On a Sunday afternoon in September about 6 years ago, we were enjoying a nice meal as a family. From our kitchen eating area we have a pleasant view of our back yard garden, which at the time was in full bloom. My daughter noticed a large doe in the garden, and I stood up to go frighten it away when, as if on some sort of special security assignment, our little grey kitten stalked bravely out in to the garden toward the doe. We all watched breathlessly as the little cat crouched down, ears back, eyes peeled and crept forward low-to-the-ground, every muscle tensed, like a lion to its prey. The doe ignored the approaching fur ball until the pounce was imminent, then she turned on the kitten and stomped her hoofs, false-charging, and sending the cat flying back, right through my legs and into the safety of the house. We all laughed heartily, spooking the deer and solving the problem for a while.
My friend "Bob" called me this week, somewhat sheepishly asking for some advice on investments. Although he weighs over 200 lbs, and is a little less likely to cough up a hairball, he reminds me of that little kitty. Let me explain.
Bob, like so many of us, works for a company which provides a share ownership plan. The employer matches his payroll contributions up to a point, and the funds are then placed in to an RRSP account. Income taxes are not deducted in this process, thus allowing for a very efficient savings vehicle. These shares have done well over the past 20 years or more, and Bob, like so many others, now finds himself with a modest little fortune on his hands.
But Bob had a bit of a problem. When he stepped back and looked at what could go wrong, he saw not only all his eggs in that proverbial basket, but also his bread and cheese and milk. Bob had tied up under the jurisdiction of his employer: 1) His career; 2) his savings; 3) his insurance (through a group plan); and 4) his pension. He was risking his whole future on one company.
So last year, like the little grey kitten, Bob decided to venture out and buy some other investments. Unfortunately he pounced on a few poorly researched penny stocks. The new shares performed very poorly, and in a panic, Bob sold, and has spent the past few months licking his wounds.
In an attempt to diversify, what Bob did was "diworsify," trading apple pie for cow pie. There's just no need for that. Upon further exploring, Bob is learning that there are other options for investing that take on even less risk than the mother company he knew so well.
Today at home we have a wise old cat, a little scarred, who walks with a limp. Having learned his lessons, he is beyond his deer-hunting days now, and almost seems to smile when he takes a nap.
Mark Ryan is an advisor with RBC Wealth Management, Dominion Securities.
