in one geographic location. The point here is to keep in mind that we don’t need to own a bunch of investments to be diversified. What’s important is that we own the right mix of investments.
Correlations Beyond our Investment Porftolios
When you’re managing your wealth for retirement, you need to take more than just the contents of your investment portfolio into account. Since our goal is to manage our total wealth available at retirement, we need to expand our focus beyond our investment portfolios to include our other assets and income streams as well. Let me explain. We discussed the volatility of our portfolios in the first section of this page, and I mentioned how the correlations between investments plays a role in the second section. Well, our other assets and income streams also have correlations with our investment porftolios. So, to reduce the volatility of our total wealth, we need to consider the nature and value of our other assets and income streams when selecting investments for our portfolio. This commonly shows up in two ways for most people:
Your net equity in your real estate holdings. Most people saving for retirement own a house and have a mortgage on that house. The net equity on that house represents an investment in an asset class that’s part of their overall wealth holdings. If your net real estate equity is worth 0,000, your investment portfolio is worth 0,000 and your other net assets (after all debts) are worth ,000, you have a significant portion your total wealth invested in real estate (whether your principle residence or apartments you rent out, etc). So, you’d want to minimize your investments in real estate investment trusts (REITs) and select your RRSP