Despite the recent pullback in some tech names, managers still like stocks that will benefit from the AI transition over the long-term.Diego Thomazini/iStockPhoto / Getty Images
As Canadians rush to meet the March 2 deadline to deduct registered retirement savings plan (RRSP) contributions from their 2025 income and get a tax refund, it’s the investments inside an RRSP that ultimately determine its long-term success.
Here’s what some advisors say are the best investment strategies to help clients meet their retirement goals.
Still time to catch the AI train, but fixed income can lock in gains
Advances in artificial intelligence (AI) have been driving technology stocks for a few years, but Winnie Go, senior wealth advisor and portfolio manager with Go Financial at Scotia Wealth Management in Toronto, says she expects strong earnings growth to keep the tech train rolling.
“AI is always going to be part of the conversation. It’s not going away,” she says.
Despite the recent pullback in some tech names, she recommends a portfolio of technology stocks that will benefit most in the long term from the transition to AI, including Microsoft Corp. MSFT-Q and Amazon.com Inc. AMZN-Q.
“There’s still going to be the good companies that will survive, so you always want to buy the biggest and best companies with good balance sheets and cash flow,” Ms. Go says.
To help smooth over potential volatility from single stocks, she suggests sector-specific exchange-traded funds (ETFs), including Vanguard Information Technology Index ETF VGT-A.
“If you want to just add a sleeve of that to your portfolio, you can,” she says.
On a broader portfolio level, Ms. Go recommends beefing up the fixed-income component through investment-grade bonds to hedge against equity market volatility.
“If we see a lot of volatility in the markets, [bonds] serve as a ballast in the portfolio,” she says.
Ms. Go suggests Pimco Monthly Income Fund (Canada) or Purpose Global Bond Fund for a mix of government and corporate bonds and a reliable 4 to 6 per cent annual return.
Stay active in diversified technology
Allan Small, senior investment advisor with Allan Small Financial Group at iA Private Wealth Inc. in Toronto, also recommends getting in on the AI boom this RRSP season, but cautions against becoming complacent.
“I don’t subscribe to the buy-and-hold method. It’s more buy, set your targets, and once those targets are reached, re-evaluate, maybe trim some profits and move the money elsewhere,” he says.
This year, he suggests “diversified tech,” including Alphabet Inc. GOOG-Q and Microsoft, which have ventured into a broad spectrum of AI applications such as social media, gaming, driverless vehicles and cloud computing.
“That’s where you start. That’s your core and you build around those core names,” he says, dismissing worries about a bubble in the technology sector.
“They will keep going as long as society, as a whole, keeps going. These are your leaders,” he says.
Go global and keep your income options open
The shifting role of the U.S. in global financial markets has Michael Bonomo, certified financial planner with C2 Private Wealth at Investia Financial Services Inc. in Waterdown, Ont., casting his gaze beyond the U.S. mega-caps, such as Microsoft and Amazon.
“We don’t want to bet against the U.S. All we’re saying is, if we reduce exposure to those mega-caps, it could soften the blow if there’s a correction in the market,” he says.
The disproportionate advance of big U.S. technology companies in many global market-weighted ETFs has automatically skewed holdings heavily toward the U.S.
“U.S. mega-caps have run so much that allocations are all off … that’s not diversified in our eyes,” he says.
To compensate, he recommends Fidelity Investments Canada ULC’s All-in-One suite of ETFs. The six ETFs, which are subject to “built-in strategic asset allocation and consistent portfolio rebalancing,” vary according to risk tolerance.
More than half of the holdings in the equity portion are companies outside the U.S. “It gives you more exposure to other markets outside of the 500 largest [U.S.] companies,” Mr. Bonomo says.
His other investment recommendation involves a strategy to further hedge against market volatility and is much less common in RRSP portfolios: options.
“It’s another asset class not as correlated to equity markets,” he says. “With options, they’re capping their downside exposure but still getting income.”
Few retail investors have the ability or knowledge to trade options, so he recommends Dynamic Premium Yield Plus Fund. The fund primarily holds cash-covered calls and puts derived from large-cap stocks, including Netflix Inc. NFLX-Q, Nvidia Corp. NVDA-Q and Cameco Corp CCO-T.
Calls and puts provide the right, but not the obligation, to trade an asset at a set price by a specific date. Calls bet on price increases; puts bet on price declines.
They’re considered “covered” because the fund owns the underlying shares.
“They are not going to short something unless they already own it,” Mr. Bonomo says.
Dynamic Premium Yield Plus Fund currently yields about 10 per cent after the 2.24 per cent management expense ratio. Returns generally exceed bond yields, but normally lag equity markets.
“Different people have different goals and needs. Not everyone’s goal and need is to beat the market,” he says.