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Experienced, conservative investor
Some investors are less tolerant of risk than others. Just because you have experience in the stock market doesn’t mean you need a heavy allocation towards equities.
Conservative investors tend to hold more cash and fixed income products like government and corporate bonds, as well as dividends from large blue-chip stocks. This type of portfolio may be less volatile than holding the entire global market of stocks.
Experienced investors tend to understand why they invest in certain asset classes. Bonds, for instance, tend to hold their value when stocks are declining. This allows investors to rebalance effectively by selling bonds and buying more stocks while they’re “on sale” (trading at a discount, or below their current market value).
Experienced, conservative investors often build their portfolio by using a Canadian dividend ETF, an aggregate bond ETF and a global equity ETF. They may break down their fixed income allocation even further, opting to hold a short-term bond ETF, a corporate bond ETF or even a high-interest savings ETF.
Experienced, more aggressive investor
Investors with a more aggressive mindset about growing the value of their portfolio are more likely to opt for a 100% equity portfolio. This can be done once again using a single, globally diversified asset allocation ETF, or by breaking that apart and owning individual equity ETFs representing Canadian, U.S., international and emerging-market stocks.
Savvy investors may also understand that certain characteristics—such as size (smaller companies versus larger companies) and value (lower-priced stocks versus higher-priced stocks)—can lead to outperformance. This phenomenon, known as factor investing, can be exploited using ETFs that tilt their holdings towards stocks with these characteristics (small-cap stocks and value stocks).
Experienced, balanced investor
The traditional approach to investing is the classic balanced portfolio made up of 60% stocks and 40% bonds. ETF investors who look for a balanced approach may build their own multi-ETF portfolio by using a Canadian equity ETF, a U.S. equity ETF, an international equity ETF, an emerging-markets ETF and an aggregate bond ETF.
A simpler approach may be to hold a single asset-allocation ETF with 60% stocks and 40% bonds. These all-in-one funds are akin to the ubiquitous balanced mutual funds that investors have used for decades—just at a much cheaper cost to the investor, due to lower management fees.
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