Planning is also an important piece of your investment plan. A well documented plan will help you to:
grow your resources,
provide flexible retirement income,
and manage investment risk.
This issue of my Legacy Digest will focus on your investment plan. I'll discuss why "snowbirds" are happy, address some "noise" you may be hearing in the media, and touch on a few "bits & bytes".
Articles for January, 2004 (click on the article you wish to read)
1) Snowbirds like it, but do you?
In 2003, the broader indexes were up over 20%, however the up swing in the Loonie negated much of the returns on your American investments. For example, if you owned a piece of the DOW Jones Industrial average, you likely expected to see the 19% increase in this index reflected in your investments. However, as all investments are converted back to Loonies, your semi-annual statements will actually show a 1% decline (19% market increase less the 20% US dollar decline).
Is this change in the Loonie cause to adjust your investment plan? In a word, NO! The value of the Loonie is just one piece of your investment return. American stocks make up half of the world equity market and are an important piece of a well diversified portfolio. Bottom line - the quality Global fund managers we've chosen to implement our investment plan, track many factors (including the Loonie) when they make their investment decisions. They'll continue to balance these factors and work to achieve solid long term results.
To look at this another way, just as a snowbird can purchase more American goods with the rejuvenated Loonie, you too can purchase more American investments with your same RRSP contribution. Definitely something to consider this RRSP season!
If the value of the Loonie concerns you, give me a call as I'd be happy to discuss this in detail.
2) How long will it take the market to recover?
First, the "market" in this story is the volatile, tech-heavy, NASDAQ index. By comparison, the broader Canadian market (TSX) was off 43% during the recent bear market (requiring 7 years to "recover"). Second, while 8% is a fair long-term planning average, the market rarely has an "average" year. In 2003 the TSX was up 23% and the NASDAQ was up 45% (source: globeinvestor.com). This significantly reduces the newspapers "years to recover" statistic. Finally, this argument looks at only a short sample of market history. Statistically and realistically, 3 years is too short a time sample on which to base future projections. If we look at the last 10 years, the TSX has averaged over 11% per year (even with some of the largest swings in market history), which is close to its 50 year average.
What is the point of my rebuttal you ask? To demonstrate the need for financial planning based on realistic long-term projections. Therefore, don't get too excited about the swings in the market (up or down). Just stay focused on your investment plan and together we'll help you grow your resources and achieve your Legacy goals.
3) Bits & Bytes.
One of the biggest errors I find in investment portfolios new clients ask me to review, is a significant imbalance between a couples retirement assets. Left unchecked, this could leave you paying too much income tax in retirement and could result in you outliving your money.
Spousal contributions allow the contributor to get a tax deduction now, while transferring assets to their spouse for use in retirement. More importantly, a thorough financial plan will take all your retirement assets into consideration and will identify if a Spousal RRSP is necessary.
Time is the biggest hurdle to correcting this problem so don't delay getting your Legacy plan updated. With sufficient lead time before retirement, I can provide a well structured investment plan that will look after your retirement.
b) Today is a Good time to catch-up on your RRSP contribution! With borrowing rates at historic lows, now is a good time to top up your RRSP with the help of an RRSP loan. Current lending rates make this investment method attractive for those who have a Legacy Plan identifying such a need. As well, now is a good time to "buy low" as market conditions, while improved, are still off from their peak in 2000.
Not sure if an RRSP loan will help you? Just give me a call and we'll review your investment plan to see what's best for you. If you decide to proceed, I have all the loan and investment forms in my office to complete this process.
Tim Laskey, CFP, B.Sc.
Principal & Financial Advisor
Financial Planning for People with a Purpose !
Phone: (519) 435-6341
Associate: Maureen Beamish
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