Investing and risk will always have a close relationship, and one of the best ways to reduce that risk is diversification.
Diversification is a risk-management technique that can involve:
This is important because financial markets don’t always move harmoniously. Diversification allows for the potential that positive performance of some investments will offset negative performance of others, thereby reducing overall portfolio volatility.
Effectively diversifying a portfolio starts with exposure to all three main asset classes: cash, fixed income and equities. The portion allocated to each of these categories is completely dependent on personal circumstances and investment goals.
Remember, at a given time, any one asset class, region, sector or style may be leading the market while others lag. But in a diversified portfolio, a decline in one investment may potentially be offset by growth in other assets, allowing for a smoother ride towards achieving your long-term goals.
Based on monthly five-year rolling returns from January 1992 to December 2016. Diversified Portfolio assumes annual rebalancing as represented by 2% Cash, 43% Fixed Income, 19% Canadian Equities, 20% U.S. Equities and 16% International Equities. Cash represented by FTSE TMX Canada 30 DAY T-Bill Total Return Index; Fixed Income represented by FTSE TMX Canada Universe Bond Total Return Index; Canadian Equities represented by S&P/TSX Composite Total Return Index; U.S. Equities represented by S&P 500 Total Return Index; International Equities represented by MSCI EAFE Net of Taxes Total Return Index. Index returns include reinvestment of distributions but do not reflect deduction of expenses associated with investments. If such expenses were reflected, returns would be lower. An investment cannot be made directly in an index.
This information has been provided by RBC Global Asset Management Inc. (RBC GAM) and is for informational purposes only. It is not intended to provide legal, accounting, tax, investment, financial or other advice and such information should not be relied upon for providing such advice. The information contained herein is from sources believed to be reliable, but accuracy cannot be guaranteed. Please consult your advisor and read the prospectus of Fund Facts document before investing. There may be commissions, trailing commissions, management fees and expenses associated with mutual fund investments. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. RBC Funds, BlueBay Funds and PH&N Funds are offered by RBC Global Asset Management Inc. and distributed through authorized dealers.
® / ™ Trademark(s) of Royal Bank of Canada. Used under licence. © RBC Global Asset Management Inc. 2017
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