The all-Canadian portfolio fix

The Rousseau’s portfolio is too heavily weighted in Canadian equity mutual funds

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From the Summer 2014 issue of the magazine.

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(Photogaph by Jesse Milns)

(Photogaph by Jesse Milns)

The Problem

Sudbury, Ont., residents Kristy and Corey are a high-income couple in their early 30s. They’ve been self-directed investors until now, but the problem is their investments are heavily weighted towards Canadian equity mutual funds, with only 9% of their portfolio in global equities and 18% in fixed income. Their investments are spread across several financial institutions; they include a stab at index investing via a Tangerine balanced fund and stocks from Corey’s employer in a TFSA. They’re interested in opening an online brokerage account to consolidate their investments. We turned to two financial experts for help.
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Nest Wealth founder Randy Cass says Kristy and Corey need to cut their fees and diversify their portfolio. Right now, the couple has almost 75% invested in Canadian equity and they are paying close to 2% a year in fees. Those high fees are already costing them over $4,000 a year. “That’s more than they pay for their cable bill, student loan payments and car fuel expenses every month in fees,” says Cass.

Fee-only planner Jason Heath of Objective Financial Partners in Markham, Ont., says Kristy and Corey are in good financial shape overall, but they need to pay more attention to the details. “Whether you add 1% to your returns by better managing your investments or by reducing investment fees, both make a huge difference when compounded over several years.” In fact, reducing fees from 2% to 0.2% over 30 years would mean that with a 6% rate of return, the couple is on track to retire with a $3 million portfolio instead of $2 million.

It’s also crucial that the couple dial down their exposure to the Canadian stock market. Cass recommends they reduce Canadian equities to 30% of their portfolio and invest in ETFs for U.S. and global equity exposure. A diversified portfolio made up of low-cost Vanguard and iShares ETFs would only cost them 0.3% a year or less, and an asset mix including fixed income, equity, REITs and cash will help reduce volatility and boost returns.

Do you want a portfolio makeover from MoneySense? If so, send an email describing your situation to letters@moneysense.ca.

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