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My financial advisor suggested we get Seg. Funds to leave to our sons. Is this a good idea, or not???
 

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Time to fire your FA -that would be a good idea. Provided he/she didn't suggest any other alternatives and you have creditors up to your neck.
 

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Seg funds are an insurance product that holds mutual funds. They are protected from creditors, which may be useful for a small business owner. And as an insurance contract they bypass probate which may be an issue if you pass away and money would be needed without having to wait for the estate to settle.

I agree with Beaver101. Except for a few select circumstances which don't seem to apply to you, seg funds are not a great deal. Your adviser is probably looking for ways to increase their commissions in these trying times.

Edit: here's a link to a Moneysense article that describes seg funds well.
 

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Usually they come with high MERs and confusing fund choices, not to mention insurance salesman fees.

The advice above is good. They not only avoid probate but all the gains are taxfree. But the fees should eat up most of that.
 

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The fees are sky high and in most cases the typical 10 yr. contract guarantee will not come in to play, since it's unusual for equity funds (even these with the high fees) to be worth less after 10 years but, as in anything, it's all in the timing. I had a Seg fund contract come due in 2010, and the market value was $42k below the guarantee amount. On maturity, they dumped $42k into my account to top it up!
 

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The fees are sky high and in most cases the typical 10 yr. contract guarantee will not come in to play, since it's unusual for equity funds (even these with the high fees) to be worth less after 10 years but, as in anything, it's all in the timing. I had a Seg fund contract come due in 2010, and the market value was $42k below the guarantee amount. On maturity, they dumped $42k into my account to top it up!
Interesting situation. One of the few times that an equity portfolio would be negative after 10 years. With crashes in 2000 and 2008, the 2000s are known as the "lost decade". It was a particularly bad time for the S&P500.

It would be interesting to see how much of that negative return would be because of the fees. A 10 year investment in the S&P500 starting in 2000 or 2001 would be significantly negative after 10 years. But a portfolio of equal amounts TSX, S&P500 and EAFE would have a slight positive return over that 10 year period. And a portfolio with 40% bonds and the rest split equally across TSX, S&P500 and EAFE would have had better returns.

Here is a link to Norm Rothery's wonderful Stingy Investor tool with equal parts in TSX, S&P500 and EAFE, for 10 years starting in 2001 and ending in 2010. Average geometric gain was 1.37%

Lessons I take from this:
  • If you really really really need the money, 10 years is not long enough for an all-equity portfolio
  • Diversification may save you from really bad returns
  • Low-cost is important. A diversified low-cost portfolio would have positive return and not need a guarantee
 

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My seg fund at Industrial Alliance has returned 87% total gain over 18 years as well paying premiums on $500k life insurance. Not great but not bad for the insurance.
 

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Yes, similar not great returns (130%) to kcowan for my 20+ yrs. of seg funds, and as he points out, it's slightly easier to stomach the exorbitant fees when factoring in the what the cost would have been for the life insurance, that I didn't have to buy elsewhere. Also, living through the occasional market meltdowns is a little easier knowing the guarantee & death benefit amounts are not affected. Of course, you have to have faith that the black swan event is not going to bankrupt the insurance company!
 
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