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Make capital preservation a part of your diversified financial plan


There has always been an element of risk and volatility in financial markets, because investments generally rise and fall in value in response to many known and unknown factors. One of the best ways to protect your assets from these types of market fluctuations is by diversifying your portfolio according to your unique financial needs and investor profile. A diversified portfolio includes investments from various asset classes (including cash and cash equivalents, fixed income, and equities), geographic regions, and investment styles.

As part of a diversified financial plan, capital preservation is an important consideration for many investors, and is even more important for investors who tend to be concerned with financial market volatility and the potential for permanent losses of capital.

Capital preservation is a strategy to help reduce the likelihood that an investor will lose their money, as well as ensuring their money is available when they need it. Investors who are focused on capital preservation generally have a shorter investment timeframe, want to preserve the money they have accumulated, and are willing to accept lower investment returns in exchange for less risk.

The capital preservation component of an investor’s portfolio is generally made up of cash and cash equivalents, including Guaranteed Investment Certificates (GICs) and money market funds. These tend to be “safer” investments that generally offer some income potential.

A GIC guarantees the initial investment amount you invest will be returned to you, as well as providing interest payments at a fixed or variable rate. Money market funds are also low risk, as they have short time horizons, and offer you a way to preserve your money. In a more conservative portfolio, you may also want to hold a small percentage of your assets in cash for additional liquidity (meaning the ability to access your money very quickly if needed).

Most investors benefit from a diversified portfolio that has a capital preservation component. The amount of capital preservation will depend on your profile and the amount of time available before you will need your money.

The following is an example of three diversified portfolios, from more conservative to more aggressive 



For illustrative purposes only
Source: IPC Portfolio Services Inc.


As you can see from this example, the more conservative portfolios have a larger amount of less volatile asset classes, while the more aggressive portfolios tend to include higher allocations to equities and other relatively volatile asset classes.

Let us help you determine your investor profile and financial needs, as well as to build a diversified portfolio that is designed to better meet your unique profile and needs.

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