It seems as though the Trump honeymoon could be coming to an end for the markets. The market’s ‘fear index’ has surged and investors are concerned by the climate of increased political uncertainty created by the new president’s policies. The tumultuous climate doesn’t seems to have an end in sight as the new administration gets tough with many of America’s trade partners including Japan, Germany and, of course, Mexico. With the markets now more global than ever before, what strategies can Canadian investors adopt in order to safeguard their retirement portfolios in what is shaping up to be a volatile and unpredictable year?
For Darren Gazdag, Sr. Vice President at Excel Funds, looking toward balanced strategies is a good way for advisors to help clients ride the current wave. “Balanced funds are catch-all and invest in stocks and bonds. They’re designed to be core holdings so you can see as much as 20 – 50% of balanced holdings in a broader investment portfolio,” Gazdag says. “Balanced funds allow managers to showcase their value add and find that optimal mix between stocks and bonds that will limit volatility and give investors a much smoother ride. Ultimately, that’s what most Canadian investors are looking for, particularly in retirement portfolios.”
Volatility is a reality of investing in any period but when it comes to retirement investments Canadians tend to be more cautious and sensitive to large swings. Gazdag sees balanced funds as having the ability to dampen volatility and provide investors much-needed peace of mind. “If done right, a portfolio management team following a balanced strategy can actively make shifts based on market conditions,” Gazdag says. “Balanced funds are designed to perform well in a variety of market environments including upcycles as well as down."
Gazdag says that balanced funds are a good option for clients who want to both grow savings and generate enough income for their entire retirement. “Canadian investors who can afford to go a bit further out on the risk-reward spectrum have the ability to improve their returns and achieve a good level of capital appreciation from the equity component of their balanced approach,” he says.
In the current environment of low interest rates and low economic expansion in North America, traditional sources of growth and income, like U.S. and Canadian securities, just aren’t producing the results that they used to. Investors looking to generate decent returns are being forced to seek exposure to alternative markets. “A balanced fund can still offer an optimal solution,” says Gazdag. “The Excel Emerging Market Blue Chip Fund, for example, offers a yield of approximately 4.5% by investing predominantly in investment grade government bonds. Comparatively, in the current climate, the U.S. and Canadian treasuries offer between 1 – 2.5%.”
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