Investing in financial assets can help you grow your savings and protect your purchasing power, especially in times of increasing inflation. However, you may need a balanced portfolio at certain stages of your investment journey.
What is a Balanced Portfolio?
Some investors seek aggressive growth when buying assets in the financial markets. For others, capital preservation is their principal investment goal.
A balanced portfolio strikes a balance between growth and capital preservation. Also, when you build a balanced portfolio, it helps to balance investment risks.
Types of Financial Assets in a Balanced Portfolio
Certain investment assets have higher risks, consequently allowing you to earn higher returns. An example of such assets are stocks and alternative investments. On the other hand, investing in some assets that yield fixed income may have lower risks and help preserve your capital but have lower returns.
High-growth investment assets include stocks, exchange-traded funds, or alternative investments in private equity, private debt, real estate investment trusts (REITs), real estate funds, or real estate properties.
You can invest in capital preservation assets such as bonds, guaranteed investment certificates (GICs), and government treasury bills.
A typical balanced portfolio contains a mix of traditional assets like stocks and bonds plus non-conventional assets, such as investments in real estate funds. You can also include GICs or ETFs in your balanced portfolio.
A balanced portfolio can be split equally between growth and capital preservation assets. Sometimes, a 60:40 mix between stocks and bonds also works fine, depending on your investment objectives.
Factors to Consider when Building a Balanced Portfolio
Investment Goals
Think about your overall goals when allocating your funds to investment assets. A balanced portfolio with a high percentage of bonds may result in lower returns than a portfolio with more growth stocks. However, your portfolio may have lower risks compared to one with more volatile stocks.
Risk tolerance
As you get closer to retirement, your investment priorities may change. Consider including more low-risk and fixed-income assets in your portfolio as they help preserve your capital and funds.
Portfolio diversification
An essential aspect of building a balanced portfolio is diversifying your investment assets across types, geographies, and industries. A healthy mix of assets in stocks, fixed-income assets, and alternative assets across different countries can help you create a cushion against market downturns.
For example, your balanced portfolio can include U.S, Canadian, Emerging Markets, and international stocks.
Returns
Financial markets are volatile. A well-balanced portfolio with assets that are not directly correlated helps manage volatility risks. (Not that ReaAlt® Investments is not correlated to market volatility. Since RealAlt® is a commercial mortgage, these mortgages continue to get paid back every month and the interest payments are returned to the investor.)
Your investment returns fluctuate with upturns and downturns in the financial market, and a balanced mix of assets can help you preserve your returns.
Building a balanced portfolio is essential for capital appreciation and protecting your funds. Your asset mix can get distorted due to changing economic factors. You need to revisit your investments and re-balance your portfolio to continue to meet your investment objectives.
