Financial advisers often recommend investments for their clients' registered retirement savings plans. But what do these experts invest in themselves?
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We asked four professionals to tell us about their RRSPs, based on their financial goals, market outlook and other factors. (They caution, however, that their choices might not be ideal for others.)
Regional manager and investment adviser, BMO Nesbitt Burns, Ottawa
RRSP portfolio breakdown: Weighted 100 per cent in equities. Mr. Brisebois said that with 20 to 25 years or so until retirement, he has a large appetite for individual stocks.
Target rate of return: Mr. Brisebois would like to achieve 8 per cent in 2015. He usually targets an average long-term return of 8 to 10 per cent annually. “I [don’t] expect 2015 to be as robust as 2014 was, because we’ve got some turmoil around the energy sector, and I don’t think we move away from that in the next few weeks. I expect any kind of recovery in that sector would be in the second half of 2015.”
Forecast: “The U.S. market is going to be a little bit more predictable than the Canadian market. We expect the Canadian dollar to devalue relative to the U.S. dollar, and so U.S. stocks are going to give a little bit of a tailwind, mostly because the American market has been better diversified between industries than the Canadian market.”
He said he expects financials, industrials, technology and health care to perform better than energy, materials and utilities. However, even with energy dropping and having such an impact on Canadian equities, he doesn’t anticipate making major changes to the structure of his RRSP portfolio in 2015.
Basic investment strategy: Mr. Brisebois contributes to his RRSP on a monthly basis, then tops up with additional contributions twice a year.
Although one might be tempted to classify an investor with 100 per cent of his RRSP in stocks as a risk taker, he said his portfolio consists of solid, blue chip stocks, such as Bank of Montreal, Bell Canada, Canadian National Railway Co. and Johnson & Johnson Inc.
“I’m not picking stocks that are risky. I’m picking large-cap, blue-chip, dividend-paying stocks that have a long history and that will survive, in my opinion, as the markets or the economy has fluctuations,” Mr. Brisebois said.
“I would call it a growth account, with a penchant to large cap securities,” he elaborated, noting that the stocks in his RRSP are mostly buy-and-hold securities.
Mr. Brisebois does not hold emergency cash in his RRSP, preferring to remain 100 per cent invested at all times.
Mr. Brisebois, who has held his RRSP for about 20 years, said he has learned from his early investment days to be wary of stocks that others say are destined to precipitously increase in value. “The lesson learned there is that there is no freebie. There is no quicker way to make money.”
Consultant and manager of financial planning, T.E. Wealth, Toronto
RRSP portfolio breakdown: Weighted approximately 85 per cent in equities, mostly through exchange traded funds, and 15 per cent in fixed income instruments.
Mr. Ardrey said his RRSP portfolio has been established with an eye to the distant future. “I’ve got some time on my horizon – probably 20 to 25 years before I’m going to be retired. So I have quite an equity tilt in my portfolio,” he explained, noting that he favours ETFs.
When purchasing an ETF, he studies investment fees along with the performance and history of the corporate stocks contained within, as well as how the ETF performs compared to the relative index to which it is tied.
Diversification through asset mix is also important. “I’m by no means a stock broker or a picker. Asset mix to me is much more important than trying to pick the next penny stock that’s [supposed] to be the winner,” Mr. Ardrey said.
The fixed-income side of Mr. Ardrey’s portfolio consists of ETFs that invest in government and corporate bonds. “I supplement my fixed income by using a mortgage investment corporation (MIC) to help my yield a little bit,” he added.
“MICs are companies that lend on the secondary market to commercial clients. They have a basket of underlying mortgages that make up their fund. These typically yield in the 7 per cent to 9 per cent range. So I supplement my lower fixed income by taking a portion of that allocation and investing it in MICs,” he said.
Target rate of return: Mr. Ardrey said he doesn’t target a specific return for any single year. However, he does like to gauge the longer-term rate of return on his RRSP portfolio to inflation. If, for example, the annual inflation rate is 1.5 per cent to 2 per cent, something in the vicinity of a 6 per cent rate of return would be reasonable, he said.
Forecast: Mr. Ardrey believes the U.S. is in good shape economically and stands to benefit from lower oil prices in 2015. “I think the U.S. is going to be a pretty good market to be in. Canada has its risks in the energy sector with the lower oil. [But there are also] benefits to manufacturing in places like Ontario,” he said.
Despite turbulence in the markets, Mr. Ardrey is not planning to make major changes to his RRSP portfolio this year. “To me, it’s about trying to put a long-term strategy in place,” he said.
Basic investment strategy: Mr. Ardrey contributes to his RRSP on a regular, monthly basis through regular savings.
He classifies himself as a buy-and-hold investor who shuns doing a lot of trading. He does, however, periodically examine his portfolio to ensure it remains within parameters.
“If it’s 1 per cent off, I don’t worry about it. But if it’s 6 per cent off, I look at that as an opportunity to solidify some gains and buy into something else that’s lower. Especially [with] an RRSP being tax-deferred, I don’t have to worry about the capital-gains implications of my decisions,” he stressed.
Mr. Ardrey holds emergency cash outside his RRSP, preferring to keep as fully invested as possible within it.
Over time, his investments have evolved from guaranteed investment certificates at the beginning, to mutual funds, and now ETFs.
A major learning experience has been that “it’s often slow and steady that wins the race. Markets often get overbought or oversold due to emotions that people have. I try to keep a level head as much as I can. It’s never as rosy as it seems, and it’s usually never as bad as it seems.”
Portfolio manager and fee-only financial adviser, KCM Wealth Management Inc., Vancouver
RRSP portfolio breakdown: Weighted approximately 70 per cent in equities and 30 per cent in fixed income.
Mr. Egan uses ETFs to cover both equities and fixed income investments. He likes their low cost, transparency and the diversification they offer, especially in terms of geographic exposure.
He also holds a small percentage of stocks that he inherited. “These are not flavour of the month. They would be long-term, blue-chip, dividend-producing stocks that have a history of increasing dividend payouts.”
On the fixed-income side, he holds bond ETFs that are largely floating rate and of a one- to five-year duration, to provide flexibility in the event interest rates eventually move up, as expected.
Target rate of return: Mr. Egan said he would be happy to achieve 8 per cent on his RRSP in 2015. Over the longer term, he anticipates an average annual return of 8 to 10 per cent, to coincide with the target asset mix in his portfolio.
Forecast: “Given the recent pullback and market correction last fall, I think it’s going to be quite a favourable year in terms of equities,” he said. “But I am not adjusting my long-term asset mix based on this feeling.”
Notwithstanding the drop in the price of oil, he believes other stocks will benefit as a result.
“I think the new world order will come to grips with a lower price of oil,” he said. “I think there’s a silver lining to the price of gas going down for the average consumer. They will have more discretionary income as a result, and that could help other sectors of the economy, and, in turn, positively affect those company stocks.”
He also notes, however, that it’s “difficult to pinpoint those companies, so diversification is important.”
He believes consumer-related and technology stocks should improve. Mining, which has been beaten down, could also benefit if the price of gold continues to rise, he said.
Mr. Egan said he is going to use RRSP contribution cash this year to invest in ETFs “that have been beaten down, given the [fall of] energy and other sectors.”
Basic investment strategy: Mr. Egan contributes to his RRSP annually, at the beginning of each year, so he can maximize compounding and take advantage of investing opportunities as quickly as possible, since gains inside an RRSP are not taxed until proceeds are withdrawn.
He classifies himself as a buy-and-hold investor with a long-term asset mix that he rebalances once or twice a year. “But if there is a correction or a significant pullback I would use that opportunity to rebalance and look at things at that time,” he said.
“Say the target mix is 70 per cent equities, for the sake of argument, and equities move up 10 per cent to 80 per cent. I would look at selling – taking some money off the table and rebalancing,” he said.
Mr. Egan keeps cash outside his RRSP and keeps the RRSP fully invested as much as possible.
For tax purposes, he holds the fixed income component of his overall portfolio mainly in the RRSP, and tries to keep dividend income and capital gains outside the RRSP, where it can be taxed at a preferential rate.
Mr. Egan says buying and holding good investments, and adding to holdings during down markets, can really pay off. “The hardest thing to do during market pullbacks is actually invest more money. Guessing the low point is a mug’s game. Getting in and invested during a pullback/correction is the objective.”
Kathryn Del Greco
Vice-president and investment adviser, TD Wealth, Toronto
RRSP portfolio breakdown: Weighted approximately 90 per cent in equities and 10 per cent in cash.
“I’m quite comfortable investing in the equity markets. So given where interest rates are at the moment and what my perceived life expectancy is, and how many years in retirement I expect to have, I favour equities over fixed income – particularly U.S. equities,” said Ms. Del Greco.
She holds a combination of individual stocks and mutual funds, including blue-chip dividend-paying investments from both Canada and the United States. The portfolio also contains international exposure through global equity funds.
Target rate of return: Ms. Del Greco expects modest returns in 2015. After a strong performance over the past four years, particularly from U.S. equities, the world is facing strong economic headwinds. She cited incomplete structural reform and potential deflation in Europe, rising debt levels in China, and the impact of declining crude oil prices, which resulted in the recent surprise interest rate cut by the Bank of Canada.
“My expectation is a return that may be in the neighbourhood of 6 per cent to 8 per cent,” she said. She typically expects an average return of 8 per cent to 10 per cent on her RRSP portfolio.
Forecast: “It is my belief that interest rates are going to stay lower for much longer than people expect. The Federal Reserve in the U.S. may start to move interest rates higher, but even then, it’s only going to be marginal because the global economy is facing such deflationary pressures,” she said.
The U.S. “is on a little more solid footing than [Canada] with regard to its recovery.”
Ms. Del Greco pointed out that low energy prices are putting more money into the pockets of U.S. consumers, with the economy there being much more closely linked to consumer behaviour than the Canadian economy. The U.S. housing market appears to be recovering too, she said.
“The two sectors I would focus on are the U.S. consumer and U.S. housing. We still think the energy sector in Canada has more potential weakness to come in general. And it’s hard to assess what the full impact is going to be on corporate earnings over the next couple of quarters.”
Basic investment strategy: Ms. Del Greco usually contributes to her RRSP twice annually – when she gets her tax refund in April and then again in the fall.
“I typically like to have money invested in the market for the months of November through March. On a historical basis, they tend to be strong performing months, so I like to make sure that I’ve got as much invested during that time frame as possible,” she said.
She describes herself as a buy-and-hold investor who likes to maintain liquidity within her RRSP of 5 per cent to 10 per cent so she can take advantage of opportunities the market might present.
When examining the merits of investing in a particular stock, “I look for companies that, first and foremost, have a strong balance sheet. They have got good dividend yields, but are also forecast to be growing their dividends. And I look for strong leadership that has been effective and has lived up to their promises – [regarding] their quarterly earnings announcements, etc.” she said.
She has held her RRSP for more than 25 years, and notes there have been investment challenges along the way.
“Sometimes one of the biggest challenges advisers face is we hear about all the hot stocks of the day. I made those mistakes in the early years in my life in trying to participate in trading junior stocks, small cap stocks or penny stocks. That was an expensive mistake that I will not be repeating again.”