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| Adrian Mastracci, president of KCM Wealth
Management says, "I'm a growth kind of investor. I simply
choose to put my conservative side in the RRSP." |
By CAROLINE ALPHONSO
INVESTMENT REPORTER
The Globe and Mail
Thursday, February 14, 2002
As you figure out what to do with your RRSP, you might learn some
lessons from how experts handle their own.
With markets still moving every which way, you can bet that many
investors are unsure about what to do with their registered retirement
savings plan this year.
So who better to take a page from than the pros?
We turned to several experts to find out how they are handling
their own RRSPs. One common thread that runs through them all: their
RRSP is only one part of an overall strategy to finance their retirement
years.
Another is that they all take a disciplined approach. "You
don't drive down the road swerving all over to see if there's a
better patch of asphalt to drive on, do you? Then why should you
do that to your portfolio?" asks Warren Baldwin, regional vice-president
in the Toronto office of T.E. Financial Consultants Ltd.
How else do the experts steer their own retirement savings? Here's
what Mr. Baldwin and three other financial experts have to say:
Warren Baldwin
Regional vice-president, T.E. Financial Consultants Ltd., Toronto,
age 51.
RRSP portfolio breakdown: 90 per cent in bonds; 10 per cent in
equity funds. Previously strictly in bonds, this year he made a
contribution in kind with equity funds.
Target rate of return: 7 per cent annually is a "reasonable
assumption. I want a rate of return that's decent, and I'm not trying
to second-guess the markets."
Basic strategy: Bonds make up the bulk of his portfolio because
it is tax-effective. With all his holdings -- both registered and
non-registered investments -- he likes to have his foot in all markets.
Forecast: "Generally I feel the markets will be better this
year in response to the recovery that should start somewhere in
the middle of the year." Nevertheless, his portfolio is structured
to weather any type of market condition.
Mr. Baldwin is a big believer in an integrated plan for both his
registered and non-registered savings. "I can't separate the
two, nor would I advise my clients to do that."
He also believes in setting up his holdings to be most tax-effective.
That's why he holds all of his bonds -- a cross-section of Canadian
government and strip-coupon bonds -- inside his RRSP. Mr. Baldwin
ignores the foreign-content allowances in his RRSP because "I
feel it is better to do it outside," he says.
This year, Mr. Baldwin has made a contribution in kind by moving
all of his holdings of the Bissett Canadian Equity Fund and the
Templeton Growth Fund into his registered plan. He says since he
already owns the funds, he'd rather do that than put in fresh cash.
He is not a fan of changing his strategy mid-stream, whether it
be in or out of his RRSPs. If a structure is working, he advises
investors to stay the course. "I'm not looking for home runs.
I don't think anybody should be looking for home runs."
Outside his RRSP, Mr. Baldwin is a strong equity player; his overall
portfolio is 70-per-cent in equity funds, with the remainder his
RRSP bond holdings.
"The mix that I'm using is a total mix for me personally,
not one that's specific to the RRSP," he says.
Mr. Baldwin buys mutual funds as opposed to investing directly
in stocks because he doesn't pretend to be following market movements
all the time. He recommends the same approach to his clients.
By buying stocks directly, "you're trying to play money manager.
. . I don't even pretend to be a money manager," he says.
He does have a direct holding of some shares of his firm, T.E.
Financial. The rest of his fund holdings are one-third in Canada
and two-thirds outside.
He thinks other investors should focus abroad, too, because the
Canadian market seems to have moved up fairly well, while other
markets "have been hammered pretty hard."
Mary Chan
Investment representative, Edward Jones, Mississauga, age 36.
RRSP portfolio breakdown: 45 per cent in stocks, 30 per cent in
mutual funds and 25 per cent in bonds.
Target rate of return: "I actually don't set a target rate
of return for my portfolio. I don't get caught up in the year-to-year
fluctuations."
Basic strategy: To buy and hold. "Long before I came to Jones,
I had a buy-and-hold philosophy. It's the story of the turtle and
the hare. You'll eventually get there."
Forecast: "I feel that the problems are mostly behind us.
In a nutshell, I'm cautiously optimistic for the equity market recovery."
Ms. Chan describes herself as a "strong conservative investor."
And she'd rather do her own stock and fund picking herself. "I
am a financial adviser. I look to myself. I like to practice what
I preach."
Discipline means everything to Ms. Chan. It is this practice of
buying and holding for the long term that has given her consistent
results year after year, she says.
When choosing funds, Ms. Chan studies a fund's history and management
style, and looks for low management expense ratios.
This year, she has added the Hartford U.S. Capital Appreciation
Fund -- a U.S. equity fund whose growth-style management she admires
-- to her RRSP, bringing her foreign-content holding almost to the
maximum allowed.
Among other funds in her RRSP are the Mackenzie Ivy Canadian Fund
and the Trimark Canadian Small Companies Fund.
When it comes to stocks, Ms. Chan seeks out firms with strong corporate
earnings, management and growth prospects.
She believes health care, financials, consumer staples and technology
are the four areas that will show growth.
She has stocks in all of these categories. This year, she has added
pharmaceutical giant Pfizer Inc.
Other stocks she holds include Celestica Inc. and Microsoft Corp.
"There is a place for it in one's portfolio in appropriate
amounts."
Many stocks that were once too expensive are now more reasonably
priced, and "like my clients, I'm just trying to take advantage
of the current market situation," by buying quality investments,
she says. As for bonds, her investments are strictly Canadian, using
a laddered approach.
Adrian Mastracci
President, KCM Wealth Management Inc., Vancouver, age 54.
RRSP portfolio breakdown: 10 per cent in equities; 90 per cent
in government and corporate Canadian bonds.
Target rate of return: 7 to 8 per cent.
Basic strategy: "I'm a growth kind of investor. I simply choose
to put my conservative side in the RRSP."
Forecast: "I expect some rough patches. I don't think we're
out of the woods here." He's looking for some progress in the
economy in the second half of the year, but expects it to be a slow
process.
Although Mr. Mastracci describes himself as a "growth
investor," he remains disciplined in his RRSP. "I believe
that it's far better for me . . . to keep the RRSP, which is my
pension, fairly conservative."
Mr. Mastracci says his forecast for the economy or the markets
will have little impact on his RRSP because most of his holdings
are fixed-income investments.
In his portfolio, he has one mutual fund, one index fund and an
exchange traded-fund. He declines to be more specific.
But most of his portfolio is in bonds, using a laddered approach,
with the longest maturity to 2011. This simply means he has bonds
maturing at 10 different times; those coming due this year will
be reinvested for five-year terms.
"This move has meant that I am still enjoying today the higher
face-interest rates on some of these investments," Mr. Mastracci
says.
Outside his RRSP, Mr. Mastracci has only 8 per cent in equities
-- mutual and exchange-traded funds --and 92 per cent in short-term
investments, such as GICs, which will all mature by the end of this
year.
But that was part of a plan. In 1998, he bought a new house, started
an 18-month sabbatical and put money into his business. This meant
he needed ready cash.
"Accordingly, I took my own advice and invested the majority
of the non-registered portfolio in redeemable short-term instruments
having maturities up to one year, and a minor portion in equities,"
he says.
"The result is that, because of this requirement, I have had
a low exposure to equities up to now."
Now, however, Mr. Mastracci plans to begin putting his money
back into the stock market.
He prefers buying baskets of securities as opposed to individual
stocks because he doesn't have time to micro-monitor his holdings.
James Gauthier
Research director, Fundmonitor.com, Windsor, Ont., age 25.
RRSP portfolio breakdown: Fully invested in mutual funds.
Target rate of return: An average annual return of about 10 per
cent.
Basic strategy: "I think with an RRSP portfolio, it is important
to remember you're investing for the long term. Market-timing is
not ideal in a portfolio of this nature." That's why Mr. Gauthier
likes to stick with a buy-and-hold approach.
Forecast: Mr. Gauthier is expecting a turnaround in the markets
this year. The growth style of investing, which has struggled over
the past couple of years, may stage a comeback, and will likely
exceed value, he predicts.
At an even younger age, Mr. Gauthier started putting away a few
hundred dollars a month into two or three funds. "A couple
of hundred dollars a month doesn't hurt the pocketbook too much.
And it saves you from procrastinating," he advises other young
investors.
Today, his RRSP portfolio is made up of five mutual funds, reflecting
a variety of styles, sectors and geography.
This year, Mr. Gauthier wants to bump up his foreign content to
the 30-per-cent limit because he feels there is a bigger pool of
pickings internationally than in Canada alone.
"I think you're getting that added diversification. The Canadian
economy is only 1 to 3 per cent of the world economy and market
capitalization," he says.
To do this, he is adding the Trimark Fund to his RRSP portfolio
this year. He believes the fund is well managed and is comfortable
with the style, which is growth at a reasonable price.
Among the funds in his RRSP are the Fidelity True North Fund; the
Altamira Equity Fund; the Altamira E-Business Fund; TD Canadian
Value Fund and the Bissett American Equity Fund.
While Mr. Gauthier is heavily invested in funds, he says he may
change that down the road by adding individual stocks, though he's
not sure which ones yet. "I feel I have the necessary expertise,"
he says. And "by buying quality businesses, you can get the
most bang for your buck."
He's already begun to take a more aggressive approach outside his
RRSP and is almost fully invested in stocks.
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