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THURSDAY, JANUARY 28, 1999 THE NEW TANNER -- 9 The To Your Financial SU CCESS Investors ponder: RRSPs or Mutual? Interest rates are at their lowest levels in nearly 30 years, and that has many RRSP savers in a quandry. Guaranteed Investment Cer- tificates, a popular choice for registered retirement savings plans, pay only about three per cent to four per cent to- day. After years: ago, GICs paid 11 per cent. "If you limit yourself to GICs, you are faced with to- day's low rates" says John. Wiltshire, vice-president of Investment Products market- ing at Investors Group. "But a well-designed investment plan, which would likely in- clude mutual funds, can pro- duce good long-term results and peace of mind." Mutual funds receive money from many investors. The professional fund man- agers use that cash to build diversified portfolios holding shares of Canadian and for- eign companies and/or a va- riety of interest-bearing in- vestments (as determined by the fund's objectives). Diver- sification within the funds helps reduce overall risk. There are various types of Minds. Seas Money Tote funds are a higher-yielding alterna- tive to savings accounts, They invest in short-term notes, most often govern- ment treasury bills, and face little risk of capital loss. Bond funds invest in government and corporate bonds. Mortgage funds in- - vest in high-quality residen- tial and commercial mort- gagés. Unit holders of these "fixed-income" funds receive interest from the underlying investments. They also ben- efit when falling interest rates increase its value of the portfolio. Stock market funds are also known as "equity" funds. Some invest only in Canadian stocks. Others in- aw mY Robert H COURS and ACCOUNTING BOOKKEEPING CONSULTING in Accounting Software INCOME TAX for Corporate and Personal E-FILING 21 Mill West ACTON 853-4534 vest in American companies. Some specialize in regions like the Pacific while others invest all over the world. Balanced funds hold both stocks and bonds, and might include other asset groups like real estate. Fund managers vary the mix as economic conditions change. There are also specialty funds that invest in only one sector. For example, real estate funds own office buildings and shopping cen- tres. Ethical funds, invest in socially responsible compa- nies and avoid companies involved in such things as tobacco, alcohol, gambling, weapons or pornography. No investment is risk- free. If you choose to stick with GICs, Wiltshire offers this advice: Stagger maturities. Spread your money equally over all the normal terms, one year through five. Next year, reinvest the maturing one-year deposit along with new contributions in a new five-year GIC. This strategy will average out the interest rate wave, because about one- fifth of your plan comes due each year. If you don't need the in- come, buy GICs to secure your capital but arrange for the interest on the GIC to be paid monthly. Then re-invest that money in equity mutual funds for extra growth and to take advantage of dollar cost' averaging. 10 RRSP investment strategies -- It's the season when thou- sands of Canadians are caught up in the last-minute tush to contribute to their Registered Retirement Sav- ings Plans (RRSPs) before the March 1 deadline. Avoid the frustration of last-minute decisions by tak- ing the time to assess your position and adjust your in- vestment strategy. Some im- portant steps you can take to get the most out of your RRSP, is provided by Inves- tors Group, one of Canada's financial services companies. 1. Contribute Make your contribution as early in the year as possible. Tax-deferred compounding makes those early dollars grow dramatically. 2. Contribute the maxi- mum. Take advantage of the magic of compounding and get the maximum tax break by contributing to your limit. Remember, while you can "carry forward" any unused contributions to subsequent years (indefinitely), you can never replace lost growth opportunity. 3. Investmonthly. Many investors find it easier to reach their annual RRSP maximum by making contri- butions every month. You may find it easier to have the RRSP contribution automati- cally deducted from your ac- count each month,. or you may choose to belong toa group RRSP through your employer by payroll deduc- tion. Remember, it's a good idea to increase your monthly contribution if your income = - Ee you additional opportu' Tises. © 4. Borrow if you have to. Don't let tight cash flow de- ter you from borrowing to top up your contribution. Al- though you'll pay interest on the amount borrowed, the compound growth of your money over the long term can far outweigh the interest cost. * Corporate Tax Returns * Personal Tax Returns «Computerized Accounting 905-873-0996 dobe ! Gibson GHARTERED AGCOUNTANT * Small Business Accounting * GST & Sales Tax Consulting * Audits, Reviews, Compilations YM Too Sal Tos Le _ 10 Mountainview Rd. S. Suite 201 GEORGETOWN Fax 905-873-7892 Fax 519-767-1340 Gotu W. Almas | 519-767-2002 BOOKKEEPING ACCOUNTING SERVICES FINANCIAL STATEMENTS PERSONAL & BUSINESS TAX RETURNS -- 219 SIIVERCREEK PARKWAY N., UNIT #17 GUELPH RES: 519-824-6439 early." Plus you can use your tax re- fund to pay off the substan- tial portion of the amount borrowed. 5. Invest in a spousal RRSP. A spousal RRSP al- lows the partner with the higher income to contribute to an RRSP in the name of the lower-income partner. The spouse with the higher income takes the immediate tax deduction, but the money in the RRSP will be taxed in the other spouse's hands, usually at a lower rate, when it is withdrawn. This is an excellent way to income split in retirement and reduce your . combined tax rate. 6. Diversify. Different types of investments react differently to economic events. By diversifying your portfolio and holding invest- ments of all types, you pro- tect yourself against the day- to-day fluctuations in any one category. To achieve long- term growth you must diver- sify. Some investors limit themselves to fixed-income investments, but inflation can have a corrosive effect on conservative investments. Consider diversifying into growth-oriented securities - such as equities and equity mutual funds - to earn returns that may far outstrip the rate of inflation. -- 7. Yncrease your foreign content. Currently, you're allowed to invest up to 20 per cent of your RRSP in foreign holdings. The advantage? Investing outside Canada taps you into the other 97 per cent of world markets, giv- nities for growth and diver- sification. 8. Consolidate your in- vestments. If you are the type of investor who doesn't want to spend a great deal of time managing several plans, you may want to con- solidate your investments into one portfolio. Yes, you should have a balanced va- riety of holdings working for you, but you can com- bine them under one RRSP umbrella. This strategy also means you will get one con- solidated statement (which may make it easier to track your plan). re i 9. Designate a benefici- ary. Consider designating someone to whom the plan assets should go in the event of your death. Without a des- ignated beneficiary the ac- count will go through your estate and be subject to pro- bate and other fees. You should talk to your financial advisor about the tax and other consequences of desig- nating a beneficiary to your RRSP. 10. Get expert help. The services of a personal finan- cial planner are essential to help you make the right long- erm investment decisions. 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