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Categories, Approaches, and Styles

The investing world has evolved over the past few decades to a point where there are hundreds of different investment portfolio approaches and styles all contained within numerous investment portfolio categories. Where do you begin to research and analyse all of these different categories, approaches, and styles?

Basically, the three classifications of investment portfolios can be thought of as a pyramid with portfolio categories at the top, and within each category you will find a number of different investment approaches, and within each approach you will find a number of different investment portfolio styles (see figure below). 

 

In general, the major portfolio categories are divided along similar lines as the categories for individual investment type categories (Cash, Fixed Income, Growth, Hybrids). (See our section Investment Types for more detail on these category types.) However, there are also portfolio categories that reflect a combination of the investment types. For example, a Balanced portfolio category would describe an investment portfolio that contained a combination of Cash, Fixed Income, and Growth investments.

Example: If an investment portfolio is designed and managed within the Growth category, then under this category there may be a number of different investment approaches (value, dividend, large-cap, small-cap, indexing, etc.), and under each approach there may be a number of different styles (passive, active, bottom-up, top-down, fundamental or technical analysis, etc.).

The following figure (a pyramid flipped on its side) illustrates how a Growth investment portfolio can be divided into different approaches, and styles.

 

Note: Often when you sit down with an advisor, they will attempt to profile your investing personality with a series of questions in order to identify which investment portfolio category you should be buying into. Your resulting investor profile typically labels you as Conservative, Balanced, or Growth oriented. These three category terms are more general labels, and are used more frequently in these questionnaires. (For more detailed information regarding investing personality types and questionnaires, see our section on Behavioural Finance.)

Some general labels to get you started

As there are just so many different labels and terms used in the investment industry for each category, approach, and style to ever try to nail down completely in our general discussion here, in the following section we try to outline the more common labels used in these areas.

Categories

Some of the more common general investment portfolio categories include the following:

  • Cash and Cash Equivalents (sometimes referred to as Capital Preservation)
  • Income (sometimes referred to as Conservative)
  • Income with Growth (sometimes referred to as Growth with Income or Balanced depending upon the portfolio's asset mix)
  • Growth
  • Aggressive Growth
  • International Growth
  • Alternative or Hybrid

Approaches

Each investment portfolio category can also be divided further into different investment portfolio approaches. A few of these approaches are listed below:

  • Long-term
  • Mid-term
  • Short-term
  • Canadian
  • Dividend
  • Global
  • Emerging Markets
  • Precious Metals
  • Commodities
  • Sector
  • Government
  • Corporate
  • Large-Cap
  • Small-Cap
  • Indexed
  • Value
  • Deep-value
  • High Yield
  • Inflation Protected

Styles

Finally, each investment portfolio approach can then also be classified further by the following investment portfolio's styles:

  • Growth
  • Growth At Reasonable Price (GARP)
  • Active
  • Passive
  • Top-down
  • Bottom-up
  • Fundamental Analysis
  • Technical Analysis
  • Long
  • Long/Short
  • Hedged
  • Tax-efficient
  • Leveraged
  • Structured

Remember: Researching and analysing the available investment categories, approaches, and styles can be overwhelming for both investment professionals and individual investors.  As if simply knowing how investment portfolios are classified is not confusing enough, now multiply the number of investment categories, approaches, and styles by the number of financial institutions, mutual fund and insurance companies that offer complete families of investment portfolios! It's no wonder there are over 14,000 investment portfolio options in Canada!  In any case, it's a good idea to educate yourself as much as possible around this area. How do you eat a whole elephant? The answer is always "One bite at a time!"

Keep it simple

The best approach to educating yourself might be to keep your research and analysis simple. Begin by first studying the basic portfolio categories - Cash, Income with Growth, Growth, Hybrids (or Conservative, Balanced, and Growth). Once you have studied each and identified the category that best suits your financial goals and investing personality, then you can explore the various portfolio approaches and styles to again find those that best suit your needs. Try to keep your analysis simple. If you don't understand the approach and style, you are better off to eliminate it as an option and move on to the next. Eventually you will narrow the overwhelming list of options down to just a few. And that smaller choice then becomes manageable.

 

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