Constructing a balanced portfolio within your Retirement Group Plan

These days not many Canadians have retirement pensions. In lieu of pensions some employers offer Retirement Group Plans to their employees. 

Both my wife and I are lucky to have access to Retirement Group Plans via our employers. As is typical with these plans the employee contributes to his/her RRSP (within the plan) and the employer matches that contribution up to a maximum percentage of the annual base salary. For example, if the employee contributes 6%, the employer contributes another 6%. The employer caps its contribution at a predefined percentage. I have seen employer contributions typically capped at around 5% - 6%.

These plans are typically administered by an insurance company and have a small choice of segregated funds from which to pick from. The fees of these funds are not great; but there is always room for some “fee optimization” if you browse through all the funds that are offered.

We set on a quest to construct a balanced and diversified portfolio within our plans (administered by Manulife and Sunlife respectively). This kind of portfolio allocates 60% to equities and 40% to bonds. The equity portion is divided equally between American, Canadian and International stocks.

In the spreadsheet below you can see how we constructed the portfolios and more importantly you can see the individual funds fees and the total portfolio fee. I put together another post explaining how to calculate the total fee of any portfolio in case you want to give it a quick read.

You will notice that these funds require you to pay sales taxes. The exact value of what you pay is dictated by the “place of supply” rules and it is very hard to estimate. In the worst case scenario you will pay 15% sales tax; but in general it will be lower than that. I assumed a 15% sales tax for my calculations.

In the spreadsheet you will see the acronyms IMF (Investment Management Fee) and FMF (Fund Management Fees). They mean loosely the same and can be compared with the Management Expense Ratio (MER) of an Exchange Traded Fund (ETF).

The Manulife Balanced Portfolio has a total fee of roughly 0.40%. The Sunlife Balanced Portfolio had a total fee of roughly 0.30%.  As a point of comparison a similar portfolio constructed via ETFs will have a MER ranging from 0.17% - 0.22%

The fees are not great, granted; but the employer’s top up makes it worthwhile. Rebalancing these portfolios requires some work (but not much). You have to make sure you do not trigger short-term trading penalties (totally doable). We are rebalancing our portfolios once a year.

I hope this was useful. Drop a note in the comments section if you have some questions or want to contribute your own ideas. And finally, do not consider this to be investment advice of any kind. I am not an investment advisor and my knowledge of the markets is amateurish.