# Rbc managed payout solutions enhanced pi ad



## LOST (Aug 30, 2010)

Hello, new to the forum and would like opinions on this mutual fund from rbc. Monthly tax effective payouts with a mer of 1.84.
Seems to be fairly diversified with a 7% yield. I need the monthly income. Also if someone could explain return of capital and if it is a good thing?

Thanks


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## Belguy (May 24, 2010)

Well, for starters, I wouldn't generally invest in anything with a MER much higher than .50 and many index products charge much less than that.

A MER of 1.84% works out to a cost of $184 per $10,000 invested compounded annually---forever. This, of course, is a good thing---for the bank!!! You invest your money with them and they charge you for the priviledge.

I would consider investing in lower fee RBC index funds instead and perhaps setting up a monthly systematic withdrawal plan.

While that alternative would not be free of fees, it would be a lot cheaper.

Fees matter!!


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## Jon202 (Apr 14, 2009)

Looks like the mutual fund primarily holds Canadian dividend payers and Canadian bonds. You could easily replicate this for 1/3 of the expense with 2 ETFs.


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## alphatrader2000 (Aug 18, 2010)

LOST said:


> Hello, new to the forum and would like opinions on this mutual fund from rbc. Monthly tax effective payouts with a mer of 1.84.
> Seems to be fairly diversified with a 7% yield. I need the monthly income. Also if someone could explain return of capital and if it is a good thing?
> 
> Thanks


Avoid mutual funds as much as possible. All you are doing is making your broker and adviser richer. These days you can replicate these mutual funds very closely by buying etfs. alas, %1.84...


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## Belguy (May 24, 2010)

If you are planning on making regular withdrawals for income purposes, you should choose RBC index funds over ETF's to save on trading fees. You can set up an automatic systematic withdrawal plan with the index funds.

Here is an article on bank funds for your consideration:

http://www.theglobeandmail.com/glob...gy/the-best-of-the-bank-funds/article1389658/

You might like to look into the RBC Monthly Income Fund as it is highly rated in this article and it has a reasonable MER of 1.14.

I would suggest that you go to www.globeinvestor.com and set up a 'Fundlist' there and include all of the RBC index funds and the highly rated RBC managed funds and then you can compare performance over various time frames before making your choices.

You can add as many other funds and ETF's as you wish (iShares ETF's are found under Blackrock).

If you have any questions, I would be glad to provide further assistance.

I find this tool to be easy to use and very helpful.


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## the-royal-mail (Dec 11, 2009)

Belguy said:


> If you are planning on making regular withdrawals for income purposes, you should choose RBC index funds over ETF's to save on trading fees. You can set up an automatic systematic withdrawal plan with the index funds.
> 
> Here is an article on bank funds for your consideration:
> 
> ...


What an excellent post!!! Not sure how I missed it before but I just added three of the most interesting RBC funds to a fundlist and did a comparison. Wow that Global Precious Metals fund is excellent! Look at that performance! Higher MER of 2.04% but sure seems worthwhile.


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## Mike59 (May 22, 2010)

*Check the numbers...*

I've been going through the same questions in my mind recently (although for other monthly funds), for a corporation investment account. It still seems to me that ETFs remain the best avenue "in most cases".

To answer your question about return of capital, it would be more helpful to know if you are investing in an RRSP-TFSA or Registered account. There will be differences in how the sums are added and taxed, and it's a crucial piece of information. 

In line what other posters have said, the problem with the fund is the MER. In my opinion, all MERs are a biased number that understate how much the bank or fund actually takes from you. 

Here's another way to look at using the fund you provided: 

Take a $100,000 nest egg, investing in : 
a) RBC Managed Payout (7% annual income, 1.84% MER): 
MER on principal annually is $1840. 7% is $7000/yr, for a rough profit of $5160. Relative to your income, the actual fraction of 1840/7000 = 26%.
Your principal is also at risk of reduction , especially during a time where market yields are so low, they can only keep up 7% for so long without eating away at the nest egg.

Take the same $100,000, invest in: 
a) Equity and Bond ETFs at a ratio of your choosing (estimate 4% annual income, 0.4% MER)
MER on your principal annually is $400. 4% is $4000/yr, for a rough profit of $3600. Relative to your income, the actual fraction of 400/3600 = 11%.
Your principal would have much less chance of being eaten away annually due to the payouts, as you are receiving company profits. 

There isn't an absolute answer though as again, these numbers could change if we narrow down and talk Registered vs. Non-Registered. You need to question how sustainable each scenario is in the context of your cost of living, tax scenario and retirement horizon. ETFs are fine if you know what you're doing, but having a money manager may pay for itself if you're experimenting with ETFs for the first time and mess up here and there.  

Hope that helps!


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## Belguy (May 24, 2010)

The only money manager that you really need is at the website www.canadiancouchpotato.com and choose from the model portfolios.

Yes, the RBC Global Precious Metals Fund has done well over the short and long term but I have also heard of the advice to "never chase after hot funds".

If you are planning on getting into precious metals investing at this point in time, I might generally recommend that you restrict your allocation to that sector to approximately 5 percent depending on how much of a gambler you are and how readily you can afford to lose on your investment.

Sometimes, when gold drops, it can do so quite dramatically and so always be careful.

I have also come across the advice to pick a sector that has performed poorly for some time now and invest in that rather than in a hot sector.

Things have a habit of usually returning to the mean sooner or later.

I'm not moving any more money into the RBC PM Fund at this time. In fact, if I was smart, I might sell and take some profits at this point. Pigs get slaughtered!!!


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## OhGreatGuru (May 24, 2009)

This was originally called RBC Tax-Managed Return Fund. It is technically classed as a CDN Neutral Balanced Fund. But part of its strategy is to make Return of Capital (RoC) payments to keep up monthly distributions when earnings are low. 
a) RoC does you no good in a registered account (such RRSP) It is tax-advantaged in a non-registered account, because that portion of the monthly payments that are RoC are not taxable income. (But see below)
b) The RoC does reduce your adjusted cost base. This means when you sell units you will incur a higher capital gain. So the RoC is in a way a tax deferral. This could mean a hefty capital gains tax when the account is ultimately liquidated (for example when settling the estate) If you are concerned about preserving capital and minimizing the tax bite at the end of the planned account term, this is not a good strategy.

I am with the others - I think there are less costly and less complicated ways of generating the same kind of returns.

PS. If you read the fine print you will see that the 7% payout rate is not guaranteed.


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## Larry6417 (Jan 27, 2010)

Lost, there's an excellent book you should read, co-written by one of the forum members here (MoneyGal), called _Pensionize Your Nest Egg_ (see www.amazon.ca/Pensionize-Your-Nest-...0997/ref=sr_1_1?ie=UTF8&qid=1286919855&sr=8-1).

You haven't mentioned why you need monthly income. That would affect the amount of risk you would be able to take in designing an alternative. You also haven't mentioned your investment knowledge. Obviously, your knowledge level is important too.

If the money you receive from this fund is for essentials, then you need to be very conservative in investing. If the money from this fund is "gravy," (e.g. you have a defined benefit plan) then you can be more aggressive in your investments. MoneyGal, in her book, talks about types of products that provide income. SWPs (systematic withdrawal plans) are self-administered investments (stocks, bonds, mutual funds) from which the investor draws income. That's actually what you have now. 

There are other products called GLWB (guaranteed lifetime withdrawal benefit products) that guarantee a % payout (usually 5%). These GLWB products are based on segregated funds, so they have the advantages and disadvantages of seg funds. The advantages: you can get growth. For example, if you have $100,000 in the fund initially, you get a 5% ($5,000) payment. If that fund grows to $125,000, you get $6,250 (5% of $125,000). The seg fund can raise its "reset" value every 2-3 years. If the value of the fund declines, it cannot go below the reset value. The disadvantage: high fees. Also, the market downturn has caused insurance companies to limit the offerings of GLWBs. I mention this option because you now have the worst of both worlds. You have the high fees of seg funds already. If you look at your fund, you'll see it's a "fund of funds." In other words, it invests in other RBC funds, each with its own MER. You pay a MER for each component + an overall MER. However, you don't receive the guarantees a seg fund/ GLWB would have.

I agree that you could very easily construct your own SWP for far less cost. If you wanted tax-efficient, diversified income you could use CPD, a Claymore ETF of preferred shares yielding 4.9% for a MER of 0.46%. The distributions are tax-advantaged because they're eligible dividends. You could also use XRE, an ETF of REITs, for a MER of 0.55%. The distributions are partially return of capital.

If you're not comfortable making your own investments decisions, and I suspect you're not, then an annuity can make sense for at least part of your income even at these low interest rates (depending on your age). The older you are, the more sense it makes to buy an annuity. I also suspect you need more detailed advice than you can get from an internet forum. You should discuss this with a good financial advisor - not the one who sold you this product!


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## PeeBee (Jun 21, 2010)

*where to put xtra retirement $*

My hubby just retired and we received some xtra income for just this year- vacation pay, sick pay. Some of it was able to go straight into our RSP accts, and seeing as how equities are pretty dormant, mostly TD-Bond 1 (some into a balanced fund).
Here's where our retirement $ will come from: gov't, a defined benefit plan somewhat indexed to inflation, RSP accts self-administered(about 150K), RSP $ from an GLWB plan-invested minimum of 25 K., 2 TFSA's so far have about 10 K ea & room for 5K more this year.
Question - we have some money that could not go into the RSP accounts & I'm wondering if I should anchor some of the floating RSP$ with another 25K GLWB plan for the non-reg $. Manulife has 2 - one with the resets (slightly higher fees & more fund choice), and one without that's mainly bond funds.
It would mean forgoing putting the 5X2 $ into the TFSA's. On the other hand, with the GL plan - if we can forgo using the money for a few years, we'll probably get a return of 6 - 7% on the original investment due to the bonus % added to the base. Not too confidant todays market isn't actually poised to go right down the tubes, and for awhile. But - are there other anchors out there at less cost.


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## OhGreatGuru (May 24, 2009)

PeeBee, you put the same post in 3 threads, and this one has nothing to do with your question. Please don't do this, it leads to annoying duplication. Please edit out this post - cross-reference it to one of the other threads if you want.


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