A solid investment plan can withstand market volatility

Your retirement dreams can come true if you have a solid investment plan in place. In this four-part series we look at four rules of successful retirement planning.

RULE #1: Create an investment plan

Your Credential Asset Management Mutual Funds Investment Specialist can help you develop an investment plan suited to your objectives, your tolerance for risk, and your time horizon. With a solid plan, you’ll feel more comfortable today, and more secure about tomorrow.

Your objectives:
How do you envision your retirement? How much will you need? Will you have other sources of income? Will you use your RRSP savings to help you purchase a home, or pursue post-secondary training? These are some of the questions that you and your Mutual Funds Investment Specialist should discuss. Together, you’ll define your goals, and commit them to paper.

Risk is risk:
Risk is neither good nor bad. It’s an inherent reality of financial markets. Equity mutual funds are riskier in the short term because the stocks tend to fluctuate in value more than cash or bonds. But stocks historically deliver higher returns over the long term. Cash and money market instruments fluctuate in value the least, but deliver low returns. If you stick with cash, you run the risk of not acquiring enough savings to fund your retirement dreams. Bonds can behave more like cash, or more like stocks, depending on their quality and duration. You can’t escape risk, but you can manage it.

It comes down to this: how sensitive are you to the possibility of a short-term drop in the value of your mutual funds? Your Mutual Funds Investment Specialist will help you establish a portfolio that reflects your comfort zone.

Your time horizon:
Is retirement 30 years away, or around the corner? Your time frame determines your ability to assume risk and the types of investments you should have in your portfolio. If you need your RRSP nest egg within the next five years, you’ll probably stick with mutual funds holding higher quality bonds and money market instruments. If your time horizon is longer than that, you can take on more short-term risk in order to pursue long-term superior returns from equity funds.

Next week:  RULE #2: Stick to the Plan

Mutual funds are offered through Credential Asset Management Inc. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Unless otherwise stated, mutual fund securities and cash balances are not insured nor guaranteed, their values change frequently and past performance may not be repeated. This article is provided as a general source of information and should not be considered personal investment advice, tax advice, or solicitation to buy or sell any mutual funds and other securities. ®Credential is a registered mark owned by Credential Financial Inc. and is used under licence.

December 19, 2007