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MULTI INSURANCE Retirement & Financial Planning Successful Tax Sheltered Investing By: Aleem Visram, HBA, MBA, IFIC, LLQP Co-Owner & Financial Advisor [email protected] www.mirfp.com (647) 986-9163

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Page 1: Successful Tax Sheltered Investing

MULTI INSURANCE Retirement & Financial Planning

Successful Tax Sheltered Investing

By: Aleem Visram, HBA, MBA, IFIC, LLQP

Co-Owner & Financial Advisor

[email protected]

www.mirfp.com

(647) 986-9163

Page 2: Successful Tax Sheltered Investing

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

Page 3: Successful Tax Sheltered Investing

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

Page 4: Successful Tax Sheltered Investing

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

Page 5: Successful Tax Sheltered Investing

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

Page 6: Successful Tax Sheltered Investing

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

Page 7: Successful Tax Sheltered Investing

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?

Page 8: Successful Tax Sheltered Investing

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

Page 9: Successful Tax Sheltered Investing

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%

Page 10: Successful Tax Sheltered Investing

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

Page 11: Successful Tax Sheltered Investing

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.

Page 12: Successful Tax Sheltered Investing

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

Page 13: Successful Tax Sheltered Investing

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

Page 14: Successful Tax Sheltered Investing

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.

Page 15: Successful Tax Sheltered Investing

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$

Page 16: Successful Tax Sheltered Investing

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

Page 17: Successful Tax Sheltered Investing

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

Page 18: Successful Tax Sheltered Investing

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

Page 19: Successful Tax Sheltered Investing

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

Page 20: Successful Tax Sheltered Investing

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.

Page 21: Successful Tax Sheltered Investing

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

Page 22: Successful Tax Sheltered Investing

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

Page 23: Successful Tax Sheltered Investing

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”

Page 24: Successful Tax Sheltered Investing

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

Page 25: Successful Tax Sheltered Investing

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)

Page 26: Successful Tax Sheltered Investing

25

What Do I Invest In? cont.

Page 27: Successful Tax Sheltered Investing

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

Page 28: Successful Tax Sheltered Investing

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)

Page 29: Successful Tax Sheltered Investing

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)

Page 30: Successful Tax Sheltered Investing

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

Page 31: Successful Tax Sheltered Investing

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

Page 32: Successful Tax Sheltered Investing

Mutual Fund Profile example

31

Page 33: Successful Tax Sheltered Investing

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.

Page 34: Successful Tax Sheltered Investing

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%

Page 35: Successful Tax Sheltered Investing

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

Page 36: Successful Tax Sheltered Investing

$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

Page 37: Successful Tax Sheltered Investing

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)

Page 38: Successful Tax Sheltered Investing

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

Page 39: Successful Tax Sheltered Investing

•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

Page 40: Successful Tax Sheltered Investing

… 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 (%)

Page 41: Successful Tax Sheltered Investing

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$."

Page 42: Successful Tax Sheltered Investing

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

Page 43: Successful Tax Sheltered Investing

Emotions: The media

•Source: Globe & Mail, August 19, 2011.

•Source: Toronto Star, August 19, 2011.

Media headlines are influencing client decisions

Page 44: Successful Tax Sheltered Investing

Emotions: The Media Worried about market volatility and your investments?

Page 45: Successful Tax Sheltered Investing

Emotions: The Media

What a difference a day makes!

Page 46: Successful Tax Sheltered Investing

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%

Page 47: Successful Tax Sheltered Investing

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

Page 48: Successful Tax Sheltered Investing

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

Page 49: Successful Tax Sheltered Investing

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

Page 50: Successful Tax Sheltered Investing

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

Page 51: Successful Tax Sheltered Investing

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

Page 52: Successful Tax Sheltered Investing

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

Page 53: Successful Tax Sheltered Investing

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

Page 54: Successful Tax Sheltered Investing

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!

Page 55: Successful Tax Sheltered Investing

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