Investment Optimization Secrets: How Financial Institutions Maximize Returns

Hello everyone, this is Violet from Vietnam Money Talks. Today I'll decode the investment strategies of major financial institutions – practical lessons we can apply immediately to our personal finances.

Do you know the secret behind that 18% figure?

Did you know that major Vietnamese banks like Vietcombank and BIDV are achieving return on equity (ROE) of 18-20% in 2024? This impressive figure leaves many individual investors wondering: Do they have some magical formula for generating such outstanding profits?

Actually, there's nothing magical about it. Behind these impressive numbers lies an extremely systematic approach to measurement, analysis, and optimization – methods that you can absolutely learn and apply to your personal finances.

I used to think financial institutions succeeded simply by "investing more money" to achieve higher returns. It wasn't until I started researching deeper that I realized: They succeed not because they have more money, but because they have extremely professional thinking systems and measurement tools.

The "golden" toolkit for measuring investment performance

1. ROI (Return on Investment) - The profitability metric everyone needs to know

Formula: (Profit - Investment Cost) / Investment Cost × 100%

Have you ever struggled to evaluate the performance of your investments? Financial institutions don't just look at overall ROI – they analyze it in detail by channel:

• Personal lending: ROI 12-15%
• Government bonds: ROI 6-8%
• Stock market investments: ROI 15-25%
• Fintech and digital payments: ROI 20-30%

Lesson for us: Instead of just asking "How much did I make?", ask "How much did I make relative to the money and time I invested?"

2. Risk-adjusted return - Returns that account for risk

This is what 90% of young investors overlook. Financial institutions always ask: "Is this return worth the risk we're taking?"

Sharpe Ratio: (Average Return - Risk-free Rate) / Volatility

Real example: An investment fund might report 25% returns, but if volatility is too high, the Sharpe ratio only reaches 0.6. Meanwhile, investing in VN30 ETF with 15% returns but a Sharpe ratio of 1.1 is actually much more effective.

3. Diversification metrics - Tools for measuring diversification

Financial institutions never "put all eggs in one basket." They use:

• Correlation coefficient: Measures correlation between investments (optimal < 0.3)
• Portfolio concentration: No single asset exceeds 25% of total portfolio
• Sector allocation: Even distribution across multiple industries

Profit optimization strategies from the "big leagues"

1. Asset allocation strategy - Smart asset allocation

Financial institutions apply allocation rules based on economic cycles:

High inflation periods (like now):

• Increase gold allocation (15-20%)
• Real estate (25-30%)
• Essential consumer goods stocks (20%)

Economic recession periods:

• Government bonds (40-50%)
• Cash (20-30%)
• Dividend-stable stocks (20%)

2. Dynamic rebalancing - Flexible portfolio rebalancing

Instead of "buy and hold," financial institutions apply:

• Quarterly review: Review investment performance every quarter
• Trigger-based adjustment: When an asset exceeds 30% of portfolio → immediate adjustment
• Market timing: Buy more when market drops > 20%

3. Cost optimization - Transaction cost optimization

What many young people overlook: Costs "erode" actual returns

• Transaction cost: Average trading fees 0.3-0.5%
• Management fee: Fund management fees 1.5-2.5%/year
• Tax efficiency: Optimizing investment income taxes

Practical lessons for the 20-30 generation

1. Think like a "mini fund manager"