Understanding Standard Portfolio Asset Allocation Models

Many people could use some help when it comes to choosing an appropriate mix of investments (known as asset allocation or asset mix), to reach their goals. When thinking about a long term approach to investing, it’s helpful to know who you are as an investor. Take some time to know your investor profile.

As a next step in building a portfolio, you might consider consulting standard asset allocation momdels that are designed to align to your investor profile.

The models below focus on diversification and conveniently illustrate what an appropriate asset mix might look like for five different types of investors with various objectives. Use them to inform your investment choices or choose one that best aligns with your investor profile when building your own portfolio. 

Very Conservative

This investor wants income with maximum capital preservation and the potential for modest capital growth. They should be comfortable with small fluctuations in the value of their investments and plan to hold their investment for the short to medium term, at least 1-5 years. They invest mostly in fixed-income securities and a small amount of equities, to generate income while providing some protection against inflation.          

Conservative

This investor wants modest income and capital growth with reasonable capital preservation. They should be comfortable with moderate fluctuations in the value of their investments and plan to hold their investment over the medium to long term, at least 5-7 years. They invest mostly in fixed income securities, with some equities, to achieve more consistent performance and provide a reasonable amount of safety.  

Balanced

This investor wants a balance between long-term capital growth and capital preservation, with a secondary focus on modest income. They should be comfortable with moderate fluctuations in the value of their investments and plan to hold their investment over the medium to long term, at least 5-7 years. More than half their portfolio will usually be invested in a diversified mix of Canadian, U.S. and global equities.

Growth

This investor wants long-term growth over capital preservation and regular income. They should be comfortable with considerable fluctuations in the value of their investments and plan to hold their investment for the long term, at least 7-10 years. They primarily hold a diversified mix of Canadian, U.S. and global equities.

Aggressive Growth

This investor wants maximum long-term growth over capital preservation and regular income.

Special Note: With high growth models, investors should be extra comfortable with significant fluctuations in the value of their investments, have a high risk tolerance and plan to hold their investments for the long term, at least 7-10 years. They are almost entirely invested in stocks and emphasizes exposure to global equities.