“Wealth isn’t primarily determined by investment performance, but by investor behavior" 

– Nick Murray

Murray makes an astute observation that behaviour can be the determining factor for investors hoping to grow their wealth. When it comes to portfolio management, organization is incommunicably vital for overall success. We’ve put together a shortlist of tactics you can deploy to streamline your investment behaviour and better prepare yourself for the road ahead.

Categorize Your Investments

As always, we believe in thorough, comprehensive diversification for the protective value it brings to virtually any portfolio. Whether that be through asset classes, sectors, third-party managers, geographic areas, markets, or even private and public securities, diversification should be a staple for every investor.

That being said, it can potentially lead to quite a grocery list of assets. Having them filed in different baskets will give you a better understanding of your holdings, which can inform your future actions.

One way to look at it is through what we like to call the three L’s:

A graphical representation of the three L's of investing; label, liquidity, and longevitity.

  • Label: at its most basic level, dividing your investments requires distinguishing between different asset classes and grouping them appropriately. This can also be extended to sectors, managers, and the other characteristics listed previously.
    • Different forms of income have different tax implications. Visualizing your portfolio in such a way can help you with tax-efficient investing.
  • Liquidity: it is important to know how accessible your capital is in terms of cash or cash equivalents. Chequing accounts, cash, or investments that can be reliably sold for cash would rank higher on this list compared to a rare piece of art or a vintage bottle of wine.
    • By seeing which investments can provide you with a safety net (if need be), you may be more likely to look at your portfolio logically and avoid emotional, knee-jerk reactions during a downturn.
  • Longevity: investing is proven to work over the long-term, but short-term slumps can be discouraging for investors. Understanding which investments are intended to mature over the course of a few decades for your retirement should be treated differently than securities you intend to part with over the course of the next year.
    • Realizing how each investment will serve you over the course of your life will not only help you create a financial plan but, more importantly, stick with it.

Declutter and Structure Your Portfolio

As it pertains to the first L, once you’ve segregated your holdings and assigned them to their respective buckets, you can look at how your portfolio itself is structured. As previously noted, it’s important to recognize where your portfolio is being impacted by taxes—even 1% of your earnings can significantly impact what you take home at the end of the day.

Certain asset classes are inherently less tax-efficient than others, but by making use of tax-advantaged accounts such as a TFSA or RRSP, these deficits can be effectively offset. As one of the few factors that you can control in regards to portfolio performance, we suggest reading our article on how to invest with tax efficiency in mind here.

Understand Time Horizons

Regarding the latter two Ls, it is important to recognize your time horizon(s). Taking a top-down approach can help you realize how different investments can help you realize your dreams and financial freedom.

Having a tangible financial goal in mind, such as a target age to retire at, can help inform the actions and resources you’ll need to achieve it. From there, setting up a comprehensive, holistic financial plan with measurables and checkpoints will allow you to realize if you’re on track or if you need to make adjustments along the way.

Your financial plan itself serves as a playbook to learn how your investments should be structured or adapted. A young professional just starting out in the working world will presumably have a higher risk tolerance than a person entering retirement. The former can afford to take on more risk (within reason, of course) or invest more aggressively for potential short-term gains, whereas the latter will presumably want a more even keel, risk-averse approach as they lack the opportunities that come with youth, employment, and plenty of runway. One may argue that the potential rewards of tech startups warrant the risks associated, while the other might prefer the reliability of fixed income. There is no “right” answer, as what is right for an investor is subjective to their individual circumstances.

Another aspect to consider is which assets you plan on holding for years to come and which ones may be shorter lived. Buying a second property to rent out and cover part of the mortgage payments could go on to be the crowning achievement of your portfolio, but it won’t happen overnight. Investments that mature over shorter periods, such as bonds, can help float you along as the more significant ones come into their own in due time.

Use Appropriate Software

History shows that early bond trading activity began sometime in the 15th century, but thankfully, the modern era has granted investors more opportunity, convenience, and accessibility. In turn, efficient investors have learned how to optimize their day-to-day, ranging from trading activity to recordkeeping.

There is plenty of flashy software out there for people to make use of, but in consideration of accessibility and capability for the average person, Microsoft Excel continues to be worthy of consideration.

At its most rudimentary level, it can be used to create spreadsheets to log your holdings and all information you find relevant. Company names, exchange tickers, shares owned, purchase price, target exit price, and the like. That last example can double as a commitment to stand by your plan by holding you accountable for the sale price you originally had in mind. Discipline, as always, delivers results.

The application is well-named; it excels at almost anything you can ask of it. Once you’ve familiarized yourself with the basics, you can create much more complex documents and procedures to further enhance your organizational skills. Even with our impressive lineup of cutting-edge programs used as a wealth management firm, Excel still finds a place in our day-to-day operations thanks to its customizability.  

Find a Professional

The three Ls make for a serviceable starting point for how you can become a more efficient, organized investor, but they really are just that: a starting point. There are countless more advanced techniques that are used daily by our Family Wealth Advisors and Portfolio Managers to effectively handle thousands of client portfolios daily. For us, there is no choice but to continue improving and streamlining our processes and procedures to better serve the people who entrust us as discretionary managers with fiduciary responsibilities.

Every day is another chance for us to be better than the previous one, and every day is an opportunity for you to change your financial situation by booking a free portfolio review.

Free portfolio review

© Bellwether Investment Management Inc. 2024. This communication is intended for residents of the provinces in which we are registered and is not meant to be a solicitation to any persons not resident in those provinces. Any opinions expressed in this article are just that, and are not guarantees of any future performance or returns. Some of the information contained in this article has been drawn from sources believed to be reliable but due to the fact that it is provided by a third party, it cannot be guaranteed to be accurate or complete. Bellwether Investment Management Inc., Bellwether Estate and Insurance Services Inc. and Bellwether Family Wealth cannot provide tax advice and therefore we recommend that you consult your tax advisor for further assistance with your tax planning and the preparation of your tax return. The report is prepared for general informational purposes only and the securities mentioned in this report should not be construed as a recommendation for any specific securities.

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