Planning Concepts

As at June 23, 2017

SaskWorks Diversified (Class A - Series A) $17.6803 SaskWorks Resources (Class R - Series A) $11.3422

SaskWorks Diversified (Class A - Series F) $18.2853 SaskWorks Resources (Class R - Series F) $11.6449

Concept #6 – Barbell SaskWorks Venture Fund Investments to Reduce Risk

There are effective ways to safely reduce the risk profile of SaskWorks Venture Fund investing for individuals with particularly low risk tolerances.

Specifically, consider the following scenario:

A young investor and his/her spouse are at an early stage of saving for their retirement. At this point the couple holds a total of $30,000 in their self-directed RRSP’s with the following asset mix:

Asset Type $ Value of Holdings % Breakdown
Cash/Money Market $1,000 3%
Inv’t Quality Bonds $9,000 30%
Equities $20,000 67%
SaskWorks Venture Fund $0 0%
Total $30,000 100%

As you can see, at this point the couple has roughly one third of their assets in low risk securities, with two thirds invested in equity securities.

The couple knows they can benefit from the combined advantages of tax credits and venture capital returns associated with investing in SaskWorks Venture Fund, however they are unsure about increasing the risk profile of their RRSP holdings.

While most couples should be comfortable with investing in SaskWorks Venture Fund at this early stage in their lives, this couple is particularly risk averse. To address the risk concerns, the advisor may want to consider taking the 35% tax credit available with SaskWorks Venture Fund and invest this amount in investment quality bonds or cash/money market securities.

If this is done, and each of the spouses makes a $5,000 investment in SaskWorks Venture Fund, the couple would be adding $10,000 to the SaskWorks Venture Fund category, and the tax credit (35% x 10,000 or $3,500) to the money market or bond category (bonds have been selected).

Consequently the resulting portfolio would be appear as follows:

Asset Type $ Value of Holdings % Breakdown
Cash/Money Market $1,000 2%
Inv’t Quality Bonds $12,500* 29%
Equities $20,000 46%
SaskWorks Venture Fund $10,000 23%
Total $43,500 100%

* $9,000 from previous table + $3,500 tax credit

Equities/CVF Cash/Bonds
Investment Balance Before CVF Investment: 67% 33%
Investment Balance After CVF Investment: 69% 31%

You can see that due to the separation of investments between SaskWorks Venture Fund shares and low risk investment quality bonds, we have effectively balanced or ‘barbelled’ the risk between the SaskWorks Venture Fund shares with the original $10,000 investment and the low risk investment quality bonds facilitated by the tax credits.

Very little has changed in the investment risk profile of the couple’s RRSP holdings, yet the couple has grown their holdings by $13,500 for a $10,000 investment.

If excess RRSP room was available, the couple could also consider contributing all or part of the tax refund made available by the RRSP contribution to further reduce the risk profile of the portfolio.

Note that if RRSP room is used up, the tax credit can be invested outside of the RRSP.

Investment in an LSIF is subject to certain restrictions on resale and redemption. An investment in an LSIF is speculative and may not be suitable for all investors. Income tax savings are only one aspect of an investment in an LSIF. The merits of the investment as a whole should be considered. LSIF shares are offered by prospectus only. Consult the applicable LSIF prospectus for full details of the offering.

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READ OUR PROSPECTUS > This offering is made only by prospectus. The prospectus contains important detailed information about the securities being offered. Copies of the prospectus may be obtained free of charge from your Investment Advisor or the agent, Industrial Alliance Securities Inc. (www.iavm.ca). Investors should read the prospectus and consult an Investment Advisor before making an investment decision.