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According to a study, over 90% of the impact to portfolio performance
over time is due to asset allocation.
Many factors are important in helping you develop a strategy to meet
your investment needs, including your investment timeframe, personal and
career goals and your risk tolerance. One of the most important elements
in the potential success of your investment plan is to utilize the power
of diversification.
Allocating your portfolio appropriately among asset classes may help you
achieve a comfortable balance between risk and return. Diversifying
assets may make a portfolio less vulnerable to the dramatic performance
swings that can occur when investing in a single security or asset
class. A diversified portfolio may help you stick with your wealth plan
for the long term.
Asset allocation can be achieved through a number of ways. One approach,
which earned a Nobel Prize in Economics in 1990, is called Modern
Portfoio Theory. A key to this theory is the “efficient frontier”.
Developed through an extensive analysis of the risk and returns in the
financial markets, the efficient frontier helps identify a desirable mix
of equities and bonds. An efficient frontier can be found along the
spectrum of asset classes, depending on your risk tolerance at any give
point in your investing timeline.
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Strict adherence to investment discipline in the selection of long-term
investments, investing in stages when prices dip, and portfolio
diversification, may all be clichés, but they remain effective
strategies. As mentioned above, markets always experience adjustments,
but these do not undermine the long-term investment value of the market.
Investors, therefore, may consider adopting some simple strategies.
WealthStyles suggests that investors may invest whenever the market
falls by a certain percentage as this may bring higher opportunities for
better returns over a long-term period.
“Buy on Dips” examples
WealthStyles made reference to the performance of the Emerging European
market index over the past decade (1996-2006) and set the strategy of
investing whenever the index falls more than 5% in a single month.
During this period there were twenty-five opportunities which met the
investment strategy requirements, and for an investment period of one
year, an investor could potentially gain an average return of 18.3%.
Buy on Every 5% price drop and hold for 1 year :
 Average
return: 18,3%
Maximum return: 112,3%
Worst return: - 45,9%
Under the same
investment strategy, if we extend the investment period to three years,
then the investor could potentially gain an average return of 81.3%
Buy on Every 5% Price Drop and Hold for 3 years
Average
return: 81,3%
Maximum return: 299,1%
Worst return: - 17,8%
Though the
above results are highly positive, investors should be reminded that
past performance figures are not indicative of future performance.
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The Chinese saying “to save is to have” has been a popular maxim since
ancient times. Behind this lies the idea that everyone has the
possibility of a comfortable life if they are careful – and save.
Previously, being well-off involved having enough food to eat and
clothes to wear. Today, it equated to achieving financial freedom.
Financial planning guides your way
Financial freedom means not having to worry about your future needs. It
means being prepared for all those important events in life, such as
getting married, buying a house, having a baby, your children’s
education, your own self-development, and providing for your retirement.
And these may just be the basics. Financial planning allows you to
capitalize on your resources in order to reach your financial goals
within a given timeframe in a way that suits your own investment style.
From financial health to wealth
Once your basic needs have been met, you naturally start to think about
improving your current living standards. To do this, top wealth
management is crucial. The main difference between wealth management and
financial planning lies in what you wish to achieve. While financial
planning gives you a life free from worry, wealth management can boost
your living standard by building your wealth.
Do you need wealth management?
Yes of course. No one would like to see his living standard deteriorate.
Wealth management helps you grow your wealth and improve financial
fitness for a better life in the future.
Multi-purpose financial tools
Financial tools can be used for different purposes in wealth management,
with funds and insurance plans playing a central role. In general, funds
provide wealth accumulation and growth, guaranteed funds offer asset
preservation, while investment-linked insurance plans combine both
utilization and transfer.
Comprehensive wealth management
Wealth management encompasses
Accumulation: During your working life, part of your income will finance
your daily expenses, while the remainder should be saved for the future.
The most common method is to put this money into a savings account.
Enhancement: There are numerous ways of savings. In addition to bank
deposits, you should incorporate other wealth-management tools into your
portfolio to combat inflation and to attain your financial goals
quickly. Some regular investment plans cover both wealth accumulation
and enhancement.
Preservation: After building up your capital, you need to allocate it
appropriately. This will depend on your stage of life and next financial
goal. Allocating part of your wealth to more conservative investment
vehicles protects you in the long term, with guaranteed funds a popular
choice in recent years.
Utilization: Live as a master of money, not a slave! Using your wealth
efficiently enables you to improve your standard of living and maintain
your wealth at the same time. Annuity plans are often the solution.
Transfer: Comprehensive wealth management takes care of family members
and the future generation. A trust or estate is normally set up to
address these needs.
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