The First Dimension in Russell's Investment Approach
What Should I Invest In?
Different asset classes have different risk and return characteristics. Your portfolio should combine them in a way that meets your objectives and your need for stability. Finding the combination that is right for you will help give you the comfort to adopt a long-term investment discipline.
What Are Asset Classes?
Some examples of different asset classes include:
- Canadian stocks
- US stocks
- International stocks
- Emerging market stocks
- Fixed Income
- Money Market (cash)
A portfolio built with Russell funds can include each of the major fields of investment, in proportion to your objectives. Each portfolio is diversified into multiple asset classes:
Each portfolio is diversified into multiple asset classes.
How Does Mixing Asset Classes Work to Reduce Risk?
The most widely accepted way to reduce the risk of investing is diversification spreading money among a variety of investments as opposed to investing in only stocks or bonds for example. Simply stated, not putting all your eggs in one basket.
Because diversification can lower risk, you can select asset classes (such as small stocks or international equities) that alone could be more volatile but as part of a mix give you a higher potential for returns.
For example, investing solely in Canadian equities can bring strong returns. It may also mean you could be in for a few sleepless nights with market fluctuations.
To avoid sleepless nights, some investors will put their money in lower-risk investments like government bonds, which have historically tended to experience less market fluctuation than stocks. These assets also tend to have lower returns. Taxes and inflation can also eat away much of those returns, making it difficult to reach your investment goal.
The chart below shows you that by combining stocks and bonds you get a mix that may offer higher returns than bonds, with less risk than stocks.
50-Year Annualized Return:
Dec. 31, 1954 - Dec. 31, 2004
Source: Stocks: TSX Industrial Index (1949-2004), S&P/TSX 300 Index (1957-2004); Bonds: ScotiaMcLeod 40 Bond Index (1949-2004). ScotiaMcLeod Long Term Bond Index / SM 91 Day T-Bills Composite (70/30) (1977-2004), ScotiaMcLeod Universe Bond Index (1981-2004).
Past performance does not guarantee future results.
*Mix = % equities / % bonds
What Can Strategic Asset Allocation Do for You?
Potentially, quite a lot, if you take a long-term view. Over time, perhaps you'll find you can increase your returns by 1% or 2%. Though that might not seem like much in the short run, small increases, earned regularly and compounded over the years, make a big dollar difference in the long run.
Finding an Appropriate Mix of Asset Classes is Critical
Russell financial planning tools use sophisticated asset allocation technology that combines your investment goals and risk tolerance to design investment strategies that meet your individual needs. This gives you the comfort to adopt a long-term investment strategy.
We'll help you understand your options and fine-tune your portfolio until you're satisfied it's just right for your needs.
After you've determined the right way to allocate your investment among asset classes, we can help you further reduce risk by helping you diversify within asset classes. For example, if you decide to allocate a portion of your portfolio to Canadian stocks, we further diversify that portion to include different styles of stocks, such as growth, value, market-oriented, or small capitalization. This way, when one style goes out of favour with the market, the overall effect on your portfolio is reduced.
Learn more about the Multi Style aspect of Russell's investment approach.
Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.
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