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HomeMy WebLinkAboutThe Citizen, 1997-02-05, Page 7THE CITIZEN, WEDNESDAY, FEBRUARY 5,1997 PAGE 7. $$$ Financial Planning for the 1990s $$$ Help in demystifying RRSP jargon Every year during RRSP season Canadians set aside their normal language and begin to speak a baffling tongue known as RRSP Speak. It's the special jargon of RRSPs and if you're feeling left out of the conversation, read on. We'll have you back in the middle of things before you can say "asset allocation." Here are explanations of some common terms, provided by Investors Group, one of Canada's leading personal financial services companies. Portfolio - A term describing all the investments you own, stocks, bonds, mutual funds, GICs, and so on. A diversified portfolio contains a variety of investment or assets. Prospectus - A document that must be provided to investors at the time they buy mutual funds and certain other investments. The prospectus describes the invest­ ment, the investing objectives, Homebuyers beware — don’t overlook extras Planning to buy your first home? Before you visit your banker to apply for a mortgage, keep in mind that there are costs over and above the price of your home. These "extras" - excluding your downpayment - could run anywhere from 1.5 to 3.5 per cent of the cost of your home. • Appraisal fee: Since your property will be offered as security, the lender must determine its value for lending purposes. • Inspection cost: It's wise to obtain a written report from a professional stating that the building is sound and identifying potential repairs and costs. • Property survey: Indicates property boundaries, measurements and access to your land. • Insurance for high ratio mortgages: This will include an application fee and an insurance premium. • Home insurance: You need it because you're insuring a structure and its contents. Protecting your investment is also a requirement when you're arranging your mortgage. • Land transfer tax: In some 5 things a will helps you do 1. A will enables you to determine the DISTRIBUTION of your assets to your family. Without a will, provincial law determines what happens. For example, the court may require that property be distributed evenly among all children. Your will enables you to make your own choices about how to continue providing for your family and loved ones. 2. A will enables you to name a personal REPRESENTATIVE. Is there a person you wish to entrust with the responsibility of settling your estate? Only a will ensures the person of your choice is the executor. A will even allows you to name an alternate, in case the first person you name is unable to serve. management, potential risks, tax issues, fees and other data so that you can make an informed purchase. Spousal RRSP - One person in a marriage or common-law relation­ ship makes tax-deductible contributions to an RRSP that is registered in the name of their spouse. Spousal RRSPs are used by many couples to improve their overall tax position on retirement. However, the contributions reduce the amount that person can contribute to their own RRSP. T-bill - A treasury bill is a short­ term security issued by the government with a maturity of 30 to 364 days. It is a very safe, investment but one that won't eam much when interest rales are as low as they are today. Diversification - Investing so that all your eggs aren't in one basket. By spreading youi investments among different geographic regions, currencies, and provinces, the buyer must pay a tax on property that changes hands - usually a percentage of the purchase price. • Interest adjustments: The buyer is expected to pay the difference in interest between the closing date and first mortgage payment. • Prepaid property tax and utility adjustments: If paid by the previous owners. • Legal fees: It's a good idea to use a lawyer to handle the purchase. • Sales tax: Resale properties are GST exempt, but sales tax (where applicable) is generally charged on all transactions. • Moving expenses: The cost of hiring a company or van. • Service charges: Hooking up hydro, gas, and phone incurs extra costs. • Immediate repairs: Do pressing repairs when you take possession. • Appliances: You'll have to buy them if you don't own them and if they don’t come with the house. • Decorating costs: Check your budget'and see what you can afford. 3. A will enables you to remember special FRIENDS. Only a will enables you to leave something to someone outside your family. You may have a special heirloom that a close friend always admired. What better way to remember that person than with a gift of that item as noted in your will? 4. A will enables you to make BEQUESTS to your favourite organizations. Support during your lifetime means a great deal to organizations such as Greenpeace. You may wish to continue this support by including a bequest in your will. 5. Finally, a will enables you to SAVE administrative costs and estate costs. types of assets such as stocks and bonds, you spread out your risk. Mutual funds arc a popular way for investors to get the benefits of greater diversification. Mutual funds remain a popular choice this RRSP season. Here are some terms specific to funds: Money Market Fund - A portfolio of short-term debt instruments offering safety and liquidity. T-bills issued and guaranteed by federal anc provincial governments are common investments. Money market funds are managed so that their units usually have a constant value of $1 or $10. Their performance is measured by the rate of interest they eam. Equity Fund - A mutual fund that invests primarily in shares of companies that are available on the various stock markets around the world. The objective of an equity fund is usually long-term growth through capital appreciation: as a company grows and prospers its shares become more valuable. Some income may also come from dividends, which are amounts paid per share to shareholders from a corporation's after-tax profits. Bond Fund - A mutual fund that invests in debt securities such as government and corporate bonds, in addition to generating interest income, a bond fund may generate capital gains or losses as a result of interest rate changes and the underlying financial well-being of the issuer. Balanced Fund - A mutual fund that invests in equities and interest­ bearing securities, such as bonds. A balanced fund may produce a mix of earnings from capital gains and dividend and interest income, while exhibiting less variability than THINK... LONG TERM WHEN INVESTING THIS YEARS RRSP's Term accounts Mutual Funds Segregated Funds RRIF’s & Annuities THINK... KAREN KLEIST FINANCIAL SERVICES 224 Josephine St. 35 7-2669 Mon. - Fri. 9:00 - 5:00 p.m. Sat. 9:00 - 12:00 p.m. Evening by appointment equity funds. Yield - The expected return from an investment, whether it is a bond or an equity. Marginal Tax Rate - The top rale of lax that is charged to individuals on their last dollar of earnings. This also indicates how much you would save on each dollar of income that docs not need to be reported on your lax return. For example, if your marginal rate lax is 40 per cent and you Invest In Your Community With Your CREDIT UNION xjar Your RRSP deposits are used to assist our borrowers who are your friends and neighbours in the community. RRSP Loans Up to PRIME - 1/2% RRIF’s ALSO AVAILABLE INDEX - LINKED TERM DEPOSITS They offer the appeal of an above-average rate of return from participation In stock market appreciation, and also have the safety of a guaranteed return of principal like a G.I.C. No Fees RRSP Eligible Each RRSP & RRIF contract Is Insured Individually for up to $60,000.00. Other R.S.P. Options Available. Inquire at branch. CLINTON COMMUNITY CREDIT UNION 48 Ontario Street 118 Main Street North CUNTON 482-3467 EXETER 235-0640 OPEN: MON. to THURS. 9:00 a.m. - 5:00 p.m. FRI. 9:00 a.m. - 8:00 p.m. contribute $1,000 to your RRSP, you will save $400 in tax. Asset Allocation - How your portfolio is diversified among the three main asset classes: cash and investments like cash; fixed- income investments such as bonds; and, stocks or equities. There you have it: more than enough vocabulary to hold your own when the conversation over the dinner table or around the water cooler rolls around to RRSPs.