Investment UPDATE28263 (01/2015)

Winter Edition I December 2014

In this issue Ready, set, go! Revisit your goals in the New Year Investor Q&A

Do you file a U.S. tax return? One-minute market update Three RBC MarketSmartTM GICs Looking for your tax receipts?

Ready, set, go! Revisit your goals in the New Year

Continued on page 2

The New Year provides a fresh page on which you can write new resolutions and plan out your life goals. It’s also a time when you can review the existing plans you have in place to ensure you’re still on target to reach your goals.

Whether it’s a new workout plan, spending more time with family, getting more items off your “to-do” list or prioritizing important financial goals, achieving them often starts with one important step: planning.

WHAT’S YOUR SOMEDAY? Your goals provide you with a purpose. But life can be full of unforeseen obstacles that can alter your course. Anyone who has ever made a New Year’s resolution to eat better or exercise more knows about that.

Someday is a simple word we often use when we talk about what we need, want or wish for. Each of your financial and life goals are uniquely yours. Some of them may be

further off, like retirement or a child’s post-secondary education. Others are more immediate, like a home purchase.

But it isn’t easy juggling multiple goals, especially when life circumstances can change. That’s where having a plan comes in, providing a framework that helps keep you on track to achieving your goals.

HITTING THE TARGET – THE IMPORTANCE OF A PLANIt has often been said that the difference between a dream and goal is a plan to achieve it. When it comes to your financial goals, especially long-term ones like retirement, it can make all the difference.

MARK YOUR CALENDAR: 2014 RRSP DEADLINEThe 2014 RRSP contribution deadline is just around the corner – March 2. Book an appointment with your RBC advisor to establish or review your investment portfolio and make your contribution.

2015

2 Investment Update I Winter 2014

An investment plan adds a concrete element to your goals. For example, it can help you to establish and maintain regular savings contributions to an investment portfolio, a registered retirement savings plan (RRSP) or a registered education savings plan (RESP), helping to fund a goal by gradually building your savings to make your someday a reality.

INVESTMENTS CAN MAKE YOUR SOMEDAY HAPPENThe right investment solutions are important, helping you to

achieve your goals throughout all of your life stages – from wealth accumulation to retirement. While the act of saving your hard-earned dollars is important, the growth of your investments over time can make the difference between merely dreaming and making your someday a reality.

Contact your RBC advisor today and kick off the New Year by setting your sights on your someday with the right investment plan.

Build and grow my savings to buy a home, renovate

the second floor, or fund my retirement.

Save for a child’s

education.

Let’s make your someday happen.An effective investment plan

should be unique to you and reflect your goals. Your advisor can help you to establish or review your investment plan.

Turn my wealth into reliable

and tax-efficient retirement

income.

A TRADITION OF INVESTMENT EXCELLENCE

RBC Global Asset Management (GAM) is honoured to have been recognized for the following awards:

Fixed Income Manager of the Year (PH&N) at the 2014 Morningstar Awards.

Best Overall Funds Group at Lipper Fund Awards Canada – the seventh time in the past eight years1 that RBC GAM has taken home this prestigious award for outstanding risk-adjusted performance.

This latest recognition further validates RBC GAM’s commitment to offering investors excellence in investment management across a complete line-up of solutions. To learn more about the award-winning investment solutions, speak to your RBC advisor.

Leave a legacy for future

generations.

1 PH&N Funds 2010, 2011, 2012, 2013, RBC Funds 2007, 2008, RBC GAM 2014. The 2014 Lipper Award was based on best risk-adjusted performance for the period ended July 31, 2014. Lipper Awards for 2011, 2012 and 2013 were based on the periods ended October 31, 2010, 2011 and 2012, respectively. Lipper Awards for 2010 were based on the period ended November 30, 2009. Lipper Awards for 2007, 2008 and 2009 were based on the periods ended December 31, 2006, 2007 and 2008, respectively. Lipper Inc. is a Thomson Reuters company. Morningstar Awards 2014 © Morningstar, Inc. All Rights Reserved.

Investment Update I Winter 2014 3

USE TIME TO YOUR ADVANTAGEMarket fluctuations are a reality when it comes to investing. When markets are volatile, it’s important for investors to avoid common pitfalls of investor behaviour. That’s because investors who maintain discipline and perspective have a better chance of reaching their investment goals than those who react to short-term market fluctuations.

Staying invested and trying not to “enter and exit” the markets when volatility increases can help reduce fluctuations over the long term. The longer an investment is held in a portfolio, the less chance it has of incurring a negative rate of return. This is because fluctuations in value tend to smooth out over time as the impact of market volatility diminishes. Moreover, years of strong equity markets can outweigh periods of decline over time.

Do you file a U.S. tax return?COMING SOON – PFIC ANNUAL INFORMATION STATEMENTS To help investors who file U.S. tax returns, RBC Global Asset Management (RBC GAM) will provide PFIC Annual Information Statements for more than 70 funds for the 2014 tax year. The Passive Foreign Investment Company (PFIC) statements will allow U.S. taxpayers to elect to treat certain RBC GAM funds as Qualified Electing Funds on their U.S. tax returns.

The election provides U.S. investors with access to capital gains tax rates on their holdings of certain funds, which may allow them to get better tax treatment on their Canadian mutual fund investments and avoid higher tax rates and interest penalties that might otherwise apply.

For more information, please visit rbcgam.com/pfic in February.

-40%Ra

nge

of R

etur

ns

-20%

0%

20%

40%

60%Lower Rangeof Outcomes

(2% difference)

Wider Range of Outcomes(89% difference)

64%

-25%

1 Year 3 Years 5 Years 10 Years 20 Years 30 Years

32%28%

17%

2%-1%-7%

14%

6%

11%

9%

Investor Q&A: You asked. We answered.

The volatility of a diversified portfolio decreases over time

Source: Bloomberg, RBC Global Asset Management. Rolling 1-, 3-, 5-, 10-, 20- and 30-year average annual returns from January 1980 to December 2013. Based on a diversified portfolio of: 45% bonds (DEX Universe TR Index), 20% U.S. equity (S&P 500 TR Index), 20% Canadian equity (S&P/TSX Composite TR Index) and 15% international equity (MSCI World TR Index).

Every day we receive many questions from investors. This past quarter, as markets experienced periods of heightened volatility, a common question we addressed was how to manage periods of volatility in investment portfolios.

For more information on how to maintain confidence through all types of market conditions talk to your RBC advisor.

Investors who maintain discipline and perspective have a better chance of reaching their investment goals.“ ”

Financial planning services and investment advice are provided by Royal Mutual Funds Inc. (RMFI). RMFI, RBC Global Asset Management Inc. (RBC GAM), Royal Bank of Canada, Royal Trust Corporation of Canada and The Royal Trust Company are separate corporate entities which are affiliated. RMFI is licensed as a financial services firm in the province of Quebec. Investment and economic outlook information contained in this report has been compiled by RBC GAM from various sources and reflects our view on December 15, 2014. Information obtained from third parties is believed to be reliable, but no representation or warranty, express or implied, is made by RBC GAM, its affiliates or any other person as to its accuracy, completeness or correctness. RBC GAM and its affiliates assume no responsibility for any errors or omissions.All opinions and estimates contained in this report constitute our judgment as of the indicated date of the information, are subject to change without notice and are provided in good faith but without legal responsibility. To the full extent permitted by law, neither RBC GAM nor any of its affiliates nor any other person accepts any liability whatsoever for any direct or consequential loss arising from any use of the outlook information contained herein. Interest rates and market conditions are subject to change.Guaranteed investment certificates are offered through Royal Bank of Canada. RBC Funds are offered by RBC GAM and sold by Royal Mutual Funds Inc. There may be commissions, trailing fees, management fees and expenses associated with mutual fund investments. Please read the prospectus or Fund Facts document before investing. Mutual fund securities are not guaranteed or covered by the Canada Deposit Insurance Corporation or by another government deposit insurer. For funds other than money market funds, unit values change frequently. For money market funds, there can be no assurances that a fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in a fund will be returned to you. Past performance may not be repeated.

* The return on the RBC MarketSmart GIC is expressed here as an interest rate per term and depends upon the performance of the equity index to which it is linked. The amount earned will depend on the performance of the equity index up to a maximum return of 9% per term for the 3-year RBC MarketSmart GIC. You are guaranteed a minimum return of 1.5% per term for the 3-year RBC MarketSmart GIC. Offer valid until March 2, 2015. For full product details, including how the return is calculated, please visit www.rbcroyalbank.com/products/gic/marketsmart-suite.html, or call 1-800-769-2511. ® / ™ Trademark(s) of Royal Bank of Canada. RBC and Royal Bank are registered trademarks of Royal Bank of Canada. © Royal Bank of Canada, 2015.

4 Investment Update I Winter 2014

ECONOMY Uneven economic growth was one of the

hallmarks of 2014. Some parts of the world accelerated nicely (the U.S. and U.K.), while others posted disappointing results (Europe and Japan).

For 2015, we expect a slight broadening of growth. The more robust developed economies look capable of sustaining their recent growth, while the more feeble ones should narrow the performance gap.

We believe the era of deteriorating emerging-market growth may be nearing an end as these countries benefit from falling oil prices, lower interest rates, weaker currencies and improving developed-world growth.

ONE-MINUTE MARKET UPDATE

For a summary of the New Year 2015 Investment Outlook, please visit rbcgam.com/investment-outlook.

1 min.

Looking for your tax receipts?

For more information on when to expect your tax receipts, visit rbc.com/taxreceipts.

Talk to an RBC advisor today or visit rbc.com/potential.

EQUITY MARKETS Despite strong equity-market returns,

valuations are not yet expensive by historical comparison.

With fuller valuations, though, come lower average returns and greater volatility. As a result, we are more cautious on stocks at these valuation levels and continue to look for opportunities to tactically manage our asset mix.

Going forward, equity markets will likely be paced more by corporate profit growth than expanding multiples. As the global economic recovery becomes self-sustaining, we expect rising corporate profits to sustain the bull market.

Many analysts have been sounding the alarm on profit margins, but our analysis indicates that margins should remain at or near current levels, removing a major downside risk to earnings.

FIXED INCOME MARKETS Interest rates are unusually low across the

globe. As a result, we expect that yields are more likely to rise than fall over the next few years as sustainable global growth takes root.

If yields increase as we expect, capital losses on sovereign bonds would more than wipe out coupon income, leaving fixed-income investors with a negative total return.