What is a model portfolio?

Model portfolios are a way to plan your investments with a certain goal. They use a “passive” style where you add money over time without needing to follow the market closely. A model portfolio can be conservative or growth oriented depending on an investor’s need.

Time Horizons

One of the most important tools to determine which type of investment is right for you is how much time you have. For an early professional in their 20s their time horizon for retirement would be 40 years and so they can afford to have more aggressive allocations toward equities, which are more volatile. If you’re retiring in 5 years or already are retired it’s prudent to have more funds in stable investments so you don’t withdraw money in a downturn of the market and lock-in losses.

Asset Allocation

Asset allocation refers to what level of diversification you will have between the typical assets used for personal investing: bonds, equities, and money market funds. This will be determined by the type of fund you invest in.

All the funds in the graph below have a different level of balance between bonds and equities. VEQT is 100% equity and it earned the most money over 50 years, however it also has the most volatility and risk and also recorded the highest 1 year loss of all the funds while the rest were more stable due to their diversification.

Disclaimer: These portfolios are only meant as a way to visualize how passive investing works. Nothing written here is investing advice to purchase any security mentioned. The year estimates are generalized time horizons without knowing your personal situation. There are many ways to set-up your own portfolio not shown above. There are various canadian ETF providers that aren’t vanguard or ishares either from Horizons to BMO. There are a broad range of ETFs with different goals like investing in cyber-security (CYBR:tsx) to extremely conservative money market funds like (CMR:tsx).

Take a short Vanguard questionnaire here about asset allocations