The relationship between risk and return is often downplayed in bull markets. After all, everyone feels like a genius when markets are going up. So, it's no surprise that many investors look at a solid portfolio earning a respectable return and ask why it isn't keeping up with the market.
Well, I have a few questions of my own.
In Ontario, the lowest tax bracket is about 19%, and the highest is over 53%. So why is your first question about returns? Returns are what you earn. Strategy influences what you keep.
Investment income generated in a non-registered account is taxed at your marginal tax rate. So, why take so much risk to keep cents on the dollar?
Generating a capital gain is a great way to get a tax-efficient investment return. As a portfolio manager, I can use structures designed to favour capital gains and defer tax. So, why are you still investing on your own?
And if you've been diligently saving, your RRSP may be large enough that your tax rate in retirement matches, or exceeds, what you pay today. So, have you asked whether you should start drawing it down in the years between retirement and age 71, while your income is lower?
For pre-retirees with over $1 million in investable assets, the value of a portfolio built in service of a financial plan can easily exceed the gap between a good return and a great one.
Make sure you're asking the right questions, of the right professionals.
Mike MacMillan MBA, CIM
Portfolio Manager, Q Wealth
Managing Partner at MVP Wealth
