Alison Griffiths

Hoping for better investment returns in 2013? Look no further. For the past two weeks I’ve been writing about how to renovate your investments without necessarily chucking everything and starting from scratch. Even if you eventually take a different investment path from the one you are on, a little portfolio renovation is a worthwhile exercise that educates you about an important part of your financial life.

In the first column I discussed how to reduce mutual fund fees and give your portfolio returns an immediate boost. Last week’s column focused on where to invest in 2013 based on how various markets have performed in the past. It’s clear from my go-to investing source, Andex Charts, that chasing recent or even current hot trends is folly for the average investor and even most experts. Sector or market winners this year are just as likely to be losers or middling performers next year.

It seems like a distant memory but even cash (GICs) and bonds have had their day in the sun. And, believe it or not, they will again.

This brings me to the next stage in portfolio renovation. If you can’t cherry pick perennial winners, even in broad categories, how do you best protect your portfolio from the slings and arrows of market forces? The answer lies in two words – asset allocation.

You’ve heard grandma saying, “Don’t put all your eggs in one basket.” But many haven’t a clue where their investing eggs are, let alone if too many of them are in one basket!

The first step is to take a look at your investment statement. There should be a chart, graph or table indicating how much of your money is in cash, bonds or fixed income and equities or stocks. What are your percentages?

Unfortunately, your statement may not tell the whole story. In my daughter’s RESP (registered education savings plan), the asset allocation includes cash, bonds, equities and mutual funds.

Huh? Mutual funds are not an asset class. You can have a money market fund (cash), a fixed income fund (bonds) or an equity fund, which holds stocks.

Even if your statement properly indicates the three main asset classes, there is another issue. Mutual funds can be a blend. Balanced funds, for example, invest in cash and bonds, plus stocks. Statements should break out all of this into the proper asset allocation, but few of them do.