Many people are overwhelmed by the amount of financial investment options available to them. Although they themselves are interested in personally investing, many seek the assistance of a financial planner. Investment management training covers topics such as asset allocation, equity, bond and alternative investment. As investors grow older, there will be a general increase in risk aversion, leading to a greater segment of safer asset classes. The value of a portfolio constrains clients’ choices at later stages, due to the fact that trading individual securities creates costs. These expenses include brokerage costs, bid-ask spreads and price impact. Some financial experts believe that it does not pay to actively manage a portfolio, and instead it is far better to invest in funds.

The larger the portfolio, the more asset choices become available. Some components of trading costs such as brokerage costs and the spread may get smaller as the portfolio size increases. If a portfolio becomes too large, it can start creating a price impact, which in turn can cause trading costs to rise. The objective of asset allocation is to create a portfolio that takes advantage of \’forecasted\’ market movements, up or down. A common investing strategy is to shift from overvalued asset classes to undervalued asset classes if the market is expected to go up, and vice versa if the market is expected to go down. If you can forecast market movements, the rewards on your investment are immense.

During investment management training, you will discover that bond funds are attractive for safety, income, or as a diversification tool. The price of a bond often changes throughout the trading day. Most of the time, a government bond’s price movements over a day, week, or month are much smaller than the price change of a stock category or index. The face value of a bond is only promised or guaranteed if the bond is held until maturity. Although rarely mentioned, how a bond’s interest payments are reinvested will have a big impact on its annualized returns.

Those with a financial planning education are aware that annualized returns can be misleading. There is often a big difference between an investment’s annualized returns and what it experiences on a year-by-year basis. Annualized returns for long-term government bonds from 2001-2010 were 6.6%; the closest annual return was in 2005, when 20-year bonds returned 7.8% (an 18% difference); the biggest gap was in 2008, when bonds had a total return of 25.9% (a 292% difference). In the case of medium-term government bonds, annualized returns were 5.6% with the closest year being 2010, when 5-year bonds had a total return of 7.1% (a 27% difference). The biggest gap was in 2008, when 5-year bonds had a total return of 13.1% (a 134% difference).

The main goal of asset allocation is to obtain the highest possible returns with an acceptable risk level. One cannot say that a portfolio should or should not include stocks, bonds, or any other asset class until the investor’s risk level and time horizon are known. Advisors who have completed a financial planning education are able to make the most well informed investment decisions for their individual investing clients, no matter what the client’s portfolio size is.

Cory Bowman is Director of Ops at the Institute of Business Finance. IBF has helped thousands of members of the financial services industry attain designations. For more information about financial planning education, investment management training, visit http://www.icfs.com

Cory Bowman is Director of Ops at the Institute of Business Finance. IBF has helped thousands of members of the financial services industry attain designations. For more information about financial planning education, investment management training, visit http://www.icfs.com

Author Bio: Cory Bowman is Director of Ops at the Institute of Business Finance. IBF has helped thousands of members of the financial services industry attain designations. For more information about financial planning education, investment management training, visit http://www.icfs.com

Category: Finances
Keywords: financial planning education,investment management training