Wealth Management
Wealth management is the practice of putting your savings to work so that it continues to grow over your lifetime and will also benefit your heirs. Wealth management encompasses many different areas of investing like long term investment planning and retirement planning.
If you’re new to investing, a good place to start managing your wealth is to consult your tax preparer or accountant. They may be able to provide you with financial planning services. They may also be able to refer you to somebody who can.
There are three types of professional wealth management services you can use.
1.    A full service stock broker – A good stock broker is one who understands investing and who has the integrity to settle conflicts of interest in the client’s favour. Good stock brokers can provide an effective and economical way to manage your investments. But if you are going to use a full-service broker, take the time to find a broker you can trust.
2.    A discount stock broker – A discount stock broker will simply carry out buy and sell orders for their clients, and charge lower commission rates than full-service brokers. You pay even lower commissions if you trade stocks online, instead of placing orders over the phone.
3.    Portfolio managers – A portfolio manager is someone who fully manages your wealth portfolio and has a fiduciary responsibility to make sound investment decisions on your behalf. Portfolio managers are more stringently regulated than full-service or discount brokers.
Wealth management

It’s important to know your personal objectives and circumstances as part of sound financial portfolio management

Financial portfolio management involves choosing investments for your portfolio. These selections are based on your investment objectives, risk tolerance, age and personal circumstances.

Portfolio management complements financial planning by helping you estimate how much you need to save, or the investment return you’ll need, to achieve a particular level of income at some future point and adjust your portfolio accordingly to meet this goal.

The worry-free retirement plan

This is how you make your financial plans work best, before and after retirement. Pat McKeough has poured four decades of experience into this comprehensive new report, “Wealth Management and Retirement Planning”. It’s free to download now.

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A few simple steps to financial portfolio management

Start by listing all your holdings on a single electronic file (or piece of paper), and converting their value to Canadian funds. Then you’d separate them by securities type. In particular, you’d want to group your stocks (plus equity-type holdings like REITs) in one section, and your bonds and other fixed-return investments, like GICs, in the other.

Our one-big-portfolio analysis goes a lot deeper, of course. But the balance between stocks and bonds—call it equity and debt if you prefer—is a key indicator. That’s because bonds give you higher stability than stocks in the long term, but at a cost of lower returns than stocks.

Next, you’d determine the economic sector of each of your stock holdings. Then, add up the value of each of your stocks, and the total value of all your stocks. Do that and you can determine how much representation your stocks give you in each of the five main economic sectors—Utilities, Finance, Resources & Commodities, Consumer Goods & Services, and Manufacturing & Industry. This too is crucial.

The Manufacturing and Resources sectors generally expose investors to above-average risk. Stocks in the Utilities sector generally expose you to below-average risk. So do stocks in the Canadian segment of the Finance sector, particularly the top five Canadian banks. The Consumer sector falls somewhere in the middle.

By weighing the balance among the five sectors, you can form an idea of the degree of overall risk in your portfolio.

Next you’d go on to apply our TSINetwork Ratings to each of the individual holdings in your portfolio. Our common stock ratings are Highest Quality, Above Average, Average, Extra Risk, Speculative and Start-up. You’d want to make sure that your stocks are made up predominantly of “Average” or higher-quality stocks that we currently recommend as buys.

We apply our portfolio-analysis technique much more deeply for our Successful Investor Wealth Management portfolio clients, of course. But applying just this much of it puts you far out ahead in understanding how much risk your portfolio exposes you to, and how close it comes to being right for your objectives and temperament.

Effective financial portfolio management

First, invest mainly in well-established companies. When the market goes into a lengthy downturn, these stocks generally keep paying their dividends, and they are among the first to recover when conditions improve.

Second, avoid or downplay stocks in the broker/media limelight. That limelight tends to raise investor expectations to excessive levels. When companies fail to live up to expectations, these stocks can plunge. Remember, when expectations are excessive, occasional failure to live up to them is virtually guaranteed, in the long term if not in the short.

Financial portfolio management: If you want to hold bonds, stick with short-term maturity dates

If you are reluctant to hold a 100%-stocks portfolio—and many people are—then one alternative to consider is to keep a portion of your investment funds in relatively short-term fixed-return investments, with maturity dates of a few months to no more than two to three years in the future.

These fixed-return investments will lose value when interest rates rise, but not enough to make a serious dent in their value. You can hold them till maturity, then get your money back and reinvest.

Financial portfolio management: Rising interest rates would push down the value of long-term bonds

Regardless of age, we advise all investors to stay out of long-term bonds. That’s because long-term interest rates on bonds are still bumping along near 4%, which doesn’t even cover taxes and inflation for many investors.

Heavy deficit spending by governments, coupled with the rapid expansion of the money supply that’s now underway, could cause an upturn in inflation. That would push interest rates up, and push down the value of existing bonds. Bondholders can, of course, get back the face value of their bonds by holding on to them until they mature. But by then, the bonds’ face value will have lost substantial purchasing power because of inflation.

How have you performed financial portfolio management historically? Has it worked for your investing career? Share your experience with us in the comments.

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Wealth Management Post Archives

Are you making the best investing decisions?

Are you making the best investing decisions?

Investing decisions should be well thought out and based on these sound investing strategies

It’s essential to avoid letting an investment opinion turn into a fixed idea about the future. Instead, keep an open mind. Nobody can consistently predict what stocks will do… Read More

Trading with a discount broker could actually cost you money

Trading with a discount broker could actually cost you money

Trading online through a discount broker, rather than with a full-service broker, is now the preferred option for many investors—but it has risks.

The main advantage of switching to a discount stock broker is lower commissions. And commission rates can be even cheaper if you… Read More

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Hidden risks of prepaid funerals

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Whether you’re a beginning or experienced investor, these weekly updates are designed to give you the specific investment tips and stock market advice you’ll need for 2016 and beyond. Each Investor Toolkit update gives you a fundamental piece of investment advice, and shows you how you can… Read More

New free report: 10 Stocks to Buy and Hold Forever

Most successful investors describe themselves as buy-and-hold investors. But for many, their strategy is more like buy-and-hold-till-I-get-bored. How long you hold depends on the ability to find good stocks to buy.

Rather than “buy and hold,” we prefer a “buy and watch closely” strategy. That’s… Read More

Using bonds for retirement will hurt your retirement income

Using bonds for retirement will hurt your retirement income

Using bond for retirement income has often been standard investing advice for the last 50 years—but we think it’s bad advice.

As some investors near retirement, their advisors recommend switching to bonds and other fixed-income investments for their retirement investments instead of holding stocks… Read More

3 retirement investment “strategies” to avoid

3 retirement investment “strategies” to avoid

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If you’re headed into retirement, you’ve probably read about a range of different retirement investment strategies to follow. One we’ve been asked about a number of… Read More

The odds are stacked against you when investing in IPOs

The odds are stacked against you when investing in IPOs

Investing in IPOs may seem like a quick way to make money—but studies show that the reality is quite different.

Human nature puts the odds against you when investing in IPOs or Initial Public Offerings (we also refer to them as new stock issues).

Insiders decide… Read More

New 2016 FREE Report: Your complete guide to wealth management and planning the retirement you want: Wealth Management & Retirement Planning: Canada RRSP Contribution Limit, RRSP Interest Rates, TFSA Contribution Limit and more.

New 2016 FREE Report: Your complete guide to wealth management and planning the retirement you want: Wealth Management & Retirement Planning: Canada RRSP Contribution Limit, RRSP Interest Rates, TFSA Contribution Limit and more.

Whether you look after your own investments or have someone else do if for you, this report is essential reading. We have distilled decades of time-tested investing strategies and successful wealth management experience into this comprehensive guide. It’s ready to download now… Read More