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portfolio makeover

At an age when most people are just launching their careers and only starting to think about their finances, Janet was already in an enviable position on both fronts. Straight out of university, where the Vancouver woman studied commerce, she landed a lucrative position in sales for a company that went public a few years later. A shareholder at 25, Janet found herself with about $500,000 worth of shares by 30.

On top of that, she earned about $150,000 a year from 24 to 31.

"That's how I managed to buy a rental apartment and build up savings," says Janet, 38.

Over the years, Janet has sold her company stock, and her focus has shifted from the sales force to family life. She left her job after becoming a mother seven years ago and now runs her own personal-training company part-time. With two little kids running around at her feet, she's enjoying the work-life balance.

"I want my children to come first," she says. "My job is mainly for fun, and I consider my family to be a much larger priority. I'll focus more on my career when my kids are older."

Janet's husband is paying off the remaining $237,000 mortgage on the couple's home. She manages her own money and investments, and he handles his. Her rental property and vacation home, meanwhile, are paid off. And although she doesn't have to worry about debt, Janet says she's unsure where to direct her finances.

"I feel like my portfolio is a mess," Janet says. "It's achieved very little growth over the years, and I have poor diversification. I want to build a balanced and conservative portfolio that's easy to manage.

"I need to decide where to allocate cash. Stocks? Mutual funds? Real estate? I haven't purchased another rental apartment because the prices in Vancouver still appear to be incredibly inflated," she adds. "I'd also like to implement a monthly savings plan."

To help Janet move forward, we consulted Vancouver certified financial planner Phil Tippetts-Aylmer, a financial adviser at Nicola Wealth Management, and Wendy Brookhouse, wealth adviser at Worldsource Financial Management Inc. and president of Black Star Wealth Partners in Dartmouth.

The basics


– Vancouver home: valued at approximately $1-million

– Two-bedroom rental apartment: valued at approximately $575,000

– Vacation property: valued at about $290,000

– Rental income: $24,000 a year

– Personal-training revenue: $28,000 annually

– Trust-fund income: $54,000 yearly

– Cash: $266,000

– Non-registered investments: $239,000

– Registered retirement savings plan (RRSP): $65,000, all in mutual funds


– $237,000 mortgage on home

Ms. Brookhouse's tips

1. Minimize taxes. "Janet has been doing a great job putting money aside," Ms. Brookhouse says. "She has obviously been good enough with her spending to get herself this far. However, it appears as though she has put most of her eggs into one basket. Most of her investing and her savings are in accounts that aren't protected from tax while they're growing."

Ms. Brookhouse notes that three types of products allow for no taxes during the accumulation phase, though there are different limits on the amount of money that can be put into each one: RRSPs, tax-free savings accounts (TFSAs), and permanent life insurance.

"A permanent life insurance product would have the benefit of providing funds to the estate for the tax liabilities at death that will be present due to Janet's non-principal residences," Ms. Brookhouse says.

2. Reconsider investments. "Given the large amount of non-registered funds, the client should consider mutual funds, specifically private pools," Ms. Brookhouse says. "Private pools allow investors with larger amounts to invest and to receive the benefits of institutional managers – for instance, pension funds – diversification, and reduced fees. Utilizing the right funds will also give the benefits of tax deferral. Most mutual fund companies offer this type of product."

3. Establish a spending limit and a savings target. "Use cash only for purchases that can be impacted by mood and emotions, including groceries, gifts, eating out, and entertainment, with a suggested amount of $2,000 a month," Ms. Brookhouse notes. "This will ensure that Janet and her husband only spend what they intend to spend, allowing them to control how much money goes out each month. This method of cash flow planning – not budgeting – allows for the fact that life happens, while having a set amount for each item does not work with the average person."

Ms. Brookhouse also suggests Janet save $3,000 a month. "The client should be maximizing her savings into TFSAs and the other tax-protected products, unless there is some reason to not do this."

Mr. Tippetts-Aylmer's tips

1. Create a plan. "You don't build a house without first drawing up a set of plans and creating a clear idea of what the desired end result will be," he adds. "Building a portfolio is no different. Janet needs to identify what she's trying to achieve and lay out a plan on how to achieve it. Having a desired end result or target will allow her to make more informed decisions about what investments she should own and how much she should be looking to add to her savings each year."

With a detailed plan in place, Janet will also be better able to monitor her portfolio with a view to making future changes, he says. With an investable net worth of more than $1-million, not including her principal residence and vacation property, Janet is in the top 4 per cent of the Canadian population and is off to a very good start, he adds.

2. Add diversity and balance. "It's perhaps a cliché in the portfolio-building world, but diversity and balance are key components that are currently missing from Janet's portfolio, where there are only three asset classes present: real estate, cash and equities," Mr. Tippetts-Aylmer says. "Drilling down further, it's apparent that within those assets classes there is a fairly focused concentration of holdings: one property in the case of investment real estate and only five stocks in the equity portfolio. I would look to diversify the equity positions further and add a number of additional asset classes that can offer attributes to help reduce volatility and mitigate some of their risk."

Mr. Tippetts-Aylmer says his firm's portfolios provide exposure to asset classes such as bonds, high-yield bonds, foreign bonds, mortgages, preferred shares and alternative strategies.

"While there may be some discussion on timing of the purchase of fixed income assets due to the current interest rate environment, the objective would be to ultimately have the portfolio contain all of these assets to help provide long-term stability," he says.

3. Get the cash in the game and invest tax-efficiently. "I fully understand the emotional benefit that having cash on hand can provide, but as a long-term investment strategy, sitting on cash isn't something I'd advocate," Mr. Tippetts-Aylmer says. "Generations of investors have tried to predict what markets will do, but the reality is that timing the market has historically been an incredibly difficult thing to get right on a consistent basis. For this reason, I wouldn't try to, and therefore I wouldn't sit on cash for an extended period of time."

He suggests Janet gradually deploy most of the existing cash into the actively managed portfolio and continue to add to the portfolio via monthly deposits. "In addition, I would look to use some tax-efficient strategies to help enhance the after-tax returns. A total of $51,000 could be immediately moved from the non-registered accounts, where growth and income is taxable, and placed in his and her TFSAs, where growth and income are not taxed, with $11,000 flowing into the TFSAs each year for the foreseeable future. I would also suggest that Janet assess whether it would be tax advantageous to use currently non-registered funds to soak up any unused RRSP room."

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