Your Wealth Advisor - Canada

Do not use with a Distribution portfolio 

Each of us face various investment planning issues. To manage investments successfully you need sound decision-making principles to guide you, a clear understanding of the strategy and suitable and appropriate vehicles to execute with. 

If you cannot tolerate stock market risk on an emotional level: 

Save with Government of Canada Real Return Bonds, you will beat inflation by 2 - 3% consistently without any risk. You could also add a 5 year ladder of guaranteed GICs.

 

Contact your Registered Deposit Broker for Best Rates and more information. GIC rates are typically higher than a government bond with the same term.

 

See the Video: "The Conventional Investment Wisdom is Wrong"

If you can tolerate stock market risk and a permanent loss of capital:

You may improve the probability of achieving "potential" higher returns by employing a few sound principles. You will be lucky or unlucky in your actual outcomes depending on secular market trends and your level of discipline. Despite what anyone tries to tell you, no-one, not even Warren Buffet can reliably and consistently predict these trends over a long period.  

Principle # 1

Developing a Strategic Asset Allocation Strategy and Re-balance the Portfolio when it Deviates from Target – Optimal strategic asset allocation strategy should be based on investment objectives, risk tolerance and prioritized financial objectives. A diverse set of asset classes should be selected to minimize investment risk. The asset mix will determine much of the risk and return characteristics of the portfolio as a whole. Keep in mind that lucky & unlucky outcomes happen and are to be expected.

 

Principle #2

Build an Investment Portfolio that Minimizes Risk using Diversification and Correlation – Build a well-diversified portfolio since this type of portfolio has the best potential for enhanced returns.

 

Principle #3

Customize your Portfolio to Optimize the Risk-return Trade-off. The Efficient Frontier – Estimate and try to control both the amount of risk and return in a portfolio based on risk profile, investment objectives and financial objectives. The theory, for every risk level, there is an optimal combination of asset classes that have the potential to maximize returns. This is known as the efficient frontier.

 

The "actual" efficient frontier can only be known after the fact. This strategy uses past correlations to indicate the optimal mix, it may or may not have any real predictive value as correlations are notoriously unsteady. 

 

Principle #4

Minimize the Risk of Not Achieving Financial Objectives (Shortfall Risk) – Focus not only on investment risks, but also on the financial risk of falling short in meeting financial objectives. Be careful, you and/or your advisor can turn a dream into a nightmare if you are not knowledgeable about shortfall risk analysis. Adverse scenario testing can help.

 

Principle #5

Recognize the Efficiency of the Financial Markets – It is highly unlikely that individual investors or advisers can succeed in consistently outperforming the market.

 

Principle #6

Adopt a Buy-and-hold Strategy and Invest with a Long-term Time Horizon—Do not use a Market-timing Strategy – Don’t be tempted to change your asset allocation strategy and don't focus on analyzing and selecting individual securities in an attempt to outperform the market. Market timing and individual security selection is highly unlikely to consistently enhance investment returns. Invest for the long term because it enables the long-term characteristics of the asset classes to come to the fore. Equities offer the "potential" for higher returns than fixed-income securities but equities also put you at risk of permanently losing capital.

 

If you can't afford a permanent loss, don't use this strategy no matter what anyone tries to tell you. Just use risk-free RRBs, they are guaranteed by the Canadian Government to beat inflation. Typically by 2-3% depending what price you purchase at.

 

Principle #7

Recognize that the Portfolio is More Important than the Individual Securities – The appropriate strategic asset allocation among different asset classes will have a far greater impact on the portfolio results than the selection of individual securities. Use Real Return Bonds and a 5 year ladder of quaranteed GICs to provide the safe side to your balanced portfolio. The safe allocation should be at least 50% of the total portfolio unless you have a very compelling reason to take on more risk. 

 

Picking stocks is a "loser's game", nobody can consistently outperform the index after costs without assuming a much greater degree of risk than the market itself. If someone tells you they can "beat the market after costs without exposing you to added risk" they are either lying, delusional or both. Either way, walk away. Don't accept a premise that is untrue.

 

If someone actually had this skill they would keep it a secret or they would lose the advantage. This type of claim is meant to appeal to the greedy side of human nature and overcome rational decision-making. 

 

Principle #8

Build a diversified, Low Cost, tax-efficient and balanced Portfolio – Recognize that associated costs & the tax treatment of different investments can make or break this strategy. 

In Conclusion