Spring Cleaning for your Portfolio

Jul 03, 2019 | Elizabeth de Groot


Share

Changing markets may be a sign that it’s time to adjust your portfolio strategy by rebalancing back to your risk comfort level.  The first 4 months of 2019 have seen huge returns both in the Canadian & U.S. markets, as well as internationally.   In Canadian dollars, the S&P composite total return index is up 16.9% and the S&P 500 total return index is up 16.1%.  Although these gains in the markets have been wonderful for investors, a good run in the markets can often cloud our personal perception of risk.  The month of May has started to show us some more of the volatility we experienced at the end of 2018.  This recent volatility might signal a good time for that risk tolerance “gut-check”. 

It is also a good time to review your asset allocation for portfolio drift.   In general, the greater the concentration of stocks in your portfolio, the greater the chance of volatility, but also the greater potential for long-term growth. Conversely, if you include more fixed income, you will experience lower volatility, but also lower growth potential. It’s the age old question of “risk vs reward”, but everyone has an ideal balance, based on factors such as:

  • How long you have to invest
  • How much growth you need
  • How much risk you are willing to take-on

Over time, market fluctuations can cause the balance to shift in your portfolio (see chart below), as one asset class outperforms another and eventually represents a greater percentage of your portfolio than you had originally intended. As a result, it makes sense to regularly rebalance your portfolio to get back to your ideal asset allocation. 

Give some thought not only to your risk tolerance, but your risk capacity.  Volatility tests not only our willingness to take-on risk (tolerance) but also our ability to absorb the impact of investment losses (capacity).  Given the positive returns we’ve seen in 2019, it may be an ideal time to take some profits and sit on the sidelines for a bit.

This article is supplied by Elizabeth de Groot, CFP, FCSI, CIWM. FMA, Vice President, Investment and Wealth Advisor with RBC Dominion Securities Inc. Member–Canadian Investor Protection Fund. Elizabeth can be reached at elizabeth.degroot@rbc.com or 705-444-4742.

This information is not investment advice and should be used only in conjunction with a discussion with your RBC Dominion Securities Inc. Investment Advisor. This will ensure that your own circumstances have been considered properly and that any action is taken based upon the latest available information.

The strategies and advice in this article are provided for general guidance. Readers should consult their own Investment Advisor when planning to implement a strategy. Interest rates, market conditions, special offers, tax rulings, and other investment factors are subject to change.