Every mutual fund portfolio should have a nucleus of broadly diversified investments. This core is crucial to the strength of your portfolio because it provides stability. It can help your long-term investment returns grow and ease the anxiety caused by the kind of financial market volatility we’ve experienced over the past year. Core holdings are long-term “buy and hold” funds of low to moderate risk for their investment type. They are generally less volatile while still offering the potential for attractive long-term investment returns within your risk tolerance. Just as your overall portfolio should be well diversified, so should your core holdings.
What types of funds?
Equities. Equity core holdings often consist of “large-cap” equity funds that invest in blue-chip stocks. These funds may not always win the performance race, but they often have good long-term track records and low volatility, and may fare better in difficult times.
Fixed income. The fixed-income core of your fund portfolio should consist of moderate-risk, solid investments such as funds that invest in government bonds. Consider funds that focus on intermediate bond maturities, since these are typically less volatile than longer-term bonds.
Global funds. With Canada representing only a small percentage of global equity and bond markets, foreign equity or fixed-income funds may be good candidates for a portion of your core holdings. Often a Global Balanced Fund is a typical core holding in a well-constructed portfolio.
How much is enough?
How much of your total portfolio your core should represent varies with factors such as your financial objectives, time horizon and risk tolerance. For many investors, 70% to 80% is not unrealistic. The types of funds that constitute your core will depend on your personal investment characteristics. Funds that can be considered core holdings for one investor may not be suitable as a core for another investor. Now may be an excellent time for a core assessment. Financial market volatility in recent months may have thrown your mutual fund asset allocation percentages out of balance, including your core investments.Let’s get together to talk about the structure of your mutual fund portfolio. We’ll ensure you have the right balance of core and non-core funds to meet your financial objectives.