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 the rules of successful retirement planning.

RULE #2: Stick to the plan

The first golden rule was to develop a solid investment plan together with your Mutual Funds Investment Specialist. Your RRSP portfolio will reflect that plan.

Sooner or later, you’ll be tempted to chase the latest hot trend. Resist the urge. Impulse shopping is not part of your plan. Remember dot-com fever.

Sooner or later, markets will turn ugly. Some of your mutual funds will fall in value, and you’ll be tempted to dump them. Knee-jerk selling is not part of your plan. It will turn a paper loss into a real loss. Remember that mutual funds are long-term investments.

Short-term fluctuation in the value of your investments is normal. In fact, volatility is necessary to achieve higher returns with equity mutual funds over the long term. A proper plan is built to withstand those fluctuations. Markets tend to rise over the long term, so rely on time, not timing, to reach your goals.

At least once a year, you’ll review your portfolio with your Mutual Funds Investment Specialist. Rebalancing may be required. If your plan calls for half your assets to be in equity mutual funds, and half in bond funds, you may find that 60% of your assets are in equity funds, and only 40% in bond funds. That’s because bond markets have fallen in recent months while the equity market has been fairly strong. In that case, you would sell some units of your equity funds to buy more units in the bond funds, and restore the balance.

You will alter your investment plan only if your life circumstances change drastically.

Next week: RULE #3: Invest Regularly

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.

January 9, 2008