Developing an Investment Plan

Knowing where you want to go is one thing. But, mapping the path to get there is another. In today's environment, having an investment plan is essential. It helps keep you on track, disciplined and focused on your investment goals.


Part of a successful investment plan includes:

Identifying and prioritizing your goals
These may include entrepreneurial ventures, education, home purchase or retirement.
Determining your time horizon
Each goal normally has a specific timeline for when money is required. Conservative investments complement short time horizons, while equities are more appropriate for longer term goals (of more than 10 years).
Determining your risk tolerance
Defining your comfort level with risk helps to determine the mix of cash, fixed income and equities that is right for your portfolio.
Understanding the investments in your portfolio
Knowing what you currently own enables you to determine whether you need to make adjustments to achieve your long-term goals.
Determining where to invest next
Once you've built a strong foundation for your portfolio, you can work with your advisor to understand how trends and market events can shape your investment decisions.

Seeking Advice

Staying on track to achieve your long-term investment objectives is a significant challenge for many investors. Lack of time, excess choice and an ever-changing market are all contributing factors. So, how do you ensure your investments consistently reflect and contribute to your long-term goals?

Talk to Your Advisor

Your advisor is an invaluable resource who can offer objective, expert recommendations for your investment portfolio. They can help you pinpoint your investment objectives, risk tolerance and time horizon. Once determined, they can work with you to build the right portfolio to meet your needs.

How Your Advisor Can Help

Once you begin investing, your advisor can help you:

  • Clarify investment choices by simplifying issues and identifying important trends
  • Maintain investment discipline by keeping you focused on long-term goals and helping you avoid reactive, emotional decisions based on short-term market volatility and media hype
  • Monitor and adjust your portfolio with regular reviews and rebalancing when appropriate

Choosing Investments

With the wide array of investment solutions available, it can be challenging to know which investments are best for your needs. To simplify the selection process, many investors choose investments based solely on performance. While performance is significant, other important factors should be considered as well.

When choosing investments for your portfolio, it is critical to consider:

Portfolio fit
The investments you choose should address your investment objectives, risk threshold and time horizon.
Investment management process
Investments that follow a clear, disciplined investment process are more likely to deliver the anticipated benefits. RBC Funds and PH&N Funds follow a clearly defined investment process.
Features of the fund
Certain funds offer features, including tax efficiency and regular distributions, that may support your objectives more effectively.
Past performance can't guarantee the future, but it is worthwhile to evaluate investments based on their ability to deliver consistent returns over the long term with minimal risk.

Understanding Your Investments

When was the last time you reviewed the investments in your portfolio? Are you aware of what you own and how it contributes to your goals? Becoming familiar with the different components of your portfolio can help you determine whether you need to make adjustments to achieve your investment objectives.

Ask yourself these questions:

  • Does the fund invest in bonds or equities?
  • Does the fund invest in one asset class or a combination of bonds and equities?
  • What countries or sectors does the fund invest in?
  • Does the fund have a more conservative approach or does it favour growth-oriented equities?

Taking the Next Step

If you had difficulty answering the above questions, not to worry. There are many resources you can access for assistance. First, speak to your advisor. They can review your portfolio with you, highlight your current investments and provide guidance on necessary adjustments.

If you prefer to be less involved with portfolio decision-making, we offer an array of one-stop solutions, such as:

RBC Select Portfolios, RBC Select Choices Portfolios and RBC Managed Portfolios
Portfolio solutions diversified by asset class, geography, sector and management style. Each portfolio, from conservative to aggressive growth, is regularly reviewed and automatically rebalanced.
RBC Balanced Funds and PH&N Balanced Funds
Single fund solutions that offer a simple and effective route to a diversified portfolio.

Maintaining Perspective

Investors’ expectations often swing like a pendulum, becoming overly optimistic in up markets and overly fearful in down markets. To be successful, it’s critical to find middle ground. Remember, bear markets are as normal as bull markets. The good news is that, historically, the long-term trend for equity markets has always been up.

As the chart indicates, when investing in equities, your one-year returns can swing wildly in a given year.

It can be difficult to stay focused on the long-term trend when you’re in the midst of a short-term downturn. Your advisor can help you maintain perspective and keep your portfolio positioned to meet your future goals.

*Based on a diversified portfolio of: 2% Cash, 43% Bonds, 20% U.S. Equity, 20% Canadian Equity and 15% International Equity
Wider Range of Outcomes (89% difference)
Lower Range of Outcomes (2% difference)

Key Points

  • Volatility has historically been higher over shorter periods.
  • Over longer periods of time, the impact of volatility becomes less noticeable.
  • Investors have historically been rewarded for staying invested.

Illustrative only and not predictive of future results. Rolling periods are periods of consecutive months (12 months, 24 months, etc.) with new periods beginning on the first day of each month. The first 1-year period began January 1, 1980. The second 1-year period began February 1, 1980. The third 1-year period began March 1, 1980; similarly, the 409th 1-year period began January 1, 2014. This approach identifies 385 3-year periods, 361 5-year periods and 61 30-year periods. Assumes reinvestment of all income and no transaction costs or taxes. Index returns do not reflect deduction of expenses associated with investments. An investment cannot be made directly in an index. Past performance is no guarantee of future results. Stocks are not guaranteed and have been more volatile than other classes. Source: S&P/TSX Composite Total Return Index. RBC Global Asset Management Inc. (RBC GAM) and its affiliates make no warranties, express or implied, as to accuracy or completeness of this information. RBC Funds are offered by RBC GAM and distributed by Royal Mutual Funds Inc. (RMFI), a licensed financial services firm in the province of Quebec. ® Registered trademark of Royal Bank of Canada.

Understanding Risk

Balancing risk and return is one of the fundamentals of investing. Typically, the opportunity to earn a higher return means increasing the level of risk. However, you can manage risk by determining your acceptable comfort level and building your portfolio accordingly.

Although all investments include some type of risk, the level varies depending on the type of investment. For example, cash investments have low risk, whereas equities typically have higher risk. The key is to have a diversified portfolio of mutual funds to try to reduce risk and smooth out returns.

Your advisor can help you build a portfolio that’s right for you.

Types of Risk

  • Market risk comes from the volatility of rising and falling equity markets. There are a number of factors that can impact the markets, including economic performance, interest rates, political climate and industry or company developments.
  • Interest rate risk primarily impacts interest-sensitive investments such as fixed income investments and bonds. This type of risk, which results from changing interest rates, typically concerns investors who rely on regular cash flow.
  • Inflation risk can threaten long-term goals through the rising cost of goods and services. You can mitigate inflation risk and its effect on your long-term goals by including equities in your portfolio, which have historically outpaced inflation over time.
  • Currency risk influences non-Canadian investments. Mutual funds that purchase foreign securities may be required to pay for securities using a foreign currency and receive a foreign currency when they sell them. Changes in the value of the Canadian dollar compared to foreign currencies will affect the value of any foreign securities in a mutual fund.
  • Credit risk denotes a borrower's ability to repay a loan or obligation. Funds that invest in debt securities of companies or governments with higher credit risk tend to be more volatile in the short term. However, they may offer the potential of higher returns over the long term.
  • Foreign investment risk represents the impact of global economic factors such as corporate information availability, accounting, auditing and reporting standards, trading volume on foreign markets and investment or exchange laws. Mutual funds that specialize in foreign investments may experience larger and more frequent price changes in the short term.

Review & Rebalancing

The right asset mix is important for investment success. But so is maintaining it over time. Due to market activity, assets grow at different rates, and the weightings of each asset class in your portfolio may shift. As seen in the pie charts below, if the shifts are significant, your asset mix may no longer accurately reflect your needs or investor profile.

Working with your advisor, you can bring your portfolio back into alignment with your investor profile. Rebalancing regularly is part of a disciplined approach to investing. It helps prevent overexposure or underexposure to any one asset class and encourages you to buy low and sell high.

Left unchecked, the equity exposure in a balanced portfolio would have increased to 62% from 55% over the past five years, resulting in greater than intended in the event of a market downturn.

Based on five-year rolling returns from January 1988 to December 2014. Represents the growth of $10,000 using a mix of 2% FTSE TMX Canadian 30-Day T-Bill Index, 43% FTSE TMX Canadian Universe Bond Total Return Index, 20% S&P/TSX Composite Total Return Index, 20% S&P 500 Total Return Index (CAD) and 15% MSCI EAFE Total Return Index (CAD). Changes in market value are derived from a weighted average of monthly returns with no rebalancing.
Source: RBC Global Asset Management as of December 2014

A Regular Review Keeps You on Track

By meeting with your advisor at least once a year, you can make sure your portfolio continues to meet your goals. And if your goals or personal circumstances change at any time, you should revisit your plan and make the necessary adjustments. If you are worried about your investments, your advisor can help you stay the course and make the necessary decisions.

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