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Multi-asset 101

Introduction

Nobody has a crystal ball to predict when a significant event is going to shock financial markets. But that doesn’t mean there aren’t ways to deal with market volatility. For long-term investors, building a multi-asset portfolio is the best way to manage risk. A multi-asset portfolio consists of different asset classes in different sectors in Canada and around the world. Investing in mutual funds with a multi-asset solution is a simple, cost-effective way to build a multi-asset portfolio that aims for steady returns over the long-term.

What is ‘multi-asset’?

Multi-asset strategies are more than stocks and bonds

Financial markets can be volatile, and unexpected events can catch investors off guard. Historical data shows that no one particular investment can be an all-time winner year in and year out.

That’s why investors need a diversified approach that stays on track in up and down markets. With a multi-asset portfolio, investors can use different types of securities or asset classes to diversify and meet their financial goals. Mutual funds with a multi-asset strategy can hold familiar investments such as bonds and equities and money market instruments, combined with more specialized investments like real estate.

Achieving a smoother investment journey

Achieve a smoother investment journey with less stress

Investing to realize your financial goals and dreams can mean putting up with the stress of volatile markets. And it’s natural to want to earn outsized returns while maintaining stable performance over the long run. Some asset classes, such as equities, tend to yield higher potential returns, but the associated risks are also higher. However, relying solely on low-risk assets can also mean lower returns.

So, how do you strike a balance between strong returns and capping short-term volatility? A multi-asset investment portfolio, with different asset classes, from different countries denominated in different currencies can be rebalanced from time to time according to changing market conditions. The aim is to diversify income sources and lower your overall risk.

The key to portfolio construction

Using correlation to achieve diversification

The risk-return profiles of stocks and bonds are vastly different. Investments from different markets, and investments denominated in different currencies also offer varying levels of risk. This is why, as a rule of thumb, building a highly diversified portfolio helps generate relatively more stable, long-term returns.

Consider how highly correlated shares of Canadian energy companies react to weaker oil prices. Their high degree of correlation means the shares of most energy companies will tend to fall together if oil prices fall.

The opposite happens when there is low correlation. Sticking with our example of falling oil prices, while an energy company will see its shares fall, shares in a manufacturing company could rise if oil prices fall and the company’s energy expenses are reduced. In this example, we see that an energy company and a manufacturing company have relatively low correlation.

Multi-asset investment threshold

Building a multi-asset portfolio doesn’t have to be costly

A multi-asset portfolio helps withstand market shocks. But building a multi-asset portfolio requires a sophisticated understanding of a huge variety of financial instruments from around the world. Individual investors are unlikely to have the time and experience required to monitor different investments across multiple markets. There are also minimum investment requirements that may be a barrier to individual investors.

The good news is investors can achieve diversification goals by investing in different types of multi-asset mutual funds based on their investment objectives and risk tolerance. These multi asset funds are managed by professional portfolio managers with the experience and resources to deliver competitive, cost effective solutions for individual investors. Click to learn more

Disclaimer

Information provided on this page is for information purposes only and does not constitute any financial, legal, tax, investment, or other advice and should not be relied upon in that regard. Any graphs, charts, or graphics are used for illustrative purposes only and do not reflect any future event or future value or performance of any investment or investment strategy. Click to read more