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CI Institutional Asset Management

Investment Basics

Building Your Portfolio

Building your investment portfolio is one of the most important financial decisions you will make. Mutual funds may help bring strength and diversity to that portfolio and they offer advantages:

  • Professional money management. Professional portfolio advisers have the skills and time to do the research required to make informed investment decisions. They also have access to information not readily available to the average investor.

  • Diversification. This is the investment equivalent of not putting all your eggs in one basket. Because investment values are constantly changing, owning different investments may provide better long-term returns because the investments that increase in value compensate for those that don't. A mutual fund may contain 40 or more different investments and is a simple way to diversify.

  • Accessibility. You can redeem your mutual fund investment at any time, although sales charges may apply. Other investments such as stocks, bonds, gold, real estate, gems, or art, may require you to find a specific buyer before you can sell.

  • Recordkeeping and Reporting. Mutual fund companies use sophisticated recordkeeping systems and send you regular financial statements, tax slips, and reports.

There are many funds to choose from with the CI family. Here are three general guidelines to help you make the right choices in consultation with your investment adviser:

Decide on your investment objectives. Do you want steady income, an increase in your capital, or a combination of both? Income funds provide steady income, equity funds are designed to provide an increase in capital, and balanced funds provide a bit of both.

For example, if you are younger, your objectives may include investing for your children's education, a new home or retirement. These objectives usually call for equity investments that provide a long-term increase in capital.

If you are near retirement, you may require both current income for now and capital growth to provide income later. These objectives usually call for a combination of equity and income investments.

Decide when you will need the money. The number of years before you will spend your investment determines your investment horizon.

If you plan to buy a house within five years your horizon is relatively short.

If you are investing for retirement in 20 years, your horizon is much longer. Even in retirement, though, you won't need all your money on the day you retire. Because you may live for 20 years after retirement, your total horizon may be 40 years and part of your investment should be managed with this in mind.

When it comes to investing, time is definitely an asset. For equities which can fluctuate significantly over the short term, a long-term strategy is best to make sure you are invested during market upswings to decisively increase your capital.

Decide on your tolerance of risk. One risk that affects all investments is inflation risk. If inflation is at an annual rate of 3%, a "safe" investment that guarantees a 3% return is not growing at all, and a "safe" investment that guarantees a 2% return is putting you farther behind every year.

Generally, higher-risk investments have the potential for higher returns and the longer your investment horizon, the greater risk you can tolerate. But returns are not the only yardstick for a successful investment. An investor who checks fund prices every week and worries when investments temporarily lose some value has a low tolerance for risk and might be more comfortable with money market funds, bond funds, or equity funds that aim for low volatility.

An investor who is willing to take on more risk might prefer a higher proportion of equities, or a regional focus such as an emerging market fund that has the potential for higher returns. Over the longer term, equities have historically provided the greatest returns, although their short-term volatility risk may also be the greatest. If you think you might need short-term access to your investment, however, a more conservative investment, such as a money market fund, will likely be less volatile.

In consultation with your investment adviser, you can build a portfolio tailored to your specific investment objectives, horizon, and risk tolerance. The nearby hypothetical portfolios represent sample investment programmes based on these variables.

The CI family of funds contains all the investment choices you need to build a finely-tuned investment plan that will satisfy your financial goals.

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