Financial Planning

My Mother’s Portfolio


Mark McNulty


April 20, 2016

April 20, 2016

My mother is retired, in her late sixties, and is the definition of a snowbird as she is currently living at her Florida home. My grandmother on my mother’s side is now 97 years old, so my mother is expected to live for a long time. As her son, portfolio manager and retirement planner, that means we have to make sure her money lasts as long as she does.

In addition to my mother, my firm works with 95 other families in similar circumstances. The amounts may be different but the strategies are the same. So, I would like to walk you, the reader, through how we invest my mother’s money. As you can imagine, the decisions our team makes around our clients’ portfolios have a dramatic impact on their ability to enjoy a great retirement. We need to get them right.

I have often been asked what I, as a portfolio manager, personally invest in. The answer is that the majority of my portfolio is invested in small capitalization companies around the world. The portfolio is volatile but I add money to it all the time. I am going to be working for at least another twenty years. For the most part our firm, McNulty Group, works with dentists who are retired or will be retiring within the next ten years. We don’t believe you should be in a growth portfolio until you retire, then move to a portfolio that will finance your retirement. The majority of our clients are already invested in the positions that will carry them through retirement. Therefore, the more appropriate question to ask is what I invest my mother’s money in.

Another reason I like people to look at my mother’s portfolio is that I do not have to consider her risk tolerance. She has the benefit of an advisor (me) she can trust, who will make the best decisions by using my intimate knowledge of her financial circumstances. And I have the benefit of a client who does not worry or question our decision-making. In other words, the decisions we make on my mother’s portfolio are unencumbered.

Being a portfolio manager, I need to account for each client’s “temperament”. That means I have to make a judgement and get the client’s agreement about how much of a decline in their portfolio they can handle. The problem is that the amount of risk we can take depends on our mood. When stock markets are up, everyone views themselves as a risk-taking investor. When stock markets are down, we are all suddenly risk averse. If a stock drops (as all stocks do at some point) and the investor is losing sleep over it, then they will likely miss out on a great buying opportunity as they are being guided by emotion. While the families we work with are generally easy-going, I can tell you that by far my mother is the least engaged, and as such she has no emotional influence on the portfolio.

Below is a summary of my mother’s investment assets if she were to have a $1 million portfolio (it would not be appropriate to share the true value of her portfolio, but you will be able to gain an understanding of the strategy by looking at the various weightings of the investments):

CASH AND SHORT-TERM GICS: $440,000Reasoning: This is the most conservative we have been on fixed income in the twenty years I have been in the business. I wrote an article recently for The Professional Advisory (you can find it on the website called The Coming Bond Crisis. While we are only getting an average yield of 1.7 per cent, we are much more interested in not losing money right now than making a higher income. It should be noted this strategy has worked since we implemented it in October 2015, as high yields have sold off significantly. We do not expect to be in this position for much more than a year.

EQUITIES$190,000 split evenly between various Canadian stocksReasoning: The majority of my mother’s portfolio is invested in the stock market. While she is retired and withdrawing money from the portfolio, she still has a long-term time horizon. The conservative nature of our fixed income will be available to fund her living expenses should stock markets decline. However, over the long term stocks have the greatest opportunity to outpace inflation.

$200,000 Currency hedged S&P 500 (largest 500 companies in the US)Reasoning: The US economy is in the best economic condition of any of the developed world. It has a much more diversified stock market than Canada. However, we gained on the currency from $.95 to $.70 as we held US stocks for the past few years. In 2016, we locked in our currency gain but maintained our exposure to the US stock market.

$20,000 Berkshire HathawayReasoning: While we sold most of our direct US stocks, we could not bring ourselves to divest out of Warren Buffett’s track record.

$50,000 Edgepoint Global PortfolioReasoning: The manager of this mutual fund has a strong track record of outperformance and also for the most part invests in stocks outside the indices we are already in, which provides further diversification for the portfolio.

$50,000 Black Creek International Equity and $50,000 MSCI EAFE Ishares (currency hedged)Reasoning: Non-North American stock markets have declined significantly and while they are more volatile, it is likely they have more opportunity for growth over the next decade given the US economy has already recovered.

What’s more important than the current holdings is the discipline we employ for making investment decisions on my mother’s portfolio. Each quarter the portfolio weightings are balanced back to the current percentages. This allows for counter-cyclical buying and selling. When Canadian stocks sell off and decline below 19 per cent of the portfolio, we sell a segment of the portfolio that has advanced and buy back in. No emotion involved.

The most successful investors I have ever met do not employ a buy and hold strategy. They employ a buy and buy more strategy. That is why I do it for Mom.