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"Real Estate Wealth Insights" Columnists

Greg Placidi Chief Investment Officer & Portfolio Manager, Equiton Capital
Cliff Fraser Chief Business Development Officer, Equiton Capital
Chris Nickerson Managing Director, Equiton


Is it time to reposition your portfolio and ensure it’s properly stewarded?

Historically, investors have done well when they hold a diversified portfolio of equities for a l...

Historically, investors have done well when they hold a diversified portfolio of equities for a long period of time. Despite regular bear markets, history shows us that major stock markets have experienced far more ups than downs.

Long-term averages, however, are cold comfort if you are no longer in the workforce and your portfolio of growth assets suddenly falls 25 to 30 per cent. Your wealth may never recover.

In hindsight, you might wish that you had changed your strategy from a growth (trying to build your wealth) to a defensive one (trying to protect your wealth).

Generally, buying growth assets and keeping them for the long term might be good advice, but there are times in every investor’s life when they should seriously consider switching to a defensive investment strategy – particularly, if they are at or close to retirement.

What is a defensive investment strategy?

Defensive investing comprises several strategies to minimize risk and protect your wealth when markets are in a downturn and generate profits when markets are in an upturn.

If you have invested for any amount of time, you probably know markets are periodically volatile. They are constantly in flux.

A defensive investment strategy primarily aims to keep you from losing money when markets go down and then transitions to a more opportunistic stance once markets rebound.

With more than 100 years of market and economic history, we know by now that economies and markets tend to follow cyclical patterns. In other words, there is a frequency of high and low market performances.

As such, these patterns may be useful indicators when trying to position your portfolio defensively.

In addition, investors should also consider secular trends, such as aging populations in developing countries and the growing demand for connectedness 24/7.

These types of secular trends stretch over numerous economic cycles and can be used to reduce losses during cyclical market downturns, while providing a natural growth accelerator during cyclical market upturns.

Reassess your risk tolerance

If you assessed your risk tolerance during good times, you may be now finding that you assessed incorrectly.

During sunnier days, we tend to be complacent and have misplaced notions about how much of a downturn we can withstand. A bear market will test your true risk tolerance and may be the time to review your risk profile.

Invest safely by diversifying your portfolio

Diversification is a risk-management technique that mixes a wide variety of investments within a portfolio.

The idea behind this technique is that a portfolio constructed of different kinds of investments will, on average, yield higher returns and pose a lower risk than any individual investment found within the portfolio.

Diversification is an effective way to limit exposure to any single asset, manage risk/return, and align your portfolio with the level of risk appropriate for your situation.

You may be able to take on riskier growth assets, or you may need to favour an asset mix of cash and defensive holding.

Reviewing the impact of your asset allocation can help you understand the winners and the losers in your portfolio and determine the true drivers of your portfolio’s performance. This way, you can make the most of your investments.

Get that financial plan in place

Investing should never be guided by specific moments; it should be a part of a process over time.

If you are like most investors, chances are you have been randomly accumulating one-off investments for your portfolio without a clearly defined purpose.

Without one, there is a greater risk that you will make rash decisions about your portfolio during a market shift and you may liquidate long-term investments at the wrong time.

Portfolio stewardship

Just having a plan in place and having it reviewed once a year is not enough, however.

When financial markets are on a wild roller-coaster ride, understanding how your portfolio is exactly positioned on a daily basis and how each holding within your portfolio is exposed to the negative or positive factors driving the markets is critical to ensure that your investment portfolio is properly stewarded.

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