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Submitted by: Vancouver Financial

Theres an old saying in golf that says, its not how good your best shots are That matters, its how bad your worst shots are. The point is that you can make great shots, but if your bad shots are too bad, youll still be a bad golfer. This holds true for investing and wealth management too. You can make 10-15% per year, but if you lose 50% in one year, all those gains are for nothing.

Therefore, wealth management is first and foremost about protecting assets. Wealthy people dont need to make 15% per year, they just need to make 5% or so per year and know that they wont lose 50% one year. Its only those without assets who attempt to make outsized gains in order to accumulate wealth. As always, high rewards require high risk. This is a trap which keeps many investors poor their whole life, much like gamblers hoping for that one big score.

Instead, easy does it wins the day. Even if starting with a small amount of money, if you have time, you can turn that money into a sizeable nest egg over time. I work in Vancouver, and in Vancouver wealth management includes real estate, since its such a large portion of peoples portfolios. Often, its too much and I advise clients to diversify better, to reduce the risk of their real estate losing value. Far too many people believe real estate can never go down, this kind of blind faith will always cost you, sooner or later.

While working with wealthy people, I soon found that most of them prefer to invest in income producing products such as bonds and GICs. This is again, due to their sizeable assets which can earn a good return, even at 4-5%, and with very little risk. When you have much, your main concern is keeping it, not doubling it.

All investors should consider balancing their assets among 3 or 4 asset classes equally instead of one or two classes, as too many do. For some people, this is a strange concept, due to being told their home will always be their largest asset, so they mistakenly believe it SHOULD BE their largest asset. This is false, and in fact, the truly wealthy never have a home as their largest asset, or even 2nd largest asset. There is much to learn from this simple example.

Not only this, but houses rarely qualify as what I would consider a good investment due to exorbitant interest paid on a mortgage, upkeep costs, repair costs, and taxes. Good investments dont continue to suck the investor dry years later, they turn a profit soon, and it increases as time goes on. Houses are homes, and should be viewed that way. Its unfortunate that the real estate industry in tandem with banking, and even government, has sold people on the idea that houses are good investments. They are not, and they will not make you wealthy or financially independent the way a wisely chosen portfolio of true investments will.

About the Author: Michael Yates works for Wealth Management Vancouver.

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