If asked to describe a healthy portfolio, Manish Kaushal, Associate Vice President Wealth & Steinbach Retail and Mutual Funds Investment Specialist at Credential Asset Management Inc., likes to compare it to gardening.
“You could plant only one type of flower,” he says, “but the whole garden could be entirely wiped out by a single pest.” The better approach is to add a variety of plants that have different growth periods, appearances, and types of resilience.
The same is true for portfolios, especially during periods of volatility.
For most investors, their portfolios consist of equities, bonds, and money market instruments, or mutual funds* that own similar asset categories. You should also build portfolios diversified by region, currency, and industry.
Past events have shown that even during economic downturns, some markets are negatively affected while others flourish. That being said, you may not want to get distracted by the large gains in high-growth industries like consumer technology. Equities issued by dull but predictable companies, such as utilities or car insurance, deliver consistent growth.
“Diversified portfolios also account for the age of the investor and their tolerance for volatility,” says Kaushal. If you’re a younger investor, you can start by educating yourself on different investment vehicles you can use to make informed decisions early on. If you’re closing in on retirement, it’s a good idea to work with your wealth advisor to gradually reduce volatility portfolios so market fluctuations don’t delay your retirement.
But your asset reallocation efforts must be aligned with your retirement goals. Newly retired people may require more cash flow to fund travel plans or long-delayed purchases. That means restructuring your portfolio to deliver the right amount of cash at the right time. “We recommend you work backward from what you expect your lifestyle will require,” explains Kaushal.
Kaushal says one way you can start preparing is by planning your cash flow requirements for the upcoming year.
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*Mutual funds are offered through Credential Asset Management Inc. Mutual funds and other securities are offered through Credential Securities, a division of Credential Qtrade Securities Inc. Credential Securities is a registered mark owned by Aviso Wealth Inc.
Everyone’s saving situation is unique—and there are many strategies that work for different circumstances. We encourage you to seek personalized advice from qualified professionals regarding your savings needs and goals.