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portfolio makeover

Jean, 51, would like to fine-tune her investments and in the short term, she’d like to spoil herself. ‘I want to purchase a mid-life crisis car,’ she says.Dushan Milic

Jean works in the oil and gas industry, and knows it can be volatile – so she wants to save as much as she can to retire safely.

Her goal? To do so in nine years, without the luxury of a company pension.

The 51-year-old single woman has no dependents and a house valued at $280,000, with $41,000 remaining on the mortgage. She's lived in Calgary for 17 years, but wants to return to Ontario when she retires, and hopefully buy a house near Toronto. (Cambridge, Ont., is her No. 1 choice.)

Jean's portfolio, valued at $320,000, is a mix of half equities and 30 per cent fixed-income assets, with the rest in cash.

"I have been discouraged with the advice I have received in the past," she says.

She wants to make sure she's doing the most she can with her portfolio, but feels banks will only push their own products, and the fee-only investment advisers she's reached out to will only recommend exchange-traded funds. In one case, she says, an adviser "wanted to charge me $2,000 to build a portfolio of nothing but ETFs."

Ideally, she'd like to gear her investments toward providing income, and wants some assets to buy and hold for the long term. And in the short term, she'd like to spoil herself. "I want to purchase a mid-life crisis car," Jean says, imagining her dream wheels worth $40,000 to $45,000.

For advice on Jean's portfolio, we turned to two financial advisers: Howard Kabot, vice-president of financial planning at Royal Bank of Canada Wealth Management in Toronto, and Allan Small, a Toronto-based senior investment adviser at DWM Securities Inc., a DundeeWealth company.

The basics

$320,000 in savings (50 per cent in equities, 30 per cent in fixed income, 20 per cent in cash).

$133,100 in annual income.

$280,000 in total home value with $41,000 remaining on mortgage.

$900 in savings account.

No debt payments, but buying a car this year or next.

Howard Kabot's tips.

1. Assuming 6-per-cent returns on her portfolio until retirement, Mr. Kabot estimates that on her current trajectory, Jean can afford an annual retirement expenditure of $33,820. What matters most, he says, is for Jean to consider exactly what her wants and needs will be during retirement, and to adjust her savings accordingly. "Identifying a retirement goal is normally the first step in the process of analyzing one's ability to retire with comfort," he says.

If $33,820 is too low, Mr. Kabot suggests maximizing her annual registered retirement savings plan contributions. While Jean currently pays $13,000 annually into her registered account, she still has plenty of room for contributions – the maximum this year is $23,820. By doing this, "her annual retirement lifestyle expenditure could increase to $35,720," Mr. Kabot says. She can also reduce her expenditures to save even further, and increase her biweekly tax-free savings account deposit, which currently sits at $250.

2. Depending on her lifestyle preference, there are other retirement options. "If Jean would prefer to enhance her retirement, she could consider delaying retirement to age 65," Mr. Kabot says. By doing this, she'll be able to immediately take advantage of Old Age Security payments, which begin at 65, and avoid cuts to her Canada Pension Plan payout, which carries a penalty of half a percentage point a month if a person starts withdrawing before 65. (At 60, then, that's a 30 per cent CPP reduction.) The results, Mr. Kabot says, would be substantial. "Taking advantage of these payouts and deferring the start of her retirement, which will allow for growth of her retirement portfolios, will substantially increase her potential annual retirement expenditure to $52,200," he says.

3. And that bit of luxury Jean wants? "The purchase of a mid-life crisis car will impact the numbers," Mr. Kabot says. Even based on his recommendation to wait until 65 to retire, withdrawing $40,000 from Jean's current balance would reduce the money available to her annually by 4.6 per cent, to $49,800. "The impact would be more severe should she choose to retire at age 60," he says. "As a result, she may want to reduce the amount she spends on the mid-life crisis car."

Allan Small's tips.

1. Having a precise retirement plan is key – whether Jean comes up with it or pairs with an investment adviser to make one. This will give her an idea of what rate of return she'll need in the next nine years and subsequently shape her investments. If she needs only between a 1- and 5-per-cent return to reach her goals, Mr. Small recommends high-quality investment-grade corporate bonds, corporate-bond exchange-traded funds and preferred-share investments. "Corporate bonds will pay, in today's low interest rate environment, about 3 per cent for nine years or less," he says. "Preferred shares, in my opinion, pay the highest rate for an investment that is considered low-risk. You can find quality preferred shares paying around 5 per cent."

2. If Jean wants to ramp up her retirement returns, she'll need to look to the stock market. Her portfolio already includes a handful of bank, energy and transportation stocks, many of which are bringing in dividends. "I would continue to look for stocks or mutual funds that pay good dividends," Mr. Small says. "There are many stocks, for example, in many industries that pay over a 4-per-cent dividend plus have the potential for their share value to appreciate as well." He recommends looking to the telecom, financial, utilities and health care sectors, as well as oil and gas. "Jean can build a very nice diversified portfolio out of these names and still stay within the medium-risk category," he says. By dedicating 50 per cent of her portfolio to these stocks, with the other half composed of bonds and preferred shares, she should average between 5 and 7 per cent returns.

3. Jean's interested in stocks she can buy and hold, but Mr. Small warns that's simply not a great strategy these days. "We just went through one of the most challenging decades in the past 80 years," he says. Many investors over the past five to six years have not made much money, as the exchanges have gone up and down several times with the net result being break even." Equity markets are too volatile for investors to just buy and hold these days; Mr. Small recommends that Jean look to her investments with a more involved approach. "If an investor were to buy an investment and set a target price for when to sell, I believe investors could have made money these past few years," he says.

You can get your portfolio reviewed by the experts, too. Send us a confidential e-mail to If we profile your portfolio, your identity will not be revealed.

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