While the investment products you choose are important, understanding the asset class or category your investment falls under is essential.
Each investment will generate income differently and be treated differently from a tax perspective based on its asset class. Additionally, a certain level of risk is generally associated with each type of investment.
Research shows that the volatility of an investment portfolio depends far more on the mix of assets than on the selection of individual stocks or bonds. Unfortunately, it's impossible to predict which of the asset classes will perform best each year.
That's why diversification is important. The following chart gives an idea of how the performance of asset classes varies from year to year.
Asset Class Performance
| Year |
Best Performer |
Worst Performer |
| 2001 |
Fixed Income |
Equities |
| 2000 |
Fixed Income |
Cash |
| 1999 |
Equities |
Fixed Income |
| 1998 |
Fixed Income |
Equities |
| 1997 |
Equities |
Cash |
| 1996 |
Equities |
Cash |
| 1995 |
Fixed Income |
Cash |
Cash Equivalent Investments
Include high interest savings accounts, money market funds, T-bills, cash equivalent mutual funds and cashable GICs.
Fixed Income Investments
Include non-redeemable GICs, bonds, income mutual funds, and preferred shares.
Equity Investments
Equity investments such as equity mutual funds and common stocks, stock index mutual funds and Stock-Indexed GICs are held to provide long-term capital appreciation and act as a hedge against inflation.
|
