20020217_Cariboo Observer_03.pdf - the Quesnel & District ...

AIS QUESNEKARIBOO OBSERVER Sunday, February 17, 2002
Are mutual
funds really
as risky as
they seem?
It's impossible to
compare funds "across
the board." Mutual funds
not only differ in their financial
objectives but also
invest in different kind of
securities that reflect the
ultimate objective of the
fund.
• Thus, depending on
the securities the fund is
investing in, or the mix of
securities chosen for a
specific fund, the element
of 'risk' varies substantially.
The fund's objective is
what the fund seeks to
achieve by investing. This
Stait planning ear^
for your retirem
Saving for retirement
is one of those things
many people find hard to
do:..: :
With their full working
careers still ahead,
young adults see retirement
as a distant goal.
There's plenty of time yet,
they say, to worry about
the golden years. Older
people may feel closer to
retirement, but other fi^
nahcial commitments -
such as buying homes,
funding children's education
- loom larger in their
minds.
So opening a registered
retirement savings
plan and contributing to
it regularly - seen by financial
planners as crucial
to providing reasonable
retirement income -
often gets put on the back
burner.
The hesitation to saVe
may be understandable,
but planners say the sooner
you begin to put
money into an RRSP, the
better. Building a pool of
assets to see you into a
comfortable retirement
will be much easier if you
begin the process early in
life. And you should also
make your contributions
at the beginning of the tax
year, rather than the end,
the unfortunate custom of
many RRSP holders.
Why is earlier better?
Remember that RRSP
contributions are tax deductible
and that earnings
in an RRSP are allowed to
compound tax-deferred
until they are withdrawn.
So the younger you are
when you make your contributions,
the longer they
will betiefit from the
magic of compounding.
Contributing as early as
possible each year will
also bolster the cortipounding
process.
Here's how compounding
works. Let's say
you put $1,000 into a
two-year term deposit
that pays 10 per cent
compounded annually. In
a year's time, you've
earned $100 in interest.
That $100 is added, to
your principal. For the
second year of the term
you get 10 per cent interest
on $1,100, or $110.
You can see how this interest-6n-interest
couJd
quickly mount over a long
term.
When you combine
the benefits of compounding
with tax deferral,
you've got a very potent
force.
Let's say Mike and
Bob each have $5,000 of
their salaries to invest, but
follow different paths,
Mike invests in an RRSP -
earning 8 per cent a year -
where his funds are not
subject to tax until they
are Withdrawn. In 20
years, the original amount
would have grown to
$23,305 at which point
Mike decides to cash out.
Assume for simplicity's
sake that Mike is in the
50 per cent bracket, and
he would end up with
$11,623. .
Bob, also in the 50
per cent tax bracket, decides
to invest outside his
RRSP in the same investment
earning 8 per cent
annually. He's subject to
tax on the original
amount, which reduces
his starting investment by
half to $2,500. He'II also
pay taxes on the investments
earnings over the
years. After 20 years, he's
got $5,478.
True, there would be
no tax to pay at. that
point but the end amount
doesn't come close to
making up for the tax-free
compounding of interest.
Another benefit of
starting early is that you'll
need to put away less
each year to reach your
retirement goal.
Let's say you'll need
$500,000 including CPP
and OAS to retire comfortably
by age 65 and
your investments will
average 8 per cent annual'
growth with inflation at 3
per cent. If you're 25
now, you'll need to invest
$1,254 per year to reach
your goal, according to
Scotiabank's RRSP Reality
Check. But if you wait
until 35 to begin saving,
you'll have to set aside
$3,032 a year. Hold off
until your 45 and you
must come up with
$8,109 a year.
The figures clearly
show there is a price to be
paid in the form of a reduced
retirement nest-egg
by those who put off saving
until tomorrow.
Bruce Armstrong is
vice-president, financial
planning and investment
saving programs.
Rigsby Lea Barr & Go.
"Helping People in Business "
Put our long-term planning expertise to work
for you and your business.
Business Planning • Inconae Tax Advice
• FInqncial Consulting • Estate Planning
101-455 McLean Street
992-5547 Fax: 992-5372
e-niail: ribco@que8nelbc.c^ ^
will determine what kind
of securities the fuiid will
buy, and in what economic
sectors or countries.
For example, a fund seeking
the highest possible
return on capital may invest
in more speculative
common stocks than one
seeking niaximum income
from dividends. The risk
in the first objective is
much higher than in the
second.
You can see, therefore,
that the amount of
risk involved is directly
related to the fund's ob­
jective; Generally speak-:
ing, it can be assumed
that the higher the return,
the higher the risk involved.
However, mutuak
funds remove much of the
risk from investing.
Drowning In a sea of RRSP choices? investing in an RRSP can be pretty oonflasing. Talk to
your Qarica agent about putting together a plan to help you get the most out of your retirement savings.
Kevin McKelvie* CFP CLUCH.F.C.
McKelvie Financial Services Ltd. RWS
250992^5790 HI TT ARirA
333 Reid St. \^LJ\IS.L%^J\.
Quesnel BC investment and tmurance solutions-since 1870
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5 year» 5.10% Term
Compounding
Effective yield 5.64%
CALL TODAY 992-9216
NEW MEMBERS WELCOME
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Quesnel & District Credit Union
253 Reid Street 992-9216
INSTANT
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Fixed rates as
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Talk to the experts at Northland Mortgages.
Francine or Dennis at 992-7295
252 Reid Street Quesnel
millennium
MILLENNIUM FINANCIAL GROUP INC
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Prince George, Quesnel, Williams Lake
CALL TOLL FREE
1-888-581-1042
to arrange your appointment in Quesnei
1
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MONEY
QUESNEI CARIBOO OBSERVER Sunday.'February 17,2002 A19
Don't be intimidated by difficult markets
The task mciy be daunting^ but ajewjucts can lessen thai load
When volatility afflicts
the marketSj investors
get nervous. And
many, rather than sticking
to their guns, are prone to
panic. They pick up the
phone, call their brokers
or financial planners, and
head for the exits.
Why stay invested in
stocks or equity mutual
funds, they wonder, if
prices could head down
even more.^ Their idea is
to sell now before the
market deteriorates further,
then buy back in
when they feel the market
has stabilized and is
poised for big gains.
While this may give
some investors temporary
peace of mind, financial
planners say it is definitely
not the best way to
build wealth. It smacks of
trying to time the market,
a dicey investment strategy
that involves attempting
to match buys and
sells with inarket valleys
and peaks. Even most investment
professionals
shun the practice.
It's far more effective,
planners contend, to buy
a diversified portfolio of
good, solid investments,
and stick with them. Investors
who are constantly
moving in and out of
the stock and bond mar-
Al Paterson's stress level doesn't need to go through the roof over the challenges of personal financial planning.
Neil Horner photo
kets in big way - often
running to the sidelines
when stock prices dip -
will Hkely not achieve as
good overall performance
as those who stay invested.
Not only are they
likely to miss some of best
times in the market, but
the frequent trading will
increase transaction fees -
commissions for trading
stocks, for instance -
which would be a drag on
their returns.
For registered retirement
savings plan investors,
the potential danger
of frequently moving
in and out of the market
can hardly be Overstated,
particularly if it results in
poor investment performance.
Sub-par performance
jeopardizes the
creation of an asset pool
large enough to backstop
a comfortable retirement.
Global Securities
Corporation
Barhara J. Bachmeier, L A .
Branch Operator
Are your RRSP Investments on
track to fiind your retirement?
ISSUER RATINGS ONE YEAR FIVE YEARS
Government
of Canada Bond AAA 4.77'^
CMHC AAA 2.76^' 4.42^'
BC Provincial
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YIELDS
AAlo 2.78^' 4.79^
AAlo 2.76^° 5.18'^
••••All Rates Subject To Change Based on Market Conditions & Availability
Delhie Hanrahan, CFI^ Give I. A . Barb, Hedy or Debbie a call
.•:ied\jSchulz,I.A. to find out how we can help>
Hours of Operation:
Monday-Friday
6:30am - 5:00pm
#3-334 Front Street, ftuSslif^
Tel: (250)992-7^8 ^ ' ^
Although many investors
claim they buy
and sell at just the right
times, research shows that
few actually walk the
talk. More than 90 per
cent of investments by individuals
are made near a
market high, and the majority
of sales take place
after investors have lost
more than 10 per cent.
To see how staying
invested can pay big dividends,
let's look at the
impact of being out of the
market for various time
periods. Let's say you put
$10,000 into the stocks
that make up the S&P
500 Index on Oct. 1,
1996.
If you didn't budge,
you'd have $15,106 on
Oct. 1, 2001. But if you
moved your money out of
the market for its 10 best
days, you would have
only $9,843. Be out of the
market for the best 30
days, and your investment
would shrink to $5,505.
Clearly, staying invested
over the long term-is an
effective way to build a
nest egg.
Bear in mind that investing
means niixing different
types of securities
from the three major asset
classes - equities, fixed income
and cash or equivalents
- in a portfolio that
meets your goals and risk
tolerance. But once you
have the investments in
place, stick to your plan.
Bruce Armstrong is
vice-president, financial
planning and investment
savings programs at Scotiabank.
Stocks
Bonds
Mutual Funds
Specialty Products
Access to all major exchanges
•Independent Canadian Co.
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during February
by appointment
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