CEBL - Promotion
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Mutual funds: ccm1201

Is Your Plan Working?

  • Don't be in a hurry to get rid of something that hasn't amassed instant wealth for you...

To determine whether or not your plan is working, you must first have some expectations for each of the investment vehicles you have selected. You will then need to compare these expectations against the actual returns. Don't be in a hurry to dump something that hasn't amassed instant wealth for you, and don't react without thinking each decision through carefully - some investments take longer to mature or may be subject to external influences that make their gains fluctuate.

Remember that you probably have both short-term and long-term goals to accomplish, and don't forget to factor in adjustments that you may be able to make to your expectations.

Meeting Your Objectives

It's time to review what these were in the first place before determining whether or not they've been met. Run through the following list, remember what your investment objectives were and determine what they are now:

  • financing the purchase of a new car
  • saving for your education or your children's
  • creating a downpayment for the purchase of a primary residence or vacation property
  • creating income
  • retirement

Objectives may change - and in fact, for most of us, they do and will. A life change, for example the birth of a child, the loss of a job, a promotion or an inheritance, may cause you to rethink your investing objectives and current needs. Periodically, it pays to sit down and examine each of your investments to determine whether they best meet both your current and future objectives. The answer may not always be simple, but the exercise will help you focus on your investment objectives.

Asset Allocation

  • ...the most important factor in portfolio management...

Asset allocation is often considered the most important factor in managing your portfolio. While it is a simple concept to grasp, it may take some trial and error to get it just right.

Additionally, your asset allocation structure may change as your needs and goals change, and it is somewhat dictated by your age and the length of time until you retire.

Very simply, asset allocation means how you have spread your investing dollars among your various types of investments. You need to determine what portion of your available funds should be allocated to each vehicle. Most often, asset allocation is a factor in retirement plans.

Deciding what proportion of your money should be assigned to growth-oriented investments like stocks (whose value may fluctuate) and how much to income-generating investments like bonds is an important investment decision. Your tolerance for risk and your timeframe for when you will need the money are two factors in making an allocation decision. You must also consider your overall portfolio - both your RSP and any investments held outside your retirement plan - so that you know which investments will be more effective inside your plan.

Once you have determined your asset allocation, you can think about diversification.

Strategic vs. Tactical Allocation

Strategic asset allocation

  • is intended to help identify a long-term investment strategy
  • splits a portfolio among differing asset classes depending on the risks and rewards of each asset
  • is a technique that is oriented towards return; it heightens exposure to a particular market when performance may have been weak and reduces exposure when performance is strong
  • is the basis for deciding on tactical allocation

Tactical asset allocation

  • consists of short-term market predictions and is based on market timing
  • is a tactical deviation from the norm which allows you to take advantage of market opportunities
  • is an active strategy and requires that you recognize when the market opportunity may have evaporated, signalling a return to strategic allocation.
  • is the basis for deciding on tactical allocation

Tactical allocation is often difficult to put into practice because the variables that help in the selection of an asset mix keep changing and a portfolio must be adjusted to reflect market changes.