Investments: Answers to your biggest questions!

Sébastien: Welcome to AI Financial Group's In Your Interest podcast. My name is Sébastien McMahon and this week I'm having as a guest a friend: Frédéric Lessard. Hello, Fred.

Frédéric: Hi. How are you?

Sébastien: Good, good. It's good to have you here. Just in case I mess it up, what is your title exactly again?

Frédéric: Regional vice president of sales.

Sébastien: Okay, great. So this week, what we propose to our listeners is to dig into the most asked questions from our lines of business. So, Fred, since you're involved with the Career network here in Quebec, we thought that, you know, it would be a great exercise to have you with us here.

And first, maybe not a question, but maybe more of a theme. We hear a lot about 2024. And when I talk to advisors and when I talk to clients, they say: ”Well, it was a fantastic year for the markets.” Some even say it was a vintage year. But, you know, maybe markets now are toppy. Maybe now it's time to get out. So maybe a general question for you, Fred. What do you answer to advisors and clients when they ask you what we can learn from 2024 and what we can expect for 2025?

Frédéric: Yeah. Excellent question. 2024… Let's establish something first: 2024 was indeed a great year for equity investors. For all investors, in fact. And I'm not talking necessarily about iA clients here. I'm talking about anybody who invest in the market in 2024 had exceptional returns. With that said, we need to keep in mind something really important: returns won't be that good or that great every year. And what's the promise that we can do to our investors? Or what's the expected return that could be achieved by investors? And that's really 5 to 8% net on an annual basis.

Sébastien: Yeah. In the last few years, we had back to back 25% ish returns for the S&P 500%, 40 % back to back years in Canadian dollars for the Nasdaq, so that was exceptional. TSX was 10% in 2023, 20% in 2024. Those were very exceptional years. Now this goes along with the theme that you need to stay invested. You need to be well diversified because the TSX was lagging in the first part of 2024, but it outperformed the US in the second part of the year. So all of these learnings that we've always been discussing here, they did apply in 2024. But now, if someone says: “Yes, the returns were great and all of that, but maybe now the market is expensive.” So what do you typically answer to that?

Frédéric: Yeah, that's a frequent question lately. “Are the market topped or are they expensive?” Well, I think if it's expensive, it could get more expensive. So, we need to stay prudent with that kind of question. And I think, I mean, the economy is on solid ground. And I think now is the right time to stay invested.

Sébastien: Yeah. And the economy is on solid ground. When we look at the data in our team, what we see is that kind of Goldilocks economy. We see that growth is good but not too strong. We see that inflation seems to be under control. So usually this is good for markets. We're not going to make 25% every year, of course not, but it should be good for markets.

Being diversified, investing in Canada, in the US, everywhere around the world is useful, especially with the rhetoric that we're hearing from Washington now. We can dig into that in a minute. But, you know, when you have potential for volatility, staying invested in 2025, keeping a cool head likely prevails. But, you know, 2025 is going to be interesting with Trump in power. So, we need to ask ourselves what kind of investment strategies we need to put into place to protect your portfolio, to seek growth. So, what kind of recommendations you tend to give to your clients?

Frédéric: Yeah. You know, with the Christmas break, I've met with all kinds of people, all generation from, you know, every city in the province of Quebec. And really, the situation in the US presidency is top of mind for everybody.

Sébastien: Yeah!

Frédéric: And I think the best advice we can give to these people is diversification is always the key, and the best investment is the one that makes you sleep at night.

Sébastien: Yeah.

Frédéric: If you're well diversified and the economy is on solid ground, then I wouldn't be too afraid investing in funds or in markets.

Sébastien: And you know, this is Trump 2.0. And just full disclosure, as we're recording this, we're about one week prior to the inauguration. So we don't have all of the details of Trump's policies. But we've gone through Trump 1.0 between 2017 and early 2021. And the world continued to spin. We did have interesting returns. There was a lot of rhetoric, but there's a balance of power in Washington. So, you know, in the end, will we get tariffs? Likely. Will they be phased in and negotiated away? Also probably. So, volatility for sure. Winners and losers based on these policies. But, you know, should you be invested in 2025? I think it's always a resounding yes.

Frédéric: I think one thing that might be more important, even more important in 2025 is geographic allocation.

Sébastien: Yeah.

Frédéric: Where are your monies invested? And we don't know what's the next headline with Mr. Trump. But if you put all your eggs in one basket, meaning let's say I invest all my money in Canada and he goes ahead with the tariffs, then it might be a problem. So, diversification from a geographic standpoint is really paramount in 2025.

Sébastien: Yeah I couldn't agree more. So, another question that I know  is on top of mind right now is: “How can you make sure that your plan incorporates the best tax strategies?”

And of course we are in RRSP season. The due date again to everyone out there is February 28th. That's the limit date for the fiscal year 2024. So what are your recommendations for clients and advisors?

Frédéric: Here, the first recommendation is always – because, you know, every situation is different – so you should talk to your financial advisor to really know what's best for you. With that said, every year you need to think about how to distribute your cash flow, invest it across the various plans, you know. So a few pointers here:

If you think about RRSP, you think about retirement, a tax return, probably. Probably some government program that could benefit from a deposit in your RRSP.

Sébastien: Yeah. So just to lower your taxable income?

Frédéric: Exactly. And that could help, let's say Canadian allocation for kids, for instance. That's going to be a little bigger if you invest in your RRSP.

Sébastien: Yeah.

Frédéric: Then you can think about TFSAs. With a TFSA, you're not thinking about tax return here. You're not thinking about retirement. You're rather thinking about, you know, emergency fund, flexibility.

Sébastien: Yeah.

Frédéric: Obviously, your return will be protected from tax. It will grow. But you really need, you know, to find the right balance between TFSA and RRSP, because your RRSP will not be available if you need some money for emergency, you know. But with the TFSA, it will. So you need to find the right balance.

And obviously, if you have kids, then you should really think about RESP, especially if they are teenagers, because the window of opportunity is getting smaller and smaller, and the government programs are so generous that you really need to talk about RESP with your financial advisor. I'll take my situation: I have a 12-year-old and I have a 15-year-old at home. And this year, I'm not sure. Should I max out my RESP and skip, let's say, one year of RRSP? So that's the question I'm going to ask my financial advisor for sure.

Sébastien: Yeah. And you know, we're getting close to the February 28th date. We know that the savings rate in Canada is higher now than it was. But, you know, I know that people ask: “All right, am I behind or am I ahead on my savings?” So what's the statistic right now? The savings rate for households.

Frédéric: Yeah, really important for a guy like me that likes to compare. To compare with my neighbors, to compare with my friends. Well, you need to keep in mind that in Canada, the last figure is 10% of your disposable income.

Sébastien: Yeah.

Frédéric: Let's say 5% of your gross income.

Sébastien: Yeah.

Frédéric: . So, for instance, somebody who earned $50,000 per year, he would save 2500.

Sébastien: Okay.

Frédéric: So if you're, let's say, a 45-year-old person and have no savings whatsoever at this point, you're a little behind. And you will need to save more to catch up.

Sébastien: Yeah, that's the power of compound interest that we keep talking about. All right. So thank you very much, Frédéric, it's always a great pleasure to have you here.

Frédéric: Thank you, my friend.

Sébastien: And to everyone out there, it's always a pleasure to serve you. And please come back again next week for another episode of the In Your Interest podcast.

Ashleay (pre-recorded voice): Loved this podcast? Want to know more about economic news? Follow our “In Your Interest!” podcast, available on all platforms. Visit the economic news page on ia.ca or follow us on social media.