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Portfolio selection process
Investment goals
Objective
: Determine whether you are seeking growth, income or a combination of both
Time horizon
: Identify your investment timeframe—near-term: 0–12-months; short-term: 1–3 years; medium-term: 3–5 years; long-term: 5+ years
Investment criteria
Sector and industry
: Decide on the sectors or industries you want to invest in, based on your analysis or interest
Market capitalization
: Choose the size of the companies you are interested in (i.e., large-cap, mid-cap, small-cap)
Geographic location
: Consider whether you want to invest in domestic, international or a mix of stocks
Analysis
Financial health
: Examine the company’s balance sheet, income statement and cash flow statement
Growth prospects
: Look at the historical earnings growth and future earnings projections
Valuation metrics
: Use ratios like P/E (price-to-earnings), P/B (price-to-book) and P/S (price-to-sales)
Price trends
: Analyze the stock’s price trends and patterns over time
Efficiency
Tax efficiencies
: Consider the investment and its tax impacts on the client
Control
: Limit the use of mutual funds for helping control capital gain exposure
Tax neutral
: Always attempt to offset gains with a loss (if present). Use losses to capture gains and further diversify portfolio
Transparency
Management team
: Evaluate the strength and track record of the company’s leadership
Competitive advantage
: Identify the company’s unique selling points or moats
Conviction
: Limit the use of mutual funds to know what and why a position is purchased, held or sold
Risk assessment
Market risk
: Consider overall market volatility and economic conditions
Sector-specific risks
: Identify any threats specific to the sector or industry
Company-specific risks
: Look for any red flags or potential pitfalls related to the company itself
Diversification
Positions
: Select 20–30 positions to maximize diversification
Market sectors
: Consider all 11 major market sectors for portfolio construction; no more than 50% concentrated
Industries
: Use industries to enhance portfolio returns; no more than 30% concentrated
Monitor
Performance tracking
: Regularly check the performance of your stocks
News and developments
: Stay informed about any news or developments that could impact your investments
Rebalance regularly
: Review and adjust your portfolio periodically to maintain your desired level of diversification
Review
Evaluate performance
: Analyze the performance of your stocks and the overall portfolio
Compare performance
: Track progress of portfolio against established benchmarks
Adjust
Adjust strategy
: Make changes based on changing goals, existing/ forecasted market conditions or shifts in the economic landscape
Buy-sell triggers
: Stay true to buy-sell discipline
Personalize
Personalize
: In accordance with the client’s stated goals, risk profile and timeline
Approach
: No “cookie-cutter” solutions or models
Reasoning
: Treat each client as if they were our only client and strive to earn their business every day