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Balancing Risk and Return in Your Investment Portfolio

Updated: Nov 7, 2023

By Devon Ethier, CFP®, MBA

Investment Advisor, iA Private Wealth Inc.

In the world of investments, risk and return are like dance partners, moving in tandem to shape your financial journey. In this article, we will explore the art of crafting a well-balanced investment portfolio that aligns with your family's risk tolerance while optimizing the potential for returns.


Understanding Risk and Return

What is Risk?

Risk in investments refers to the uncertainty or potential for losses in the value of your portfolio. Different types of investments carry varying levels of risk, and understanding and managing this risk is essential.


What is Return?

Return is the gain or profit you make on your investments. It's the reward for taking on risk. Higher-risk investments typically offer the potential for higher returns, while lower-risk investments may yield more modest gains.


The Risk-Return Trade-Off

1. Conservative Investments

a. Characteristics:

Lower risk

Lower potential return

Preservation of capital is a primary goal


b. Examples:

Treasury bonds

Savings accounts

Money market funds


2. Moderate Investments

a. Characteristics:

Moderate risk

Balanced potential return

Seeking a mix of income and growth


b. Examples:

Diversified mutual funds

Blue-chip stocks

Corporate bonds


3. Aggressive Investments

a. Characteristics:

Higher risk

Potential for higher returns

Willingness to tolerate market volatility


b. Examples:

Small-cap stocks

Emerging market funds

Growth-oriented mutual funds




Crafting a Balanced Investment Portfolio

1. Assess Your Risk Tolerance

Understand Your Comfort Level:

Consider your family's financial goals and how comfortable you are with potential investment losses.

Assess your investment time horizon; longer horizons may allow for more aggressive strategies.


2. Diversify Your Investments

Spread Risk:

Diversification involves investing in a mix of assets such as stocks, bonds, real estate, and cash.

Diversifying your portfolio can help spread risk and reduce the impact of poor-performing investments.


3. Consider Investment Goals

Align with Objectives:

Ensure your investment portfolio aligns with your family's financial goals, whether it's saving for education, retirement, or wealth accumulation.

Different goals may warrant different risk profiles within your portfolio.


4. Review and Adjust

Periodic Assessment:

Regularly review your portfolio's performance and risk levels.

Adjust your investments as needed to maintain your desired risk-return balance.


5. Seek Professional Advice

Financial Advisor:

Consider consulting a financial advisor who can help tailor your portfolio to your risk tolerance and financial objectives.


Professional advice can provide valuable insights into market conditions and investment opportunities.


Conclusion

Balancing risk and return in your investment portfolio is an art that requires careful consideration of your family's financial situation, goals, and risk tolerance. By understanding the relationship between risk and return and crafting a well-balanced portfolio, you can navigate the world of investments with confidence. Remember that risk tolerance can evolve over time, so it's essential to periodically reassess and adjust your portfolio to ensure it continues to align with your family's aspirations and financial well-being.


If you would like to learn more about balancing risk and return in your own portfolio, we are here to help. Call us today or Book here.


Devon Ethier, CFP®, MBA, Investment Advisor with iA Private Wealth, and Insurance Advisor* with Oceanside Wealth Management Ltd., can be reached at the iA Private Wealth office at 166 E. Island Hwy Parksville, BC by phone at 250-586-1332, by email at devon.ethier@iaprivatewealth.ca, or online at www.carolplaisier.com.


Disclosure

This information has been prepared by Devon Ethier who is an Investment Advisor for iA Private Wealth Inc. Opinions expressed in this article are those of the Investment Advisor only and do not necessarily reflect those of iA Private Wealth Inc. iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada


*Insurance products and services are offered by Oceanside Wealth Management Ltd., an independent and separate company from iA Private Wealth Inc. Only products and services offered through iA Private Wealth Inc. are covered by the Canadian Investor Protection Fund.

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