With stock prices doing their best imitation of a snakes and ladders game, what should you be considering for your RRSP this year?
I have two words of advice for you: “think safe”. Your RRSP is your personal pension plan. Professional pension fund managers generally take a conservative approach and create a diversified portfolio so as to minimize risk. Take your cue from them.
The easiest way to achieve this in an RRSP is through the use of low-risk mutual funds. Here are two to consider. Consult a financial advisor to see if they are right for you.
Fidelity Canadian Balanced Fund. This has been a first or second-quartile performer since its launch in 1998, holding up very well in good markets and bad. I really like that kind of consistency. Manager Bob Hager uses a target asset allocation of 50 per cent equities, 40 per cent investment-grade bonds, and 10 per cent cash, so the portfolio has a truly balanced look and feel. The current mix is 49.6 per cent stocks, 38.7 per cent bonds, and 12.1 per cent cash. So the fund has a very defensive look, which has helped to minimize the damage from the market correction.
Returns are very good over both the short and long term, with a five-year average annual gain of 10.8 per cent to Dec. 31 (B units) compared to a category average of 8.3 per cent. The one-year gain was 8.1 per cent. Distributions are paid quarterly but except for a large year-end capital gains distribution of 55c per unit in December 2007 they usually are not substantial, running about 7c per unit. This has emerged as one of the better Canadian balanced funds and I give it a top $$$$ rating. Choose the front-end load B units at zero commission if possible. The code is FID282. Closing NAV on Jan. 25 was $18.54.
Harbour Fund. The Harbour funds, which are offered by the CI group, are intended for long-term, conservative investors who want superior returns and reasonable risk. The fund's average annual return for the five years ending Dec. 31 was 14.1 per cent, compared with a 12.3 per cent average gain for the category. Risk as measured by volatility is on the low side for an equity fund so this fund offers a classic low risk/high return profile.
Lead manager Gerald Coleman, who joined CI over a decade ago in 1997, typically holds between 40 and 50 positions in his portfolio. The emphasis is on large-cap Canadian stocks, however it should be noted that this fund has a significant foreign component as well and the mandate allows it to hold up to 49 per cent of the portfolio in U.S. and overseas equities. At the start this year, about 28 per cent of the assets were in U.S., U.K., Swiss, and Australian stocks. Almost 50 per cent was in Canadian equities and 22.1 per cent was being held in cash, giving this fund a defensive posture. Coleman tends to build cash reserves when he feels the markets are expensive and/or risky, so it appears he is preparing to do some bargain-hunting.
Although returns are above average, Coleman puts a lot of emphasis on protecting capital and keeps his risks within manageable levels. His cautious approach paid off handsomely during the 2000-2002 bear market; the fund lost money only in 2002 and even then the decline was a fractional 0.9 per cent. That was the only calendar year Harbour Fund finished in the red since its launch in 1997. As with most equity funds, this one took a hit in January 2008 but the cash cushion kept it from being much worse. Overall, this top-class fund is well deserving of its $$$$ rating. Choose the front-end load units at zero commission; the code is CIG690. The NAV on Jan. 25 was $20.46.
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