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What the Canadian dollar means for pension plans

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What the Canadian dollar means for pension plans

The Canadian dollar has had a turbulent ride over the last three years. The loonie was looking strong in 2011, being on par with the USD, but has been slowly sliding downwards since. The drop in oil prices during the summer and fall months of 2014 didn’t help the Canadian dollar’s cause, and acted as the catalyst for the sharp decline during the rest of the year. Now, the CAD is valued at 0.75 USD, and could drop even lower according to some financial experts. In an interview regarding Canadian oil prices, ForexLive’s currency analyst Adam Button reported that “Oil is beginning to roll over once again. Crude is below $50, and that is the No. 1 reason to be worried about the Loonie… There is no reason why {oil prices} can’t fall much farther”. For financial advisors and investors, the Canadian Dollar’s significant drop in value demands attention. The key change that’s occurring in response to the Canadian dollar is the implementation of foreign assets in investment portfolios.

Diversifying with foreign assets

Having a diverse portfolio is essentially the golden rule of investing - you never want to put all of your eggs in one basket. A diverse portfolio helps to lessen the risk of losing money by putting stocks into different sectors of the economy. Having stock in a variety of fast food restaurants is not a diverse portfolio. The reason being that what affects one fast food company could potentially affect all the others (like a report confirming that bacon causes cancer). A diverse portfolio should have assets in a wide range of economic sectors such as energy, healthcare and information technology. You can also diversify your portfolio across currency types. When a particular currency is behaving erratically (like the Canadian Dollar) it’s wise to diversify assets across multiple currencies. One way to do this is to increase the amount of foreign assets in your portfolio. This can help to incorporate other currencies into the portfolio such as the Yen, USD, and Pound Sterling. Ela Karahasanoglu, the Vice President, Currency & Asset Allocation at CIBC Asset Management says Canadian pension plans are already implementing this strategy: “in the average {pension} plan today, 50% to 70% of the portfolio is not Canadian dollar-denominated”. With the ongoing state of the Canadian dollar still uncertain, foreign assets are one of the ways we look to strengthen our client’s portfolios. Reacting to the market with informed decisions is something we pride ourselves on here at Belmont, and we’ll be following the loonie’s progress closely in the months to come. If you have any questions about creating a financial plan, or just want some helpful advice, don’t hesitate to contact our salaried advisors here.

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| Categories: Wealthy Ideas | Tags: financial planning, wealth, wealth management | Return
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