In August, 2010, a study conducted by Ipsos Reid on behalf of RBC Direct Investing found that of those investors who considered their portfolios diversified, 61 per cent said that their portfolio was performing as well as they expected and 19 per cent said that it was outperforming their expectations.
More female investors (22 per cent) than male (17 per cent) considered their portfolios to be diversified, while of the 631 Canadian online brokerage clients who were active in trading during the preceding six months of the study, thirty per cent did not consider their portfolio to be diversified or did not know if it was.
The study found that just less than one in five of those polled felt that their investment was sufficiently diversified, and that the vast majority (81 per cent) of the online brokerage users maintained their accounts to achieve long-term investment goals, such as saving for their children’s education or their own retirement, as oppose to the directive of generating short-term profits.
If getting your investment portfolio to a level of satisfying diversification and performance is important to you, or to evaluate if your current investment portfolio is diversified and achieving the investment objectives you are aiming for, consider the following guide.
Planning a Diversified Investment Portfolio
Define Your Personal Goals and Limits
Firstly, determine why you are investing. You may have several objectives, such as the purchase of property within the next few years, tuition for your children in the next ten years, and retirement in the next thirty. Will one investment vehicle satisfy all of your goals, or will you better benefit from a blend of some options that remain liquid and accessible, and others that build slowly, locked-in, over the long-term?
At this stage you will want to gauge the level of risk that you are comfortable in committing to, and examine your current assets and cash flow to determine what you can budget to contribute to investing and what you could afford to lose. Again, you can choose to blend investment options that are more risky and aggressive with relatively low-risk products that you can contribute to increasingly over time. You will need to strategize a combination of products that can achieve the level of returns you are aiming to earn with the level of security and comfort your budget can withstand.
Implementing Your Strategy
Knowing where you want to go with your investment vehicle is a good start; now you must map out the course. As you would before embarking on a years-long journey, you need some information on the destinations you will be arriving at. Research the various investment options available to you. Are you willing to put in the time needed to watch the share activity of individual companies, or would you be more comfortable with investing in a managed fund? Do you already own your own home, or would making real estate a large portion of your portfolio be wise at this point in your life? Have you considered the investment options available in term and universal life insurance policies?
Careful study and involvement with more than one investment option will ensure that if one of your options does not react as you thought it would, your entire portfolio will not topple. Compare historical performance data and the rates of return on similar objects, weighing in their potential risk factors. Garner advice from a professional financial adviser and seek expertise for putting your asset allocation strategy into action.
Evaluate, Analyze and Rebalance
Much like a car needs an oil change or an old furnace needs maintenance, your investment strategy and portfolio needs to be routinely reviewed and brought up to speed. As your goals change, or as you learn of new opportunities and see others failing to meet your expectations, your investment assets can be reallocated or shifted as your objectives deem according. Use the tools and resources at your disposal to help you evaluate if your portfolio is as balanced and diversified as you want it to be, and seek reputable advice on how to implement the changes that you want to make.
