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Adrian Mastracci,
investment counsel at
KCM Wealth Management says, "The focus is clearly on asset
allocation decisions." |
By Adrian Mastracci
Sounding Board
The Vancouver Board of Trade
December 2001 Issue
Investors charting successful wealth accumulations are advised
to first put in place a written investment plan. This plan is also
known as the "long-term game plan", the "investment
policy statement", the "financial blueprint", or
the "asset allocation plan".
The most notable investor omission is not having a written plan
in place before investing. Think of it as building your home without
the blueprint.
Many investors also spend 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.
I am often asked, "What is the best way to manage my serious
money?" My reply is that managing serious money is a marathon,
not a 100-yard dash. The proven and consistent approach to create,
grow or preserve wealth is with the long-term perspective.
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 large versus smaller companies) that you include in
your portfolio.
The 1990 Nobel Prize winning studies provide perspective. They
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 foundation for success is your game plan that outlines the
investment policies you will follow to reach those unique personal
goals. The focus is clearly on asset allocation decisions.
My approach to the game plan is to cover the client's personal
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) and registered (i.e. RRSP, RRIF, DPSP,
RESP) funds.
- Asset allocations relating to investment personality, time
horizon and risk tolerance.
- Income tax and estate considerations.
This is the prudent approach to managing serious money. Investors
who focus on investment policies and strategies make more appropriate
investment selections, and are rewarded with returns more in keeping
with expectations.
Personal wealth should be guided by a thoughtful plan that withstands
the tests of time. Charting or revisiting the long-term game plan
is a valuable exercise, especially for investors who are close to
or have achieved retirement.
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