Why portfolio diversity matters

Investing is tricky, especially if the terms are new to you. Hearing words like high yield, bonds and alternatives can throw you for a loop.

But the key to investing is to diversify your portfolio, ensuring it includes a variety of investment instruments and underlying strategies.

Here, Neil McIver, director of wealth management and portfolio manager at McIver Capital Management, Richardson GMP, works with five model portfolios. Each has a specific risk profile and investment objective.

Portfolio 1 is the least risky, and fits investors who expect to use up their capital during their lifetimes. They have fairly high ongoing income needs, and need protection from market fluctuations.

“A typical example would be a retired couple that sold a business. They have fairly small RRSP holdings and about $1 million to invest,” he explains.

Most of McIver’s clients fit Portfolio 3. These are investors with between $3 million and $5 million to invest, and who own businesses or are professionals. They may also have real estate, like additional residences or vacation properties, beyond their primary residences.

“They can be more aggressively invested because they’re backstopped by income or assets not held in the portfolio,” he explains.

Meanwhile, Portfolio 5 is the riskiest. It’s reserved for investors with a wide range of assets and more than $10 million in their portfolios.

“They aren’t going to come close to spending the capital they’ve accumulated in their lifetimes or their children’s lifetimes. It’s really for the grand kids,” McIver explains, adding these investors have lived through market corrections and are more comfortable riding out volatility.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.