“Any sound long-range investment program requires patience and perseverance. Perhaps that is why so few investors follow any plan. Investment success is the purpose of investment planning; but a by-product of a good plan is peace of mind.” — John Templeton

It’s worth a reminder: your investment plan has been put in place to help manage risks and work towards your long-term financial goals despite the inevitable market ups and downs. What constitutes a good plan? A solid investment plan is a well-structured, personalized strategy that provides a roadmap for investors to achieve their financial goals while managing risk.

It may be easy to overlook the importance of having portfolio guidelines and consistently following them, but these guide portfolio construction, management and decision-making over the longer term. Here are some perspectives:

Risk Tolerance — One of the principal objectives in constructing a portfolio is to manage risk to achieve a sound balance of growth potential and protection of capital. In rising markets, it’s easy to forget the latter part of that statement — in other words, what happens if things go wrong? Every investor has a unique risk tolerance, which may be reflected in their comfort level with the ups and downs of
the market. During buoyant markets, it may be easy to get caught in the prevailing momentum and forget that achieving the highest possible return often comes with excess risks. Risk tolerance should not be based on confidence that the stock market is going to keep advancing. Inherently, we all want low risk — nobody likes to see their investment values go down — but avoiding all risk would mean foregoing all but minimal returns, which can lead to other risks such as not meeting financial goals. We need to strike a balance.

Asset Allocation — One way to help manage risk is to determine how much of the investment portfolio should be invested in different assets — for example, across the major asset classes of equities, fixed-income securities and cash equivalents. The ultimate objective is to maximize returns consistent with your personal circumstances: goals, time horizon, comfort level with risk, etc. Typically, individuals with longer investment horizons may tolerate greater volatility, leading to higher equity exposure. In contrast, retirees reliant on securities for income may have an asset allocation with greater fixed-income exposure. Notably, over time the returns of certain asset classes can evolve — take the yields on many fixed-income products we see today. Managing asset allocation may involve shifting gears.

Diversification — No single asset class, industry or geographic region consistently performs at the top over time. A diversified portfolio can give access to the best-performing asset classes every year. Industries, sectors and even entire asset classes can fall out of favour depending on the prevailing economic or market conditions. Diversification can help to smooth performance returns within a portfolio from the natural downturns that can affect different investments at different times.

Rebalancing — For diversification and asset allocation to work properly, we need to regularly review and sometimes rebalance portfolios. This is because, over time, the asset mix of the portfolio can change. For instance, after strong market times, like those we’ve recently experienced, when a security, industry or sector experiences substantial growth, it may indicate the need to reallocate funds to restore the portfolio’s balance. Regardless of how promising the outlook of any company, industry or asset class is, maintaining an appropriate balance according to your risk levels is important. This process helps protect against overexposure to any one area, reducing the impact of potential downturns and ensuring the portfolio aligns with your long-term goals.

We Are Here to Provide Support
Your portfolio has been created with your personal objectives in mind, to meet your needs over the longer term. Each element has been selected to serve a purpose, to lead you through both up and down markets. Have confidence that your plan continues to work for you. If you have questions or would like to discuss further, please call the office.