Creating a low-cost portfolio with balanced funds

Jennica Rawstrong, 31 balanced fund — Jennica Rawstron, 31 (Photo by Darren Hull)

The Problem

Jennica Rawstron is a 31-year-old mid-wife from Penticton, B.C. She’s single, self-employed, and debt-free, with gross earnings of $100,000. Jennica, a diligent saver, has $21,500 in an RRSP and $32,000 in a TFSA—all in cash. She has also set up monthly preauthorized contributions of $400 to each plan for a total of $9,600 a year. But she plans to spend six months a year for the next five years volunteering abroad, starting in Ethiopia next year, which will cut into her earnings and ability to save. In these lean years, she’d like better returns because she’s on her own when it comes to saving for retirement. “I’ve thought of building a low-cost portfolio with ETFs, but I’m not sure that’s the best option for me right now.”

The Fix

Janet Gray, certified financial planner in Ottawa, says that Jennica is doing well by saving about 10% of her gross salary. Assuming Jennica’s income will drop by 50% because of her volunteer work she should consider putting more into her RRSPs, says Gray. “When her tax refund arrives, she can use it to top up her TFSA.” And while ETFs are a good option for some DIY investors, because Jennica is going to be out of the country a lot in the next five years she needs something simpler. “Her portfolio is small and she’ll be better off with something easy to manage, like a good, low-fee balanced fund,” says Gray. Before buying any investment she advises Jennica to pay close attention to the fees. A good, low-cost option would be the Mawer Balanced Fund. It charges 0.96% a year and has beaten the market by more than one percentage point a year over the past 10 years. “Automated deposits to a simple balanced fund will keep her portfolio growing,” says Gray. “She can return to ETFs when she has more time and more money.”