BMO says as­set al­lo­ca­tion vi­tal in suc­cess­ful in­vest­ing

The Pak Banker - - Front Page -


BMO In­vestorline re­minds Cana­di­ans that one of the keys to suc­cess­ful in­vest­ing and port­fo­lio man­age­ment is choos­ing the right "mix" of as­sets. As­set al­lo­ca­tion is the dis­tri­bu­tion of money in­vested in dif­fer­ent as­set types within a port­fo­lio.

Ma­jor as­set classes in­clude eq­ui­ties (e.g. stocks and mu­tual funds), fixed in­come ( e. g. bonds, guar­an­teed in­vest­ment cer­tifi­cates) and cash in­vest­ments; other in­vest­ment cat­e­gories can in­clude real es­tate, pre­cious met­als and com­modi­ties.

Stud­ies have shown that prop­erly pro­por­tioned as­set al­lo­ca­tion can have a sig­nif­i­cant im­pact on an in­vestor's suc­cess, said Viki Lazaris, Pres­i­dent & CEO, BMO In­vestorLine. While stocks have been the best per­form­ing as­set class over the long term, they have also been the riski­est. It's im­por­tant to choose a mix of in­vest­ments that fit with your fi­nan­cial goals, time frame and risk tol­er­ance.

Know Your In­vest­ing Time­frame: If you have a longer in­vest­ing time­frame, con­sider putting a sig­nif­i­cant per­cent­age of your funds in eq­ui­ties. Stocks typ­i­cally have the best po­ten­tial for earn­ing re­turns that out­pace in­fla­tion and other in­vest­ments, and, even if mar­kets de­cline, your port­fo­lio will have time to re­bound. If, how­ever, you do not have a long time hori­zon (e.g. fewer than 5 years), con­sider a port­fo­lio that con­sists of more short-term bonds and cash in­vest­ments.

Di­ver­sify: No sin­gle in­vest­ment class will per­form well all the time; to mit­i­gate your fi­nan­cial risk, al­lo­cate funds to more than one as­set class. Fixed­in­come in­vest­ments, such as bonds, may help cush­ion your port­fo­lio if stock val­ues drop. Con­sider a mix of short-, medium- and long-term bonds.

De­fine Your Goals: Your port­fo­lio is a tool to help you achieve your fi­nan­cial goals. De­ter­mine what your end goal is and pro­por­tion your as­sets ac­cord­ingly. To pre­serve cap­i­tal and gen­er­ate in­come, your port­fo­lio should have a higher al­lo­ca­tion in fixed in­come in­vest­ments such as bonds and guar­an­teed in­vest­ment cer­tifi­cates (GICs).

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