Burned By The Market
Paul Delean
The Gazette
Nurse Lyda Lesenko has learned her lesson when it comes to stock tips. Unfortunately, it cost her plenty.
Last year, Lesenko made the first two stock purchases of her life in her RRSP account at TD Evergreen.
An acquaintance at a financial company had twigged her to a couple of companies, Genomics One Corp. and TM Bioscience
Corp.
With her RRSP in the doldrums since she turned it over to TD Evergreen to manage in April of 1998, Lesenko was eager to see
some asset growth and figured they were worth a shot.
She bought Genomics One for about $34 a share. It spiked up quickly to $49, then plunged. On her last statement, the shares
were worth $1.30 each.
TM Bioscience, purchased for $1.65 a share, retreated to 51 cents.
"I know I goofed on Genomics," Lesenko said in an interview. "It's the first time, and last, that I act on tips."
The stock-market setback was her doing, but Lesenko doesn't have much to show, either, for the portfolio of mutual funds put
together by the two investment professionals who have handled her account since the move to TD Evergreen.
At the end of March, not one of the seven funds (Global Strategy World Companies, Universal RSP Select Managers, Landmark
American RSP, Signature Canadian Balanced Fund, Global Strategy Income Plus, Fidelity Canadian Asset Allocation and
Templeton International Stock) had a market value superior to the price she'd paid for the units.
Worst Performer
Global Strategy World Companies was the worst performer, down almost 50 per cent since a switch into it last year.
Lesenko has been faithfully reinvesting all distributions and making additional RRSP contributions of $300 a month, but worries
that her plan seems to be going nowhere.
It had a total value of just over $53,000 when she moved it to TD Evergreen in 1998, and it was only about $4,000 higher at the
end of March, despite more than $26,000 in additional contributions.
"Sometimes, I wonder if I wouldn't be better off with a compounding GIC," she said. But liquidating the funds would bring about
significant penalties, since they all carry front-end loads.
The only stock in the portfolio besides Genomics One and TM Bioscience is Bombardier, added recently on the counsel of her
TD Evergreen representative. "I'm familiar with Bombardier," she said. "I know they're a quality company."
Lesenko, who earns about $47,000 a year, opened her RRSP when she began working as a nurse 17 years ago.
Her investments initially were in two funds at Altamira, where they grew "an average of 9 to 12 per cent a year." But after a
divorce in 1995, she switched her banking to the Toronto-Dominion Bank and moved her RRSP there as well. The bank
manager had suggested TD Evergreen, its full-service brokerage.
The lack of growth since the move is becoming a concern for the mother of three boys age 14 to 20. Her only other assets of
note are her public-service pension, a small cash fund for emergencies, and the three-bedroom split-level home in which she
lives with her sons.
"It's discouraging," she said. "I'm relying on this for my retirement."
The Gazette asked two investment professionals - Martin Garneau, financial planner at KPLV Securities in St. Laurent, and
Keith Donoghue, certified financial planner with Investors Group in Pointe-Claire - to take a look at her portfolio and share their
thoughts.
Both felt Lysenko's RRSP was too small for her to start investing in individual stocks - even familiar names like Bombardier.
"Eight per cent of her portfolio is in one stock (Bombardier). I find that risky," Garneau said.
"She just doesn't have a big-enough portfolio to start doing stuff with stocks yet," Donoghue observed. "People who don't have a
lot of money often do risky things to try and get it, and sometimes they get burned."
Both also questioned the mix of mutual funds in Lysenko's portfolio.
Garneau said that while "a lot of the (funds) she has are fine," he thinks there are too many for a portfolio her size. He'd
recommend eventually narrowing it down to three: either Fidelity Canadian Asset Allocation or Signature Canadian Balanced as
the core holding (70 per cent), Landmark RSP or Fidelity Growth America (20 per cent) and Templeton International Stock (10
per cent).
"What's missing at the moment is a good, solid U.S. fund," Garneau said.
He's not a big fan of Global Strategy Income Plus, which he considers "very volatile."
Donoghue felt she had too many of the same kinds of funds. "There's good funds there, but there's also redundancy. Signature
Canadian Balanced and Fidelity Canadian Asset Allocation are largely invested in the same things," he noted.
He suggests diversifying among value and growth, large-cap and mid-cap, and Canadian, U.S. and international equity funds.
He also felt some of the funds were too volatile for someone in Lysenko's position. A couple had very high weightings in
technology, notably Global Strategy World Companies, an aggressive growth fund.
Someone her age probably should have at least 20 per cent in fixed-income products such as bond and money-market funds,
he said, to help smooth over any stock-market rough spots.
"If she wants to switch (into different mutual funds in the same families), she doesn't have to do it all at once," Donoghue noted.
"She can transfer, say, $1,000 a month, to average it out."
Garneau said he was impressed with Lysenko's financial discipline in setting aside $300 a month for her RRSP.
'Don't Sell Now'
"I give her a lot of credit - she's doing great. She earns a good salary, she owns a house, she's saving every month - that's
fantastic. Long-term, it should be fine. She just needs to clean (her investments) up a bit. As it is, it's too risky for a single mom
with kids. What if there's an emergency and she has to dip into the plan?"
He thinks she should meet again with her investment representative, to be sure they're on exactly the same wavelength as far
as retirement goals and risk tolerance.
"I see no methodology at work here in terms of doing good, solid planning for the future," he said.
Donoghue said that while it appears her problems started with the switch to TD Evergreen, timing also was a factor. Most
mutual funds have struggled over this three-year period, he said. Of the ones she holds, most are "around the group average (for
their category)."
Over time, they should recover and produce results on a par with their peers, he said.
"Should she abandon equities for GICs? No. If she sells now, with markets near the bottom, she'll miss out on the run-up that's
coming." |
