This is a continuation of my 10 part series on the core concepts I am focusing on in this difficult market environment. (Part I, II, III, IV, V)
Number 6:
This 10 part series focuses on some fairly simple concepts to put into use during these market conditions. Capital Preservation.
Any investor in the markets the past year knows the importance of focusing on the preservation of your capital. We’ve seen large scale failures, market indices down in excess of 20% and capitulation that’s thrown equities & fixed income securities on a volatile ride.
All of my ten points in this series I feel comfortable with as methods of protecting my invested capital. But one of the simplest methods deals with diversification and asset allocation. While bonds are boring and barely yield the rate of annual inflation they are stable, relatively safe and can buffer your portfolio from the extremes of volatility. An investor with a ratio of 70% equities to 30% fixed income (70/30) may want to consider dropping their equity exposure to 65/45 or 60/40 in an attempt to minimize losses. Or an investor may want to increase their equity exposure because of perceived value in the market. The important thing to maintain here is a focus on how you want your capital exposed to risk in the market.
Bottom Line: Regardless of age every investor should have some exposure to safe assets and while bonds, GIC’s or cash are not exciting they tend to provide a much safe haven over equities.
Suggested Stocks I Own: Canadian Utilities Preferred Series B (CU.PR.B), iShares CDN Bond Index Fund (XBB) & TD CDN Bond Index Fund-E (TDB909)
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