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Markets are in turmoil. Where should you invest your RRSP?

It’s RRSP time again, only this year it’s a little different. The recent turbulence in the stock markets has left a lot of people wondering where they should be investing their money these days.

For the past several years it’s been a relatively simple decision. Buy stocks, especially U.S. shares. Then sit back and watch the money roll in.

It was easy to be complacent about the market. We went for two years without a major correction (a downturn of at least 10 per cent). The U.S. economy was gaining strength. Job creation is strong and wages are rising.

Whatever else you may think of him, we have a business-friendly president in the White House whose policies on de-regulation and cutting taxes have helped propel what was already a strong Wall Street market. With the major U.S. indexes hitting one new high after another, investors could be forgiven for being lulled into a state of complacency.

Then came two days of 1,000-plus point drops in the Dow and the return of volatility. Instead of a steady rise in values, indexes began to bounce around by hundreds of points within the space of a few hours. Fear started to overtake greed as the dominant motivating force.

That brings us back to your RRSP. My view is that fear should always be a factor in making investment decisions with your retirement money. The older you are, the more influence it should have on your choice of securities.

Here’s why. Your RRSP is a mini-pension plan and should be invested accordingly. That means risk should be managed carefully at all times. The goal is to achieve decent returns without exposing yourself to heavy losses if the stock market tanks.

For a younger person (up to age 50) I recommend your target should be to average 6 to 8 per cent per year. The maximum equity exposure should be 70 per cent, with the rest of the portfolio held in bonds and cash-type securities.


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