Equity Versus Fixed Income (Target = Middle)
Tailwinds from modest but positive economic growth and a rebound in corporate earnings support the case for further upside for equities, in our view. At the same time, policy risks in the U.S. and abroad warrant appropriate allocations to fixed income, to help provide portfolio protection against higher volatility. We recommend a neutral equity-fixed income position (the middle of your long-term range) , reflecting our view of the extended bull market alongside an increased risk of short-term pullbacks.
Domestic Versus International (Target = High International)
Canadian equities should benefit from rebounding earnings, driven largely by the energy sector. But with ongoing economic imbalances, commodity price headwinds and above-average valuations, we continue to recommend international allocations at the high end of our recommended range. The international landscape carries risks, but offers attractive opportunities to benefit from faster U.S. growth and more attractive overseas valuations. Overseas, we favour large-cap equities in developed economies over emerging market stocks.
Asset Class Diversification:
Investing in equities involves risks. The value of your shares will fluctuate and you may lose principal. Special risks are inherent to international and emerging markets investing, including those related to currency fluctuations and foreign political and economic events. Before investing in bonds, you should understand the risks involved, including credit risk and market risk. Bond investments are also subject to interest rate risk such that when interest rates rise, the prices of bonds can decrease, and the investor can lose principal value if the investment is sold prior to maturity.