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My primary objective is to conserve investment capital through the selection of a sound and diversified portfolio. The underlying message here is that I strive to balance risk to achieve maximum reward by selecting a wide variety of different assets. In addition to my individual dividend stock holdings I use a variety of index funds to ensure I am invested across investment styles and assets. I recently added to my index fund holdings to achieve this goal.[ad#tdg-embedded]
The purpose for the changes I made was to ensure that my portfolio had five types of assets in each of regions I invest in (in addition to my fixed income components). In the Canadian, U.S., and International holdings I incorporated a blended growth/value component, a value component, a small-cap component, an emerging markets component, and a REIT component. The intention is that I can take advantage of each sectors ebbs and flows in the market (i.e. one goes up and one goes down). This should balance my risk and reduce the overall volatility of my portfolio while enhancing returns. There is amble proof that assets types small-caps have provided increased returns but with more risk. Balancing that with the value component will ease that volatility (that is the theory anyway). Adding the REIT’s simply gets me into a whole other type of investment which tends to move differently than stocks while providing more income through dividends and distributions. Overall, these changes were all about diversification and risk reduction.
So, in addition to my individual dividend holdings, my portfolio now contains the following index ETFs across each of the respective asset classes. Please note that the growth component is contains my growth:
Blended Value/Growth
Value
Small-Cap
REIT
Emerging Markets
Fixed Income
Here is how the portfolio looks right now – as you can see I have some work to do to get things in line. That will come with time. The large-cap growth is way out of whack because of a recent stock award I received from my employer. I will focus on bringing this down over time as I strongly beleive it is a huge mistake to hold a disproportionate amount of employer stock.
Of course it goes without saying, this portfolio will work for me. Although I don’t have the ego to expect you would go out and copy me – but don’t. Do your own research on asset allocation and then design a portfolio that works for you. Here is one site to start with: FundAdvice.