How to create the right investment plan for you

Every good investment portfolio has a plan.

Responsible investors know not to leave anything to chance – or, try to minimize chance. A good investment plan is a reflection of the person doing the investing – it reflects their beliefs, their goals, and keeps one disciplined. When you decide to start investing, making a plan will ensure you have a roadmap that helps reach your specific goals on your terms. We believe no investor should be without one. To get the most out of the investment tools Scotia iTRADE® offers, ask yourself the following questions:

What goal are you saving for? A nest egg is always nice to have, but having a real, concrete goal in mind will help focus your plan. Is your goal short-term(under five years), medium-term (five to ten years), or long-term (over ten years)? These questions might seem obvious, but their answers are important for determining your investment strategy.

Every investment has the potential to increase or decrease in value, and sometimes more potential for reward may mean more risk. There is no such thing as a risk free investment, so as an investor, you need to decide how much risk you’re willing to accept.

Your investment time frame plays a part in your risk tolerance too. Conventional wisdom suggests that the longer you plan to invest, the more aggressive your investing can be. If you’re saving for retirement twenty-five years from now, you may be in a position to handle more risk, because if your investments ever decrease in value, you may have time for them to hopefully rebound before you need the funds. If you’re saving for a down payment on a house in five years, you may not have time to rebound from potential losses, and so may want to invest more conservatively.

Investing can be a major financial commitment that lasts years. You’ll want to make sure you can reach what you aim for, and that you aim for what you can reach. If the only way you can possibly reach your savings goal is by taking on an unacceptable amount of risk, you may want to change your goal.

If you feel your goal is achievable, you may want to deposit an initial lump sum, but also ‘pay yourself first’ by setting up an automatic deposit to save on a regular basis. Regular investing has the added benefit of reducing portfolio volatility for new investors through dollar cost averaging.

First, set realistic expected returns from your portfolio up front – setting unrealistic expectations could invalidate your plan, and may also discourage you from using it when it’s time to review. Look into how various investment options (stocks, bonds, savings accounts, and others) have performed historically and recently.

Next, see what types of accounts are available. If your goal is retirement, a Registered Retirement Savings Plan (RRSP) may offer long-term savings. Similarly, a Registered Education Savings Plan may be worth considering if you’re saving for your children’s education. A Tax-Free Savings Account could also be an option for other savings goals like travelling or saving for a large purchase.

A diverse portfolio may be able to help protect your investments from the worst effects of unforeseen volatility and mitigate your investment risk. Think about diversifying across asset classes (stocks, bonds and savings), across sectors (e.g.: telecommunications, healthcare, energy), and within sectors (investing in different companies with different specialties).

Of course, your portfolio may “drift” over time – some assets may perform well, some may perform poorly, and your portfolio’s composition (and overall risk exposure) may change. When you’re planning to invest, it may be a good idea to plan to rebalance periodically.

Once you’ve set up all these investments, check on them! Keep tabs on how they’re doing, and compare that to how you expected them to be doing. You can learn more about how to monitor and rebalance your portfolio with these helpful resources.

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Make it happen

To help you make more informed investment decisions, Scotia iTRADE has provided the Asset Allocation Optimizer tool – a short questionnaire that suggests an optimum allocation for your current portfolio based on your goals, time frame, and risk tolerance. Scotia iTRADE has plenty of tools to help you research the market to make an investment plan that’s right for you – sign in to your Scotia iTRADE account to get started.

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