January 30, 2009, 6:00 am

Options To Secure Your Investment Portfolio

by: The Financial Blogger    Category: Investment, Market and Risk
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I meet several clients wanting to avoid any other downturn in the market. For their new RRSP contribution, they want to have something that won’t fluctuate much. While I am convinced that this is the right time to invest in the market in order to benefit from the 2008 drop, I also believe that the best investment strategy is the one that makes you sleep at night 😉 So here are a few options for people who want to secure their investment portfolio.



Make sure that you are well diversified in your investments

The very first thing to slow down the fluctuation from one investment statement to another is definitely to review your existing portfolio. Some people think that they have a well diversified portfolio because they have a balanced fund. Make sure that your fund is not only diversified among one country. I have seen many balanced portfolio showing 50% in Canadian fixed income and 50% in Canadian equity. If it’s your case and the Canadian market is not increasing next year but the American market is… you won’t feel any improvement in your investments 😉

Make a bond ladder

If you really want to go the fixed income route, you should not invest all your money within the very same GIC or bond. You should build an investment plan with at least 5 terms (1 year, 2 year, 3 year, etc.). Therefore, you will be able to renew a part of your portfolio every year and hope for better fixed interest rate (because they are pretty low these days!).

If you have enough money (more than 50K, but you are better off with 100K +), you may find a broker that will be able to offer not only GIC’s but provincial, municipal and corporation bonds. This should increase your overall return by at least .50% 😉

Linked notes

Then again, I am not a big fan of linked notes. However, if you can’t stand market fluctuations and you can’t stand low interest rate either, I would go this route. The linked notes guarantee your capital and offer a better yield potential since it is related to the market. It is possible that you don’t make a penny at renewal date. However, you have much better chance of hitting 5% to 7% return if you take it now for 5 to 8 years (regular terms for linked notes).

Income Plus from Manulife

I already wrote about this investment strategy (just click on the paragraph title if you missed this post). This is a mutual fund that allows an investment plan B as the company is offering you the value of your fund or a life income based on your capital plus 5% per year with the company. While you will still see the fluctuation on your investment statement, you are guaranteed of a minimum pension at retirement.

I think this gives you a few good investment options. So if there is any other investment strategies that will reduce the risk or volatility, please share is with other readers 😀

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Comments

Just to add, sge funds could also be an option, I know about high MER but if you want guarantee you have to pay for it. Also, theyre are some market linked GIC with a minimum guarantee (over 10 years) offered by some life companies (SSQ for example)

Let’s go back to basics!!! Quoting Guru Warren Buffet: “Never invest in a business you cannot understand and Always invest for the long term”. Risk cannot be eliminated, but it can be understood, respected and controlled 🙂

by: The Financial Blogger | February 2nd, 2009 (8:28 am)

JF,
seg funds is another great solution. Most (if not all) insurance company offer this type of mutual funds that is guaranteeing 75% to 100% (depending on the contract) of the capital invested in the fund after 10 years.

Like you said TFB, first thing- DI-VER-SI-FI-CA-TION! From my Finance courses, an important principle to explain diversification is to purchase multiple securities with low or negative covariance. Covariance in portfolio construction can be critical for asset allocation. This will diminishes the risk an investor faces in owning a portfolio. Holding multiple securities of low covariance reduces risk, because if one security drops in value, low or negative covariance implies that it’s unlikely that all will drop in value simultaneously! Even if you purchase gold (yes volatile!!), the overall risk of your portfolio can truly decrease.

Hope this helps.

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