Take your retirement plan off pause and hit play

Transcription

1 Client Guide

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3 Take your retirement plan off pause and hit play For many people, retirement is a goal or reward for a lifetime of hard work. Whether relaxing or travelling the world, retirement dreams vary for everyone. To fund this retirement dream, traditionally emphasis has been placed on solutions to accumulate wealth. However, if you are retired or preparing to retire, the focus needs to shift to planning how you will receive predictable cash flow from your savings. What will your retirement reality look like? How will the market perform over the years that you will be retired? How long will you live? G5 20 Series is the first mutual fund of its kind in Canada that addresses retirement cash flow specifically. It takes into account the new realities of heightened market fluctuations, near-record low interest rates and declining government and employer support. 1

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5 Why you should be invested in the market With retirement already here or close at hand, you may be less comfortable with market volatility than you once were, especially after returns have been negative for an extended period. You ve worked hard to build your nest egg and naturally want to protect it from shifting markets. Yet if you stay out of the market completely, avoiding any equity exposure, you could miss out on future opportunities for portfolio rebuilding and growth. Consider an example close to home. The S&P/TSX Composite Index, a measure of the Canadian equity market, generated an 8.0% average annual return over the 10-year period ending December 31, In contrast, the return from bonds over the same period, as represented by the DEX Universe Bond Index, was 5.2%. With interest rates having little room to fall from current levels, the likelihood that bonds will perform as well over the next 10 years is low. Of course, the higher historical returns of equities have come with significant volatility, which is why it is important to have an approach that guarantees a portion of your future retirement cash flow. Long-term performance: Equities outperform bonds $250, year average return: 8.0% Value of $100,000 $200,000 $150,000 $100, year average return: 5.2% $50,000 $0 TSX/S&P Composite Index DEX Universe Bond Index Source: Bloomberg Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 3

6 Why managing market volatility is important Volatility can have a significant positive or negative effect on your portfolio. If you experience large losses right before or soon after you retire, your savings may never recover. Furthermore, if you are withdrawing cash flow from your portfolio, it is much more difficult to recoup losses from a market downturn because that money would no longer be available to benefit from a market recovery. Developing a source of guaranteed cash flow for retirement is especially important if you do not have a company pension plan. Consider the time it takes to recover from a major market downturn. In 2008, the S&P 500 Index lost almost 40%; it would take 13 years to recover from a 40% loss, assuming returns of 4% per year. You may need your money to last longer than you assume Longevity The longer you live, the greater your chance of outliving your money during retirement. Today, there is almost a one-in-two chance that a 65-year-old man will survive until he is 85; for a woman of the same age, the odds are greater than one in two. Inflation Although currently low, inflation can have a severe effect on your income over time. Many people will face a retirement of at least 20 years, so it s important to keep your savings growing to help protect your purchasing power. Assuming a 2% annual inflation rate, an individual with $100,000 in annual expenses today will need nearly $150,000 after 20 years to pay for those same expenses. 4

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9 Hit play What you require from your retirement money Growth for your assets and protection from market volatility You want to continue to grow your retirement assets. Historically low interest rates make it unlikely that sufficient returns can be generated from investments that pay interest income. Yet you are also wary of staying invested in equity because of past periods of market volatility. What you need is a retirement strategy that will let you stay invested in the markets for growth potential while also protecting your savings and retirement cash flow against future market downturns. A predictable, long-lasting cash flow that may increase but never decrease Canadians who are getting ready to retire today face risks they may not have anticipated. They have longer life expectancies than past generations, more active lifestyles and rising health care costs. As well as planning for these expenses, it s important to consider the impact market volatility can have on retirement assets particularly when you shift from making contributions to making withdrawals. Weak returns around the time of retirement can add additional risk of running out of money, even with well-constructed portfolios and prudent withdrawal plans. A new approach to retirement: G5 20 Series G5 20 Series is a mutual fund designed and managed especially for individuals who require a guaranteed cash flow stream from their retirement savings. It combines valuable investment and protection benefits. G5 20 Series, part of CI Guaranteed Retirement Cash Flow Series, is guaranteed to distribute annual cash flow amounting to 5% of the Guaranteed Asset Value for 20 years while keeping exposure to equities for growth potential. The guarantee is backed by Bank of Montreal. In positive markets, there is potential for the guaranteed cash flow to be increased. 7

10 With G5 20 Series you can be comfortable staying in the market Guaranteed cash flow can only increase G5 20 Series guarantees 20 years of cash flow distributions equal to at least 5% of the money you initially invested. While the market value of your fund will fluctuate with market conditions, the fund s Guaranteed Asset Value, from which guaranteed cash flow is determined, may rise but will not fall. The Guaranteed Asset Value will be reviewed at least every three years for opportunities to automatically lock in a portion of market gains to increase the guaranteed cash flow. Protection against a downturn even if poor market performance has caused the fund s value to decline, you will still receive 20 years of guaranteed distributions. If markets go down, your cash flow is not affected. Solutions for pre-retirement and retirement Enjoy 20 years of guaranteed cash flow starting now or later There are two versions of G5 20 Series available to you, depending on when you need your guaranteed cash flow to start. If you require cash flow starting now, G5 20i may suit your needs since its guaranteed cash flow begins in the month immediately following the fund s Issue Period. G5 20 is for investors who need cash flow later but want to guarantee the fund value now your cash flow starts after a five-year Accumulation Phase. 8

11 Opportunities to grow your retirement savings G5 20 Series offers you more than just a guaranteed cash flow stream. It also provides you with many years of market participation giving you opportunities to grow your retirement savings. Access to your money at any time If needed, you have immediate access to your money by redeeming fund units. Any redemption would be at your fund s current market value, which may result in you realizing capital gains or loses. If you redeem a portion of your units, this would reduce your future guaranteed cash flow. Your remaining units would continue to participate in the upside potential of the market. Talk to your financial advisor today to find out how G5 20 Series can fit your retirement strategy. 9

12 For investors who require their cash flow now i G5 20i is the immediate cash flow fund: The annual guaranteed cash flow distribution begins in the month immediately following the Issue Period and will equal 5% of the initial investment. Locking in growth: If the market value of the fund is higher than the Guaranteed Asset Value (GAV) on any GAV Increase Date, half of those positive gains will be locked in to establish a new, higher GAV for the fund. Each fund s GAV will be reviewed every three years and can only be increased, automatically providing higher cash flow for you in future years. 10

13 G5 20i: How to calculate guaranteed cash flow in a hypothetical positive market scenario Distribution Phase = 20 years of guaranteed cash flow Market Value Years Value of G5 20i (assuming positive market performance, net of 5% annual guaranteed distributions). Guaranteed cash flow The Guaranteed Asset Value will be reviewed to see if there is an opportunity to increase the guaranteed cash flow in positive markets with half of those gains locked in to establish a new GAV. This occurs every three years during the Distribution Phase. After receiving guaranteed cash flow over 20 years, the low volatilty investment strategy of G5 20i may leave you with a residual value in the fund that you can take in cash or invest. Cash flow is guaranteed to be paid out to you over 20 years at 5% of your GAV. Your cash flow cannot be reduced, regardless of fund performance. The chart is for illustrative purposes only and assumes there are no fund redemptions. It is not intended to illustrate the performance of any portfolio. 11

14 For investors who need cash flow later but want to guarantee the value now i G5 20 is the deferred cash flow fund: The annual guaranteed cash flow distribution begins after a five-year Accumulation Phase and will equal 5% of the greater of the initial investment, the most recent Guaranteed Asset Value (GAV) during the Accumulation Phase, or the fund value after five years. In the event of positive market performance during the Distribution Phase, there is potential for the Guaranteed Distribution to be increased. Locking in growth: If the market value of the fund is higher than the GAV on any GAV Increase Date, half of those positive gains will be locked in to establish a new, higher GAV for the fund. Opportunities for GAV Increases occur after 2.5 years (midway through the Accumulation Phase), and every three years during the Distribution Phase. The GAV can only be increased for a fund, automatically providing higher cash flow for you in future years. 12

15 G5 20: How to calculate guaranteed cash flow in a hypothetical positive market scenario Accumulation Phase Distribution Phase = 20 years of guaranteed cash flow Market Value Years Value of G5 20 (assuming positive market performance, net of 5% annual guaranteed distributions). During the Accumulation Phase, the fund does not distribute guaranteed cash flow, but the GAV is tracked and in positive markets may be increased. Guaranteed cash flow The Guaranteed Asset Value will be reviewed to see if there is an opportunity to increase the guaranteed cash flow in positive markets. This occurs at the two-and-a-half-year mark and at the end of the Accumulation Phase and every three years during the Distribution Phase. After receiving guaranteed cash flow over 20 years, the low volatility investment strategy of G5 20 may leave you with a residual value in the fund that you can take in cash or reinvest. Cash flow is guaranteed to be paid out to you over 20 years at 5% of your GAV. Your cash flow cannot be reduced, regardless of fund performance. The chart is for illustrative purposes only and assumes there are no fund redemptions. It is not intended to illustrate the performance of any portfolio. 13

16 CI s teams of experts offer a straightforward solution for today s retirement needs G5 20 Series is distinguished from traditional mutual funds because it focuses specifically on retirement needs. It combines underlying funds managed by CI s award-winning portfolio managers with a risk management strategy to provide you with growth potential and guaranteed cash flow for retirement. Active Fund Management The CI Investment Consulting team manages the asset mix and brings together CI s top portfolio managers to add value through day-to-day tactical actions. Risk Management Overlay Provides investment strategies for long-term growth potential, to reduce volatility and maximize the fund s residual value. The Guarantee As Protection Manager and Guarantor, BMO provides a guarantee that ensures sufficient assets remain in the fund to pay all guaranteed cash flows, no matter how capital markets perform. 14

17 Why CI: Access to award-winning portfolio managers G5 20 Series offers you the expertise of portfolio managers with proven track records You benefit from portfolio managers who have won 28 Morningstar Awards over the past 10 years, including Signature Global Asset Management s Chief Investment Officer Eric Bushell, named Morningstar s Fund Manager of the Decade in 2010 and Equity Fund Manager of the Year in The CI Investment Consulting team selects funds and their portfolio managers for G5 20 Series based on their investment process, proven ability to add value and fit into the overall portfolio diversification strategy. The portfolio construction skill of CI Investment Consulting is demonstrated through its management of Portfolio Select Series, winner of the Morningstar Award for Best Fund of Funds program in 2013, and Portfolio Series, winner of the same category in 2012 and

18 CI has put together teams of experts to take you through retirement CI Investments Inc. is one of Canada s largest investment management companies. It offers a broad range of investment products and services, including an industry-leading selection of investment funds, and is on the Web at CI is a subsidiary of CI Financial Corp. (TSX: CIX), an independent, Canadian-owned wealth management firm with approximately $123 billion in assets as of February 28, CI Investment Consulting is the portfolio management team responsible for monitoring all CI funds. The team s mandate is centred on portfolio manager selection and monitoring, performance analysis and risk management. In addition, CI Investment Consulting has direct oversight of more than $20 billion in assets in CI s managed solutions, including CI Guaranteed Retirement Cash Flow Series, Portfolio Select Series and Portfolio Series, playing the lead role in managing the portfolios and selecting and monitoring the portfolio managers. Nexus Risk Management creates focused strategies for managing risk to optimize market exposure. With its highly specialized risk management products and services, the company delivers tools, training, expertise and execution to help clients around the globe to achieve their financial objectives. Nexus works closely with insurance companies and pension plans, rating agencies and regulators, leading experts from academia and the investment industry as well as reinsurers and other counterparties. Nexus has offices in Toronto, Chicago, Seoul and Hong Kong. Established in 1817 as Bank of Montreal, BMO Financial Group (TSX, NYSE: BMO) is a highly diversified financial services organization. With total assets of $593 billion as of January 31, 2014, and more than 45,500 employees, BMO provides a broad range of retail banking, wealth management and investment banking products and solutions. Bank of Montreal s senior debt has credit ratings of Aa3, A+, AA- and AA, respectively, from Moody s Investor Service, Standard & Poor s, Fitch Ratings and DBRS. 16

19 Features associated with the calculation of potential increases of guaranteed cash flow are applicable to G5 20 Series funds issued after March Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Except as described below, mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Bank of Montreal guarantees that at least the original amount you paid for the fund unit will be paid back to you over a 20-year period in equal monthly instalments. This guarantee does not apply to units redeemed before the end of that period. You will receive the net asset value per unit for any unit redeemed early. Mutual fund securities are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. CI Investments, the CI Investments design, Cambridge, Harbour Advisors and Harbour Funds are registered trademarks of CI Investments Inc. Signature Funds, Signature Global Asset Management, Portfolio Select Series, Portfolio Series, G5 20 Series, the G5 20 Series design and CI Guaranteed Retirement Cash Flow Series are trademarks of CI Investments Inc. Cambridge Global Asset Management is a business name of CI Investments Inc. used in connection with its subsidiary, CI Global Investments Inc. Certain portfolio managers of Cambridge Global Asset Management are registered with CI Investments Inc. Nexus Risk Management and the Nexus Risk Management logo are trademarks of Nexus Risk Management. BMO Financial Group and Bank of Montreal are marketing names (also referred to as trade names or brand names) used by Bank of Montreal. BMO, BMO Financial Group, BMO (M-bar roundel symbol) Financial Group, Bank of Montreal and BMO Capital Markets are trademarks owned by Bank of Montreal. Morningstar Awards Morningstar Inc. All Rights Reserved.

20 For more information about how G5 20 Series can help meet your retirement requirements, please consult your advisor or visit 2 Queen Street East, Twentieth Floor, Toronto, Ontario M5C 3G7 I Head Office / Toronto Calgary Montreal Vancouver Client Services English: French: FSC FPO SLF_E (03/14)