Retirement Planning
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February 1999
Commentary - Hans H. Mathisen
February is the month when many Canadians pay a lot of attention to their RRSPs. This issue of LIFE LETTER deals with Surviving Low Interest Rates. And the points brought forward in LIFE LETTER are valid ones.
Did your RRSP portfolio earn more than 20% in 1998? Not likely, unless all of your money was invested outside Canada. Among the more than 1,700 Canadian mutual funds, only one fund earned more than 20% in 1998. And then just barely.
While reminding you that "I told you so" won't increase the 1998 retum on your RRSP investments, I reluctantly enclose columnist and financial advisor Garth Turner's recent column. Garth says exactly what I've been trying to make you do for the past several years:
Invest your money outside Canada. Invest in Europe and the U.S.
So, what about the 20% Foreign Content restriction? No problem. There are Canadian Segregated Funds [yes, the kind of Funds that offer GUARANTEES. Please refer to the enclosed LIFE LETTER] available that are 100% RRSP eligible, even though you invest your entire RRSP portfolio outside Canada.
My own RRSP portfolio, as well as the portfolios of the majority of my clients, in GUARANTEED Segregated Funds, earned 22.55% in 1998, 25.36% in 1997, 22.94% in 1996, etc. These returns are more than double what the TSE 300 index yielded.
So, what should you do with your RRSP protfolio and other investments? Contact Waren Buffett, Garth Turner or myself, Hans Mathisen. We all follow the same trail to steady growth. (Garth and I have both learned a lot by studying Warren).
Happy Investing! and
Happy 20% Plus Growth For Your
Registered and Non-Registered Portfolios!
Sincerely,
Hans H. Mathisen
Surviving Low Interest Rates
If you depend on interest from GICS, bonds, or other such investments for income, like many of our seniors, low interest rates are a major concern. Those who thought retirement would ease their financial concerns now find prices and taxes are rising while their income is reducing. Where can they cut back? Or where can they invest safely to maintain their income?
Some turn to higher risk investments, such as mutual funds, bonds, preferred shares, and even more speculative vehicles. But few understand how much extra risk they are taking on until the rising markets reverse and they see the value of their new investments drop. Then they worry about whether to sell or not, and if so, when?
There are a number of different ways to offset such risks.
One is to invest in segregated funds, investment funds backed up by life insurance companies, with built-in, money-back guarantees. You're assured of at least getting 75% of your deposits back in ten years, or 100% at death, whichever comes first. Many segregated funds actually guarantee 100% at the 10 year maturity. These guarantees can be affected by age, so read the information folder carefully to understand the limitations.
Another is to spread your investing over time. To time diversify, or dollar-cost average, invest a specific amount periodically regardless of interest rates and markets. This strategy can be combined with investing in segregated funds to further offset the risk. If you are moving large amounts of money out of maturing GICs into investment funds, the transfer can be averaged out over a year or two. Monthly deposits in your RRSP is an excellent example of effective dollar-cost averaging. Most people find this more convenient than a lump sum deposit just after the Christmas bills arrive.
Perhaps the most important process that needs to be followed is asset allocation. This dramatically reduces risk by diversifying your portfolio between equities (stocks and investment funds that invest in them) and debts (investments that pay interest). The percentages allocated to each investment class will be determined by a number of factors, including net worth, current income and income needs, age and length of time funds to be invested, risk tolerance and financial goals.
By allocating investments properly over the various asset classes, risk is reduced because you won't be practicing market timing, a generally unsuccessful strategy of trying to time when to get into the market and when to get out. Some investments will perform better than others over any given time frame. By being properly allocated, you won't have to guess when that will be.
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Mutual confidence is the power that binds together all harmonious human relationships.
Mathisen
Financial, Inc.
335 Redberry Road
Saskatoon, Saskatchewan S7K 4W5
Bus. (306) 242-7042 Fax. (306) 242-4314
Email: hans@mathisen.ca