Are Your Investments Too Volatile?
Peter Katevatis - Oct 19, 2015
Let me start by saying that risk is a good thing. Without risk there is no reward. Without risk there is no success. Without risk there is no fun. The key to a comfortable portfolio is matching the investor's personal risk tolerance with the vo
Let me start by saying that risk is a good thing. Without risk there is no reward. Without risk there is no success. Without risk there is no fun.
The key to a comfortable portfolio is matching the investor's personal risk tolerance with the volatility of his or her portfolio. Everyone is different and our uniqueness should be celebrated, unfortunately in the financial world we often follow along with what others do.
Too often I find investors buy investments for the following reasons:
“My family member said it was a good investment”
“My neighbour really likes this company and he knows people there.”
“My coworker has made a killing with this fund so I want to buy it.”
“Warren Buffet is buying so it must be good for me too.”
Although your family member, neighbour, co-worker or Warren Buffet might buy an investment, it doesn’t mean that it is right for you. Your specific needs are determined by two main factors, investment goals and risk tolerance.
Investment Goals are very important to put on paper, they keep you focused on the reason for your plan. Are your savings for retirement? Your child’s education? Your new Tesla Model X? A new home down payment fund? Your goal is personal to you, but it should be more specific than “making my money work for me and grow.” Investment Goals are quantifiable and reasonably straight forward.
Risk Tolerance is often the tricky one to determine. When the markets are rising and the recent performance is positive, investors tend to have a higher risk tolerance. When we are in the midst of market crashes and bear markets the negative media sends most investors into full risk aversion mode. This unfortunately creates a situation where investors buy high and sell low. In my slightly biased opinion I recommend that you employ the skills of an investment professional to help you determine your risk tolerance. Once you determine the maximum amount of risk you are willing to take, your investment options become much more suitable.
Canaccord Genuity Wealth Management has pulled a few of our big brains from around the world to come up with a unique product offering for Canadians. Discretionary managed portfolios that focus on your risk tolerance then build a portfolio around it. We call it our GPS Optimized Portfolios and they come in the following risk levels: 2%, 3%, 6%, 9%, and 12%. Depending on your ability to handle volatility determines what your portfolio should look like.
Occasionally, the Grand Poohbah (unofficial title) of this program is in Vancouver from the UK for presentations and one-on-one information sessions. If you would like to take an exploratory look into this program please feel free to contact me for a no-obligation consultation.
You should feel comfortable with your investments. When your statement arrives in the mail you shouldn’t cringe that it might contain Anthrax-style numbers. If your investments are bouncing around too much and you can’t sleep at night it is up to you to make a change.