Fundamentals of Wealth Management - The Complete Lesson

Published on 7 May 2012
The complete lesson.

Dow Wealth Management offers the services of a world-class investment firm dedicated to improving clients' financial lives and making their futures more secure. As an independent firm, Dow Wealth Management provides objective advice and is committed to excellence for its clients. The Dow family has been investing traditionally in the securities markets since 1937.

Before attempting to structure a portfolio that might be capable of delivering long-term investment success, we must first understand the nature of the financial markets in which we will operate and the inherent limitations we are sure to confront as investors.

This video, Fundamentals in Wealth Management, will help to acquaint the investor with these dynamics and then illustrate how Dow Wealth Management seeks to position its clients' portfolios for long-term investment success. We could call it "How to survive bad markets...and thrive in good ones."



@6.08 The 3 issues addressed in this video.

1. The Life Cycle of Family Wealth: Accumulation, Preservation and Growth of Mature Wealth. Wealth preservation and growth became more important than wealth accumulation.
2. Defining the Investment Problem: The Dow Wealth Management Analysis
3. The Dow Wealth Management Approach

Asset Allocation: Invest wisely to get your money's worth

Invest wisely to get your money’s worth

Comment     Mail to friend ET Bureau; Prashant Mahesh & Nikhil Walavalkar In the uncertain world of finance, we know that systematic investment and sticking to your asset allocation hold the key to success. But wealth management experts use asset allocation strategies not only to create wealth, but also to protect it during volatile times.  It is not the maximisation of returns, but optimisation of returns that becomes the goal of money managers. Asset allocation strategy has to be reviewed continuously.  This process plays a key role in determining the risk and return from your portfolio. Broadly speaking, the portfolio’s asset mix should reflect your risk taking capacities and goals. Wealth managers use different strategies of building asset allocations and we outline some of them and examine their basic management approaches.

Strategic Asset Allocation

Comment     Mail to friend Strategic allocation is typically the first stage in the investment process. Based on the investor’s long-term objectives, an initial portfolio is build. It is the backbone of any investment strategy. This often forms the basic framework of an investor’s portfolio. This is a proportional combination of assets based on expected rates of return for each asset class. For example, if stocks have historically given a return of 12% per year and bonds have returned 6% per year, a mix of 50% stocks and 50% bonds would be expected to return 9% per year. Strategic asset allocation generally implies a buy-and-hold strategy. “Strategic asset allocation defines the boundary of risk, and it is these boundaries that help control portfolio risk,” said AV Srikanth, executive director, Anand Rathi Wealth Managers.

Constant-Weighting Asset Allocation

Comment     Mail to friend Strategic asset allocation has its drawbacks as it entails a buy-and-hold strategy even if a change in the value of assets causes a drift from the initially established policy mix. This has driven the wealth managers to resort to the constant weighting asset allocation. This strategy helps you to continuously rebalance your portfolio. For example, if gold was declining in value, you would purchase more of it to maintain its weightage and if its value increased you would sell it. There are no hard-and-fast rules for the timing of portfolio rebalancing under strategic or constant-weighting asset allocation. Most wealth managers are of the opinion that the portfolio should be rebalanced to its original mix when any asset class moves more than 5-7% from its original value.

Tactical Asset Allocation

Comment     Mail to friend Over the long run, a strategic asset allocation strategy may seem relatively rigid. There are investors who constantly want to seek returns out of market opportunities that arise.  Hence, investment managers find it necessary to go in for short term tactical calls. Such tactical calls create room for capitalisng on unusual or exceptional investment opportunities. This is like timing the market to participate in the fluctuations and volatility that arise due to market conditions. “While a strategic asset allocation is revisited once in six months, tactical asset allocations are visited every month,” said Hrishikesh Parandekar, CEO, Karvy Private Wealth. Tactical calls are on an ongoing basis. For example, shifting a part of the portfolio from large cap stocks to mid cap stocks to take advantage of the environment is a tactical call.  “We restrict our tactical calls around 10% of the total portfolio and rest of the money is strictly governed by strategic allocation,” said a wealth advisor with a foreign wealth manager. Tactical allocations being opportunistic in nature, wealth managers prefer to maintain clear time-based and value-based entry and exit points to ensure better risk management.

Guided and optimised allocation

Comment     Mail to friend This can be seen as the advanced version of tactical asset allocation. When tactical asset allocation aims to take advantage of temporary situations in the market, the concept of guided and optimised allocation believes in squeezing the last drop out at all times. By very nature, it is meant for a bit aggressive investor. Here 75% of the clients’ portfolio could follow the original asset allocation, while 25% of the portfolio will explore opportunities where there could be chances of making higher return. So, investing in gold futures for a quick buck, or short-term corporate deposits offering higher rate of interest and such other opportunities remains on investors’ lookout. Here you must continuously stay tuned with the financial markets. The strategy further demands you to take into account transaction costs as the investors turn hyper active in search of higher returns

Dynamic Asset Allocation

Comment     Mail to friend For aggressive investors who want to ride momentum at times, managers recommend dynamic asset allocation. So, if the stock market is showing weakness, you sell anticipating a further fall. If it is going up, you buy anticipating a further rise.  Here you constantly adjust the mix of assets as markets rise and fall. This is the opposite of constant-weighting strategy. As the entire portfolio is available for action, amateur investors may turn hyper active. Especially in the high volatile times, acting on all types of information can lead to high transaction costs. Also, the tax treatment of the returns turns to disadvantages if you churn your portfolio too much. In times of high volatility, when the markets may not move up or down much, dynamic asset allocation is not advisable for naैंve investors. Depending on the type of investor you are, asset allocation could be active or passive. However investors should choose one keeping in mind their age, long term goals and risk taking capacity in mind.

http://economictimes.indiatimes.com/quickiearticleshow/5951589.cms

Wealth Maximising Strategies for your Portfolio

Buy only GREAT (good quality) stock.

Buy at a bargain price, when the upside reward/downside risk ratio is highest. Be patient.

Sell the losers.  Stay with the winners.

Sell the losers early.  Reinvest into GREAT stocks.

Sell the under-performers early.  Reinvest into GREAT stocks.

# Sell the overpriced stocks to lock in the 'transient bubbling' gains (PE > 1.5x Signature PE).  Reinvest into GREAT stocks.

Reinvest and Stay with the GREAT winners for the long term.

Stay concentrated.  Do not overdiversify. Invest big.

? Tactical Asset Allocation when the market is OBVIOUSLY too expensive or too cheap.  (Difficult strategy to apply consistently).


# Warren Buffett's investment in PetroChina



Also read:

Growing at 15% a year - what does this entail?

Secrets of the ultra wealthy

2008/06/28

Business: Secrets of the ultra wealthy


MOST of personal finance books share the methods and approaches that you can use to manage wealth of average person.

If you happen to own more than average wealth or have more complex needs, you may not find all your answers in those books.

The book, Family Office: The Super Rich's Secret to Wealth Maximisation, shares with you the wealth management approach (Family Office) that was once the exclusive domain of ultra wealthy individuals and families in the world.

Family office is a physical office that is set up to manage the financial affairs of one family or more.

If the family office operates on a larger scale and caters for extremely wealthy families, it may be staffed by accountants, lawyers, investment advisers, bookkeepers, tax specialists, real estate specialists and even art curators.

John D. Rockefeller, Bill Gates, Michael Dell and many other super-rich have a dedicated family office to manage their personal wealth.

As a trusted adviser to some of Malaysia's richest entrepreneurs and chief executive officer for more than 10 years, Yap Ming Hui is a right person to write this book. He is the founder and managing director of Whitman Independent Advisors Sdn Bhd, a boutique firm that provides financial advisory services to high-net worth individuals and families in Malaysia.

Yap has had columns in the newspapers and has also written several books, including You Can't Manage Your Money ... Especially When You're Rich, Maximise What You've Got ... No Matter How Much You Have Now and MaxWealth: How To Maximise Your Wealth Beyond Investment Returns.

As the first book in Malaysia on the subject of family office, the book covers almost everything you need to know on the subject.

In addition to concepts and theories, this book also shares real-life examples of how different families in West have used family office to preserve and maximise their wealth for generations.

This book provides a good introduction to family office for those who are new to the concept. Readers will find it easy to relate as the author has used many Malaysian or Asian real life stories to illustrate his points.

This book is different from most personal finance book that teaches you how to make money and create wealth. It focuses on how to preserve and maximise the wealth that you have created.

Therefore, this book is a must-read for those who have worked hard to accumulate their wealth. Many wealthy families in Malaysia and Asia will be able to break the curse of "wealth doesn't last three generations" if they were to read and apply the ideas in the book.

Family Office is priced at RM49.90 and is available at all major bookstores.

http://www.nst.com.my/Current_News/NST/Sunday/Focus/2278689/Article