I started this “Wealth Management Commentary” in January of 2017.
The goal was to create building blocks of knowledge. To better understand the key concepts behind investing. The more you learn about wealth management, the wiser decisions you will make, and the more long-term success you will achieve.
I want to quickly review what we have covered to date. As that sets the foundation for what we will build on in 2019. I will link to a few posts, but best to go through the “Categories” section on the lower right hand side of the page.
In early 2017, we looked at finding a Financial Advisor. Obviously, I am a tad biased, but I do think working with a competent professional can add value to your wealth accumulation. We reviewed how to assess a potential advisor’s qualifications, experience, and service offering. As well, the difference between Commission and Fee-Only advisors.
We then moved to on to core investment concepts.
Risk
A crucial concept for investors is risk. We saw the difference between pure and investment risks. How standard deviation helps quantify investment risk and the limitations of this measure. How risks can be either systematic or nonsystematic in nature. And how you should consider each in your analysis. We placed special emphasis on liquidity risk. Then we reviewed various risk management tools, including those favoured by investors.
Diversification
Another key investment concept is diversification. How asset correlations impact diversification efficiency. And how proper diversification may serve to reduce overall portfolio risk without negatively impacting expected returns.
Return
Investment returns are as equally important as risk for investors. We reviewed the common investment returns. As well, how to assess various investment returns and realize that all return calculations are not the same. We completed our look at returns by focussing on the most useful, the mean return calculation.
Core Asset Classes
With risk and return covered, we turned our attention to the core asset classes. Cash, fixed income, and equities.
I think, for a variety of reasons discussed within, that the majority of most investors’ portfolios should consist of open end mutual or exchange traded funds. So we spent a good amount of time on each investment.
While funds cover different asset classes, they can also incorporate various investment styles. We reviewed style concepts, such as: market capitalization; value and growth investing; price to earnings; price to book; dividend yield.
Compound Returns
Another key investment concept is compound returns. Investment lessons based on compounding and why small cost savings can greatly enhance long term wealth accumulation.
Active versus Passive Management
Finally, we entered into the “active versus passive” debate. An extremely important concept. And one that is often intuitively difficult to accept. Should you follow the investment professionals and/or let them manage your investment decisions? Some thoughts as to if active investing is right for you or perhaps not. Also, we reviewed keys to passive investing and why it can still be difficult to match the market even in a passive strategy.
Looking Ahead in 2019
Plus or minus, that is what we have covered over the last two years. A lot of posts, yes. But I think we built nicely on the core investment concepts.
If you understand investment risk, return, diversification, compounding, and the active versus passive debate, you will become a better investor. Not to mention, knowing these concepts will greatly aid in what is to come.
In 2019, and possibly beyond, we will look at ways to properly build and assess investment portfolios. Incorporating the above key concepts into definitive actions. Topics such as, creating investment policy statements. Developing a suitable and unique target asset allocation. Selecting investments that fit your target allocation to create well diversified, efficient, and effective investment portfolios. Then, once the portfolio is in place, how to review and rebalance over time.
We have set the table with key investment concepts and definitions. Moving forward we will try to bring it all together.
