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:
- A savings account that I make regular monthly deposits to that covers my yearly expenses such as insurance, vacation and Christmas.
- A high interest savings account for unexpected expenses, etc.
- 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
- Financials – TD Bank, Power Corp.
- Utilities – Fortis, Emera
- Telecom – Rogers, BCE
- Resources – TransCanada Corp, Suncor
- 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?
As far back as I can remember I have wanted to be wealthy. Not the “pie in the sky – hope I win the lottery” kind of wealthy (although that would be nice). Rather by obtaining wealth through saving & investing. When I was younger I read just about every wealth building book that I could get my hands on, such as The Wealthy Barber, Millionaire Next Door, and Smart Couples Finish Rich.
Of course, having a financial planner for a mother helped me achieve this mind-set. From getting me set-up as a landlord in her first rental property venture, to teaching me about dividend growth investing, mom has always been there to steer me in the right direction.
Still, life happens…and after escaping a mountain of debt over the past decade I finally feel that all of my obsessing is paying off and we are on the right track financially. Having survived year one of raising our first child, and adjusting to single income living, I think we’re ready to face the next set of challenges that life has to offer.
That’s why I wanted to start this blog. I now feel in control of my financial future, which is the first step in what will be an exciting adventure over the next decade. I want to share my experiences so that hopefully the younger readers learn from my mistakes and get started earlier towards their own financial freedom. And I want to share my current and future adventures in personal finance, hopefully engaging with readers along the way to prosperity.
I have always been a saver. Perhaps this is a trait I inherited from my depression era parents. I started working part-time at fourteen and saved a portion of my earnings, enough that I could pay for my post secondary education while incurring minimum debt.
Much to my parents’ disappointment, I only completed three years of university and never graduated. I married early and my savings helped purchase our first house. Even with Women’s Lib insisting all women be empowered and have a career, I was happy enough to be a stay at home Mom and raise my two sons.
Unfortunately, inflation reared its ugly head and I was forced to go out and start earning so we wouldn’t starve. Our initial 5-year term mortgage of 10.5% matured and we renewed at 17%, considering ourselves lucky as our neighbours across the street were stuck with up to 22% mortgage terms. The interest on GIC’s and Canada Savings Bonds were also at an all time high, but being a young family we had a lot more debt than savings.
I worked in a bank and, over the years, I learned quite a bit about finances and ultimately took the courses to become a Personal Financial Planner. When the banks started selling mutual funds in the late 1980’s I enthusiastically worked out my asset allocation model, set up my monthly purchase plans and had accounts for myself and trust accounts for my children.
The stock market was in a boom then and stocks (and mutual funds) were soaring. Interest rates fell and our customers were leaving GIC’s in droves and jumping on the mutual fund bandwagon. Then came the “Asian flu” and the first bear market that the GIC refugees had experienced. I was lucky enough to cash in some of my funds at a good profit to purchase a rental property that one of my sons also lived in while going to university.
Next came direct trading accounts and the tech stock boom in the late 1990’s. People couldn’t open accounts fast enough and my bank could barely cope with the applications. I did quite well on most of the stocks I purchased but, if I had been smarter, I would have sold all my tech stock at the peak instead of waiting as the market plummeted. I would have made at least 3 times as much profit.
This period is when I made up my mind to purchase only dividend stocks. I know I don’t have enough skill or interest to try to time the market. Dividends seemed to be more of a sure thing, especially those paid by blue chip stocks that increase their dividends annually. So, this was the beginning of learning about my current investment strategy of retiring with financial security.