A modest U.S. recovery in 2014 is raising hopes for a global upturn, according to economic forecasters. But nagging uncertainty remains over the future direction of interest rates, the impact of a weak Canadian dollar and slowing growth in China.
Given all the "what ifs," we asked four certified financial planners to map their RRSP strategies for 2014. While they vary in age and investing philosophies, the planners agree on the need to look beyond daily headlines to put together an RRSP with staying power.
The advisers' strategies are their own, not recommendations for others.
Position: Partner, Guilfoyle Financial, Toronto
RRSP Profile: 90-plus per cent equities, balance in cash
Personal investing philosophy: Aggressive, but pragmatic
As a marathon runner and RRSP contributor, Andrew Guilfoyle takes the long view.
"Someone will ask, 'Who is leading after the first mile?' and I don't care," says Mr. Guilfoyle, who has raced in Toronto and Boston.
The same philosophy applies to his RRSP. "One mile I would be ahead and the next mile I might be in last place but I am not going to waver."
An all-equities focus, by definition, is aggressive. But Mr. Guilfoyle views his strategy as pragmatic since retirement is several decades away. "I think it would be ridiculous for a 41-year-old with positive cash flow to have fixed income," says the married father of three boys.
His equity holdings, half in Canada and the other half split between the United States and other foreign markets, are in low-cost, actively managed pooled funds (similar to mutual funds but used by higher-net-worth investors). He prefers funds with a strong bias toward dividend-producing companies.
With market volatility, Mr. Guilfoyle accepts that annual rates of return will fluctuate, too – with gains of 20 per cent some years and losses in others. But over time, he aims for an average return of 7 per cent a year.
In 10 to 15 years, Mr. Guilfoyle expects to add fixed incomes to his portfolio but sees no need to shift his ground yet. "Although the equities market is a rockier ride, if you have the stomach for it you are rewarded at the other end," he says.
Position: Founder, Sunstone Retirement Specialists, Moose Jaw, Sask.
RRSP Profile: 70 per cent mutual funds, 30 per cent Guaranteed Investment Certificates
Personal investing philosophy: Balanced
An accomplished cook, Tanya Herman-Vanthuyne looks for reliably pleasing dishes where she can add a dash of flavour. "There are times when I am craving something Italian and spicy or something with an Asian flair where I have got to have some ginger," says the married mother of two children.
She thinks the same way about her RRSP.
"I like things to be pretty consistent and pretty balanced, but a little bit of spice is nice to have," she says.
Mutual funds account for almost three-quarters of her portfolio, split between large cap and dividend-producing companies in Canada and the United States. In 2012, she increased her exposure south of the border through a Canadian fund with a U.S. focus. "My significant growth component has been my U.S. stuff," says Ms. Herman-Vanthuyne, 39, who prefers funds with dividend-producing blue-chip companies.
For consistent returns, she holds 30 per cent of her portfolio in five-year Guaranteed Investment Certificates with staggered maturity dates. Currently, they earn between 1.8 per cent and 2.8 per cent. "GICs might not be sexy, but when things [in the stock market] are crappy, solid and stable sure is pretty," she says.
The remaining 5 per cent to 10 per cent of her portfolio is where she adds "spice," such as small-cap U.S. funds or, this year, labour funds with a Saskatchewan focus.
She looks for an annual return of 6 to 8 per cent, choosing to "peel profit" to reinvest gains elsewhere in the portfolio to maintain balance.
Position: President of Richard McKenster Financial Planning Inc., Victoria
RRSP Profile: 65 to 70 per cent equities, 25 to 30 per cent fixed income, 5 to 10 per cent cash
Personal investing philosophy: Value-oriented, moderate risk
Nine years ago, Richard McKenster embraced value-style investing as a strategy to generate moderate, but reliable, returns for his RRSP. He has no regrets.
Mr. McKenster, 62, says achieving consistent results for his RRSP is a key goal. "If you are breathing freely that is code for sleeping well at night – and that is the right portfolio," he says.
He is unpersuaded by the merits of diversification. Instead, he holds a few segregated pooled funds led by value-focused managers who look for solid, dividend-paying companies with undervalued share prices. "No one got protected or benefited from diversification in 2008," he says, citing the recent recession.
Despite uncertainties for 2014, Mr. McKenster has no plans to alter the proportions in his equity portfolio: two-thirds Canadian and one-third U.S. His primary fund is Manulife Monthly High Income, a mix of Canadian and U.S. equities and corporate bonds. "It gives us the diversification we are looking for without adding another 13 funds," he says.
His fixed-income portfolio is largely corporate bonds with a range of maturities, again with a focus on value.
Mr. McKenster says his RRSP usually results in returns of between 6.5 and 7 per cent and, even with the 2008 downturn, "our recovery time was remarkably fast compared to the market."
The rebound confirmed his belief in his value strategy. "I am here for the long game, not just the ice cream before it melts."
Position: Co-owner, Helkie Financial Inc., Toronto
RRSP Profile: 80 per cent equity, 20 per cent fixed income
Personal investing philosophy: Balanced, diversified
In RRSP season, Lee Helkie knows what question to expect from some would-be investors.
"I have the same people call me every year and ask for the hot tips," she sighs. "The same people who lost their shirt on the hot tip last year."
Stab-in-the-dark stock picks are not her style.
"You have to build your foundation first and then, if you want to take risks while building, make sure they are a small part," says the married mother of two children, with the emphasis on asset allocation, diversification and rebalancing components as needed to stay on course.
Her portfolio assets are split between equity (80 per cent) and fixed income funds (20 per cent), with an emphasis on diverse holdings that include real estate. She contributes regularly to her RRSP through the year. "Part of the success of that strategy of dollar-cost averaging is that you are buying when the markets are up, and everyone is happy, but you are also buying when they are down."
Within her equity and fixed income funds, she allocates 5 to 10 per cent for opportunities arising from changes in the economy. This year, with a growing American economy, she added dividend and mid-cap funds to the U.S. equity component of her RRSP.
"Real and stable wealth is built over time," says the 42-year-old, who expects an annual return of 6 to 8 per cent over time. "It may sound boring but it works."