How's Your Portfolio? I'd Say Strong To...Quite Strong

One of my all-time favourite movie scenes is in Meet The Parents when Owen Wilson (Kevin) and Ben Stiller (Greg) are talking stocks.  Here is a snippet of the scene to jog your memory:

Kevin: Gosh, things have been going so great lately. I got in early on some wireless I.P.O.s, and the stuff just skyrocketed from there.

Greg: Wow.

Kevin: What about you, Greg? What line of work are you in?

Greg: I'm in health care.

Kevin: Yeah, so you know what I'm talking about. There are a lot of Benjamins to be made now with biotech stuff. I don't have to tell you that. How's your portfolio?

Greg: I'd say quite strong.

Kevin: You gotta strike while the iron's hot. Now's the time.

Such a great movie and this scene makes me laugh every time! Having a portfolio makes you sound like a real mover and shaker but what is it exactly? A portfolio is a fancy word for all of your investments. There is no magic product or service out there that constitutes your “portfolio”, it is collectively your investments. This could be real estate you own, stocks or bonds you have, cash in your account, etc. It all makes up your own individual portfolio. 

The idea is to build a portfolio or group of investments that will earn you a monetary return on over time for some purpose, likely for your retirement. You can hire a financial advisor to assist you with this task but with a little work and planning you can set up your own portfolio and avoid paying someone else to do it. 

Here are the basic steps to setting up a “portfolio” which again, is really just another way of saying that you are getting some investments going for yourself: 

1.     Open the accounts you need to actually buy the investments. Without this first step, you won’t have the tool to do any sort of transaction. This account may be a Questrade account (see How Do I Actually Purchase a Stock on the Stock Market?) or other discount brokerage account that will allow you to buy an investment like a stock or ETF. Within the brokerage account, you can decide whether you want to open an RRSP account or a regular trading account. See How Do I Actually Purchase a Stock on the Stock Market? for an explanation as to the difference between those two accounts. I will be doing a later post delving deeper into ETF’s, TFSA's, RRSP’s and RESP’s, etc. Whatever the account is you choose, you need to open some sort of account to enable you to buy investments.

2.     Decide how you want your portfolio to look in terms of what investments you want to purchase. A good, well balanced portfolio won’t just have stocks in it. You likely will want a few different types of investments such as bonds which are less risky (I will do a later post as to what bonds are and how you buy them). What you decide to buy for your portfolio will likely depend on your risk tolerance (stocks are typically riskier), your age (the older you are, the less risky you may want to be given you have less time to make up any losses) and your investment goals (retirement? Short term gain?).

A good rule of thumb for what your portfolio should look like is to use the following equation:  110 (-) your age= the percentage of your portfolio that should be stocks. So, if you are 40, you may want to think about your portfolio consisting of 70% stocks and the remainder less risky investments such as GIC’s (Guaranteed Investment Certificates) or bonds (again, more on those in a later post). As you age, you will rebalance your portfolio so less is in stocks and more is in less risky investments. When you are young, you want to use those years to make smart decisions in investments that will give you a high return to build up your wealth in those years and then ideally, as you get closer to retirement, you can phase into less risky investments.

The Capital Pink aims to assist you with this phase of the portfolio set up by giving you ideas of investments and general information on how to delve deeper into what you might want to put into your portfolio.    

3.     After you have your account(s) set up and have decided generally what your allocation of investments will be (risky v. less risky), your next step is to contribute money to your accounts regularly (perhaps each month off of your paycheque) and at the end of each year, review and rebalance. For example, let’s say you have decided to put 70% of your money in stocks and 30% in bonds. At the end of the year, your stocks have done very well and it turns out the allocation is 80% stocks and 20% bonds. You may want to stop contributing to the stocks and put your contributions into the bonds to get the allocation back to the original 70/30. This will keep your original allocation on track. 

So, while the word may seem intimidating, a “portfolio” is nothing more than all of your investments put together. You can easily get going on one, if you haven’t already, by setting up the necessary accounts needed to make investments and deciding on your approach to filling it. This allows you the control over your own finances. Managing your own investment portfolio is not for everyone (read: those not interested, those overwhelmed by the thought, those with large or complicated investments, etc.) and I will do a later post on what you can or should do in that case. However, it is always a good idea for everyone to have a basic understanding of a what in fact a portfolio involves.   

**Top photo by Annie Spratt on Unsplash