Investment Management

In this lesson, you’re expected to learn about:
– the fundamentals of investing and the key steps needed develop your investment plan
– the importance of asset allocation and the different asset classes
– looking after your investments over time

Saving vs. Investing   

Quite simply, you invest to create and preserve wealth.

Saving for the deposit on a new car or next year’s holiday is different from investing to achieve a long-term goal, such as building up a retirement fund or paying school fees.

Saving generally involves putting money into a bank or money market fund* that is relatively safe and pays a fixed, although typically low rate of interest.

* Money market fund: A money market fund invests in short-term investments such as  treasury bills (issued by the government). Money market funds are relatively liquid, meaning that generally you can access your money fairly easily.
However, a savings plan may not earn you wealth enhancing returns over the long term and taking into account the impact of inflation the real purchasing power of your money will likely decline.

Investing, on the other hand, can help you to both create and preserve your wealth. By taking an appropriate level of risk you may have the opportunity to earn potentially higher long-term returns. It is important to remember that the value of investments, and the income from them, may fall or rise and investors may get back less than they invested.

Getting Started   

Becoming a successful investor requires both planning and discipline.

Planning means thinking carefully about everything you need to consider when developing your investment plan, including:

1) Defining your goals and your investment time frame.
2) Understanding asset allocation.
3) Looking after your investments over time.

Discipline means keeping market movements into perspective, recognizing the potential impact of risk and regularly rebalancing your portfolio.

It is also important to live within your means and decide how much you will set aside for investing before you start to develop your plan.

We’ll look at each of these in more detail.

Work out what you want to achieve from your investments and define your investment time frame.   

Your investment time frame provides a framework for deciding which investments to choose. People have different goals at different stages of their lives. For example, if you are retired, you may simply want to maximize the amount of income you receive. Whereas, your longer-term focus might be building financial security for you and your family.

Whatever your goals and your time frame for investing, it is important to be realistic about what you can afford to invest and how best to manage your investments.

If you are unsure of what type of investments may suit you, you might find it helpful to seek the advice of a qualified financial advisor.

Invest for the long term 

The old saying ‘time is money’ sums up precisely why it’s so important to invest for the long term.

Your financial goals may include launching a business, leaving a legacy for your heirs or supporting a charity. Whatever they may be, one of the best ways for you to reach them is to invest over a long period of time.

That’s because the effects of compounding the returns you receive from your investments over time can be significant. In fact, compounding is the engine that powers long-term investment returns. It happens as you reinvest your returns, then reinvest the returns on those returns, and so on.


Where interest is paid on both the initial investment and any interest reinvested during the period. Over time, compounding has the potential to increase gains significantly.

The chart below illustrates the power of compounding over time.

Decide if you need income, growth or both  

Investments are divided into income assets and growth assets. One of the key investment decisions you need to make during the planning stage is whether you require income, growth or a bit of both from your investments.

1) Growth assets 
These are designed to provide most of their returns in the form of capital growth over time.

2) Income assets 
These primarily provide returns in the form of income and include cash investments, bonds and certain equities. Income assets tend to provide more stable, but lower returns.

The next step to understanding the fundamentals of investing is to examine the process of spreading your money across the different types of investments in order to meet your investment objectives

Asset allocation is one of the key ingredients of a successful investment strategy. With an understanding of your investment goals, time frame and risk, you can work with your financial advisor to begin to create an asset allocation for your portfolio.

Asset allocation simply means deciding how to spread your money across the different asset classes (including equities, bonds, property and cash) and how much you want to hold in each.

It also means selecting a mix of asset classes that reflects your investment objectives, time frame and attitude to risk.

What is an Asset Class? 
A category of assets, such as equities, bonds, cash or property. Investments within an asset class have similar characteristics.

Equities: also sometimes called stocks or shares, represent ownership in a company. This ownership gives you the right to share in that company’s future financial performance

bond is a loan made to the bond’s issuer, which could be a company, a government, or some other institution.

Property: for most people, their major investment in property will be owning their own home.

Cash investments includes cash holdings in bank or building society accounts, as well as investments in money market funds.

Asset Classes
* From the perspective of the United Kingdom
Asset allocation and investor types   

Every investor will have different goals and their asset allocation will reflect this. The examples below are illustrative and highlight how different types of investors may choose to structure their investment mix:

Example 1: The wary investor 
An investor in her 30s is saving for retirement, and you might expect her to meet her goal by investing primarily in equity-based funds. But she’s wary of the stock market and inexperienced with investing, and sees that equities have suffered recent declines. She finds that she’s most comfortable with a portfolio that includes 20% equities and 80% bonds.

Example 2: The dual-income couple 
A dual-income married couple in their 40s want to build up additional savings for retirement in about 20 years. A portfolio that consists of 70% equities and 30% bonds might be appropriate. However, the husband’s job (which provides nearly half of their income) has become unstable, and they’re anxious about their economic future. So they may settle on a more conservative asset allocation of 50% equities, 40% bonds, and 10% cash.

Example 3: The recently retired couple 
A newly retired couple in their 60s first considered a portfolio of 30% equities and 70% bonds. However, they believe their retirement benefits are ample for their income needs, and they want to build a larger estate to benefit their grandchildren. So they decide on a more aggressive asset allocation – consisting of 50% equities and 50% bonds. Here, the additional risk is expected to generate higher long-term returns.

Types of Investment Management

There are a number of ways you can invest in the asset classes we’ve described, but one of the easiest is to use a professional investment management company.

Using pooled funds 
Pooled funds offer the opportunity to create a diversified portfolio. With a pooled fund, investors combine their money in a fund, which then invests in a range of securities.

Each investor shares proportionally in the fund’s investment returns including any income.

Every pooled fund has a manager who invests according to the fund’s objective. Depending on this objective, a fund may invest in equities, bonds, property, cash or a combination of these assets.

There are several different kinds of pooled funds:

1) Unit Trust 
A pooled fund established under a trust. A unit trust is an open-ended investment. This means that the manager can create or cancel units depending on public demand.

2) OEIC (Open-Ended Investment Company) 
This is a pooled investment fund similar to a unit trust, but established under company law, rather than trust law. As such, it issues shares, rather than units, but these are not traded on a stock exchange, they are issued and traded by the OEIC itself. The OEIC increases or reduces the numbers of shares issued in response to demand from buyers and sellers, which is why it’s called ‘open-ended’.

3) Investment Trust 
A closed-ended fund (a fund with a limited number of shares) established as a company, with the aim of producing returns by investing in other companies. Investment trusts trade like shares on stock exchanges and are priced and traded throughout the business day. They can be bought and sold through a stock broker.

4) Exchange Traded Funds (ETFs) 
A security, traded on a stock market like an individual share or bond. An ETF represents a basket of assets, such as the constituents of a major stock market index like the FTSE 100. As with investment trusts, ETFs are priced and traded throughout the business day, and they can be bought and sold through a broker. ETFs can be actively managed or indexed, although the vast majority of ETFs currently available are indexed.

Pooled Funds
Keep market movements in perspective

A number of factors influence your portfolio and choices of investments over time. It’s worth considering the nature of markets and how to adjust your portfolio over time, if it should become necessary.

Whatever assets you invest in, the value of these will rise and fall over time.

The assets you invest in will rise and fall over time as markets are affected by economic, social and political events. But always remember that it’s in the nature of markets to fluctuate, sometimes quite dramatically. It’s often impossible to explain market movements until long after the dust has settled.

In other words, it is important not to lose sight of your investment objective and speak to your financial advisor before deciding to change your investment approach based on today’s headlines and market moods.

You should remember the old adage that ‘it’s time in the market, not timing the market’ that counts. Timing the markets for the best time to invest – buying and selling tactically for profit – is far easier said than done.

Trying to pick the top and the bottom of the market is not easy. It’s hard to sell when everyone is buying. If you sell out at the bottom (which many investors do) you risk being out of the market when it rallies. Even professional fund managers find it difficult to consistently time the markets.

The chart below shows just how erratic the stock market can be, and shows the monthly performance of the FTSE 100 Index (the index which tracks the share prices of the UK’s 100 largest companies).
However, despite the market’s ups and downs over the 20-year period, the index averaged approximately 7.1% per year total return. This represents solid performance for investors focused on the long term.

Past performance is not a reliable indicator of future returns.The value of investments and the income from them may fall or rise and they may get back less than they invested.


You can use your understanding of investing to work with your financial advisor to develop your investment plan.

Remember that investing successfully is about knowing what you want, understanding your time frame for investing and your attitude to risk, and then making a plan to help you achieve your objectives. You should review your plan regularly and rebalance your investment portfolio when necessary.

Finally, always keep an eye on costs. The power of compounding means that you could end up with a much bigger pot of money over the longer term.

Jim Rohn Sứ mệnh khởi nghiệp