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By Graham Priest
Special to the Financial Independence Hub
In today’s low interest rates environment, investors are looking beyond GICs and equities to generate greater returns over the long term. The economic recovery has surpassed expectations, and individuals are looking beyond COVID-19 and a return to some normalcy by the end of the year. With this in mind, there are several different kinds of investments that Canadians could consider making from their RRSP contributions in 2021.
For example, technology stocks and other “work from home” related stocks that performed well in 2020 might take a breather in 2021 if more of us start heading back to the office. Areas of the market that underperformed in 2020 may exceed expectations this year. For example, recently energy stocks have started to display strength. Emerging markets is another area that will likely perform well in the next year. If the USD declines in value, it will be an added benefit for emerging markets, as a large portion of their debt is denominated in USD.
Additionally, after a rough 2020, Real Estate Investment Trusts (REITs) are gaining a leadership role within the market. Many REITs have strong yields that provide income that exceeds the interest paid on government and corporate bonds. However, REITs are a good investment inside a TFSA. The income distribution from a REIT is generally taxable income, and in a TFSA, there is no tax on that income.
Put high-growth investments outside RRSP
Investments that have the potential for exponential growth may be better suited outside of an RRSP, as withdrawals from an RRSP are taxed as income. Withdrawing large capital gains tax-free from a TFSA is a better option for investors who have RRSP and TFSA accounts.
Another item of interest is Bitcoin ETFs launched on the TSX. These have created interest among investors, with many enquiring about holding these inside TFSA or RRSP accounts. While you can’t hold bitcoins directly in these accounts, the new ETFs would allow you to add crypto to a registered plan. However, Canadian investors should also beware of its historic volatility. Bitcoin ETFs allow investors to gain exposure to cryptocurrency as a simplified means of investing in Bitcoin without holding the cryptocurrency in a digital wallet or other storage. Instead, investors in the ETFs are entrusting custody and management of the digital assets to fund managers for a small fee.
Impact Investing
Taking your options one-step further is impact investing, that is gaining popularity these days. This is when investments are made in companies that are solving the world’s biggest challenges, such as climate change and resource scarcity, or equality and empowerment. You could be rewarded for your investment in two ways: a financial return and a positive impact on the world.
While you can look out for impact investment options through your own research, most investors find it easier to pursue through a mutual fund or exchange-traded fund (ETF). You could pick up shares of large well-known Canadian corporations that have already been screened for their social responsibility levels, and could be working to reduce their carbon footprint or hit other social goals within their workforces, such as greater cultural diversity or gender equality.
Overall, with the unpredictable ride that 2020 was, it is important that investors make sure their holdings are still in line with their investment objectives, and if not, they should be rebalancing them. Try to avoid reacting to short-term fluctuations. Having a plan, investing in a diversified portfolio, and sticking to the objective is key to long-term growth of capital. In addition, if you are unsure about the next investments you should be making, it’s always a good idea to talk to a qualified and trusted Investment Advisor, as they can walk you through different options and help you decide which ones are right for you.
Graham Priest is an Investment Advisor with BlueShore Financial. He has over 20 years’ experience in the investment and insurance industry. His experience and education allows him to thoroughly understand each client’s unique financial profile and prepare a personalized investment plan that sets them on the course to achieve both short- and long-term goals. Graham has achieved several designations, including: Certified Financial Planner (CFP), Financial Management Advisor (FMA), Chartered Investment Manager (CIM), and Fellow of Canadian Securities Institute (FCSI) which demonstrates a strong commitment to learning and client fulfillment.
