What is Institutional Investing for Individual Investors?
Many institutional investors, like pension plans, seem to endure and survive through all types of investment markets. In contrast, many individual investor’s portfolios are devastated by similar investment environments. Interesting. If an individual investor’s retirement income objective looks similar to an institutional investor’s pension plan obligations, then shouldn’t an individuals investment portfolio ‘resemble‘ an institutional investment portfolio? They should. An individual investor’s retirement investment portfolio can be and ought to be thought of as a ‘personal’ pension plan.
So, individual investors can ‘mimic‘ a pension plan. The objective is to get into the same asset allocation ‘ballpark’ as the average pension plan. This blog thinks the Pension Investment Association of Canada (PIAC) is a good proxy for the average.
For the individual investor, mimicking a pension plan is easier today given the availability of index funds and Exchange Traded Funds (ETFs) which offer exposure to (nearly) all asset classes, regions, currencies and sectors. The result can be a low-cost, broadly and globally diversified investment portfolio that looks like a personalized pension plan.
What are the Big 5?
By far the most important things any individual investor can do are:
- Have a plan (an investment policy) to help avoid knee-jerk buying or selling.
- Get your asset allocation (approximately) right. As a start, mimic a pension plan’s asset allocation.
- Dollar-cost-average – buy with frequency. This is forced savings which uses market volatility to your advantage.
- Re-invest income, dividends and rent. Make math and time – compounding – work for you.
- Re-balance. Make volatility work for you. (Buy low and sell high before regression to the mean).
Doug Cronk CFA is a Pension Investment and Risk Management Officer(“You know, there are some experiences in life you will never forget. This will not be one of them.”)