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Financial February

Four experts reveal their RRSP game plans Add to ...

Canadian investors have grounds for muted optimism as they weigh options for their registered retirement saving plans this year. The United States recently avoided a plunge off the “fiscal cliff,” Europe’s top banker predicts a small recovery for the “euro zone,” and North America is settling in for modest growth with low interest rates and inflation.

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With the clouds of uncertainty lifting, a little, The Globe and Mail asked four certified financial planners to discuss their RRSP game plans. Of different ages and investing philosophies, the advisers share similar optimism about a U.S. rebound this year.

One caution note: The strategies reflect the circumstances of the advisers and are not recommendations for others. Their main advice is to develop an RRSP plan that reflects personal goals and risk tolerance and to not get spooked by sudden swings in the market.

Mark Coutts

Position: President, Coutts Financial Services Inc., Toronto.

RRSP profile: 65 per cent equity mutual funds and 35 per cent high-yield fixed-income funds.

Personal investing philosophy: Moderately conservative.

Volatile markets, poor returns and, in some cases, high or hidden fees have sapped investor enthusiasm for equity mutual funds in recent years.

But Mark Coutts, almost exclusively mutual-fund based in his portfolio, sees a different picture. “RRSPs and mutual funds have got a bit of a bad rap in recent years, and, to some degree, unfairly so,” he says, concluding, “Don’t make judgments based on generalizations.”

One of his favourite mutual funds is CI Signature High Income Fund, which he describes as “a consistent first-quartile performer” over its 15-year history of investing in high-yield Canadian and foreign equities, corporate bonds and real estate investment trusts. The fund generated annualized growth of 9.83 per cent over 10 years, according to Morningstar Canada. “I don’t know how someone can look at mutual funds and say they don’t add value or return,” says Mr. Coutts, a 49-year-old, married father of two boys, 11 and 13.

This year, he made a slight adjustment in his portfolio, adding some U.S. equity mutual funds (now about one-third of the total) and slightly reducing his Canadian stake to about 30 per cent, with the balance in global market funds. His fixed income portfolio is split between real estate investment trusts and corporate bonds. Overall, he says he has met his target of an annual return of 6.5 per cent, including inflation.

Teresa Black Hughes

Position: Financial adviser, Rogers Group Financial, Vancouver.

RRSP profile: 60 per cent equity and 40 per cent fixed income.

Personal investing philosophy: Balanced.

At 50, Teresa Black Hughes is enjoying some of the fun transitions that come with her stage of life. A first-time grandmother last year, she and her husband are downsizing from a suburban home to a condominium in downtown Vancouver. She says she loves her job and estimates retirement, at the earliest, is 15 years away.

She views herself as moderately risk-tolerant in her RRSP. Working with a financial adviser, she has added some U.S. stocks that now account for about 20 per cent of the equity portion, with 20 per cent from Canada (including some exchange-traded funds), 10 per cent in emerging markets (especially Asia) and 10 per cent in gold and precious metals mutual funds.

“I have long been a proponent of owning gold and precious metals as a hedge, not to make a fast dollar,” says Ms. Black Hughes. “I am very concerned about the global debt load and the ultimate effects of inflation.”

About 40 per cent of her portfolio is in fixed income products, including Canadian and global bond funds, an exchange-traded fund of preferred shares and some short-term bonds. She expects her portfolio to return about 6 to 7 per cent annually, including inflation.

Dean OwenPosition: Partner, Cherry Financial Services Inc., Saskatoon.

RRSP profile: 70 per cent equities (mostly segregated funds and some mutual funds); 5 to 10 per cent fixed income and the balance in real estate funds.

Personal investing philosophy: Aggressive.

A former Junior B goalie in his teens and now a volunteer assistant coach of the University of Saskatchewan Huskies women’s hockey team, Dean Owen knows the difference between playing offence and defence. “In my hockey days, I had a defenceman who would rush the puck a lot and score goals, but often get into trouble,” he says. “His defensive partner was more conservative and would stay back and pick up the pieces when things did not work out for the other guy.”

The hockey analogy applies to his portfolio. “You want to have some opportunity to have growth and you want to have some value,” he says. For example, this year he significantly increased his stake in the United States to about 50 per cent of his equities, lightening up on Canada. “I like the stability that Canada seems to provide but I do see more of a growth opportunity in some of the American funds,” says Mr. Owen, 44, a past chairman of Avocis, the Financial Advisors Association of Canada.

Real estate funds (not REITS) account for about 20 per cent of his portfolio as a buffer against turbulence in stocks and bonds, he says, citing Great-West Life Real Estate Fund as “my most stable investment” over the past decade.

His fixed-income assets are mostly in corporate bonds, held in segregated or mutual funds. He says he “comfortably” met his annual target of a 6- to 7-per-cent return on his RRSP last year.

Susan St. Amand

Position: President and founder, Sirius Financial Services, Ottawa.

RRSP profile: 55 per cent fixed income and 45 per cent equities.

Personal investing philosophy: Conservative.

After 30 years in financial services, Susan St. Amand values patience.

“I have seen the 19-per-cent interest rates and I have seen the 2-per-cent interest rates,” says the 49-year-old married mother of two teenagers, both on the verge of going to university. “Sticking to, and believing in, what you understand has done well for me and keeps me calm amidst the turmoil.”

An aggressive investor in her non-registered holdings, Ms. St. Amand takes a more conservative approach to her RRSP. For example, her fixed-income assets are a mixture of government of Canada and provincial bonds, many of them “laddered” so they vary by date of maturity and interest rate. “The worst case is that I hold it forever and get 3 per cent,” she says. “The best case scenario is that they go up in value and I do something else.”

She holds no equity mutual funds, preferring to work with her adviser in selecting a diverse mix of stocks, including dividend-producing bank stocks, to achieve her goal of an annual return of 6 per cent, including inflation. In one recent change, she boosted her U.S. holdings to account for 15 per cent of her RRSP equities, with the balance in Canada. “I do think the U.S. is going to come out of this and they will have more growth in the next year than what I see Canada doing,” she says.

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