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Anthony Layton MBA, CIM

Chairman & CEO, Portfolio Manager

Peter Guay MBA, CFA

Portfolio Manager
Contact
  • T514.875.7566 x 224
  • 1.800.875.7566
  • F514.875.9611
  • Place Alexis Nihon
  • 3400 de Maisonneuve Ouest,
    Suite 1501
  • Montreal, Quebec H3Z 3B8

7 steps to maximize your wealth in a world of diminishing returns

June 25, 2017 - 0 comments

Where are the markets headed? Is Trump good or bad for the stock markets? How about China? Will its economy slow down or accelerate -- and what does it mean for the price of oil? Is the dollar going up or down?

My answer to these kinds of questions might surprise you: I have absolutely no idea. And neither do the forecasters who actually make their living coming up with predictions about this stuff.

The research shows their crystal balls are just as foggy as yours and mine. The bottom line? Doris Day said it best...Que sera, sera...the future’s not ours to see.

Before you hit the panic button, this doesn't mean you’re powerless. There are steps you can take to improve the performance of your investment portfolio and maximize your wealth.

 

Returns are falling

While we can’t predict the future, we still have to work with some assumptions about what returns to expect over the long term, based on history. And we see some big trends we believe will reduce them in the future.

These trends include low inflation, low interest rates and sluggish economic growth. The result is that our research team at PWL Capital expects a balanced portfolio to return 5% a year on average versus a historical return of 8.4%.

So you can see there’s not a lot of room for error. You need to squeeze all the juice you can out of your portfolio. To help you do that, here are seven steps you can take right now to maximize your investment returns.

  1. Understand the difference between risk and danger. Danger is the possibility of losing a devastating portion of your savings. Risk is the possibility the value of your portfolio will diminish temporarily in any given year.
  2. Be patient. Investing is about taking prudent risk and being compensated for it. This takes time. If you jump in and out of the markets chasing returns, chances are you will lose.
  3. Diversify your portfolio to the extreme. Diversification across and within asset classes is an effective way to remove danger from your portfolio. Once danger is removed, you become empowered to take on more risk. You can handle more portfolio fluctuations because you understand your wealth is not endangered.
  4. Capture risk premiums. The research shows you can boost your overall returns by tilting your portfolio toward higher-return securities. You can choose corporate bonds over government bonds. Value over growth stocks. Small cap over large cap stocks.
  5. Minimize your investment costs. As you may know, Canadians pay some of the highest investment management costs in the world. By reducing your fees and commissions, you increase your returns, risk-free. Our studies show this can add up to a full percentage point to your returns.
  6. Minimize your taxes. Just like cutting investment costs, reducing the bite the government takes from your portfolio is another risk-free way to boost your returns. Our research indicates you can save up to half a percentage point by minimizing your taxes.
  7. Rebalance your portfolio. According to our research, you can add four-tenths of a percentage point in return by periodically rebalancing your portfolio back to your target asset weightings.

The gains from these steps all add up. And that’s crucial in a time of diminishing returns. So there’s no time like right now to get started in improving your portfolio management.

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