Cost Effective Portfolios


Cost effective portfolios outperform balanced mutual funds

Investors today have many choices to help save for future events.  Registered accounts provide the ability to save either on a tax-free (TFSA) or tax-deferred (RRSP, RRIF, RESP) basis.  Financial services providers are plentiful.  Banks and insurance companies are leaders in providing mutual funds while investment dealers and portfolio management companies offer a wide variety of investment products.

With all of this choice, you would believe that investors are getting services for the lowest costs possible yet that is not the case.  Canada is a world leader in charging excessive investment management fees with mutual funds management fees average 2.20% per year.

Our mantra is to put investors in control of their money.  We propose that investors spend a bit of time understanding their own risk profile and then adopt a passive investment management strategy, which mirrors their personal suitability.

We strongly believe that the younger you are, the more risk should be included in your portfolio as you are at the beginning of your earnings curve.  As you near your retirement age, moving to less volatile investments, which generate recurring cash flows, might prove to be more suitable.

We also believe that most investors with moderate or conservative risk profiles can have a well-diversified portfolio by investing in highly liquid and professionally managed exchange-traded funds (ETFs).

Our base portfolio consists of 5 ETFs, which trade on the Toronto Stock Exchange.  Our components are a fixed income ETF (TSX:XBB), a real estate investment trust ETF (TSX:XRE), a Canadian equity  ETF (TSX:XIU), a US Equity ETF (TSX:XSP) and an international equity ETF (TSX:XIN).  All of these ETFs are highly liquid, marginable and trade in Canadian dollars.  The ETFs holding foreign equities are hedged by the ETF portfolio manager, which eliminated the foreign exchange risk.

By altering the weights invested in each ETF, we can structure a portfolio, which tracks the market for all risk profiles.  The more conservative investors will have higher fixed income holdings and less or no international equities.  Moderate risk takers will have a diversified equity portfolio and exposure to the real estate market. More aggressive investors can minimize their Fixed Income holdings to gain more potential upside from equity markets.

The cost of establishing these portfolios is minimal and can be executed through an on-line broker or through an IIROC-registered firm like M Partners Inc.   Using an IIROC firm provides daily monitoring of your account and access to additional investment ideas and strategies.

For more information, please contact us at 647-409-4088 or email at marc.bouchard@haworthpartners.com.