A portfolio built to minimize taxes

Marie Lewis wants to minimize taxes on savings and grow the pension money in her LIRA

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From the September/October 2016 issue of the magazine.

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portfolio fix

Marie Lewis, 58, Toronto (Photo by Micah Bond)

The Problem

The 58-year-old business analyst from Toronto plans to retire in a couple of years, but needs to invest two recent windfalls. Last month, she transferred the six-figure commuted value of her company pension to a Locked-in Retirement Account (LIRA). She also sold an investment property and has an extra $60,000 to invest. Lewis plans to use the money to augment CPP and OAS payments at age 65. She wants a low-cost, tax-efficient portfolio that’s easy to manage on her own. Lewis has a 60/40 RRSP portfolio of equities and fixed income but is debating taking on more risk with the money. “I’d like an after-tax return of 3% annually so the money lasts.”

BEFORE: 100% cash

The Fix

Calgary-based certified financial analyst Paul Wheaton says Marie needs a simple, well-diversified, balanced portfolio. In fact, just two low-fee, stellar-performing Mawer mutual funds with 60% equities and 40% fixed-income holdings will allow Lewis to meet her goals with little volatility. Wheaton recommends Lewis invest 100% of her LIRA money in the Mawer Balanced Fund, and 100% of the money in the taxable account in the Mawer Tax Effective Balanced Fund. Both funds give exposure to a broad mix of asset classes at a low MER of just 0.94% annually. “The funds invest in companies trading at a discount to their intrinsic value,” says Wheaton. As well, the tax-effective version is more tax-efficient for non-registered accounts. “Distributions from the funds are re-invested into additional units, and Lewis can set up a simple automatic withdrawal plan from the investments when she needs to draw income,” says Wheaton. Returns for the two funds have averaged 7.7% annually over 10 years. If they can keep that up, Lewis would easily get the 3% annual net return she seeks.

AFTER: 25% Investment profits (Mawer Tax Effective Balanced Fund), 75% Commuted Pension (Mawer Balanced Fund)

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