We are midway through this investor education series. Let us take a look back at investment topics covered to date. Core concepts, including risk, investment return, compounding, and portfolio diversification.
Keys to creating a strong investment foundation, including: Investor Profiles, Target Asset Allocations, Asset Classes, Mutual and Exchange Traded Funds, and Passive versus Active Management.
Plus, advice on finding a competent financial advisor should you want one to assist in your investing efforts.
Finally, a look at what we will review moving forward.
All that and more in Episode 42 on the Wilson Wealth Management YouTube channel.
A Quick Look Back
In looking back, we covered many of the core investment concepts. Understanding these will make you a better investor. Then we began the actual investment process. Building a strong foundation to create an effective and efficient investment portfolio.
Investment Risk
Understanding risk is crucial to investing. Risk, as a general concept. Your risk tolerance as an investor. The different types on investment risk. And how to measure risk when assessing potential investment option. In this section, we cover:
How does pure risk differ from investment risk?
How is standard deviation used as a quantifiable measure of investment risk?
What is Nonsystematic risk? As compared to Systematic risk?
Investment Return
The counter to investment risk is investment return. Risk and return go hand in hand and need to be assessed in unison. In this section, we cover:
How do nominal, actual returns differ from expected? What are real, risk-free, and relative returns?
What about mean versus median returns? Geometric versus Dollar-Weighted? How do investors create risk-adjusted return calculations to compare unlike investments?
Compound Returns
The power of compounding can greatly impact portfolio growth over time. In this section, we cover:
What are compound returns? Why are they crucial to investing success?
Does “income on income” really create the bulk of wealth accumulation?
How does the relationship between time, investment risk, expected return, and funding work?
Portfolio Diversification
Diversification is an investor’s primary tool to minimize investment risk. In this section, we cover:
What is portfolio diversification?
How do asset correlations and correlation coefficients play a role in diversification?
Should investors fixate on asset correlations?
Why is diversification the key tool for investors to manage portfolio risk?
Does a “wide variety of investments” really create a diversified portfolio?
What are asset correlations and correlation coefficients? How do they play a role in proper diversification?
Investor Profile
Your unique Investor Profile should lay the groundwork for your entire investment plan. Yet it is an area that many investors ignore or under-emphasize. In this section, we cover:
What components make up an Investment Policy Statement?
Why should investors focus on their Investor Profile?
What is in an Investor Profile? Financial Situation. Financial Objectives and Personal Constraints. Investor Risk Tolerance. Investment Goal Time Horizon.
Target Asset Allocation
Your Investor Profile should dictate your asset allocation. Which, in turn, will drive your actual investments. In this section, we cover:
What is a Target Asset Allocation?
How is it derived from the Investor Profile?
How does one’s Life-Cycle Phase impact the allocation?
What about asset classes?
What target asset allocation considerations should take place with respect to cash equivalents, fixed income, and equities.
Asset Inclusion in Portfolios
What sort of investments should fill out the asset allocation? In this section, we cover:
Individual assets, such as stocks and bonds? Or diversified investment funds?
What about mutual funds? We look at advantages of investing via mutual funds.
We also reviewed mutual fund sales commissions and ongoing fund expenses, fund performance analysis, and the potential for “shenanigans” by mutual fund managers.
What are common passive investments? How do exchange traded funds compare with mutual funds?
Passive versus Active Asset Management
Another important topic for investors, is whether they should actively invest. Or simply purchase index funds and passively participate in the markets. In this section, we cover:
Investing actively often means relying to some extent on investment professionals for support. What types of investment professionals do investors use? Either directly or indirectly.
What is the “Passive versus Active Management” debate?
Do active managers achieve “alpha”?
Should you actively invest on your own? If not always, in what circumstances might it be beneficial?
Why is it so hard for active investors to outperform their benchmark indices?
What are some of the keys for successful passive investing?
Finding a Financial Advisor
Working with a competent financial advisor may also be an underlooked key to successful wealth accumulation. Not because they will find you the best investments. More so, as a partner to help create your Investor Profile and Target Asset Allocation. Then to assist in building an effective and efficient investment portfolio. In this section, we cover:
Assessing potential advisors based on technical qualifications, relevant professional experience, personal fit and service offering, and the advisor compensation and fee model.
Okay, that is a look back on what we have covered to date. A fair bit of information. But you can see how we are working to create building blocks for a strong investment foundation.
And the Path Moving Forward
Moving forward, we will focus on constructing and maintaining your investment portfolio. One that will meet your financial objectives over the long run.
Portfolio Construction
We discussed asset allocations and potential investments. Now you need to start investing. In this section, we will cover:
How to construct an investment portfolio? How do all the parts fits together to develop an effective and efficient portfolio that meets your needs?
Another investing topic is on how to fund your investments over time. That tends to be the “Lump-Sum investing versus Dollar-Cost-Averaging” debate. There are pros and cons to both approaches.
Portfolio Maintenance
Once the portfolio is established, how should it be maintained over time? In this section, we will cover:
Should investors actively trade in their accounts?
Or might it be preferable to maintain a “Buy and Hold” strategy?
The “Active versus Buy and Hold” is somewhat like the “Active versus Passive” debate. But with a few key differences.
Portfolio Reviews and Rebalancing
Finally, investment portfolios should be reviewed and periodically rebalanced to the target allocation. In this section, we will cover:
How to monitor the portfolio over time?
What review tactics might be utilized?
What are the keys to investment portfolio reviews?
What portfolio benchmarks to incorporate for reviews?
What should be the timing of reviews?
When should you rebalance an investment portfolio? And how?
Should you also review and update your Investor Profile and Target Asset Allocation? If so, how?
Perhaps less volume in the second half, but still lots of investing issues to cover. I hope that you enjoyed the first half. And that you learn some useful tips in the coming months.
