When helping members build their portfolios, Chan Huynh, Senior Wealth Advisor at SCU and Investment Specialist with Credential Securities, starts with what he calls the five Ps of investing: “Proper preparation prevents poor performance.” This process is all about your advisor asking questions: What’s the primary goal of your investments? How much of a decline in value can you tolerate? Do you need regular income from your portfolio? From there, your advisor can help you build one of three types of portfolios.
The conservative portfolio
If you’re getting ready to retire in the next few years, nearing a financial goal, or need a reliable stream of income from your investments, the conservative portfolio may be right for you. This approach involves investments that are safe, but offer low returns. This may include cash and cash equivalents, such as GICs and money market mutual funds*. Keep in mind, for a long-term investor, playing it safe in cash makes less sense, as your returns may not keep up with inflation and can gradually erode your purchasing power.
Some investors are also choosing to put money in index-linked GICs, a product that allows you to participate in the stock market while protecting your principal investment. One of the considerations is whether you put your savings in a registered or non-registered GIC investment. Registered investments let you grow your savings in a tax-free account, while a non-registered GIC are independent investments and the earning taxed. This means that when the GIC pays out at the end of the term, you may have additional taxable income to claim, which depending on your income, may have an affect on your government pension. “In that case, then it may be wiser to build a low-risk portfolio which could include mutual funds or mix of stocks and bonds,” says Huynh.
The aggressive portfolio
If you’re focused on growth, have a longer time horizon, and can endure volatility, you may want to consider an aggressive investment approach. Aggressive portfolios include investments like stocks, which historically have larger short-term risk but offer higher long-term returns than bonds or cash.
You can also employ strategies like dollar cost averaging, where you invest a set amount on a schedule to remove the potential for an impulsive investment decision. Even if you choose to go this route, Huynh recommends you still invest across multiple companies and industries, and to do your homework before investing. Look for companies that you’re confident have the balance sheet to protect your investment from unexpected surprises.
The balanced portfolio
If you have both short and long-term goals, it’s good to have a combination of risk and reliability in your portfolio. A well‑diversified group of investments, including equities, bonds, and cash equivalents, helps smooth out the ups and downs of the market. “Members are often surprised when I tell them not to give me all of their money,” says Huynh. “But no matter what happens in the market, I want you to be able to sleep at night knowing you have money set aside for your expenses.”
The key to building a successful portfolio is working with an expert who will ask good questions, provide you options, and guide you through the decision-making process. A good next step is to talk to a wealth advisor about which approach will help you achieve your goals.
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Credential Financial Strategies Inc. is a member company under Aviso Wealth Inc., offering financial planning, life insurance and investments to members of credit unions and their communities. Your insurance contract will provide details of the coverage available under the plan you choose. Restrictions may apply. ®Credential is a registered mark owned by Aviso Wealth Inc. and is used under license.