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RRSP Segregated Funds vs Mutual Funds
October 1, 2015
1:53 pm
semi-retired
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Hello Looking for opinions from the very knowledgeable posters on this website.My financial advisor has recommended that I turn my mutual fund portfolio into a guaranteed segregated fund.I am 60 & semi-retired.There seems to be many pros & cons to these types of funds.When reading many of the on-line articles about this my spider senses begin to tingle.I am a very conservative investor.Any insight would be welcomed. Thanks*

October 1, 2015
2:15 pm
Loonie
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I don't know that much about them, but I recall reading about about them a few years ago. My main conclusion was that they were expensive. I think it probably depends on whether the advantages they offer are something you need at this time and cannot acquire any other way.

I don't know what kind of arrangement you have with your advisor, but a good and valid question for that person is always "how will you be paid if I make this investment, as opposed to other investments under consideration?" Make him/her be specific, and have this conversation in person so that you can watch the look on their face.. If the question makes them uncomfortable, avoid the investment.

This is just my opinion, but if, after consulting your advisor, you still have to look for information on the internet, then your advisor is not doing their job and is not worth whatever you are paying them. You need to have someone that you can trust is giving you the straight goods.

October 1, 2015
10:56 pm
kanaka
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This must came to me in my feedly subscription.
http://www.moneysense.ca/inves.....-worth-it/

I know I looked into them years ago and found too many loop holes in them and left me uncomfortable......thus never bought into them. And secondly I don't have a huge amount of trust for an insurance company.

October 2, 2015
1:47 am
Loonie
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Good find, kanaka, and timely.
I note that Jason says they are not obliged to disclose their fee structure. Ask them anyway, and act naïve and surprised n they are evasive etc. That should tell you very quickly whether this is a good idea for you.

Jason Heath implies that you may not get anything at all out of it after fees, or next to nothing. If true, that is WORSE than GICs!

Sounds to me like this advisor is playing on your need for security. In truth, it's really hard for them to make any money (assuming paid in commissions, trailer fees etc) off people who just want to buy GICs, bonds and some cheap ETFs, so they dream up other strategies where they can do so. Sometimes it really is that simple. It's hard for them to make money off people who are very conservative.

You said the money is currently in mutual funds. This leads to another consideration, namely is this a good time for you to sell those funds? Personally, I think it's not a very good time to sell stocks, if that's what they are. I don't watch it that closely, but certainly some have gone down recently, e.g. financials. This makes me wonder if the reason you are thinking of dumping the mutual funds is because they may be experiencing a downturn. This is almost always a bad idea from what I know. Also, watch the timing with regards to the election. Stock markets typically get the jitters at the prospect of a minority government, so will likely go down temporarily if we get a minority gov't, so that would be a bad time to sell. As has been said many times before, there is no need to get alarmed at short-term downturns, but you don't want to get caught in them either by selling low.
When you buy any kind of fund, you need to have an idea from the outset about what your criteria will be for selling it. If you don't, it's not too late to develop one. The clearer you can be, the easier it will be to make that decision. How do (or did) the mutual funds fit into your overall plan, and why do they no longer fit? You need to have a good answer to that, for your own protection, and ultimately only you can provide it. Otherwise, you are vulnerable to whatever the advisor wishes to sell you.

The only plus I can think of, and you'd need to check on this, is that I think, as an insurance product, seg funds may be creditor-proof. But not all insurance products are, so you would need to check. It may not be a concern for you in any event.

October 6, 2015
4:59 pm
kanaka
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Semi-retired.

Just wondering if you have come to a conclusion? Would be interesting to hear. Not sure how confident your are with your adviser....is he/she commission driven vs customer oriented....something else to consider.

January 11, 2019
10:33 am
picassocat
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Read the fine print. I read a few contracts and it became obvious to me that their written to protect the banks/insurance company and transparency doesn’t seem a strong point. Nevertheless, I have chosen to invest in the Quebec Stock Index Bond, an index related GIC similar to segregated funds where your initial capital is guaranteed for the term (in this case 5 to 10 years) and profits are from 0% / 9.86% (5 years term profit cap) to «sky is the limit» profit with the 10 year term. I like this type of product: you can’t lose and if the index flops, your deficit is erased and you get your initial capital back. Ok, maybe you’ll make nothing, which is better than risking loosing with the market. Only open for residents of Quebec, but have a look at their stats and why wouldn’t you invest here, it’s risk free.

http://www.epq.gouv.qc.ca/A/In.....chues.aspx

Info here: http://www.epq.gouv.qc.ca/A/In.....siere.aspx

January 11, 2019
2:46 pm
Loonie
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In my view, there is not enough information here upon which to make a sound decision. Do they not have some kind of Prospectus with details of what you are actually buying into?

January 11, 2019
8:04 pm
Bill
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semi-retired, my parents had a bit in seg funds, from what I can tell they were just like relatively high-fee mutual funds, offered by insurance company. What my parents liked was they were guaranteed a base amount no matter what (theirs were anyway), so it was sort of like an insurance policy. They ended up doing ok, certainly beating GICs, when they cashed them in.

Don't forget, this site is populated to some degree by hardcore savers, so take with a grain of salt any advice re "the markets" from folks who aren't in them and don't really follow them. There are probably other sites populated more by investors that can augment any advice you get here.

January 11, 2019
8:59 pm
Loonie
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Why is picassocat pulling up old threads? Semi-retired's question was asked in 2015. He/she has likely made a decision on this question long ago.

January 12, 2019
12:06 am
Norman1
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picassocat said
… Nevertheless, I have chosen to invest in the Quebec Stock Index Bond, an index related GIC similar to segregated funds where your initial capital is guaranteed for the term (in this case 5 to 10 years) and profits are from 0% / 9.86% (5 years term profit cap) to «sky is the limit» profit with the 10 year term. I like this type of product: you can’t lose and if the index flops, your deficit is erased and you get your initial capital back. Ok, maybe you’ll make nothing, which is better than risking loosing with the market. Only open for residents of Quebec, but have a look at their stats and why wouldn’t you invest here, it’s risk free.

http://www.epq.gouv.qc.ca/A/In.....chues.aspx

Info here: http://www.epq.gouv.qc.ca/A/In.....e.aspx  

Unfortunately, it is actually not risk free.

Risk-free 10-year Québec Fixed‑rate Bonds currently pay 3.15% per annum. $100,000 will be $136,361.67 in 10 years.

Putting the $100,000 into 10-year Québec Stock Index Bonds instead is risking $36,361.67 of the future $136,361.67 or $26,665.61 of the present $100,000.

I was fed a similar pitch for seg funds years ago: One should remortgage the equity out of one's home and put the proceeds into seg funds. The seg funds have a guarantee to return at least the original investment in 10 years. At worst, one would get the original investment back in 10 years and pay off the mortgage.

One had better pray that the guarantee doesn't need to kick in. If it does kick in and one gets just the original investment back, one would have lost 10 years of mortgage interest. If the mortgage rate was 4%, one would have lost around 40% of the home's equity. sf-surprised

January 12, 2019
11:52 am
semi-retired
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Loonie said
Why is picassocat pulling up old threads? Semi-retired's question was asked in 2015. He/she has likely made a decision on this question long ago.  

After reading several articles on seg funds,it seemed my advisor would be able to go on an extended paid vacation with the commision if I had bought them.It turned out he lost both mine & my wifes portfolios ($$$$$) for recommending this product to me.I now run my own & wifes RRSP accounts through BMO Investorline.

January 12, 2019
12:47 pm
Norman1
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semi-retired said

After reading several articles on seg funds,it seemed my advisor would be able to go on an extended paid vacation with the commision if I had bought them.It turned out he lost both mine & my wifes portfolios ($$$$$) for recommending this product to me. …

That would have been perfectly fine had you both ended up being able to go on five extended vacations with the money made from investing in the funds.

Unfortunately, the situation would have been more like the background behind the title to Schwed's book Where Are the Customers' Yachts?:

Once in the dear dead days beyond recall, an out-of-town visitor was being shown the wonders of the New York financial district. When the party arrived at the Battery, one of his guides indicated some handsome ships riding at anchor. He said,

"Look, those are the bankers' and brokers' yachts."

"Where are the customers' yachts?" asked the naïve visitor.

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