The best long-term investments for a 2025 RRSP contribution

The short-term tax break motivates most Canadians to contribute to their registered retirement savings plans, but how those contributions are invested determines the long-term success of an RRSP.

The right investments made early in life have the potential to grow for decades.

Here are strategies and holdings from portfolio managers to help carry clients’ RRSPs over the finish line:

Invest in needs, not wants

Brian Madden, chief investment officer at First Avenue Investment Counsel Inc. in Toronto, says a good strategy is to invest in things people need rather than want. As such, insurers are a good long-term investment.

“If we want to drive our cars in every province, we’re required to have at least third-party liability,” he says. “Although you’re not legally compelled to insure your home, your bank will obligate you if you have a mortgage against it.”

Mr. Madden says Intact Financial Corp. IFC-T is “the best of breed property and casualty insurer in Canada” for its ability to price its policies to cover the cost of its claims and operating expenses as climate change ushers in more extreme weather events.

“If you have more risk because these weather events are becoming more frequent and severe, logic would dictate that policy premiums would go up over time, and they are non-discretionary,” he says.

Keeping with the needs-over-wants theme, Mr. Madden likes uranium producer Cameco Corp. CCO-T. As global demand for nuclear power balloons, Cameco holds 485 million pounds of proven and probable reserves, primarily at two Saskatchewan mines.

“Cameco is one of the only liquid large-cap, almost pure-play investments you can make in uranium,” he says.

With more of us living longer, Mr. Madden also recommends McKesson Corp. MCK-N, the biggest pharmaceutical drug distributor in the U.S.

“There’s a de facto oligopoly in the U.S., where the top three players have a 90-per-cent combined market share,” he says.

McKesson negotiates bulk purchases from drug manufacturers on behalf of pharmacies, hospitals and long-term care homes.

Low margins and high turnover, Mr. Madden says, also allow McKesson to reward its shareholders.

“For the very long-term investor this is a beauty of a dividend aristocrat: 25 consecutive increases, growing 12 per cent a year,” he says.

Yesterday’s growers will keep growing

Sticking with the aging demographic trend, Christine Poole, co-CIO and portfolio manager at Davis Rea Ltd. in Toronto, recommends Thermo Fisher Scientific Inc. TMO-N.

The U.S. blue-chip company supplies diagnostic and research products to hospitals, labs, research facilities and government health departments.

“They provide all the tools their customers use,” she says.

Ms. Poole says Thermo Fisher, which accounts for 20 per cent of the global market, stands out over other health care product providers for its ability to grow profit margins through acquisitions.

“It’s just a nice way to play the rising demand for health care and drugs,” she says.

Closer to home, she sees long-term growth for Canada’s largest bank, Royal Bank of Canada RY-T. Ms. Poole says all the major Canadian banks are good to hold in an RRSP, but RBC stands out for its large global footprint, dividend growth and premium multiple.

“RBC has the better management team in terms of navigating the industry,” she says, adding its stock is currently trading at a discount despite having almost tripled in value over the past 25 years.

RBC’s gains pale in comparison to her third pick. Over the same period, Microsoft Corp. MSFT-Q shares have grown an astounding 46,000 percent, and Ms. Poole believes they will continue growing as the company makes acquisitions in cloud computing and artificial intelligence (AI) and transitions to a subscriber-based model.

“Microsoft is embedded in everybody’s life right now,” she says. “It has proven it can look ahead and anticipate upcoming trends.”

AI is still in its infancy

Matthew Strauss, senior vice-president and portfolio manager at CI Global Asset Management in Toronto, also likes Microsoft along with other technology giants that have been able to adjust to changes, including Netflix Inc. NFLX-Q and Apple AAPL-Q.

He believes AI is still in the early stages of development on a level not seen since the introduction of the internet.

“We don’t really know how far and what all the implications for AI will be, but it truly feels like you want to be invested in that field,” he says.

One company he thinks will continue to grow with the advance of AI is Taiwan Semiconductor Manufacturing Co. Ltd. TSM-N, which manufactures 60 per cent of the global semiconductor supply. Over the past five years, the value of its shares has grown by 250 per cent.

“There are only a few real foundries in the world and [TMSC] dominates that sector,” he says. “It remains at the cutting edge of chip technology and without that, the whole AI revolution is not possible.”

As a final strategy for RRSP investors, Mr. Strauss stresses the importance of a qualified money manager at the helm. He says the key to strong long-term returns is active asset allocation.

“Certain things work very well for a period of time, and then technology or bad management tend to change things,” he says.