The Basic Portfolio Structure has two components:
Asset Mix
Market Mix
Asset Mix is the ratio of income Investments that are based on bonds and dividends. investments to equity Investments that are based on stocks and securities. Investments. Cash is considered to be money that is not invested so it is not included in determining Asset Mix.
Asset Mix sets the overall return and volatility characteristics of a portfolio. An emphasis on equity increases the expected Return/Volatility; an emphasis on income decreases the expected Return/Volatility.
Market mix is the ratio of Canadian Investments that are based on domestic income and equity securities. (domestic) investments to investments in other countries (foreign). Investments that are based on foreign income and equity securities. Investments that are based on foreign income and equity securities.
There are three reasons to have a mixture of domestic and foreign investments in a portfolio:
Volatility can be reduced because investments from different markets are often not positively correlated.
Including foreign content reduces the effect of currency fluctuation when spending is planned outside of Canada.
Many investment sectors and securities are poorly represented in Canada.
Combining the Asset Mix and the Market Mix creates a 2 X 2 matrix consisting of 4 investment quadrants, as shown below. This represents the Basic Portfolio Structure.