Lessons from the Book 📚 Tools of Titan

Tools of titan by Tim ferris 

“The superheroes you know are people who have maximized their strengths”

“For many, breaking free from weaknesses seems like an impossible task. However, some people have shown grit to overcome challenges and establish lifestyles that have earned them the top performer tag. While the media sometimes showcases these nothing–to–something stories as self–made transformations, Timothy Ferris argues that it is impossible to ascend to the heroics without leaning on the wisdom of others.”

Success is achievable if you collect the right field–tested beliefs and habits.

“These top performers have learned innovative ways to optimize their body and mind, and you can do the same. Hence, this impressive body of work from Timothy Ferris will open your eyes to practical steps on living an improved lifestyle. This summary is segmented into 3 crucial aspects of life–health, wealth, and wisdom. These 3 concepts encapsulate the core areas of your life that will determine your level of fulfillment.

In each segment, you will access different tools that have worked for renowned personalities who have shown a level of consistency at the top. The tools mentioned in this tidbit are unique to each individual, and it is you that will choose the ones that will work for you. You should note that it is imperative to run some of the advice in this summary through your nutritionist or doctor, especially the health and wellness part.”

Routine in an intelligent man is a sign of ambition. ~ W.H. Auden

“Exercise will help you live a healthy life”

“Have you ever felt that you lack the stamina to participate in rigorous tasks without taking a breather? This show of weakness suggests that you have not done enough to condition your body to withstand high–performance activities.”

It is not advisable to engage in any form of exercise without ascertaining the specific muscle it is fortifying.

“People that indiscriminately engage in workout sessions often discover that their training has buffed up a section of their body while ignoring the others. The outcome is a disproportionate body structure that is not appealing to the eye. This is why Christopher Sommer, a former gymnastics coach for the US National Team and founder of GymnasticBodies, tells his clients to engage in a dynamic mix of Gymnastics Strength Training (GST) and AcroYoga. This combination will help you increase flexibility and mobility instead of the muscle–building effects of many workout routines out there. According to Timothy Ferris, AcroYoga is a blend of 3 contemporary disciplines–yoga, acrobatics, and therapeutics. Some of the exercises that fit into this description are J–Curl and shoulder extension.

To practice the shoulder extension:

• Lift a dowel, and hold it behind your back while in a standing position

• Stand on an elevated platform

• Lift a dead–weight to your mid–section while in the standing position

• Bend down until your head almost touches your knees

You could start with a 15–pound weight, as stretching is the most important factor in this exercise. You should do as many reps as you are comfortable with — there is no need to grind out reps that might end up injuring you.”

Remember that the purpose of exercise is to ensure that the entirety of your body becomes flexible and mobile.

“For the likes of Joe De Sena, the co–founder of Death Race, subjecting the body to extreme stress is the key. As such, he decided to engage in activities that are the exact opposite of his life as a Wall Street professional. He fell in love with nerve–wracking marathons where he could only focus on the primary necessities of life — food, water, and shelter. According to Joe, it is important to sweat every day to build the resilience to take on any challenge.”

“Ketogenic diet and fasting: the new health trends”

“There are lots of publications on the benefits of ketogenic diets. Nonetheless, many still do not understand what all the fuss is about. And when they do, it is an uphill task to find the right diet that will help them sustain ketosis.

Ketosis is an induced state of the body, which results from the unavailability of primary fuel sources. When the body doesn’t have enough glucose to burn as fuel, it is forced to look for alternative sources, mostly fat. The breaking down of fat releases ketones that reduce the blood’s pH. As your body acidity levels rise, you risk falling into a coma or dying.”

Let food be thy medicine and medicine be thy food. ~ Hippocrates

“On the upside, ketosis reduces weight, and it could lower the risk of developing heart diseases. In light of this, it is common for people to adopt one form of a ketogenic diet or the other. The aim here is to reduce the intake of carbohydrates to force the body to break down fat and maintain muscle.”

Rather than dieting, some people choose to fast because fasting for 3 to 4 days will lead to weight loss.

“A ketogenic diet is a high–fat diet in its basic form, which tries to lower the intake of carbohydrates to 50 grams or below in three days. So, how do you know when you reach ketosis?

Timothy Ferris recommends that you use a machine called Precision Xtra by Abbott to check your “glucose and blood levels of beta–hydroxybutyrate (BHB).” Once you reach a concentration of 0.5 millimolar, you are already at an early stage of ketosis.

For Dominic D’Agostino, an associate professor at the University of South Florida Morsani College of Medicine, a mild to moderate ketosis state with concentrations ranging from 1 mmol to 3 mmol is the ideal keto state. Dominic D’Agostino has experimented with many ketogenic diets, and he has discovered that the only way to maintain ketosis is to eat food that contains a lot of fat and moderate protein.

Did you know? Dominic D’Agostino, an associate professor at the University of South Florida demonstrated that even advanced weight lifters could maintain or increase strength, performance, and hypertrophy after 2 weeks of keto–adaptation, consuming 75–80% calories from fat and restricting carbohydrates to 22–25g per day.”

“You can use unconventional body conditioning practices to sustain performance”

“There is no way Timothy Ferris could have interviewed the long list of top performers he mentioned in this summary without encountering individuals with unconventional practices to sustain performance. Some do not shy away from using drugs, particularly psychedelics that cause hallucinations or that could help them sustain focus, depending on the dosage.

If popping drugs is not your thing, you could utilize the floating tank technique to experience psychedelics. Here, all you need to do is “float in a 98F hot tub with a lid over it.” You add 800 to 1,200 of Epsom salt to help induce buoyancy.”

The absence of a light or sound source and gravity will help you break free from distractions and focus on important things.

“Others have discovered the power of cold, as they have subjected their bodies to harsh conditions to release the right chemicals to suppress stress hormones. One of the individuals that have championed this practice is Wim Hof. He introduced the Wim Hof method, a breathing exercise that improves immunity and increases fat loss.

This exercise entails 40 reps of inhaling air until your lungs are full and a sharp exhale to empty it. If done correctly, you will start feeling lightheaded and tingling in your hands. However, Timothy warns that this exercise should not be done near or inside water, as it can cause a shallow water blackout. Also, one of Wim Hof’s secrets is the cold bath routine, which entails that you immerse your body in a bathtub containing water and 40 pounds of ice.

On sleeping hygiene, Kelly Starret, a world–renowned performance coach, advised that you get rid of appliances that could emit light, be it a TV or phones. He also advised that you should go for a soft mattress, which will help you switch from extension — due to excessive sitting or exercising — to relaxation.

Furthermore, Timothy Ferris highlights the importance of starting the morning strong, as it allows you to cultivate the right energy to tackle the challenges the day might throw at you. He believes that it is imperative to lower your morning winning bar because a cluster of wins is way better than chasing the impossible.”

“You will only attain success when you start asking the right questions”

“Just as Timothy Ferris has handpicked some of the fascinating health tools that top performers utilize, he also discloses the winning formula of some of the most successful people he had met. While perusing through this long list of goal–getters, one cannot help but notice that they have a knack for asking vital questions.

When the world shut the door in these people’s faces by proclaiming them unworthy of success, they did not give up. Instead, they kept knocking on the door by asking all of the right questions. We see this notion play out in Arnold Schwarzenegger’s narration of how he defied the norm to become a movie star. Even when producers and directors downplayed his chances, he did not give in and do what others were doing. Rather, he kept believing, and eventually, his apparent weakness distinguished him in an industry that thrived on trends — recycling.”

Question everything. Learn something. Answer nothing. ~ Euripides

“Tony Robbins, world–renowned performance coach, reiterated this thought when he asserted that attaining a quality life depends on your propensity for asking quality questions. If people are telling you that your talent or product will not sell, you should focus on searching for new ways to beat the system. This approach will yield more results than focusing on the negatives.

To put this basic advice to practice, Reid Hoffman, co–founder and executive chairman of LinkedIn, has taught his mind to search for answers to problems while he is asleep. All he has to do is delegate problems to his mind, go to bed, and tackle the problem first thing in the morning, when there are no distractions.”

In most cases, companies become successful because they were able to figure out the simple things and deliver what others might have tagged irrelevant.

“In the same way, you, too, can work your mind to find patterns in chaos and opportunities in failures. The author went on to share some basic insight into how great businesses thrived, even when they faced stiff competition. You can thrive in a competitive terrain by pondering on the little things that can give you an edge. This might require a simple alteration to your brand or customer relationship culture.”

“Open yourself up to ideas, problems, and people; soak up wisdom to manage your business the successful way”

“The abundance of views from entrepreneurs or serial investors in this summary is a real boost for individuals that are on the verge of starting their businesses or those that have already got one or two running. The first strategy that might work for you is starting small. Revel in the micro and experiment all you can before emerging into the spotlight.

A micro business can cater to a certain niche and nurture its first wave of customers effectively. This strategy is what Timothy Ferris calls the 1000 fans to approach. At this stage, the company is familiar with the preferences of its customer base, and its services will have more impact. Ironically, effectively capitalizing on the benefits of starting small will naturally lead to growth.”

It is up to you to ensure that growth does not dilute the potency of your business values.

“On managing the pressure that comes with growth, Derek Sivers, founder of CD baby, suggests that you learn how to say no to the less important stuff. This principle will help you create ample time for the essentials. Likewise, Tony Robbins believes that successful individuals are those people who try as much as possible not to lose money. They take risks quite alright, but they do not jump at opportunities blindly. In most cases, these individuals will diversify their investment to spread risks.

While lending his voice to the topic, Reid Hoffman stated that successful companies and people solve the simplest and easiest tasks first. In contrast, organizations that focus on big problems might find it difficult to sustain success.”

It is important to learn how and when to say “No,” as saying “Yes” to every opportunity and idea will sink your business.

“Timothy Ferris corroborated this assertion by explaining that great companies realize that it is futile to compete for a market that a bigger corporation dominates. Instead, these companies create new categories that will help them nurture a new market. And rather than market their products directly, they promote their categories.”

“Trying to please everyone is a mistake; people will always ridicule an innovative mind”

“One thing that stuck out as interesting while perusing through the wisdom that had elevated people from normal to the extraordinary is that they were not scared to do things differently. As simple as this is, many find it difficult to walk a new path, as they are aware of the repercussions of saying no to the norms. People that had dared to say no to consensus beliefs have had their intelligence questioned, or they had felt like an outcast.”

One of the norms that you should avoid is believing that being busy is a good problem.

“However, being accepted should never serve as your goal. Instead, you should adopt goals that guarantee happiness. Today, busyness is a trend, and people believe that the busier you are, the more respect you command. In its true sense, busy connotes a misguided attempt to cloak unproductivity with engagement. Not all work is profitable. Moreover, putting yourself in a situation where work becomes chaotic suggests that you do not have a time management system in place. As such, it is imperative to work smart. Stop accommodating all the distractions that burn your time, so you can focus on core issues.”

To be alone is to be different, to be different is to be alone. ~ Suzanne Gordon

“Knowing that adopting the life of an outlier would put you in the bad books of many hence, the author suggested tactics that can help you maneuver attacks on your ideologies.

First, you must shift your attention from the people that do not agree with you to those that get you. Exerting your energy on things or people that do not matter is a waste of your time. Also, you should realize that there are a handful of individuals that would take your opinions personally. When you expect this, it will no longer surprise you when people attack you for thinking differently.

If you believe that you ought to respond to criticism, it is vital not to over–apologize for being unconventional. Discovering that trying to please everyone is a mistake will make it easy to come to terms with the fact that people will always ridicule your innovative mind.”

“Downsizing challenges gives you little to fret about and helps you focus on one small problem at a time”

“When Timothy Ferris asked Jamie Foxx, an award–winning actor, musician and comedian, what he thought was on the other side of fear. Jamie Foxx replied, “Nothing.” If you carefully ponder on Jamie’s answer, you will discover that there is nothing to fear. Fear stops people from chasing their goals. They hide behind excuses like “I am not qualified,” or “My talent will waste in this sort of endeavor,” or “The system or market is a mess right now.”

You must see through all these excuses, find where your fear lies, and face it head–on. Having said that, the first thing you can do to fight fear is to avoid being the victim. Stop complaining about the things that you don’t have or the hand that life has dealt you. A better approach to life is to avoid letting anyone feel sorry for you. Own your failures and seek out ways to turn them into success stories.”

By downsizing challenges, it gives you little to fret about, and it helps you focus on one small problem at a time, so you can make steady progress.

“It is not that the people in this book are immune to fear. They have faced their fair share of fear. But what separates them is their ability to break free from their anxieties. One other distinguishing factor is that they have learned to plan for the long term. When you can visualize all the opportunities lying beyond your fears, you will start seeing things differently. You will no longer prioritize your current failures or pains over long–lasting results. Likewise, successful people have a knack for downsizing their problems, which makes it easier to proffer solutions.”

Conclusion

“When you put creativity in everything, everything becomes available to you. How you present things, How you journal things, how you inspire people around you and how you inspire yourself 一 it's all creative. If you say you are not creative, look at how much you're missing out on just because you've told yourself that. Creativity is 1 of the most important gifts that we’re born with that some people don’t cultivate. People don’t realize that it could be applied to literally everything in their lives. Top performers referenced in this tidbit have a lot of things in common. Many of the elite performers in this summary practice one form of meditation or the other. A large fraction of these people do not eat breakfast, and the rest eat light meals in the morning. Also, these people are certain that failure will expire and have transformed their weaknesses into strengths.

Do not think for once that successful people are special because they have luck on their side, or they have this special gene that gives them the tenacity to do the impossible. These people might have found a way around obstacles, but they started just like you. Once you realize this fact, it will push you to adopt some of the winning strategies in this summary and to make your mark.

Your life doesn’t have to be exactly like another successful person’s, but you can learn what worked for them and see how it can work for you as well. Once you start your quest for knowledge, you are one step closer to success.

Try this

There is no shame in asking questions. Questions open you up to new ideas, and it is also a good tool to assess situations before taking action. So, when next you are in doubt, or you have something troubling you, the best response is asking the right questions.”

Goal based investing by Tony dav

What’s in it for me? Learn why goals-based investing is the future of the financial-services industry.

The financial-services industry has been changing over the last decades to serve investors better. Failure by financial advisors to understand and adapt their approach to these changes will ultimately have an impact on their success.

So let’s take a whistle-stop tour of how the industry has been changing, discuss why modern portfolio theory and its successors are flawed, examine active and passive management, define what alternative investment actually means, present goals-based investment as a way to meet the objectives of high-net-worth families, and look at some predictions for the industry’s future. That’s a lot to get through, so let’s get started.

Keep in mind that this is not financial advice. Rather, it’s an analysis of the past, present, and possible future of the wealth-management industry, and how you can be better prepared for it.

In this Blink, you’ll learn

why there is a place for both passive and active investment management;

about the role of alternative investment strategies; and

how to establish a goals-based investment portfolio.

The financial services industry is in a state of continuous evolution.

Whether you’re a seasoned investor or relatively new to the topic, you might not know exactly who the key players in the financial-services industry are, and how their roles in wealth management differ. So, let’s start with a quick overview.

First, there are wealth-management firms. These include companies like Morgan Stanley and Merrill Lynch. Such companies carry out research and due diligence. They also provide support to financial advisors. The financial advisors themselves work for the wealth-management firms, advise clients directly, and may also use asset managers to provide investment advice. Then there are custodians. Examples include companies like Schwab and Fidelity. They provide custodial services, technology, research, and trading support. And finally, we have asset managers such as Blackrock, Fidelity, and JP Morgan. These companies manage money via mutual funds, exchange-traded funds (ETFs), hedge funds, and other structures.

Some of these companies also provide multiple services. For example, Morgan Stanley has retail and private-wealth divisions, but also has asset-management subsidiaries.

Over the last 20 years, the financial sector has changed considerably – and so has the relationship between the various companies within it. It’s also likely that it will change further over the coming decade.

Back in 1975, the founder of The Vanguard Group, Jack Bogle, created the first index fund. He was skeptical about the need for financial advisors and believed that investors could do just as well left to their own devices. Vanguard is now the second-largest asset manager worldwide with over $6 trillion in assets under management. After the general financial crisis, growth in do-it-yourself investment grew rapidly as investors began to question why they should use investment managers if they couldn’t protect them from market collapses. The use of ETFs accelerated after the crisis and advisors also began to use them more in building portfolios. 

And then came COVID-19, the pandemic that stopped the world. It ushered in not only health issues but financial woes. The markets became very volatile and uncertainty reigned. Investors, shocked by rising death tolls, also watched helplessly as their wealth plummeted.

Over the years, wealth-management practices have also needed to reinvent themselves in order to provide new services to their clients. This has required reskilling and training in order for advisors to understand issues such as estates, tax management, lending options, and charitable giving, for example.

Financial advisors needed to help their clients through these troubled times, and in innovative ways – through the use of technology to reach their clients, for example. In a post-pandemic world, it is still unclear how financial advisors will engage with clients in the future. What is clear, though, is that they need to rise to the challenges that the sector faces now and in the coming decade, evolve their approach, or risk being replaced by robots and AI and ultimately becoming obsolete.

Goals-based investing is an antidote to the limitations of modern portfolio theory.

You might be familiar with the term modern portfolio theory, or MPT. This idea was developed by Nobel Prize–winner Harry Markowitz, who said that “diversification is the only free lunch in investing.” He posited that by combining risky investments which were not in lockstep with each other, greater returns could be achieved with much lower risk.

MPT, though, has its limitations. It assumes that all investors are risk-averse, whereas, in reality, not all investors will select the optimal, less-risky option. In fact, they are often chasing greater returns. 

So what are the alternatives, and why is a goals-based approach more appealing?

In 1991, Post-MPT came along. It’s pretty similar to MPT but defines risk differently and also how the risk will influence expected returns. Then, in 1992, the Black-Litterman model arrived. This model is based on the premise that assets perform in the future just as they have in the past – or the equilibrium assumption. 

These and other alternatives have drawbacks too. For example, post-MPT suffers from accuracy of data in the same way as MPT, as future results may not correspond with historical data. And the Black-Litterman model uses projections of future results, which actually may also be flawed.

The financial world has changed a lot since Markowitz published his paper, but Goals-based investing shifts the goalposts. Rather than concentrating on beating the market, maximizing returns, and minimizing risks, it concentrates on progress toward the investor’s goals and reinforces the idea of long-term investing. It balances risk and returns and seeks to achieve desired outcomes – whether that’s for capital appreciation, wealth preservation, savings for a second home, college funding, charitable donation, or retirement income.

Next, we’ll examine the roles of passive and active investment management and alternative investments – in particular, hedge funds and innovations in private markets – and then we’ll consider the rise of sustainable investing, before returning to discuss goals-based investing a little further on.

Advisors and investors need to be aware of their cognitive biases and how these may affect their investment decisions.

Investors don’t always act rationally. But why is that? 

In a nutshell: cognitive biases. Many investors will do whatever it takes to avoid financial loss – a cognitive bias known as loss aversion. Or they may begin to believe that they’re capable of picking stocks or managers who will outperform the market – aka illusion of control bias. Then there’s recency bias, which makes one believe that strong results in the present can be extrapolated into the future. And herd mentality, where investors may pursue stocks because they’re suffering from FOMO – the fear of missing out.

So if investors suffer from all of these biases, what can the poor financial advisor do? Well, first and foremost they need to recognize that they themselves suffer from the same biases. Then, they need to remind clients of their goals and objectives, and advise them against acting on emotions and impulse. Here, it can help to have an investment policy statement that allows advisors to take action without permission and to do “the right thing” on behalf of their clients.

As an advisor, you should also be conscious of how you frame each discussion. Use simple language. Avoid jargon and confusing terminology. Try using an analogy or story when explaining complex topics. Clients will respond more positively if you give clear explanations.

Davidow uses an analogy when explaining asset allocation to clients: building a portfolio is like making an omelet. A good omelet requires the right ingredients in the right quantities. It includes eggs, cheese, onions, and then maybe mushrooms, sausage, or other tasty extras. Each ingredient, Davidow explains, is like an asset class. But not everyone will follow the same recipe. Some investors might exclude emerging markets from their portfolio – just as some people might exclude onions from their omelet. 

Financial advisors are here to teach clients about financial markets and asset allocation. But if you want to increase your credibility and earn more respect, you should also teach them about behavioral finance. Clients need to know that they’re not alone in reacting to their emotions and that it’s not always easy to overcome irrational impulses.

Even after the rise of passive investment, active management has its place.

In 1973, in his book A Random Walk Down Wall Street, Burton Malkiel made a bold statement: “a blindfolded monkey throwing darts at a newspaper’s financial pages could select a portfolio that would do just as well as one carefully selected by experts.” His book began the debate about active and passive investment management and effectively kick-started the passive-investing revolution. Vanguard introduced the first index fund in 1975; later, in 1993, State Street Global Advisors launched the first exchange-traded fund, or ETF.

ETFs made it easy for investors to access the market cost effectively and tax efficiently. It meant that they could access the S&P 500 – that’s the Standard and Poor’s 500, a stock market index which tracks the performance of 500 companies on the US stock exchange – in a single trade without transaction costs and with built-in automatic rebalancing. Prior to this, it was a costly process and an investor’s exposure would inevitably deviate from the index over time.

There are now over 2,200 ETFs available in the US. They amount to some $6 trillion in assets under management. ETFs started out as cheap, efficient passive investing options. They both mimicked the market and provided affordable access to the market. Now they represent a range of smart options that use alternative weighting strategies, including factors such as value, size, quantity, volatility, and momentum. In other words, ETFs now offer advisors even greater flexibility when building portfolios for their clients.

But the rise in passive investment doesn’t mean there isn’t room for active management. Indeed, many successful fixed-income ETFs are actively managed, and there’s an active element to each. So the question really shouldn’t be whether active or passive investing is better but how active and passive strategies can be best used.

And large wealth-management firms are currently developing new asset-allocation models – models that use ETFs, mutual funds, and separately managed accounts (SMAs) as “building blocks.” These models provide benefits to both advisors and investors by aligning the interests of the advisors with those of their clients. Advisors get more expertise from asset managers, and investors get access to specialized teams of experts.

In spite of the new models, there’s always going to be a need for customization of portfolios to suit the specific requirements of some high-net-worth and ultra-high-net-worth families. This includes the use of so-called alternative investments, which we’ll explore next. The good news is that the industry now has a wide range of tools at its disposal to build appropriate portfolios to fully meet most clients’ needs.

Alternative investments and sustainable investing are becoming attractive options.

The term alternative investments often creates fear and confusion in investors. So let’s start by clearing up what the term actually means. Put simply, alternative investments means hedge funds and private markets – that’s private equity, private credit, and real assets. Hedge funds, though, aren’t available to everyone – only qualified purchasers and accredited investors. To be accredited, you need to have a net worth over $1 million or an annual income over $200,000. To be a qualified purchaser, you need at least $5 million in investments.

So why should we consider alternative investments in a portfolio? Well, there are three main factors to think about.

First, there’s the market environment. The next decade will be characterized by lower traditional equity returns and bond yields. The market will have to deal with the impact of the COVID-19 pandemic, assets with negative yields, rising inflation, and growing tension around the world. Alternative investments may help to dampen volatility, provide alternative sources of income, and perhaps even provide better returns.

Second, innovation in products has allowed managers to offer investors alternative strategies where previously access wasn’t possible due to requirements for accreditation and minimum investment values.

And third, it’s easier for privately offered funds to market themselves as a result of regulatory changes. For example, the Jumpstart Our Business Startups (JOBS) Act allowed crowdfunding to operate and also made it easier for hedge funds and private equity to be marketed directly to investors.

Let’s look more specifically at hedge funds. The first hedge fund was launched in 1949 by Alfred Jones – “the father of the hedge fund” industry. Jones used long and short stocks in equal proportion and his results required the right stocks to be bought and sold. By limiting the number of investors to 99 and using limited partnerships, he avoided the requirements of the Investment Company Act of 1940. Jones took 20 percent of the profit in compensation.

Today’s hedge funds retain many of the characteristics of Jones’s model. A partnership model is still used, and the fund manager is paid a percentage of the profits. The number of partners is limited, and, in the same way, long and short stocks are bought and sold. As part of a portfolio, hedge funds can often provide stronger returns and also protect capital through risk management.

Many investors are unaware that not all hedge funds are the same. For example, there are equity-hedge, event-driven, relative value, macro, and multi-strategy solutions which have their own mechanisms for asset management.

Now let’s turn our attention briefly to the innovations in private markets – private equity, private credit, and real assets. Once the domain only of large institutions, product innovation in recent years has also allowed these investments to become available to more investors.

There’s a whole spectrum of private-equity investment opportunities depending on where a company is in its development. For example, at one end of the spectrum, we have venture capital – an investment in an early-stage company that’s still in the process of developing its product or service. At the other end, there are buyout cash-flow-positive companies that may benefit from restructuring or from the sale of some assets. Private-equity managers can offer value by launching new products and services, spinning off noncore business, or making strategic acquisitions, for example.

Both advisors and investors need to understand the stages of development and the risks involved before investing in private equity. Investors need guidance from wealth advisors to answer such questions as: What role do private markets play in a client portfolio? How can the options be evaluated? And how much investment should I allocate to private markets?

Finally, let’s consider growth in sustainable investing. This has perhaps been the biggest trend across the financial industry, but many investors still believe that they have to give up returns in order to do good in their investment portfolio.

A number of terms are often used interchangeably. Socially responsible investing (SRI). Environmental, social, and governance (ESG). Impact investing. Sustainable investing. But they’re not the same.

Back in the 1990s, SRIs became popular as a way to express views about unpopular activities. If an investor disliked tobacco or alcohol, for example, companies or stocks could be excluded from a portfolio. But this often meant sacrificing returns.

On the other hand, ESG screening, which has become increasingly popular in recent years, assigns a weighting to companies with the best practices. Such strategies often outperform comparable unconstrained indices.

Impact investing concentrates on the allocation of funds to private companies which endeavor to deliver positive social and environmental impacts.

Sustainable investing, which is a broad umbrella that covers SRI, ESG, and impact investing, has grown considerably from $12 trillion in 2018 to $17.1 trillion in 2020. It accounts for nearly one-third of all US professional assets under management. Within this figure, the largest investment comes from public funds, amounting to approximately $3.4 trillion.

As sustainable investing becomes more and more mainstream, wealth advisors need to seize the opportunity it presents. Incorporating sustainable investing into clients’ portfolios may increase the probability of investors achieving their goals, and, in turn, advisors may reap the rewards of bigger dividends in the future.

Goals-based investing requires an analysis of what you want to achieve through investment.

Think for a minute about managing your family budget. Imagine you have a “pot” for your rent, another for the bills, another for the food for the week, a couple of others for other specific purposes, and finally – if anything is left over – one for vacation expenses.

Goals-based investing is pretty similar. Instead of a single investment pool, you separate your investments into different “pots,” each relating to a particular goal you wish to achieve. Your goals might, for example, include generating retirement income, creating a college fund for the kids, charitable giving, wealth accumulation, or other outcomes that fit your requirements. Each of your goals has different cash-flow needs and time horizons, so it makes sense to have multiple portfolios rather than just one.

Let’s imagine for a moment that you have a high-net-worth family client that’s interested in a goals-based-investment approach.

The first step in working with your client is one of discovery. It’s important to understand what the family needs and wants. What makes it unique? Then, an analysis of estate and trust issues is required. Does a trust already exist? Multiple trusts? How are assets to be distributed? Third, you need to understand the goals and objectives of the family. What needs are there to be solved? What are the cash-flow requirements and projected time horizons?

The fourth step is to develop asset allocations. Here, as in step three, you need to understand what the return objectives are, income requirements, and time horizons. When you have this information, the fifth step is to select the right investments. You’ll need to look for funds or managers who can provide the required outcomes considering ETFs, SMAs, registered funds, or private funds. How do you want to incorporate active and passive strategies? And do alternative investments play a part in the portfolio?

Finally, you’ll need to monitor progress toward goals. Keep track of how accounts are performing relative to their required objectives. And also be aware of changes in the family’s needs or circumstances in order to make any portfolio changes necessary. It’s important to evaluate the progress toward goals consistently.

Remember that the client’s portfolio may be a way to achieve desired outcomes, but this doesn’t mean you can ignore performance. You still need to adopt the best investment strategies possible. The assets within a portfolio are like pieces of a jigsaw puzzle. If you put the pieces together correctly, they form a clear picture – a picture of what the portfolio is intended to achieve. Put them together haphazardly and, well . . . that picture is less than clear!

When explaining investments to clients it’s useful to organize them into three groups: growth, income, and defense. Growth of the portfolio might come from equity allocation in large, small, international, and emerging markets. Income might come from treasury, corporate, or government bonds. And the inclusion of gold as an investment is to provide security and stability against market shocks – defense.

When engaging with a high-net-worth family, you may want to suggest that they develop a mission statement if they don’t have one already. This helps clarify what the family wishes to achieve and how it will pass on its values from generation to generation.