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Home My WebLink AboutThe Citizen, 2009-02-05, Page 10PAGE 10. THE CITIZEN, THURSDAY, FEBRUARY 5, 2009. By David Stevenson President, Braeheid Management If you were close to retirement or in retirement, you should not have lost money in 2008. When the market dissolved, investors, without active management, were unable to stay clear of the risks. Active, tactical management relies on many indicators. It makes sense to run up with the market where the market is supporting the growth/returns. Watch for downside indicators, and then take action to minimize the downside risk. TIP:Look to cost-effective investment strategies managed by a global investment professional to deliver true global diversification and risk protected growth. If you could not afford significant losses (>10 per cent) in 2008, you had more risk in your portfolio than you should have. You must reposition your portfolio today to reflect this unprecedented change. Some managers must have seen this coming, right? Mutual fund managers who may have wanted to offset this risk, may have been limited by the inherent design of the mutual fund itself. The investment mandate may have restricted them from deviating too far from the initial design and intent of the fund. Likewise, advisors may have wanted to make changes, but did not have the tools, technology, global expertise, appropriate products, or the time to deliver advice within a timely or cost effective manner. Action does not equal risk, action requires effort. An ICPM (Investment Counsel Portfolio Manager) has the fiduciary responsibility to take action on behalf of the client’s best interest. The good ones have the right tools and the expertise and are worth their weight in gold…literally! TIP:Ask your trusted advisor to review and clearly explain your options going forward, or seek an expert second opinion today. You may wish to ask: “How does your service provide me with the benefits of active management, in this dynamic global economy. I want risk-protected growth. How can you protect me from downside risk? How can you navigate my investments through this economic storm today, while being globally diversified, and appropriately positioned for the market rebound? What are the associated fees to active management? Do you have access to all global markets?” Why buy and hold did not work for you. As reported on CBC Newsworld, an investment in mutual funds 10 years ago, has netted the investor with zero per cent gains relative to the market. There are exceptions, but “buy and hold” is not the mantra of the successful investor. Your current portfolio is probably not optimized to benefit from the anticipated market correction. TIP:Communicate with your advisor. Demand more from your advisor. As your needs or concerns change, let them know. If you feel frustrated or under-serviced seek a second opinion today. Past performance indicators are gone! You must take into account what is happening today and what is on the horizon for tomorrow. TIP:Ensure your portfolio is re- designed and prepared for this global economy. You may wish to look to private wealth management or (ICPMs) as an option for a forward looking investment strategy with the benefit of having personal attention to your account today, to help navigate your portfolio through to success. This would complement a working relationship with your trusted financial planner to review your current and future cash flow, retirement, insurance, education goals and needs. I have to pay to play, right? Wrong! Mutual fund fees in Canada are among the highest in the world and is another key factor that erodes your returns. With mutual funds, the “MER” or management expense ratio is often between three per cent and five per cent, regardless of the funds returns. Mutual funds are not a tax efficient model but for the entry level investor, this may be the best way to enter the market to attain some degree of diversification. For higher net worth investors, three per cent to five per cent off the top starts to add up to serious dollars, especially in a down market. This MER drag is exasperated with it not being tax deductible and the investment product itself not being tax efficient. This management fee is what the investor pays to have a team manage the collective fund…yet, Morgan Stanley reported that over a 15-year period, less than 20 per cent of the U.S. Large Cap mutual funds out- performed the index. You must ask yourself what you are paying for and what value you are receiving. Also, you need to be conscious of how your advisor is getting paid; at the end of the day, it is your money. TIP:Examine your fees compared to the advice, service and performance received. Insist on full disclosure of all fees, and then do a fair review. If you are with a stockbroker, you should request and review total trading and account fees over a calendar year, then translate that into a percentage of your assets being managed. For value, you should compare those fees relative to your returns over a five-year period – including 2008 – compared to your alternatives. If you are not sure, please seek a second option from another trusted professional. TIP:Ultimately portfolios with greater than $250,000 would want to consider a professional investment manager (ICPM), and expect at least index or market returns. You should also learn about the benefits of lower transaction costs due to: higher volume, cheaper foreign currency exchange charges, lower account fees etc. How to keep the tax man out of your investment returns. Mutual funds by design, do not allow the investor to deduct the fees charged by the fund. Compounded over 25 years, the ability to deduct fees could add 20 per cent to your nest egg. Twenty per cent of $500,000 is $100,000! Also, you may be pleasantly surprised to see a reduction of the total investment fee when going direct to an investment manager. This simply translates into more assets that are compounding in your favour – again, over time, this adds up…a lot! Some distributions like dividends and interest revenue are distributions that are anticipated as part of your overall investment strategy. However, as a unit holder in a mutual fund, you are subject to your share of capital gains triggered within a fund, even if the fund had negative performance. TIP:Private investment management fees are tax deductible on open accounts! (Caution, you do not want an investment management fee on top of a mutual fund’s MER) Look to different vehicles or investment products that are not susceptible to those imbedded tax liabilities. Why it is important to review your portfolio today. The market has suffered a heart attack – globally. The good news is that it did not die. We are moving along, slowly while global inventory is almost depleted. Sustainable levels are being re- defined as we work though the “bottom” of the market. Production will continue and the market will once again rise to reflect appropriate values. No one can predict exactly that will happen, however it is critical that portfolios be positioned to take advantage of the response, and be invested in areas around the globe that exhibit better recovery indicators than others. Professional advice and global diversification is your best chance for long-term growth and personal portfolio recovery. Braeheid Management provides investor, advisor and pension services including education, administration, and client service development across Canada. Materials or content provided is commentary and shall not be construed as investment advice from Braeheid Management. Braeheid Management does not provide investment advice; please contact your local investment consultant or certified financial planner. GICs — the market or your mattress 9 Rattenbury St. E., Clinton, ON N0M 1L0 Ph.: 519-482-9924 ~ 1-888-235-9260 Res.: 519-524-9260 Check out RRSP and RRIF plans designed to meet your needs. GIC, Mutual Funds, LSIF, Seg. Funds Invest in your future today! RRSP DEADLINE: MARCH 2, 2009 Who will look after your financial obligations if you become injured or ill? See Lawrence for a free consultation. Lost money in 2008?Seek A Second Opinion! ENIB provides a total wealth management service. 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