As I’ve complained many times over the years, I bought some LSIF (Labour Sponsored Investment Funds) many years ago. These were the worst investment ever. High fees, crazy redemption schedules and poor performance add up to a bad investment. They had great tax breaks at the time, so I committed the cardinal sin of letting taxes control my investment choice.
Lesson learned – Don’t ever buy an investment solely for tax reasons.
Lesson 2 – Don’t ever buy LSIFs. They are a bad investment.
The last of my funds came due in February of 2010, but I’m only now getting around to redeeming them. I think my reluctance to sell these funds stems from two reasons:
- Small amount – The amount of the funds is small enough that it wasn’t critical to sell them right away.
- Redemption freezes – I’ve heard that many LSIF funds have frozen redemptions so you can only get money out of them at certain times. Canadian Capitalist wrote about LSIF redemption freezes a while back along with Jon Chevreau of the National Post.
The funds I originally bought have changed hands and names numerous times. The funds I own are called CIG6940 VentureLink Brighter Future I (yah right) and CIG987 Covington Venture Fund Inc. Sr. I.
I had these funds at Questrade discount brokerage where I keep all my investments. After placing the orders, nothing happened for a couple of days which made me wonder if the funds were restricting redemptions. I phoned CI, who looks after administration for both of these funds. The rep was able to determine that the trades were placed as wire orders. This means that Questrade places the orders with CI to sell the funds and then follows up later with the documentation which will allow the trades to settle. Sure enough, three days later I received confirmation that the trades were completed.
The value was a bit over $5,000 which is ever so slightly down from the original purchase price of $15,500. Because of the tax breaks associated with LSIFs, my true cost was around $10,000. Considering most of the funds were bought between 1996 and 2002, the final result is pretty disappointing. Any other kind of investment would have done much better.
Canadian MoneySense had a good article about Canadian tax shelters with a similar warning to not let taxes be the sole driver of your investment decisions. The article also references MURBs which were a tax-sheltered real estate investment which didn’t do so well. Interestingly enough, my Dad made a similar investing mistake in the 70’s, and his investment poison was MURBs.
As has been written elsewhere – don’t invest your money based only on tax considerations. Buy investments low and sell them high – the taxes will take care of themselves.
Any other LSIF/bad tax break investment survivors out there? Let’s hear your story in the comments!