Cut Through the Financial Clutter and Take Control

Do you hold bank accounts, investments and registered savings plans at different institutions? If so, you're not alone. In fact, you're probably a bit like Sati.

Since she joined the workforce 20 years ago, Sati has managed to contribute something to her Registered Retirement Savings Plan (RRSP) every year. Early in her career, she usually made her contribution just before the deadline. At other times, she went with friends' recommendations and bought a mutual fund with one company one year, then a different fund the next year.

Do you know what you own?

Being busy with her career, Sati didn't think too much about what she invested in. In fact, she's accumulated so many different investments over the years that she sometimes doesn't have time to open all her statements.

It wasn't until her new CIBC Financial Advisor asked her if she knew what she owned when completing her Net Worth Statement that she realized she couldn't answer. This really hit home because she was in the process of updating her will and could not easily put together a list of her assets or give an accurate picture of her own net worth.

Some of the challenges of having your investments scattered like Sati's are that it's hard to know where you stand and you may be paying more in fees than you need to. But the real challenges have to do with performance and taxes.

Being truly diversified

By taking on different mutual funds with different institutions, Sati believed that she was becoming more diversified. In fact, she was becoming less so, since many of her investments overlapped with one another.

For instance, her CIBC Financial Advisor pointed out that her three Canadian mutual funds hold many of the same companies and she wasn't significantly diversified at all. If any of the companies performed poorly, all three of her Canadian mutual funds would be negatively affected.

Furthermore, because she didn't have an at-a-glance perspective on all of her holdings, she had about three-quarters of her portfolio in fixed-income investments. After looking at her investor profile, her CIBC Financial Advisor pointed out that it was significantly less than optimal for her goals, timelines, and risk tolerance. In fact, her portfolio is actually more conservative than warranted by her risk profile and she could be taking on more risk to help her achieve her long-term goals.

Working to minimize tax

Sati's progress in her career has seen her salary rise considerably over the years. But she's also paying a lot more in tax than she ever has. Consolidating her investments may help her to minimize these taxes.

Here's one way that having a complete view of all your holdings can help: Capital gains and dividends from Canadian companies are taxed at a lower rate than interest income. So it may make sense, from a tax perspective, for Sati to hold stocks and equity mutual funds - which generate capital gains and dividends - in a non-registered account. Then she can fill her RRSP and Tax-Free Savings Account (TFSA) with interest-earning assets, such as fixed-income, international, or emerging market mutual funds. She'll benefit from the lower tax rate associated with capital gains and dividends, and her interest income can compound tax-free.

For Sati, bringing her investments together made it easier for her CIBC Financial Advisor to allocate them between her registered and non-registered savings in the most tax-efficient manner. It also helped her gain better control over her finances, and in turn, her future.

Next steps

Sati's CIBC Financial Advisor gave her some important next steps too. Once she has consolidated her accounts, she can explore opportunities to save interest on her credit card and line of credit debt and reduce fees on her chequing and saving accounts. That's something they will talk about at a follow-up meeting - and it will help her keep more of her hard-earned money in her pocket.

How risky are you?

Take this quiz to determine how much of a daredevil exists in you:

  1. If you could, would you try something new every day?
  2. When you travel, do you not plan every moment but keep time available for spontaneous adventures?
  3. Do you favour extreme sports (e.g., skydiving, rock-climbing, auto racing)?
  4. Do you prefer to explore a new city over relaxing on a beach?
  5. After inheriting $10,000 from a great aunt, are you more likely to go shopping than to pay off debts?
  6. Do your friends consider you likely to take chances in life?
  7. When faced with an important decision, do you usually go with your gut?
  8. Does spending money make you feel better?
  9. When you bought your car, did you buy what you wanted and not worry about the cost?
  10. Do you agree with the statement, "the future will take care of itself"?

If you answered "YES" to:

0-3 questions:
"No thank you, I'm a self-diagnosed control-freak!" (risk averse)

4-6 questions:
"Yes please, I welcome a little spice and adventure in my life" (risk neutral)

7-10 questions:
"Awesome, bring on the rush!" (risk seeker)

To learn more about risk profiling and tolerance and how this can help shape your investment portfolio, speak to your CIBC Financial Advisor.

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