Table of Contents

Investing #

Investing refers to committing funds to one or more assets that will be held over some future time period. Almost all of us have wealth of some kind, ranging from the value of our skills and services at work to tangible assets to monetary assets. For us, investing will mean owning a quantifiable asset in order to increase our personal wealth.

The purpose of investing is to improve our future circumstances or future lifestyle. Funds to be invested come from assets already owned, borrowed money and savings. By foregoing consumption today (spending less than we earn) and investing the savings, we expect to improve our future consumption possibilities. This anticipated future consumption may be for us, perhaps in retirement when we are less able to work, or for others, such as education for our children.

Regardless of the reasons why you invest, our aim is to provide you with the support required to manage your wealth effectively. This includes protecting your assets from inflation and taxes and helping you to manage the risks associated with investment activity.

Our approach to investing is based on “Simplifying complexity”. This requires recognition of two simple but important points. First, investing requires the trade-off of present income (consumption) for future income (consumption). Secondly, the objective of investing is to receive a future flow of funds larger than the funds originally invested. With these points in mind, our role is to assist you to achieve your optimal positions, based on your specific circumstances, considering:

  • Risk and return
  • Diversification
  • Income and growth
  • Tax
  • Time horizon
  • Liquidity

Our approach seeks to understand and appreciate where you are in your financial lifecycle (accumulation, acceleration, preservation or utilisation), what your basic investment objective is (liquidity, current income, investment growth) and the role of diversification and asset allocation in your investment plans.

Asset allocation #

There are three ways to manage money: Market timing, security selection, and asset allocation. The first two, in our view, involve too much guesswork (often pretending to be sophisticated analysis) and risk. Therefore, our approach focuses on asset allocation because we are not going to betting on the direction of the market or chasing “Today’s hot pick” – with your money.

Asset allocation is the process of deciding the broad categories of investments in which to invest then “allocating” the money in your portfolio among them. These broad categories are called asset classes. The five most common examples of asset classes are cash, bonds, local stocks, foreign stocks and real estate.

Asset allocation is a simple concept but considered vital to long-term investment success. A landmark study cited in Financial Analysts Journal indicated that about 90% of the variability of average total returns earned by balanced mutual funds and pension plans overtime was the result of asset allocation policy.

The rationale behind this approach is that different asset classes offer various potential returns and various levels of risk and the correlation coefficients may be quite low. (Correlation determines the extent to which a variable moves in the same direction as other variables. Correlation can help in making decisions concerning diversification among mutual fund categories.)

Diversification is the foundation of asset allocation. Diversification is the process of helping reduce risk by investing in several different types of individual funds or securities and works hand in hand with asset allocation.

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