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The Money Management Newsletter: RSP Planning
Put your RRSP investments on the map!

Neglecting the global economy is like deciding to live in a mansion, then confining yourself to a single room. When it comes to your RRSP, the world really is your oyster.

Now, do not misinterpret this as being derogatory towards Canada. We have many investment opportunities to savour within our own borders. However, the potential returns in economies outside Canada are too tantalizing to ignore.

Between 1986 and 1996, for instance, the Toronto Stock Exchange 300 showed an average annual compound return of 8.25%, including re-invested dividends. The Morgan Stanley World Index gained a much more impressive 13.1% during the same time frame.

International investments also reduce your risks. Prices, financial markets, interest rates, inflation, currencies and exchange rates in other countries move at different cycles than those in the Canadian economy or indeed each other. The more markets and currencies you expose yourself to, the more opportunities you can enjoy.

Besides, if you want a piece of the world's top auto manufacturers, electronics firms, technology firms, utilities and media outfits, you have to look outside this country. If you want to reap the benefits of growth in Japan, the U.S. or emerging markets within the Pacific Rim or Latin America, 100% made-in-Canada won't do it.

You are currently allowed to invest 25 per cent of the book value (original cost) of your RRSP in foreign content, a figure which rises to 30 per cent on January 1, 2001. It is recommended that you make the most of this provision!

You can, of course, invest directly in foreign stocks, bonds or mortgage-backed securities. For most people, though, mutual funds that invest in the global economy are the best way to invest outside Canada.

A management team with a good track record has a tough enough time selecting quality securities and staying on top of an entire economy. A novice investor can rapidly feel overwhelmed. Along with tremendous opportunities, other economies could be prone to more volatility, currency fluctuations and/or local political instability than the Canadian landscape. You need real expertise if you want to voyage through foreign terrain, and professional managers have experience, knowledge and information on their side. This is in addition to the ability to get volume discounts on some purchases.

Have you been convinced to become a foreign investment enthusiast yet? If not, then consider a couple of strategies to increase your exposure to the global economy within your RRSP beyond the foreign content ceiling -- and still stay on the right side of the rules.

Many Canadian equity-based mutual funds keep up to the allowed limit of their assets in foreign investments, for instance. You don't have to count these funds as part of your RRSP's foreign content component, because they're fully RRSP-eligible.

Many companies now offer fully RRSP-elegible versions of their foreign content funds. They are commonly referred to as "RRSP clone funds" and through some innovative technology have circumvented the foreign content restriction.

You might also consider funds which hold a high proportion of large Canadian multinational companies or firms in the resource sector. Such businesses can benefit from the global economy, because they receive considerable revenue from foreign countries.

Before you make your final decision for this year, though, do some research on your own, or call and talk to an Independent Financial advisor at 905-844-7700. Explore a world of possibilities!

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