Personal wealth management will be a lot easier with this advice

If there is one piece of personal wealth management advice you should immediately implement, it’s to have a disciplined plan for saving during your working years. This, above all things, can set you up for optimal investment gains.

Many of our wealth management clients live off their investments. From time to time, they need to sell some of their holdings to supplement their dividend income. But rather than trying to predict price changes or spot highs and lows, we focus on tailoring the client’s portfolio to his or her circumstances and temperament.

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Our three-part portfolio management strategy helps cut risk—and holds the potential for strong returns in your personal wealth management

We think it’s more cost-effective to seek safety by following our three-part portfolio management philosophy.

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.

Third, spread your money out across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; Consumer; Finance; and Utilities). This helps you avoid excess exposure to any one segment of the market that is headed for trouble. This will also dampen your portfolio’s volatility in the long term, without the shrivelling in its potential that you’d get if you invest significantly in bonds yielding little more than 4%.

5 easy investment tips for better long-term returns from personal wealth management

Be skeptical. No matter how attractive they may seem, always take a skeptical approach to investment products that add an extra percentage point or more to your yearly costs. Make sure the expense is worth it.

Understand compounding, It’s how your personal wealth grows. Compound interest is earning interest on interest. Over time, your long term investments will earn more and more money from the effects of compound interest. Compound interest is what makes investing a worthwhile pursuit.

Compound interest is applied to dividend-paying equity investments like stocks, as well as to fixed-return, interest-paying investments like bonds. When you earn a return on past investment returns (including dividends), the value of your investment can multiply. Instead of rising at a steady rate, the number of dollars in your portfolio will grow at an accelerating rate.

It’s very important to keep an eye on investments or expense fees that affect the amount of interest you earn. Even 1% a year can be huge drain on your portfolio.

Seek dividends in your investments. If you’re new to investing, one tip we share often is to invest in companies that have been paying a dividend for 5 or more years. Dividends are typically cash payouts that serve as a way for companies to share the wealth they’ve accumulated. These payouts are drawn from earnings and cash flow and paid to the shareholders of the company. Typically these dividends are paid quarterly, although they may be paid annually or even monthly as well. Canadian citizens who own shares in Canadian stocks that pay dividends will also benefit from a special tax break they may be eligible to receive.

Don’t take advice that comes from advisors or institutions that sell insurance or other fee-heavy investment/financial products. The financial software they use just naturally spits out investment plans that involve the kind of sometimes-hidden costs in point 1.

Only buy bonds or other fixed-return investments if interest rates are high enough to be attractive. Don’t buy bonds just to “cut your risk.” Adding bonds to the mix will simply cut the volatility of your portfolio value in any given year. But it does so at the cost of increasing your risk of loss to inflation.

Personal wealth management: Using an RRSP in your retirement investment planning

RRSPs (Registered Retirement Savings Plans) are a great way for investors to cut their tax bills and make more money from their retirement investing. RRSPs are a form of tax-deferred savings plan. RRSP contributions are tax deductible, and the investments grow tax-free. (Note that you can currently contribute up to 18% of your earned income from the previous year. March 1 is generally the last day you can contribute to an RRSP and deduct your contribution from your previous year’s income.

When you later begin withdrawing the funds from your RRSP, they are taxed as ordinary income.

If you want to pay less tax while you’re still working, investing in an RRSP is the way to go.

Is do-it-yourself personal wealth management right for you?

A do-it-yourself approach to investing can sometimes be more than overwhelming—it can cost you money.

We believe our wealth management services will pay for themselves many times over in higher profit and lower risk. You’ll also enjoy the comfort of knowing you have a professional investment manager working for you who has decades of experience…and an exceptional team of in-house experts.

Is personal wealth management a desire of yours? Are you already set with a diversified portfolio you feel confident with? Share your story with us in the comments.