FALL 2011 NEWSLETTER - Assante Wealth Management

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Page 2 (Continued from page 1) month or even longer. Extreme market volatility reminds us that equities are best suited as long-term holdings, rather than as short-term investments. It's also important to remember that annual returns from equities - and growth in corporate earnings - have historically averaged approximately 6% to 8% over the long term, but they fluctuate from year to year. Equity prices over the short term are linked not just to corporate earnings but also to investors' emotions. When negativity dominates the news, as it does today, investors become less willing to buy equities, and this pushes equity prices lower. And when the news is positive, investors are optimistic and equity prices are pushed higher. Remember that when everyone is discouraged and fearful, risk in the market is substantially reduced and the opportunity might be greater. That's because when people are negative, most of the selling has been done and the bad news is largely factored into security prices. A bearish consensus is a prerequisite for a market bottom and sets the stage for above-average returns on the way back up. I N V E STING DURING VOLATILE TIMES Achieving our retirement income goals requires us to invest in ways that get us higher returns than those paid by GICs and government bonds. However, alongside higher returns also comes higher volatility. With today's 5 year GICs and 10 year government bonds paying only 2.5% in annual interest, this return is not enough to meet our accumulation goals when saving for retirement nor is it sufficient to meet our income needs in retirement. The only thing more painful than watching your savings decline 10 per cent is realizing how much more money you will have to save for retirement if you are unwilling to take on any equity market risk. Market volatility affects us in different ways depending on where we are in our lifecycle. For those saving for retirement depressed markets offer the opportunity of buying assets cheap and watching them rise in value over time. For those nearing retirement or in retirement market volatility can play havoc with our retirement income. A market downturn in the 10 - 15 years before retirement or in the early years of retirement may force you to reduce your retirement income or run the risk of outliving your savings. While we expect market volatility to continue, we believe that the guaranteed retirement income solutions that we offer such as Manulife Income Plus, SunLife Sunwise Essentials and Canada Life Lifetime Income Benefit are excellent ways to insure that your retirement income is not adversely affected by market downturns yet allows you to receive a pay increase if markets appreciate. It's a "heads you win, tails you don't lose" proposition. We have promoted these guaranteed retirement income solutions in our newsletter and in our client meetings since the Spring of 2008 and they have proven themselves to be excellent solutions. Y OUR PORT F O L I O EAR NS D I V I DENDS AND INTEREST The government and corporate bonds as well as the dividend paying equities that are in your portfolio pay you dividends and interest each year which accumulate on a tax deferred basis in your RRSP, TFSA and RESP. The yield on a balanced portfolio, not counting capital gains, is generally in the range of 3% annually which is actually more than today's approximate 2.5% rate on a five year GIC.
Page 3 T HREE PRINCIPLES OF FINANCIAL PLANNING 1. Spend Less Than You Earn Twenty-two years after releasing The <strong>Wealth</strong>y Barber with its focus on Paying Yourself First, David Chilton is back with a follow-up, The <strong>Wealth</strong>y Barber Returns. In this sequel, David makes it clear that there is no magic bullet that can substitute for consistently saving for retirement, year in and year out. Most need to save till it hurts, he says. Recognizing that most people find it near impossible to save, Chilton tries to shift their focus to spending less. His mantra this time is "I can't afford it". He feels this battle cry needs to be used more. 2. Your Debt Needs To Retire Before You Do Entering retirement free of debt is one of the best ways to increase your discretionary retirement income. Not having to make payments for mortgages, lines of credit, car loans, student loans or credit cards means you will have a lot more income to spend on your favourite activities. 3. Have a Financial Plan Developing a financial plan that includes a roadmap to achieving your financial objectives is one of the key factors to achieving financial success. Canadians who undertook comprehensive and integrated financial plans are “significantly more optimistic about their personal wellbeing as compared with those who have not.” and generally are “more confident about reaching a wide spectrum of life goals.” (3) If you want to update your financial plan please call Bryan to book an appointment. W ANT TO INVEST IN REAL ESTATE Real estate investing is seen by many as an excellent way to make money. After all, we have seen our own homes increase in value and therefore it follows that owning even more real estate will only add to our wealth. There is one major problem with investing in property - being a landlord. Fortunately, there's a way to invest in real estate without ever having to chase after the rent money or unplug blocked toilets. REITs (real estate investment trusts) allow you to be an armchair landlord in sectors of the property market including apartment blocks, retirement homes and commercial space. For example, if you invest $300,000 and it earns a return of 6% annually you will receive $1,500 per month of tax advantaged income. (4) We have available a number of investment vehicles that diversify your investment across a number of these real estate investments. Ask Bryan about this at your next appointment or by e-mail. M ORE INCOME THAN FROM GICS: MANULIFE P E N S I ONBUILDER If you find that the income you are or will be receiving from your GICs or government bonds will not be sufficient to meet your income needs, Manulife is now offering PensionBuilder. If you are over 50 years of age and find that a 2.5% return is too low, PensionBuilder is a guaranteed income solution that can help you better meet your income objectives. This brand new guaranteed solution works even better over the longer term, so the sooner you start and the more time before you need the income, the better you will do. Call Bryan to book an appointment to find out how you can generate higher income.
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FALL 2011 NEWSLETTER - Assante Wealth Management

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