Market Uncertainties
The Canadian economy is holding its own in the face of a myriad of global risks. According to Bank of Canada Governor Mark Carney, the risk of inflation in Canada is ever present and the Bank of Canada will be monitoring the index closely. Mr. Carney has indicated that an increase in the bank rate this year can be expected, but given global uncertainties, is by no means certain. This comes as welcome news to those who are invested in fixed income, as despite a short lived negative impact on the value of current holdings, an increase in the interest rate will provide some much needed long term income for which bond holders crave.
The European community continues to struggle with solvency issues in Greece and potentially Italy and Spain, which is putting the Economic Union under some stress. Investors continue to monitor the situation closely.
Political wrangling over the debt ceiling has put U.S. markets on edge. Although resolved, the debt ceiling has contributed to pervasive negative sentiment in not only the US marketplace, but in global markets in general. This negative sentiment is driving the extreme volatility that we have been experiencing in recent days.
In time of such uncertainty, where we see strength in some markets (Canada), weakness in other markets (Europe) and uncertainty in yet others (USA) it is important to ensure that you are invested in a well structured diversified portfolio such as that constructed by AFBS. While not immune to the economic uncertainty and fluctuation of world events, a well diversified portfolio is the best protection to soften the negative impact and to be in position to seize on opportunities presented during times of recovery.
Frequently Asked Questions During Periods of Market Uncertainties
How are my RRSP/RRIF investments being affected?
Not as dramatically as you may think because AFBS has intentionally structured its Funds to minimize the impact of stressed markets on your investments. First of all, the clearer answer is dependent upon whether your investments are held in the AFBS Bond Fund or the AFBS General/Balanced Fund.
Investments in the AFBS Bond Fund: In general, when equity markets experience a sharp decline, Bond funds will increase in value. This occurs as investors are re-directing their monies away from the stock market to other investment options in an effort to stabilize their portfolios. The primary option selected by investors is typically bonds (the other popular asset is gold). An increased demand, coupled with the fact that the supply of bond products cannot change quickly enough to meet this demand, results in an increase in the price for high quality bonds.
Investments in the AFBS General/Balanced Fund: Declining equity markets will put downward pressure on the overall value of the Fund. However, when relating the market decline to your investment, remember that the General/Balanced funds are balanced funds. That means 60% is invested in equity (the stock market) and 40% is invested in the bond market. Therefore, your investments will not receive the full 100% impact of the market decline. The stabilizing properties of the bond component (which, as discussed above, will likely be increasing in value), can significantly reduce the overall impact of stressed markets on your funds.
Are my investments secure?
Over the past 35 years, your investments have been and will be secure at AFBS. For example, the AFBS General Fund has a history of impressive annualized rate of return and it is one of Canada’s best performing funds. In all the years where we’ve had double-digit returns, it’s reassuring to know there have only been a handful of years when returns were negative.
It is important to remember that while your investments are secure, they are not immune from market volatility. The value of all investments, be they stocks, bonds, or even GICs, can and When it comes to managing retirement plans, AFBS remains unemotional and disciplined in the stewardship of your funds.
In order to enhance the security of our Members’ funds, all AFBS equity holdings are invested in well-capitalized companies with a proven record of profitable performance. Additionally, all fixed income investments are comprised of AAA Government of Canada bonds and highly rated corporate bonds. Furthermore, both equities and bonds are closely monitored on a continual basis. Through quality selection and stringent review, AFBS ensures that your funds are as secure as possible.
In time of such uncertainty, where we see strength in some markets (Canada), weakness in other markets (Europe) and uncertainty in yet others (USA) it is important to ensure that you are invested in a well structured diversified portfolio such as that constructed by AFBS. While not immune to the economic uncertainty and fluctuation of world events, a well diversified portfolio is the best protection to soften the negative impact and to be in position to seize on opportunities presented during times of recovery.
What is AFBS doing to protect Members’ assets?
AFBS has implemented a structured and highly disciplined investment strategy.
AFBS abides by strict investment policies and procedures to ensure that in its pursuit of long-term performance, prudent levels of risk are monitored and maintained. While understanding that risk is unavoidable (as even GICs have risk), risk must be managed. AFBS investment policies and procedures have been designed to manage these risks.
AFBS utilizes four equity fund managers and two bond fund managers to manage your portfolios. When selecting fund managers, AFBS employs rigorous evaluation criteria to ensure that not only that the managers’ policy is in compliance with AFBS requirements, but that each fund manager’s investment strategy and style complements that of our other fund managers. The result of the selection process is to ensure that AFBS funds are uniquely positioned to provide consistent, competitive performance over the long-term.
A well structured and disciplined investment strategy is the optimal way to protect your assets. Through our plan structure and polices, AFBS has proven that we are well positioned to navigate our Members through volatile equity markets.
What should I do?
You should do what is right for you.This is a very personal question. AFBS does not have your entire financial picture, and we cannot responsibly provide advice as to what you should or should not do. That being said, it is important to keep in mind the following points when making investment decisions:
- Understand the investments you are making, you should always ask questions! This is difficult to do. While there are many financial advisors willing to give advice, there are very few independent advisors. Be persistent and ensure the person answering the question is explaining information that is understandable to you. If the advisor cannot explain how an investment meets your needs in a clear and understandable way, it is usually a sign that you are being “sold” rather than being “advised”.
- Feel comfortable with your investments in your portfolio. Once you have an understanding of the investment you are making, assess the investment. Be honest about BOTH the positive and the negative. All investments have an upside and a downside. If you select an asset that is a little on the aggressive side, ensure that you are comfortable with the risks. Alternatively, if you select an asset on the conservative side, ensure that that you are comfortable with the possible reduced investment returns and how this meets with your retirement objectives.
- Find your personal level of risk tolerance. There are no risk-free investments. Recognize that without some measure of risk, there is little opportunity for investment growth. Also recognize that it is only through positive growth/returns that long-term retirement goals are achieved.
Why should I keep my retirement investments at AFBS?
As a Member of AFBS, you have significant advantages that cannot be found anywhere else. This is important to remember:
- Superior performance:
- Over the past 35 years, AFBS funds (both Bond and General/Balanced funds) have and continue to be among the best performering funds in Canada. The annual compounded rate of return is 10.7%* for the General Fund and 8.7%** for the Bond Fund. *as of December 31, 2010; 35 year period **as of December 31, 2010; 29 year period
- Exclusive Member Benefits:
- AFBS provides Members with access to some of the most respected Canadian and international fund managers. This access is available to ALL Members and not dependent on the size of the Member account balance.
- Lowest RRSP fees in Canada. The Society’s Management Expense Ratio (MER), at 0.47% ranks as one of the lowest in the industry as compared with the median for Canadian Balanced Funds at 2.58%. The effect of MERs is often overlooked and can have a significant impact on the long-term performance of any investment portfolio.
- 0.00% RRIF fees. In the case or our RRIF Members, AFBS pays 100% of the cost of investing and administering these funds for our senior Members. With a zero percent MER, our RRIF Members retain all of their investment income for their retirement needs.
- Investment Options:
- AFBS offers two funds: the General/Balanced Fund and the Bond Fund. The General/Balanced Fund is the more aggressive the two funds. This fund is designed for Members seeking higher investment returns at a reasonable level of risk.
- The Bond Fund is a more conservative style of investment that offers consistent, long-term returns without the exposure to the risks in equity marks. The fund is actively managed by one of Canada’s top fixed income specialists, Beutel Goodman.
What if I want a GIC option?
Over the years, we are frequently asked if AFBS will offer a GIC option to its Members.
AFBS is currently in the process of developing a “GIC” themed fund. For Members who understand AFBS’ current fund offerings, but are not yet comfortable with the portfolio, this new fund will provide our Members with an ultra-conservative investment alternative.
If you would like more information with respect to the “GIC” themed fund, we invite you to contacts us at finance@actrafrat.com
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