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Shannon Lee Simmons is a financial planner at The New School of Finance in Toronto. We asked her to construct an ideal retirement portfolio for a Canadian in their 30s.
For someone in their 30s, the time horizon to retirement is long, 25-30 years. This means that a young investor can handle higher exposure to equity markets, which tend to be more volatile, and less exposure to fixed income.
This asset mix is a balanced approach to long-term capital growth. Even with a very long time horizon, some exposure to fixed income (in this case, bonds) remains important to cushion potential volatility of equity holdings in the portfolio. This asset mix diversifies between equity markets as well.
The U.S. market holds much more opportunity than Canada for diversification purposes since the market is so large relative to Canada. In addition, international and emerging markets could prove to have the most potential for long-term growth, as international markets are still potentially undervalued. It's important to think about future earnings rather than short-run volatility over a long-term horizon.
This portfolio is appropriate for a young investor with a long time-frame, no liquidity constraints and a growth-oriented risk tolerance. Just make sure that these funds truly are earmarked for retirement and not potentially needed for a down payment five years from now.