Higher Inflation Requires…Higher Returns
Investor Knowledge +
5 Minutes =
New Thinking
Investors are often told about the importance of creating an investment plan that they can stick to through the thick and thin of their investing journey. And a key piece of any plan is an investor's asset allocation — or the mix of investments they hold within their portfolio. Now, traditional asset allocations like the 60/40 portfolio (60% stocks and 40% bonds) have historically delivered attractive risk-adjusted returns for many investors.
But these days, finding the right asset mix might not be as straightforward. Inflation has been running hot and interest rates are at multi-decade highs. As a result, it may be more difficult for investors to earn the returns they need to reach their financial goals. Simply put — higher inflation requires higher returns.
Although we at TD Asset Management Inc. (TDAM) feel stocks and bonds are still the bedrock of a diversified asset allocation strategy, we also feel market fundamentals have changed to some degree. For example, economic growth has been much more volatile in recent years and inflation has trended much higher than long-term historical averages.
If these trends persist, we may experience several different market environments and more variability in the returns of stocks and bonds. This may also necessitate more active and tactical management of a portfolio to help drive risk-adjusted returns. Therefore, investors may want to consider additional diversification through new investment options within their asset allocation to help drive returns higher during unpredictable times.
TDAM delivers on the options
TDAM has a broad and extensive lineup of Exchange-Traded Funds (ETFs), to help you construct a well-diversified portfolio in today's changing market and economic environment. For those that want to take a hands-off approach, consider asset allocation ETFs. A single ticket solution that can get you diversified exposure to stocks and bonds.
For instance, TD ETF Portfolios are all-in-one solutions designed for investors who are looking for a low-cost and efficient way to invest and lack the time or expertise to pick individual securities. You can choose from three different options with differing allocations to equities and fixed income depending on your risk profile and investment horizon. For instance, a 30% equity and 70% fixed income allocation is considered more conservative while a 90% equity and 10% fixed income mix is more aggressive. For those wanting to do it themselves, consider a "core and explore" strategy.
Core and explore
Core and explore is a method of portfolio construction where an investor buckets their investments into two groups, the core which typically consists of passive investments and explore which tends to consist of more active strategies. This gives an investor more control on how they invest and can increase the risk/return profile of a portfolio. Percentage allocations to each group will depend on the investor's tolerance for risk, investment horizon and market outlook. The core allocation is meant to provide stability and long-term growth, while the explore allocation aims to generate higher returns and enhance overall portfolio performance.
Core - TDAM offers a plethora of low cost, passively managed ETFs for portfolios with exposure to Canadian, U.S. or international markets. For the equity component, investors could utilize ETFs that track some of the major stock markets in the world, with exposure to some of the biggest companies and blue-chip names most people are familiar with. These types of ETFs will help provide the potential for growth as well as stability obtained through broad diversification. For the fixed income allocation, an investor can choose between investment grade government and corporate bond exposure that helps provide diversification and income to portfolios.
Some core options on the equity side from TDAM include TD U.S. Equity Index ETF (TPU), TD Canadian Equity Index ETF (TTP) and TD International Equity Index ETF (TPE). For fixed income, investors can choose something like the TD Canadian Aggregate Bond Index ETF (TDB) which provides broad exposure to high quality investment grade government and corporate debt.
Explore - Once the core is established, the more tactical investment options can be added. The main objective for the explore allocation is to generate returns above a benchmark and could reflect the investors short-term expectations or views in certain sectors or geographies, like real estate, infrastructure, commodities and even fixed income. The explore portion of the portfolio typically contains investments that have lower correlations to traditional asset classes and sometimes higher volatility.
Some explore options from TDAM include TD Active Global Infrastructure Equity ETF (TINF), TD Global Carbon Credit Index ETF (TCBN), TD Active Preferred Share ETF (TPRF), TD Q U.S. Small-Mid-Cap Equity ETF (TQSM) and TD Select Short Term Corporate Bond Ladder ETF (TCSB).
For more information read New Age Strategies for the Old School Portfolio.
To see what ETF options are available to you, download our ETF Product Guide, available on our website TD.com/etfs.
The information contained herein has been provided by TD Asset Management Inc. and is for information purposes only. The information has been drawn from sources believed to be reliable. Graphs and charts are used for illustrative purposes only and do not reflect future values or future performance of any investment. The information does not provide financial, legal, tax or investment advice. Particular investment, tax, or trading strategies should be evaluated relative to each individual's objectives and risk tolerance.
The TD U.S. Equity Index ETF is not sponsored, promoted, sold or supported in any other manner by Solactive AG nor does Solactive AG offer any express or implicit guarantee or assurance either with regard to the results of using the Solactive AG Indices and/or any trade mark(s) associated with the Solactive AG Indices or the prices of the Solactive AG Indices at any time or in any other respect. The Solactive AG Indices are calculated and published by Solactive AG. Solactive AG uses its best efforts to ensure that the Solactive AG Indices are calculated correctly. Irrespective of its obligations towards TDAM, Solactive AG has no obligation to point out errors in the Solactive AG Indices to third parties including but not limited to investors and/or financial intermediaries of the TD Index ETFs. Neither publication of the Solactive AG Indices by Solactive AG nor the licensing of the Solactive AG Indices or any trade mark(s) associated with the Solactive AG Indices for the purpose of use in connection with the TD Index ETFs constitutes a recommendation by Solactive AG to invest capital in said TD Index ETFs nor does it in any way represent an assurance or opinion of Solactive AG with regard to any investment in the TD Index ETFs.
The TD Canadian Equity Index ETF is not sponsored, promoted, sold or supported in any other manner by Solactive AG nor does Solactive AG offer any express or implicit guarantee or assurance either with regard to the results of using the Index and/or Index trade mark or the Index Price at any time or in any other respect. The Solactive Canada Broad Market Index (CA NTR) is calculated and published by Solactive AG. Solactive AG uses its best efforts to ensure that the Index is calculated correctly. Irrespective of its obligations towards the Issuer, Solactive AG has no obligation to point out errors in the Index to third parties including but not limited to investors and/or financial intermediaries of the TD Canadian Equity Index ETF. Neither publication of the Index by Solactive AG nor the licensing of the Index or Index trade mark for the purpose of use in connection with the TD Canadian Equity Index ETF constitutes a recommendation by Solactive AG to invest capital in said TD Canadian Equity Index ETF nor does it in any way represent an assurance or opinion of Solactive AG with regard to any investment in this TD Canadian Equity Index ETF.
The TD International Equity Index ETF is not sponsored, promoted, sold or supported in any other manner by Solactive AG nor does Solactive AG offer any express or implicit guarantee or assurance either with regard to the results of using the Index and/or Index trade mark or the Index Price at any time or in any other respect. The Solactive GBS Developed Markets ex North America Large & Mid Cap CAD Index (CA NTR) is calculated and published by Solactive AG. Solactive AG uses its best efforts to ensure that the Index is calculated correctly. Irrespective of its obligations towards the Issuer, Solactive AG has no obligation to point out errors in the Index to third parties including but not limited to investors and/or financial intermediaries of the TD International Equity Index ETF. Neither publication of the Index by Solactive AG nor the licensing of the Index or Index trade mark for the purpose of use in connection with the TD International Equity Index ETF constitutes a recommendation by Solactive AG to invest capital in said TD International Equity Index ETF nor does it in any way represent an assurance or opinion of Solactive AG with regard to any investment in this TD International Equity Index ETF.
The TD Canadian Aggregate Bond Index ETF is not sponsored, promoted, sold or supported in any other manner by Solactive AG nor does Solactive AG offer any express or implicit guarantee or assurance either with regard to the results of using the Index and/or Index trade mark or the Index Price at any time or in any other respect. The Solactive Broad Canadian Bond Universe TR Index is calculated and published by Solactive AG. Solactive AG uses its best efforts to ensure that the Index is calculated correctly. Irrespective of its obligations towards the Issuer, Solactive AG has no obligation to point out errors in the Index to third parties including but not limited to investors and/or financial intermediaries of the TD Canadian Aggregate Bond Index ETF. Neither publication of the Index by Solactive AG nor the licensing of the Index or Index trade mark for the purpose of use in connection with the TD Canadian Aggregate Bond Index ETF constitutes a recommendation by Solactive AG to invest capital in said TD Canadian Aggregate Bond Index ETF nor does it in any way represent an assurance or opinion of Solactive AG with regard to any investment in this TD Canadian Aggregate Bond Index ETF.
The TD Global Carbon Credit Index ETF ("TD ETF") is not sponsored, promoted, sold or supported in any other manner by Solactive AG nor does Solactive AG offer any express or implicit guarantee or assurance either with regard to the results of using the Solactive Global Carbon Credit Index (CA NTR) ("Index") and/or any trade mark(s) associated with the Index or the price of the Index at any time or in any other respect. The Index is calculated and published by Solactive AG. Solactive AG uses its best efforts to ensure that the Index is calculated correctly. Irrespective of its obligations towards TDAM, Solactive AG has no obligation to point out errors in the Index to third parties including but not limited to investors and/or financial intermediaries of the TD ETF. Neither publication of the Index by Solactive AG nor the licensing of the Index or any trademark(s) associated with the Index for the purpose of use in connection with the TD ETF constitutes a recommendation by Solactive AG to invest capital in said TD ETF nor does it in any way represent an assurance or opinion of Solactive AG with regard to any investment in this TD ETF.
Certain statements in this document may contain forward-looking statements (“FLS”) that are predictive in nature and may include words such as “expects”, “anticipates”, “intends”, “believes”, “estimates” and similar forward-looking expressions or negative versions thereof. FLS are based on current expectations and projections about future general economic, political and relevant market factors, such as interest and foreign exchange rates, equity and capital markets, the general business environment, assuming no changes to tax or other laws or government regulation or catastrophic events. Expectations and projections about future events are inherently subject to risks and uncertainties, which may be unforeseeable. Such expectations and projections may be incorrect in the future. FLS are not guarantees of future performance. Actual events could differ materially from those expressed or implied in any FLS. A number of important factors including those factors set out above can contribute to these digressions. You should avoid placing any reliance on FLS.
TD Asset Management Inc. is a wholly-owned subsidiary of The Toronto-Dominion Bank.
®The TD logo and other TD trademarks are the property of The Toronto-Dominion Bank or its subsidiaries.
