Stress-busting

Deb is 56. “Still semi-hot,” she tells me. Wants to retire in seven years. Owns a townhouse and a rescue Chihuahua. She’ll have a modest DB pension – maybe two grand a month if her job with the local health agency holds – and is single.

“I guess marriage is a strategy,” Deb says, “but that train’s probably left the station.”

She has a TFSA and a retirement savings account totaling a couple hundred thou, both in mutual funds. Plus a smaller amount in stocks her BIL suggested, at his broker’s shop.

“There’s no way,” she writes me, “that I can retire happily on this pension without burning through my $300,000 before I even hit seventy. I obviously need more, but with the markets swinging stupidly, I’m just not getting there. Need help. What do you suggest?

We talked a bit. Turns out she has equity holdings at a local fund outfit and mostly tech stocks with her bro at Richardson. The advisor stuff is in mutuals. The broker is paid by the trade.

No wonder she’s concerned, in the time of Trump, Elon, trade wars and change. Deb has lots of risks with her all-equity, almost all-US asset holdings. She has no advice and no plan. And she’s being savaged with fees.

The goal?

Double her liquid net worth by the time she wants to walk out of the office (with a swagger) for the last time at age 63 owning a portfolio able to turn out dependable, consistent, tax-efficient, low-overhead income. Six hundred thousand delivering a 6% return, for example, would kick out three grand a month. Add in her pension, then CPP and OAS, and life looks a helluva lot more interesting.

The trouble is, she won’t get there. Not without change.

The equity mutual funds are expensive. The average MER (management expense ratio) for an equity fund is a tad over 2%. That’s a non-deductible hit which blows a hole in performance. Worse, history and stats show us that actively-managed funds have a poor track record when measured against the index. In other words, Deb is paying a bundle for substandard returns.

Far better to own ETFs – exchange-traded funds. The fees here are a fraction of those mutuals bear – on average about 0.2%, but even lower with some of the big guys (like Vanguard). And because they mirror an index – like the S&P 500, or the TSX on Bay Street – there’s no smarty-pants, Porsche-driving portfolio manager trying to prove manhood. You get pure market results. Over time, as we all know, it goes up.

As for the broker paid for each trade, another bad idea. The cost of trades is no longer prohibitive (ten bucks at an online place or 1% with a broker), but human nature means clients are sometimes encouraged into needless moves in order to generate cash flow. Mostly, brokers may not be advisors. In Deb’s case she suffers concentration risk – too much in American stuff and increased exposure to one volatile sector – technology. And no plan.

She could take all her account statements and head to a fee-for-service advisor, seeking a better portfolio. The goal is to be balanced, diversified and global. That means 40% in more predictable fixed-income stuff and 60% in equities, divided equally between Canada, the US and international markets. She should have some preferred shares, bonds, real estate investment trusts as well as growth and value equities.

Yes, a fee-for-service shop can craft such a plan. That might cost a few thousand, based on the time spent. But then, who implements it? Where do the accounts live? What about rebalancing when things get out of whack? And when retirement comes, how does she create an efficient and steady stream of income?

Deb can DIY, Google up a storm, watch the wags on BNN, subscribe to investment newsletters and hope for the best – or, find a fee-based advisor.

Typically, for a cost of 1% of what she invests (fully tax-deductible on non-reg accounts) she would get an asset allocation strategy, a financial plan, retirement scenario, and an ETF portfolio built without trading charges, which is routinely rebalanced. There is no contract. No pooled or proprietary funds. There’s at least a million bucks in industry insurance. And she personally owns everything in the portfolio.

Best, less stress. When R-Day draws near, Deb will know what that monthly ‘paycheque’ will be from the portfolio – deposited into her bank chequing account. No need to continuously figure out what to move, trade or sell in order to generate income (and the least tax). That’s the advisor’s job – along with providing full transparency on how long her funds will last.

I told her these things. And she asked about risk.

Less than finding a man, I said. They wander.

About the picture: “Hi Garth.  Wild times,” writes Erin. “Answering the call with the only dog I know who has glacial ice water in her veins.  Ruby is chill chill chill.  Her red button that is safely stored behind the glass cover is reserved for mice, squirrels and cats.  Then she turns into a 12 pound ninja.  Love the blog.”

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.

Source: https://www.greaterfool.ca/2025/06/06/stress-busting/