Assante Hydrostone’s blog and news updates.

A well-built portfolio is designed to handle tough times

Published on: May 15th, 2019

Working with investment professionals has plenty of benefits but none more appropriate to today’s environment than the quality of your portfolio construction. Everyone looks smart during smooth and rising markets. But when volatility becomes the norm, you’ll appreciate these “shock absorbers” that come from a professional investment relationship.

1. A solid foundation

Your portfolio has been carefully constructed to help you stay on track toward your long-term goals through calm and turbulent times alike.

Fixed-income funds, conservatively managed balanced funds, and similar holdings help provide income and can result in relatively stable returns. Blue-chip or dividend funds, and the like, offer steady growth over the long term with their exposure to established corporations through a history of stable and increasing returns.

2. Global exposure

Canada’s economy represents a tiny portion of the global economic engine (roughly 3%). By investing internationally, you can gain access to the growth potential of emerging markets and sectors (such as technology) not found at home.
Your international holdings also provide diversification. Exposure to other economies and currencies can help even out the bumps in our domestic markets.

3. Discipline

When markets are volatile, investors have a tendency to shy away from equities and growth-oriented mutual funds in favour of cash and cash equivalents. It is one of the investment markets’ big ironies that this can actually magnify risk. Sure, Guaranteed Investment Certificates (GICs) might seem like a safe haven during times of market volatility, but persistent low interest rates may make it more difficult to reach your long-term objectives.

When your portfolio’s growth component is aligned with your long-term objectives and risk comfort level, you’re far less likely to be disturbed by temporary declines. In fact, you might even view them as an opportunity to add to your holdings at an attractive price.

4. Professional support

A little “hand-holding” in tough markets can really make a difference. Financial research firm DALBAR tracks the gap between actual investment market performance and the returns of American mutual fund investors. For the 30 years ended in 2014, the S&P 500 (a benchmark for American equity markets) posted an annual average return of 11.06%. By comparison, individual equity fund investors averaged just 3.79%.¹

The major cause of this shortfall? Withdrawing from investments at low points and buying at market highs.

With an investment plan and the support of our knowledge, you are far less likely to fall into this trap.

5. Regular checkups

Managing volatility is just one of the reasons we recommend regular check-ins.
It also gives us the opportunity to discuss what’s going on in the markets, review any changes in your personal circumstances, and consider any adjustments that might be appropriate for your portfolio.

1 DALBAR, Quantitative Analysis of Investment Behavior, 2014.
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