Edmonton, Calgary, Vancouver, Winnipeg, Ottawa & Toronto Financial Advisors.
10 Tips for $1,000,000+ Portfolios
1. Make Your Money Work
Let your money do some of the work for you; after all, you work hard for it. Investing is an effective way to create a secondary source of income. Over time, you earn a return not only on the money you save but also on the return you have earned in previous years. This passively grows your wealth over time. If the investors can hold positions for a long time, there is a greater chance for them to build wealth over the years and get a better fortune in the later stages of life.
If you don’t find a way to make money while you sleep, you will work until you die.
– Warren Buffett
Multiple strategies can be leveraged to grow your wealth. While you work at your job, play with the kids, and go to the movies, develop a strategy and plan leveraging the power of time to help you grow your wealth. Once your money is in a solid long-term strategy, it will grow day and night – even when you sleep.
2. The Power of Asset Allocation
When most people think of the value financial advisors add they, typically think of stock picking, sector rotating, and timing the market. In reality, the most important decision an investor can make is proper asset allocation.
Studies have shown that more than 91.5% of a portfolio’s return is attributable to its mix of asset classes. In this study, individual stock selection and market timing accounted for less than 7% of diversified portfolio’s return.
Asset allocation combines asset classes within your portfolio, considering the client’s long-term goals, time frame, and risk tolerance. It aims to implement an investment strategy that will balance risk and return by adjusting the percentage of each asset in your portfolio accordingly.
3. Is it Time to Leverage Alternatives
Alternative assets are often attractive because of the high returns they can generate and the opportunity to diversify an investment portfolio away from traditional investments, reducing overall portfolio risk. Alternative investments have had a massive bump in popularity in the past several years, especially among institutional and high-net-worth investors. However, many financial advisors are still lagging behind in terms of awareness as well as usage in client portfolios.
After taking into account inflation, traditional portfolios I believe will be challenged to deliver what investors will need to retire.
– Corrado Tiralongo
Whatever the economic climate or period, investors need to ensure that their portfolio is set up for success and effectively balanced across more than just traditional strategies of equities and bonds. The future, as we know, is fraught with unknowns that can quickly derail our well-laid financial plans. If your portfolio comprises solely equities, fixed income, and cash equivalent investments, it may be time to rethink your allocation.
4. Manage Portfolio Risk
Managing risk is not about minimizing risk. Instead, the objective of risk management is to take the right amount of risk, of the right kind, at the right times. Just as there is a cost to taking too much risk, there is a cost to taking too little. The goal is to take the right amount of risk, no more and no less, to generate the optimal expected returns for each portfolio. Utilizing uncorrelated strategies within a traditional portfolio is an effective tool for managing risk, delivering real long-term diversification benefits, building resiliency, and producing better results for investors.
The best investors do not target return; they focus first on risk, and only then decide whether the projected return justifies taking each particular risk.
– Seth Klarman
We tend to think of “risk” in predominantly negative terms. However, risk is necessary and inseparable from desirable performance in the investment world. How much risk an investor should accept depends entirely on the individual investor’s tolerance for risk.
5. Create a Roadmap
We often link a client without a plan to one driving through the Rocky Mountains. You will get to your destination, but it will be a windy road to get there. Developing a plan will help you find a “straighter” path and reach your goals sooner.
Planning is bringing the future into the present so that you can do something about it now
– Alan Lakein
40-page financial plans are a thing of the past. The plan needs to be redone as soon as one variable differs from the forecast (who forecasted 6.8% inflation in 2022?). Instead, determine a goal (or set of goals) and build a concise, simple roadmap. Having a plan gives you a measurable goal to work toward. You can track your progress, reduce your doubt, and make adjustments to help overcome obstacles that you will entail.
6. Have a Will in Place
It’s one of those things that is so simple it is easy to put off. Don’t. Getting a will drafted and signed is one of the most important documents to have in place to ensure your wishes are carried out. It will ensure that your loved ones are provided for and protected, and most importantly, provide them peace of mind and allow them to grieve.
Estate planning is an important and everlasting gift you can give your family.
– Suze Orman
In Canada, if you die without a will, you’ve died intestate, and your estate is distributed to your next of kin by the government under provincial law. This process takes time but, most importantly, is an easily avoidable weight that gets put on the surviving family. The provincial courts will decide what happens to your property, which may be very different from how you originally intended.
7. Introduce your Team to Everyone that Counts
Ensure your spouse, adult children, and/or guardian know your team of professionals. That includes your accountant, financial advisor, insurance agent, attorney, banker, etc. In addition to video or face-to-face introductions, put all contact information, asset description, and asset location into a one-page document. Review and update it yearly. Distribute it to those who might need it.
Few lessons, if any, about money have often been passed on. Bringing family into the conversations help provide a solid foundation for their future.
Successful wealth transfer planning does not happen in a vacuum. Likely, your family members will only understand the structure or purpose of your legacy plan with careful explanation and discussion. This is best accomplished through a series of advisor- facilitated family meetings.
8. Manage your Biases
It’s challenging to invest in equities on your own behalf. Every investor has biases. Investors typically buy at the top of the market when everybody else is buying. Then they sell at the bottom when everyone else is selling. It’s so common that mutual fund investors, on average, do worse than the returns of the funds they invest in. That’s because they buy and sell at the wrong times.
Be fearful when others are greedy, and greedy when others are fearful.
– Warren Buffett
While we cannot cure the behavioral biases we’re born with, we can try to mitigate their effects. By employing systems intended to counteract these instincts, such as utilizing feedback, audit trails for decisions, and checklists, we can make more rational decisions and improve the chances of investment success.
9. Build Around Trust
The glue that holds business relationships together, that is trust, and this trust is purely based on integrity
– Brian Tracy
Investment options include an increasingly diverse array of complex financial instruments, but the typical investor does not have the knowledge and capacity to evaluate many of these offerings. A professional financial advisor can provide better insight into investment options and help households plan for long-term goals, like retirement.
Few lessons, if any, about money have often been passed on. Bringing family into the conversations help provide a solid foundation for their future.
Creating a balance is key to enjoying life now and in the future. Enjoying yourself today means understanding what you need to feel like you’re living fully and getting to experience the things that are most important to you. After all, tomorrow isn’t promised.
