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The Companion Advisor: General Interest
Focus on the whole, not the parts

By AIM / Trimark Investment Management Inc.
A Companion Advisor article

Too often, investors focus on extremes. The best- and worst-performing assets in a portfolio stand out, while everything else goes more or less unnoticed. It's only natural: We all want to be holding winners and avoiding losers. As a result, it's easy to lose sight of the portfolio as a whole.

The whole can be less than the sum of its parts

Looking at each security- in isolation, it's easy to see what boosted returns of dragged performance. But trying to maximize returns is only one goal of an investment program.

Risk is key, too. When comparing a portfolio's holdings, its important to consider how each security relates to the others. The level of risk in a portfolio - as measured by the volatility of returns over time - gives an indication of what an investor might expect in the future. Alter all, markets will always fluctuate, and most of us want to minimize any downdraft.

When comparing a portfolio's holdings, it's important to consider how each security relates to the others.

Modern Portfolio Theory focuses in part on the correlation of each asset in a portfolio to each of the others. Correlation is a statistical measure of the relation between sets of data. It's the hinge on which diversification works. A portfolio of highly correlated equities (i.e., equities whose prices move in the same direction at the same time) will experience more volatility than a portfolio of uncorrelated, or negatively correlated, securities. What's happening is that the losses of some securities are offset by the gains of others.

So it's important to invest across asset classes, geographically and by investment ideas such as demographic or technological influences. By doing so, several economic, sector-specific and company-specific events, both positive and negative, are covered. It's not about being right or wrong - every economic sector or asset class is in favour at some time, and out of favour at others. But holding a mix of funds with different investment focuses will generally offset some of the volatility of the overall portfolio.

After all, it's the value of the total portfolio that's important in the end, not the return of a few securities in it.

GETTING ADVICE: Investing requires careful planning to ensure all essential matters are covered. It strategies should be reviewed periodically and discussed with a qualified adviser or team of advisers to incorporate any changes in your personal circumstances.

Notice: Fiscal Agents Financial Services Group are not engaged in rendering tax, accounting or legal professional services or advice. The comments in this article are not intended, nor should they be relied upon, to replace specific professional advice. Before acting on material contained herein. Readers should seek advice that is appropriate to their personal circumstances from a professional advisor.

We gratefully acknowledge the contribution of this article from AIM/Trimark Investment Management Inc.

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