Turning to home construction for investment portfolio insights

Investment portfolios, much like the construction of a house, are built over time with careful planning and consideration for flexible investment goals. Emanuel Datt, Chief Investment Officer at Datt Capital, drew an interesting parallel between these seemingly disparate processes.

“In fact, the process of constructing an investment portfolio is pretty like building a house,” said Datt. He elaborated on the initial decision-making process, likening the decision to invest in a new house on a piece of land to starting a portfolio with a capital base.

Datt outlined the various paths an investor might take when building their investment portfolio. For those on a budget, a volume builder or a retail financial advisor might offer a range of standard financial products at a fixed price. However, these products might not perfectly meet the investor’s long-term needs.

Alternatively, hiring an independent builder, or in financial terms, an independent financial advisor, could lead to a bespoke portfolio that is more closely aligned with the investor’s specifications. This approach, while potentially offering greater satisfaction over various timelines, might limit the investor’s flexibility before the portfolio has fully materialized.

The most hands-on approach advocated by Datt involves the investor taking the reins on portfolio construction. This entails working directly with various fund managers, akin to engaging different tradesmen for a building project. This strategy might offer the highest level of flexibility, though it requires significant due diligence on the part of the investor.

However, Datt warned about potential pitfalls in this process. He pointed out that some fund managers might seek certifications or ratings from independent research houses to bolster their credibility, which in turn influences financial advisors’ recommendations. These certifications, according to Datt, do not guarantee the quality of investment returns but rather ensure a systematic approach to investment.

“This certification does not guarantee the quality of the job that will be performed but rather that the job will be performed in a systematic manner,” Datt emphasized. He noted that insurance requirements might limit financial advisors to only those fund managers who seek out such certifications, often leading to a misalignment between the investors’ needs and the financial products offered.

Concluding his thoughts, Datt highlighted the importance of investor involvement in the building process of their portfolio. “Ultimately, owners (investors) should consciously participate in building their own homes (portfolios),” he advised, suggesting that investors should not settle for investment products that do not meet their risk appetite or performance expectations.