Editors: Carl Spiess, CFP, CIM, FMA, FCSI,
MBA, Director, Financial Services
Allan McGlade, CFP, CLU, Senior Investment Executive
Featured Articles
Biggest RRSP Issue Ever!
By Carl Spiess, CFP, FMA, MBA, Director
This month, our biggest newsletter ever will cover RRSPs. How much to contribute, what to invest in, how
recommended funds have done, foreign investing, ethical investing, life-cycle funds, spousal RRSPs and more.
Research has shown that Canadians spend more time researching a new TV purchase than they do on their annual RRSP
contribution. So take a few minutes, grab a coffee, and read our advice on RRSPs for this year ...
RRSP Statistics
First, let us start with some statistics. Only 7% of RRSP room ever earned by Canadians has actually been used
for retirement savings. And each year, less than 40% of Canadians who have earned RRSP room in the previous year
make any contribution at all. At least among those making over $80,000, 76% make an RRSP contribution. We encourage
anyone with income over $30,000 a year, to scrimp, save, or even borrow (with Scotiabank RRSP loans
at Prime) to make a RRSP contribution, with 10% of income as your goal. We have even included a handy
RRSP order sheet for you so you can  get your RRSP contribution to us by
March 1st. To know how much to contribute, simply look at your last “notice of assessment” from CRA. The
maximum contribution limit, based on income, has been increased to $18,000 for the 2006 tax year so you will probably
have some room.
One last reason to motivate you to contribute to your RRSP this year. The average life expectancy in Canada is
now over 80 years of age. While this is great news and reinforces the great progress society is making, it does
mean we all need to keep saving a bit more for the future.
More on RRSP statistics
Where to invest your RRSP contribution
Ok, so you are ready to make a RRSP contribution. Where should you invest it? Well first, you don’t need to make
a decision yet. We have a number of short term funds and cashable Guaranteed Investment Certificates (GICS) paying
3.85% that we can park the money in, and wait until we have time to chat and review your account. Or you can add
to an existing holding in your account or review our recommended list and make a new selection.
Recommended list
The performance of the funds on our recommended list has been nothing short of spectacular in the last 12 months.
Frankly, the returns of the last few years are not likely to be repeated in the near future.
More on where to invest
Foreign Investing – Definitely back in favour!
We have long advocated a balanced investment approach, with a core bond component and the growth portion of the
portfolio equally split between Canadian and International equities (stocks). Over the last 4 years, foreign markets
have lagged Canada due to the rising dollar, and many investors have been reluctant to look at international investing.
A cautionary article from AIM Trimark (see links, below) about our resource rich market in Canada, along with recently increasing
performance of international funds, may convince some to rebalance again. If you have any questions about your
overall account balance or diversification, please ask us.
More on foreign investing
Life Cycle Funds – One year review
Well, it has been just over a year since life cycle funds burst onto the scene in Canada. Life cycle funds are
essentially one decision balanced investment portfolios that begin with a strong growth bias, and become more
conservative as they approach their maturity date, which is usually selected to match your retirement date.
Last year, we wrote that we really liked the concept and, with the history of success that these funds have
had in the US and abroad, they would likely find favour in Canada. Indeed over a billion dollars has moved into
these funds in the last year and more companies are offering them. Scotia and Fidelity are the market share leaders,
with solid performance, and the much smaller funds offered by the Ethical family of funds have been surprise
performers. The guaranteed funds offered by Clarington have been the performance laggards, but if you want a
guarantee, you would expect to pay a little more for that!
More on life cycle funds
Ethical Investing - Your investment can help with global warming?
A convenient investment truth?
We have had research on our site for many years about ethical investing. Two items make me want to write more
about ethical investing this RRSP season. First, the strong performance of Ethical Funds' "Advantage" series
of life cycle funds (as discussed in the previous article, above) makes another recommendation
of ethical investing a worthwhile consideration. Second, like many other people, I am concerned about climate change
and wondered what more I can do beyond installing a few compact fluorescent bulbs. Here are some ideas:
- It turns out that most ethical fund companies have taken steps to be carbon neutral, and are endorsing
anti-global warming goals for their investee companies.
- Also, there are several Labour sponsored funds that have invested in local wind farms and other energy
projects that will help fight global warming. (See our report on Labour funds, below.)
- You can even look to your existing holdings to see if you are making a difference. For example, Templeton
International Stock fund’s largest holding is Vestas Wind Systems, who have installed over 1/3 of the world’s wind
turbines.
You can feel good about what you own. Ask us for suggestions if you want to include more of this kind of
investment in your portfolio.
More on ethical investing
Labour Sponsored Investment Funds Review
Please see our labour sponsored fund page to see if the up to $1,750 tax credit is worth looking at making an
investment that creates jobs and may also benefit the environment.
Fund Manager Changes
There was a major departure from Fidelity funds in December. Alan Radlo, long-time manager of
various Fidelity funds, and most recently co-manager of Fidelity NorthStar fund, has left the organization. We liked
Alan and his style which was always quite defensive, however the new managers on the funds he was involved in draw on
Fidelity’s extremely deep bench strength. We are not recommending any changes at this time, but will of course be
watching the new managers and their performance.
More on Fidelity management changes
Performance Watch Updates
Two funds that we had put on performance watches due to their high volatility (and underperformance a few years
ago) have rebounded quite significantly. AIC Advantage Fund (which many critics were deriding in 2003 when
the share price was around $50) has recently rebounded to above $100. Similarly, Templeton International Stock
Fund has recently had a surge of performance.
While not on our performance watch, Templeton Growth fund had a manager change six months ago and we have been
keeping an eye on the fund. It however, seems to be continuing its 50 year record of consistent growth.
More on performance watch
Remember, while viewing the performance data, you can click on the fund name to see even more details on the fund.
Spousal RRSPs and Pension Splitting
We have attached an article from AIM Trimark on the new rules about income splitting. It suggests that even with
the pending changes which allow spouses to split retirement pension income including RRSP/RRIF income after age 65,
spousal RRSPs will still make sense. Spousal RRSPs will still allow income splitting prior to age 65, RRSP
contributions for individuals over 69 (who have a younger spouse) and greater homebuyer's withdrawal options.
More on spousal RRSPs and pension splitting
Scotia Young Investors Fund to be Merged
One last bit of fund news: Scotia Mutual Funds will be revising its fund lineup slightly, eliminating the Scotia
Young Investors Fund and changing managers on several other funds, replacing Capital International Group with other
managers.
More on changes at Scotia Mutual Funds
Statistics Canada has an excellent daily newsletter that is worth a look:
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