Keep volatility in perspective
Whenever the investment ride gets bumpy, as it was through parts of 2011, it’s important to step back and keep volatility and emotions in perspective. Regardless of what markets are doing from day to day, the long-term trend has historically always been upward.
And in any kind of market — rising, falling or staying steady — it is important to keep in mind the principles of sound investing. A well-structured, diversified portfolio that’s based on a long-term strategy can often be the foundation of investment success.
Focusing on the long term
For long-term performance, consider a mix of assets from the three main asset classes — cash or cash equivalents, fixed income, and equities — for your portfolio. Each can bring important qualities to your portfolio.
- For security: Cash, GICs, Money Market funds, Savings accounts. These investments provide a stable base for your portfolio as well as liquidity so you can get your money out on short notice. But the low returns generated by interest earnings may not outpace inflation over the long term.
- For income: Bonds, Bond Funds. Fixed-income investments such as bonds and bond funds generate cash flow and are less volatile than growth-oriented investments. However, they can still fluctuate in value, decrease in value when interest rates rise and increase when rates go down.
- For growth: Equities, Equity Funds. This asset class is the most volatile over the short term but has historically provided better performance than guaranteed and fixed income assets and outpaced inflation by the widest margin.
Don’t forget about the effects of inflation. Over the long term, secure guaranteed investments that pay interest and protect your principal may not provide sufficient returns to keep you ahead of increases in the cost of living. For example, if invest in GICs and they are earning 3% and inflation is running at 3%, you’re just breaking even.
While it’s important to have an element of safety in your portfolio, too high a concentration could hinder your ability to reach your long-term growth objectives.
If you have any questions or would like a review of your current investments, please call 778-478-9759, or email [email protected]
This column is presented as a general source of information only and is not intended as a solicitation to buy or sell investments, or life insurance, and should not be taken as providing, investment, financial, legal, accounting or tax advice. All services provided through NorthBay Financial Services. Mutual funds are provided through Sterling Mutuals Inc. Insurance is provided through multiple carriers. The opinions expressed are those of the authors and do not necessarily reflect the views or opinions of Sterling Mutuals Inc. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds and Segregated funds are not guaranteed, their values change frequently and past performance may not be repeated.
Read more Your Money articles
- Feeling bullish about the markets? Jul 21
- New mortgage rules Jul 7
- Start saving early Jun 23
- Transferring US retirement plans Jun 9
- Keep volatility in perspective Apr 14
- Budget 2012: Changes to OAS & GIS Mar 31
- Taxation of Investments 101 Mar 17
- RRSP strategies for today Feb 4
(Click for RSS instructions.)