With careful planning, investment can grow your wealth and help to secure you and your family’s financial future. The goal is good but managing your investments effectively can be a challenge. Simply out, it requires active skill and expertise to get the most out of your money.
Along with working with a reputable financial adviser, we suggest you spend time learning about investment terminology and processes so that you can better understand how to investment your extra money or dedicated funds. There is so much to learn about – asset classes, investment structures, and general investment terms. Unfamiliar terminology can be daunting but it doesn’t have to be. When it comes to portfolio management, start with some basic definitions and ask your adviser to teach you more.
Key investment terms used in portfolio management
1. Investment mandate
This is a set of guidelines and rules used to manage your portfolio. For example, a capital preservation investment mandate will work for a portfolio that cannot risk meaningful volatility in the long term even it means accepting lower returns in the short term.
2. Risk profile
Your risk profile is based on a combination of what kinds of investments your portfolio requires, your risk tolerance, and your risk capacity. Risk tolerance is the degree of investment risk you are willing to take (your emotional ability to handle risk) while risk capacity is the degree of risk you can take (the amount of risk you can afford to take while still being able to reach your financial goals). These three factors combine to give you a risk score – this score can help determine whether you are an aggressive investor or conservative investor and will help ensure your investment portfolio is the best fit for your wealth management needs.
3. Asset allocation
This is an approach to managing the different types of investments in your portfolio – in short, your investment strategy. It involves setting parameters for different asset classes such as equities, fixed incomes, real estate, or capital. Different asset classes have different behaviour patterns and it’s important to get the right mix of assets for your specific investment situation, risk profile, and portfolio goals in order to increase the probability of success.
4. Growth assets and defensive assets
Growth assets are designed to grow your wealth. They include investments such as shares and property. They tend to carry higher levels of risk but have the potential to deliver higher returns (most often in the form of capital growth) over longer time frames. Defensive assets include investments such as cash and fixed interest. They tend to carry lower risk and, therefore, are more likely to generate lower levels of return (in the form of income) over shorter time frames.
5. Mutual fund
This is a managed portfolio of pooled stocks and bonds. A mutual fund gathers together a group of investors and invests their money in this portfolio on their behalf. Investors buy shares (or units) in the trust and the money is invested and managed by a professional portfolio manager.
Investing is an important part of structuring a complete wealth management portfolio (and setting yourself up for a secure and prosperous retirement). It can be confusing and challenging at times but, with proper planning and the backing of a team of professional investment experts, you use your investment strategy to protect and grow your wealth. Need investment help? Talk to us. We can help you structure a unique financial plan (from insurance to investment management) and match it to a portfolio that achieves your financial objectives.
Need expert investment help? Just ask our wealth management service team!
SM BLURB: Investment is an important part of a complete and satisfying financial plan. But don’t just jump straight in – learn as much as you can first.