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Part 4: What makes a good investment portfolio

A portfolio is a collection of all your investments. Learn how you can combine them to help you achieve your financial goals.

What are your goals for the future? Your investment portfolio should reflect what is important to you, and it should be custom-designed to help you achieve your goals.

An investment portfolio is a collection of all your investments, a collection that reflects your tolerance for risk and the length of time you plan to invest.

A good investment portfolio creates a unique mix of investments based on what’s important to you. This is called strategic asset allocation.

A key principle of asset allocation is diversification — owning different investments means having different return opportunities and spreading out risk. As your goals and investment time horizons change, your asset allocation should also change. So it’s important to rebalance and review it on a regular basis.

When you’re starting out, it can be challenging or even overwhelming to put together the right mix of investments to help you achieve your goals. Talk to an MD Advisor* about constructing a good investment portfolio or to get help reviewing your portfolio.

Previous: Part 3 - Deciding how you want to investNext: Part 5 - How to evaluate your investments

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What is important to you? What are your goals for the future? To buy a home, or pay off a mortgage? To retire early? To take a dream vacation?

Whatever is important to you, your investment portfolio should reflect that, and be custom designed to help you achieve it.

Put simply, an investment portfolio is the collection of all your investments – which could include stocks, bonds, mutual funds, exchange traded funds (and more) - that reflects your tolerance for risk, the length of time for which you’re investing and what you’re comfortable with.

A good investment portfolio is one that puts you at the centre, creating a unique mix of investments based on what’s important to you.

So, what makes a good investment portfolio? It starts with strategic asset allocation - the long-term mix of investments selected for your portfolio designed to achieve your financial planning goals.

Strategic asset allocation should be all about you - your personal circumstances, when you need the money, your ability to stomach risk, etc.

A key principle of asset allocation is diversification - owning different investments means having different return opportunities and spreading out risk.

A properly diversified portfolio typically has a mix of investment types like stocks and bonds as well as different investment management styles. Typically, a professionally managed portfolio will be diversified on your behalf so you don’t need to worry about it.

Together, these different investments should help you achieve steady returns over time while insulating your portfolio against short-term market hiccups.

In the shorter term, market conditions may shift and warrant a portfolio adjustment to avoid risk or to capitalize on an opportunity. For example, shifting some of your Canadian equities into U.S. equities if U.S. economic prospects are better. Making these types of tactical, or short-term asset allocation adjustments can add incremental value.

The appropriate asset allocation will change as your goals and investment time horizons change. For example, someone just starting their medical career will not have the same mix of investments in their portfolio as someone getting close to retirement because their financial goals will differ, and so will their timelines required to meet those goals.

After determining the appropriate asset allocation to achieve your goals, your portfolio should be constructed with quality investments with the potential to repeatably achieve investment objectives, whether that’s long-term growth, regular income etc.

Your portfolio and your asset allocation should be rebalanced and reviewed on a regular basis to ensure it's still appropriate based on changes in your life and in financial markets. If you’re working with an advisor, he or she can help with this as part of the ongoing financial planning process.

For more information about constructing a good investment portfolio or help reviewing your portfolio, get in touch with an MD Advisor. He or she will be happy to answer any questions and tell you more.

* MD Advisor refers to an MD Management Limited Financial Consultant or Investment Advisor (in Quebec), or an MD Private Investment Counsel Portfolio Manager.