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What is Institutional Investing for Individual Investors?

Many institutional investors, like pension plans, seem to endure and survive through all types of investment markets. In contrast, many individual investor’s portfolios are devastated by similar investment environments. Interesting. If an individual investor’s retirement income objective looks similar to an institutional investor’s pension plan obligations, then shouldn’t an individuals investment portfolio ‘resemble‘ an institutional investment portfolio? They should. An individual investor’s retirement investment portfolio can be and ought to be thought of as a ‘personal’ pension plan.

So, individual investors can ‘mimic‘ a pension plan. The objective is to get into the same asset allocation ‘ballpark’ as the average pension plan. This blog thinks the Pension Investment Association of Canada (PIAC) is a good proxy for the average.

For the individual investor, mimicking a pension plan is easier today given the availability of index funds and Exchange Traded Funds (ETFs) which offer exposure to (nearly) all asset classes, regions, currencies and sectors. The result can be a low-cost, broadly and globally diversified investment portfolio that looks like a personalized pension plan.


What are the Big 5?

By far the most important things any individual investor can do are:

  1. Have a plan (an investment policy) to help avoid knee-jerk buying or selling.
  2. Get your asset allocation (approximately) right. As a start, mimic a pension plan’s asset allocation.
  3. Dollar-cost-average – buy with frequency. This is forced savings which uses market volatility to your advantage.
  4. Re-invest income, dividends and rent. Make math and time – compounding – work for you.
  5. Re-balance. Make volatility work for you. (Buy low and sell high before regression to the mean).


Doug Cronk CFA is a Pension Investment and Risk Management Officer

(“You know, there are some experiences in life you will never forget. This will not be one of them.”)
6 Comments Post a comment
  1. Kirk #

    Hi – is this still going? Just read the blog post about getting European exposure. Awesome, just what I was looking for. The eft’s recommended are $US. I want to pick up FEU and am wondering about what account to put it in? I’m not sure about these ETF’s for a $CDN vs $US Non-Registered account?

    Thanks much … kirk.

    Liked by 1 person

    September 14, 2015
  2. Jay #

    Rebalancing is not a simple a matter as its commonly held out to be. Nor even is the the decision to buy or sell. The default is usually to do nothing. After all let your winners run & losers cut is the time honored philosphy, right?? You have commissions, proceeds from sales, price of purchases, timing, tax effects etc, never mind the headache of recalculating percentages against each holding & trying to rejig as best you can to meet them. Then you have hope, emotion, and inertia. Hey, it even goes against instinct to sell the superstar to load up on the dog, even if it can be rationally argued. Will the star fly higher, or the dog go lower? ETF investing is NOT the great panacea for individual investors. ETF’s are purchased and sold like stock. They behave like stock, up and down, in favor & out, subject to floor & resistance values & trends, computer & day trading. Arguably they are less transparent than company stock. Managed or unmanaged & mysteriously “rules driven”, indexed or not, or yipes indexed to a made up index by the issuer (step up…a winner every time). Prices greater than NAV or lesser. Market makers making liquidity by producing units out of thin air. Investments in either individual securities, or funds of other funds of the same issuer. Then you’re buying a basket with the good, bad & ugly of any group. Overdiversification (owing a hundred different companies, or an index of a hundreds, doesn’t make your investment value any more secure than owning just a selected few) is as much an investment drag as underdiversification. I don’t buy the smoothing out business, either. I want up. Not smooth, or sideways. I’ll take some bumps for that up. While I agree that for some sectors/type of investment ETF’s have a place, the individual investor is far better off to look at any mutual fund’s top 5 holdings/best performers (low & behold usually the top 5 are the top 5 in every fund of that class), select 1 security (stock/company) for direct investment, & move on. Try to diversify by sector as best you can in your selections. Dollar cost average them, DRIP them (using a company DRIP if available). Use ETF’s to supplement your core stock holdings once you’ve established them, mitigate perceived risk (whatever degree helps you sleep at night)- with an admission to usually poorer returns, gain access to market sectors that are difficult (ie. outside North America, commodity based etc), or keep asset classes that can be difficult/time consuming to handle (ie. preferreds, bonds). And sometimes, when everything crashes & goes awry, your stock portfolio/net worth erodes by the day, just having plain old cash is king. Don’t forget that. Cheers! Jay


    August 22, 2012
  3. Just discovered your blog, and entirely agree with your premise that individual investors can benefit from mimicking institutional investors. This is also the premise of my site I would like to cross-link with you and add your site to my list of Sites and blogs with links to our site- are you agreeable?
    Regards, and keep up the good work.
    Marc Ryan, founder and publisher


    July 16, 2012
  4. pc #

    Great blog Doug. I found your blog by reading your comment on a pension article featured in globeinvestor. Thanks for your great info!



    February 29, 2012

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