My Notes on “How to Invest” Digital Investing Guide by Julius Baer Private Bank
~ Friday, January 20, 2023 Blog Post ~
Yesterday, Thursday, January 19, 2023, I had the time to peruse the new digital investing guide by Swiss private bank Julius Baer titled, “How to Invest.” I started reading the educational reference material before my scheduled afternoon appointment with my dentist.
“How to Invest” has five chapters which I found “snackable” as their contents are easy to read. In fact, I was able to finish reading the new digital investing guide for five hours yesterday, which are before and after my dental appointment.
Moreover, the writer of the informative investment guide mentioned some of Julius Baer’s professional investment advisory offerings, such as Strategic Asset Allocation and Tactical Asset Allocation.
It is my habit to write down in my physical journal insights I find salient and enriching from the educational reference materials I peruse. Hence, I want to share my notes I gathered from “How to Invest” here in my blog to keep myself reminded.
Julius Baer — Wealth Matters — How to Invest
1. Welcome to your financial future.
2. Investing is essential to securing your and your family’s future.
3. first-time investor vs. skilled stock picker
4. empowered to make the best decisions both today and in the future
CHAPTER 1 — THEORY — HOW INVESTING WORKS
1. Having a solid financial base helps us get what we want out of life.
2. Even those investors who are already active are often unsure of the most appropriate strategy to manage their portfolio as it evolves over time.
3. Clear thinking and sound judgment are difficult due to the endless drip of information, recommendations, and conflicting opinions.
4. have a knowledge of the underlying theory and an investment strategy
5. Properly guided investors will not just react to one short-term event after another, resulting in a coordinated and organized portfolio fit for purpose.
6. Luckily, a far better approach exists and it starts with you and your goals.
7. Having clear, specific goals gives you the best chance of picking an investment strategy that matches your needs.
8. Investing with goals is like navigating with a compass.
9. Investment goals recognize or reflect one’s individual circumstances, age, and family situation: Capital growth, stability, personal attitude towards deadlines (like paying a mortgage, selling a business, or transferring wealth to the next generation), etc.
10. Long-term investing works best. Long-term investors benefit from the snowball-like effect of compound interest.
11. “Money makes money and the money that money makes, makes money” — Benjamin Franklin
12. Investment returns reflect the risks you take.
(a) Take too little risk, and you might be disappointed with your return;
(b) Take too much, and you could lose more than you are prepared to tolerate.
13. An investment advisor has to translate the client’s goals into an investment strategy and ultimately into the optimal portfolio to meet the latter‘s needs.
14. A portfolio sits on the client’s “efficient frontier” when it strikes a balance between risk and return. This idea’s theoretical foundation, which is an important pillar of Julius Baer’s approach, was first articulated in 1952 by modern portfolio theory founder Harry Markowitz.
CHAPTER 2 — STRATEGY — FINDING THE RIGHT INVESTMENT APPROACH
- There are some universal truths that should be heeded by all investors, although there are many different strategies to choose from.
- Investing steps
(a) Having investment goals;
(b) Choosing an appropriate investment strategy;
(c) Finding one’s own optimal portfolio:
> Allocating assets;
> Building in suitable diversification and risk tolerance; and
> Maintenance of the investment portfolio as asset prices start to move.
3. It is vital that an investor understands what he is doing and why he is doing it, whatever investment strategy he chooses, whether he is using a professional investment advisor or not.
4. Any serious investment approach should be thorough and followed consistently.
5. Contrarian strategies — > Swimming against the tide; appealing for those who believe they have an edge over others, perhaps because of better information or a smarter take on events.
6. THE BEST INVESTMENT STRATEGY:
(a) Remaining fully invested for the duration of one’s investment horizon or the length of time he expects to hold an investment portfolio; and
(b) Owning a portfolio of assets likely to benefit from long-term structural trends.
7. Economic and political drivers most likely to influence the long-term center of gravity:
(a) Economic growth
(b) Inflation
(c) Interest rates
(d) Significant geopolitical shifts
(e) Advances in technology
8. The world is constantly forming and reforming. This creative destruction process means that THE PAST IS NOT A RELIABLE GUIDE TO THE FUTURE.
9. Theoretically, asset price volatility and returns eventually revert to their long-term mean. This event can take much longer than most investors can afford to wait.
10. Long-term trends are likely to affect different asset classes’ prices, such as commodities, equities, or funds.
11. The potential correlations between and within asset classes are often in flux and vary according to prevailing market conditions.
12. A PROFESSIONAL INVESTMENT ADVISOR:
A) Can be of great benefit in understanding these dynamics and navigating the potentially complex territory.
B) Tests how various asset classes might react in a range of scenarios.
C) Sets portfolio parameters for the portfolio and picks the investment holdings most likely to benefit from major trends.
Portfolio parameters or Strategic Asset Allocation form the backbone of a client’s portfolio.
D) Uses quantitative techniques before the investment strategy is finalized to test how the portfolio performs against the investment goals.
E) Asks if prevailing market conditions are broadly in line with the long-term investment outlook. Wars, recessions, and economic crises may disrupt even the most established long-term trends.
F) Puts short-term market conditions into one of four market regimes or categories:
[1] Economic expansion (Growth);
[2] Economic contraction (Recession);
[3] Systemic financial shocks (Example: Greek debt crisis); or
[4] Geopolitical shock (Example: 9/11)
13. Tactical Asset Allocation
14. Some investors may want more exposure to investments aligned with:
a] Their personal values;
b] A particular geographic region; or
c] Investment scheme, such as the ageing population or opportunities in the biotechnology sector
CHAPTER 3 — BUILDING BLOCKS — THE COMPONENTS OF AN INVESTMENT PORTFOLIO
- the main types of investments that can make up a portfolio
- Understanding what each of the main investment types involve can help an investor decide whether it suits his investment approach and the level of risk he is willing and able to accept.
- An investment portfolio’s ideal composition depends on an investor’s risk/return profile and financial goals.
- Regular reviews and adjustments of an investor’s portfolio are recommended whatever his investment intentions are to ensure he stays on track to meet his financial goals and return expectations.
MAIN TYPES OF INVESTMENTS:
- MONEY MARKETS
2. FOREIGN CURRENCY
3. FIXED INCOME
4. EQUITIES
5. COMMODITIES
6. HEDGE FUNDS
7. PRIVATE EQUITY
8. FUNDS
CHAPTER 4 — MECHANICS — WHAT ARE THE TWO MAIN STAGES OF INVESTING?
- Ensure that the asset classes an investor invests in are appropriate given his risk profile.
- Consider whether the expected return will be sufficient to reach the investor’s long-term goals.
- ASSET ALLOCATION:
a) Is what makes a portfolio worth more than the sum of its parts.
b) Accounts for a significant proportion of overall investment returns.
c) Is part-art, part-science and ensures that the various elements of a portfolio complement one another to optimize its risk-adjusted return.
4. 2 ASPECTS OF ASSET ALLOCATION
A) DIVERSIFICATION — Putting one’s eggs in several baskets
B) CORRELATION — Considering how the prices of different investments and asset classes respond in various scenarios
5. Example: Diversify an equity portfolio by spreading one’s overall exposure to equities over several industry segments, regions, and investment styles.
If one region, segment, or investment style weakens, portfolio performance will be affected to a much lesser extent than if only one region is owned. Both the risk taken and the overall return’s volatility are reduced.
6. REBALANCING AN INVESTMENT PORTFOLIO
a) Selling assets in an overweight segment and using the cash proceeds to top up underweight segments; or
b) Leaving the existing investments as they are and injecting additional cash into the portfolio by making a further investment.
The new cash is then used to level up the weights by buying assets in underweight segments.
7. Low-risk investors are willing and able to take only small risks, resulting in almost no capital losses, with low-value fluctuations of investments. A fixed-income portfolio may be suitable.
CHAPTER 5 — CONSIDERATION — WHAT ARE THE COMMON QUESTIONS INVESTORS ASK?
- Checking one’s portfolio once a quarter is enough. Paying too much attention to short-term volatility can easily cause an investor to lose sight of his long-term goals.
- If an investor chooses a DISCRETIONARY MANDATE, his portfolio manager will be responsible for his portfolio’s everyday management and will rebalance it on his behalf
- Rebalancing one’s portfolio once a year is a good rule of thumb in normal market conditions. But if an investor’s personal circumstances change, his portfolio will need to be rebalanced more often.
- A relationship manager advises an investor and stays by his side.
- Some investors find it helpful to automate their decisions and schedule a routine annual meeting with their relationship manager.
- Invest at regular intervals over the course of one’s life, so his cost price will be averaged over time.
- Timing the market rarely works for long-term investors.
- Lower entry price’s benefit could be easily outweighed by waiting’s opportunity cost.
- Remain fully invested in a market crash to benefit when the market rebounds.
- Accepting a degree of RISK and VOLATILITY is at the heart of any successful investment strategy.
- Impose rules and parameters on oneself to be protected from the instincts of greed, over-investing, and complacency.
- Set limits on how much to invest and when to do it.
- Have the discipline to stick to one’s investment strategy that provides a vital framework to manage one’s emotions.
- INVESTOR’S OBJECTIVE: To get the maximum possible return without exceeding one’s personal risk appetite.
> Remain fully invested across a range of asset classes, maintaining a cash weight of approximately 5 percent for liquidity needs and to take advantage of new investment opportunities.
15. The correct amount of money to invest is whatever is necessary to achieve one’s investment objectives. Invest at least enough to hit one’s target return by the end of one’s time horizon.
16. is a matter of opinion
17. Investors tend to overestimate short-term change and underestimate the power of long-term trends. They get carried away by this year’s hype and fail to notice the slow-moving forces reshaping the world.
18. Hype is often highly speculative and best ignored by serious investors.
19. Long-term trends should form a portfolio’s backbone. But not all new themes can be considered equal and being selective is vital.
The “How to Invest” digital investing guide also features a glossary. I read 20 investing terminologies this section of the reference material includes. They are:
- Bid-ask spread
- Compound interest
- Contrarian investing
- Correlation
- Coupon
- Diversification
- Efficient frontier
- ESG investing
- Investment strategy
- Market timing
- Mean reversion
- Portfolio
- Rebalancing
- Risk profile
- Secular outlook
- Security
- Strategic asset allocation
- Tactical asset allocation
- Target allocation
- Volatility
These technical investing jargon or terminologies’ definitions can be found here.
