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Gail Bebee
Gail Bebee

New to direct investing? Part 7

Tips for building up your portfolio Add to ...

Gail Bebee is the author of No Hype - The Straight Goods on Investing Your Money. She can be reached at gbebee@gailbebee.com; her website is www.gailbebee.com. This is part seven of a 12-part series for people that are new to investing on their own.

Understanding the main attributes of the basic building blocks of investing is a key step on the road to investing success. You may be surprised to learn that there are really only a few such building blocks or asset classes, groups of investments which have similar risk characteristics and behave similarly in the marketplace. The main classes are considered to be stocks, bonds and cash/cash equivalents, which were all discussed earlier in this series. I would add a fourth, real estate. Other classes include hedge funds, commodities, options, foreign exchange, gold and collectibles.

How you put these building blocks together to create a portfolio is a critical determinant of your investing success. In this article, I'll examine the process of portfolio building and offer some sample portfolios.

New to direct investing? The series

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The first step of portfolio building is to decide on your personal investing goals, short term and long term, and your desired timelines to achieve these goals. Whether it's saving for your first house, your kids' education, your retirement or your rainy day fund, you should decide on, and preferably commit to paper or electronic file, your personal financial goals with a timeline for each.

If you want to test out different scenarios to meet a goal such as saving to buy a house, there are calculators available online to help. For example, CIBC Investor's Edge goal funding calculator lets you experiment with the goal amount, return rates, marginal tax rate, inflation rates, amount already invested and years until money is needed. You can test different retirement savings and post-retirement withdrawal scenarios using The Globe and Mail's retirement planner.

The next step is to work out your personal risk profile which will help you decide the weighting of asset classes in your portfolio. This means deciding things like the amount of money you are willing to lose in the short term in pursuit of long-term profits. While this sounds difficult, several discount broker websites feature education and tools to help you. Credential Direct has a portfolio planner calculator; RBC Direct Investing offers an asset mix calculator while iTrade offers an asset allocation optimizer.

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Such a calculator typically asks several questions to gauge your personal situation, investing goals and timelines, expected rate of return and tolerance for risk, and then suggests a portfolio with a specific mix of assets. The recommended portfolio is usually one of about a half dozen models with names like conservative, income-producing, balanced, growth and aggressive growth. If you want more customized advice, you'll need to consult a financial planning professional.

Here's the growth portfolio from BMO Investorline's asset allocator:

Model Asset Mix for BMO Balanced Portfolio

Asset Type

% Allocation

Cash & equivalents


Fixed income, Canadian


Fixed income, international


Equities, Canada


Equities, U.S.


Equities, international


Equities, U.S. speculative


Assuming that one of the recommended portfolios will meet your needs, the next step on the portfolio-building road is to pick individual investments within the recommended asset classes. You can choose to invest directly in individual stocks, bonds and cash investments, or via mutual funds or exchange-traded funds, or a combination of these approaches, depending on your personal situation. Whatever approach you decide, do your homework before making a decision on the individual investments for each asset class.

Here are three examples of the growth asset allocation I advocate in my book, built using different financial products:

Asset Class

Allocation, %

Direct Investment Focused

Mutual Funds

Exchange-traded Funds



-Renaissance High Interest Savings Account

-Steadyhand Savings

-Claymore Premium Money Market ETF

Fixed income, domestic


-Guaranteed Investment Certificates (GIC) maturing in 1, 2, 3, 4 and 5 years (10)

-Can & prov. government bonds maturing 5-10 years(5)

-5% Government of Canada real return bonds due in 20, 25, 30 years (5)

-PH&N Total Return Bond (15)

-TD Real Return Bond (5)

-iSharesCDN Bond Index Fund (15)

-iShares CDN Real Return Bond Index Fund (5)

Fixed income, Foreign


-RBC Global Bond

-RBC Global Bond

-RBC Global Bond

Equities, developed world







4% of each of:

Procter & Gamble MacDonalds Saputo CN Railway

SNC-Lavalin Research in Motion Barrick Gold Agrium Suncor Energy China Mobile Enbridge Fortis National Bank Sun Life Financial TD Bank

-Altamira Canadian Index (30)

-Beutel-Goodman American (20)

-Mawer World Investment (10)

-iShares™ Cdn S&P/TSX 60 Index (30)

-iShares™ S&P 500 Index, hedged (20)

-iShares™ Cdn MSCI EAFE hedged (10)

Equities, Emerging Markets


-Vanguard Emerging Markets ETF

-CIBC Emerging Markets Index

-Vanguard Emerging Markets ETF

Real Estate


-Calloway REIT -Melcor Developments

-Dynamic Focus Plus Real Estate

-iShares™ Canadian REIT Sector Index Fund

Achieving your personal financial goals takes planning and effort. A well-built investment portfolio will help you get to where you want to go.

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