Growing your nest egg

By: Andrew Pyle

At this stage of your life, you’ve likely been investing for a while and built a bit of a nest egg. It might be not that big and you may neglect it at times because of other things competing for your hard-earned dollars like your mortgage, the kids’ back to school supplies, RESPs and that second car you’ve been needing. The real challenge is juggling all of these goals and objectives in your life especially if you don’t have a plan to manage them. Or perhaps you did start out with a plan, but life has gotten between you and your goals. That nest egg you’ve been building to help with these goals is just one part of the plan, but an important one and as that nest egg starts to take shape, it’s crucial to nurture it and maintain a careful eye on it. Unfortunately for some, as their portfolio grows, so do the number of investments and the complexity of the securities they hold. They may also be scattered across several accounts at different institutions. To make sure you are getting the most out of your investments it’s important to ensure that they’re all working together to a clearly defined plan.

Hi, I’m Andrew Pyle, Wealth Advisor with ScotiaMcLeod and I’ve seen that same story repeat itself too many times to mention. As individuals shift into their higher earning years, they also face growing pressures on their spending and therefore savings. People find there is less and less time in their busy schedules to develop a financial plan and stick to it, let alone review it on a regular basis. Not to mention the types of investments you’re holding. You may have numerous mutual funds doing exactly the same thing in a variety of plans. How does something like that even happen?

Let’s look at our couple, Mike and Sarah, as an example. When they were looking at their RRSP contribution last year, they picked a new Canadian equity fund to invest in because it’d had a better year than other funds in its category. What they didn’t consider is that this created an overlap with another fund they had in Mike’s locked-in RRSP plan from his former employer. And who can blame them, with more than 3,000 mutual funds in Canada. What they didn’t realize is that you only need a few of them. Mike and Sarah sat down with their advisor who provided them with a managed fund solution tailored to their goals and stage in life – with no duplication.

As you build up your nest egg, you might also want to consider other securities such as individual stocks and bonds. Or maybe you prefer the in-between solution of exchange-traded funds. And if you are the kind of person who wants to seize control of your investment decisions, you may want to consider opening a brokerage account or your own discount trading account in order to manage these individual investments.

Regardless of which investment style you choose, the key is to make sure your investments are diversified. That means not just having the appropriate mix of equities and fixed income, but also having your exposure spread across sectors and countries. In making these decisions, it’s crucial to talk to an advisor. Building a plan is not about the individual holdings, it’s about the big picture and an advisor will help you look at things holistically, making sure that you’re making choices that are consistent with your goals and your risk tolerance.

When investors hear stories about home-run stock picks from their friends, they may be tempted to treat their nest egg like a pile of chips at a Las Vegas roulette table. Even if they stay with the market over time, they may think they’ve learned how to time the market by selling out and buying back in. That can be dangerous and expensive.

So where are you right now? Do you have a lot of exposure to one or more stocks and are reluctant to sell because of large capital gains or do you still own a few beaten-down former high-flying technology or uranium stocks thanks to tips from your father-in-law that you’ve been meaning to shift to more dependable blue-chip stocks but just haven’t gotten around to it. And pulling out now means you might realize that paper loss. And how about that spousal RRSP account? Does Ottawa’s loosening up on income splitting tax rules mean that you should be contributing less to it? Oh, and let’s not forget, each of the kids has their own RESP account even though right now only their grand parents seem to remember to put any money into it.

Stop. You are smart enough to have started investing and grown a nest egg to help you meet all your goals but at some point you have to make sure that everything you’re doing makes sense together. What you need is an investment plan, right? And before you renovate the kitchen, not after. So now it’s time to give yourself a gentle nudge and turn your attention to retirement. Remember, you are going to have a lot of time to spend in retirement and it will be a lot more fun if there were some money to spend too. The good news is that you have a lot of options at your disposal. If you don’t have the cash flow to fund an RRSP contribution, but your debt level isn’t overwhelming, find out if it makes sense to borrow. On the flipside, you might be maxing out on your RRSP but haven’t even bothered to open a TFSA yet, because you aren’t quite sure exactly how they work. Either way, it might make sense to review your strategy.

And this site can help. The tools and articles on this site will help you learn some of the fundamentals of investing, including the importance of diversification and how starting early can really add up. In Big Ideas and Stay Current, you’ll find news and analysis from Scotia's thought leaders that will help you understand what's going on in the market and the economy. Explore the site, and you’ll see.  

So, take stock of what you have, including your insurance policies and then take a look at what your saving will look like at retirement and get a handle on what your pension might contribute. Then think about what your goals are and what kind of plan would allow you to reach them. Bottom line, get an advisor to sit down with you.