Asset Allocation in Ontario: How to Build a Balanced Portfolio

Most conversations about investing focus on which stocks or funds to buy. But decades of research — and the experience of financial planners who work with real clients through real market cycles — point to a different conclusion: how you divide your portfolio among asset classes matters more than which specific investments you pick within each class. That division is called asset allocation, and getting it right is foundational to long-term investing success.

Marc Pineault at Pineault Wealth Management in London, Ontario helps clients across southwestern Ontario build investment portfolios that reflect their actual goals, time horizons, and tolerance for volatility. Here's a clear-eyed look at what asset allocation means and how to think about it.

What Asset Allocation Actually Means

Asset allocation refers to how your investable assets are divided among broad categories — most commonly:

• Equities (stocks): Ownership stakes in companies. Higher long-term growth potential, but with more short-term volatility.
• Fixed income (bonds): Loans to governments or corporations that pay regular interest. Lower expected returns than equities, but more stable and less correlated to stock market swings.
• Cash and cash equivalents: High-interest savings accounts, GICs, money market funds. Lowest return, but highest liquidity and stability.
• Alternative assets: Real estate investment trusts (REITs), infrastructure, private equity, and other non-traditional asset classes that some investors include for diversification.

The mix you choose determines how your portfolio is likely to behave — both in good markets and bad ones. A portfolio with 80% equities will grow faster in bull markets and fall harder in bear markets than a portfolio with 40% equities. Neither is inherently right or wrong; the right mix depends on your circumstances.

The Key Factors That Should Drive Your Allocation

Three factors should anchor any asset allocation decision:

1. Time horizon. The longer your investment timeline, the more volatility you can absorb without it derailing your plan. A 35-year-old saving for retirement 30 years away can afford to hold more equities than a 68-year-old who will need to draw down the portfolio within a few years. Time is the mechanism that allows equity returns to smooth out.

2. Risk tolerance. This has two components: your financial ability to absorb losses (your actual economic situation), and your emotional tolerance for watching a portfolio decline. Both matter. A portfolio you abandon during a downturn because the volatility became unbearable is not a suitable portfolio, regardless of what the theoretical return projections say.

3. Income needs. If you need regular income from your portfolio — in retirement or otherwise — you need a portion of your holdings in assets that produce predictable cash flow and don't require selling at potentially unfavorable times to fund expenses.

Common Allocation Frameworks

Several rule-of-thumb frameworks exist as starting points for allocation discussions:

• The classic 60/40 portfolio (60% equities, 40% fixed income) has historically provided reasonable growth with meaningful downside cushioning, and remains a useful reference point — though not universally appropriate.
• The "100 minus age" heuristic suggests holding a percentage in equities equal to 100 minus your age (e.g., 70% equities at age 30). More modern versions use 110 or 120 as the base, reflecting longer life expectancies and the need for growth well into retirement.

These are frameworks, not formulas. They don't account for your pension income, existing real estate holdings, spouse's portfolio, tax situation, or specific retirement income needs. A qualified financial planner will build an allocation around your actual situation, not a generic rule.

Diversification Within Asset Classes

Allocation is the macro decision — how much in equities, how much in bonds, etc. Diversification is the micro decision — ensuring that within each asset class, your holdings don't all move together.

Within equities, diversification means holding exposure across sectors (technology, financials, healthcare, energy), geographies (Canada, U.S., international developed markets, emerging markets), and company sizes (large cap, small cap). A portfolio concentrated in one sector or one country carries risks that diversification can reduce.

Canadian investors often exhibit what's called "home country bias" — holding far more Canadian equities than a globally diversified portfolio would suggest. Given that Canada represents roughly 3% of global equity market capitalization, a portfolio that's 70% Canadian stocks is not as diversified as it might feel.

Rebalancing: Keeping the Allocation on Track

Asset allocation isn't a set-and-forget decision. As markets move, your allocation drifts. A portfolio that started at 60% equities will become 70% or 75% equities after a prolonged bull market — meaning more risk than you intended to carry.

Rebalancing — periodically selling what has grown disproportionately and buying what has lagged — restores your target allocation and, counterintuitively, can enhance long-term returns by systematically buying lower and trimming higher.

The frequency and method of rebalancing (calendar-based vs. threshold-based) involves trade-offs around transaction costs and tax consequences that are worth discussing with a financial planner.

Building an Allocation You Can Stick With

The best asset allocation is one that's grounded in your actual goals and that you'll actually maintain through inevitable market volatility. Marc Pineault at Pineault Wealth Management works with clients in London, Ontario and across southwestern Ontario to build investment strategies that are coherent, diversified, and aligned with both their financial situation and their ability to stay the course.

Book a consultation with Marc Pineault

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This article is for educational purposes only and does not constitute personalized financial advice. Please consult a qualified financial planner before making any financial decisions.