top of page
Search

The Risk Level of a Portfolio

Writer: Carol PlaisierCarol Plaisier

What do you think of when you think of October? Sunny, crisp autumn mornings, the bright colours of the autumn leaves, princesses and goblins getting excited or—Black Monday, Stock Market Corrections, Black October. There is always the fear of a large market correction; that is why it is so important to ensure that your portfolio is aligned with your risk tolerance and is diversified across the various asset classes.

Depending upon your objectives and time horizon, you may have to give a little and accept more risk in order to achieve your goals. The risk spectrum does not go straight from 0 to 100, there are many varying degrees of investments in between, and with an understanding and knowledge about some of these options, and you may find that your risk tolerance is not zero after all.


When we talk about the risk level of a portfolio, we have to consider many scenarios; What is the likelihood: of your capital being preserved? of the earned interest/dividends being paid out to you? that you will be able to withdraw funds during retirement without depleting your capital and for how long? that you are able to withdraw funds in an emergency without penalties or the risk of capital losses? Determining your risk level is more than marking a box on an application form.


Through discussion it is very important to ensure that you not only know the difference between low and medium or medium and high risk, but that you understand the limitations and consequences of your choice. Everyone would like no risk and high interest, but, unfortunately that is not how portfolios can be built. The more comfortable and knowledgeable that you are with your risk tolerance, including the consequences upon your savings, the less likely you will be to give a little shudder—shut your eyes—when you turn over the page in your calendar to October.


I mentioned diversification earlier. Diversification of your portfolio across the various asset classes is a way to lower the risk of your portfolio. Over the past 30 years, no one- asset class has continually outperformed the others. At one time I can recall reading a study that compared the tactic of buying the previous years ‘winner’, annually, to the tactic of buying the previous years ‘loser’ year after year. Over 20 years, the difference between the final portfolio returns was minimal.


Broadly, the asset classes are cash, fixed income, equity and specialty investments. There are numerous sub-headings such as bonds, Canadian or U.S. equity, dividend and income trust funds, gold and other precious metals to name a few. Studies have determined that approximately 90% of a portfolio’s return is dependent upon the diversification, not on market timing or being able to pick the ‘winners’.


There are many ‘GIC only’ investors. They don’t want to take any risk, and their portfolio is 100% fixed income and cash (a GIC with less than 3 years to maturity is considered cash). Although this is not considered a diversified portfolio, this mix achieves a client’s objective of safety and income with no risk.

 
 
 

Commentaires


CIPF_ENG_Member.png
CIRO_Regulated_Dark.png
  • Facebook
  • Twitter
  • LinkedIn

Important Disclosures

 

iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Canadian Investment Regulatory Organization. iA Private Wealth is a trademark and a business name under which iA Private Wealth Inc. operates.

This is not an official website or publication of iA Private Wealth and the information and opinions contained herein do not necessarily reflect the opinion of iA Private Wealth. The particulars contained on this website were obtained from various sources which are believed to be reliable, but no representation or warranty, express or implied, is made by iA Private Wealth, its affiliates, employees, agents or any other person as to its accuracy, completeness or correctness. Furthermore, this website is provided for information purposes only and is not construed as an offer or solicitation for the sale or purchase of securities. The information contained herein may not apply to all types of investors. The Investment Advisor can open accounts only in the provinces where they are registered.

 

Products and services provided by third parties, including by way of referral, are fully independent of those provided by iA Private Wealth Inc.  Products offered directly through iA Private Wealth Inc. are covered by the Canadian Investor Protection Fund, subject to exception. iA Private Wealth Inc. does not warrant the quality, reliability or accuracy of the products or services of third parties. Please speak to your advisor if you have any questions.

bottom of page