The key to investing isn’t just picking winners – it’s allocation

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It has been a volatile year for markets, leaving many Canadians unsure of how to approach their investments. New investors, especially, can wonder where to begin. The good news – long-term investing success doesn’t often rest on picking the next big winner.

Instead, a plan that stays diversified and aligned with long-term goals makes for a solid foundation. It starts with asset allocation, says Chris McHaney, executive vice-president and head of Investment Management and Strategy at Global X.

“Asset allocation is about putting different asset classes together in a portfolio, but it can also be the different components within an asset class.”

Global X’s asset allocation exchange-traded funds (ETFs) are designed to simplify investing. They offer an all-in-one portfolio that enables people to remain diversified, disciplined and invested through every market cycle.

These ETFs combine a mix of equities and fixed income inside a single product and maintain that balance automatically. That helps investors stay focused on long-term outcomes rather than short-term market noise. There’s no need to monitor a bundle of holdings.

“Using an asset allocation ETF gives you automatic diversification across any number of underlying holdings with only a little bit of money. It’s a great starter tool,” says Mr. McHaney.

Global X’s offerings include the Global X All-Equity Asset Allocation Covered Call ETF (EQCC), Global X Enhanced All-Equity Asset Allocation Covered Call ETF (EQCL), Global X Enhanced All-Equity Asset Allocation ETF (HEQL), and Global X Growth Asset Allocation Covered Call ETF (GRCC).

Because asset allocation ETFs rebalance systematically, he says investors don’t have to worry about adjusting a mix of stocks and bonds on their own. “It’s a classic example of a buy-and-hold investment.”

That’s especially important for those starting out, says Saurin Patel, associate professor of finance at Western University’s Ivey Business School. He encourages beginners to understand the bigger picture instead of feeling pressured to pick individual stocks.

“Stock selection is extremely hard. For a new investor, it’s daunting to research thousands of companies,” he says.

When explaining asset allocation to his students, Mr. Patel asks them to picture several buckets of candy. Choosing which bucket to use represents asset allocation. Picking a specific candy inside a bucket – that’s stock picking. His point: focus on the bucket first.

This strategy isn’t just for newcomers. Asset allocation ETFs can also help seasoned investors stay invested while potentially generating consistent income.

Global X offers covered call versions of asset allocation ETFs that include covered call overlays, which distribute monthly cash flow without requiring investors to sell down their portfolios. Covered calls can help mitigate risk by generating income from the stocks investors already own. By selling call options on those holdings, investors trade a bit of upside potential for steady returns that can help offset downturns.

With a traditional portfolio, investors used to have to sell a little bit every month to get cash flow, says Mr. McHaney. “Now you can use covered call-oriented asset allocation ETFs that generate that income for you. You just get your monthly distribution and that funds your retirement lifestyle.”

For those who want a side of leverage with their ETF, Global X also has versions whose goal is to provide slightly higher long-term returns. Light leverage involves borrowing to increase an investor’s exposure.

“If you put $100 into a lightly-levered portfolio, that portfolio is going to take in $100 but also borrow another $25 and put all of that money into the market for you. You get that potential for outsized returns,” Mr. McHaney says.

Take a hypothetical 25 per cent leveraged position on the S&P 500 over the period January 1, 2000 to December 31, 2024. On a historical basis, that would have outperformed a non-leveraged benchmark under certain assumptions (Bloomberg, as of December 31, 2024). That said, there is also elevated risk on the downside.

No matter the stage of investment journey, the biggest advantage of asset allocation ETFs comes from removing much of the decision making and staying invested over many years. Once investors set their objective, they can keep on track despite the ups and downs of the moment. “It’s about remembering why you’re investing,” says Mr. McHaney.

Mr. Patel echoes that sentiment and says “boring is better” when it comes to investing. “If your investments are boring, you don’t feel like touching them. That’s the best investment you can make.”

Advertising feature produced by Globe Content Studio with Global X Canada. The Globe’s editorial department was not involved.