The Gazette from Montreal, Quebec, Canada • 50

6 THE GAZETTE, MONTREAL, MONDAY, AUGUST 19, 2002 BOTTOM LINE FINANCIAL MAKEOVER Crunch time for the Barkers Ten years before retirement, couple needs comprehensive financial plan PAUL DELEAN The Gazette For 15 years, their biggest investment was their children. Private high schools and out-of-province university studies for three children amounted to a major financial commitment, but Ed and Diane Barker (not their real names) made it without hesitation. "Some people thought we were crazy spending as much as we did on the kids, but it's what we wanted to do," Ed said. "Giving them a first-class education was our priority. We spent a mini-fortune, but we wouldn't change that for the world." All three children have graduated from university the last one this summer leaving the Barkers in the unfamiliar position of actually having surplus cash at the end of the month.

And they don't intend to squander it. In their mid-50s, they're not that far from retirement, and worry they haven't saved nearly enough. His RRSPs (including a spousal RRSP taken out for him by Diane when he was self-employed) are worth about $36,500, hers about $59,000. They're entirely invested in mutual funds from two banks and show negative returns the past two years. c- I mn, .11 1 My ALLEN MclNNIS, GAZETTE A wide range of books are available today on personal finance, and many offer retirement-planning advice for couples like the Barkers.

RRSPs," Garneau said, "there is little danger they will be in higher tax brackets at retirement. Hence, they will benefit most by contributing to their RRSPs and not to non-registered portfolios." They can use spousal RRSPs to keep their nest eggs the same size, with more needed in Ed's plan because he doesn't have a private pension plan. Tax refunds generated by the RRSP contributions can be used to pay down debt or build up a portfolio of unregistered investments. Both planners had reservations about the amount and type of debt the Barkers were carrying. "In the current investment climate, "Good thing we're not retiring right now," said Diane, who contributes $400 amonthtoherRRSR In addition, Ed has a $14,239 RRSP with Mouvement Desjardlns that he can administer himself but cannot close or transfer.

It's currently invested in Desjardins units. Neither partner has been dazzled by the level of counsel and expertise demonstrated by their bank advisers, but they don't feel knowledgeable enough to take matters into their own hands and haven't been able to find anyone they feel more comfortable with on their own. "We'd like to have confidence someone is managing our finances for us," Diane said. The Barkers wonder if they should be maximizing RRSPs, paying down the mortgage or focusing on unregistered investments, of which they have none. Their main asset is their comfortable semi-detached home in an upscale Montreal neighbourhood.

They bought it about 25 years ago, when they were newly married, and its current evaluation is $275,000. It would have been paid off by now, except they remortgaged at one point to raise funds for a business investment that did not pan out. The outstanding mortgage stands at $78,000, with another three years to run at an interest rate of 5.49 per cent. "When we renewed it recently, we opted to make weekly payments," Diane said. "It's tough, but we liked how quickly it brought down the balance.

The mortgage will be $17,105 in four years." Combined, the Barkers earn about $140,000 a year. He makes $90,000 as a marketing executive, and she brings home $50,000 as an event planner. Despite a family income well above average, they've found it hard to stay within budget. "We're not, by nature, avid consumers. We have consumer debt not because we live beyond our means, but because we made certain choices," Ed said.

They're carrying a $5,000 credit-card balance and owe $11,000 on their line of credit. They also have an outstanding car loan of $20,000 (being paid off at the rate of $400 a month). He pays $942 yearly for term life insurance of $250,000. She gets coverage equivalent to a year's salary through work. The plan is to use the next 10 years to shore up their finances for retirement.

"It's crunch time. We've got to start setting some goals and plans. We have to make the most of the time left," said Diane, who will receive a monthly pension of a couple hundred dollars from her employer in addition to the Quebec Pension Plan if she retires at 65. (Ed has only the QPP) They don't foresee any major lifestyle changes, or moving from their current home. Ed figures they will have an extra $10,000 to 12,000 a year to work with now that the last child has graduated.

"We've turned a page. Now it's time to focus on retirement." What approach should they take? The Gazette asked two financial planners, Martin Garneau of Investment Planning Counsel of Canada in St. Laurent and Keith Donoghue of Investors Group in Pointe Claire. Both agreed that maximizing RRSPs should be a priority for the Barkers at this point in their lives particularly for Ed, whose income puts him in the top tax bracket. "Since they've saved so little in their "(The Barkers' portfolio is) a classic case of over-diversification." Keith Donoghue $150,000 and amortize it over 10 years so that the mortgage-burning party coincides with the retirement party.

The $72,000 from the mortgage refinancing should be used to pay off the $36,000 of other debt, increase Ed's RRSP and set up an emergency fund. The refinancing also frees up an extra $400 a month to work with for retirement. Neither planner was impressed by the Barkers' RRSP portfolios, which consist of about 20 different bank mutual funds, only a few of which ranked as solid performers, according to Morningstar. Garneau called them "a dog's breakfast," reflecting "over-diversification, duplication and conflicting objectives." "Investors often deal with several advisers or institutions in the belief they are reducing risk or investing in a more sophisticated approach. This is a misconception," he said.

"Such an approach typically leads to situations whereby the investment portfolios are so dispersed they become unmanageable and seriously un-derperform. The Barkers need to sit down with a competent adviser who will assist them in establishing clearly defined goals and implement these using an investment-policy statement." Donoghue said the portfolios "need to be cleaned up and quickly." He called them "a classic case of over-diversification." But he said the strategy of investing in mutual funds remains a sound one, even if returns have been low to nonexistent in recent years. "A balanced portfolio of equities and fixed-income securities will provide them with the growth they need to retire comfortably," he said. "With markets at 1998 levels, some investors are selling in a panic, but it's the smart investor, like Warren Buffett, who is buying into equities at 1998 discounted prices." Both planners felt the Barkers were underinsured, given the amount of debt they're carrying and the importance of two incomes in realizing their retirement goals. "While they have no more financial dependents living with them, they are nonetheless very dependent on each continued earning capacity over the next 10 years," Garneau said.

"It would be prudent for them to have their insurance needs reassessed." Donoghue suggested they talk to two or three professional planners, opting for the one they feel most comfortable with, and then focus on developing a comprehensive plan covering their retirement, estates, insurance, taxes and investments. As a starting point, Garneau recommended they draw up a budget listing all their expenses. "Though they are to be greatly commended for providing the best education possible for their three children, they are now approximately 10 years away from retirement and really need to do some serious financial planning," he said. "By making a budget, they will see where they can cut back on expenses, avoid further debt and increase their savings rate." Financial profiles of individuals and families are a regular feature of Bottom Line. If you 'd like your case assessed professionally as part of the series, please send your name and telephone number to Paul Delean at The Gazette Business section.

250 St. Antoine St. Montreal I12Y 3R7, or via E-mail at where the average investor is seeing negative returns, paying down non-deductible debt is not only a sensible thing, it is the smart thing to do," Garneau said. While it's admirable they've accelerated mortgage payments to pay down the house faster, they still have a car loan and are carrying costlier balances on their credit cards and lines of credit, Donoghue noted. The advisable approach with debts is to pay down those with the highest rates of interest first.

"Given their high cash flow and lack of retirement savings, I would not be in such a rush to pay off a mortgage at 5.49 per cent," he said. "In fact, I would redo the mortgage for MONTHLY PERFORMANCE SURVEY FOR PERIOD ENDED JULY 3 1 2 0 0 2 THE BEST PERFORMERS THE WORST PERFORMERS Fund Return Type Fund Relurn Type 1. Mavrix F.mei-KinR Companies Fund CdnSmKq 2. Mavrix Growth Fund CdnSmEq 1. Hoyal Precious Metals Fund 9399 PrecMet 2.

Sprott Hedge Fund LP. 85.70 AltStrat 3. AGF Precious Metals Fund 70 42 PrecMet Fund Return Type I AGF Managed Futures Fund 13.13 SpecMisc 2 Horizons Strategic Fund II 11.29 AltStrat 3. StrateptcNova Managed Futures Hedge 11.13 AltStrat 4. Altamira Biotechnology Fund 1 0.54 Health Care 5.

Altamira RSP Biotechnology Fund 9.54 Healthcare 6. SEI Enhanced Global Bond Fund-OCIa 7.71 ForBond 7. SEI Enhanced Global Bond Fund-PCIa 7.63 ForBond 8. GG0F Alexandria Global Biotechnology 6.62 Health Care 9. Trans IMS International Bond Index 6.57 ForBond 10.

Montrusco Bolton World Income Fund 6.30 ForBond I I Scotia CanAm US Income Fund 6.17 ForBond 12. Horizons Mondiale Hedge Fund 5.99 AltStrat 13. BDC Managed Futures Notes, Series N-3 5.87 AltStrat 14. HSBC World Bond RSP Fund 5.78 ForBond 15. Biocapilal Biotechnology and Healthca 5.73 Healthcare Fund Relurn Type UNO Global Communications Fund SdTurh 2.

Sentry Select Wireless Comm Fund SciTech 3. iUrats Cdn IT Index -59 55 SciTech 4. The Friedberg Currency Fund -59 34 AltStrat 5. AIM RSP Global Telecommunications Fun -58 60 SciTech 6. AIM Global Telecommunications Class SciTech 7.

First Trust DJ Internet Index 1999 CS SciTech 8. SlraleuicNova U.S. Tech Fund SciTech 9 Mavrix Enterprise Fund -53 70 USEq 10 Caldwell Technology Fund SciTech 1 1 Nat Bank Global Technologies RSP SciTech 12. ING Global Technology Fund SciTech 13 AGF Global Technology Class SciTech 14. Nat Bank Global Technologies Fund SciTech 15.

First Trust RSP NA Technology 2000 SciTech 3. Mavrix Canadian Strategic Equity Fund -2014 Cdn LrgEq 4. Acuity All Cap 30 Canadian Equity Fun -1887 CdnEq 5. Fallingbrook Growth Fund Class A CdnEq 6. Royal Precious Metals Fund PrecMet 7.

Dundee Precious Metals Inc. -1 7.25 PrecMet 8. Mavrix Diversilied Fund CdnBal 9. Acuity Pooled Environment, Sci Tech SciTech 10. Middlelield Alternative Energy Class SpecMisc 1 1 TD Precious Metals Fund -1 PrecMet 12 Mavrix Enterprise Fund -16 67 USEq 13.

Acuity Clean Env Science and Technolo -16 55 SciTech 14. Cambridge Resource Fund NatRes 15. iPerlorm American Focus Fund USEq 4. Mac unv Precious Metals Fund 69 79 PrecMet 5. Dynamic Canadian Precious Metals Fund 61 48 PrecMet 6.

London Lite Precious Metals (MAXXUM) 59 63 PrecMet 7. Dynamic Global Precious Metals Fund 57.85 PrecMet 8. Mac Unv World Precious Metals Cap CI 55.70 PrecMet 9. BM0 Precious Metals Fund 52,18 PrecMet 10. TD Precious Metals Fund -I 5109 PrecMet 11.

CIBC Precious Metals Fund 4929 PrecMet 12. Altamira Precious Strategic Metal 49.27 PrecMet 13. StrategicNova World Precious Metals 46 70 PrecMet 14. Sprott Canadian Equity Fund 42.32 CdnEq 15. Bissett Microcap Fund Class 34.52 CdnSmEq Fund Return Type Fund Relurn Type 1 Cambridge Resource Fund NatRes 2.

Cambridge Growth Fund CdnSmEq 1. it lulls Cdn IT Index SeiTivh 2. Mavrix Enterprise Fund -3816 USEq 3. Sentry Select Wireless Comm Fund SciTech Fund Return Type 1. StratcKlcNova Managed Fulures lledne 29.1.riAltSlrat 2.

BDC Managed Futures Notes. Series N-2 1 9.26 AltStrat 3. Friedberg Diversified Fund 1 9 1 2 AltStrat 4. BDC Managed Futures Notes. Series N-4 1 8.92 AltStrat 5.

Friedberg Futures Fund 16.74 AltStrat 6. AGF Managed Futures Fund 16.67 SpecMisc 7. BDC Managed Futures Notes. Series N-5 16.43 AltStrat 8. ADA Diversified Futures Fund Ltd Part 14.38 AltStrat Fund 1.

Talvest Global I it-alth rare Fund 2. Goodwood Fund Class A 3. Resolute Growth Fund 4. The McElvaine Investment Trust 5. BPI Global Opportunities Fund 6.

Chou RRSP Fund 7. CI Global Consumer Products Sector 8. Norrep Fund 9. Chou Associates Fund 10. Dominion Equity Resource Fund Inc.

1 1 Fidelity Small Cap America Fund Scrie 12. North Growth USEq Fund 13. Dividend Income Fund Series A 14. Saxon Small Cap 15. Acuitv Pooled high Income Fund Return Type 27.06 Health 24 86 AltStrat 24.14 CdnSmEq 21.91 CdnEq 20.62 GlobEq 17.10 CdnEq 15.18 SpecMisc 14.21 CdnSmEq 12.90 USEq 12 59 NatRes 12.45 USEq 12.37 USEq 12.06 CdnDiv 11.03 CdnSmEq 10.90 Cdnlnc.

Trust 9. The Fnedberg Currency Fund 13 94 AltSlrat 10. SEI Enhanced Global Bond Fund -OCIa 13 30 FoiBond j. Managed Mitures mnrj SpecMisc 4. Cambridge Balanced Fund CdnBal 5.

Ethical Pacific Rim Fund AsiaPacEq 6. Cambridge Precious Metals Fund PrecMet 7. University Avenue Canadian Fund CdnEq 8 Cambridge Special Equity Fund CdnSmEq 9. Mavnx Growth Fund CdnSmEq 10. Cambridge Pacific Fund -18 88 AsiaPacEq 11.

AGF Latin Ameiica Fund LalinAmEq 12. Dynamic Global Resource Fund -16 24 NatRes 13. Mavrix Emerging Companies Fund CdnSmEq 1 4. BM0 far East Fund -15 01 AsiaEq 15. Valorem USEq Fund USEq 4.

AIC RSP Global Developing Technology SciTech 5. AIC Global Developing Technology Fund -36 91 SciTech 6. AIC Global Developing Technology Corp -36 62 SciTech 7. ING Global Communications Fund -36 53 SciTech 8. Middlelield Alternative Energy Class -36 39 SpecMisc 9.

Nat Bank Global Technologies RSP -32 85 SciTech 10. Nat Bank Global Technologies Fund SciTech 11. AIC Global Sciences Technology SciTech 12. Dynamic RSP Global Technology Fund SciTech 13. Investors Latin American Growth Fund LatiriAmEq 14.

AIC Global SciTech Corp SciTech 15. BM0 Latin American Fund LatuiAniEq 1 1 BDC Managed Futures Notes, Series N-3 13.18 AllSlrc' 12. SEI Enhanced Global Bond Fund Cla 1 2.89 ForBond 13. Sprott Hedge Fund LP. 1120 AltStrat 14 Mac Unv World Tactical Bond Fund 10.49 ForBond 15 I.G.

Templelon World Bond Fund 10.28 ForBond How to access mutual-fund data on the Web Canada.com allows readers to track funds For the most up-to-date information on Canadian mutual funds, go to canadc.com. Follow your portfolio or obtain individual quotes Canada. combinfunds. You can track daily, monthly and long-term performance of each fund along vith details about the fund and its Top 1 0 holdings..