Section 1: Principles of investing

This module will enable the reader to understand the concept of a diversified portfolio and its significance for investors, including risk reduction and enhanced returns. Readers will learn about the challenges of managing diversified portfolios and how technology can aid asset allocation.

This module will also enable the reader to understand and implement the four principles for investment success:

• Setting clear and appropriate investment goals based on clients’ objectives, time horizon, risk profile and investable assets.
• Creating a suitable asset allocation using broadly diversified funds to manage risk in portfolios.
• Recognising the impact of investment costs on long-term returns and striving to minimise expenses.
• Instilling discipline and perspective in clients to remain committed to their long-term investment strategy through market fluctuations.

In addition, this module highlights the significance of diversification in creating and managing a well-rounded portfolio, encompassing five essential components: defining investment goals and constraints, establishing a sound investment plan, sub-asset allocation within classes, and the allocation to indexed or actively managed funds, alongside the importance of regular rebalancing to uphold a consistent risk profile.

 

 

On completion of this module, the reader will be able to explain the importance of a diversified portfolio and its benefits and understand how key factors like risk tolerance and correlations will help construct well-diversified portfolios aligned with investor goals. Readers completing this module will be able to recognise common mistakes in diversified portfolio construction and adopt strategies to overcome them. Knowledge of Vanguard’s proprietary models (VCMM and VAAM) will enable optimised portfolio management in different market environments.

This module will also enable the reader to guide clients in establishing measurable and attainable investment goals, tailored to their individual circumstances. They will be able to employ historical patterns of equities and bonds to determine the right balance of investments for clients’ risk tolerance and objectives. In addition, this module will enable the reader to understand the significance of investment costs and the importance of opting for lower-cost solutions to enhance potential returns and understand the necessity to encourage clients to maintain discipline and perspective during market fluctuations, adhering to their long-term investment strategy and rebalancing portfolios as needed. 

Upon completion of this module, the reader will understand the significance of diversification in portfolio construction, the importance of setting clear investment goals and constraints to develop effective plans, strategic asset allocation among primary classes, sub-asset allocation for risk optimisation, the differences between indexed and actively managed funds and the value of regular rebalancing to maintain a consistent risk profile for long-term investment success.