Picking RRSP funds

Don’t let instant gratification be your guide.Every year at RRSP time, I’m bombarded by requests from the media for my top mutual fund picks for the current season. This year, there was an appearance on Canada A.M., during which we ran through a dozen or so funds in the space of about three minutes. As you can imagine, the analysis was rather fleeting. Then The Globe and Mail ran a big feature in which I and several others were asked for our top RRSP fund picks for the year.I go along with these requests because I know they reach a lot of people and, being a former journalist myself, it seems ungracious to refuse comment. But I have to admit I’m becoming more concerned about this whole approach.

We have moved into an age of instant gratification – not just in terms of our material or emotional needs, but also when it comes to our personal finances. We no longer seem content to patiently invest for the long term. We see the markets going crazy and we want to enjoy some of those profits, right now.

The financial media feeds this craving by doing so-called “reality checks”. Pape recommended this fund for RRSPs last year. It did badly. Ergo, it’s a lsy fund and Pape is a poor fund picker.

Everything is judged by how it performed over the past 12 months – the fund, the manager, the selector. No consideration is given to the fact that the fund may have a superb long-term record, and simply experienced an off-year.

For example, last year I chose Ivy Canadian for RRSPs. The fund had a weak year, in part because of manager Jerry Javasky’s value style and in part because of the large cash position he maintained. But that doesn’t suddenly make it a bad fund. It continues to be a good choice for conservative investors who place a high priority on safety. Over five years, I expect it will do just fine – never the leading fund in its category, but a reliable performer that will limit your losses during times when markets are weak.

This is the way people should be choosing their RRSP funds, or most of them anyway – based on their personal goals and the fund’s long-term prospects. It’s okay to put a small percentage of your money into the current high flyers, to improve growth potential. But the bulk of the RRSP should be in quality securities that offer stability and limited risk.

I fear that the current emphasis on instant gratification is causing many people to look at their retirement plans rather differently – and not for the better.

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