Investment Products and Portfolio Asset Allocation
As you know, each investment product has its own characteristics. For instance, equities, despite their potential for short-term drops, provide the highest capital growth potential over 10-year periods. But they also carry the highest risk of all. Conversely, fixed income securities, such as Treasury Bills, provide more stability and greater liquidity, but they are also the least profitable and the most inflation-sensitive. Their weight is typically increased the closer we get to our financial objectives so as to reduce the risk of capital losses.
A portfolio containing only equities is therefore be more volatile than one made up solely of Treasury Bills. Yet, a portfolio that would be devoid of equities would expose you to a much greater risk: that of being short of capital once you reach retirement.
Portfolio diversification across asset classes allows you to meet both your need for growth and stability. In a well-diversified portfolio, equities contribute to higher returns over time, while fixed-income securities and cash see to stability.
Properly mixing your assets is a crucial step in managing your portfolio because it allows you to exploit the full return potential of the risk you are willing to take on.
Our Asset Allocation Tool (AAT) is a useful way to verify if your investment strategies are in line with your profile. The AAT is highly sophisticated and considered to be one of the highest performing tools on the market. It will guide you in your asset allocation process, and help you determine if your portfolio contains the asset classes that will help you achieve your financial goals.