It is best to hold a diversified portfolio of stocks, bonds and cash within the RRSP and stay away from investments that are risky or very expensive. Here are some investments you may want to avoid:
Venture Capital Funds: Even with the tax kickbacks, Labour-Sponsored Investment Funds are poor investments. The long list of negatives includes sky-high MERs, very poor track record, opaque pricing of underlying investments and long holding periods.
Bullion Funds: Precious metals have been on a tear in the past few years and sure enough investors are piling on to them. While some experts recommend a 5% allocation, gold and other precious metals, at best, keep pace with inflation if storage and insurance costs are ignored. Ask yourself if you really want to hold something that provides less than a 0% real return over the long-term.
Principle-Protected Notes: Tom Bradley has a series of columns (available here, here, here and here) in his SteadyHand blog that you should read if you are considering PPNs. Essentially, principle protection is a dubious benefit with costs involved that ultimately comes out of your pocket.
Sector Funds: Almost always sector funds become hot sellers when a trend is near its peak. During the bubble, investors couldn’t get enough of the technology or telecom funds and these days it is resources, energy, oil sands and BRICs. Even ETFs are not immune from the sector-fund mania but investors are almost always better served just sticking with broad-based equity fund.
In your opinion, are there other investments that average investors should stay away from?
