With their enviable rates, our guaranteed interest funds and high interest savings account remain popular in a climate of stock market uncertainty. However, a balanced strategy that includes other investment options can maximize your clients’ investment potential.
Here are a few to consider, depending on your customers' needs and investor profile.
Gradually integrate the funds market with DCA
Dollar-cost averaging (DCA) is an excellent way to take advantage of market fluctuations while minimizing risk.
By investing a fixed amount on a regular basis, your clients can spread their risk over a longer period of time and benefit, rather than suffer, from market fluctuations. This approach will enable them to navigate the markets more confidently, while increasing their potential returns.
This may be of interest to those who keep a large proportion of their savings in guaranteed interest funds or a high interest savings account, but don’t want to miss out on new opportunities in the stock market.
Dividend growth investing
In an environment of rising interest rates, dividend growth investing can be an attractive strategy.
As iA Global Asset Management noted in a recent article on the subject (login to Advisor Centre required for access), “Companies with active dividend policies and a history of dividend growth are often companies with robust business models.” Such business models generally make them less sensitive to market fluctuations.
For your clients who have favoured guaranteed or high interest investments, this could be an opportunity to introduce an additional source of income, in addition to benefitting from potential returns. Another good way to balance a portfolio and achieve both stability and growth.
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Tax optimization
Another option is to redirect a portion of savings that generate interest income to investments likely to generate capital gains, such as equities. Remember that capital gains are taxed at 50%, unlike interest or dividend income, which are taxed at 100% and therefore added in full to your client’s taxable income.
This strategy could particularly benefit clients with non-registered investments, if it suits their investor profile.
Prestige preferential pricing
Prestige preferential pricing offers reduced management fees for clients, or family groupings, who meet the asset threshold of $300,000. This applies to all segregated funds offered in the Classic 75/75 and 75/100 series of the IAG Savings and Retirement Plan as well as My Education+.
If any of your clients hold substantial amounts in guaranteed investment options, don’t hesitate to tell them about the advantages of Prestige, as these investments count toward the asset threshold. Management fees can impact the long-term growth of your clients’ portfolios.
Prestige pricing also offers a tax advantage for non-registered investments, as the management fee reduction is not taxable annually. Taxation is deferred until redemption, at which time it takes the form of a capital gain.
Fixed income securities
Are your clients still hesitating? There are always advantages to diversifying a portfolio with safer investments. When a guaranteed interest fund matures, it can be reinvested in guaranteed investments for a few more years. And remember that right now, guaranteed interest fund rates remain quite competitive.
Your clients can also opt for bond or money market funds. These fixed income securities now offer better interest income due to rising interest rates.
In addition, if rates were to fall, bonds could offer an opportunity for capital gain, since bond prices are inversely correlated with interest rates.
In all cases, even in times of uncertainty, be sure to remind your clients of how important it is to keep a comprehensive view of the types of investments available to them. Diversification and balance in their portfolios will enable them to maximize their return potential throughout their investment lifetimes.
