It’s been a while since we’ve heard from Bruce. Our favourite software engineer from the North Shore has been busy with work, family and, well, life. He admits that he and his wife Courtney have neglected contributing to their retirement accounts lately, but they’re ready to get back on track. They each added $20,000 to their RSPs just before the deadline this year.

Neither Bruce nor Courtney contributed to their accounts in 2016 or 2017, and they haven’t made any adjustments since. Because of the strong returns from our equity funds over the past few years, and the more restrained return from our Income Fund, their portfolio’s asset mix had drifted off target.

The couple’s target fund mix and current mix (pre-contribution) were as follows:

The three equity funds made up 69% of their portfolio, which is 9% above their target weight, while the fixed income funds had slipped to 31%. This drift presented a great opportunity to rebalance.

We suggested the couple use their contributions ($40,000 in total) to bring the Income Fund closer to its target weight. They agreed this made sense, although Bruce was a little uncomfortable putting their whole contribution into the Income Fund, which we’re the first to admit has a subdued return outlook in this environment of low, and possibly rising, interest rates (remember, when interest rates rise, bond prices fall). We reminded Bruce why he holds bonds in the first place – ballast – and repeated our favourite maxim on diversification: You're not properly diversified if you're comfortable with everything you own. “Well played,” he conceded.

We also revisited their target mix. Bruce and Courtney initially allocated 10% of their portfolio to the Savings Fund in part because they wanted some extra liquidity in the event they decide to purchase a vacation property. B&C did just that a few years ago. They don’t foresee any significant short- to medium-term expenses now that couldn’t be covered from their income, so we suggested they reduce their target position in the Savings Fund and up their weighting in the Income Fund. Again, they felt this made sense and altered their targets to 5% in the Savings Fund and 35% in the Income Fund (their equity fund targets remain unchanged). To get to their new targets, they switched some additional money out of the Global Fund and Equity Fund into the Income Fund.

It’s hard to believe, but Bruce and Courtney have been clients for over seven years now. What Bruce finds harder to believe is that he’s turning the big five-0 later this year. When we asked him if he has any plans for the big date, he told us he’s going to see Springsteen in New York this summer, a life-long dream. We couldn’t let him go without letting him in on a little Steadyhand nugget – we almost named the firm Springsteen, Harris and Williams after Tom Bradley’s favourite musicians (Bruce, Emmylou and Lucinda, respectively). “How didn’t I find you guys sooner,” he added.

by Scott Ronalds

When we last checked in with Emmylou around this time last year, she was on the verge of making a big life change – transitioning to part-time work in a new field. Well, she officially turned in her Louboutins for Lululemons and is crushing it as a part-time yoga instructor.

The move came with a lot of anxiety and some second guessing. Emmylou figured she’d give it a year to assess the impact it would have on her life (financial and emotional). So here we are. Our favourite yogi recently checked in with us and as expected, the biggest change she’s had to adjust to has been a drop in her income. But she’s loving life and is making it work financially. Emmylou hasn’t had to draw on her emergency fund or Steadyhand portfolio yet. She figures she’ll be in good shape for another year, but may want to cut back on her classes and establish a small withdrawal program at that time, probably $1,000 a month.

We briefly discussed a strategy whereby she could set aside a year’s worth of withdrawals ($12,000) in the Savings Fund and then redeem the money on a monthly basis, essentially providing her with another paycheque. This would shelter the money from market volatility, but still earn some interest. She liked the idea and will re-consider it prior to when the time comes.

As for her investments with us, Emmylou holds the Founders Fund across all her accounts. Her portfolio grew by 11% over the past 12 months (ending February 28th) and has grown to just under $685,000 over the past 5 years (she started with $395,000 in 2012 and has added $100,000 in net contributions along the way). The Founders Fund has produced an annualized return of 8.0% over the past five years. Emmylou’s return has been higher because of her fee discount. We walked her through her performance using her statement as the template.

We also let Emmylou know that she has another reason to celebrate – she’s now a member of the 5-Year Club. This means her all-in fee just dropped by 7%, from 0.99% to 0.92%.

We counseled Emmylou that returns may not be as good over the next five years, as the markets have had a good run and are probably due to cool off at some point. This isn’t to say that she should expect poor returns, but rather she should keep her expectations in check and be prepared for some bumps.

In wrapping up our review, Emmylou let us know that she’s really starting to embrace the whole concept of long-term investing. She expressed it best when we asked her if she felt the need to make any changes to her portfolio: “N’amastay with my plan.”

Management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. The indicated rates of return are the historical annual total returns including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns.

By Scott Ronalds

We first met Emmylou four years ago. She’s been a joy to deal with ever since. Must have something to do with the fact she’s from Winnipeg.

In our initial conversation, Emmylou laid out her two key financial goals that she wanted to reach by the time she turned 65: (1) pay off her mortgage and line of credit, and (2) grow her portfolio to $750K. She also mentioned that she wanted to transition to part-time work 4-5 years down the road.

Well, here we are. Emmylou is 61 now and eager to turn in the blazers and high heels for luon and Nikes. She feels it’s the right time to step down as a pharmaceutical sales rep and step up as a part-time yoga instructor. Her friend owns a studio and has been looking for help, so the timing is ideal.

As for her financial goals, Emmylou has checked off the first box. Recall that she paid off her mortgage and line of credit in late 2014. Her portfolio hasn’t grown to her target level yet, but she’s got another four years to hit it and is on track.

Because Emmylou had no debt to pay down last year, she managed to save a lot more and was able to invest $20,000 in her RSP and $10,000 in her TFSA. Her portfolio with Steadyhand has grown from $395,000 at the end of February 2012, to just over $615,000 at the end of last month. As a reminder, she holds the Founders Fund across all her accounts, which provided a return over the four year period of 7.3% per year (note: her personal return, also known as ‘money-weighted’ return, was slightly lower, at 6.8%, because of the timing of her contributions and withdrawals. For an explanation of money-weighted returns, click here.)

For her portfolio to grow to $750,000 in four years, she’ll need to achieve a return of about 5% a year, assuming she doesn’t make any further contributions. There are no guarantees, of course, but this is a reasonable expectation.

While Emmylou is looking forward to the transition, she’s also feeling some anxiety. This is understandable and common, as she’s making a major change in her life. A big contributing factor to her uneasiness is that her income will be cut back pretty significantly.

Emmylou doesn’t want to start tapping into her investments yet and wants to hold off on taking CPP until she’s 65 (in order to get a larger payment). Instead, she’s going to try living off her lower salary, supplemented by a modest pension she earned from her days as a nurse that she’s going to start taking. Since she doesn’t have any debt payments and will be able to cut back on some expenses related to her old job (e.g. business clothing, transportation, etc.), she figures she’ll be fine. She’ll give it a year and then re-assess. Plus, she has a healthy emergency fund from an inheritance if needed.

Given the major life change she’s making, Emmylou is wondering whether she should be making any adjustments to her portfolio. It’s a great question. Here’s how we look at it. Emmylou is still young, healthy and should plan on living another 30-35 years. She’s going to need, and want, reasonable growth from her investments to fund her retirement when she fully stops working. We feel that her strategic asset mix (60% stocks, 40% fixed income) still makes good sense for her situation.

Emmylou doesn’t plan on drawing from her portfolio for at least another year, and potentially won’t start for another five years. When the time comes, we’ll discuss a withdrawal strategy with her.

The first year of her transition to part-time work in a new field is sure to come with some nerves, learning, questions and adventure. It’s right up Emmylou’s alley.

If you’re in a situation similar to Emmylou, you might find the following resources helpful:

• MoneyCoaches Canada (fee-for-service financial planners with expertise in various fields including retirement planning and budgeting).
  
• Jim Yih’s retirehappy (a website with lots of resources on retirement).
  
• Pop some corn and order up a movie like The Intern, The Best Exotic Marigold Hotel, or one of the Wall Street Journal’s 10 best retirement films.

Management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. The indicated rates of return are the historical annual total returns including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns.

By Scott Ronalds

Heavy rain, trade rumours around the Canucks and RRSP ads everywhere. It’s February in Vancouver. And it’s the time of year when Bruce checks in with us to review his portfolio and make his annual RRSP contribution. (We’ve been encouraging him to set up a monthly contribution plan to avoid the scramble of finding the money for a large lump sum purchase, but that’s another matter.)

Bruce and his wife Courtney each plan to contribute $14,000 to their RRSPs this year. They’re not sure what to make of the headlines they’ve been reading about the markets, and heard that we’ve got a new inventory of running shirts and toques, so they made an appointment to come to World Headquarters for some advice and swag.

We reviewed their performance, asset mix, and fees (using the Q4 account statement as a guide). The key takeaways were:

• Their portfolio was up 6% last year. While it was a nice return in absolute terms, their portfolio didn’t keep pace with the broader markets because the Small-Cap Fund and Global Equity Fund both had tough years. The areas of strength in their portfolio were North American stocks (Equity Fund) and bonds (Income Fund).
  
• They’ve now been clients for four years, and their portfolio has done well (returning close to 10% per year). The equity funds have been the main drivers of performance – with each fund carrying the load at different times – but the Income Fund has also done well.
  
• Their portfolio with Steadyhand is invested in the Savings Fund (7%), Income Fund (28%), Equity Fund (28%), Global Equity Fund (26%) and Small-Cap Equity fund (11%). Their resulting asset mix is 69% stocks (30% Canadian; 39% foreign) and 31% fixed income (11% cash; 20% bonds). Their strategic asset mix (SAM) calls for 65-70% stocks and 30-35% fixed income.
  
• Their all-in fee is under 1.10% (after rebates).

As for their personal situation, not much has changed. Bruce still enjoys his job and makes a good salary as a software engineer, and Courtney is now working full-time in a marketing role. They’re looking forward to Spring Break with the kids at their townhouse in Palm Springs, and are considering some minor renovations to their North Vancouver home in the fall.

Turning to their contribution, we encouraged Bruce and Courtney to stick to their SAM – which should come as no surprise.

We explained to the couple that we still believe stocks will provide the best returns over the next five years, but because of stretched valuations, recommended their equity weighting be no higher than their long-term target. As for fixed income, bonds had a very strong year in 2014, which makes them even more expensive (read more on our views here). We recommended, therefore, that they keep their bond holdings below their long-term target and continue to hold a cash reserve in lieu.

Bruce and Courtney agreed that it makes good sense to stay on track with their SAM. They are comfortable with their equity weighting remaining closer to the higher end of their target. Bruce has a particular liking for the Small-Cap Fund and feels it’s a good time to add to it when it’s down. We factored this into our analysis, and recommended that they allocate their contribution as follows:

• $5,000 Savings Fund
  
• $8,000 Income Fund
  
• $5,000 Global Equity Fund
  
• $10,000 Small-Cap Equity Fund

This keeps their SAM in line and brings their fund weightings closer to their original allocation. Their stock weighting will remain slightly below 70%, and their cash reserve in place.

Bruce and Courtney left the office feeling good about their portfolio, and looking good in their new toques. Although they conceded that an umbrella would be more appropriate for their local ski hill. Damn pineapple express.

More on Bruce:
Meet Bruce
Trimming Bonds with Bruce
RRSP & TFSA Contributions 2012
California Dreaming
RRSP Time 2013
Lucky Dice
RRSP Contribution 2014

Management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. The indicated rates of return are the historical annual total returns including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns.

By Scott Ronalds

The last time we checked in with Emmylou (November 2013) we stressed that she needs to maintain realistic return expectations – her portfolio isn’t going to provide a double-digit return every year. She’s up 10% over the past 12 months (as of the end of October). Oops!

We spoke with Emmylou last week and reinforced that our message hasn’t changed. The markets have had a good run, despite the recent turbulence, and both stock and bond valuations aren’t as compelling (bonds in particular). That’s not to say the good times can’t continue, but we’d rather be positioned for a weaker market. We explained to her how our cautious stance is reflected in the positioning of the Founders Fund – less stocks, less bonds and more cash than normal.

The numbers, however, weren’t the reason for Emmylou’s call. Her father passed away in the summer and she received an inheritance of $190,000. She has mixed feelings about what to do with the money and wanted to use us as a sounding board.

Emmylou’s dad lived a modest lifestyle and saved diligently, and she wants to make sure she does the right thing with his hard-earned money. She’s worried that now might not be a good time to invest a good chunk of money in the market. She also wants to pay off debt and give some money to her daughter.

Her thinking is as follows:

• Pay off all her debt, which is $55,000 in total ($40,000 on her mortgage and $15,000 on her line of credit). This is one of her key financial goals.
  
• Give $25,000 to her daughter (to help her buy a home in Toronto).
  
• Invest the balance ($110,000).

She feels strongly about paying off her debt, even though interest rates are extremely low and her servicing costs are manageable. And she noted that the gift to her daughter would make her feel better than anything she could buy for herself. We suggested that there’s nothing wrong with her reasoning and she should go ahead with both.

The bigger issue is what to do with the remaining $110,000. Emmylou doesn’t have any big expenses coming up and doesn’t foresee any short-term needs for the money. She still earns a good salary and enjoys her job. Emmylou has $40,000 in RSP contribution room and $11,000 in TFSA room. Her preference is to max out both accounts.

We advised Emmylou that maxing out her TFSA is a no-brainer. She views the account as part of her long-term investment plan and we recommended she should invest the $11,000 according to her Strategic Asset Mix (accomplished through the Founders Fund). We also suggested that maxing out her RSP is prudent, as she’s still in a high tax bracket and will receive a nice tax refund. Again, there’s no reason to veer from her mix as this is long-term money. She agreed that this made sense and invested the money in the Founders Fund in both accounts.

As for the balance ($59,000), Emmylou has mixed feelings. Although she views it as long-term money, she feels differently about it because it won’t be part of her registered plans, and she’s a little hesitant to put it to work in the markets given our cautious outlook and the recent volatility. She’s wondering if she should sit in cash and wait for a better entry point.

We explained that the danger of this is nobody knows what the markets are going to do in the short term, and trying to time an entry point will be difficult and stressful. She could end up sitting on the sidelines for a prolonged period and miss out on further gains. We also noted that one of the reasons the Founders Fund is holding a fair amount of cash (15%) is to have some “dry powder” available if we (and our managers) see an opportunity.

We emphasized that new money doesn’t require a new plan, as long as nothing has changed with her investment objectives or time horizon. We recommended, therefore, that she invest the money in the Founders Fund. We suggested, however, that she wait until after the year-end fund distributions are paid in mid-December so that she doesn’t receive the distribution and its related tax implications on the new money being invested. We suggested she invest the money in the Savings Fund now (to earn some interest in the interim) and switch it into the Founders Fund after the distribution is paid.

Emmylou appreciated the sounding board. She decided to hold back $15,000 to pad her emergency fund, and invested $44,000 in the Savings Fund (in her investment account) with the intention to move it into the Founders Fund after the distribution is paid.

Management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. The indicated rates of return are the historical annual compounded total returns including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns.

By Scott Ronalds

The banks are running lots of cute, reassuring ads these days. To Bruce, they’re as painful to watch as his sinking Canucks. But they’re a reminder to him that it’s RRSP season.

Bruce contributed $6,500 to his account back in June and plans to add another $10,000 this week. His wife Courtney also intends to contribute $10,000. With the strong run in the markets last year, they’re not sure where to invest the money, so they stopped by the office for some advice.

(Note: if you’ve followed Bruce and Courtney’s history with us, their portfolio returned roughly 19% last year and has grown to approx. $485,000 since they signed up with us three years ago.)

We reviewed their portfolio and noted that their equity holdings had drifted higher as a proportion of their overall asset mix and their fixed income holdings lower (a lot of investors are in a similar situation, as stocks had a stellar year while the bond market turned in a negative return). The couple’s asset mix at the end of 2013 – as shown on the second page of their statement – was roughly 28% fixed income (11% cash; 17% bonds) and 72% stocks (29% Canadian; 43% foreign). Their strategic asset mix (SAM) calls for 65-70% stocks and 30-35% fixed income

We are still of the view that stocks will provide the best returns over the next five years (read more on our Current Thinking here), but valuations are testing the upper end of their normal range and we’re recommending that clients hold no more stocks than their long-term target calls for.

We did some calculations and determined that by allocating their contributions to the Income Fund, the couple’s asset mix will adjust to 70% stocks and 30% fixed income. Our advice, therefore, was to invest their full contribution ($20,000) in the Income Fund. Bruce wasn’t thrilled with this recommendation, given the fund’s modest return last year and our tempered outlook for bonds, but we held firm that this was the best course of action in order to bring their asset mix more in line with their SAM.

Bruce eventually came around (with a push from Courtney) and intends to invest the money in the Income Fund. He even left the office with a warm and fuzzy feeling. Probably had something to do with the headwear he left with.

Management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. The indicated rates of return are the historical annual compounded total returns including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns.

We last heard from Emmylou around this time last year, when she needed to set aside some money for a ‘sabbatical’ to Europe. She spent the summer exploring and had a rich experience on the continent. She recently checked in on her Steadyhand portfolio and feels richer still – she holds the Founders Fund across all her accounts, which was up 15.9% over the past 12 months (ending October 31st).

Emmylou arranged a call with us earlier this week for a portfolio review. Because she has been a Steadyhand client for less than two years, her performance is still very short term, and we cautioned that she shouldn’t read too much into the numbers.

We discussed the areas of strength over the past year, namely global equities. The Founders Fund has had a bias towards foreign stocks through its holdings in the Global Equity Fund and Equity Fund, which has been a key factor in its performance. The fund’s fixed income component (Income Fund) has provided more modest returns, as interest rates have edged upwards (which has pushed bond prices down).

While pleased with her performance, Emmylou asked how her portfolio has done relative to the markets in general. We provided her with some index returns, and she was able to quickly see that she’s well ahead of a benchmark based on her asset mix.

With performance covered, we turned to the other three P’s: people, philosophy and process. In terms of people, we noted that there haven’t been any notable personnel changes at our fund managers or Steadyhand (notwithstanding the additions of Jennifer and Cheryl to the team). Further, our philosophy and process hasn’t veered, nor has that of our managers. We’re still undexers to the core.

Emmylou questioned whether she should be making any adjustments to her portfolio in light of its strong performance. We reminded her that one of the benefits of the Founders Fund is that we make adjustments to the fund’s asset mix based on our views on market valuations and sentiment. On this note, we explained some of the recent changes to the portfolio: we’ve brought down the weighting in stocks modestly, and edged up the weighting in bonds, while still maintaining a healthy cash reserve. We encouraged Emmylou to read our recent blog, A Lot Has Gone On, which highlights these adjustments in greater detail.

When we asked her if there have been any changes in her personal situation, she happily informed us that she has a new man in her life (sorry Mr. Brunner*). Her job and income are stable and she doesn’t foresee any need to tap into her portfolio over the next several years.

We advised Emmylou that her portfolio remains well positioned for her circumstances and objectives, and she doesn’t need to take any actions. We stressed, however, that she needs to maintain realistic return expectations going forward. Indeed, her portfolio is not going to provide a double-digit return every year. She should be thinking more in the neighbourhood of 4-6%.

Lastly, we encouraged her to come out to our annual client presentation in the Peg in late January (the 27th). She said she’ll be there, as long as the Jets aren’t playing. Priorities.

Management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. The indicated rates of return are the historical annual compounded total returns including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns.

By Scott Ronalds

Along with his Steadyhand assets, Bruce has an RESP and small Investment Account with a discount broker. He takes an aggressive approach with the latter by holding a few small technology companies (recall that he works in the industry), knowing that it’s a minor part of his portfolio and he can afford to take a few flyers. Bruce likes to roll the dice in this account, well aware that they could come up craps more often than not.

One of his bets recently paid off, however. Bruce invested $8,000 (US) in early 2009 in a Nasdaq-listed company (Perion Network) that develops software applications for email and photo sharing. The stock has had some ups and downs since Bruce’s purchase, but tripled in value over the past year and his initial investment had grown to over $45,000. Last month he decided it was time to sell.

After setting aside some of the proceeds to pay taxes on the capital gain, Bruce was left with roughly $40,000, begging the question of what to do with the money. With the little angel on his left shoulder whispering “Pay down the line of credit or invest in the RSP” and the little devil on his right shoulder whispering “Time for a Porsche”, he visited our office to bounce some ideas off us.

It didn’t help that he was gazing across the street at the Porsche dealership while sitting in our boardroom, but Bruce realized that this option wasn’t very practical given his personal and financial situation (he has a young family and a line of credit used to finance a vacation home). When we probed him on his financial goals, he essentially answered his own question. He decided to use half the money ($20,000) to pay down his line of credit, invest another $12,000 in his registered plans (TFSA - $5,500; RSP - $6,500), and keep the original $8,000 in his discount brokerage account for a shot at the next Perion. We concurred with this combination of debt management and long-term investment.

As for the $12,000 he directed to Steadyhand, we recommended that he invest it in fixed income to keep on track with his Strategic Asset Mix (SAM). Bruce was a little puzzled by this, as he’s read about our tempered return expectations for bonds and yields on cash-like investments are extremely low. His SAM, however, calls for 30-35% fixed income and 65-70% equities. Because of strong returns in our equity funds over the past year (notably the Global Fund), he’s below the low end of his fixed income range. Since our current thinking calls for a cash reserve of 10-15% (in lieu of a full allocation to bonds), we recommended that he invest the money in the Savings Fund.

Bruce saw the reasoning in our advice and went ahead with purchasing the Savings Fund. It brought his overall fund mix and resulting asset mix to:

He’s off now for an extended Canada Day long weekend camping with the family. If only he had a Cayenne to get them there.

By Scott Ronalds

It’s that time of year: holiday bills, new diets, bleak weather, and RRSP contributions. Not exactly exciting stuff. Bruce is a little more jazzed than many investors though. He reviewed his account statement last week and found that his portfolio at Steadyhand was up nearly 12% last year (since starting with us two years ago, his portfolio has gained approx. 6.5% per year).

“Grinning ear to ear”, he noted in an email to us. While we love his enthusiasm, we reminded him that he shouldn’t get too excited over one good year. He needs to stay on track with his savings and investment plan and be prepared for some more inevitable bumps down the road. We also reiterated our cautious views on the bond market and stressed that the Small-Cap Fund isn’t going to return 17% every year. Probably not what he wanted to hear, but again, it’s that time of year.

Bruce and his wife Courtney plan to contribute $20,000 to their RRSPs this week ($12,000 Bruce; $8,000 Courtney) and they asked us for our advice. We reviewed their fund mix and noted that while their portfolio is still in-line with their strategic asset mix (SAM), there are a few minor adjustments they could make. Strong performance from the Equity Fund has meant that it has crept higher in their mix, and their weighting in fixed income has declined modestly (due in part to a redemption from the Savings Fund last year). They can use the contributions to bring their mix closer to its target.

Bruce has a few biases that he wanted us to consider in our recommendation: (1) He’s wary of bonds, (2) he’s been disappointed with the Global Fund, and (3) he loves the Small-Cap Fund. We took this into consideration, while also stressing the importance of diversification.

We felt it would be appropriate to hold some more cash (Savings Fund) in lieu of bonds (Income Fund), but also recommended that the couple not shy away from global stocks. We suggested they allocate their contributions as follows:

$6,000 – Savings Fund
$4,000 – Income Fund
$6,000 – Global Equity Fund
$4,000 – Small-Cap Equity Fund

This would bring their fund mix to:

Savings Fund: 7%
Income Fund: 29%
Equity Fund: 26%
Global Equity Fund: 25%
Small-Cap Equity Fund: 13%

Bruce and Courtney agreed with our recommendation (even the Global Fund, reluctantly) and plan to make their contribution later this week. They’re also looking forward to our upcoming client presentation on February 6th. Bruce, in particular, hopes to score some more Steadyhand swag this year.

More on Bruce:
Meet Bruce
Trimming Bonds with Bruce
RRSP & TFSA Contributions 2012
California Dreaming

Management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. The indicated rates of return are the historical annual compounded total returns including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns.

By Scott Ronalds

We introduced Emmylou back in March. As a reminder, she’s a fifty-something Winnipegger with a love for yoga, travel and the occasional pale ale.

Emmylou has been a Steadyhand client for eight months now. She holds the Founders Fund across her three accounts (RRSP, Tax-Free Savings Account and Investment Account) and her portfolio has gained about 3.5% since she signed on at the end of February.

With autumn briskly announcing itself in the Peg, Emmylou recently got more serious about planning a long desired excursion to Europe next spring/summer (a trip she thought would wait until retirement). She spoke with her boss and cleared three months for an unpaid ‘sabbatical’. Emmylou has a keen interest in history and has been researching archaeological projects that are looking for volunteers. She’s found sites in Scotland, Spain and Greece that have piqued her interest. Although she hasn’t finalized any details yet, she plans to volunteer at two digs and spend the rest of her time exploring Europe (making her own history).

It all sounds great, except the cost. Emmylou figures the trip will set her back roughly $25,000. She invests most of her savings so will need to tap into her investments to fund the adventure. Two questions jumped to mind: (1) When to redeem the funds? (now, or right before she leaves?) and (2) Which account to redeem from? (Investment Account or TFSA?) She called us for advice.

We recommended that Emmylou set aside the funds now, rather than wait until next spring or when the bills come due, to avoid selling at a potentially inopportune time. We suggested that she switch $25,000 from the Founders Fund (her only holding) to the Savings Fund, and redeem the money from the Savings Fund when required next year. This way, she will still earn some interest on the money (albeit modest) and it will not be exposed to market fluctuations. We noted that Emmylou may earn a slightly higher rate of interest if she were to redeem $25,000 and invest it in a high interest savings account at an online bank (e.g. ING or Ally). She prefers the simplicity, however, of holding all her investments at one firm.

As for which account to redeem from, we recommended she withdraw from her Investment Account rather than her TFSA, as it’s a less tax efficient account and she should aim to keep the maximum amount possible invested in her TFSA. Further, she has a healthy balance in her Investment Account. The redemption will trigger a small capital gain, which prompted Emmylou to question whether it makes more sense to redeem the money from her TFSA. If she did this, her intention would be to replenish her TFSA next year with funds from her Investment Account. We noted that she could trigger a potentially larger capital gain at that point, and a wise option is to therefore redeem from the Investment Account and keep the tax-free account (TFSA) fully invested.

Emmylou digged the advice and is now busy brushing up on her Spanish.

Management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

By Scott Ronalds

It’s been a few months since we last checked in with Bruce. Things are good on the work and home fronts, and his portfolio is holding steady in a bumpy market (as of June 30th, he’s up about 3.5% year-to-date).

The family took a two week holiday to California in the spring, which included stops at Disneyland for the kids and a few wineries in Santa Barbara for the adults, before settling in Palm Springs. The sun and cheap merlot had a lasting impact. Bruce has long wanted a vacation home and stepped up his search after getting back from holiday. The relentless rain in Vancouver was a trigger. He flew back down to Palm Springs with his wife last month to look at a few properties and is now in the process of closing on a 2 bedroom townhouse for a price of $225,000. It gives him comfort that the same home sold for close to $400,000 in 2006.

Bruce carefully considered a few issues before deciding to buy in the U.S.:

• Taxes (if he rents the property, he will have to claim the income and file a return with the IRS. He will also have to pay taxes on any capital gains that may be realized when the property is sold).
  
• Financing.
  
• Ongoing costs (monthly maintenance fees, property tax, improvements, etc.).

Wisely, he consulted with a tax lawyer in Canada to get a full understanding of the responsibilities and liabilities of owning a home in the U.S. Bruce also quickly learned that he couldn’t obtain a mortgage from a Canadian lender to buy the property, and would require a 30% down payment to secure a mortgage with a U.S. bank. His other option was to pay cash for the property by selling some of his investments (he has been holding some cash for this purpose) and using a line of credit in Canada. He opted for this option, as the complexity and exchange rate risk (monthly payments in U.S. dollars for 20-30 years) of a U.S. mortgage was a deterrent.

Bruce decided to redeem $50,000 from his investment portfolio ($30,000 from his Steadyhand account and $20,000 from his discount brokerage account) and use a home equity line of credit on his home in North Vancouver to come up with the proceeds for the purchase. He made this decision, rather than liquidating all his non-registered investments, because he wants to keep money in the market as he feels there is good upside potential over the next several years.

He obtained a $200,000 line of credit at a current rate of 3.5% (prime plus 0.5%). Bruce realizes the leverage and interest rate risks of his situation: if rates rise, his monthly payments will rise. Further, there’s the possibility that the value of his home in North Vancouver could fall, thereby reducing the equity against which his line of credit is secured. The California property could also fall in value. He knows the risks and is comfortable with his situation.

Bruce’s $30,000 redemption presented an opportunity to rebalance his portfolio. Strong performance from the Small-Cap Fund and a weak stretch from the Global Fund meant that his asset mix had drifted modestly. To re-align his portfolio closer to its strategic target, he took the redemption from the Savings Fund and Small-Cap Fund, and made a few other minor switches including adding to the Global Fund. His fund mix is now as follows:

Savings Fund – 6%
Income Fund – 30%
Equity Fund – 27%
Global Equity Fund – 24%
Small-Cap Equity Fund – 13%

By Scott Ronalds

Emmylou is a typical Steadyhand client (notwithstanding her mono-tooth). Like Bruce, we’ll follow her investing journey and provide periodic updates on the decisions and challenges she faces.

Profile

Age: 57
Status: Divorced
Children: 1
Occupation: Pharmaceutical Sales Rep
Residence: Winnipeg
Likes: Cross-country skiing, yoga, Tom Petty, Guinness, travel, The Amazing Race
Dislikes: Asparagus, lyrics to ‘American Woman’, January, Dancing with the Stars
Steadyhand Client Since: February 2012
Investments:

• RRSP: $225,000
  
• TFSA: $20,000
  
• Non-registered: $150,000

Emmylou is 57 years old and divorced. She’s been down the road with a couple of potential partners since splitting with her husband 10 years ago, but is not seeing anyone at the moment. She has one daughter, Stacey, who is a 30 year old teacher in Toronto. Emmylou received her nursing degree from the University of Manitoba and was a nurse in Winnipeg and Calgary for 18 years. In her mid-forties, she moved back to Winnipeg and took a job as a sales representative with a large pharmaceutical company. Her dirty little secrets: Despite growing up in the ‘Peg’, she never liked The Guess Who; she religiously watches Curb Your Enthusiasm; and she prefers beer over wine.

Emmylou’s sales career has gone well and she’s able to live comfortably, pay the mortgage, max out on her RRSP contributions, visit her daughter regularly and fund her taste for travel. She owns a townhouse valued at $350,000. As for debt, she has a mortgage of $60,000 and a line-of-credit with a balance of $20,000 (used for home renovations).

Background

Emmylou held all her investments with one of the big banks prior to moving her accounts to Steadyhand this winter. She discovered the company through her son-in-law Paul, a lawyer in Toronto who has an RRSP with Steadyhand. Paul had often heard Emmylou grumble about her lack of understanding about how she’s doing and what she’s paying, so he suggested she contact Steadyhand for a portfolio review.

After spending some time on steadyhand.com and learning about the firm’s approach, she got in touch with us. We reviewed her portfolio and probed her on her investment objectives and risk tolerance. We suggested that while her asset mix was suitable, she should consider consolidating her investments to avoid over-diversification and unnecessary complexity. We also noted that she could reduce her fees. The simplicity aspect of Steadyhand particularly resonated with Emmylou.

Financial Goals

Emmylou enjoys her work, but would like to slow down in 4-5 years. Rather than retiring, however, she would like to work part-time if possible. She has some key financial goals that she would like to achieve by her 65th birthday:

1. Pay off her mortgage and credit line.
2. Grow her portfolio to the $750,000 mark (not including her townhouse).

Aside from the above, Emmylou has a keen interest in history and would like to spend some time exploring Europe and take part in an archaeological dig. She would also like to volunteer at future Olympic Games, after taking in the Vancouver Olympics with a friend.

Portfolio

Emmylou has a pension from her earlier career as a nurse. It will pay her roughly $1,200 per month (indexed to inflation). This source of retirement income, combined with the Canada Pension Plan payments, allows her to be a little more aggressive with her investments. In reviewing her portfolio, Emmylou also contemplated what other factors should impact her decisions: age (at 57 and in good health, she figures she has an investment time horizon of 30-35 years); potential inheritance (not counting on anything substantial); and children (her daughter is financially independent).

She is not comfortable taking on too much equity risk, however, so she decided on a strategic asset mix, in consultation with us, of 55-60% equities / 40-45% fixed income.

Emmlou is a perfect fit for the Founders Fund. It has an investment objective that lines up closely with hers, and she’ll get Tom Bradley’s oversight on asset mix and rebalancing. The current breakdown of the fund is (as of February 29th):

Savings Fund – 5%
Income Fund – 44%
Equity Fund – 24%
Global Equity Fund – 22%
Small-Cap Equity Fund – 5%

The resulting asset mix is roughly 30% bonds, 33% foreign equities, 27% Canadian equities and 10% cash. Emmylou will hold the Founders Fund in each of her accounts. We presented her with an option in which she would hold the underlying funds instead of the Founders Fund in order to structure her accounts in a slightly more tax efficient manner (i.e., the Income Fund would be held in her RRSP), but she opted for the benefits of Tom’s oversight and the simplicity of holding just one fund across all her accounts.

Her investments with Steadyhand totaled just under $400,000 at the end of February. At this level of assets, Emmylou’s annual all-in fee is roughly 1.09%.

We'll keep you posted on Emmylou's investing decisions as life plays out.

We last spoke with Bruce in September, when he acted on our counsel to trim his weighting in bonds and add to equities.

Bruce and Courtney’s portfolio rose roughly 2% in 2011 (its aggregate value at year-end was approx. $346,500). While Bruce isn’t popping any champagne, he realizes that their portfolio fared quite well considering its bias towards equities (which had a weak year).

At the end of December, their asset mix was:

Savings Fund – 10%
Income Fund – 26%
Equity Fund – 26%
Global Equity Fund – 22%
Small-Cap Equity Fund – 16%

The couple contributed $10,000 each to their RSP accounts this week. They want to keep on track with their strategic asset mix (SAM), so they didn’t add anything to the Small-Cap Fund (which had drifted higher, from 12% to 16% of their portfolio). They each invested $5,000 in the Equity Fund, $2,500 in the Global Equity Fund and $2,500 in the Income Fund. They had a tough time adding to the Global Fund given the mess in Europe, but they realize its place in their portfolio. They also understand that valuations for global stocks look attractive.

Bruce and his wife also contributed $10,000 each to their Tax-free Savings Accounts (TFSAs). They didn’t get around to adding to their TFSAs in 2011, so they had extra contribution room this year (reminder: you can contribute $5,000 per year to a TFSA. Unused contribution room carries forward). They used the Savings Fund in their joint investment account as the source of funds for the contributions.

The contributions slightly increased the Equity Fund’s overall weight in their portfolio to 27%, while the weight of the Small-Cap Fund was reduced to 15%. Bruce and Courtney’s bond weighting remains at the low end of their SAM range, following our advice that stocks currently represent better value. The couple continues to hold roughly 10% of their portfolio in the Savings Fund. As a reminder, the purpose of this cash is two-fold: 1) as a source of funds for a vacation property; and 2) as a source of dry powder if the market experiences a notable decline.

With their investments front of mind, Bruce and Courtney took care of one last piece of housekeeping – they RSVP’d for our Annual Client Presentation. They’re interested in hearing Steadyhand’s assessment of the markets. And they really like our cookies.

Last month we introduced Bruce, a forty-something investor with a balanced portfolio (tilted towards equities).

Bruce spent the last three weeks of August on vacation and tuned out the noise in the markets as best he could. The single malt helped. While catching up on his reading this week, however, he came across two pieces by Tom which encouraged him to make an adjustment to his portfolio (What Now? Part II and When Fear Rules the Market, it’s Time to Say ‘Buy’).

Upon reflection, he decided to reduce his position in the Income Fund by 5% (of his overall portfolio’s value) and invest the proceeds in our equity funds.

Recall that Bruce’s portfolio at the beginning of the year was broken down as follows:

• Savings Fund - 10%
  
• Income Fund - 30%
  
• Equity Fund - 24%
  
• Global Equity Fund - 24%
  
• Small-Cap Equity Fund - 12%

As at August 31st, his fund mix was:

• Savings Fund - 10.1%
  
• Income Fund – 31.4%
  
• Equity Fund – 24.0%
  
• Global Equity Fund - 21.9%
  
• Small-Cap Equity Fund - 12.6%

Even though his current mix hadn’t drifted significantly from his strategic asset mix (SAM), he felt it was a good time to take some profits out of bonds (Income Fund) and add to stocks. Sticking with our suggestion, he trimmed 5% from the Income Fund. Straying somewhat from our advice, however, he added 2.5% to the Equity Fund and 2.5% to the Small-Cap Fund. He understands the Global Fund’s role in his portfolio’s diversification, but has a sour taste for anything Europe and didn’t add to the fund.

With his portfolio now tended to, Bruce can focus his energy on finding an excuse to get out of the Keith Urban concert his wife’s trying to drag him to at the end of the month.

By Scott Ronalds

Meet Bruce. He shares several traits of investors who we deal with every day. In many ways, he is representative of a typical Steadyhand client. In this blog series, we’ll follow his investing journey and provide periodic updates on the decisions and challenges he faces.

Profile

Age: 42
Status: Married
Children: 2 (ages 8 and 10)
Occupation: Software Engineer
Residence: North Vancouver
Likes: The Boss, Running, Single Malt, Modern Family
Dislikes: Windows 7, Cucumbers, Sammy Hagar, Riesling
Steadyhand Client Since: December 2010
Investments:

• RRSP: $170,000 (Bruce); $100,000 (Courtney)
  
• TFSA: $12,500 (Bruce); $12,500 (Courtney)
  
• RESP: $20,000
  
• Non-registered: $75,000 (Joint)

Bruce is a married forty-something software engineer with two pre-teen kids. His wife, Courtney, works part-time in marketing and the couple makes a combined annual income of approx. $180,000. They own a house in North Vancouver worth roughly $750,000 (with a mortgage of $250,000). Bruce has been investing since the glory days of the early 1990s, but it was just over the past few years that he began to take greater interest in and control of his financial situation. The market downturn of 2008/09 was the catalyst.

Background

Bruce discovered Steadyhand through Tom Bradley’s column in the Globe and Mail. After following the company for a year or so, he and Courtney decided to transfer their RRSPs, TFSAs, and a portion of their non-registered investments to the firm in late 2010. They continue to hold an RESP and joint investment account at a discount broker (Bruce owns a few technology stocks that he follows closely).

The couple had dealt with an advisor at a brokerage firm for several years, but Bruce felt he wasn’t getting a lot of value from the relationship as he was paying for service that he wasn’t getting, he owned too many products, and transparency was lacking. He was tired of dancing in the dark. Bruce felt confident in his abilities to oversee his own portfolio and knew that Steadyhand could provide him with investment advice or at times act as a sounding board for his decisions.

Financial Goals

Bruce would like to retire in his early to mid-60s. Between now and then, he has some key financial goals. In order of importance, they are:

1. Put his kids through university (if they choose).
2. Purchase a recreational property (he has always wanted to own a cottage in the Okanagan, but has been increasingly looking at California and Arizona given their battered real estate markets and the strong Canadian dollar).
3. Grow his portfolio to the $1.5 million mark in today’s dollars (not including his house).

As for non-financial goals, Bruce would like to complete the New York Marathon. To Courtney’s dismay, he’s also expressed an interest in commercial space travel (Virgin Galactic), and would love to jam with the E Street band. As he often tells his wife, crazier things have happened.

Portfolio

Bruce and Courtney are comfortable taking some risk in their portfolio. They have an investment time horizon of 20+ years and do not anticipate any recurring income needs (from their portfolio) until they reach retirement. Their portfolio was hit hard during the market downturn of 2008/09 but they rode out the financial crisis without making any adverse knee-jerk investment decisions, and have since recouped their losses. That said, they aren’t comfortable with a 100% equity portfolio, as they have learned to appreciate the value of diversification in moderating volatility.

After consulting with us, they decided on a strategic asset mix range for their overall portfolio of 65-70% equities / 30-35% fixed income. Bruce has been discouraged by U.S. and overseas stocks and has developed a ‘home country bias’ due to the stronger returns that Canadian stocks have delivered over the past decade. We suggested that he shouldn’t ignore global equities, however, as they should be an important part of any balanced portfolio and currently offer compelling value. The couple took our advice and executed it as follows:

• Savings Fund – 10%
  
• Income Fund – 30%
  
• Equity Fund – 24%
  
• Global Equity Fund – 24%
  
• Small-Cap Equity Fund – 12%

This is a slight variation of our hypothetical Balanced Equity Portfolio (a position in the Savings Fund was added to the mix). The resulting asset mix is roughly 33% fixed income, 32% Canadian equities, and 35% foreign equities. For tax efficiency reasons, the Income Fund and Savings Fund are held in the registered accounts (RRSPs and TFSAs).

The cash position (Savings Fund) was recommended as a source of dry powder and liquidity in the event that: (1) bonds experience a rise in yields (and drop in prices) or stocks pull back following a period of strong gains; or (2) Bruce requires an early down payment for a vacation property.

The couple’s investments with Steadyhand totaled $340,000 at the beginning of the year ($270,000 RRSPs, $25,000 TFSAs, $45,000 joint investment account). At this level of household assets, their annual all-in fee is roughly 1.10%.

Bruce and Courtney have their financial house in good order. There are sure to be bumps in the road and decisions to make, however, as life plays out. We’ll keep you posted on their progress.