Investment process

Investors often select their investments based on recent returns, current news, and predictions for the future. However, research has shown this approach to be ineffective over the long-term.

The basis of our investment planning process is to focus on the unique requirements of each client; whether for long-term growth, risk minimization, tax-efficiency, or other needs. A thorough understanding of the client’s objectives an circumstances allows us to create a customized long-term investment strategy; and a specific written investment plan helps maintain the discipline required to achieve long-term objectives.

In developing customized investment plans, our methodology is to seek to “optimize” portfolios by providing appropriate diversification to maximize potential returns for an acceptable level of risk, or to minimize expected risk for a desired rate of return. To accomplish this, we utilize a 3-stage process:

Stage 1: Strategic asset allocation

  • Ascertain the client’s unique objectives and their “investor profile” (based on time horizon, risk tolerance, and other factors).
  • Match the client’s investor profile to an optimal asset mix; diversified first between the broad categories of fixed income and equity investments, then further allocated among the major asset classes.
  • Review the client’s current portfolio to determine whether it is appropriate to their investor profile and objectives.

Stage 2: Strategic asset location

  • Enhance portfolio tax efficiency by distributing asset classes appropriately among RRSP and non-registered investment portfolios, and/or between spouses.
  • Establish the appropriate investment structure that best meets the client’s overall objectives to maximize estate values (segregated funds), enhance tax-efficiency (corporate class mutual funds), or minimize investment expenses (mutual fund trusts).

Stage 3: Strategic investment selection

  • Determine the specific investment funds and weightings within each asset class that provide broad diversification by employing a multi-manager, multi-mandate, multi-style approach.

Stage 4: Reviews and rebalancing

  • Once established, the asset mix should be reviewed on a periodic basis as determined jointly by the client and the Financial Security Advisor. Systematic rebalancing between the investments in the portfolio helps maintain the integrity of the recommended asset mix and ensures that the portfolio remains aligned with the client’s objectives, time horizon, lifestyle needs, or other important factors
  • This strategy creates a methodical process to “buy low and sell high” and may increase potential returns and reduce expected risk over time. In particular, the asset mix in a client’s portfolio can go off target over time depending on market conditions (a situation referred to as “risk creep”). For example**, a portfolio of 40% bonds and 60% equities established in 1996, held without rebalancing until 2000, resulted in an asset mix of 30% bonds and 70% equities. This result can expose clients to more risk than is appropriate, as investors found when the equity market declined by more than 28% over the next two years (2001-2002).

** Source: Morningstar PalTrack; assumes an investment of 40% bonds (Scotia Universe Bond Index) and 60% equities (S&P/TSX 60 Index).
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Representing Freedom 55 Financial, a division of The Canada Life Assurance Company
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