The Rural Voice, 1989-11, Page 20Would you
like to discuss
Equity Funds?
PROFESSIONAL INSURANCE
REPRESENTATIVES
WATKINS, DAUGHERTY
& ASSOCIATES
LICENSED INTERMEDIARIES
FOR
is
IMPERIAL LIFE
Estate Planning, Business
Insurance, Group Benefits,
RRSPs, RRIFs, Annuities,
Disability Insurance,
Retirement Planning,
Equity Funds
The Imperial Life Assurance Company
of Canada
305 King Street West, Suite 609
Kitchener, Ontario N2G 1 B9
LUCKNOW:
LISTOWEL:
KITCHENER:
528-3514
291-5040
744-5281
FARM
TIRES
Good selection of Duals
Large stock of all brands
of passenger,
truck & farm
tires
23° Al
On Farm Service'
Two fully equipped service trucks
WiIIits
Tire Service
Lucknow
519-528-2103
18 THE RURAL VOICE
WISE MOVES
Financial Strategies for Farmers
Bob Watkins
"Wise Moves" is a series of articles pro-
vided by Watkins, Daugherty & Associ-
ates. Taking as a case study the farm of
"Martin Wise," financial experts Richard
Daugherty and Bob Watkins outline vari-
ous ways that farmers can enhance their
financial planning and security.
Your questions and comments are wel-
come: telephone Bob in Lucknow 528-
3514, Richard in Listowel 291-5040, or
Kitchener (Imperial Life regional office)
744-5281.0
Richard Daugherty
MUTUAL FUNDS AND EQUITY FUNDS
Mary and I wondered whether our
mutual fund investment was a good
idea. We didn't really understand how
it worked so we asked our insurance
representative for help. He explained
it this way.
Let's say there are four neighbour-
ing farmers who discover that there is
a really valuable piece of land for sale
close by. They all want to buy it
because it would be a good investment
opportunity, but not one of them has
enough money to buy it outright.
So, they all put up one-quarter
of the price each and buy it together.
Now each farmer owns one share
which we will call a "unit"
If the land cost $200,000, then
each unit, at the day of purchase, is
worth $50,000. Ten years later they
decide to sell their land and make a
profit. The land is now worth $1
million, so each unit has a value of
$250,000, and each farmer has made
a profit (capital gain) of $200,000.
A mutual fund (called an "equity
fund" or "segregated fund" when
managed by an insurance company)
works in a similar way. Many people
pool their money and a highly quali-
fied person is hired to invest it for
them. Instead of putting all the eggs
in one basket, such as investing in one
piece of land, the money manager
invests in many different ways to
decrease the risk. Everyone shares
in the profit or loss.
So why is there a risk in investing
in a mutual fund? The biggest risk is
being forced to sell out at a bad time
(i.e., when the markets are down).
This should not be a problem for a
person who has a solid foundation to
his investment triangle (see this
column in the September Rural Voice)
because he will have other sources of
cash to draw upon in an emergency.
What about advantages? Well,
there are two main points that our
representative mentioned. First of all,
a good mutual fund will generally
show a much greater return over the
long run when compared to an invest-
ment at guaranteed interest. Over a
10 -year period, a good fund should
show an average annual rate of growth
of 20 per cern a year.
The second advantage is that this
growth is primarily in the form of
capital gain, and this is treated more
favourably than other investments for
income tax purposes.
By the way, did you know that,
as farmers, Mary and I each have a
$500,000 capital gain exemption on
the sale of our farm, but that this is not
in addition to the $100,000 exemption
on other capital property?0