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By Adrian Mastracci
North Shore News
Business Section, "Loose Change"
Sunday, February 10, 2002
Investors who want to develop or review their RRSP portfolio may
want to first become acquainted with their investment personality,
also known as the investor profile. The same applies to RRIF's.
One of the significant guidelines in designing an RRSP portfolio
is the investor's particular investment personality. The characteristics
of the investment personality are essential information to achieve
the desired long-term direction.
A portfolio ought to be structured to reflect the stated goals
only after considering the investor's comfort with the chosen investment
personality. Moreover, two spouses can display different investment
personalities.
Priorities often change the investment personality as we progress
through life. Someone first starting out may be an aggressive investor,
while someone approaching, or in the midst of retirement, is more
attentive to preserving the nest egg.
Ignoring the characteristics of an investor's distinct profile
can produce some undesirable results. Investors will be much happier
and sleep better with a portfolio that has been designed with their
investment personality in mind.
Let's understand the characteristics of six investment personalities:
Guaranteed: investors with no tolerance for unpredictability in
investment returns. These individuals generally invest in guaranteed
interest vehicles. They seek stable investments, having predictable
income and no fluctuation in capital value.
Conservative: investors with low tolerance for variation in investment
returns. These investors usually desire stability with fairly predictable
growth and relatively little fluctuation in capital value.
Moderate/balanced: investors who accept a trade-off between growth
and security of capital, without significant variation in returns.
Small fluctuations in capital value are acceptable. These investors
are comfortable with a balanced approach of emphasis between achieving
growth and a steady return.
Growth/business: investors who are patient and willing to tolerate
some swings in investment returns and some fluctuations in capital
value. Such investors are primarily interested in growth, with capital
preservation as a secondary consideration. These are also referred
to as "business risk" investors.
Aggressive growth: investors who seek significant potential growth,
willing to tolerate greater fluctuations in capital value. Superior
long-term investment results are sought after as the investor accepts
much greater volatility in returns.
Maximum growth: investors who aspire to maximum potential growth,
willing to tolerate significant fluctuations in capital value. These
investors accept a significant emphasis on equities in order to
gain the potential for long-term growth. They can tolerate greater
variations in investment returns. These individuals are also referred
to as "speculative" investors.
Often, an investor displays two investment personalities. As an
example, someone with a growth/ business primary personality may
desire that 80 to 90 percent of the total portfolio be guided within
the context of the primary profile. The remaining 10 to 20 percent
is indulged within the secondary profile, say, maximum growth.
However, it's appropriate to periodically review whether the secondary
personality portfolio still fits into the long-term objectives.
In many cases, the investor redirects these funds to the primary
personality portfolio within one to three years.
When spouses have different investment profiles, it's important
to design each spouse's portfolio according to their separate profile
and comfort level.
Investors may not have thought of themselves as having distinct
investment personalities. Sometimes more than one.
If the RRSP portfolio allocations do not bear resemblance to your
investment personality, it may be prudent to review the appropriateness
of the asset allocations.
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