Ideally, income trusts should consist of unexciting companies with extremely predictable cash flows and strong management teams who know how to control expenses. Their most important feature is consistency of return with less emphasis on the growth opportunities of the businesses. Another desirable trait is that income trusts tend not to correlate with other investments, particularly equity funds. As a result they can be used to effectively diversify an investment portfolio, sometimes resulting in less risk for the investor.
Dividend Paying Shares have performed very well in Canada over the past few years. Dividends from Canadian corporations attract a lower rate of tax than interest income, and for common stocks that pay dividends there is a good chance that the stock price and the dividend could increase over time.
Bonds and Term Deposits while less risky, also provide an income based on the current yield in the market. Bonds can be both government and corporate issued, and depending on the duration of the bond can help reduce risk for the entire portfolio, while still providing a yield.
Equities make up a small percentage of some Monthly Income Funds. You generally want diversity in the equity component in order to minimize risk.
Most would agree that during your retirement years you want a portfolio that is dull, boring and consistent. Not everything in your portfolio should put you to sleep, but it should let you sleep!
As always, if you would like to review your current portfolio, please contact your closest CARP Certified Advisor for an appointment.
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