How best to invest your 2004 RRSP contribution
With the Canadian stock market up 24.3% since 2003, the Dow Jones in the United States up by a comparable 25.3%, and the tech-heavy Nasdaq having soared by close to 50%, what types of assets should investors favour this RRSP season?
"There's no mystery to it: the answer is really quite simple," stated Jean Blouin, Vice-President – Retail Credit and Investment Solutions at the National Bank. "Investors should always go by their investor profile when deciding what assets to include in their RRSP and not let themselves be swayed by past performances. In fact, studies have shown that 91.5% of a portfolio's return depends not so much on the securities selected or market timing, but on the allocation of assets being consistent with the investor's profile," Mr. Blouin added.
Under the circumstances, investors should start by taking the time to clearly identify their objectives and profile. This involves determining how much of a return they hope to achieve, how much flexibility and security they want, and how much risk they are prepared to tolerate. Once they have determined their profile, they should then diversify their portfolio among several asset classes as a way of minimizing risk and increasing the potential return of their investments. A sound portfolio should include a combination of liquid assets, fixed income products and equities.
Take the case of an investor who is looking for solid growth potential over the long-term and is willing to invest in the stock market while maintaining investments that are secure. At the National Bank, the asset mix best suited to this profile would be a balanced one, broken down as follows:
45% in fixed income securities;
30% in international equities;
25% in Canadian equities;
The National Bank's Balanced Strategic Portfolio is an ideal solution for such an investor. With its periodic rebalancing, this product ensures that the asset mix is always in line with the investor's profile thereby guaranteeing a superior return.
Moreover, to reduce the Strategic Portfolio's volatility and further boost the potential return, 10% to 20% of the investor's portfolio could be invested in an Active Management GIC, which is designed to capitalize on market upswings and downturns. In addition to the capital being guaranteed, this product features a higher potential return than a conventional GIC, ensures optimal diversification and serves to minimize variations in portfolio value.
About the National Bank of Canada
National Bank of Canada is an integrated group which provides comprehensive financial services to consumers, small and medium-sized enterprises and large corporations in its core market, while offering specialized services to its clients elsewhere in the world. The National Bank offers a full array of banking services, including retail, corporate and investment banking. It is an active player on international capital markets and, through its subsidiaries, is involved in securities brokerage, insurance and wealth management as well as mutual fund and retirement plan management. The National Bank has assets of over $82 billion and, together with its subsidiaries, employs close to 17,000 people. The Bank's securities are listed on the Toronto Stock Exchange (NA:TSX). For more information, visit the Bank's website at www.nbc.ca.
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National Bank of Canada
Tel.: (514) 394-8644