The Perfect Portfolio: Is There One? Our Interview with Dave Nugent from Wealthsimple

by June 23, 2015 / No Comments

Should you put your money in bonds, stocks, or GICs?

When people talk about the best investments, this is how often how the topic is framed. In this sense, investors are encouraged to pick one investment over another, betting that one will be a winner.

Unless you are a professional investor with expertise in financial markets, being overly concentrated in one sector is a recipe for disaster; this is why it’s a good idea to diversify your portfolio.

Diversification provides stability for investors because even if one asset you own goes down in value, another might compensate by going up. As the saying goes, it’s never wise to put all your eggs in one basket.

Having said this, there isn’t one-size fits all portfolio that’s appropriate for every investor regardless of their age or life situation. With this in mind, we want to look at how people at different stages of their lives might approach their portfolios.

We came up with 3 case studies and asked Dave Nugent, Portfolio Manager and Chief Compliance Officer at Wealthsimple, what he would recommend. Wealthsimple is a low-cost service that subscribes to an index investing approach. With index investing, an individual buys a fund that tracks an entire market, rather than trying to pick individual stocks.

As a preface to his advice, Dave notes the following:

The big considerations that we take when figuring out asset mix is willingness to take risk. So age and time horizon is a great starting point, but someone’s experiences with investing and decision making will dictate more the decision making process. I have told a 24-year-old type person to be in a heavily weighted equity portfolio because they understand the risks, and are willing to deal with them to potentially have a higher down payment. On the flip side, a brand new investor with a 5-year time horizon I’ve advised to leave the bulk of their money in something safe and guaranteed. 

Case Study #1: Single 24-year old with first “career” job who wants to buy a property within the next 5 years.

Dave Nugent: If they have the money already saved then I would caution a new investor from putting much money in the markets. I would hate to have a downturn happen right when they plan to take the money out. If they need some growth to achieve their desired number then I would start at 50% equities 50% fixed income. I would also recommend taking advantage of the RRSP Home Buyers’ Plan as well if it’s their first home.

Case Study #2: Married couple in mid-30s with two young children (4 and 6) that want to have an investment portfolio to finance future educational costs, as well as a down payment for their children.

DN: I would say they should have at least 80% of the portfolio in the equity market. With a time horizon of more than 10 years, they have more than enough time to ride out any market downturn.

Case Study #3: Couple in their mid-to-late 40s who want to build a portfolio that can finance their retirement and, if possible, pay off their mortgage in a lump sum at the end of their mortgage term.

DN: I would say they want to have a portfolio that is still tilted towards the equity markets. Perhaps a 70% equity 30% fixed income mix. Assuming the couple wants to retire in 10-15 years, they have ample time to save.

Being curious, we couldn’t help but ask Dave some follow-up questions.

For the fixed income component of people’s portfolios, what kind of duration do you recommend? 

DN: We believe in keeping duration relatively short. Rates are low, but regardless, we rather stay conservative. We are taking a longer term view of rates and they can’t go much lower.

For the equity component, do you have a favoured geographical allocation? 

DN: We believe in a diversified portfolio that has exposure to all geographies. The portfolios have the most exposure to the U.S. equity market given it’s the largest market globally.

To what degree do you think the stock market is a bubble (the U.S., for example), and how should an investor act if it is?

DN: When you’re a passive investor, you don’t sweat the small stuff. The key to success for us is maintaining a disciplined approach and rebalance when necessary. The thing with bubbles is inevitably most people get it wrong and are late, [and so] we do not believe in market timing. If you sell assets when they are up, and reallocate to assets that are down, invest regularly and watch your costs, you will achieve your longer term goals.

Do you think gold has a role to play in someone’s portfolio?

DN: As part of a diversified portfolio, sure. Many investors however, require an income stream which owning physical gold does not provide.


The truth is, you don’t need a perfect investment portfolio (and frankly, it doesn’t exist). Rather, you need one that is sturdy enough to protect your capital and generate some income over the long term. The way to do this is to be sufficiently diversified across different types of investments. You want a portfolio that can meet your (realistic) goals and weather the downturns that inevitably hit the market. It may not make you rich, but it will help you achieve you objectives and sleep well at night in the process.

categories: Deposits