# Plan Changes - Fund Picks



## Shelley76 (Jun 27, 2013)

Hello all, I had this in the retirement section of the forum but got very little action, I'm hoping I can get more help over here.

Recently the organization I work for has changed the retirement plan we have, it's a defined contribution plan. I was hoping you could help me make sense of it. To give you some background about me, I'm married, have two kids, I'm 34 years old, my retirement plan currently has $135,000.00 in it, it is being transferred from Standard Life to Sun Life. I plan to work for about 30 more years, my investor profile is between conservative and moderate. We have no debt (no mortgage etc) but also no other savings. I presently contribute 4%, we can contribute a maximum of 10%, the company matches 50% of your donation up to 2%. We did not have a say in the transfer and our options are fairly limited, here is what the new plan has (sorry it didn't paste so well):

Rates Of Return As Of : 31 May 2013

Fund 1 Month YTD 1 Year 5 Year 
CC&L Group Cdn Q Growth 2.0 7.5 20.8 2.0
BLK LP Index Retirement -0.9 3.0 8.2 4.4
BLK LP Index 2020 Fund -0.7 4.5 11.8 3.4
BLK LP Index 2030 Fund 0.1 6.5 15.9 2.4
BLK LP Index 2040 Fund 0.8 8.0 18.8 1.6
BLK LP Index 2015 Fund -0.8 3.7 9.7 3.4
BLK LP Index 2025 Fund -0.3 5.5 13.8 3.0
BLK LP Index 2035 Fund 0.5 7.3 17.4 2.0
MFS MB Global Equity 4.4 17.2 34.8 N/A
MFS MB Intl Equity 2.3 9.3 29.5 N/A
BLK LP Index 2045 Fund 1.0 8.6 20.0 N/A
BLK LP Index 2050 Fund 1.2 8.7 N/A N/A
B.G. Canadian Equity 3.1 10.0 23.4 5.0
SLF Money Market 0.1 0.4 1.1 1.2
TDAM Cdn Bond Index Fund -1.5 0.2 1.7 5.8
BLK US Equity Index Reg 5.1 19.7 26.9 6.2

So they've essentially scaled back so we had to choose something in these funds. They're pushing us to choose an Index 20** fund and then we'll automatically slide to the next LifePath fund going forward. The actual funds don't transfer from our existing account until late July, we have until then to pick what we'd like.

The Mer fees seem pretty good, as shown below:

Fund Management Fees As Of: 31 May 2013

Fund Annualized Percentage

CC&L Group Cdn Q Growth 0.45 %
BLK LP Index Retirement 0.41 %
BLK LP Index 2020 Fund 0.46 %
BLK LP Index 2030 Fund 0.56 %
BLK LP Index 2040 Fund 0.56 %
BLK LP Index 2015 Fund 0.41 %
BLK LP Index 2025 Fund 0.51 %
BLK LP Index 2035 Fund 0.56 %
MFS MB Global Equity 0.89 %
MFS MB Intl Equity 0.91 %
BLK LP Index 2045 Fund 0.56 %
BLK LP Index 2050 Fund 0.57 %
B.G. Canadian Equity 0.48 %
SLF Money Market 0.19 %
TDAM Cdn Bond Index Fund 0.22 %
BLK US Equity Index Reg 0.22 % 

I'm being told at my age I should be in the Life Path 2030 fund but the performance has been iffy. 

https://grssl.morningstar.ca/globalh...=78955&popup=y

I'm really looking for some advice and thoughts on the situation, unfortunately I cannot control the boat I'm in, all I can do is pick from these options. I'm investing the minimum with my company to take full advantage of the matching. Everything else I earn will be invested elsewhere so I can have more control over it.

Your help and opinions are very much appreciated.

Thanks,

Shelley


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## Spudd (Oct 11, 2011)

It looks like really you have 2 choices: either take the LifePath one for your planned retirement year, or create your own couch potato out of the Canadian Equity, US Equity, Bond, and International funds. The MER would be about equal either way I think (US Equity & Bond are cheaper than the Lifepath, while International is more $$). 

With the LifePath, it will adjust the allocation to become more conservative (i.e. more bonds) as you get closer to retirement. If you go the couch potato route, you'll need to decide your asset allocation for yourself. I might just go for the LifePath honestly, since it's simple, no fuss no muss. And the MER is pretty decent.


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## My Own Advisor (Sep 24, 2012)

Hi Shelley,

Congrats on having no mortgage.

To be 34 and with already $135K in your retirement plan, assuming this is a defined contribution plan, that's pretty good. Hopefully you can get that amount to double about every 10 years.

To do that, you should likely have a longer-term horizon, which means more equities than bonds; some more risk for more reward. 

Given your age, I might suggest to get your bond allocation to match your age, which means your fixed-income component should be somewhere between 30-40%. The rest (70-60%), can be equities/stocks, from a blend of/from Canada, U.S. & International if possible.

I'm personally not a fan of those lifeplan funds of funds, because you don't get the performance for the fees.

So, my suggestion would be:

30% allocation to TDAM Cdn Bond Index Fund (MER 0.22%)
Returns should be similar to this (refer to 10-years), give or take, less your MER fees:
http://www.canadalife.com/web5/groups/common/@public/documents/web_content/s5_009879.pdf

My understanding is this product should match this ETF and its returns (which is a good thing):
http://ca.ishares.com/product_info/fund/overview/XBB.htm

40% allocation to B.G. Canadian Equity (MER 0.48%)
Returns should be similar to this (refer to 10-years), give or take, less your MER fees:
http://www.beutelgoodman.com/MutualFunds/ExpressSheets/EScanequity.pdf

30% allocation to BLK US Equity Index Reg (MER 0.22%)
Returns should be similar to this (refer to 5-years), give or take, less your quoted MER fees:
http://pdf.globefund.com/servlet/Fu...niverse=MLI_POOLED&branding=manps&product_id=

Even though past performance is never indicative of future results, a balanced bond to stock portfolio should keep you moving in the right direction.

Over time, as you age, you can increase your bond component (age 40 = 40% bonds, age 50, consider 45% bonds), this way, you keep most of your capital in-tact as you approach retirement.

"Forced" products at work in a defined contribution plan are never ideal (my wife has a similar plan...) but just try and keep your fees dirt low for as long as possible. Otherwise, the MERs will eat into your returns. 

Good luck!


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## GoldStone (Mar 6, 2011)

Shelley76 said:


> I'm being told at my age I should be in the Life Path 2030 fund but the performance has been iffy.


Ignore the past performance. It includes disastrous, once-in-a-lifetime market crash of 2008. Equities lost 50% of their value. Every single portfolio with a sizable equity allocation got hit very hard.

An increasing number of group retirement plans are moving to LifePlan funds. There is a good reason for that. LP funds are an excellent choice for the vast majority of the plan participants. Each LP fund is a complete, passive, low cost portfolio. It gives you an appropriate asset allocation for your age. It takes care of rebalancing. It very gradually moves you in a more conservative allocation as you age. Set your payroll contributions and forget. Come back in 30 years - you will be rich.

BTW, you don't have to choose an LP fund based on your age. They don't check your birth certificate when you pick a fund. Take a look at the asset allocation in each LP fund. Pick the one you are most comfortable with.

BTW2, your plan has too many choices if you ask me. I would drop all but LP funds.



My Own Advisor said:


> I'm personally not a fan of those lifeplan funds of funds, because you don't get the performance for the fees.


I disagree. Many people think they can easily beat LP funds by picking their own building blocks. It's much easier said than done. Behavioral mistakes get in the way. Things like: taking on too much or too little risk, changing asset allocation at the worst possible moment, not having the courage to rebalance when equities crash, chasing performance, selling low, and so on. LP funds eliminate the worst mistakes.


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## GoldStone (Mar 6, 2011)

Thought I'd add a couple more comments:



Shelley76 said:


> They're pushing us to choose an Index 20** fund and then we'll automatically slide to the next LifePath fund going forward.


You don't slide from one LP fund to another. Once you picked an LP fund, you stay in it. The asset allocation *inside* the fund slides to become increasingly more conservative. This change is very gradual in nature.



Shelley76 said:


> I'm investing the minimum with my company to take full advantage of the matching. Everything else I earn will be invested elsewhere so I can have more control over it.


Track your own performance for a few years. Compare it to an LP fund that has the same asset allocation as your own portfolio. If you can beat the LP fund after 3-5 years, great!! If not, you know how the saying goes... if you can't beat them, join them. 

Good luck!


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## Shelley76 (Jun 27, 2013)

Thank you all for the great replies! I apologize for not getting back sooner. I like the idea of the lifepath but I just don't trust it I think. It appears to be an index of indexes so it's a bit tough for me to grasp at this time. Can anyone explain in a little more detail what the lifepath funds are really representing.

Thank you for your help!


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## MoreMiles (Apr 20, 2011)

You know the concept of balancing, right? When you are young, you are supposed to be more aggressive, like 80% in stocks and 20% in bonds... when you grow older, your investment should be more conservative, like 50%-50%, etc.

Do you have time to keep track? Do you get fearful easily? The easiest way is buy one of these funds, they always maintain the right balance for you, and that ratio changes as the target date approaches. It is not an "index of index" but is more like a "fund of funds". Normally, you will not get charged fee twice... the posted MER should be all inclusive.


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## GoldStone (Mar 6, 2011)

Hi Shelley,

Let me take back something I wrote:



> Set your payroll contributions and forget. Come back in 30 years - you will be rich.


That was too strong a statement. LifePath portfolios are "funds of index funds". Their return is not guaranteed. They capture the market returns, minus the fees. The past decade was brutal for equities. The markets crashed twice. Will the next 20 years be any better? No one knows for sure. Don't count your fortunes just yet.

Back to your last question:



Shelley76 said:


> Can anyone explain in a little more detail what the lifepath funds are really representing.


Try this article. I think it explains the concept quite well.

Target Date Funds: Should You Trust Them with Your Money?

Don't hesitate to ask more questions if the article is not clear enough. I can see how these funds can be confusing, even though they are supposed to simplify your decision making.


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## warp (Sep 4, 2010)

I know someone in a position much like yours where the campnay pension plan was moved to Sunlife.
I recommended a simple total equity mix of Canadian stocks, and US stocks, and perhaps some international stocks.. From the list you posted , you could just take a 40-40-20 % split...or 50-40-10%.
Many US stocks do intl business where Canadian companies do not.

I would NOT buy bond funds at this time...and would stay away from these target date funds.
I say this because of your statement that you intend to work for 30 years, and I assume you will not need the funds in your Retirement plan until then. Stocks have proven to be the best performer over the long haul, and with bond interest rates at historical lows right now, will prob win over the next 30 years by a good margin,but you will have to be able to live with the (sometimes) wild swings up and down...like in the last 6-7 years.

Also make sure you make the maximium contribution you can up to the point where you maximize the "free" money your company matches and puts into the plan. This helps your funds grow much more quickly.

While the fees are low, I can never understand why companies wouldn't offer their employees access to ETF's in these retiremnent accounts. On the other hand.....as an owner of Sunlife stock, I suppose I should be happy about this.


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## warp (Sep 4, 2010)

I forget to add that you could move a portion of your funds into bonds as you get older, and closer to retirement, or as interest rates rise.
Good luck.


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## Shelley76 (Jun 27, 2013)

Thank you all for the help, things are making more sense now. I will keep reading and decide soon, I guess I have to  I'll update you on my progress. Sorry it takes so long for me to reply, you know how life can be.


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