The expert
Lyle Stein, president of Forvest Global Wealth Management Inc. in Toronto.
The philosophy
Forvest divides client portfolios into “Three C” buckets: comfort, contingency and charity. Comfort, which covers the near term, refers to portfolio income needed to maintain a client’s lifestyle. Contingency, which covers the medium term, refers to securities used to protect against an unexpected upset to the comfort bucket. Charity, which covers the long term, refers to assets the client will ultimately leave behind. Forvest tries to minimize risk by matching portfolio holdings to each bucket’s time horizon.
The scenario
Astrid, 50, is an empty nester who lives with her husband. She received a surprise $10-million inheritance. She would like to use it to improve her lifestyle and may quit her job.
The allocation
40% to the comfort bucket
This bucket is meant to earn $200,000 in pre-tax annual income. The portfolio consists of high income, high-dividend-paying equities and preferred shares.
- 20% to laddered GICs: $2 million of the inheritance will be spread equally across five maturities ranging from one to five years. Stein said this allocation will generate “certain income of $80,000 plus annually, with virtually no capital risk.”
- 20% to high-dividend yielding stocks and preferred shares, such as Enbridge Inc. (TSX:ENB), TC Energy Corp. (TSX:TRP), Algonquin Power and Utilities Corp. (TSX:AQN), Altagas Ltd. (TSX:ALA), Toronto-Dominion Bank (TSX:TD) and the Horizons Active Preferred Share ETF (TSX:HPR).
20% to the contingency bucket
Stein favours securities that are “beneficiaries of inf lation in an environment where scarcity is a predominant theme.” Among these stocks are.
- Teck Resources Ltd. (NYSE:TECK), a natural resources company with copper as one of its main outputs.
- Cameco Corp. (NYSE:CCJ), a leading uranium producer.
- Peyto Exploration & Development Corp. (TSX:PEY), a natural gas producer.
- Canadian Natural Resources Ltd. (TSX:CNQ), a crude oil and natural gas company.
40% to the charity bucket
Stein said this bucket “looks beyond the next five years and provides portfolio growth.”
He noted that “none of the holdings are in Canada because we don’t have quality names in the chosen sectors and we want to diversify against a collapse in the Canadian dollar.” Those sectors include:
- Health care, which Stein said is “a demographic play.” Among the stocks he recommends are Stryker Corp. (NYSE:SYK), a medical technology company; Novo Nordisk A/S (NYSE:NVO), a pharmaceutical products company; and CVS Health Corp. (NYSE:CVS), a health services distribution provider.
- Technology, where Stein is “looking at companies which have growth at a reasonable price.” These include Apple Inc. (NASDAQ:AAPL), Microsoft Corp. (NASDAQ:MSFT) and Akamai Technologies Inc. (NASDAQ:AKAM), an international cloud services company.
- Consumer staples, which Stein accesses via the iShares Global Consumer Staples ETF (NYSE Arca:KXI).
The scenario
Astrid also received a $10,000 employment bonus.
The allocation
- 100% to a five-year GIC yielding 5% annually.
The expert
Alim Dhanji, senior financial planner with Assante Financial Management Ltd. and senior insurance advisor with Assante Estate and Insurance Services Inc. in Vancouver.
The philosophy
Dhanji recommends a diversified asset mix consisting of his firm’s Canadian and foreign equities and fixed-income pools. Each pool includes 20 to 30 securities. His objective is to provide good value and optimal performance while protecting against downside risk.
The scenario
Ian, 45, inherited $10 million. He is seeking balanced growth over the long term.
The allocation
Equities (70%)
- 26% to the Canadian equities pool, which includes stocks such as Royal Bank of Canada (TSX:RY), Brookfield Asset Management Inc. (TSX:BAM), Canadian Pacific Railway Ltd. (TSX:CP) and Fairfax Financial Holdings Ltd. (TSX:FFH).
- 22% to the U.S.equities pools, which includes stocks such as Microsoft Corp., Suncor Energy Inc. (NYSE:SU), Amazon.com Inc. (NASDAQ:AMZN), Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE:TSM), and Alphabet Inc. (NASDAQ:GOOG).
- 22% to the international and global equities pool, which includes stocks such as Nestlé SA (SWX:NESN), Novo Nordisk A/S, Lloyds Banking Group PLC (LON:LLOY) and Galp Energia SGPS SA (ELI:GALP), a multinational energy operator based in Portugal.
Fixed income (30%)
- 17% to Canadian government and investment-grade bonds.
- 2% to global bonds.
- 4% to foreign and corporate bonds.
- 7% to real estate investment pools.
The scenario
Ian also received an unexpected $10,000 employment bonus.
The allocation
Since Ian is looking for long-term growth, the allocation percentages would be the same as for his $10-million inheritance.
