Adjusting the balance of stocks, bonds and cash is the main factor in determining your returns

Will that be stocks, bonds or cash for your RRSP? Experts say that all three are crucial to have a properly balanced, diversified portfolio, the kind that will get you from here to retirement.

But even more important is having a financial plan that shows you where youre going, and how you will get there.

I call it MapQuest for your money. Thats what it will give you the journey. You tell us the destination, said Mark Coutts, certified financial planner at Sun Life Financial.

Having a financial plan will help you make decisions about what to do with your money: how much goes to your daily living expenses, debt repayment, saving for your childs education, paying down your mortgage and saving for retirement. (A complete plan can also help you zero in on your insurance needs and estate-planning requirements.)

A basic plan doesnt have to be complicated.

It really is as simple as understanding how much money is coming in, how much is going out and whats important to you. When you know those things, you can start to put together a financial plan, said Mike Henry, senior vice-president of retail payments, deposits and lending at Scotiabank.

Retirement will be a big part of your plan, and it will depend on whether you have a company pension plan or if you are saving on your own through an RRSP, or registered retirement savings plan. Asking yourself when you plan to retire and what kind of lifestyle you hope to have, whether you are heading for a quiet place in the country or traveling the world, will help you determine how much you need to save for retirement.

The next step is to decide, preferably with the help of a financial advisor, how much of your money to put into stocks, bonds and cash. Thats known as asset-allocation.

Equities or stocks are the typically the gas that power the engine. These investments carry the most potential to increase in value over the years and decades, but theres risk, too.

The S&P/TSX Composite Index, for instance, gained just 4 per cent in 2012, and thats after losing 11 per cent in 2011.

Bonds or fixed-income typically help steady an investment portfolio, adding a modest but steady stream of gains, all being well.

Cash or money market funds play a role. They may be a place to park your RRSP contributions until you make an investment decision or when the stock market is volatile. In retirement, you will need to convert your RRSP to a RRIF, or registered retirement income fund, and you need to ensure its spinning off enough cash so you can make withdrawals.

Asset-allocation is about how you balance between equities, bonds and cash. Its about making the whole greater than the sum of its parts, Henry said.

Figuring out when you want to retire and how much youll need helps determine whats known as the hurdle rate, Coutts said. Thats the rate of return that you need to earn on your investments every year in order to get the retirement objectives youre aiming for.

That will then allow you to pick the portfolio.

Picking investments is the easy part. There are plenty of investments. We need to say which ones are appropriate based on the plan, Coutts said.

For instance, if you need to earn 6 per cent on your investments, but your portfolio has been sitting in GICs earning 2 per cent, its going to take a long time to reach your goal.

And theres another problem: inflation.

Whenever I think of inflation, I think of Pac-Man eating away at your savings. If your investments are not keeping up with inflation, your money is not really growing and if that happens, youre going to struggle to accomplish your retirement objectives, Coutts said.

For an investor who hopes to retire early, his or her portfolio would have to be more aggressive, and contain more stocks or equities.

Of course, what proportion of these you hold depends on your risk tolerance. If an RRSP full of stocks going up and down is going to keep you awake at night, its not the right portfolio for you, experts say.

I have clients in their 80s with almost everything in GICs and I also have clients in their 80s with almost nothing in GICs, because theyve been investing nearly their entire lives, and theyre used to it, Coutts said. Anything at either end of the pendulum can be a dangerous thing. You dont want to be too aggressive later in life, but you dont want to be too conservative early in life either. Thats where the big gains are made, because you have time on your side.

Remember to revisit your asset mix, and your plan, at regular intervals.

If getting from here to retirement seems just too far away, breaking it down into five-year intervals wil help, Henry says.

As youre driving down the road, sometimes, theres a change, Henry said. When those things happen, you have the map there to say, I may not be taking the route I originally thought, but I can still see my destination.