What is Asset Mix?

Q: What is asset mix?

A: Asset mix refers to the mix of investments in your portfolio. That mix is generally created from the three main asset classes:

Equities (stocks) tend to offer the greatest long-term growth potential and can help you beat inflation; they also carry the most risk.

Fixed Income investments (bonds, some guaranteed investment certificates (GICs) and more) can help you preserve your capital and provide steady income.

Cash and cash equivalents offer security, but also liquidity so that you can take advantage of opportunities as they arise.

Why You Should Care:

Studies, including the landmark Determinants of Portfolio Performance paper published in 1986, suggests that your asset mix is the most important decision you can make in investing — even over choosing your specific investments like stocks, mutual funds, etc.

Key Points to Know:

• The main benefit is diversification, which is key to successful long-term investing. Since financial markets typically don't move in the same direction at the same time, investing in different asset classes may help you ride out market fluctuations. If some of your investments are performing poorly, stronger performers elsewhere in your portfolio may help balance things out.
• Asset mix should reflect your investor profile, taking into account the level of risk you're comfortable with, your investment goals and time horizon.
• Your asset mix can change — a rise or fall in market values may result in a drift away from your set asset mix, which can expose you to more risk than you originally intended. Changing life circumstances may also mean you want to revisit your asset allocation.
• The Portfolio Analyzer tool, found under My Portfolio, allows you to easily view your portfolio's mix of investments and monitor risk.