Investment Strategy
Your financial plan has to match your goals and the level of risk you feel comfortable with. Any investment strategy I recommend will reflect both these needs. My approach involves what I call my 3D formula:
Due-diligence
A successful investor is a well-informed one. As your advisor, I will take the time to:
• understand your needs and circumstances
• ensure that you fully grasp the nature of the investments I am recommending
• show you how your investments fit with both your goals and your comfort level.
Diversification
Most people know diversification is important in reducing risk. But it is the combination of assets you choose that has a greater impact on your overall return than the specific securities or mutual funds in your portfolio. Research shows that just over 90% of the return of an investment portfolio is due to asset allocation. (William M. Mercer Limited, Sept. 1997).
So getting it right is important! The right asset allocation allows you to obtain the best possible return at a given level of risk. This is why, in designing your investment strategy, I devote so much attention to your individual asset allocation. My aim is to deliver the best return we can get while allowing you to sleep happily at night.
There are three main asset groups for you to consider: stocks, fixed-income (bonds, GICs etc.) and cash (treasury bills, savings bonds etc.) Your portfolio should include all three of these asset classes since no one can accurately predict which will out-perform in any given year. It is also important to hold a variety of investments within each class. For example, depending on your particular situation, I may encourage you to invest in:
• both Canadian and foreign holdings
• large companies as well as smaller ones
• bonds as well as GICs
• corporate as well as government bonds, etc.
For mutual fund investors, risk can be reduced by choosing both growth and value styles of management. I will make sure that you hold both in your portfolio.
Value: For bargain shoppers
Value investors are the bargain basement shoppers of the financial world. They seek out good businesses at prices which do not reflect their real value. Value investments tend to offer greater protection in a down market since the company’s assets and/or earnings remain far above market valuation.
Growth: For fast trackers
Growth investors look for companies with faster-than-average growth in profits, sales or market share. They go for businesses which not only enjoy a dominant position in the market but can expect to maintain their competitive advantage well into the future.
Discipline
When you choose your personal investment strategy, you need to fully understand the reasons behind your choice and stick with it. That means resisting the temptation to flee the market when valuations are sinking. It also means sticking with your asset allocation even when equity markets are flying high and you are sure you are missing the party. Easier said than done. But this kind of discipline is essential to your success as an investor. Only when there are changes in your personal situation, will we look at making significant changes in your investment strategy.
As your investments grow in value, I will re-balance your portfolio to keep your asset allocation in line with your goals and risk level. I may also use specialized software to monitor your asset allocation and recommend adjustments. This is to position you for profits in up markets and greater protection in down markets!
