The team begins the podcast by discussing why diversification is so important. A diversified portfolio constructed by an investment professional typically starts with an objective. This objective is a return number required to achieve the objective for the portfolio. The return number is broken down into asset class returns that are projected using long-term capital market assumptions. An asset class is a group of financial instruments that exhibits similar financial characteristics. Stocks, bonds, and cash are the three basic asset classes. Diversification comes from utilizing different asset classes in different proportions in order to manage the risk of the portfolio as well as the return.
Active vs Passive
You have to be careful with active funds, many will send out marketing material that cherry pick time periods to show great returns. Once you dive deeper and see the cost, as well as how they have performed against other benchmarks, they aren’t doing as well as they try to make you think.
Bias in Investing
We naturally have inherited biases in investing. Often, our bias is based off how we feel. Two common biases are recency and overconfidence. Those who handle their own investments typically make changes to their portfolio based on underlying biases they might have. There is technology Wiser Wealth Management uses when investing, in order to eliminate bias. This ensures the plan for the portfolio is followed.
4 ETFs Your Portfolio Needs:
United States: Vanguard Total Stock Market Index Fund (VTI)
Worldwide: Financial Times Stock Exchange Index (FTSE)
Real Estate: iShares Global REIT
Bonds: Vanguard Total Bond Market Index Fund (BND)
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