The core of the holistic planning process is always you. The topics can be generally categorized into two pieces, investment management, and wealth management.
Investment management is often associated with wealth management; However, they may mean very different things. Investment is an important part in your financial plan, but it is not the entire picture. The holistic planning process is an organized approach of understanding and coordinating all aspects of your life with your financial plan. It will allow you to have a better understanding of your current financial
situation, goals and objectives, and the process on how to achieve these goals. Under investment management, risk and return analysis are two of the most important factors that needs to be taken into consideration. In addition, your investment choices will be made base on personalized factors, and allocated into different sectors and products.
Asset allocation is an investment operation that aim to balance risk and return by adjusting the percentage of different assets in an investment portfolio. The placement is carried out according to your risk tolerance, goals and investment time horizon. It is an effective way to help you manage risk in the investment portfolio.
The most common types of investment asset classes, are cash, fixed income and equity securities. Each asset class has different levels of risk and return characteristics, and the detailed asset allocation percentages will be personalized based on individual cases. In addition, there are alternative investments for individuals who prefer a particular non-traditional asset class.
The fund manager will find appropriate investment opportunities through analysis on macro economic events and multi-factored stock selections, in order to help the investors to find asset allocation that best suits the risk tolerance level and time horizon.
Risk management is the process of identification, analysis and acceptance or mitigation of uncertainty in investment decisions. It occurs more often than usually thought of in investing. Different products are exposed to different type of risks, and risk is always related to return and time horizon.
People tend to think of “risk” in predominantly negative terms. However, the risk is necessary and inseparable from the performance. A common definition of investment risk is a deviation from an expected outcome, or in other words the return. That deviation can be positive or negative, and it relates to the idea of “no pain, no gain”: to achieve higher returns, in the long run, you have to accept the more short-term risk, in the shape of volatility.
One of the most commonly used metrics to ascertain risk is standard deviation, a measure of dispersion around a central tendency. This involves in analyzing and comparing with industry benchmark to see if the selected product outperforms industry average or not. A stable outperforming product in an industry is something would be preferred during the product selection process.
Time horizon also plays an important role in the planning process, especially in risk management. Generally speaking, a shorter investment time horizon means more focus on principle protection and therefore a lower level of risk tolerance. Understanding your financial goal and the corresponding time horizon for each and every goal is therefore an essential step in the planning process.