We want to ensure that every client investing in one of our model portfolios is directed to the model which is most suitable, given that client’s goals, objectives, investment time horizon and risk tolerance level.
A systematic and disciplined approach is of critical importance in developing and monitoring our model portfolios. Such an approach is equally important in making sure that each of our clients understands their individual “investor profile.” The determination of that profile is both objective and subjective. Each client completes a standard questionnaire which determines in as objective a manner as possible which model would be most suitable. We then review the questionnaire and the resulting profile with the client to ensure that he or she agrees with the more objective assessment. In cases where the objective and subjective results are not a match, we ensure that the model recommended to the client is the one where there is the highest level of comfort.
We have designed a number of model portfolios, covering the investment spectrum from the very conservative to the very aggressive. One of our key objectives in developing these models was to create a strategy that would take the emotion out of investment decisions, both for us as investment professionals and for our clients.
The models are comprised of a mix of equities, bonds and gold bullion and, in some of the models, GICs. In selecting the individual components of the models, we use a systematic and disciplined screening process. Many criteria are considered, including a history of above average and consistent performance by the fund manager, the relationship of risk to reward, and correlation analysis. The objective with each of the models is to create a portfolio made up of some of the best managers available, and one where there is as little correlation as possible among the various components in it.
These models are not static. They are constantly monitored and managers will be removed and added from time to time.
Where a client has invested in one of the models, we review his or her portfolio every 90 days. As described below in detail, each of the models has a particular asset mix which matches each client’s “investor profile.” If, at the time of a 90-day review, the portfolio needs to be rebalanced, we will so advise the client. As an example, if a client had invested in the 65% equity / 35% income model, if that allocation were out of balance by at least 5 percentage points, the portfolio would be rebalanced so that the suitable asset mix is maintained over the long term.
This rebalancing process forces us to “buy low and sell high.” What is important is that rather than having these on-going buy and sell decisions determined by emotion, it is the asset mix of the portfolio itself that determines what action needs to be taken. We strongly believe that the best investment decisions are generally the ones that involve the least emotion.
There are six different model portfolios:
- Defensive (23% equities / 77% income)
This model is suitable for those investors who are primarily concerned about preservation of capital. Often investors opting for this model are looking for a steady and dependable income stream. A typical “defensive” investor is much more concerned about conserving capital than about growth of capital.
- Conservative (30% equities / 65% income / 5% gold bullion)
Like the defensive investor, a conservative investor is primarily concerned about earning a reasonable level of income, but is also willing to take on a bit more equity exposure, and the market risk that entails.
- Traditional (40% equities / 55% income / 5% gold bullion)
An investor for whom this model is most appropriate is looking for a balance between the growth potential offered by equity investments and a stable income stream provided by income producing investments.
- Traditional Growth (62% equities / 33% income / 5% gold bullion)
Typically, an investor choosing this model is willing to take on somewhat more equity risk, and is more concerned with longer-term results. While seeking some steady income production, that is not the focus. The income component is comprised of 20% in bond funds and 15% in funds invested with a focus on dividends, high yield bonds, REITs and income trusts.
- Growth Oriented (72% equities / 23% income / 5% gold bullion)
The growth oriented investor is primarily focused on growth of capital and has a long term investment time horizon. He or she is willing to take on the risk of a high exposure to equity-related market volatility in return for capital growth over the longer term.
- Aggressive Growth (85% equity / 10% income / 5% gold bullion)
With this model the focus is almost entirely on long-term growth of capital. Current or medium-term income requirements are not an issue, and the investor’s time horizon is very long term.
These portfolios are intended to work as an “overlay” that applies to all of a client’s investments, including both registered and non-registered portfolios. In cases where clients have both registered and non-registered assets, it is quite possible that neither account will match the target asset allocation, but the aggregate of the two should reflect that mix. When allocating investments between registered and open accounts, for tax reasons it is generally beneficial to keep income-producing investments in registered accounts. This shelters interest income, which is subject to a higher tax rate than are capital gains.
These models are solely the work of Howard Goodman who is a registered representative of HollisWealth® (Holliswealth® is a trade name of Investia Financial Services Inc., a member of the Mutual Fund Dealers Association of Canada and the MFDA Investor Protection Corporation) for the private information of his clients. Although the author is a registered Senior Financial Advisor with HollisWealth®, this is not an official publication of HollisWealth®. The views (including any recommendations) expressed in these models are those of the author alone, and they have not been approved by, and are not necessarily those of HollisWealth®.
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