Adrian Mastracci, president of KCM Wealth Management Inc.Fernando Morales/The Globe and Mail
It shouldn't really be a surprise that so much of the discussion around this year's RRSP season should centre on tough questions about being prepared for retirement: Are you saving at all? Are you saving enough? Will you have enough?
After all, the market crash is still fresh in our memories. Who can forget some of those quarterly statements detailing alarming decreases in our net worth? As well, there are dire warnings that Canadians are too much in debt and that looming interest-rate hikes will give us all a financial spanking.
But for those among us who are saving, who dutifully purchase mutual funds and ETFs and equities and GICs, there are other questions we might want to consider: Do you really know what's in your portfolio? Do you go out every year and buy something last-minute to get that RRSP tax deduction? Is your portfolio, in the words of Adrian Mastracci, just "a tangled muddle of stuff"?
Mr. Mastracci, a portfolio manager and president of Vancouver-based KCM Wealth Management, raises a good question to help you figure out if you are preparing properly for retirement: Do your investments fit your game plan?
He cites the example of a recent client who came in with a portfolio that contained 97 different investments.
"When I sat him down, I said, 'How in the world do you keep track of 97 things?'"
The simple answer: He couldn't. Who can? In fact, Mr. Mastracci says most of the clients who come to him have about 20 or 25 different investments in their portfolios. "And I always find that anyone who has more than a dozen different investments doesn't really know what they've got."
Many investors, he says, don't really buy and hold - they "buy and forget." They keep buying but often end up with a collection of investments "that may or may not fit together."
What about financial game plans? In the past 4 1/2 years, Mr. Mastracci says only two new clients came in with a game plan - with objectives and a plan to meet them. Most come in wanting to know, 'What is a good investment for me today?'
"That's usually the first question, but it should really be the last question to ask," Mr. Mastracci says.
He offers a list - a process - to come with the right retirement plan.
1. Assess your portfolio goals
The first step is to forget about your portfolio at this stage, he says. Instead, ask yourself the big questions: Where are you headed? What are you trying to achieve? What kind of investor are you - risk-averse or risk-taker?
2. Analyze your retirement projections
This is a little trickier. It means taking a closer look at what kind of income you want in retirement, when you plan on retiring - and thinking about how long you could live. If you have longevity in the family, Mr. Mastracci says, you may need to figure out how to make the money last until you're 100 years old.
3. Figure out retirement spoilers
As Mr. Mastracci puts it, "what are the gotchas?" You have to factor in inflation, the prospect of a big loss or a period of low returns, health problems and the high cost of long-term care. Be prepared for everything.
4. The game plan
This is essentially a plan on how to proceed, taking into account Nos. 1 to 3. It involves figuring out the best mix in your portfolio to achieve your goals.
Most Canadians, Mr. Mastracci says, should have portfolios containing between 40 to 60 per cent equities and the rest in fixed income.
5. The portfolio
It is only after the game plan is drawn up that Mr. Mastracci tackles the question of what to buy. "Populating [your portfolio]is the last thing that you do."
If you're feeling the heat of the looming tax deadline, he advises people not to rush.
"Put the money aside - get a cashable GIC or whatever - just so you can take some time and think about what you want to do."