Investment Governance: Know What You Have

Reviewing your investment mix periodically to understand what’s in your portfolio is an important step in personal governance.

Your retirement income program likely includes one or more of the following: target date funds, asset allocation funds and/or balanced funds. When joining a retirement program, these are often presented as “set it and forget it” fund options, as they include a mix of Canadian equity, foreign equity and bonds. Many people choose these options and don’t end up looking at their asset mix for years, however, it’s important to have a basic understanding of their composition to ensure you are comfortable with the equity exposure in your portfolio.

Balanced funds will almost always have an equal weight of equity and bonds. Asset allocation funds also have a set mix of equity and bond investments but the level of equity for conservative asset allocation funds can be as low as one quarter of the fund and aggressive asset allocation funds can be almost entirely invested in equity. Understanding the level of equity for each fund will enable you to determine if the choices you initially selected are still appropriate for your retirement objectives.

Target date funds also contain Canadian equities, foreign equities and bonds, but unlike balanced and asset allocation funds the level of equity declines over the life of the fund. A fund that has a maturity date of 2050 may have close to 90 per cent in equity while one dated 2020 might just have 35 per cent in equity. Understanding how target date funds operate in terms of equity levels is important to periodically ensure you are comfortable with the level of market risk you have assumed.

You can easily determine the equity level of your funds by reviewing the quarterly fund fact pages online. Likewise, you can call your program’s record-keeper and ask how much equity is in your investment account and inquire whether it is appropriate for your long-term savings objectives.

Equities are the driver for long-term asset growth but it is important to know how much you have.