If investing mostly in equities makes you nervous, consider Serge Pépin’s approach. The head of BMO Investments thinks the 60/40 asset allocation ratio (holding 60% stocks, 40% bonds for younger investors; the reverse for retirees) is outdated. Instead, he suggests separating your portfolio into three parts that feed into each other. Put 20% or 30% of your money into GICs or government bonds to fund your immediate needs, like paying a mortgage and buying food. Then invest anywhere between 10% and 80% in conservative, dividend-paying stocks. This is the “capital preservation” basket, says Pépin. Put the income you generate from the second basket into the GIC account, so your first basket is constantly replenished.
Finally, deposit the rest into growth-oriented stocks. It could mean going into a Canadian equity growth mandate, buying emerging markets, or playing with even riskier assets. Ultimately, you’ll move gains from basket three to buy more stocks in basket two, which then gives you more dividend income to add to your immediate-needs bucket.
(Research, editorial and spiritual support provided by Bryan Borzykowski; “artistic” support by Trevor Melanson )