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Vancouver, BC (April 16,
2001): An investor who is charting a
successful personal wealth accumulation is advised
to first put in place a written long-term investment
plan. This plan is also known as the "long-term
game plan", the "investment policy statement",
the "financial blueprint", or the "asset allocation".
Adrian Mastracci, fee-only
investment counsel and president of Vancouver
based KCM Wealth Management, comments,
"The most notable omission made by investors is
not having a written plan in place before the
investment purchases begin. It's like building
a home without a blueprint."
"It's remarkable! Hardly anyone
builds a home without the appropriate blueprint."
says Mastracci, "However, many investors have
assembled a scattered collection of investments
without any plan.
" Mastracci is often asked, "What
is the best way to manage my money?" He replies,
"Managing your money is a marathon, not a 100-yard
dash. The proven and consistent approach to create,
grow and retain your wealth is with the long-term
investment perspective."
"Investors spend far too much time
on the selection process and not enough time on
the 'investment policies and strategies' they
will follow to reach their unique goals," observes
Mastracci, "My experience is that asset allocation
decisions have the greatest impact of any factor
on investment portfolios. Not stock selections
or market timing strategies."
Asset allocation means the combination
of the choices of asset classes (such as cash,
bonds, and equities) and the choices of asset
mix (such as Fortune 500 companies versus smaller
companies) that you include in your portfolio.
The 1990 Nobel Prize winning studies concluded
that long-term investment decisions explain the
bulk of investment returns. These studies found
that over time:
- Playing the market had little impact on portfolio
returns, with stock selections explained, on
average, 4% of the contribution to total
return.
- Shifting assets in and out of the markets,
or between classes explained, on average, 2%
of the contribution to total return.
- Long-term asset allocation decisions explained,
on average, 94% of the contribution to
total return.
"The centerpiece for financial success is your
long-term game plan that outlines the investment
policies you will follow to reach your unique
personal goals," says Mastracci, "Clearly, the
focus is on the long-term asset allocation decisions.
This is like building your home: the blueprint
comes first, then you attend to the solid foundations."
Mastracci's approach to the long-term plan is
to cover your unique criteria in these major categories:
- Long term goals, with emphasis on financial
independence and retirement aspirations.
- Investment objectives for the non-registered
(i.e. personal, business, family trust accounts)
and registered (i.e. RRSP, RRIF, DPSP, RESP)
funds.
- Asset allocations related to your investment
personality (i.e. conservative, balanced, growth,
aggressive).
- Investment time horizon and tolerance for
risk.
- Income and capital requirements from the
portfolio.
- Income tax and estate considerations.
- Selection of the appropriate portfolio securities.
- Disposition, acquisition and holding costs
of the securities.
- Transition steps from the current to the
suggested portfolio.
"This is a prudent and organized
approach to personal wealth accumulation," concludes
Mastracci, "Investors who focus on investment
policies and strategies make more appropriate
investment selections for their portfolio, and
are rewarded with returns more in keeping with
expectations."
"My premise is that personal wealth
should be built and guided by a thoughtful plan
that withstands the tests of time," Mastracci
summarizes, "This is an opportune time to chart
or revisit the long-term plan, especially for
investors who are contemplating or have achieved
retirement."
Adrian Mastracci is president of
KCM Wealth Management Inc., an independent, fee-only
investment counsel and financial advisory firm
not affiliated with any financial institution
or product. Clients receive objective and unbiased
advice in accordance with well-defined goals and
clear strategies.
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