5 steps for smart investing in 2020
We are living in unpredictable times. Disruptions abound in every sphere – social, political, economic, technological, environmental. Financial decisions are more difficult due to increased risk and complexity. Future planning is more and more challenging for government retirement systems, private pension plans, and individual investors.
How has investing become more challenging for you?
In a world where interest rates are not much above zero – and in some countries below zero, how do you generate a reliable retirement income stream for an uncertain but potentially lengthy lifespan? How do you invest to obtain sufficient cash flow while preserving your wealth?
If retirement is on your horizon, how do you confidently grow your wealth to ensure that you’re there – enough for a long and joyful retirement, without worrying about the impact of market changes?
If you are at your peak earning potential in your career, how do you translate your current success into an investment strategy for wealth accumulation?
BUILDING CAREER AND FAMILY
If you are building your career and family, how do you create a nest egg for a sustainable future that is also in harmony with the needs of a changing world?
Our role as an investment advisory firm is to understand the emerging trends, not necessarily to make market forecasts. It is to help you be prepared for the future, however it unfolds. That is why it is useful to explore forward-looking projections based on different “What if?” scenarios, and to focus on things within your control.
Implement these five simple steps to make smart decisions through 2020 and beyond in order to accomplish your investment objectives.
1. Know what is most important for successful investing.
Define the elements of your investment strategy by characterizing them according to one or more of the following six factors you want to emphasize in your portfolio.
Dividend – Companies that distribute higher than average profits to investors
Value – Securities that are undervalued in the marketplace
Size – Smaller firms with high growth potential
Momentum – Large and mid-cap companies with an upward price trend
Quality – Stable companies with healthy balance sheets
Low Volatility – Securities with lower risk and less price fluctuation
Focus on the factors that most effectively address your situation, not what the media may be promoting as the latest and greatest opportunity.
Sustainability – You may also want to consider sustainable investing, where holdings are screened according to ESG criteria (environment, social and corporate governance).
2. Diversify your investment holdings as much as is reasonably possible across asset classes; rebalance as needed.
Maintain an asset allocation that will enable you to accomplish your goals. Each asset class comes with its own particular risk and reward profile. Diversification helps smooth out the ups and downs as each asset class responds differently to changing conditions. Select asset classes and specific investments that meet your risk tolerance and your return objective while offering the greatest likelihood of success.
3. Understand how your investment portfolio is constructed and what to expect.
You may find it beneficial, for example, to know the range of results that have been achieved historically for your chosen asset allocation. Clarity fosters confidence and a greater sense of control. You are more able to filter out the noise of the market chatter.
4. Have an Investment Policy Statement (IPS) in place to help guide your decisions.
An IPS sets out your investment objectives, the boundaries for your portfolio and the rules to be followed when making changes to your asset allocation and investments. It helps to reinforce decisions, why they were made, and the circumstances under which they will be adjusted. Particularly for more complex portfolios, a written Investment Policy Statement helps to keep everyone rational and accountable.
5. Be ready to act on defined triggers.
Here are some examples of defined triggers.
Add to your investment in this stock if/when the price drops by more than 15% from initial purchase price … or
Increase the allocation to international equities by X% if/when the US dollar declines by Y% or more against the Euro … or
Switch from US equities to Canadian equities gradually over the next year to achieve a strategic target of 15% … or
For income tax purposes, minimize the taxable capital gains in open, non-registered accounts by using your TFSA and ETFs where appropriate …. or
Increase the cash or near-cash in your open, non-registered account at the beginning of each year, in readiness for the annual withdrawal for your life insurance premium …
Applying the steps
With a full suite of investment products, we are able to rebalance portfolios by adding individual stocks, ETFs and alternative strategies to the asset mix, where appropriate and desired, in a cost-effective manner. If you understand what you own, why you own it and the basis upon which changes will be made, you can expect to enjoy many years of successful investing regardless of market twists and turns.
The information in this commentary is for informational purposes only and not meant to be personalized investment advice. The content has been prepared by Jan Fraser, Fraser & Partners Investment Services of Aligned Capital Partners Inc. (ACPI) from sources believed to be accurate. The opinions expressed are those of the author and do not necessarily represent those of ACPI.