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Some of the biggest, most-influential investors in the world—the so-called “smart money”—are institutions that have hundreds of millions or billions of dollars of investable assets. These institutional investors can teach you some important lessons for successful long-term investing. They are often large businesses like banks, insurance companies, pension funds, endowments, investment management firms or sovereign wealth funds. These institutions have many different goals, but what they have in common are the huge amounts of money they put to work on behalf of their plan participants, constituents or clients. But, you don’t need to be a 10-figure investor to gain valuable insights from these giants. Here are a few key lessons from the institutional approach to investing you can incorporate into your investment plan.

Have a detailed written plan

The best institutional investors scrupulously document their goals, investment strategies and processes. This is important for several reasons. First, these large investors often have investment time horizons best measured in decades or centuries, so it’s important that they never lose sight of their long-term goals. Second, institutions can employ hundreds of different money managers or other professionals who need to be working toward the same goal. Therefore, it’s critical to have a detailed plan so that everyone is pulling in the same direction.

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This plan often comes in the form of an official document called an Investment Policy Statement (IPS). An IPS is like the foundation of an entire investment strategy. It details the investor’s goals and objectives, and it often spells out return targets. It specifies which risks a firm is willing to take, and which ones they’re not.

Many institutional investors describe their portfolio-construction targets and related constraints. For example, an IPS may specify how much of the portfolio should be held in stocks, how much in bonds and how much in cash or other assets. Some firms may even have written points on what they need from their investment partners. They might specify the frequency of written reports, the number of regular meetings and any educational requirements to help build the relationship.

You can make your own version of an Investment Policy Statement. Start with your investment goals, but strive for detail. If you’re investing for retirement, don’t just stop at the year you’d like to retire. Get a clear picture of what you want that retirement to look like. Where will you live? What do you want to do? How much will you need to spend per year?

Also include an estimate of your investment time horizon. This will give you a sense of how long your money will need to last. Remember, the day you stop working is only the start of a life in retirement that could last more than 20 or 30 years. Your goals and time horizon will help determine the target asset allocation strategy—the mix of stocks, bonds, cash and other assets—that will give you the best chance of achieving your long-term goals.

You might even list out the qualities you’d like when working with a financial adviser. Spell out how often you’d like to talk, what mode of communication works best for you and what you need to know to be a better investor. Or, if you’re already working with a financial adviser and need help, they can help put together a personalised plan for you.

Diversify to build returns and mitigate risk

Institutional investors understand that success isn’t measured in weeks or months—it’s often much longer-term than that. For example, pension funds need to pay retirement benefits to current beneficiaries. They also need to ensure that their strategy will allow them to pay benefits in 20, 50 or 100 years.

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That means they’re attempting to build long-term returns and mitigate risk through diversification. They understand that there is too much risk involved in holding one or just a few stocks. So, depending on the institutional investor’s goal, they determine their optimal asset allocation and then invest accordingly. For example, an endowment fund would want to balance the need for cash to fund current operations with higher-returning investments to help the portfolio grow for future needs.

For individual investors, this translates to making sure you’ve got proper diversification based on your investment goals. Use the mix of asset classes (stocks, bonds, cash, etc.) that gives you the best opportunity of reaching your financial goals. And then diversify within those asset classes so that you’re not relying on just a few companies to do well. For example, be wary of concentrating too much of your portfolio in your company’s stock, if you work for a public company.

And if you’ve already retired, make sure your asset allocation considers not only your current income needs, but also the investment growth your portfolio will require to maintain your standard of living throughout your full retirement.

Stay disciplined, stay invested

Institutional investors understand human beings can be swayed by emotions like fear or greed, which can lead to investing mistakes that can hurt their ability to reach their long-term goals. So these institutions build guardrails—like the IPS—to help insulate their investment decision-making from these emotions. One of the key benefits of a formal IPS is that it’s able to serve as a consistent guide—through bull markets, bear markets and periods of volatility, the IPS’s long-term focus helps institutional investors stay disciplined and stick to their plan.

The consistency and continuity of an IPS means that regardless of which stocks are doing well from year to year, institutional investors don’t chase outsized, unexpected returns. Just as important, institutional investors don’t head to the sidelines when the going gets tough—they stay invested to ensure their investments are working productively for as long as possible. Whilst they may adjust their asset allocation based on fundamental economic drivers, they don’t wait until “things feel more settled.” The best institutional investors know that it’s the amount of time invested in the markets rather than timing the markets that builds long-term investment success.

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You can help yourself stay disciplined by focusing on your long-term goals. That discipline might come from your written investment strategy, or from working with a professional investment adviser who can give you the confidence and insights you feel you’re lacking.

For some, staying disciplined also means consciously controlling their flow on news and information. Binging on social media or constantly checking investment account balances can often lead to a short-term focus that magnifies feelings of panic during times of volatility.

You might also find discipline by learning more about how financial markets work. Learning about market trends and historical market reactions may help give you context and perspective to understand what’s happening in your portfolio. This is another area where the right financial adviser can assist—by providing insights and education to help make you a more informed and more comfortable investor.

Whilst institutional investors may have accounts with a lot more zeroes than the average retirement investor, the keys to attaining long-term success are very much the same. By having a detailed written plan, diversifying your investments and staying disciplined, you’ll be able to tap into the same success drivers as the largest investors in the world.


Fisher Asset Management, LLC does business under this name in Ontario and Newfoundland & Labrador. In all other provinces, Fisher Asset Management, LLC does business as Fisher Investments Canada and as Fisher Investments.

Investing in stock markets involves the risk of loss and there is no guarantee that all or any capital invested will be repaid. Past performance is no guarantee of future returns. International currency fluctuations may result in a higher or lower investment return. This document constitutes the general views of Fisher Investments Canada and should not be regarded as personalized investment or tax advice or as a representation of its performance or that of its clients. No assurances are made that Fisher Investments Canada will continue to hold these views, which may change at any time based on new information, analysis or reconsideration. In addition, no assurances are made regarding the accuracy of any forecast made herein. Not all past forecasts have been, nor future forecasts will be, as accurate as any contained herein.

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This content was produced by Fisher Investments Canada. The Globe and Mail was not involved in its creation.

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