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By Angela Barnes
The Globe And Mail
Report on Business
Friday, January 10, 2003
Diversification is a key consideration with registered
retirement savings plans and registered retirement income
funds, says Adrian Mastracci,
president of Vancouver fee-based investment advisory
firm KCM Wealth Management Inc.
"RRSP diversification offers you long-term portfolio
protection in the markets, especially during bear markets,"
he said in a newsletter this week. "Designing a
prudent diversification strategy for registered plans
assists in attaining those personal goals sooner."
But those goals are different for each investor, he
noted. Some see an RRSP as important for preservation
of a nest egg, while others emphasize the importance
of growth in the portfolio and still others see it as
an income stream for a comfortable retirement, he said.
Adrian Mastracci, president
of Vancouver based ‘fee-only’ KCM Wealth
Management, says, "RRSP diversification offers
you long-term portfolio protection in the markets, especially
during bear markets.”
In designing a diversification strategy, investors
need to ask themselves what investment approach best
suits them: conservative, income, balanced, growth,
aggressive or speculative. They also need to consider
what constitutes a suitable allocation of the assets
in a registered plan between cash, bonds, equities and
other investments and between value and growth, he said.
"Your asset allocation is dependent on factors
such as the number of years until your planned retirement,
your appetite for risk and your age," he said,
adding that studies show "asset allocation decisions
explain, on average, 94 per cent of the contribution
to total return." He said that once the asset allocation
plan is set, it is important to stay within the assigned
targets and not rebalance the portfolio more than once
or twice a year.
The periodic rebalancing will allow investors to sell
some assets that have done particularly well and buy
others that have underperformed, he said. Mr.
Mastracci also recommends that in setting up
a portfolio an investor keep a single investment such
as a stock to a maximum of 4 to 5 per cent of the portfolio,
and also that a portfolio should contain a variety of
asset classes that don't all move in the same direction.
Furthermore, he says an investor's time horizon should
be a minimum of five years, and preferably seven to
10 years. "If it's less, equities may be too risky
for your situation," he said.
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