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PAGE 10. THE CITIZEN, WEDNESDAY, JANUARY 14, 1998.
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Successful mutual fund investing requires time
(NC) — There are as many mutual
funds available in Canada today as
there are stocks listed on the
Toronto Stock Exchange. The
result is that for many individuals,
selecting the specific mutual funds
for an investment portfolio can be a
complex and often bewildering
process.
if you own mutual funds, or are
considering investing in them for
the first time, here are three key
pointers which will assist in
making investment choices.
1. It's time in the market, not
market timing
The idea of timing the market is
seductively easy to believe in. We
all find ourselves in a position
where we want to get our money
out of the market before the next
"correction" or "crash". This is
extremely difficult for even the
most seasoned market expert to do.
A market timing strategy requires
making two decisions correctly —
when to get out, and then when to
get back in, often a more difficult
call than the first one.
Looking at the history of the
markets, the longer an investor's
money remains invested, the more
likely they are to be rewarded, and
the less uncertain the outcome of
that investment. For example, take
(NC) — For most people who are
not members of pension plans, their
RRSP contribution is the main
focus of their retirement planning.
However, while this is an excellent
start, making an RRSP contribution
is by no means the end of your
planning. The following are some
key points to keep in mind when it
comes to retirement planning:
1. Know where you want to go.
Even before you make your
RRSP contributions, you should
determine whether or not your
RRSP contributions will be enough
to allow you to achieve your goals
and objectives at retirement. There
are obviously a lot of factors that
must be taken into consideration
such as investment returns, the rate
of inflation and the type of lifestyle
that you want in retirement.
a look at historical information on
the TSE 300 index dating back to
1973. If an investor had invested
money in the TSE 300 index for
only 12 months and Ws or her
timing was particularly poor, the
worst historical return would have
been a loss of 39.16 per cent. If this
same investor's time horizon was
extended out to five years, there
was not a single period with a
negative return. Furthermore, the
average return over a five-year
holding period would have turned a
$1,000 investment into over
$1,800.
One of the keys to successful
mutual fund investing, is to invest
in the market over a long-term time
horizon of at least five years or
longer. This provides the
opportunity to participate in market
gains while reducing the risk of any
downside.
2. Look for talented money
managers rather than hot funds
Investing in a mutual fund is
about hiring professional money
managers to invest in certain
markets using a specific
management style or philosophy.
Successfully investing in mutual
funds relies to a large extent on the
selection of those money managers.
Looking at past performance can be
However, it is safe to say that if
you don't know where you are
going, you'll never get there.
2. Consider the effect of taxes.
While taxes should never be the
primary reason for making invest-
ment decisions, they do play an
important role and should be
assessed when developing your
plan. After all, it is not what you
earn that matters, it is what you
keep.
3. Keep in mind any estate
planning objectives.
Remember, your retirement plan
will also affect your estate plan.
Ideal retirement planning would
mean that you would run out of
money at the same time you passed
away.
However, this is not very
effective estate planning, unless
informative but it cannot
necessarily be relied upon to
predict future results. It also doesn't
tell you why a specific manager has
or has not been successful —
perhaps a particular sector or
region of the world did particularly
well in the recent past, or perhaps a
certain style of investing is more
favourable than another in certain
market conditions.
Rather than just trying to select
the "hot funds," a solid
understanding of the money
(NC) — When it comes to the
importance of diversification,
people often cite the old adage,
"don't put all of your eggs in one
basket." But in reality, there's more
to diversification than that,
investment professionals warn. To
be properly diversified, a modern
investment portfolio must take into
account asset allocation — a way of
making sure the right number and
combination of eggs are in the right
baskets.
"Diversification helps investors
control their risk and capitalize on a
wide range of opportunities," says
you don't want to leave an estate.
The decisions that you make for
your retirement will have an effect
on the development of your estate
plan so you should remember that
there are both strategies and
products that can help you
accomplish both retirement and
estate planning objectives.
Getting started on your plan
Making . your annual RRSP
contribution is an excellent starting
point but your planning doesn't end
there. Professional advisors should
play an important role in your
planning to make sure that you are
taking advantage of all the
opportunities that are available to
you. Remember though, a particu-
lar strategy or product is only
appropriate if it meets your goals
and objectives.
manager, their discipline, style and
potential to repeat past results can
lead to better investment decisions.
3. Set up a pre-authorized
contribution plan
Sir John Templeton has been
quoted as saying that the best time
to invest in the market is whenever
you have the money. One of the
best ways for an investor to avoid
investing at a market top and to
grow an investment plan,
particularly an RRSP, is to set up a
Pre-Authorized Contribution plan.
Bob Stiles, Associate Director of
Managed Assets at ScotiaMcLeod
Inc. "There are three major ways to
diversify a portfolio: by geographic
area, asset class, or investment
management style. When you
combine diversification with asset
allocation, you've got a very
prudent and professional
investment strategy."
"Asset allocation is a long-term
strategy that places more emphasis
on one's overall portfolio as
opposed to individual investments
held," adds Stiles. "When the
markets or an investor's
circumstances change, the
allocation is adjusted accordingly."
While asset allocation is more
common today than ever, it has
been used for many years. Asset
allocation is based on the principle
that different investment classes
react in different ways- to changes
in the economy or the market. As a
This allows mutual fund
investors to regularly and
systematically contribute to and
grow mutual fund investments.
Most importantly, investors gain
the benefit of dollar cost averaging.
This means that automatically, an
investor would end up purchasing
more units of a fund when the price
is down, and less when the price is
up. Over time, this averages out the
cost of your units in mutual funds,
which can lead to higher returns
over time.
result, the risk of decline in one
category is offset by potential
increases in another. The
possibility of volatility is also
greatly minimized. According to
studies, asset allocation is the
single most important component
of investing success. These same
studies show that asset allocation
accounts for over 90 per cent of an
investor's return.
"Asset allocation seems simple
and some investors are developing
strategies themselves," says Stiles.
"But it involves more than just
dividing assets among stocks,
bonds and cash. It must be based on
an investor's age, investment goals
and tolerance for risk, as well as on
an understanding of the unique
features and strengths of each asset
class. Asset allocation is very
effective."
However, notes Stiles, asset
Continued on page 11
Retirement more than RRSP
Asset allocation adds value