As the days grow shorter and colder, prudent Canadians make sure their vehicles get a pre-winter checkup. The small investment in time and money sure beats getting bogged down in a blizzard with a frozen radiator.
A seasonal portfolio checkup is also a prudent strategy. By periodically investing a little time in your investments, you can keep your financial life from getting bogged down by an off-track portfolio. There are two good reasons to perform a portfolio checkup:
· First, over time, the value of each investment in your portfolio will change as a result of fluctuations in its market value. By periodically ?rebalancing? your portfolio, you?ll get it back to its original target asset mix and stay within your risk tolerance comfort zone.
· Second, minor portfolio tweaks may be necessary as your financial situation and goals change. A periodic checkup can provide an important ?reality check? on the health, direction and ultimate success of your overall financial plan.
As you analyze your portfolio, here are a few important strategies for successful investing to keep in mind:
· Be sure your portfolio is properly diversified by following a planned asset allocation strategy. Asset Allocation means constructing ? and, very importantly, maintaining ? a portfolio with a mix of investments that balances risk, creates diversification, and is capable of delivering the long-term returns you need to achieve your financial goals. By strategically spreading your investments among the different types of financial assets so they effectively work together ? the three principal asset classes are cash investments, fixed-income vehicles, and equities ? you can build wealth while achieving protection from unforeseen market events.
· Check the performance of your portfolio. You get statements from your bank, as well as statements relating to your mutual fund investments, registered plans, stock purchases or sales, and from anywhere else that you?ve invested money. You can use those statements to compare your current returns against your longer-term goals and overall financial plan. It?s a good idea to review your statements at least every three months (most registered plans and mutual funds provide quarterly statements) and check to see if you?re staying on track toward your goals.
· Rebalance your portfolio when it exceeds your risk tolerance level. The optimal asset mix for you depends on a lot of things ? including your age, income expectations, retirement dreams and much more ? but one of the most important is achieving an asset mix that meets your tolerance for risk. That simply means your portfolio should contain investments with a comfortable level of volatility. This is a level that allows you to not be overly concerned about what asset class is performing well (or not performing that well) at any particular moment in time.
· Think diversification and act globally. A well-diversified portfolio is always the right way to go ? and it can pay to look beyond Canadian markets. International markets do not always follow Canadian (or U.S.) market patterns so adding appropriate foreign investments to your portfolio can lessen volatility while offering the opportunity for enhanced returns.
Your financial plan should be active, not passive. Perform a seasonal portfolio checkup to be sure it stays on the fast track to achieving your financial goals. A professional financial planner can help you make the right portfolio choices as your life, finances and objectives evolve.
This column, written and published by Investors Group Financial Services Inc., is presented as a general source of information only and is not intended as a solicitation to buy or sell investments, nor is it intended to provide professional advice including, without limitation, investment, financial, legal, accounting or tax advice. For more information on this topic or on any other investment or financial matters, please contact your Investors Group Consultant.