Studies show people overwhelmingly want guarantees when they invest and guaranteed income.  Most investors have no idea they can achieve these. Yes, you can!  This article is a must read for all investors!  

When you’re done reading it, you and I should at least have a discussion about it.  Please book a time here.

Playing defence with your retirement savings usually comes at a price. But it can be well worth it when you look at how a precarious economy can hammer nest eggs. While the market may be doing well when you read this, smart investors are asking when is the next economic tsunami coming?

For many investors, the higher management fees associated with segregated funds are a prudent trade-off considering the safety net these funds provide.

We insure our home, cars, trucks and other toys.  Its therefore reasonable to insure your retirement assets. Even GIC’s are insured and you are paying their fees.

Seg funds are classified as an insurance product rather than a financial asset. They offer both creditor and liability protection. Eric Kirzner, the John H. Watson Chair Emeritus in Value Investing at the University of Toronto’s Rotman School of Management, says seg funds make sense for investors looking to lock in the value of their life savings.

“If the maturity guarantee really matters, if you’re a nervous sort, or maybe you’re in ill health and there is a risk you may have to cash in at precisely the wrong time, I can understand why you would do it,” he says.

Unlike mutual funds, seg funds usually come with a maturity guarantee ranging from 10 to 15 years. The guarantee insures a large proportion of the original investment (at least 75 per cent and often 100 per cent), in case a buyer needs to cash out during a down market.

It is one of those things that, if they ever need it, that will be a huge value.

For example, if by some tragedy they pass away at age 67 and their death benefit guarantee [on their seg funds] is $550,000 and their portfolio is worth $510,000, then the insurance company is going to pay out the $550,000 to their family.

We help clients realize that they got to where they are by perhaps taking a fair bit of risk and are fortunate to be ahead of the game.

Seg funds offer an opportunity to lock in the gains people have had so far, in terms of the guarantee. Because of the higher holding cost,  a seg fund retirement protection strategy makes sense for higher-net-worth individuals and couples aged 50 or older. This  may not be as beneficial for younger people.  Although, it may be in situations where a disabled child or parent are dependent on them financially.

If you’re starting a 30-year-old in seg funds, the fee structure over a really long time has a huge impact on a portfolio. But if I have a new client coming to us at age 58 and they have already accumulated most of their capital, then paying a higher fee for some of the benefits [of a seg fund] is not as detrimental to the overall value of their holdings over a certain period of time.

Who else can benefit from seg funds when looking toward retirement? If you’re a small business owner, seg funds make sense to protect your assets.

Advisors are realizing more and more that in these volatile markets, they can’t be on top of everything. They often spend more time on the financial planning side for their clients and rely on the experts to help build and manage investment portfolios. Managed solutions through segregated funds gives them the best of both worlds.

The guarantees and diversity are both appealing. In the seg fund market, you can pretty much get almost any type of fund that you can get in the mutual fund market. Global equities, resources, dividend, small cap, large cap, growth – there’s a segregated fund out there that’s going to have that. If you look at two funds and the rate of return is comparable in the long term, and at times that is the case [where a seg fund performs as well or better than a mutual fund] a lot of people tend to lean towards a segregated fund.

Every time markets experience a broad correction,  investors tend to place greater value on balance and safety in their portfolios, including the comparative safety of seg funds.

Markets were on a tear for the past six to eight years. But now, just like [during the global financial crisis of] 2008, investors are asking for a more thoughtful approach to where they put their investments. That’s why we are seeing this more balanced approach to portfolios and investing really taking hold.

The return of their money in tough times, for many, may be just as important as return on their money.  Seg funds do that.

Additional benefits of seg funds are:

Performance as good as mutual funds or better – lower fees are no indicator of how well your index or fund manager your fund will perform – let me share with you all the seg funds that perform better than mutual funds

Preferred PROTECTION from the potential claims of CREDITORS – a former client of mine ignored this advise I provided and became bankrupt and lost over $500,000 of their investments.

EXEMPT from PROBATE fees on death because funds LEGISLATIVELY by-pass your estate.


Details of the payouts to your family are PRIAVTE legislatively. 

At a minimum, this is a discussion you should have with your investment advisor.  If they have never had this conversion with you the important question to ask is why not?  And if they have never had this conversation with you is it time to upgrade your advice to an advisor that looks at the whole picture? 

22 May 2021

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