Know thy portfolio

Know thy portfolio: Consolidation leads to $10,000 boost

Financial Post June 13, 2009

The client: High-income-earning couple living in Ottawa, but the sole breadwinner just got laid off. Before the layoff, they had always had more than enough money coming in, and never paid much attention to their portfolio. Now they want to ensure they have the cash to maintain their lifestyle and continue putting their two kids through university

The portfolio: The couple didn’t know where their money was — it was scattered across six separate RRSPs. They had invested in aggressive mutual funds, composed entirely of equities. When times are good, they also bring great dividends. But when times are bad, they crash hard. And there haven’t been many good times lately.

The fix: Diane Koven, a certified financial planner for SunLife Financial in Ottawa, helped the couple simplify and consolidate their portfolio. She recommended segregated funds, which are like mutual funds with a layer of insurance added on. If the fund performs well, you get the payoff. But if the markets tank, you haven’t lost your money, unlike the guy with the mutual fund. You pay a small management fee for the insurance, which guarantees that your principal is protected. You get that back after 10 years, or your benefactor does in case of death. In comparison, a mutual fund is transferred at death for its market value; if you happen to die on a day the market is down, your heir potentially gets far less than you invested.

“It’s like putting your money in a sock,” she says. “No matter what happens, it’s still safe.”

This strategy appealed to the couple’s conservative sensibilities. The couple have been especially cautious since the job loss, so Ms. Koven balanced the more volatile equities portion of their portfolio with 35% fixed income. This will also help ensure a steady cash flow to keep up with tuition payments and general living expenses. The investment mix can be changed as attitudes and situations warrant.

The outcome: “Timing was everything,” Ms. Koven says. Within a couple of weeks of setting up the new portfolio, the market started to go up. The results were dramatic — the consolidated investments earned more than $10,000. “I did a double take,” Ms. Koven says. “I can’t remember the last time I looked at a portfolio and there wasn’t any red ink. The only thing that could make me happier is if it were mine.”

The portfolio boost did wonders for the couple’s morale, which the layoff had severely damaged. “They thought they would have to sell their house,” Ms. Koven says, “but it turns out they were much better off then they thought.”

———

THE NEW PORTFOLIO:

Sunwise Elite Portfolio Series Balanced Fund — 100% guaranteed (on death or after 10 years).

COMPOSITION – 26% Canadian equities – 24% U. S. equities – 15% international equities – 35% income

TOP HOLDINGS (AS AT MARCH 31, 2009) – CI Signature Canadian Bond: 17.15% – CI Signature High Income: 10.98% – CI Canadian Investment: 8.78% – CI Signature Corporate Bond: 8.21% – CI Signature Select Canadian: 7.59% – CI International Value: 7.13% – CI International: 5.54% – CI American Value Corporate Class: 5.18% – CI Global Bond: 4.96% – CI Synergy Canadian Corporate Class: 4.88%

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