Building Wealth
Turn risk to your advantage. See how you can invest wisely and develop a sound portfolio.
Making your investments work for you
To build and then preserve wealth you have to be an investor - not merely a saver. And no matter what you invest in, your investments will have an element of risk associated with them. But there are ways you can turn these risks to your advantage. Here are a few strategies for dealing with some of the most common risks you could face.
Just one basket? How you can diversify
Instant variety
It's classic advice, but definitely true: Don't keep all your eggs in one basket. Most of us get the diversification we need in our investment portfolios through mutual funds. Each mutual fund holds many investments, so you immediately diversify your assets by investing in any one fund. If you hold several mutual funds, your diversification increases dramatically.
Variety plus
Variety means holding funds in various market sectors and in different areas of the world. Cycles in various world markets do not always move in tandem with each other, so there are usually investment opportunities somewhere. It is important to choose the right mix, which is consistent with your own personal tolerance for risk.
Rocky road? How you can cope with a volatile market
Long-term trip
No one promised you that the trip is always smooth. Some investments are volatile. But if you stay the course when your investments hit a pothole, you'll do well over the longer term. The fact is, most of us don't need to know how our investments fare over the short term. If you are in the market for the long term, say 10 years or more, investment volatility really shouldn't be a risk factor at all. History tells us that equity-oriented investments like stock mutual funds tend to rise in value over the years, regardless of the short-term ups and downs in the market.
Just around the block
Remember that volatility tends to be a short-term problem. If you're going to need your money in the near future - within a few weeks or months or even several years - you probably shouldn't be buying stocks or equity mutual funds. These more volatile investments could drop in value in the short term, right when you have to sell. A better strategy? Consider investing in less volatile, fixed-income investments for your short-term needs. A good choice would be a high-quality money market mutual fund.
Cruise control
When buying investments, you can manage the day-to-day market price swings by making your purchases on a regular basis. We call this strategy dollar-cost averaging. Suppose you invest in a mutual fund from every paycheque or once a month. Your regular purchases will buy more fund units when the unit price is lower and fewer units when the price goes up. Overall, your average purchase price will tend to be lower than the highest price you paid.
Rising costs? How you can beat inflation.
Good growth
If something costs you a dollar today, it could cost you two or three times as much 20 or 30 years from now. That's inflation. And that is why you need more than a savings account or just fixed-income investments in your portfolio. These days, to counter inflation you need to have at least some growth-oriented investments, such as equities or equity mutual funds, that tend to rise in value over the years. And you should not necessarily stop holding these funds once you retire, because inflation doesn't stop. With potentially 20 or more retirement years ahead of you, you need to keep your money growing at a good rate
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This article, written and published by Investors Group Financial Services Inc., is presented as a general source of information only and is not intended as a solicitation to buy or sell investments, nor is it intended to provide professional advice including, without limitation, investment, financial, legal, accounting or tax advice. For more information on this topic or on any other investment or financial matters, please contact your Investors Group Consultant.
© Copyright 2007, Investors Group. All rights reserved. Do not reproduce without the express written consent of Investors Group.
