This is where your finance takes place

It is good for people who like diversification

The important factor about the PIM is that your money is managed by different fund manager specialized and successful in their niche. You have the possibility of selecting the best managers over the past 10 years for each asset class.

Even better, the financial institution offering the product made the research for you. They already took care of selecting from the best performers and they give them mandates to manage additional money according to their philosophy.

It is tax efficient

Most fund managers are trying to be as tax efficient as possible. This means that they do not sell their whole portfolio every year. Every time that a stock is sold within the fund, a capital gain will be triggered (taxed!) and reported to the government. This is why you receive capital gain slips last year even though your funds went down 5%

MER’s fees are not only lower but they are also tax deductible. You will most likely never see a PIM product with MER’s over 2%. Most of them are between 1% and 2%. Don’t we like paying less for getting more?

It is prestigious

Okay, this point has nothing to do with a rational argument. However, wealthy people like terms like “Private Investment Management” or “Wealth Management” or even “Private Banking Services”. Your statement will still show investments and returns, but it will be written in a nice way with a sophisticated presentation.

Clients usually receive more information on what is included in their portfolio. They will get full financial statements with all the stocks and investment products within their portfolio. It is always fun to know what you are holding!

Private Investment Management is obviously not for everybody. I am thinking of independent investors that would hate this kind of product as they have to give away their decision power to someone else. On the other side, how many independent investors are beating the markets? With a PIM, you have more chances of performing well and avoid most of market debacles.

In the end, it is a really good product for those who don’t have the time or the interest in managing their own portfolio and they are wealthy enough to benefit from a well diversified (high class) type of investment product.

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Leave your money into the hand of a professional

The main purpose of private investment management is to give mandates to one or a few fund managers to manage your money according to predetermine guidelines.

However, in order to do so, you must leave all decision powers (buy, sell, hold) in the hand of the managers. You always have the possibility to change the guidelines in order to reflect your investment profile.

You get access to the best of the best

Financial institutions offering this type of product will include some of the best portfolio managers of all time. Even better, they are selected based on their specialty (Canadian/American/International stocks, emerging markets, bonds, etc.).

So you end-up with a fully diversified portfolio managed by the best funds managers in their category. On top of that, management fees are cheaper than mutual funds and they are tax deductible for non-registered account!

More options than regular mutual funds

Another characteristic of the PIM is their accessibility to different asset class. Forget about the classic fixed income, Canadian equity and international equity. Now you have access to high paying yield bonds, privilege shares, emerging markets, real assets (bridges, structures and pipelines), tactical deviation and alternative management.

It may confuse you as an investor but your financial advisor should be in a good position to help you out determining what is best for you.

The main goals of Private Investment Management are usually wealth preservation, long term growth and tax efficiency. This is a really good product for wealthy people who don’t want to manage their money but still hope to get a good return.

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One of the best ways to accumulate money is the use the “pay yourself first” cliché. Finance is like a hockey game, it is with cliché such as “we must shoot as many times as possible” that you can win!

When we combine the power of compounding interest with the power of systematic investment, we are absolutely sure to become millionaire one day. The problem is that we need to start young in order to become rich faster

I do random calculation all the time since I started as a financial planner. You should see people’s face when they realize that they can get 2M$ in their pocket by the age of 65. This is something they would have never thought to be possible.

So here’s a great example to prove my point. Let’s say that you are 30 and you plan to retire at the age of 60. That leaves you exactly 30 years to get enough money in order to realize your dream.

You would need to put $1,000 aside per month at 6% (so 8% minus a 2% inflation rate) in order to get 1M$ at retirement. So 360K of capital over 30 years will put you in a millionaire’s seat.

Then, if you get lazy and wait 5 years and start putting money aside at 35, you would need to put about $1450 a month to get to the exact same result. Therefore, you would not only increase your monthly payment but also the amount of capital. So at the age of 35, you would need 435K over 25 years to get your million.

I did the calculation for my own situation too. At the age of 26, I must put only $708 a month in order to create my million. As I am putting only $400 a month in my Smith Manoeuvre I am short of $308… Time is surely rough when you have a young family and a full mortgage on your back!!

image source: flickr

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