Managing Your Money

Diversify and simplify in a single step – the Portfolio Funds investment option

Whether your investing history stretches over decades or just a few months, this is the time of year when many investors face a mixture of anticipation, resignation and frustration.  As the income tax deadline looms, investors have no choice:  they must tote up their investment winners, losers and also-rans and they must provide verifiable bottom line investment information with their tax returns by working through a sometimes bewildering array of statements and tax slips.

A year of good investment returns will make you happy; a not-so-good year will have you wondering what you could have done differently – and all those statements and tax slips are guaranteed to induce stress and aggravation.  Is there anything you can do to smooth out the yo-yo performance of your investments?  Is there any way to simplify your tax and investment reporting?  The answers to these questions are yes and yes.  Here’s how.

Asset allocation – the key to maintaining and enhancing the value of your investment portfolio over time.  Asset allocation means assembling the right ‘mix’ of investments to take advantage of an unavoidable rule of investing: At any given time during the prevailing economic cycle, some types of securities will do well and others will not.  Over time, however, each asset class will rise to the fore and deliver above average returns.

A well-constructed portfolio should contain a carefully selected ‘mix’ of investments drawn from the major asset groups and geographic areas.  That way, long-term growth can be maintained regardless of short-term market, sector or individual stock fluctuations.

Portfolio Funds – a quick way to achieve instant diversification and simplified tax and investment reporting.  A portfolio fund, also known as a ‘fund of funds’, invests in as many as nine or ten mutual funds specifically selected to reflect that fund’s objectives.  This gives you the scope to choose a portfolio fund that accurately matches your personal objectives with respect to safety of capital, income and long-term growth.  Depending on the type of portfolio fund you choose, the ‘fund of funds’ approach also allows you to spread your investment dollars across different asset classes, economies, currencies and management styles – thus minimizing your overall risk exposure while significantly improving your prospects for consistent growth over time.

The fees and expenses for a portfolio fund are often slightly higher than those incurred for investing in the underlying funds.  But, for smaller investors especially, the cost difference is more than offset by achieving instant diversification – and there’s the added bonus of the simplicity of a single set of statements and tax slips covering the entire fund.

Your asset allocation strategy will depend on your personal financial goals, the timeframes you have to reach your goals, and your tolerance for risk.  A professional financial advisor can help you weigh and select the right investments for your situation – perhaps including a portfolio fund – that will keep you on the path to achieving your goals and take some of the stress and frustration out of your tax-reporting obligations.

This column, 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.

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