financial adviser. The opinions expressed in this column are his own and not necessarily that of his employer. His disclosure statements are available on request and free of charge.