Skip to main content
Open this photo in gallery:

Advisors still look for diversified investments that will work for clients over the long term.Boyloso/iStockPhoto / Getty Images

Sign up for the Globe Advisor weekly newsletter for professional financial advisors on our sign-up page. Get exclusive investment industry news and insights, the week’s top headlines, and what you and your clients need to know. For more from Globe Advisor, visit our homepage.

Meta Platforms Inc. META-Q is again a stock market darling, with the social media giant’s shares likely finding a home once more in many Canadian investors’ investment accounts amid strong earnings and a newly introduced dividend.

But to Lisa Applegath, senior wealth advisor with The Applegath Group at CIBC Wood Gundy in Toronto, Meta and other “Magnificent Seven″ mega-cap stocks represent a cautionary tale for retirement planning.

“I just spoke to a client who feels left out because they don’t own any of them. I said, ‘Think about it. In 2022, those names were down 75 per cent.’ People forget, and that’s why advice and education are so important – as well as diversification,” she says.

“Our view on any investment portfolio is diversification. It’s still true that diversification is the only free lunch. It’s risk mitigation. It’s not taking those huge hits,” Ms. Applegath adds.

Feb. 29 marks the annual deadline for registered retirement savings plan (RRSP) contributions but March 1 holds its own challenge: how to deploy those savings. The mega-cap stock collapse in 2022 is a vivid illustration that RRSPs are sheltered from taxes, not risk. Careful consideration is required to find an investment strategy that will grow reliably over time and deliver income when needed.

More conventional matters to assess include an investor’s age and years until retirement, which will go a long way in determining the division within the portfolio between growth-oriented equity allocations and relatively less risky fixed-income investments geared toward cash-flow generation.

There’s also a dialogue that’s emerged between advisors and clients around less conventional portfolio sleeves comprised of alternative vehicles such as private markets or structured products, which advertise better growth, downside protection, “enhanced” yield, or a blend of all three.

“The important part is to decide, okay, if you have $10,000 or $50,000 to invest this year, sit down and determine what to prioritize. The point is, don’t miss out on the contribution – make the contribution, then decide where to invest,” says Shelley Smith, investment advisor at TD Wealth Private Investment Advice in Toronto.

“There’s no one-size-fits-all solution. Much of the decision-making will come down to two factors: individual tax brackets before retirement and after retirement, and an investor’s ability to access a pension or group retirement plan, Canada Pension Plan, Old Age Security, etc. Everyone is going to be a little bit different.”

Aggregate bond exposure

With interest rates across the yield curve at their highest they have been in years, Ms. Smith says a good starting point is an aggregated bond position. Many investors have indeed piled into short-term and ultra-short-term fixed-income holdings this year, but she says that opens up its own challenges.

“Short-term money market funds or GICs satisfy clients’ need to protect what they’ve earned, and you can get a 5-6 per cent return now, which makes people smile. The problem is reinvestment risk,” she adds.

Ms. Smith suggests a “laddering” strategy of adding individual bonds that mature in sequential years and are then reinvested into longer-duration bonds over and over again. That can be achieved through individual notes, but many investors can save time and effort by finding a managed fund to do it for them, she adds.

“For a lot of investors, using a mutual fund or a managed exchange-traded fund, will do a lot of the heavy lifting – they’ll be able to stagger positions, adding allocations within short, medium and long-term holdings, and give clients peace of mind,” she says.

Equity diversification

For equity exposures within an RRSP, looking outside Canada is an important consideration given the far more growth-oriented profile of other public markets, such as the U.S., where indexes like the Nasdaq and S&P 500 outperform the S&P/TSX Composite Index routinely.

“Our Canadian equity exposure is primarily there for dividend income. We hold the high-yielding dividend stocks like everybody else: banks, utilities, telcos, but they’re not growth engines,” Ms. Applegath says.

RRSPs also have the added benefit of having individual U.S. stock holdings exempted from withholding taxes.

For investors who maximize their contributions to registered accounts and contribute investible savings into non-registered accounts, Ms. Applegath says it makes sense to use those taxable accounts for higher-risk holdings, or as “growth engines.”

“Many of our accounts have RRSPs, [tax-free savings accounts] as well as [non-registered or taxable] accounts, which will serve as growth engines. RRSPs will have the more conservative investments, the fixed income, and to a certain extent, the alternative strategy to be the hedge to overall market volatility,” she says.

The Applegath Group’s overall portfolio weighting generally adheres to an allocation of about 35 per cent U.S. and international equities, 15 per cent Canadian stocks, anywhere between 10 per cent to 30 per cent in alternatives or cash, and the balance of around 40 per cent to fixed income – although percentages drift toward capital-preserving, income-oriented holdings for clients entering retirement.

Alternative strategies

“We’re committed to sound asset allocation; cash, bonds, U.S. or global and Canadian equity. We’ve added an alternative strategies sleeve, and that’s because if we go back to 2022, bonds did not provide that buffer to market risk,” Ms. Applegath says.

Ludmila Paciora, investment advisor and financial planner with The Waterfront Group at Wellington-Altus Private Wealth Inc. in Burlington, Ont., recommends alternative investments for clients looking for diversification uncorrelated to public stocks or bonds – often recommending a significant portion of even registered accounts to be allocated to that sleeve.

“We recommend up to 30 to 40 per cent in alternatives,” she says. Such options have become more widely available to individual higher-net-worth accredited investors in recent years, and increasingly the mass affluent segment of the market.

The long view is something both Ms. Paciora and Ms. Smith say is integral to positioning any investor’s retirement financial strategy successfully.

“Investing requires patience. These days, it’s really hard to be patient with your investments. But when people talk about great investors, Warren Buffett or Charlie Munger, this is what they did – they took their money, they invested it in good quality opportunities, and they waited,” Ms. Smith says. “Make regular contributions and exercise some patience.”

For more from Globe Advisor, visit our homepage.

Editor’s note: Please note that Ludmila Paciora's surname was misspelled in a previous edition of this article. We regret the error.

Report an editorial error

Report a technical issue

Editorial code of conduct

Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 12/04/24 4:00pm EDT.

SymbolName% changeLast
Meta Platforms Inc

Follow related authors and topics

Authors and topics you follow will be added to your personal news feed in Following.

Interact with The Globe