Investing In Your Future: Dynamically Diversified Investing

As an experienced investor, you know that asset allocation is a vital strategy when it comes to assembling and maintaining your investment portfolio. Asset allocation simply means dividing your assets among the different asset classes – stocks, bonds and cash. A sound asset allocation strategy takes advantage of the long-established investing fact that there always has been, and always will be, market volatility but over the long term, markets have historically moved higher.
Diversification is an important aspect of asset allocation. A well-diversified portfolio includes a variety of assets across a number of investment categories. The objective is to smooth out risk by having the above average performance of some investments offset the below average performance of other investments. For this strategy to be effective, the assets in a portfolio must not be highly correlated, meaning that they are not expected to typically move in the same direction at the same time.
Many Canadian investors believe they are achieving adequate diversification by “buying the market” through an instrument such as an index fund. The problem with this approach is that 66% of the S&P/TSX index weight* is in just three sectors: Financials, Energy and Materials – sectors negatively influenced by the ongoing slowdown in global activity. With these currently highly correlated sectors so dominant, it is difficult to offset losses through investments in relatively small, less-correlated sectors such as Healthcare.
So, achieving true sector diversification within the Canadian market is difficult at best. That is why savvy Canadian investors have traditionally sought diversification by investing in various areas of the world. But rather than taking a do-it-yourself, hit-and-miss approach to diversification, many investors are now choosing a dynamic asset allocation strategy.

A basic static asset allocation strategy establishes a strategic mix of holdings across various asset classes and geographic regions, suited to your financial objectives and based on your goals and risk tolerance.
By contrast, a dynamic asset allocation strategy is guided by a strategic asset allocation mix, but may adjust target allocations as market conditions change – a continuous optimization that reduces the impact of shorter-term fluctuations.
A Portfolio Fund is a grouping of financial assets held by investors and managed by financial professionals. Certain Portfolio Funds combine a long-term investment management outlook with dynamic asset allocation strategies to adapt to shorter-term market movement with the goal of managing risk and enhancing returns.
Any investment plan should be evaluated regularly to ensure it continues to be right for you as your finances and objectives evolve. Your professional advisor can help you craft the best asset allocation and diversification strategy for you and keep it on track, dynamically.