FAQ: INVESTMENT CHOICE
May 3, 2012
Q. What investment options does the Saskatchewan Pension Plan offer?
A. Saskatchewan Pension Plan (SPP) offers its members two investment choices:
- The balanced fund (BF)
- The short-term fund (STF).
Members are permitted, but not required, to choose how to direct their contributions in the Plan’s funds. The default fund is the BF – if a member does not give us directions, contributions are deposited to the BF.
Q. What are the objectives of the balanced fund?
The objective of the BF is capital accumulation – growing member accounts to provide them with retirement income in a prudent, risk-controlled manner.
The BF diversifies investments between several asset classes including bonds, equities, real estate and short-term investments. As a further diversification tool, the assets of this fund are divided between two investment managers.
Q. What are the objectives of the short-term fund?
The objective of the STF is capital preservation. Therefore, the money is invested in one asset class – Canadian money market instruments. The STF benchmark is the DEX 91-day T-bill Index. This fund operates on a cost-recovery basis.
STF returns will likely be lower than the BF as the objective is to preserve account balances rather than provide long-term growth.
Q. Which fund should you choose?
A. To answer this question you have to gauge what level of risk you’re willing to accept in a given investment. Factors that will influence this include your investment goals and your retirement timeline. Here are some questions and statements to consider when choosing between the BF and STF:
| Balanced Fund | Short-Term Fund |
| Is my main investment goal to seek higher returns and build up the value of my account significantly? | Is my main investment goal to make sure I preserve the money I already have in my account? |
| Do I prefer a mixed portfolio of stocks, bonds, and short-term investments? | Am I willing to accept a smaller return in exchange for less investment risk? |
| How long do I have until I retire? | How long do I have until I retire? |
| If my pension plan takes an unexpected loss, do I have enough time to recover from it before I retire? | If my pension plan takes an unexpected loss, do I have only a short amount of time to recover from it before I retire? |
| Am I comfortable with risk in my portfolio? | Do I need more certainty in my portfolio? |
| Can I tolerate a moderate short-term loss and remain focussed on my long-term goals? | Will a moderate short-term loss seriously jeopardize my future plans? |
| “I’m a long-term investor who can comfortably tolerate a moderate level of risk and can accept a short-term loss along the road to long-term gains.My goal is to steadily increase my account balance through consistently investing in a balanced portfolio over a long period of time.” | “I’m a short-term investor who can willingly trade the opportunity for higher earnings for a less risky investment. My goal is to guard my money and keep my account intact. I am less concerned about earning a high rate of return.” |
It’s a good practice to re-visit these questions periodically when monitoring your investments to ensure that you are still matched with the correct fund. If any of your answers to these questions change, consider whether you want to remain in the fund, or whether a switch would be more suitable. You may wish to seek the guidance of a financial professional for assistance in making your decisions.
financial planning, Return on Investment, Save for retirement
Hi,
What are the fees involved? Is this like a mutual fund where there is a management fee? Another question is is timing a factor with spp? Would it make a difference if contribution is made early or later part of a year?
thank you
Thanks for your questions.
SPP’s management fees are paid from investment earnings. Each month SPP allocates 100 per cent of the earnings, less operating expenses, to members. This management fee is targeted to average one per cent of assets.
A historical summary of our returns and MER is available at http://www.saskpension.com/index.php?page=administration/return.php.
With respect to your question about timing for contributions, experts tend to agree that when saving for the long term, earlier is always better. However, if making a lump sum contribution is problematic, regular monthly contributions can help establish the savings ‘habit’.