Asset Allocation
Investors that do not want to incur risk should have a larger component of investments such as GICs, treasury bills, and investment grade bonds (often referred to as fixed income). As fixed income investments are not as volatile as equities, they are a key component for those seeking low risk investments and have capital preservation as a primary investment objective. Most investors desire total returns greater than those currently offered by fixed income. As a result, risk tolerant investors are willing to hold some equity component.
As every investor reacts differently to volatility, it is finding that balance (also known as Asset Allocation) that the investor is comfortable with. Investors that do not assume some risk may feel they are missing out on potential opportunities, and investors that feel they are taking on too much risk may be continually worrying about their investments.
Determining the asset allocation between cash, fixed income and equities is the most important decision that investors need to make.
