The WP Letter 8- Risk Diversification+Performance Measurement and the Growth Mindset

THE WEALTH PLAN

LETTER SEVEN

Hello friend,

Here we are with the eight letter of the Wealth Plan, which is designed to empower your financial journey!

Let's Dive in....

FINANCIAL LITERACY

Today we are going to tackle the third pillar of financial literacy : risk diversification

Don’t put all of your eggs in one basket. If you invest in one stock, one project, one sector the probabilty that something goes wrong is higher compared to investing in multiple stocks, projects, sectors etc.

Infact, if you have all of your eggs in one basket and it falls down, there is a high probability that all the eggs will break.

In technical lingo, risk is defined as systematic ( linked to the macro economy) and unsystematic or specific (linked to the micro economy). Only unsystematic risk is diversifiable.

Let's go back to the eggs example: unsystematic risk is when you put your eggs in multiple baskets, each carried by different people. It is unlikely they will all fall down in a normal scenario.

But what if there is a landslide (like a recession in the economy or a geopolitical event), most likely they will all fall. This is the systematic, not diversifiable risk.

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ADVANCED FINANCIAL PLANNING

Today I am sharing a little bit of information on the fifth section of the Investment Policy Statement (IPS), that is the "PERFORMANCE MEASUREMENT"

This is where you check and make sure everything is going as planned.

Here is a list with some of the items that should be addressed in this section:

Define specific, measurable goals for the investment portfolio. These could include target return rates, income generation, capital appreciation, or other relevant objectives
Identify appropriate benchmarks against which the portfolio's performance will be compared. These could be broad market indices (e.g., S&P 500, MSCI World Index) or more specific benchmarks tailored to the asset classes in the portfolio
Specify the time period over which performance will be measured. This could be short-term (e.g., quarterly or annually) and long-term (e.g., 3, 5, or 10 years), reflecting the investment objectives and strategy
State how often performance reports will be generated and reviewed. This could be quarterly, semi-annually, or annually, depending on the needs and preferences of the investor

Get my Investment Policy Statement Checklist and Framework here

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BEYOND FINANCE

As an entrepreneur, I have learned first hand that there are two types of mindsets in the world:

Growth mindset
Fixed mindset

A growth mindset involves believing that you can develop your abilities and skills through effort, good mentoring, and constructive feedback.

Individuals with a growth mindset often think:

"I can learn to do this."
"I'll persist until I succeed."
"There is always room for improvement."

On the other hand, a fixed mindset is the belief that your intelligence, talent, and skills are innate and unchangeable.

Individuals with a fixed mindset often think:

"I can't do this."
"I'm destined to fail."
"This will take too long."

When these negative thoughts arise, firmly tell yourself, “STOP!”

Don’t let negativity take hold.

Repeating negative thoughts can eventually make you believe them.

To alter your reality, start by changing your mindset.

Here is a list of great books and podcasts on developing your mindset:

BOOKS

"The 7 Habits of Highly Effective People: Powerful Lessons in Personal Change" by Stephen R. Covey

"The Power of Now: A Guide to Spiritual Enlightenment" by Eckhart Tolle

"Atomic Habits: An Easy & Proven Way to Build Good Habits & Break Bad Ones" by James Clear

"Grit: The Power of Passion and Perseverance" by Angela Duckworth

PODCASTS

The Tim Ferriss Show

The Tony Robbins Podcast

The Mindset Mentor

The School of Greatness

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Letter Seven

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