Anyone with a penchant for fitness has probably heard about how important a strong “core” is to overall body strength. Just as you pay attention to your body’s core, you need to take care of your core mutual fund investments. They need to be strong enough to support your investment goals.
Every mutual fund portfolio should have a nucleus of broadly diversified funds. This core is crucial to the strength of your portfolio because it provides stability. It can help your long-term investment returns grow and ease the anxiety caused by financial market volatility.
Core holdings are long-term “buy and hold” investments of low to moderate risk, at the same time offering the potential for attractive long-term investment returns within your risk tolerance.
Core in all asset classes
Just as your overall mutual fund holdings should be well diversified, so should your core holdings.
Equity core holdings often consist of “large-cap” equity funds that invest in blue-chip stocks. These funds may not always win the performance race, but they have good long-term track records and may fare better in difficult times.
The fixed-income core of your fund portfolio should consist of moderate-risk, solid investments such as funds that invest in government bonds. Consider funds that focus on intermediate bond maturities, since these are typically less volatile than longer-term bonds.
The changing shape of world markets may also call for non-Canadian investments to form part of your core. With Canada representing only a small percentage of global equity and bond markets, foreign equity or fixed-income funds may be good candidates for a portion of your core holdings.
How big is your core?
How much of your total portfolio your core should represent varies with factors such as individual financial objectives and risk tolerance. For many investors, 70% to 80% is common.
Keep in mind that the types of funds that constitute your core will depend on your personal investment characteristics. Funds that can be considered core holdings for one investor may not be suitable as a core for another investor.
Even if you already have a series of core investments, it’s a good idea for us to review your holdings from time to time to ensure they’re meeting your needs and expectations, and that the positioning continues to make sense for your goals.
Beyond the core
With the support of a strong core, we can focus part of your portfolio on more aggressive, less mainstream investments that are generally riskier and more volatile but have the potential to add higher returns.
These might include small-capitalization and mid-cap equity funds, funds that invest in riskier securities or geographical markets, and fixed-income funds that invest in high-yield corporate bonds or higher-potential securities.
Let’s get together to talk about the structure of your mutual fund portfolio. We’ll ensure you have the right balance of core and non-core funds to meet your financial objectives.
Larry Kleinmintz, R.H.U., T.O.T., M.D.R.T.
This newsletter is sponsored in part by Dynamic Funds. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performances may not be repeated. Dynamic Funds® is a registered trademark of its owner, used under license, and a division of 1832 Asset Management L.P.
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