Managed Money Reporter Newsletter — Issue 222, November 2005


Editors: Carl Spiess & Allan McGlade


Featured Articles



Special Report - Lifecycle Funds Provide Complete Cruise Control

Asset allocation simplified, really simplified

Last month we looked at asset allocation.  The decision between stocks, bonds and cash is usually determined by an investor's individual risk tolerance.  What if you instead want to turn over all decision making on asset allocation and simply want to instruct your investment manager to "get me the highest return now and then ensure that I don't give up those returns as I approach retirement?".  Then you would be looking at Lifecycle funds.

While Lifecycle funds have been gaining popularity in the US for many years, they have only recently become available here. In Canada, Lifecycle funds are now available from Clarington, Scotia, Russell and Fidelity. Others will be coming soon. We are excited to report on them, and have created a web page to review the early offerings (see More on Lifecycle funds, below).

Lifecycle funds are the closest thing the industry has to a maintenance-free investment portfolio. Also known as "age-based funds" or "target-date funds", life cycle funds are a special breed of the balanced or asset allocation fund. The distinguishing feature of a Lifecycle fund is that its overall asset allocation automatically adjusts to become more conservative as your expected retirement date approaches.

These funds are appropriate for investors who:

  • have a clear investment time horizon (minimum 3-5 years),
  • need a balanced fund that is professionally diversified,
  • are looking for sophisticated diversification, that is completely managed and monitored,
  • want a single investment that is easy to manage with one fund, one price and one performance record, and
  • do not want to incur any transaction fees as they make their portfolios more conservative towards retirement.

In the end, most of the Lifecycle products don't vary too much from our old "age as a percent in bonds" rule of thumb.  However, with one fund simplicity, clarity of target date, potential to lock in gains (Clarington) and reasonable fee structures, Lifecycle funds are well worth looking at.  

To quote Eleanor Roosevelt, "a little simplification would be the first step toward rational living, I think".  or to paraphrase, perhaps a little simplification is the first step to retirement living?

More on Lifecycle funds

What A Difference A Month Makes 

Federal clarity lifts market

Last month we reported that the Federal Government's indecision on income trust tax status had punished investors in October.  Thus, the late November announcement that no new tax is to be imposed on trusts was welcome news. As we had mentioned, the real issue was the double taxation of regular dividends, so the increased dividend tax credit announcement will certainly help investors' after tax returns – and the quick lift in the market was nice too.

What do these changes mean to you? Really they mean you cannot afford to hold bonds anywhere outside an RRSP or RRIF now. The difference in tax rates makes investing in dividend paying stocks or trusts the best alternative for any long-term non-RRSP investments. A tax efficient balance is still easy to accomplish with your portfolio. Contact us for assistance if you have bonds or high interest savings that are taxable and should be moved to your RRSP.

More on changes to dividend and income trust taxation

Reminder about Benefits of Investment Consolidation

Your ScotiaMcLeod account can hold almost any investment

If you have a variety of investment accounts, mutual funds, stock and bonds, and have not consolidated them with us, let us remind you of some of the benefits:

  • A single statement showing all your funds
  • Our performance monitoring and fund rankings on all holdings
  • Appropriate asset allocation recommendations and tax efficient balancing of investments
  • Reduced RRSP administration fees
  • In many cases, lower transaction fees than our competitors (especially on funds, less so on stocks)
  • No need to sell the funds – we transfer "in kind" and then review if any should be replaced
  • One relationship with an established advisory team to ensure the highest level of service

Here are a few of the investments you may not know you can consolidate into your ScotiaMcLeod Account:

You might not know we can hold:

  • Altamira
  • BMO
  • CIBC
  • PH&N
  • Saxon
  • Sprott
  • RBC Royal
  • TD

and

  • Individual Stocks and Bonds
  • Canada Savings Bonds

Along with:

  • AIC
  • Acuity
  • AGF
  • AIM/Trimark
  • Brandes
  • CI
  • Clarington
  • Dynamic
  • Fidelity
  • Franklin Templeton
  • Guardian
  • Mackenzie
  • Scotia Funds

As a special offer, until December 31, 2005, we will reimburse transfer fees you may incur when you consolidate investments into your existing ScotiaMcLeod RRSP (up to $125).

To consolidate other RRSP funds into your ScotiaMcLeod account, simply fax a copy of your statement to 416-863-7479 with the words "Please transfer in kind to my ScotiaMcLeod RRSP Account # ___-______ ", sign it and we will take care of the rest.  Or use the RRSP transfer form from our forms page.  By transferring "in kind" your securities won't be sold, they will just begin appearing on your consolidated ScotiaMcLeod statement.  Any questions, please contact christopher.kelly@scotiawealth.com or call 1-800-387-9273 or 416-863-7777.

Tax-loss Selling

A Strategy for non-RRSP accounts

If you have a non-RRSP account, it may make sense to review your holdings and sell an investment that has lost value to offset capital gains realized during the year on other investments. This strategy typically comes into play close to year-end, when an investor knows his or her taxable capital gains for the year. (Realized losses must first be applied against any gains realized during the year; any remaining amounts can be carried back three years or carried forward indefinitely.) 

Why it matters. Taking a capital loss to offset capital gains can reduce taxes payable. This more sophisticated strategy should only be undertaken in the context of your overall portfolio. Your financial or tax advisor can help you determine if it is the right course of action for your situation.

CI Bids for Clarington

Continued consolidation foreseen

Clarington, one of the smaller but innovative fund management companies in Canada is currently being considered as a takeover target by either CI or Industrial Alliance.  Should the CI bid win, unitholders are being promised lower management fees as CI has typically rolled the smaller funds from companies it acquires into its larger funds, to achieve economies of scale.  CI did this recently with another round of fund mergers.

More on CI's fund consolidations

  • CI increases bid for Clarington
  • CI consolidates more funds

Mutual Fund Reporter Recommended Website of the Month

The Fund Library is a great web site for mutual fund information.  It has research, allows you to set up hypothetical portfolios, track funds and get email updates (which we read daily).

 

 



Contact Us

T.  416.863.RRSP (7777)
     1.800.387.9273
F.  416.863.7479
E. carl.spiess@scotiawealth.com
    allan.mcglade@scotiawealth.com

ScotiaMcLeod is a division of Scotia Capital Inc., member of CIPF.

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® Registered trademark of The Bank of Nova Scotia, used under licence. ™ Trademark of The Bank of Nova Scotia, used under licence. Scotia Wealth Management™ consists of a range of financial services provided by The Bank of Nova Scotia (Scotiabank®); The Bank of Nova Scotia Trust Company (Scotiatrust®); Private Investment Counsel, a service of 1832 Asset Management L.P.; 1832 Asset Management U.S. Inc.; Scotia Wealth Insurance Services Inc.; and ScotiaMcLeod®, a division of Scotia Capital Inc. ("SCI"). Wealth advisory and brokerage services are provided by ScotiaMcLeod, a division of SCI. Insurance services are provided by Scotia Wealth Insurance Services Inc., the insurance subsidiary of SCI. When discussing life insurance products, ScotiaMcLeod advisors are acting as Life Underwriters (Financial Security Advisors in Québec) representing Scotia Wealth Insurance Services Inc. SCI is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada.

The Spiess McGlade Team is a personal trade name of Carl Spiess and Allan McGlade.