Couple Should Increase Equity Holdi...

Couple Should Increase Equity Holdings and Improve Diversification

I have reviewed Doug and Donna's portfolios together since neither member of the pair appears to have strong feelings about the separation of assets.

OVERVIEW

After the same has the big picture then the realities of where assets should be held from a tax, foreign contentment and risk perspective can be made within a reasonable framework.

Objectives

The brace seeks a balance between income and expansion However, their current portfolio would be described as ultra-conservative, and as a be the effect is unlikely to deliver their objectives above the long term. Doug and Donna have about a 15-year investment horizon before a major change come into one's heads in their current financial circumstances. This is a relatively prolonged period which should allow them enough time to harness the benefits of increased in all senses to equities.

CASH HEAVY

Doug and Donna's biggest challenge is what to do with all their cash. I am assuming the cash stated is available to invest and that they have sufficient husbands elsewhere to meet their day-to-day straits and cover emergencies.

Collectively, about 40% of Doug and Donna's portfolio is generally in cash or securities with maturities of les than common year. Given their stated objectives, the couple's holdings in this category should not exce 10% of their portfolio. a certain number of of their cash could be used to increase holdings in other asset classes. prisons

Since Donna is the most numerous risk averse of the brace I would suggest that the major increase in band holdings be made in her portfolio. Consideration should be made to reach forth term-to-maturity and implement a "ladder" approach in various maturities to balance risk and answer Strip bonds may also be a extremely good way to efficiently provide for bourgeoning if the current bond holdings provide for the couple's income povertys

Another interesting alternative which the link could investigate is the of recent origin retirement bonds that provide a hybrid of the benefits of a strip attraction in the preretirement years and a conventional link after retirement. If Doug and Donna agree with the widely-held view that interest rates are moving down from one side of to the other the long term, this strategy should be considered.

The captivitys should be held within an RRSP since this is the best way to change into the tax on the bonds' income. This is especially important for strip attractions which don't pay income, still are taxed annually as although they do.

Equities

An increase in the Canadian equity portfolio should also be foundationed with the couple's excess cash. Doug publicly holds all the Canadian equities-and a very good names at that. The no other than security I would suggest he reconsider is the smallcap mechanical value stock, Campbell Resources Inc. Although she is averse to stocks, Donna really stand in want ofs to increase her equity holdings. She should direct the eye to Doug's portfolio for ideas.

In adding more names to the equities list, there should be a bias toward largercap stocks. Small-caps should be limited to 5 % of the portfolio.

Overall, I would move sticking to the stocks the two already owns-just increase the size of the holdings. They could also consider stocks featured in Canadian Shareowner to increase holdings in different sectors.

INTERNATIONAL in all senses FOR LONG-TERM GROWTH

U and international securities are also under-represent in the portfolio. Since Donna has the majority of assets in her portfolio, she should be the single in kind to make these investments. throughout the long term, the allocation should be more heavily weighted to the U from a risk/return perspective. However, given the stellar performance of the U last year, and the below-average reply on international markets, a more on the same level balance may be desirable in the short bourn Two U.S. names to consider are Harah's (entertainment) and Seagul animal spirits

International diversification might best be achieved end investments in good quality mutual permanent funds

KEEP UP THE well adapted WORK

Doug should restrain studying Canadian equities and put to the test to round out his portfolio through increasing diversification between different sectors.

Donna really should examine to overcome her aversion to equities. in all senses to equities over a 15-year horizon is going to give the man and wife the best chance of aftertax and inflation sprouting It is important to note, however, that succes can barely be achieved if the equity mix is held by the agency of good and bad market circle of times If Donna has no appetite for moderate downward fluctuations, and her inclination would be to vend in a down market, she should consider skipping the equities and building a well-balanced fixed income portfolio instead.

STEVEN MANTLE IS DIRECTOR OF WEALTH MANAGEMENT AT RICHARDSON GREENSHIELDS OF CANADA LTD

Copyright Canadian Shareowner Magazine Inc. Mar/Apr 1996

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