Investing Baby Steps #2: Different Investing Strategies for Beginners Part 2
A couple of weeks ago, I started the different investing strategies for beginners with the most secure asset allocations. Especially when you start investing, you don’t know exactly where you are heading and you do not want to take too much risk. However, even among beginner investors, there are some who are willing and able to invest in a more aggressive manner. This is why I am talking about the next 3 asset allocations:
The SUV (60%-40% fixed income / 40%-50% equity)
The SUV is useful and versatile. This is the type of vehicle that allows you to benefit from more stability on the road during storms while helping you to drive fast enough in beautifule weather. This asset allocation is usually qualified as a “balanced asset allocation”. You are basically looking to a half and half (fixed income / equity) structure.
- This is the most common type of investor according to investment guide: the balanced profile. While reaching 50% in both fixed income and equity, you have plenty of managed portfolios for your need. Select one that is well diversified in terms of geography and sectors of the economy (different industries) and that is low on MERs (management fees).
- If you are diligent in your research, you will be able to find package ETFs (exchange traded funds) that follow indices. Therefore, your stock portfolio won’t cost much in terms of Management fees and will track several indices (bonds, US market, Canadian market, International market and emerging markets for example).
- Mortgage funds, privileged shares’ funds or REITs can be added for the fixed income portion (I would avoid dividend funds as they are often sold as fixed income funds but they are still contain stocks for the most part).
The BMW M3 (30%-20% fixed income / 70%-80% equity)
If you have ever tried to race against a BMW M3, you probably realized that you need a pretty fast car to win! The M3 is very stable at high speeds and is not afraid to take a curve at 80 mph. However, if you push it too much, you can surely end-up in the ditch!
- Now, you are joining the most aggressive investors. Remember that growth portfolios reached almost -25% in 2008. If you think you can handle it, you can try managed portfolios. They offer a great investing opportunity as they rebalance your portfolio every 6 months to make sure that you keep the same asset allocation.
- However, I would lean more towards a combination of index funds, ETFs, money market funds (for liquidity) and bond funds.
- If you think you can handle the pressure, dividend funds or preferred shares funds could be a good alternative for your fixed income part. They will provide higher fluctuations than bonds or money market funds but they could provide a better return over the long run.
The Formula 1 (10%-0% fixed income / 90%-100% equity)
If you are in this category of investors, it means that you are married to the market (for better and for worse!). The formula 1 is the fastest car but don’t count on it to go through road blocks. High speed, but high fluctuations are part of the package as well!
- The only fixed income held in your investment portfolio should be money market funds for liquidity. This allows protecting your cash from inflation and you can withdraw this money at anytime to make your next investment move.
- If you have a systematic investment mindset, I suggest you purchase index funds with it. ETFs have a lower MERs (fees) but they cannot be bought on a monthly basis (without including the transaction fees). Be careful with index funds. Try to get general index (like index linked to S&P 500 or international markets) at first.
- If you prefer to trade directly, I suggest you open a brokerage account and get some trading courses (You can try these 10 trading lessons for free (no commitment or hidden subscription fees) from INO).