A portfolio built to minimize taxes - MoneySense

A portfolio built to minimize taxes

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

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)