Keep your portfolio up to date

“Stay the course” may be good advice when you’re literally sailing choppy seas, but back on the financial mainland, it’s rarely what you want to hear when your portfolio is struggling.

Instead, your portfolio should be tactically adjusted as often as the risk-return spectrum changes.

For example, says Sadiq S. Adatia, CIO of Sun Life Global Investments, a 60% equities, 40% fixed income allocation may have been adequate for your portfolio in 2007, but just before the 2008 crash, that 60% was actually feeling like 70% risk because equities were expensive. In that type of environment, your equities should have been best at only 50% of the portfolio, but acting like 60%.

Risk is measured through many lenses, such as volatility, correlations, market valuations, economic conditions, and the opportunity set of where you want to go. If markets are all expensive, you can’t go to something more defensive.

In 2013, the Canadian market was expensive, while the American market was cheaper. That made it prudent to allocate more to the U.S. — for the same amount of risk, there’s more potential reward. The downside is limited, Adatia explains.

The tactical approach isn’t just about tilting between equities and bonds. It’s between Canada and the U.S.; manager and manager; value and growth. If value has dominated and growth is cheap now, you might want to switch from manager A to B slightly to give B more opportunity to outperform.

What’s important isn’t change for change’s sake, but that your portfolio is regularly evaluating against current market realities so that tactical tweaks can be made, giving your portfolio the best possible performance.

Melissa Shin

Melissa is the editorial director of Advisor.ca and leads Newcom Media Inc.’s group of financial publications. She has been with the team since 2011 and been recognized by PMAC and CFA Society Toronto for her reporting. Reach her at mshin@newcom.ca. You may also call or text 416-847-8038 to provide a confidential tip.