Be an Informed Investor!
People sometimes invest their money based on emotion. But it's important to think before you act in order to make rational investment decisions.
The best way to determine the investment strategy that's right for you is to draw up an investor profile that takes into account:
- Your age and civil status
- Your financial situation
- Your cash flow needs
- Your financial objectives
- Your expected income
- Your investment horizon
- Your investor experience and investment knowledge
- Your family situation
Your profile will help you allocate your funds in the most effective way. Then, you'll be able to choose investment solutions that meet your needs and leave ample room to diversify your portfolio as best suits your situation.
A Strong, Balanced Portfolio
By allocating your funds according to your investor profile, you'll be comfortable with the level of risk inherent to your investments, but even more importantly, you'll have a strong, well-diversified, balanced portfolio.
Funds in a portfolio are distributed into different categories of assets (liquid assets, fixed income, growth stocks, alternative investments, etc.). Portfolio diversification consists of dividing the funds invested into various assets in the same category.
Diversifying Your Portfolio
Diversification means dividing your investment portfolio for optimal performance in the "growth" and "income" categories, in accordance with your investor profile and the nature of the markets involved.
In other words, it's about not putting all your eggs in one basket. If one of your investments doesn't perform as expected, your portfolio as a whole won't take too big a hit.
A portfolio should ideally be diversified in 4 ways:
- Different investment types
- Different geographical areas
- Different portfolio management styles
- Maturity date management
It's best if your investment portfolio takes all 4 types of diversification into account. But be careful! That doesn't mean overdiversifying your investments with too many different products. You can have a diversified portfolio within a single investment solution made up of a number of funds, all at a single financial institution. Remember, too much diversification can even be harmful.
Each type of diversification provides the following advantages:
- Reduces the overall risk, since individual risks are partially eliminated
- Potentially improves your portfolio's performance
- Opens the door to a wide variety of investments
- Optimizes the risk/reward ratio
- It's important to take full advantage of all opportunities offered by the various markets, no matter how turbulent they are.
- It's not important when you enter the market so much as how long you invest and whether you respect your investor profile.
- It's important to review your investment choices as necessary in order to respect your investor profile.