Look at your total portfolio to gauge investment success
The Vault
by Graham Barber

Do you find that a loss in one of your investments drives you crazy, while a gain gives you only momentary satisfaction? If so, you're not alone. In other words, the gratification provided by a 10% investment return is not as great as the disappointment caused by a 10% investment loss.

Media coverage of the markets tends to reinforce this view. For instance, most of us are aware that stock markets can experience volatility. But not everyone knows that when stocks are volatile, bond markets often perform quite well. Investors who maintain properly diversified portfolios often do better than they realize.

This shows why it's important to build a diversified portfolio. It also shows that, in order to get a better picture of where you stand, you need to view your portfolios total performance.

Get the asset mix right

Asset allocation refers to how you combine the three main asset classes - cash, fixed income, and equity based investments - in your portfolio. You want to create an asset mix hat fits with your longer term goals and your comfort level.

Having some exposure to all of the asset classes helps to ensure that you are taking advantage of the top performing class, while limiting exposure to poorer performing investments.

This is the idea behind diversification - that a sound mix of investments can help to reduce market volatility and boost potential returns. In fact, some studies suggest that asset allocation, rather than the choice of individual investments, accounts for more than 90% of a portfolio's return.

Did you know? Most financial institutions and financial planners have tools that can help you determine an asset allocation mix that's right for your personal goals.

Coordinate your efforts

If you hold non registered investments as well as an RSP, it's important to look at both plans to ensure that together they6 are helping you meet your goals.

There are many reasons we build non registered portfolios. When choosing investments to hold outside of your RSP, consider the following;

Your objectives

If you are saving for a car, vacation, or down payment on a home, your money should be held in a secure, liquid investments, such as money market funds, high interest savings accounts, or short term Guaranteed Investment Certificates (GICs).

If you are building your non registered holdings to complement your registered savings, it's a good idea to ensure that both work together to achieve adequate diversification. This means choosing investments that fit with your goals and risk tolerance, and avoiding duplication.

For instance, let's say that you have $1000 in your RSP, and have targeted an asset mix of 70% equity based investments and 30% cash and bonds. If your $25,000 non registered portfolio is made up entirely of equities, you may be holding more growth investment than you are comfortable with, skewing your desired asset mix.

Taxes

Outside of registered plan, equity based investments are taxed most favourably, while interest bearing investments are taxed at your highest marginal tax rate.

Although tax considerations are important, the quality of the investment, and its place in your overall portfolio, should always be your first consideration.

Chose quality

Once you have decided on the asset allocation that fits your goals, the next step is to look at the investments that make up your portfolio.

There is always a flavour of the month being hyped in the financial media and it's only natural to want to take advantage of opportunities. But before you buy do some research or talk to your financial advisor - you want to be sure you are investing in high quality holdings.

The proceeding information was provided by Graham Barber, Branch Manager of Scotiabank, Alcona Branch.

The Scotiabank, Alcona Branch, is located at 1161 Innisfil Beach Road, (705) 431-6116.

The Vault is a weekly series of articles provided by Graham Barber with financial advice and suggestions.