Are You On Track with Your Plan?

In my time in finance I have seen a lot of younger (and older) people start from scratch in their financial paths. One of the things that can be an easy trap to fall into is having a whole portfolio based in equities. This can easily happen in a bull market especially when dealing with the 'marketing machines' that are driving what we are faced with in the investment world.

When dealing with stocks and mutual funds it is easy to get caught up in this and you may not even know it.

So let's take a step back and analyze what a good portfolio is aimed to do (for the average investor): Ideally when setting a goal (such as retirement) the idea is to earn a modest return (let's say 8-10%) over a long-term period. The degree on which that can fluctuate is also based on the risk/return model you as an investor can comfortably accept. When using mutual funds, it is a long-term matchup with a money manager that suits your goals and risk tolerance.

When faced with volatile markets and sharp ups and downs as we have seen as of late it forces investors to remind themselves that there is a much bigger timeline when considering entering the markets. That is why we DON'T invest all our money in GICs (see my article on that).

Many young investors have only had the opportunity to take part in the bull market of the last five years. This is a wake up call for many. I feel it is a great time to take part in market opportunities.

So, when times like this occur we all take a step back and remember what it takes to set up a quality portfolio. Larry Swedroe in Rational Investing in Irrational Times provides the following guidelines for the maximum equity exposure depending on time horizon:

0 to 3 years - 0%
4 years - 10%
5 years - 20%
6 years - 30%
7 years - 40%
8 years - 50%
9 years - 60%
10 years - 70%
11 to 14 years - 80%
15 to 19 years - 90%
20 years or longer - 100%

It corresponds with my previous article stating that if you need your money in a short period of time the market is no place for you.

This is a great time to step back and look at portfolios to make sure that they are in check with your actual plan. I have always discussed the relationship between institutions (banks, mutual fund companies, etc) and what it actually takes to attract new money. This often may throw a clients long-term objectives out of wack.

Some funds that have maintained long-term objectives without over exposing themselves in down markets:

CI Harbour
Fidelity Canadian Asset Allocation
Dynamic Power Balanced

.......make sure you look before you leap, keep with the plan, and never hesitate to ask questions. Now is the time.