Work pension plan choices (canada), active management or not?

[fullpampers]

Hi,

I'm forced to change my pension plan options at work. The index fund I used to buy is no longer offered. It had basically the same asset allocation as my personal portfolio, but with more bonds.

I use a Canadian couch potato portfolio. (20% CDN Equity,15% US, 15% International,10% REITs, 10% Real return Bonds, 30% CDN Bonds)

I have basically two options, either go with their "life cycle" deal and it chooses funds for you based on your age. Or I pick my funds myself.

If I go the Index route I have 3 funds: Canadian index, U.S index, and Canadian bond index. (for 0.1% MER)

If I take the managed funds I have a little more options. They are basically 0.33% MER. So they are still pretty cheap. The one fund I like over others has this for an allocation:

- Global Equity Fund (ACWI) : 50,2%
- Canadian Equity Fund : 19,4%
- Global REITS Fund : 8,6%
- Corporate Univers Bond Fund : 7%
- Long term Bond Fund : 7%
- Global small Cap fund : 6,4%
- Emerging Market fund : 1,4%

These are all managed funds within the fund. I know it doesn't give you the specifics of the holdings, but I thought it would give an idea.

The other fund that looks appealing to me is the "Bimcor Global dividend yield pooled fund" (0.1% MER)

AA is:

- Consumer Staples : 17.1%
- Health Care : 17%
- Energy : 13,2%
- Financials : 10%
- Industrials : 9,1%
- Information Technology : 7,9%
- Utilities : 7,3%
- Consumer Discretionary : 7%
- Materials : 5,8%
- Telecommunications Services : 5.5%

Top 10 holdings are:

- Exxon Mobil Corp : 4.1%
- J&J : 3.4%
- Nestle SA-Reg : 2.9%
- AT&T : 2.5%
- P&G : 2.4%
- Pfizer :2.4%
- Novartis AG-Reg : 2.3%
- Roche HLDG-Genus : 2.3%
- Coca cola : 2.1%
- Chevron Corp : 2.1%

If I where to go the managed fund route, I'd probably make a mix of these two.

My question is do you completely stir clear of managed funds?

Would you just get the US and CAN index funds from the work plan and buy more bonds, reits, International equity, etc. from your personal portfolio so as to take the "management" factor out of the equation? Every time I hear "managed fund" I think about the monkeys analogy in The Four Pillars of Investing...

Would you consider both portfolios as one and keep your AA spread out between the two portfolios?

I tried to find information on the funds online so I could link to them but can't find any.I can only access the site from work. I could save the pdfs and upload them here, But I doubt people want to download pdfs...

Thanks for any help!

J-S

[NoStacheOhio]

You could always go with the three index options, and increase your international exposure in the other accounts to compensate?

[fullpampers]

that's what I was thinking of doing, but just figured I'd ask. It's still surprisingly easy to get lured by the promisses of managed funds... Especially when MERs are low...

Thanks!
J-S

[Heckler]

I treat our self directed (large amount) and my work RSP ( small amount, contribute off pay check and transfer out to self directed annually no fee) as one asset allocation across all accounts.  All index funds -CCP 2014 style- and I can redirect my work contributions to bond, EAFE or US index as required to rebalance.  This way, my annual transfer out of work plan to self directed is simply a reduction of fees once a year.

The hope is Ill never have to sell any self durected (Vanguard) to rebalance.  Just buy!

[RichMoose]

Stick with Index. Like you said, you can make up for the missing portions outside your work accounts.

Besides, is the 0.33% fee the "true fee"? ie. does it include the fees embedded in the individual funds it holds.

[fullpampers]

I treat our self directed (large amount) and my work RSP ( small amount, contribute off pay check and transfer out to self directed annually no fee) as one asset allocation across all accounts.  All index funds -CCP 2014 style- and I can redirect my work contributions to bond, EAFE or US index as required to rebalance.  This way, my annual transfer out of work plan to self directed is simply a reduction of fees once a year.

The hope is Ill never have to sell any self durected (Vanguard) to rebalance.  Just buy!

I didn't know you could do that. Do you sell some of your holdings from your work RSP and then transfer the cash to your self-directed RSP account? I'll have to check with work if this is something I could do.

Stick with Index. Like you said, you can make up for the missing portions outside your work accounts.

Besides, is the 0.33% fee the "true fee"? ie. does it include the fees embedded in the individual funds it holds.

From what I can read, this is the true fee. I'll check again to be sure.

Thanks!

So I'll just get the CAN and US index funds and see if I can transfer from my work RSP to my Self-directed to rebalance. Would using a small portion of my contributions to the global dividend fund be a good idea? Or since the the US index fund is holding these companies anyways, just buy that and keep it simple?

J-S

[RichMoose]

Would using a small portion of my contributions to the global dividend fund be a good idea? Or since the the US index fund is holding these companies anyways, just buy that and keep it simple?

KISS!

[fullpampers]

Would using a small portion of my contributions to the global dividend fund be a good idea? Or since the the US index fund is holding these companies anyways, just buy that and keep it simple?

KISS!

I'll take the simple way then!


One (hopefully) last question : In my self directed account, I have 20% CAN equity, 15% US, 15% world,...

Since I don't have access to a world ETF in my work pension plan, Is there an ideal number for a CAN/US mix or do i just go 50/50 in my work portfolio,and try to keep my normal AA by buying around the CAN/US portion of my self-directed portfolio?

I'll call next week to know how it works to transfer to my self-directed account.

Again, thanks for the help.

J-S

[Heckler]

Look into vesting period (how long do you need to hold to recieve employer contribution if you pull funds out) and fees to transfer out.  My company is very open, allowing immediate vesting and once per year transfers out for free.

I simply contribute $hundreds$ at a time to either Bond, US or EAFE index off my pay-check in my work plan (low MER, but not as low as Vanguard, but also no transaction fees). This lets me stay balanced with contributions, but without my $9.95 trading fee in my self directed.   Once per year, I sell the work indexes, transfer out and rebuy the Vanguard equivalents in $thousands$ in my self directed and also rebalance once per year my Vanguard.  Thats the beauty of index funds though - a Blackrock S&P 500 index fund will have similar performance as a Vanguard S&P 500, difference being the fees or transaction costs.   Yes, I run risk of being out of the market for the two weeks it takes to transfer.

[Heckler]

Here's my AA by account, treating all accounts as one.  Intended AA is on the top row, actual AA on the bottom. 

I just transferred both my 2015 work contributions (purple 0%) to my spousal and RSP.   In the next year, biweekly contributions go to his work RSP and spousal to three of my indexes.  My VCN will grow through TFSA contributions only.   I am trying to never have to sell funds outside of my work plans but remain balanced.  The recent drop in VCN took me by surprise, but luckily we have one mortgage payment left, then will have lots of cash ready to buy!

[Heckler]

More reading for you, in case you can pull out your work plan.

https://www.bogleheads.org/wiki/Asset_allocation_in_multiple_accounts

http://canadiancouchpotato.com/2014/08/13/managing-multiple-family-accounts/

[Heckler]

Besides, is the 0.33% fee the "true fee"? ie. does it include the fees embedded in the individual funds it holds.

That's something I've always suspected with my work plan, which is a Sunlife wrapper over a Blackrock fund.  The Sunlife fees are still cheaper than my self directed $9.95 fees to buy Vanguard off the bat, and the 5% match and simplicity of pay check deductions makes it worthwhile short term.

The 0.33% fund looks like it simply holds index funds for a greater fee.  My long ago kicked to the curb BMO Nesbitt Burns architect fees were simply overcharging for this simple "management".  Don't be fooled!

[Stasher]

Look into vesting period (how long do you need to hold to recieve employer contribution if you pull funds out) and fees to transfer out.  My company is very open, allowing immediate vesting and once per year transfers out for free.

I simply contribute $hundreds$ at a time to either Bond, US or EAFE index off my pay-check in my work plan (low MER, but not as low as Vanguard, but also no transaction fees). This lets me stay balanced with contributions, but without my $9.95 trading fee in my self directed.   Once per year, I sell the work indexes, transfer out and rebuy the Vanguard equivalents in $thousands$ in my self directed and also rebalance once per year my Vanguard.  Thats the beauty of index funds though - a Blackrock S&P 500 index fund will have similar performance as a Vanguard S&P 500, difference being the fees or transaction costs.   Yes, I run risk of being out of the market for the two weeks it takes to transfer.

Well Shit....
I may just do that after this cycle starts climbing back up so I don't realize any losses currently, I would love to see my work Sunlife RRSP combined with my self directed RRSP etf vanguards. I never even thought of this option as I just left the company stuff to do its thing but transferring to my self directed would save about 1.1% right away on MER fees alone. Cheers Heckler

As for what the OP is doing, looks way too complicated.
yup KISS indeed , go 3 index fund max CND/US-INT/Bond

[Heckler]

The key is to stay on top of it.  Sunlife charged me $25 unjustified transfer fee last week.  One phone call and they reversed it, but without Mint telling me, it might have gone unnoticed.

I expect Sunlife will have different terms with each company rhey deal with.  My Sunlife adviser mentioned my options are very good.  All you can do is ask!

[Stasher]

Exactly , we just need to ask. I can see both my Sunlife and my Scotia iTrade in one place on Mint but it would be nice to see them working together in one fund. Now to figure out how to get the transfer done, I would assume that the transfer is initiated by Scotia so I will see what their transfer documents look like. Cheers

[Heckler]

Yup.  Fill in the form from your self directed to transfer funds in.  Send the form to iTrade.

Your SL account has a fees tab (web browser only, not mobile app) - mine says once per year free, and $25 per above that.  Accounts/Account Fees/ Service Fees. Check it out.

[Heckler]

Double check your employers vesting rules though!


http://www.investopedia.com/terms/v/vesting.asp

[Stasher]

Double check your employers vesting rules though!

For sure, would not want to do anything to jeopardize all that contribution matched funding.
Thanks for the info and hope my slight hijack has helped others and the OP

[fullpampers]

Thanks everyone!

This has been very helpful. I'll call this week to check the vesting rules.

Thanks again!
J-S

[Heckler]

So I'm curious what everyone else thinks of my methods.  This past year worked fine with $12k US index from my work plan moved to self directed.  But its not exactly buy and hold since I sell once per year about 5-10 % of my portfolio in order to transfer it to lower fee equivalent indices.  In theory, I am DCAing during the year, then selling and lump sum purchasing. 

Thoughts?

[RichMoose]

So I'm curious what everyone else thinks of my methods.  This past year worked fine with $12k US index from my work plan moved to self directed.  But its not exactly buy and hold since I sell once per year about 5-10 % of my portfolio in order to transfer it to lower fee equivalent indices.  In theory, I am DCAing during the year, then selling and lump sum purchasing. 

Thoughts?

I think you are wise to keep doing what you're doing. Cost is important! Sure you might be out of the market for a week or two with a portion of your portfolio every year, and in [generally] rising markets you will have a small one-time loss because of this. However, you are saving substantial amount of compounding fees by doing this. Over the years and into retirement it adds up.

[fullpampers]

I figured I'd ask in this thread, instead of starting a new one.

Apparently I can't transfer the money from my work pension plan account into my personal account unless I resign from my job...

I had just gotten my AA in my personal account sorted out with my RRSP gross up loan for tax season. I should have added my work pension plan into the mix to have an overall AA instead of it being account specific, but it somehow slipped my mind.

I just got around to checking that out this week.

So it ended up looking like this( what it is vs. what my target AA is):

CAN Equity : 40.27% (target :20%)
US Equity : 25.27% (target : 15%)
INT Equity : 6% (target : 15%)
REITs : 5.11% (target : 10%)
Real-Return bonds : 4.53% (target : 10%)
CAN Bonds : 17,03% (target : 30%)

The remaining % are cash, which are going to be invested shortly. Like I said, I was pretty much on target in my personal account, but when I added my work RRSP to my personal AA, it all went out of whack...

My question is do I keep this as is and try to rebalance with buying? This might be hard since my work pension plan buys alot of CAN and US equity...
Or do I sell some to buy other so that I have my normal AA?

Thanks for any help

J-S

[RichMoose]

I would consider having your workplace plan buy more bonds because you are particularly low in that area. As well, RRSPs are the best place to hold bonds for Canadians.

If you increase your bond purchase, it will lower the amount of Can&US equity. You should then be able to purchase REITs in your TFSA (arguably the best place for them anyways).

[fullpampers]

I would consider having your workplace plan buy more bonds because you are particularly low in that area. As well, RRSPs are the best place to hold bonds for Canadians.

If you increase your bond purchase, it will lower the amount of Can&US equity. You should then be able to purchase REITs in your TFSA (arguably the best place for them anyways).

I just set it up to buy more bonds for future contributions in the work account, thanks!. I'll buy around that in my personal account and see how it goes.

As of now, I only have my RRSP since I'm catching up on unused contributions and want to take advantage of gross up loans and tax returns. I should be caught up with unused contributions within 2 years. I'll get on the TFSA after that.

Thanks again
J-S

[fullpampers]

I just thought of something,

I can set-up my work account to "auto-rebalance" every month. I hadn't checked that option at first, but would it be a good option?

That way the work account AA never changes and I buy accordingly in my personal account. The down side is once a month my work account would sell and buy funds to rebalance... Which is why I hadn't used that option at first.

J-S

[RichMoose]

Would this option increase expenses? If not I say go for it.

[fullpampers]

Would this option increase expenses? If not I say go for it.

There aren't any fees to rebalance the account or make changes to your AA. I'll double check just to make sure, but from what I have been told there aren't. I'll set it up next time I'm at work.

Thanks!
J-S