# RRSP: 80% equity, 20% income - right choice for a novice?



## behappytoday (Sep 16, 2011)

At work, I picked up this fund for my RRSP:

https://secure.globeadvisor.com/gi/...me=SEI+Growth+80/20-P&pi_universe=PUBLIC_FUND

My reason is mainly because I plan to stay working for the longest time possible, unless circumstances force me to retire. 44 yo now. 

But somehow I am not sure about this decision, mostly because I don't entirely understand the risks. The prospectus has a questionnaire to define our goals which I filled out. I was on the borderline between this one and the similar but 60 / 40. But thinking that my RRSP will have at least 20-25 years to grow, I decided to pick up the one under the link. I think that I can tolerate some fluctuations in the market if ultimately they will bring me better profits on the long run.

Management does not cost me anything. Employer also makes contributions to our defined plan. The risks here are said to be the usual ones that are associated with mutual funds.

I can still change the plan to the other one. But it may be late after some time, and I would like to correct my decision if I am wrong. I realize that the decision is entirely mine, but could someone please assess this plan? My buggest fear is that eventually I could lose a big part of uinvestments in my pension plan.

Please ask for any further information, there is definitely more info in the fund prospectus.

Thank you very much in advance!


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## Jungle (Feb 17, 2010)

Looks more like 23-24% fixed income (if including cash and short term investments? ) and the rest is equity.


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## andrewf (Mar 1, 2010)

You're wrong about management not costing you anything. The fund carries a rather-high 2.65% Management expense ratio, which is skimmed off the top of the fund each year.


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## behappytoday (Sep 16, 2011)

andrewf, I mean, the company pays for the management costs, not the individual employees.

Jungle, the prospectus says that the fund may invest in cash and cash equivalents, including Money Market Fund or any other mutual market fund managed by sei from time to time.


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## slacker (Mar 8, 2010)

You need to get out of that fund ASAP. It's doing irreparable damage to your financial future.


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## KaeJS (Sep 28, 2010)

Guys, I know that Past Performance is not (exactly) indicative of future performance, but come on... All you need to do is look at these numbers:

Since Inception 1.29% 
3 year risk 14.99
3 year beta 1.06

That is a failure. 

We aren't talking about one stock. We are talking about a Fund of Funds. And when talking about a Fund of Funds, Past Performance *IS* indicative of future performance, IMO.

Get out of this fund. A High Interest Savings account would return more money than this POS.


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## behappytoday (Sep 16, 2011)

High Interest Savings, yes, but I also have to maximize my RRSP, besides of any post tax saving accounts which I will have for sure, and now have a choice to make from several funds, or a combination of them in %%. 

I understand that I have to look at the past performance figures for other funds, as KaeJS illustrated. I will look at the other available options as well. Thank you!


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## Soils4Peace (Mar 14, 2010)

Why would you pay 2.65% per year? I can think of only one reason - your only choices in this plan are in that range _and_ your employer is also contributing. Otherwise you could go on your own and get mutual funds in the 0.5 to 1.5% MER range, or ETFs at 0.2 to 0.7% per year.


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## behappytoday (Sep 16, 2011)

Soils4Peace said:


> Why would you pay 2.65% per year? I can think of only one reason - your only choices in this plan are in that range _and_ your employer is also contributing. Otherwise you could go on your own and get mutual funds in the 0.5 to 1.5% MER range, or ETFs at 0.2 to 0.7% per year.


Yes, all management fees are borne by the employer, and they make contributions to my RRSP as well. Also I need to max my RRSP to minimize my taxes. And I only have several options of funds to choose from, therefore I started the topic to see which one sounds most reasonable.


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## MoneyGal (Apr 24, 2009)

behappytoday said:


> Yes, all management fees are borne by the employer


I do not think this means what you think it means.


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## Cal (Jun 17, 2009)

Agreed, I don't think you understand how the MER is taken by the management company....

What are your other investment options through your employer? Do they only offer mutual funds? Can you invest in ETF's?


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## MoneyGal (Apr 24, 2009)

I don't doubt that this is how retail investing is pitched to novice investors. "There no extra fees for you to pay!" [because we deduct them before we pass any gains on to you] somehow is understood as "someone else is absorbing the full investment costs and I get the returns cost-free!"


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## Four Pillars (Apr 5, 2009)

I've heard of plans where the company did pay the MER via reimbursement or whatever, so it is possible.

But very unlikely.


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## behappytoday (Sep 16, 2011)

I agree that I may not understand what does it mean that the fees for managing the pension plan. But I try my best to understand it. I am on this forum in order to participate and learn!

Here is what the employer offers in terms of saving for retirement. There are the core and the optional pension plans. The core one is already deducted. Now I have an opportunity to save a %% of my earnings for additional retirement income, which is good. Plus I save in taxes. If we decide to enroll in the optional plan, we have a choice between several investment funds. One of them was my initial selection, and I asked for your opinion on it. Now withdrawn my application. Also, this is not RRSP but a registered pension planm, which is different.

Here is what the company says about the costs of the plans: 'The company pays the entire cost of the core plan.The company pays the administration fees for the optional plan'. 

My understanding is that MER and administration fees may differ. What questions can I ask my company in order to know whether my enrollment in the optional pension plan still cost me anything?


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## MoneyGal (Apr 24, 2009)

Yabbut unless they are calculating the costs and reimbursing daily, and the OP is in turn contributing those amounts to his funds daily, the return is still truncated by fees.


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## MoneyGal (Apr 24, 2009)

behappytoday said:


> What questions can I ask my company in order to know whether my enrollment in the optional pension plan still cost me anything?


Ask them to define what they mean by "costs."


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## Four Pillars (Apr 5, 2009)

behappytoday said:


> Here is what the company says about the costs of the plans: 'The company pays the entire cost of the core plan.The company pays the administration fees for the optional plan'.
> 
> My understanding is that MER and administration fees may differ. What questions can I ask my company in order to know whether my enrollment in the optional pension plan still cost me anything?


I don't think you have to ask if it will cost anything - clearly it will. 

The admin fees are not the same thing as the management fee (MER). At this point, it would appear you are paying the MER.

Here is a brief explanation of MER if you are not clear:

http://www.abcsofinvesting.net/management-expense-ratio-or-mer/

What you might ask is how much MER the fund company is charging your pension plan. According to Globe Fund, the retail MER is 2.65%, but it is common for pension plans/group rrsps etc to get a better deal.

For example my group RRSP offers funds that average about 1.0% MER. These funds are around 2.5% retail.


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## CanadianCapitalist (Mar 31, 2009)

OP, it sounds like you have a Group RRSP plan. Find out what the MER of the funds offered in the plan are. It is possible that your employer's plan offers a selection of pooled funds that have much lower MER than retail funds. For example, my employer offers a plan where the fund MERs are between 0.6% to 0.8% but the retail versions of these funds charge anywhere between 1.5% to 2.5%. 

It should be easy for you to find this information. The MER should be stated upfront in the Fund Factsheet. I personally think you are on the right track. Pick a well-diversified fund with low cost and keep contributing to it through thick and thin and you'll do just fine.


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## behappytoday (Sep 16, 2011)

Four Pillars said:


> I don't think you have to ask if it will cost anything - clearly it will.
> 
> The admin fees are not the same thing as the management fee (MER). At this point, it would appear you are paying the MER.
> 
> ...


Actually, my option is not a RRSP but a RPP - Registered Pension Plan! 

I learned it afterwards, after asking my employer more questions. Not sure whether I can correct the name of this topic?

Concerning the MER and my costs for the plan. I went by the link on MER provided above, and here is what it says: " It’s important to note that this *fee is not directly charged to the investor but rather to the fund itself*. It will never appear on any transaction order form or account statement."

That means, in my view, that they charge the fund but ultimately it is deducted from my earnings. Correct? 

This is why, despite the administration costs for running the investments are undertaken by employer, MER impacts my investments in whatever fund I chose for my RPP. Right?


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## MoneyGal (Apr 24, 2009)

Yes.


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## Four Pillars (Apr 5, 2009)

behappytoday said:


> Actually, my option is not a RRSP but a RPP - Registered Pension Plan!


This really doesn't matter. 

The discussion is about the MER you are being charged for the investment mutual funds. The account type is irrelevant.


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## andrewf (Mar 1, 2010)

Think of MER like this:

You own units in a Fund. The Fund buys government bonds that pay simple interest of 4% each year. The Fund has a MER of 1% per year. You will never be charged this MER directly, but the fund will skim it out of the assets of the fund. So what you see is a fund that increases in value by 3% a year. Do you still think you are not paying fees?

Consider that you could buy those bonds yourself, directly, and receive 4%. Do you still think the fund comes at no cost to yourself?


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## HaroldCrump (Jun 10, 2009)

This is not an uncommon misconception, though - the previous poster is not alone.
Recently, I had a friend (who is otherwise well educated and a professional in his field) argue with me incessantly that he was not paying any fees for his actively managed mutual fund based pooled RESP plan, while I must be paying hordes of hidden fees that I am not aware of for my self managed stock portfolio at a discount brokerage.


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## behappytoday (Sep 16, 2011)

*Options for Registered Pension Plan*

Here are my options to choose from, through the Globe and Mail website:

1) http://www.theglobeandmail.com/globe-investor/funds-and-etfs/funds/summary/?id=69389

MER 0.26%, no management fee

2)http://www.theglobeandmail.com/globe-investor/funds-and-etfs/funds/summary/?id=69391

MER 0.22%, no management fee

3) http://www.theglobeandmail.com/globe-investor/funds-and-etfs/funds/summary/?id=58065

Here I already see the management fee, besides the MER.

4) as shown in the beginning of the thread. MER 1.97%

5)globe advisor: https://secure.globeadvisor.com/gi/db/gaf.fund_pro?fundname=SEI+Growth+100-S&pi_universe=PUBLIC_FUND

MER 2.01%

6) The last option is SEI Money Market Fund. Here is an O-option link. MER 0.13% However our option does not specify whether it will be O or another class. 
https://secure.globeadvisor.com/gi/...me=SEI+Money+Market-O&pi_universe=PUBLIC_FUND

They say that this option is good if avoiding loss is more important than maximizin glong term investmentr return.

Mix of the funds in %% is also possible.

Proceeding from the costs, and now I see that there are hidden costs despite the company undertaking, I start liking the Money Market option better


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## andrewf (Mar 1, 2010)

Some of those MERs sound too good to be true. Indeed, they probably are.

It seems that these are funds of funds. In other words, the mutual fund takes the money invested and buys other mutual funds. Those funds in turn may charge MERs. It is not clear whether the stated MER of the top fund includes that of the acquired funds. My guess is that it does not. You might want to investigate the sub-funds.

There are many sneaky tricks and misdirection to give you an incorrect impression about how much fees you are actually paying.


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## MoneyGal (Apr 24, 2009)

Andrew: check the minimum investment requirements on some of those funds.


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## HaroldCrump (Jun 10, 2009)

Also, if you review the complicated 139 page gobbledygook prospectus of this fund, you will find numerous ways and means of how the fees are collected, and hidden.
For example, page 17 - 18.

Also, the following disclaimers in certain funds:
_corporate-sponsored retirement and savings plans in which corporate
sponsors may agree to pay certain fees on behalf of investors and other
investors may participate in the Manager’s discretion_.


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## behappytoday (Sep 16, 2011)

HaroldCrump said:


> Also, if you review the complicated 139 page gobbledygook prospectus of this fund, you will find numerous ways and means of how the fees are collected, and hidden.
> For example, page 17 - 18.
> 
> Also, the following disclaimers in certain funds:
> ...


HaroldCrump, where did you found this prospectus? Is it online? The one that I have from the company in paper copy is different.


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## HaroldCrump (Jun 10, 2009)

behappytoday said:


> HaroldCrump, where did you found this prospectus? Is it online? The one that I have from the company in paper copy is different.


From the company's website, by searching for that particular fund:
http://www.seic.com/enCA/about/1176.htm

Direct link:
http://www.seic.com/docs/Canada/ProspectusSEIFunds.pdf


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## behappytoday (Sep 16, 2011)

Thank you!

Now based on what I read so far, I think that my main orientation should be the management and related costs associated with my investments. In this case, the SEI Money Market Fund looks okay, as it has the lowest MER of all.

Here is the annual report for this fund:

http://www.seic.com/docs/Canada/SEI-MoneyMarketMRFP_Annual.pdf

What would you say of them for the long run (for about 20 years untouched)?


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## andrewf (Mar 1, 2010)

You should not pick investments solely based on fees. It is just one consideration. Your options are probably limited in this employer-sponsored plan, but you should just look at all the funds and try to pick the ones that meet your investment objectives with lower fees.

100% money market fund is like saving for your retirement with a savings account. It might be very safe, but the returns will be low.


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## behappytoday (Sep 16, 2011)

Thank you Andrew! This is a very valid point. I will look them all again.

What figures in their published reviews should be of my particular attention versus the fees? Suppose it would be the Returns, should I pay attention to 10 years or 20 years figure, or just since inception?


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## KaeJS (Sep 28, 2010)

behappytoday said:


> should I pay attention to 10 years or 20 years figure, or just since inception?


I look at everything starting at YTD for a fund. Look at YTD, 1yr, 3yr (if available), 5yr, 10yr, 20yr and SI.

Look at them all. It will paint a nice picture for you. Example, if you go to the YTD, you can see how its doing as of now, since the past year is still fresh in your head, you will be able to remember all the events that happened since January. Look at the 5yr and see how it faired over the market crash of 08-09. See the 10 and 20yr for the long term potential.


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## andrewf (Mar 1, 2010)

Don't put too much stock in previous returns. They may or may not be indicative of future returns.

You probably did a risk questionaire, right? This is designed to gauge your risk tolerance and recommend an asset allocation that is appropriate for you. 

A fairly standard allocation is 60% equity/40% bonds. You might start there. If you have the inclination, I'd recommend that you try to read as much as you can about investing and portfolio allocation. Investing for your retirement is pretty important, and worth investing some time in. Blogs might be a good way to start. Some good ones are:

Canadian Capitalist
Moneysmarts 
Canadian Couch Potatoe
Million Dollar Journey

Just google these.


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## Homerhomer (Oct 18, 2010)

behappytoday said:


> What figures in their published reviews should be of my particular attention versus the fees? Suppose it would be the Returns, should I pay attention to 10 years or 20 years figure, or just since inception?


You should look at the figures since the current manager of the fund took over, everything before that doesn't mean all that much. You then should look at the record of the manager elsewhere prior to that day if available.

If the fund started 20 years ago, but the current manager is managing it for 5 years, does the 15 years prior to that tell you anything? For me this info would be meaningless.


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## slacker (Mar 8, 2010)

OT: this thread makes me kind of mad (not at the OP, but at the mutual fund companies). These jerks hide behind their fine print, and fancy jargon, to confuse and disorient customers. Yes it's a case of buyer beware, but this is hardly an efficient use of resources for our country.

PS: I'm pretty glad that my company provides group RRSP for low cost index mutual funds with manulife, all of it cost less than 0.50% MER.


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## OhGreatGuru (May 24, 2009)

To OP:
This thread has wandered well off your title question, which was about asset allocation for your age & circumstances. If you are in it for the long term; don't expect to make early withdrawals; and can sleep well if your portfolio value drops 20% in tough economic times, then a 20/80 asset allocation is perfectly reasonable.

All the discussion has arisen because the particular fund you are looking at (and which seems to be available to you in this group plan) is listed as having a high MER, which affects returns, and DIY investors avoid high MER funds like the plague.

Of course the Money Market Fund has a low MER - most of them do, but they also have low returns. So the MER is no reason to choose it.

I don't think you answered the question about whether the funds in your pension plan are actually institutional series of the underlying funds, that usually have lower MERs. Ask your pension plan administrator for clarification - most pension plans buy institutional series funds. According to Globefund, the SEI Growth 80/20 is available in 6 different series, with MERs ranging from 0.23 to 2.65. 3 of them are really low MER series for high net worth investors, that require a minimum $150K. The other 3 have MERS ranging from 1.18 to 2.65, with a minimum of only $1K.

From what I have seen lately, the MER for a portfolio fund is usually made up of the managment expenses of the underlying funds, and is not in addtion to them. But you should be able to find this out from the prospectus. From the SEI Prospectus:
_The Underlying Funds do not pay management fees to the Manager in respect of the money invested in the Underlying Funds by the Asset Allocation Funds so there is no duplication of management fees. The Fund also does not pay any sales or redemption charges for purchasing or redeeming Units of the Underlying Funds._

If these high-MER funds are the only ones available through your company plan, you may need to reconsider some of the anwers to your posts about purchasing additonal optional pension amounts.

PS: if these really are the Class P retail funds, with the highest MER's, I would get together with your fellow employees and ask senior management what kind of cushy deal they got out of this pension management contract.


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## behappytoday (Sep 16, 2011)

OhGreatGuru said:


> To OP:
> 
> I don't think you answered the question about whether the funds in your pension plan are actually institutional series of the underlying funds, that usually have lower MERs. Ask your pension plan administrator for clarification - most pension plans buy institutional series funds.


Thank you for your input OhGreatGuru!

What does it mean, an institutional series of the underlying funds? Series like O,P,S, etc., are those the series? Before I ask the administrator, I want to know what does it actually mean.

On the funds that require $150 k, or $1k as a minimum: would this not be just for retail investors? My guess would be that these limits may be not be valid in case of company pension plans, where a plan can be chosen either by 100 employees or by 50 employees with different amounts of invested money. Otherwise the $150 k plans would not be available for us to choose and to contribute.


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## behappytoday (Sep 16, 2011)

*Institutionalized fund - what in particularly does it mean to investor?*

Now I looked up the definition in Investopedia.
It says that it is often what companies purchase for the pension plans, and that it typically has lower MER.

Question: if our plan is actually an institutionalized plan, what does it mean to me? A MER figure can be easily obtained online anyway. I figure that if this is an important question for me to ask the plan admnistrator, then it should be some food for thought for me, right?


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## OhGreatGuru (May 24, 2009)

behappytoday said:


> Thank you for your input OhGreatGuru!
> 
> What does it mean, an institutional series of the underlying funds? Series like O,P,S, etc., are those the series? Before I ask the administrator, I want to know what does it actually mean.


Go to SEI's web site & download the prospectus. According to it their funds may be issued in Class D, E, F, I, O, P, R & S series. When I looked them up on GlobeFund I found the 20/80 Fund is issued in 6 of these, but I don't remember which. Globefund will tell you what the MER is for each.

Class I for example is primarily intended for _"corporate sponsored retirement and savings plans"_ and has an MER of 0.75%

Class R is primarily intended for _"corporate-sponsored retirement and savings plans in which corporate sponsors may agree to pay certain fees on behalf of investors and other
investors may participate in the Manager’s discretion."_ and has an MER of 0.23%

Do your homework.


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## behappytoday (Sep 16, 2011)

Thank you very much! Yes I read about those series, but my understanding is that as plan participants we have no influence on what particular securities series will be used for our investments. We only pick up one of 6 funds. 

After having done some reading, thinking, comparing I drift towards the Balanced 60% equity, 40% fixed income fund. We don't have a big choice here anyway, but an extra employers' money are a good inceintive to subscribe to this optional plan. After having done the investors questionnaire, this is exactly the fund that is recommended for my situation.

One more thing though which I learned from adninistrator. We have to pay the 0.32% of investment manager fee, besides what the employer pays for us. This is for all funds, whatever we choose.


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## OhGreatGuru (May 24, 2009)

I don't expect each pensioner to be able pick different series funds. But someone in your pension administration dept. should definitely be able to tell you what series of the funds are offered through the plan - it should be part of their agreement with SEI. Keep asking questions until you get an answer.


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