podcast

A Balanced Diet and a Balanced Portfolio

Published:09/11/2020


Investor Knowledge +
clock 5 Minutes =
Confident Investing

"Eat your vegetables. Finish your chicken. Don't forget the brown rice. There's fruit for dessert."

I grew up hearing this. I was taught that a balanced diet was the only way to get big, strong and healthy. Thanks Mom and Dad. Can I have the strawberry-filled crêpes now? With icing sugar on top?

Ingesting and Investing

The big lesson I pulled from this, and one I didn't understand until many years later, is that a balanced diet is as critical for personal health as a balanced portfolio is for personal wealth. If you don't diversify your diet, or have one too many crêpes, you're leaving the door open for indigestion. It's important to diversify your portfolio. Too much of one thing will impact your health and your wealth.

A Balanced Diet and a Balanced Portfolio

We understand what a balanced meal looks like. What does a balanced portfolio look like? Cash, bonds, and equities. It sounds simple enough. Create an objective for your money, a time horizon, and a risk tolerance. Then pour a reasonable amount into each of those buckets. This is a good starting point.

Let's take this one step further. What about ingredients? Those matter. Fried chicken vs. baked chicken, for example. A small detail can make a big difference. U.S. Blue Chip Stocks vs. Small Cap Emerging Market Stocks. Another small detail that can make a big difference. U.S. Dollar vs. Canadian Dollar vs. any currency or handful of currencies. More small details. More big differences. These details can affect outcomes.

Think about what nutrients you need and their proportions. You need fats, carbohydrates, a little gluten, some sugar, a slew of vitamins, etc. Combined, they make you strong, resilient and healthy. The same goes for your portfolios.

The Right Ingredients

Let's look at another example. Corporate Bonds combine three factors, or ingredients. The first ingredient is equity risk. Bonds are an IOU (I owe you), so when you lend money to a company, you should review the viability of that company and its ability to repay debt and survive. Another ingredient is term premium. Are you going to lend money for one year or thirty years? The longer the term, the more uncertainty you take on. Another ingredient is interest rates. If you lend money, and interest rates rise or fall, the price of the bond will change, despite no change to the company's foundation or their ability to repay debt. You need to review these ingredients, and a much larger set of ingredients, before you consider buying shares in a company or owning a piece of a company or group of companies.

Other such ingredients include the size of a company, the direction it's trending, whether its shares are liquid, how those shares are priced relative to earnings, the strength of its balance sheets, and whether it pays a dividend or is speculative in nature. These are all important ingredients. All important considerations.

Let's Make a Meal

How do you build solid portfolios in an unstable, uncertain world? And what does a balanced meal of securities look like? When building a balanced portfolio, there are three things to consider. First, you need to understand what you want. Do you want to save money for a house, your retirement, or your child's education? Do you want to leave your legacy to a charity?

Second, you need to determine the appropriate asset mix. How does my dinner of chicken, brown rice, vegetables, and fruit look to you? Is it appetizing? This decision accounts for 90% of the variability of returns. And degrees of ups and downs. How much volatility can you endure, financially and emotionally? How much indigestion can you tolerate? I could certainly eat more sugar as a kid. Today, sugar has more consequences to me.

Third, why not try to add some outperformance? I like to sprinkle a little icing sugar here and there. Where can you do that without increasing the risk of indigestion? How can you do that and capture market returns, and then some? It's definitely possible. There are also sugar alternatives. And they taste just as good.

The TDAM Menu

At TDAM, we have 30+ ETFs on the menu and growing, plus a number of ingredients that provide broad exposures. We offer enough variety to build a sound portfolio that helps preserve and grow money. You could cook your own hearty meals with our ETF line-up. You could also hire a chef to cook for you and oversee your portfolio, as well as your financial plan, emotional bandwidth, and major milestones.

Either way, TDAM keeps your appetite in check. We have three particularly special meals for your, or your financial professional's, consideration. And we offer conservative, moderate and aggressive flavours. If you are anything like me, and think that someone else's cooking always tastes better, I invite you to sample our TD One-Click ETF Portfolios.

The Minds Behind the Menu

We are fortunate enough to have many ingredients to choose from. Our solutions are very sophisticated behind the scenes; they are just simple to implement. One-Click simple.

Here's a peek into our kitchen. Our chefs are fairly agnostic when it comes to active vs. passive investing. For broad market exposure, they choose passive investing because it makes sense not to overspend and capture market returns. They choose active investing when they want to provide a very specific factor risk. They tailor their strategies to add return that is over and above the benchmark. They also refer to highly researched and proven quantitative strategies to isolate the best ingredients, add outperformance, and reduce risk.

We've designed our menu to take advantage of efficient markets, while recognizing and harvesting inefficiencies to create better outcomes. You need a mixture of active and passive investing to reap the benefits of both. And we have our hand on the lever when it comes to managing risk like using some long bonds (our insurance to equity risk). This allows us to navigate whatever the market brings.

Our Asset Allocation team is teeming with expert chefs. This team manages $80+ Billion in assets1 and brings decades of experience to the table. Their solutions are innovative, convenient and attractively priced. Their meals bring the balance. And suit every investor palate.

Our Solutions

TD One-Click ETF Portfolios are a convenient way to diversify your portfolio, even if you have a small amount of cash to invest. Whether you are risk-averse, comfortable with risk, or a bit of both, the following solutions may help secure your medium-term and long-term investment goals:

As investors, it's important to have a balanced approach to investing. This preserves capital, maintains growth, and achieves success. As humans, it's important to find the right balance of nutrients for energy, endurance, and a strong immune system.

Balance is key for better health and better wealth. The important part is knowing what's best for you. And trusting others to know the same. If you need help with finding your financial balance, reach out to a TD advisor or investment professional for guidance.

Jonathan Needham
Vice-President, ETF Distribution
TDAM


1AUA as at September 30, 2020 for TD Asset Management Inc.’s Asset Allocation Team.

Additional Resources

TD One-Click ETF Portfolios are an all-in-one ETF solution designed to simplify investing. These three diversified options, backed by the benefits of active management, are offered at an attractive management fee. To see what other ETF options are available to you, check out our ETF Product Guide at TD.com/ETFs.

Are You New to Investing? Here's How to Invest in TD ETFs

You can invest with TD GoalAssistTM, TD Direct Investing, or a trusted TD Advisor. Learn more at TD.com/ca/en/investing.

Are You Already Investing?

Contact your investment professional or look for TD Tickers, wherever you invest!


The information contained herein has been provided by TD Asset Management Inc. and is for information purposes only. The information has been drawn from sources believed to be reliable. The information does not provide financial, legal, tax or investment advice. Particular investment, tax, or trading strategies should be evaluated relative to each individual's objectives and risk tolerance.

Certain statements in this document may contain forward-looking statements (“FLS”) that are predictive in nature and may include words such as “expects”, “anticipates”, “intends”, “believes”, “estimates” and similar forward-looking expressions or negative versions thereof. FLS are based on current expectations and projections about future general economic, political and relevant market factors, such as interest and foreign exchange rates, equity and capital markets, the general business environment, assuming no changes to tax or other laws or government regulation or catastrophic events. Expectations and projections about future events are inherently subject to risks and uncertainties, which may be unforeseeable. Such expectations and projections may be incorrect in the future. FLS are not guarantees of future performance. Actual events could differ materially from those expressed or implied in any FLS. A number of important factors including those factors set out above can contribute to these digressions. You should avoid placing any reliance on FLS.

Commissions, management fees and expenses all may be associated with investments in ETFs. Please read the prospectus and ETF Facts before investing. ETFs are not guaranteed, their values change frequently and past performance may not be repeated. ETF units are bought and sold at market price on a stock exchange and brokerage commissions will reduce returns.

TD ETFs are managed by TD Asset Management Inc., a wholly-owned subsidiary of The Toronto- Dominion Bank. TD Asset Management Inc. is a wholly-owned subsidiary of The Toronto-Dominion Bank. All trademarks are the property of their respective owners. ®The TD logo and other trademarks are the property of The Toronto-Dominion Bank or its subsidiaries


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