Thursday, 14 December 2017

The FIVE KEY DECISIONS every investor needs to make

The 5 key decisions every investor needs to make:

1. The Do-It-Yourself Decision
Retail Brokers
Independent, Fee-Only Advisors
How to Select an Independent, Fee-Only Advisor
Investment Philosophy
Personal Connection and Trust

2. The Asset Allocation Decision
The Impact of Volatility on Returns
Risk and Return are Related
The Asset Allocation Decision
Cash, Bonds and Stocks
Small vs. Large Companies
Value vs. Growth Companies
Your Emotional Tolerance to Risk
Your Age

3. The Diversification Decision
Positively correlated, uncorrelated or negatively correlated.
Domestic or International Stocks
Domestic or International Bonds
Portfolio Risk and Return

4. The Active versus Passive Decision
Active Investing
Passive Investing
Cash Drag, Consistency, Costs Matter

5. The Rebalancing Decision
Rebalancing = Buy Low and Sell High, minus your emotions
Rebalancing Methods
The Benefits of Rebalancing
Rebalanced Annually
Never Rebalanced

Everyone who takes the time to address these five investment decisions can have a successful investment experience.

The elegant truth of economics is that the return on capital is exactly equal to the cost of capital.

Wealth is created when natural resources, labour, intellectual capital and financial capital combine to produce economic growth.

As an investor, you are entitled to a share of that economic growth when your financial assets are invested in and used by the global economy.

So, how can you best capture your share?

The most effective way is to deploy your capital throughout the public fixed income and equity markets ### in a broadly diversified manner designed to capture a global capital market rate of return.

With the proper time horizon and discipline you can reach your financial goals and outperform most investors with less risk.

Remember, do not focus on what you cannot control. You cannot predict the occurrence of an event like the mortgage crisis, the sovereign debt crisis or an oil spill in the Gulf of Mexico.

You can control your costs, diversify properly, establish the right asset allocation, and maintain the discipline to stay the course.

Going forward, when you see the investment predictions on the cover of the latest financial periodical, watch the talking heads make their forecasts on TV, and listen to your friends and neighbours boast about their latest great investment scheme, you will understand that they are speculating instead of investing.

You know a better way and you have the answer.


Fixed Income Asset Classes
Cash Equivalents
Short-Term U.S. Government Bonds
Short-Term Municipal Bonds
High-Quality, Short-Term Corporate Bonds
High-Quality, Short-Term Global Bonds

Equity Asset Classes
U.S. Large Stocks
U.S. Large Value Stocks
U.S. Small Stocks
U.S. Small Value Stocks
International Large Stocks
International Large Value Stocks
International Small Stocks
International Small Value Stocks
Emerging Markets Stocks (Large, Small and Value)
Real Estate Stocks (Domestic and International)

The 5 key decisions every investor needs to make:

1. The Do-It-Yourself Decision
[Should you try to invest on your own or seek help from an investment professional? And if so, which type of advisor is best?]

2. The Asset Allocation Decision
[How should you allocate your investments among stocks (equities), bonds (fixed income), and cash (money market funds)?]

3. The Diversification Decision
[Which specific asset within these broad categories should you include in your portfolio, and in what proportions?]

4. The Active versus Passive Decision
[Should you favour an actively managed approach to investing that seeks to outsmart the market, or a more passive approach that delivers market-like returns?]

5. The Rebalancing Decision
[When should you sell certain assets in your portfolio and when should you buy more?]

Each of these decisions has a significant impact on your overall investment experience.

Whether you know it or not, every day you are making these decisions.

Even if you decide to just stay the course and do nothing with your investment portfolio, you are inherently answering all of these five questions.

By learning how to make five informed investment decisions that capture the essence of investing you will never again be afraid of financial markets or uncertain about what to do with your money.

You will no longer be a speculator .. you will be an investor.

The Investment Answer
Daniel C. Goldie & Gordon S. Murray

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