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The Citizen, 1999-02-10, Page 24PAGE 24. THE CITIZEN, WEDNESDAY, FEBRUARY 10, 1999. 3 golden rules for building your RSP (NC)—Contribute Early. If you're like most Canadians, you’re probably just getting around to making your RSP contribution for the 1998 tax year. Most of us wait until close to the deadline (this year it’s March I, l 999) You could add thousands of dollars to the value of your RSP over time by contributing early. Tips for managing your GICs (NC)—These fixed rate investments have been a core holding in millions of RSPs for many years with good reason. They’re safe, the return is guaranteed, and they are easy to buy. Every Retirement Savings Plan should have a fixed rate component. One of the best ways to manage GICs is to use a strategy known as “laddering” your fixed rate investments. This approach is especially valuable for anyone whose priorities include safety of capital, predictable future income, and the ability to adapt to a Are you prepared for retirement? (NC)—Experts suggest the most effective and simple move you can make when it comes to being financially prepared for retirement is to set up a regular investment plan. Even putting as little as $25 a month into your RRSP can, through the magic of compound interest, add up to a significant amount at retirement. But Canadians of all ages aren’t getting the message, according to the 1998 CIBC Financial Health Poll surveying 1,000 Canadians over the age of 18. The results revealed that the vast majority of us don’t have a plan for a financially healthy retirement: • 42% of those surveyed don’t RRSP: A POWERFUL INVESTMENT TOOL Regular RRSP contributions - the most beneficial step to taking charge of your future Associated Financial Planners Limited- A member of ING Jk) GROUP For a Qualified Investment Professional call Dianne Murphy, CFP Wingham 519-357-1362 or 1-800-390-7972 HEAD OFFICE: 20 Erb St. W., Waterloo, Ont. N2L 1T2 That’s because if you make your contribution early each year instead of waiting until the RSP deadline, you’ll benefit from an extra year of tax sheltered growth. Do this each year and the effect over time can be significant. For example, suppose you contribute $3,000 a year to your RSP and your average annual changing interest rate environment. There are two stages to implementing this strategy. First, calculate how much of this year’s RSP contribution you wish to invest in GICs. To that add the value of any GICs in your plan that will mature around the same time. Divide the total into five equal amounts. For example, if the combined amount was $10,000, you’d have five units of $2,000 each. Invest one unit in each available maturity up to five years. You’ll end up with $2,000 maturing a year from now, another $2,000 in two years, and so on. have an RRSP. • 72% have not prepared a financial plan for their retirement. • 70% of those aged 45- 54, wh^ are in their peak earning years don’t have a financial plan for retirement. The survey also revealed that people’s retirement behaviour has changed significantly in the last few decades: • 62% intend to work after their formal retirement. • 36% of retirees say that their financial situation is somewhat or much worse than during their pre­ retirement years. • 15% of retirees have returned to Continued on page 25 return is 8%. After 30 years, you’ll have $339,850 in your plan if you contribute at the end of each year. But if you put in the money 12 months earlier, your plan will be worth just over $367,000 - a difference of more than $27,000, just because your money got in your plan sooner. Contribute Annually. Many Then, as each GIC matures, reinvest the proceeds in a five year term, which usually pays the highest rates. The result is that you’ll have money rolling over at the best available rate. As additional GICs mature, or you contribute more money to your RSP, continue the strategy of balancing the total amount of your fixed rate investments that will mature in any given year. If interest It’s RRSP Time Make the most of your money Invest in your community Credit Union North Huron Credit Union Limited 8 Alfred Street, Wingham (519) 357-2311 Call us for competitive RRSP and Term Deposit Rates. All funds reinvested in our local community and deposit insured to $60,000. people don’t realize that even a single missed RSP contribution can be costly. For example, suppose you’re allowed to contribute $7,000 to your plan but, for whatever the reason, you skip the payment. If your average yearly return in your plan is 8%, that one missed contribution will reduce the value of your RSP after 25 years by rates rise in the future, you’ll always have cash becoming available that will allow you to take advantage of the opportunity to reinvest at higher yields. - News Canada THE FARMER IS A TRUE INVESTOR IT'S YOUR MONEY By Paul J. Rockel Chairman, Regal Capital Planners Ltd. (NG) - I've never farmed, but I've always admired farmers. To me, farmers are real entrepreneurs. They are the capitalists of the world, the people who stake their financial future on something that isn't guaranteed. After all, the farmer' invests his time in studying agriculture, knowing the soil, improving it, and then invests his earnings in seed, fertilizers, equipment, livestock, etc., without any guarantee there will be good weather to give an abundant crop, or even that the seed is top quality and will germinate. If he has livestock, there is no guarantee that they will live, or not get diseases, or that there will be a profitable market for them when he wishes to sell. The only thing a farmer knows is that if he is successful, he will be supplying a basic need for all of us. Whether fulfilling that need is profitable is partly due to good management on his part, and things that he cannot control, such as the weather, be it too dry or too wet, or too hot or too cold. Trouble is most successful farmers, like most Canadians, once they have saved some money, tend to want to put it where they are "guaranteed" a fixed rate of return, despite the fact they achieved their income without a guarantee. Personally, I can't afford a guarantee. There is not one guarantee I know of that costs 'nothing'. Even a savings institution that may offer "Guaranteed SBl REGALJQT CAPITAL PLANNERS Maitland Valley Financial Consultants Ltd. 453 Turnberry St., Brussels, ON NOG 1 HO almost $48,000. That’s because you don’t just lose the missed contribution, you also lose all the compound income it would have earned over time. So don’t shortchange yourself. If necessary, borrow the money to ensure you make your contribution every year. Contribute Your Maximum. If you put $1,000 less into your plan each year for 25 years, assuming an 8% annual return, the final value of your RSP will be reduced by almost $79,000. The more money you contribute to your RSP each year, the faster your plan will grow and the greater your financial security will be when you retire. - News Canada Investment Certificates" or "Term Deposits" always guarantee an amount that is less than they expect to earn. That is the cost of a guarantee. I read in a paper some time ago that the difference in what the savings institutions pay out and what they earn with those deposits was 4.7% per year. Maybe on their "term deposits" or GICs they only earn 2% more that they pay depositors, but that still amounts to having to forfeit a total of 10% over a five-year period. That's too costly for me! I like to invest my savings where I receive what they earn. Furthermore, I like to have the value of my savings increase Gust as the farm increases in value), giving me two kinds of gain, namely capital gains (only 75% of which are taxable), and dividends (like the profit "earned" by the farmer) which bear much reduced taxation. Furthermore, there is a semblance of "guarantees" in investing in something like mutual funds because they have a public record of past performance, many of them averaging 12% and better, over the past many years. Like the farmer, my investments (in mutual funds, he in his farm) are not guaranteed, but they have a record of being profitable. I like that. For a comparison of GICs and two mutual funds, contact the advisor pictured here and ask for "It's Your Money." Murray Siddall, CLU Susan Carter, C.I.M. Bus. (519) 887-2662 SOME OF OUR PRODUCTS AND SERVICES Top Paying GICs, Tax Saving Strategies, Mutual Funds, Life & Disability Insurance, RRSPs, RRIFs, RESPs(The above list represents only a few of the many financial services available through your Regal Financial Centre.) This is No. 1217 in a series of articles that have been appearing in newspapers and magazines across Canada for more than 15 years. For Paul J. Rocket's book ‘WHY INVEST IN MUTUAL FUNDS" contact your local book store or Regal Capital Planners Ltd., telephone 887-2662.