For anyone who is sick and tired of the Volatility of the Toronto Stock Exchange, I would suggest to look at the safety of a Bond Fund...

For years the "Guru Economist's" have suggested to get out of bonds, as interest rates are at historical lows, and the fees associated with Bond Funds can outstrip their returns... Hogwash I say!

I can point to an article published by the Globe and Mail's Rob Carrick Personal Financial Columnist in September of 2010, with the article titled "Stop Buying Bond Funds"...

In the article the columnist points out that the Bond Fund Universe was about to collapse upon itself, and that the run was over for the safety of Bonds. This has proven to be the complete opposite since the article was published.

In the same article Avery Shenfeld of CIBC was quoted as saying "There’s little prospect of a rally here, so the odds are that yields begin to rise and bond funds perform relatively poorly."

Fact: Bond Funds were the only consistent positive performers of 2011...

Here are the top 5 reasons why you want to have some of your RRSP assets in a Bond Fund, contrary to what the "Guru's" have to say...

1. Safety.

Bond Funds in their nature are a Safe Place to park your retirement money until you are ready to use it. A good Bond Fund will weight the fund with both long and medium term bonds.

2. Ability to hold Long Term assets for a shorter Term.

If you as an individual investor wanted to purchase a specific bond, you would have to hold the Bond until its maturity date, which may be years into the future. When you invest in a Bond Fund, the Fund itself will wait for those assets to mature while you are given the ability to use the money much sooner than the bonds actual maturity date.

3. A Bond Fund doesn't necessarily invest all its money in Canada Savings Bonds.

When we hear people talking about the negatives about Bonds, they are talking about the individual Bonds themselves, not Bond Funds. Bond Funds invest your money in a variety of Bonds, such as Municipal Bonds, good Corporate Bonds and maybe some International Bonds. When you combine them all together, you are getting a far better rate of return than a Canada Savings Bond, no matter how long you hold it for. Currently the 10 year rate for Canada Savings Bonds are less than 2%. The historical return of a Bond Fund is closer to 5% across the board over the last 60 years worth of tracking.

4. A safe place to take your money from when the markets are in a downward spiral.

If you are in, or nearing retirement when there is a financial crisis, there are two things you can traditionally do, Don't Retire, or Take a loss by cashing in your depreciated money in the Stock Market. What is interesting is that when stock markets fall, bonds rise. As money never really leaves the market, it just moves around in the market. By using a Bond Fund, if the market is down, you can let your stock market assets sit there, and simply take your retirement funds out of the safety of the Bond Funds. And when the market recovers you can start drawing off your stocks again. Simple.

5. Bond Funds can be re-invested in the stock market when a recovery occurs, or when Interest Rates rise.

When you actively watch or manage your money, as we do here for our clients, you still have control over the RRSP and how it is invested. If we agree the Toronto Stock Exchange is on the rise, we can move some of the Bond Fund Assets into the stock market to try and beat the 5%. As well, if Interest Rates start to rise consistently, then again we can move the money out of the safety of the Bonds, and back into the markets.

One of the things you should realize is that someone needs to be Guiding you through the cycles of your RRSP investing life. When you are younger the ability to recover from a market crash in time for your retirement years is much easier, but as you get older, you must be as protective as you can and avoid the dramatic swings of your RRSP account.

As there are only two outcomes of being too risky with your RRSP in your Retirement Risk Zone. Either can't retire when you wanted to, or you have to live on less if you do choose to retire. Talk to us today, and we will show you how we can help you protect your money.

Steffen deGraaf