Even with Canada’s strong performance, it still makes sense
Global diversification is one of the “golden rules” when it comes to investing in your Registered Retirement Savings Plan (RSP). But like many Canadians, you may be wondering why it’s so important to diversify your RSP with global investments. After all, Canadian markets have been enjoying great returns relative to many other markets around the world for the last several years.
In addition to reducing risk, there are many other reasons to diversify your RSP globally, including:
Greater opportunity
Canada only represents 3% of the investment opportunities available worldwide. That means the vast majority of investment opportunities are beyond Canada’s borders, in places like the U.S., Europe and Japan. And with Canadian markets strongly weighted in just a few sectors, you may not necessarily be able to find quality companies in certain sectors, if you wanted to diversify by sector to reduce risk. By going global, you can choose from a larger pool of quality investments in a wider range of sectors.
Enhanced return potential
Several international markets have historically performed better than Canada. By taking advantage of the growth potential offered by global markets, you can enhance your RSP’s return potential. Increasing your RSP’s rate of return by even one or two percentage points can have a dramatic effect over the long term, potentially putting more money in your pocket.
No more foreign content limit
Up until 2005, the foreign content rule limited RSP accounts to invest only 30% in global investments. With the elimination of the rule, you now have more flexibility in choosing the investments that can best help you achieve your retirement goals. Which may also include investing in neutral funds that hedge your currency risk against the appreciating Canadian dollar.
This article is supplied by Angelo D’Amico, a Vice President, Portfolio Manager with RBC Dominion Securities Inc. Member CIPF. This article is for information purposes only. Please consult with a professional advisor before taking any action based on information in this article. Angelo D’Amico can be reached at 514-878-5196.
