# DC Pension - Fund Selection Advice



## Kail (Feb 7, 2012)

I'm going to be starting a new job shortly and they offer a DC pension plan. It is through Sun Life and there are a few funds to choose from:

SLA 1 Year Guaranteed Fund
SLA 3 Year Guaranteed Fund
SLA 5 Year Guaranteed Fund
Sun Life Financial Money Market Segregated Fund
TDAM Canadian Bond Index Segregated Fund
Beutel Goodman Balanced Segregated Fund
Fidelity Canadian Asset Allocation Segregated Fund
Beutel Goodman Canadian Equity Segregated Fund
Fidelity True North® Segregated Fund
MFS McLean Budden International Equity Segregated Fund
TDAM U.S. Market Index Segregated Fund (KPO)

There are also the following pre-build funds:

2014 BlackRock LifePath® Index 2015 Segregated Fund 
2019 BlackRock LifePath® Index 2020 Segregated Fund 
2024 BlackRock LifePath® Index 2025 Segregated Fund 
2029 BlackRock LifePath® Index 2030 Segregated Fund 
2034 BlackRock LifePath® Index 2035 Segregated Fund 
2039 BlackRock LifePath® Index 2040 Segregated Fund 
2044 BlackRock LifePath® Index 2045 Segregated Fund 
2049 BlackRock LifePath® Index 2050 Segregated Fund 
BlackRock LifePath® Index Retirement Segregated Fund 1

I don't know what the MERs are on each individual fund, but they let me know that the highest fees in the plan are:

Money Market - 0.34%
Fixed Income - 0.74%
Balanced - 1.14%
Canadian Equity - 1.14 %
US Equity - 0.52%
Global Equity - 1.03%
International Equity 1.20%
Target Date 0.85%

Knowing that, I need some advice on what to pick. I've never really had to pick funds before, I've only ever had company stock. I would say my risk tolerance is moderate and I was thinking about doing the couch potato strategy:

Canadian equity 20%
US equity 20%
International equity 20%
Canadian bonds 40% (this seems a little high does it not?)

So, does anyone have any advice for a novice investor?


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## OnlyMyOpinion (Sep 1, 2013)

A few comments:
i) If you feel rushed and aren't sure but need to get your form in, you can choose money market for now and then sell that and switch to a fund in a few months once you have had more time to consider
ii) The choices you have available include specialized equity-only funds such as True North, Canadian Equity, International equity, as well as some balanced funds such as Goodman balanced and the Blackrock funds (which provide balance by buying a selection of iShares etfs). So you could try to build a couch potato yourself by buying %'s of the specialized funds, or you could just buy one balanced fund and be done with it.
iii) It sounds like maybe you don't have your own RRSP account? This would make a difference because you would want to consider your diversification and weighting across all of your retirement accounts.
iv) Some people don't seem to pay much attention to their DC plan and after 10yrs of underperformance it shows. Since it is your money and you will presumably be putting 4% or so per month into it with perhaps some employer matching, it is worth taking the time to understand you choices and what they are buying you. 
v) Compare apples to apples (such as the Goodman balanced with a Blackrock LifePath), consider what they are invested in, consider what their performance has been over the same 5yr, 10yr periods and consider what the MER actually is. The dollar-cost averaging that occurs with a monthly contribution can really help over time if you have chosen a solid fund.
For example this type of summary sheet for BG's balanced fund should be available to you through your SunLife account online:
http://www.beutelgoodman.com/MutualFunds/ExpressSheets/ESbalanced.pdf
And here, a few clicks will take you to some Blackrock DC plans. They are tougher to figure out what is actually in them because they are index funds rather than discrete stocks, bonds, etc:
https://www2.blackrock.com/us/defined-contribution/investment-strategies/qdia-solutions/lifepath-portfolios
Your MER might not be as quoted on these. Your HR person or a Sunlife contact should be able to provide you with specifics for your segregated plan.
Good Luck!


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## Spudd (Oct 11, 2011)

Do you already have access to the Sun Life site? If so, you should be able to see the MER's for the individual funds on there. Click on "Accounts" and then "Account Fees". 

If the MER's for the target date funds aren't much higher than the individual funds, then I'd probably keep it simple and just choose a target date fund that aligns with your planned retirement date.


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## GoldStone (Mar 6, 2011)

Spudd said:


> If the MER's for the target date funds aren't much higher than the individual funds, then I'd probably keep it simple and just choose a target date fund that aligns with your planned retirement date.


+1

The individual funds on the list are active funds. The MERs for the target date funds should be lower, not higher.


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## OhGreatGuru (May 24, 2009)

Poster would have to determine which class of each fund is on offer. Those are fairly low MERs for managed funds - sounds like they are for Class D, or something similar, which are considerably lower than for Class A.


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## GoldStone (Mar 6, 2011)

OhGreatGuru said:


> Poster would have to determine which class of each fund is on offer. Those are fairly low MERs for managed funds - sounds like they are for Class D, or something similar, which are considerably lower than for Class A.


Definitely not Class D or Class A. The funds on the list are segregated funds. They are wrapper funds managed by Sun Life. The underlying funds are institutional class funds. The letter for institutional class is not standardized. Some companies call it Class I, others call it Class O. Doesn't really matter. The only number that matters is the management fee for the Sun Life segregated fund.


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## Kail (Feb 7, 2012)

I'll be maxing my contribution of 4% and the company will contribute 6% (50% of 4% + 4%). I'll also have a matched stock purchase plan which I'll max as well.

Here is the breakdown of the funds, their underlying funds and the MERs for each:


FundUnderlying FundMER / FMFSun Life Financial Money Market Segregated FundSun Life Global Investments (Canada) Inc. Money Market Fund0.34%TDAM Canadian Bond Index Segregated FundEmerald Canadian Bond Index Fund0.50%Beutel Goodman Balanced Segregated FundBeutel Goodman Balanced Fund Class I0.75%Fidelity Canadian Asset Allocation Segregated FundFidelity Canadian Asset Allocation Fund Series O1.14%Beutel Goodman Canadian Equity Segregated FundBeutel Goodman Canadian Equity Fund Class I0.75%Fidelity True North® Segregated FundFidelity True North® Fund Series O1.14%MFS McLean Budden International Equity Segregated FundMFS McLean Budden International Equity Fund1.20%TDAM U.S. Market Index Segregated FundEmerald U.S. Market Index Fund0.52%

2014 BlackRock LifePath® Index 2015 Segregated Fund - 0.66%
2019 BlackRock LifePath® Index 2020 Segregated Fund - 0.71%
2024 BlackRock LifePath® Index 2025 Segregated Fund - 0.77%
2029 BlackRock LifePath® Index 2030 Segregated Fund - 0.82%
2034 BlackRock LifePath® Index 2035 Segregated Fund - 0.82%
2039 BlackRock LifePath® Index 2040 Segregated Fund - 0.82%
2044 BlackRock LifePath® Index 2045 Segregated Fund - 0.82%
2049 BlackRock LifePath® Index 2050 Segregated Fund - 0.85%
BlackRock LifePath® Index Retirement Segregated Fund 1 - 0.67%


It appears I have 3 options here.

1. Couch Potato with the following allocations:
*Canadian - 30%*
Beutel Goodman Canadian Equity Segregated Fund
or
Fidelity True North® Segregated Fund - I would probably choose this over BG due to past performance
*US - 30%*
TDAM U.S. Market Index Segregated Fund
*International - 25%*
MFS McLean Budden International Equity Segregated Fund
*Fixed - 15%*
TDAM Canadian Bond Index Segregated Fund

I don't feel the need to have a high allocation in fixed income as I still have quite a ways towards retirement, though I'm not sure if I am too heavily weighted in other sectors. I do currently have an RRSP, but it is all canadian stocks worth about 25k. I'll be using the 25k for a house purchase sometime in 2014. If I went with the above, the weighted MER would be 0.67% if I calculated that correctly.

2. Pick a balanced fund:
Beutel Goodman Balanced Segragated Fund - Fixed Income 29.2%, Canadian Equity 34.3%, US Equity 14.5%, International Equity 14.8%, Cash 7.2%
or
Fidelity Canadian Asset Allocation Segragated Fund - Fixed Income 27.8%, Canadian Equity 48.9%, US Equity 6.7%, International Equity 5.2%, Cash 6.7%, Other 4.7%

I think the FC Asset Allocation Seg Fund is too heavily weighted in Cdn equity and too little in US & International, which rules it out. If choosing option 2 I would go with the BG Balanced Segragated Fund which has a MER of 0.75%

3. Choose one of the Blackrock Lifepath Funds
It looks to me like whatever I pick would change over time. I would be looking at either 2040, 2045 or 2050 which means I would be looking at either 0.82% or 0.85% MER.

I like the idea of selecting the various funds and then rebalancing once a year which I believe I can do and it seems to have the lowest MER, correct me if I am wrong. If I do go that route, can I get some opinions on my allocation choices? Would it be more prudent to reduce the US Equity? QE won't be going on forever. Perhaps leave it as is and then change it as required as time passes and things go south?

Anyway, all comments are welcome. I'm looking more towards higher growth since my horizon is still 25+ years out.


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## Kail (Feb 7, 2012)

Updated the post above with MER's and some other information.


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## Soils4Peace (Mar 14, 2010)

It seems you could get a well rounded portfolio with low fees with a combination of the US (0.52%), Canadian Bond (0.50%) and a LifePath product, which in combination would give you the risk exposure that you prefer.


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## Kail (Feb 7, 2012)

I was looking at the Lifepath 2050 fund but since it is relatively new I think I am going to wait a bit to see how it does. I've selected 4 funds (Cdn, US, Itnl, Bonds) and we'll see how it goes. I can always change it later.

Thanks for the input everyone, it was greatly appreciated!


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## GoldStone (Mar 6, 2011)

Kail said:


> I was looking at the Lifepath 2050 fund but since it is relatively new I think I am going to wait a bit to see how it does.


LifePaths are baskets of index funds. They give you market returns, minus fees. All LifePath portfolios use the same underlying funds. The only difference between LifePath 2050 and the earlier funds is the asset allocation. 2050 allocates more to equity.

Bottom line, you don't have to wait and see how it does.


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