successful tax sheltered investing
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MULTI INSURANCE Retirement & Financial Planning
Successful Tax Sheltered Investing
By: Aleem Visram, HBA, MBA, IFIC, LLQP
Co-Owner & Financial Advisor
www.mirfp.com
(647) 986-9163
AGENDA
Introduction & Background
Why worry about Retirement Planning?
Compounded Interest effect
Tax Deferred Savings
RRSPs vs. non-Registered Savings
RRSPs vs. TFSA
Investment options
Mutual Funds vs. Segregated Funds
Investment Strategies
Risks to your retirement plan
Final tips
Multi Insurance Retirement & Financial Planning
Holistic approach to include a customized plan with a broad range of financial planning strategies to cover all your financial needs, including:
Wealth Building – This involves monitoring accounts on an ongoing basis to
take advantage of opportunities as they arise, and changing market conditions.
Retirement Planning – A solid plan can make the difference between a
comfortable retirement and one that is inadequately financed
Tax Planning – Looking for investment opportunities to help reduce tax
liabilities
Estate Planning – Ensuring that you have greater control of your assets during
your lifetime and preserve assets from unnecessary legal and tax costs
Insurance- Ensuring that you and your family have adequate life, critical illness
and disability coverage to provide you with sufficient funds in the event of an
illness or death
Multi Insurance Retirement and Financial Planning
Proven track record of success with over 40 years in the business and over 1,000 clients
Aleem Visram has an HBA & MBA from the Richard Ivey School of Business and is a certified Financial Advisor by the Investment Funds Institute of Canada (IFIC) and Life Licence Qualification Program (LLQP)
Bahadur Visram is among the top performing financial advisors with Chartered Life Underwriter (CLU), Certified Financial Planner (CFP) and Chartered Financial Consultant (CHFC) designations
Independent Advisors that work with ALL Mutual Funds, Banks and Life Insurance companies in Canada
Multi Insurance Retirement & Financial
Planning
As Independent Advisors we work with all these companies:
We will provide you with the best rates available in Canada
Why do you need to worry about retirement planning now?
The average Canadian over age 65 spends $51,000 per
year
Old Age Security and CPP only provide an average of
$13,272 per year
You need a gross pre-tax earnings of approximately
$90,000 per year to receive a net after tax income of
$51,000 per year
The CURRENT average life expectancy of a male is 83
years and a female is 85 years
If you live to the average Canadian age and spend the
average $51,000 per year, you will need $1.5 million to $2
million in retirement income
How do you save enough for retirement?
Imagine you have a twin and both of you are investors
You Your Twin
invest $2,000 a year invests $2,000 a year
at 10 per cent compounding at 10 per cent
compounding
annually for 10 years annually for 30 years
starting at age 25 starting at age 35
Who ends up with more?
Retirement
Starts investing Your twin
Stops investing Your twin
$361,887
$611,817
25 30 35 40 45 50 55 60 65
Start investing You
Stop investing You
Based on annual contributions of $2,000 and assuming a 10 per cent average annual compounding rate of return
Essential: start early, think long term
Avoid the Tax Man!
In Canada you pay taxes on your HIGHEST income first,
so the more money you make, the higher taxes you pay
Avoid paying high taxes through tax deferred savings
Income Income Taxes
Over $128,800 46%
$83,088-
$128,800
43%
$78,361- $83,088 39%
$75,550- $78,361 35%
$66,514- $75,550 33%
$41,544- $66,514 31%
$37,744- $41,544 24%
Up to $37,744 20%
Registered Retirement Savings Plan (RRSP)
A RRSP is a personal savings plan registered with the federal government
You can contribute 18% of your income each year (to a maximum of
$22,450) and receive up to $10,000 in tax refunds each year
Deduction room is based on previous year’s earned income (2010 deduction
based on 2009 income) plus unused contribution room from previous year
less pension
Wide selection of investment options, such as mutual funds, stocks, bonds
and GICs
Flexible retirement options
Money grows on a tax-deferred basis with compounding interest until
withdrawn
If you die your RRSPs will be rolled over to your spouse tax free
Deadline to purchase RRSPs is the end of February
An RRSP is the best tax deferred investment
Why should I invest in RRSPs?
An RRSP can help maintain your standard of living
Helps to ensure you have a comfortable retirement without having to worry about money
Tax Benefits:
Income tax is deferred until the money (and earnings) are
withdrawn at retirement.
At retirement, your annual income (including money
withdrawn from your RRSP) will likely be lower than your
income today.
Therefore, you will be earning in a lower tax bracket, which
means that a smaller percentage of your income will go to
taxes.
11
Additional Benefits:
Home Buyers Plan (First Time Homebuyer)
Up to $25,000 can be borrowed from your RRSP to buy a home,
without counting the withdrawal as income
If you and your spouse each have RRSP, you can borrow up to
$50,000 between two of you if taking joint ownership
Must be repay loan (no interest) within 15 years.
Lifelong Education Plan
Allows you to withdraw a maximum of $20,000 for
education/tuition, or $10,000 max per year.
Must be repaid in equal installments within 10 years.
Special RRSP Features
Savings program based on
a monthly contribution of $200
for 30 years at an annual rate
of 10 per cent into a Registered
Retirement Savings Plan
(RRSP)
10 years 20 years 30 years
$36,173 $41,310
$113,952
$153,139
$281,192
$455,865
Growth within an RRSP
Growth outside an RRSP
Invest in a tax-deferred plan
13
Types of RRSPs
Regular Managed with an investment advisor or at a Bank.
Self-Directed You manage your RRSP and can hold a variety of
investments that you decide.
Spousal Splitting contributions between your RRSP and your
spouse which can help save taxes in the future.
The Power of RRSPs and Compounded Interest
Example: Sarah is 30 years old and makes $100,000 per year. She wants to retire
at age 65 and is wondering if she should invest in RRSPs for tax savings.
Tax Shelter vs. No Tax Shelter Investments
Item No RRSPs RRSPS
Gross Income 100,000$ 100,000$
Less: RRSP Contribution (18%) 18,000$
Taxable Income 100,000$ 82,000$
Tax (assume 40% Marginal Tax Rate) 40,000$ 32,800$
Net Earnings after Taxes 60,000$ 67,200$
Annual Income Tax Refund 7,200$
Net After Tax RRSP Contribution 10,800$
Tax Savings at Retirement (age 65) 252,000$
Contribution by Age 65 (after Tax Refund) 378,000$
RRSP Value at Age 65 (6% Compounded Interest) 2,126,176$
Spousal RRSPs
If there is an income discrepancy between you and your spouse, you can contribute to your spouse’s RRSP (or common law partner) to reduce your tax liability
Strategy
Contribute to an RRSP for your spouse, and claim the deduction
yourself. Total contributions (to your own and spouse’s plan) are still
subject to normal RRSP limits
Advantage
Spouse will ultimately be the one who reports the income for tax
purposes, when the funds are withdrawn on retirement or otherwise.
Overall, this would result in lower tax on the income. However, the
spousal RRSP belongs to the spouse or common law partner.
Note: There are attribution rules to avoid short term income-splitting
15
16
Can I withdraw from my RRSP?
Money invested in an RRSP is accessible at any time.
All withdrawals are taxable at that time.
You should generally not draw money from your RRSPs to
pay for ordinary living expenses, cars, furniture or those
sorts of items
RRIFs
At Age 71 at the latest, your RRSPs must be transferred to
Registered Retirement Income Funds (RRIFs) or some other
income plan
You must withdraw a minimum income each year from your
RRIF (increases every year) – only amount withdrawn in subject
to tax each year
17
Funding Your RRSP
Regular contributions are better than lump sum contributions
near the yearly deadline.
Allows the money to grow tax free longer
Provides for dollar cost averaging: consistent investment on a
monthly or quarterly basis avoids market fluctuations
What about taking out a loan?
If you invest your maximum allowable amount, you may be
entitled to a larger tax refund, which can be used to partly pay off
the loan.
What if I cannot contribute the maximum amount?
If you do not contribute to the maximum allowable amount, the unused contribution room is carried forward indefinitely.
This information can be found on your “Notice of Assessment” from the Canada Revenue Agency (CRA) or call 1-800-267-6999
Three Investing Scenarios
Three Individuals Contribute $13,500 annually at 6%
compounded annually
Individual Contribution Strategy Value in 35 Yrs
A January at the beginning of the
tax year $1,552,391
B December at the end of the tax
year $1,504,370
C $1,125 every month
$1,594,632
Is it better to pay down my debt or borrow money for an RRSP?
Pay Down extra to your debts
(mortgage, student loans, line
of credit)
$10,000 contribution on a debt
with a current rate of 3% -4% will
result in a savings of $300- $400
WHICH WOULD YOU PREFER:
$3,000- $4,000 each year or
$300- $400 each year?
Borrow Money for an RRSP
Get a line of credit for $10,000 at
a current rate of 3% to 4% will
cost $300 to $400
Using the $10,000 loan to invest in
RRSPs will result in an immediate
tax refund of $3,000- $4,000,
which is a 30% to 40% return on
the principal
Sara can use the tax refund to pay
back the loan or pay down her
mortgage
Sara’s $10,000 RRSP contribution
will also grow tax deferred with
compounding interest
Example: Sara is wondering if she should borrow $10,000 from the bank to
contribute to her RRSPs, or use the money to pay down extra towards her debt.
Borrowing for an RRSP
The Benefits of Using a Loan to Contribute
Borrow $1,000 to contribute to your RSP $1,000
Return on $1000 RSP investment at 6%
for 1 year: $60
for 10 years: $791
for 40 years: $9,286
Repay loan over 12 months - total of
payments
$1,033
Loan interest paid over the 12 months $33
What Does Your Employer Offer?
Important to find out what retirement plans/benefits your employer
offers:
Group RRSP Plan – do they match contributions?
Pension Plan – Defined Contribution or Defined Benefit
ESOP – employee share ownership plan; common with public
companies; matching is common ($.50/$1.00)
Find out about waiting periods to be eligible for pension plans
and/or ESOP/ Group RRSP and Vesting periods
Insurance Coverage – Life: Fixed amount or X times salary; LT
Disability – waiting period & monthly benefit
This is often FREE Money – Take advantage of it!
21
New in 2009 - TFSA
You can contribute $5,000 per person per year
Available for any Canadian Resident over 18
$5,000 annual contribution limit
No taxes paid on any income/ dividends/ capital gains earned
Including 2011, carry forward room is $15,000
Beneficial for seniors worried about impact of higher taxable
investment income on Gov’t benefits
Withdrawals are tax free and are added to contribution room in the
following year
Withdrawals cannot be replaced in the same year
“The single most significant tax change for Canadians since the RRSP”
Invest in an RRSP and TFSA
TFSA RRSP
Are your contributions tax-deductible? No Yes
Will you pay tax if you withdraw your money?
No Taxed as ordinary income
Can withdrawn amounts be added to your contribution room for the following year?
Yes No
How much can you contribute? $5,000, regardless of
income level
Contribution room is based on your earned income, with a
maximum of $22,000 for 2010
Will withdrawals affect your eligibility for government benefits and credits such as Old Age Security or Guaranteed Income Supplement?
No Possibly – depending on your
income level
Do you have to close or convert your account at a particular age?
No, you can continue saving in a TFSA for as long as you want
Yes, an RRSP must be converted to a Registered
Retirement Income Fund (RRIF) or annuity at age 71
Where can you invest the money? A wide variety of investments, including mutual funds,
stocks, bonds and GICs
A TFSA AND AN RRSP ARE BOTH DESIGNED FOR TAX BENEFITS –
BUT THEY HAVE DIFFERENT ADVANTAGES
24
What are my investment options?
Equities (Stocks)
Ownership in company, Share in company profits
Canadian or foreign, collect dividends
Fixed Income (Bonds)
Promise to repay debt, Receives interest
Government and Corporate
Money Market/GICs
Federal government debt, Short term, bank certificates
Mutual funds / Segregated Funds
Exchange Traded Funds (ETFs)
25
What Do I Invest In? cont.
26
Determining Asset Allocation
This decision is yours based on a variety of factors including:
Your Age;
Time Horizon - when you want to retire;
Risk Tolerance;
How much money you will need in retirement
Young age/long time horizon + low liquidity requirements +
high risk tolerance = higher exposure to equities
27
Considerations for RRSP Strategy
1. Risk/Comfort Level
Should be comfortable with what your holding / stock
market exposure; complete a risk profile questionnaire
2. Expected & Required Rate of Return
When preparing a financial plan calculate what return you
will need to meet goals?
3. Flexibility/Liquidity
4. Portfolio Management -
Do it Yourself vs. Work with an Advisor (TIE – Time,
Interest, Expertise)
28
What are Mutual Funds?
Mutual Funds:
Investment that pools money from many individuals and invests
it in stocks, bonds, other
Professional money managers make investment decisions to
buy/sell (Active Management)
Mutual Funds can be a very cost effective way of owning a
diversified portfolio of stocks/bonds
Players: All Major Banks, Global Fund Companies (Invesco
Trimark, Fidelity, Franklin Templeton, CI)
29
What to look for in Mutual Funds?
Performance – 1 yr, 3 yr, 5 yr, SI;
Quartile Ranking (1 to 4)
Relative performance – vs. Group and Benchmark
Asset Mix – Equity, Fixed Income, Balanced
Diversification- By geography, asset mix and sector
Size – Size of fund, number of company holdings & size of
companies (small. Med, large cap)
Volatility – how much does the investment fluctuate. Higher
volatility= higher risk
Investing Style – Growth vs. Value
30
What to look for in Mutual Funds?
Portfolio Manager –
Overall experience / Track record
How long have they been managing the fund
Designations/ Qualifications
Other Considerations:
Fees – MERs Management Expense Ratios
Sales charges: No Load, Front/Back/Low Load/ Deferred Sales
Charge
Mutual Fund Profile example
31
Fixed Income lowers volatility in a portfolio … even with rising interest rates
BOND AND STOCK PORTFOLIOS (1941 – 1981)*
Source: Ibbotson Associates, FMRCo (MARE) as at September 30, 2009.
6% 8%
9%
11%
3%
14%
4%
5%
7%
10%
0%
2%
4%
6%
8%
10%
12%
14%
16%
100% Bonds 30% Stocks /
70% Bonds
50% Stocks /
50% Bonds
70% Stocks /
30% Bonds
100% Stocks
Tota
l Ret
urn
(%)
Avg. Return
Std. Dev.
30-Year Fixed Income Bull Run is Nearing its End What Got Us Here, Won’t Get Us There
•Source: Bloomberg, as of December 31, 2011.
1
2
3
4
5
6
7
8
9
10
1995 1999 2003 2007 2011
Yie
ld (
%)
Govt. of Canada Bond 10 Yr Prov. of Ontario Bond 10 Yr Canadian Corp. Bond A 10 Yr
3.4%
3.0%
1.9%
Little Left After Tax & Inflation
1.9%
3.0%
3.4%
1.02%
1.6%
1.8%
Net of Interest Income
Tax
-1.9%
-1.3%
-1.1%
2.9%
2.9%
2.9%
46.4%
46.4%
46.4%
•Sources: PC Bond Research, Bank of Canada and Bloomberg, as of December 31, 2011. – Assumes a marginal tax rate of 46.4% which is the top rate for Ontario in 2011.
Gross Yield
Federal
Government
Bonds
Provincial
Government
Bonds
Corporate
Bonds
Net of Inflation
$200,000
$220,000
$240,000
$260,000
$280,000
$300,000
$320,000
$340,000
$360,000
Jun 08 Sep 08 Dec 08 Mar 09 Jun 09 Sep 09 Dec 09 Mar 10 Jun 10 Sep 10 Dec 10 Mar 11 Jun 11 Sep 11
Po
rtfo
lio
va
lue
Being overly conservative in the recovery?
Source: Datastream, September 30, 2011. Balanced portfolio 50% S&P/TSX Composite Index, 35% DEX Universe Bond Index, 15% DEX 91 day T-Bill. All bond portfolio consists of 100% DEX Universe Bond Index.
300,000
Remained invested in a balanced portfolio
Sold at low, invested 100% in bonds
Most are
somewhere
in-between
S&P/TSX
Trough
36
Diversification
Holding a wide variety of investments in a portfolio so that no single
investment can make or break overall performance
YOU CAN DIVERSIFY BY:
Asset class (equities, fixed income, cash)
Sector (industrials, financial services, energy, etc.)
Geography (Canada, U.S., Europe, Asia, emerging markets, etc.)
Company size (small, mid and large capitalizations)
Why diversify? No one can tell what
will happen
Diversification helps ensure that high returns from one part of your portfolio can compensate
for slower returns in another
By smoothing out the highs and the lows, diversification provides more consistent returns
Sales
Timee
•Sunglasses
•Umbrellas
•Foreign equity: MSCI EAFE Index
•Global equity: MSCI World Index
•Emerging markets equity: MSCI Emerging Markets Free Index
•U.S. equity: S&P 500 Index
•U.S. small cap. equity: Russell 2000 Index
•Canadian equity: S&P/TSX Composite Index
•Canadian small cap. equity: Nesbitt Burns Small Cap Index
•Canadian bond: DEX Universe Bond Index
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
U.S. equity
38.0%
Emerging markets
57.2%
Canadian bond
10.2%
U.S. small cap.
8.9%
Canadian bond
8.7%
Canadian small cap.
50.2%
Emerging markets
16.8%
Emerging markets
31.2%
Emerging markets:
32.1%
Emerging markets:
18.6%
Canadian bond
6.4%
Global equity
33.5%
Canadian equity
31.7%
Canadian equity
7.4%
Canadian bond
8.1%
Canadian small cap.
-4.9%
Emerging markets
27.8%
Canadian equity
14.5%
Canadian equity
24.1%
Foreign equity
25.9%
Canadian equity
9.8%
U.S. small cap
-17.9%
Foreign equity
28.8%
Foreign equity
20.0%
U.S. small cap.
0.4%
Emerging markets
3.8%
Emerging markets
-7.0%
Canadian equity
26.7%
Foreign equity
11.5%
Canadian small cap.
14.3%
Global equity
19.6%
Canadian bond
3.7%
U.S. equity
-23.3%
Canadian bond
9.2%
Global equity
18.1%
Canadian small cap.
0.4%
Canadian small cap.
1.1%
Canadian equity
-12.4%
U.S. small cap.
20.5%
U.S. small cap.
9.7%
Foreign equity
10.7%
U.S. small cap.
17.9%
Canadian small cap.
-1.4%
Global equity
-26.9%
U.S. small cap.
4.6%
Canadian small cap.
17.4%
U.S. equity
-5.9%
U.S. equity
-6.4%
Foreign equity
-16.8%
Foreign equity
13.4%
Canadian small cap.
7.4%
Global equity
6.7%
Canadian small cap.
17.6%
Foreign equity
-5.7%
Foreign equity
-29.8%
Canadian equity
-1.6%
U.S. small cap.
14.6%
Global equity
-10.2%
Global equity
-11.6%
Global equity
-20.7%
Global equity
8.9%
Canadian bond
7.1%
Canadian bond
6.5%
Canadian equity
17.4%
Global equity
-7.5%
Canadian equity
-33.0%
Canadian small cap.
-19.0%
U.S. equity
14.4%
Foreign equity
-11.2%
Canadian equity
-12.6%
U.S. small cap.
-21.3%
Canadian bond
6.6%
Global equity
6.4%
U.S. equity
2.4%
U.S. equity
15.4%
U.S. equity
-10.5%
Emerging
markets:
-41.4%
Emerging markets
-19.9%
Canadian bond
-1.1%
Emerging markets
-28.2%
Foreign equity
-16.5%
U.S. equity
-22.9%
U.S. equity
5.3%
U.S. equity
2.8%
U.S. small cap.
1.9%
Canadian bond
3.8%
U.S. small cap
-16.5%
Canadian small cap.
-46.6%
… or which asset class will lead
… or what region will lead
Canada U.S. U.K. Europe Japan Asia
1998 -1.58 38.01 23.48 43.16 15.60 2.16
1999 30.43 14.37 13.68 10.88 66.28 53.18
2000 19.04 -5.93 -9.74 -4.24 -30.39 -34.59
2001 -8.39 -6.35 -10.22 -17.50 -24.90 4.06
2002 -12.44 -22.91 -15.36 -21.12 -9.83 -10.17
2003 26.72 5.26 9.93 16.66 13.40 18.57
2004 14.48 2.81 12.21 12.76 7.96 9.03
2005 24.13 2.29 6.40 7.78 22.92 18.79
2006 17.26 15.35 32.59 34.90 1.66 31.69
2007 9.83 -10.53 -9.15 -0.38 -19.59 13.12
2008 -33.00 -23.29 -36.98 -31.26 -10.68 -37.94
LEADING REGION
•Source: Fidelity Management & Research Company as at December 31, 2008. Expressed in CDN$. Indices used: Canada: S&P/TSX Composite Index; U.S.: S&P 500 Index; U.K.: FTSE All Share Index; Europe: MSCI Europe ex-U.K. Index; Japan: TOPIX Index; Asia: MSCI AC Far East ex-Japan Index.
AVERAGE ANNUAL RETURNS (%)
Leading sectors change without warning
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Consumer Discr. 34.89 26.37 -20.53 -4.40 -23.25 13.55 6.59 -1.56 21.57 -17.25 -28.23
Consumer Staples 31.12 -20.38 15.91 -2.21 -3.93 -3.14 3.97 3.09 21.12 1.33 -5.47
Energy 12.27 15.64 11.11 -1.00 -7.09 4.47 19.20 25.43 18.73 11.12 -23.73
Financials 20.91 2.96 15.40 -11.32 -16.96 15.18 9.32 8.68 24.84 -21.31 -43.20
Health Care 46.34 -15.14 31.76 -7.58 -18.70 -1.07 -1.55 6.08 11.21 -11.04 -3.33
Industrials 15.45 21.23 2.94 -10.19 -23.09 14.42 10.86 9.01 19.42 -1.30 -29.86
Information Tech. 80.57 89.51 -39.43 -25.12 -39.33 22.44 -5.05 1.79 9.83 -1.70 -31.07
Materials 7.33 22.07 -9.03 1.46 -5.28 20.23 9.40 16.17 29.62 14.01 -38.53
Telecom 63.44 35.68 -38.42 -20.59 -29.41 3.84 9.29 -11.99 33.23 4.21 -17.14
Utilities 33.28 -17.73 28.99 -17.02 -16.41 6.61 19.79 10.45 37.30 4.21 -12.85
AVERAGE ANNUAL RETURNS (%) WORST PERFORMERS BEST PERFORMERS
•Source: Ibbotson. Annual returns by sector based on the MSCI World Index, as of December 31, 2008. Expressed in CDN$."
Making and sticking to a plan is more difficult in times of high market volatility
Source: Westcore Funds / Denver Investment Advisors LLC, 1998.
Optimism
Excitement
Thrill
Euphoria
Anxiety
Denial
Fear
Desperation
Panic
Despondency
Depression
Hope
Relief
Optimism
Temporary setback,
I’m a long term investor
Wow, I feel great
about this investment
•Maybe the markets
just aren’t for me
POINT OF FINANCIAL RISK
POINT OF FINANCIAL OPPORTUNITY
Capitulation
Emotions: The media
•Source: Globe & Mail, August 19, 2011.
•Source: Toronto Star, August 19, 2011.
Media headlines are influencing client decisions
Emotions: The Media Worried about market volatility and your investments?
Emotions: The Media
What a difference a day makes!
Period Length of Bear Bear Decline
Apr 56–Jan 58 21 mos. -24%
Oct 73–Nov 74 13 mos. -33%
Jun 81–Jun 82 12 mos. -39%
Aug 87–Nov 87 3 mos. -25%
Apr 98–Sep 98 4 mos. -27%
Sep 00–Sep 01 14 mos. -38%
Jun 08–Mar 09 10 mos. -50%
Average 11 mos. -34%
Can we learn from the past? Absolutely!
•Source: FactSet and Morningstar Research, S&P/TSX as of July 31, 2011 (Bear Markets) and August 31, 2011 (Bull Markets)
S&P/TSX – Bull and Bear Markets – 1956 to 2011
Subsequent Period Length of Bull Bull Rise
Jan 58–Jul 59 19 mos. 46%
Dec 74–Aug 75 9 mos. 27%
Jul 82–Dec 83 18 mos. 99%
Dec 87–Jan 90 26 mos. 34%
Sep 98–Aug 00 24 mos. 109%
Oct 01–Apr 02 6 mos. 16%
Mar 09–Aug 11 30 mos. 69%
Average 19 mos. 57%
46
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
Source PerTrac
Average
monthly
return:
+0.8 %
Market behaviour: Volatility is part and parcel of investing
25 years of S&P/TSX Composite Index returns Monthly: October 1983 to September 2008
47
$88,227.63 or
9.1% annual
compound
return
$-
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
Oct-
83
Oct-
84
Oct-
85
Oct-
86
Oct-
87
Oct-
88
Oct-
89
Oct-
90
Oct-
91
Oct-
92
Oct-
93
Oct-
94
Oct-
95
Oct-
96
Oct-
97
Oct-
98
Oct-
99
Oct-
00
Oct-
01
Oct-
02
Oct-
03
Oct-
04
Oct-
05
Oct-
06
Oct-
07
Sept-
08
Value of $10,000 invested in S&P/TSX 25 years ended September 30, 2008
Crash of 1987
2000 - 2002
bear market
1998 market
crisis
2008 Global
financial crisis
Economic
Slowdown
Early 90’s
recession
Source PerTrac
Market behaviour: Staying the course produces healthy returns
48
11.6%
7.2%
3.8%
0.9%
-1.6%
-3.8% -6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
Last 10 years -10 best days -20 best days -30 best days -40 best days -50 best days
Source: Bloomberg 10 years ended August 29, 2008
S&P/TSX Composite Index performance
Missing just a few days of good
performance can significantly
reduce overall returns
Sound investor behaviour:
Staying on course is the best strategy
Stay invested- It pays off
Average Annual Return Growth of $10,000
Fully Invested 9.1% $57,075
Missed 10 Best Days 5.8% $30,926
Missed 20 Best Days 3.7% $20,662
Missed 30 Best Days 1.8% $14,346
Missed 40 Best Days 0.2% $10,374
•Source: Bloomberg as of July 31, 2011.
S&P/TSX – 20 Years Ending July 31, 2011
50
13.2%
$1,193,792
3.7%
$206,812 3.0%
$180,611
US Inflation Average US Investor S&P 500 Index (US$)
Source: 2006 Dalbar Inc. (US) Research Report.
$1
00
,000
in
ve
stm
en
t o
ve
r 2
0 y
ea
rs
“While the S&P 500 returned 13.2%
over 20 years, the average investor
return was only 3.7%”
– Dalbar Inc.
Market timing is the #1 reason investor
returns pale in comparison
Investor misbehaviour:
Difficult to win by trying to time the market
51
-40%
-20%
0%
20%
40%
60%
80%
1-year 2-year 3-year 4-year 5-year 7-year 10-year
Best and worst 1-year returns
differ by more than 90%
No negative 7- or 10-year
periods in over 25 years.
An
nu
al c
om
po
un
de
d r
ollin
g p
eri
od
re
turn
s
Source: Pertrac, S&P/TSX Composite Index, 1983 to 2008.
S&P/TSX Composite Index performance over 25 years
Sound investor behaviour:
Long-term strategies limit worries about losses
52
Protecting your Retirement Plan
Health Risks:
Premature Death, Critical Illness, Disability, Long Term Care
Solutions: Various Insurance plans
Longevity Risk: (Outliving Money)
Solutions: Life Annuity; Variable Annuities (Guaranteed Income for Life)
Investment Risks:
Asset Allocation / Diversification
Capital / Income Guarantees
53
Final Tips: Investing 10 Commandments
1. If you haven’t started saving, start now. It’s never too late to invest.
2. Invest early and often and take advantage of the ‘time value of money.’
3. Choose mutual funds and put your money in the hands of professionals who
have the investment know-how to help you reach your goals and retirement.
4. Maximize your RRSP Contribution to take advantage of your single greatest
opportunity to defer taxes and save for retirement.
5. Don’t be too cautious and choose all low-risk investments or too aggressive
and choose all risky investments. A diversified portfolio should include a
variety of assets to minimize risk and maximize return.
6. Think long-term instead of letting short-term market volatility sway your
investment decisions.
7. Take advantage of ‘dollar-cost averaging’ with a pre-authorized chequeing
(PAC) withdrawal that spreads your mutual fund purchases over time through
manageable monthly contributions.
8. Use an RRSP loan to maximize your tax refund if you don’t have savings.
9. Transfer your non-registered investments to an RRSP for tax savings.
10. Don’t wait until the deadline to submit your RRSPs- its better not to be rushed!
For a FREE Consultation, contact:
Aleem Visram, HBA, MBA, IFIC
Co-Owner & Financial Advisor
Cell: (647) 986-9163
E-Mail: [email protected]
Website: www.mirfp.com