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Before you select individual securities, mutual funds or exchange-traded funds (ETFs), it's a valuable exercise to determine what mix of investments is right for you. This is called your "asset mix" or "asset allocation."
Your asset mix is determined by your investor profile — the type of investor you are, the level of risk you're comfortable with, your investment goals and your time horizon. These details inform how you allocate your capital to the three main investment asset classes (equities, fixed income and cash) in your portfolio.
Here's how the three break down:
- Stocks (equities) can provide growth in your portfolio, but they tend to fluctuate in value more than other types of investments, so they come with more risk.
- Fixed-income investments (such as bonds and GICs) can help you preserve your capital and receive steady income, but they don't tend to grow as much as equities do.
- Cash investments tend to be very secure and offer liquidity, allowing you to take advantage of investment opportunities as they arise.
The main benefit of achieving an appropriate asset mix is diversification, which is important because financial markets typically don't move in the same direction at the same time. In a diversified portfolio, the positive performance of some investments could offset the negative performance of others. This can help reduce overall portfolio volatility.
As you build your portfolio, the Portfolio Analyzer tool can help you see what appropriate asset allocations might look like for an investor with similar objectives to yours.
Built by RBC Global Asset Management, each model is designed to balance risk and reward over time, and is updated annually to reflect changing markets. The models offer asset allocations aligned with five investor profiles, from very conservative to aggressive growth. Use the models to inform your investment choices, or choose the one that best aligns with your investor profile.
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