Asset Allocation

When you go to your financial institution to purchase mutual funds, you will be given a questionnaire to complete to determine your “investor profile” which in turn determines your asset allocation mix.

I have heard it said that it doesn’t matter what investments you have within your asset classes as long as you have the correct percentage mix.  What a load of nonsense!  Your individual investment choices should have some meaning to you and your plan and should be unique to you and your circumstances.

This is how my asset allocation is set up.  I know approximately how much I want to have in each category in dollar value.  I don’t know, and have never figured out what the percentages are.  It’s nearly impossible to find a perfect asset allocation solution.

Related: The Perfect Portfolio Doesn’t Exist

Asset Allocation Mix #1 – Safety of Principal

I believe everyone needs some funds that are relatively easy to get to for emergencies, opportunities and just plain peace of mind.  This is what I have in this category:

  1. A savings account that I make regular monthly deposits to that covers my yearly expenses such as insurance, vacation and Christmas.
  2. A high interest savings account for unexpected expenses, etc.
  3. Money Market mutual fund that is my real emergency fund in case I find myself about to be homeless or worse

Asset Allocation Mix #2 – Income

I’m not a fan of bonds these days, but I do have a Bond mutual fund in my RRSP that is not doing too badly.

This is not really used for income, but I have 5 GICs that are laddered in 5-year compound interest terms.  I initially purchased these quite some time ago for $1000 each to be used in what I morbidly call my funeral account, as GICs are easy redeemed prior to maturity in case of death.

However, with current interest rates, I’d have a pretty puny funeral if I were to pass away right now.  I’ll have to stick around for a long, long time to get the send off I think I deserve.

Asset Allocation Mix #3 – Growth

My main goal here is actually income, not growth.  I have blue chip dividend stocks in my Direct Trading account, RRSP and TFSA.  Some examples are:

  1. Financials – TD Bank, Power Corp.
  2. Utilities – Fortis, Emera
  3. Telecom – Rogers, BCE
  4. Resources – TransCanada Corp, Suncor
  5. Consumer Goods – Empire, Reitman’s, Saputo, Corby Distillery

I have some income trusts:  Canadian Oil Sands, Liquor Stores, Cineplex, Rogers Sugar and Riocan.

I also own some specialty mutual funds: US Midcap, Emerging Markets, Health, Entertainment and Global.

I’m only giving some examples of what I have in my investment portfolio because I don’t think anyone should just copy what I have.  Many of my stocks I purchased years ago when the prices were substantially lower.  Everyone needs to do their own research and keep their own goals in mind when investing.

What’s your asset allocation strategy?

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  1. Tiny Potato on August 12, 2010 at 11:18 am

    Great post. I’ve always been skeptical of the bank asset allocation calculators and the overall “know your client” process in general. They are far to simplistic for most investors.

    As for me, I’m sticking primarily to the couch potato approach for the RSP; 30% to 35% fixed income and the rest in equities (Canadian, US and International). For the TFSA I am focusing on Canadian Dividend payers and dividend ETFs and hopefully DRIPping my way to supplemental income.

    • Echo on August 12, 2010 at 11:38 am

      @ Tiny Potato – is there a specific mutual fund or ETF you follow for your RSP Couch Potato approach?

      • Tiny Potato on August 12, 2010 at 2:55 pm


        I use the iShares ETFs. They have competive MERs and decent enough trade volume.

        There are alternatives such as Claymore and BMO ETFs though

  2. Financial Cents on August 15, 2010 at 6:44 am

    Nice post yourself! I just found your site after your comment on my blog.

    I too, use iShares. XIU, XBB for our RRSPs – try to keep about 40% bonds. Canadian dividend-paying stocks are all unregistered to take advantage of dividend-tax credit.

    Hey Echo, how long have you been owing dividend-payers like the ones above?

    Stay in touch!

    • Echo on August 15, 2010 at 11:47 am

      @ Financial Cents – Thanks for commenting. Our blog is a partnership and this particular post came from Boomer, not Echo. However I do also own a few of the dividend payers listed above. Most of them were purchased in May, 2009 – so kind of lucky with the timing there 🙂


  3. Canadian Couch Potato on August 15, 2010 at 6:28 pm

    RE: “I have heard it said that it doesn’t matter what investments you have within your asset classes as long as you have the correct percentage mix. What a load of nonsense!”

    This isn’t nonsense; it’s a basic tenet of financial theory. The main driver of returns in a diversified portfolio (that’s a key point) returns is asset allocation, not individual security selection:

    Maybe the problem here is terminology. You’ve classified GICs and bonds as “income,” but that’s not an asset class. Bonds are their own asset class (actually they comprise several), and GICs are considered cash, the same as the investments you’re calling “safety of principal.” The ones you call growth would be classified as Canadian equities.

    If you own only 15 or 20 stocks you name, then that doesn’t qualify as a diversified portfolio, because you’re still exposed to company-specific risk. So your security selection will indeed have an effect on your returns. Once you own 40 or 50 or more stocks, then you can diversify away company-specific risk. At that point, asset allocation takes over as the major influence on returns.

  4. Boomer on August 17, 2010 at 4:27 pm

    Thankyou for your comments Canadian Couch Potato. However, while I do believe in diversification with respect to asset classes, I still think you need the investments that are right for you and your circumstances. There is a big difference between a good quality dividend paying stock and a high risk penny resource stock within the equity class. As for the stocks I named, they are merely a representation of the types of companies I own. I actually own 32 stocks in total which I think is quite diversified and I’m always on the lookout for another.

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