Back to School: What is a Portfolio?

Learn how to make your money into the right mix of colours, with Ian Tam and guest host Liam Flood 

Ruth Saldanha 2 September, 2020 | 1:49AM

 

 

Liam Flood: Hello. My name is Liam Flood. And today, I'll be talking to Ian Tam about investment portfolios. Hi, Ian.

Ian Tam: Hi, Liam.

Flood: Ian, what is an investment portfolio?

Tam: It's a great question, Liam. And the boring answer to that is basically it's an investment in a mix of different types of asset classes or basically a mix between stocks, bonds and cash. But maybe a more relatable way to think about an investment portfolio is to think about a color palette. And Liam, I know that you are an artist. So, if you think about a color palette, there's going to be some pretty aggressive colors like reds and blacks that are pretty bold in nature and you can think of those kind of as stocks. They are pretty fast moving; they are aggressive. There's also some cooler colors like blues and greens that I would probably relate to bonds. They are a little slower moving and they are a bit more conservative in nature. So, an investment portfolio is kind of like a color palette. And what you're trying to do is build the right mix of colors that is appropriate for you as an investor.

Flood: Then, how do you choose what should be in the portfolio?

Tam: Yeah, another great question. That's a really big one actually. So, one way that people should often look to or consider when they choose their portfolio is how much risk you can take on. And that risk is kind of tied to how old you are in a way. So, if you're really young like you, you can actually afford to take a lot of risk and be a bit more aggressive. So, you could be more on the red portion of the color palette. But as you get a little bit older, you can't take on as much risk. So, you may actually tend to shift your mix of stocks and bonds or your mix of colors more towards the cooler or more conservative side of the color spectrum.

Flood: How often should I change my portfolio?

Tam: Yeah, another great question. And you know, a lot of people probably change their portfolios more often than they need to. And that can actually hurt your investment returns or how much money you make over the long term. So, you don't really want to touch your portfolio too much. Again, the important thing is to think about where you are in your career and as you get older, you want to slowly shift your mix of stocks and bonds or your colors towards something that's a bit more conservative. But you really don't want to do that too quickly. You want to do it gradually over time as you age.

Flood: Thank you for your time, Ian. For Morningstar, I'm Liam Flood.

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Ruth Saldanha

Ruth Saldanha  Ruth Saldanha is Senior Editor at Morningstar.ca

 

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