Successful Tax Sheltered Investing

of 55/55
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

Embed Size (px)

description

 

Transcript of Successful Tax Sheltered Investing

  • 1. Successful Tax Sheltered Investing By: Aleem Visram, HBA, MBA, IFIC, LLQP Co-Owner & Financial Advisor [email protected] www.mirfp.com (647) 986-9163 MULTI INSURANCE Retirement & Financial Planning
  • 2. 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
  • 3. Multi Insurance Retirement & Financial PlanningHolistic approach to include a customized plan with a broad range offinancial 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
  • 4. 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
  • 5. 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
  • 6. Why do you need to worry aboutretirement 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
  • 7. 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?
  • 8. Essential: start early, think long term Based on annual contributions of $2,000 $611,817 and assuming a 10 per cent average annual compounding rate of return $361,887 You You Start investing Stop investing 25 30 35 40 45 50 55 60 65 Retirement Your twin Your twin Starts investing Stops investing
  • 9. 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 Income Income Taxes Over $128,800 46% $83,088- 43% $128,800 $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%Avoid paying high taxes through tax deferred savings
  • 10. Registered Retirement Savings Plan (RRSP) An RRSP is the best tax deferred investment 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 years 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
  • 11. 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.
  • 12. Special RRSP FeaturesAdditional 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. 11
  • 13. Invest in a tax-deferred plan Savings program based on a monthly contribution of $200 $455,865 for 30 years at an annual rate Growth outside of 10 per cent into a Registered an RRSP Retirement Savings Plan Growth within (RRSP) an RRSP $281,192 $153,139 $113,952 $36,173 $41,310 10 years 20 years 30 years
  • 14. Types of RRSPs Regular Managed with an investment advisor or at a Bank. You manage your RRSP and can hold a variety ofSelf-Directed investments that you decide. Splitting contributions between your RRSP and your Spousal spouse which can help save taxes in the future. 13
  • 15. 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 InvestmentsItem No RRSPs RRSPSGross Income $ 100,000 $ 100,000 Less: RRSP Contribution (18%) $ 18,000Taxable Income $ 100,000 $ 82,000 Tax (assume 40% Marginal Tax Rate) $ 40,000 $ 32,800 Net Earnings after Taxes $ 60,000 $ 67,200Annual Income Tax Refund $ 7,200Net After Tax RRSP Contribution $ 10,800Tax Savings at Retirement (age 65) $ 252,000Contribution by Age 65 (after Tax Refund) $ 378,000RRSP Value at Age 65 (6% Compounded Interest) $ 2,126,176
  • 16. Spousal RRSPs If there is an income discrepancy between you and your spouse, you can contribute to your spouses RRSP (or common law partner) to reduce your tax liabilityStrategy Contribute to an RRSP for your spouse, and claim the deduction yourself. Total contributions (to your own and spouses plan) are still subject to normal RRSP limitsAdvantage 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
  • 17. 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 16
  • 18. 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 17
  • 19. Three Investing Scenarios Three Individuals Contribute $13,500 annually at 6% compounded annuallyIndividual Contribution Strategy Value in 35 Yrs January at the beginning of the A $1,552,391 tax year December at the end of the tax B $1,504,370 year C $1,125 every month $1,594,632
  • 20. Is it better to pay down my debt orborrow money for an RRSP? Example: Sara is wondering if she should borrow $10,000 from the bank tocontribute to her RRSPs, or use the money to pay down extra towards her debt. Pay Down extra to your debts Borrow Money for an RRSP (mortgage, student loans, line Get a line of credit for $10,000 at of credit) a current rate of 3% to 4% will $10,000 contribution on a debt cost $300 to $400 with a current rate of 3% -4% will Using the $10,000 loan to invest in result in a savings of $300- $400 RRSPs will result in an immediate tax refund of $3,000- $4,000, which is a 30% to 40% return on WHICH WOULD YOU PREFER: the principal $3,000- $4,000 each year or Sara can use the tax refund to pay $300- $400 each year? back the loan or pay down her mortgage Saras $10,000 RRSP contribution will also grow tax deferred with compounding interest
  • 21. Borrowing for an RRSP The Benefits of Using a Loan to ContributeBorrow $1,000 to contribute to your RSP $1,000Return on $1000 RSP investment at 6% for 1 year: $60 for 10 years: $791 for 40 years: $9,286Repay loan over 12 months - total of $1,033paymentsLoan interest paid over the 12 months $33
  • 22. What Does Your Employer Offer?Important to find out what retirement plans/benefits your employeroffers: Group RRSP Plan do they match contributions? Pension Plan Defined Contribution or Defined Benefit ESOP employee share ownership plan; common with publiccompanies; matching is common ($.50/$1.00) Find out about waiting periods to be eligible for pension plansand/or ESOP/ Group RRSP and Vesting periods Insurance Coverage Life: Fixed amount or X times salary; LTDisability waiting period & monthly benefitThis is often FREE Money Take advantage of it! 21
  • 23. New in 2009 - TFSAThe single most significant tax change for Canadians since the RRSP 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 Govt benefits Withdrawals are tax free and are added to contribution room in the following year Withdrawals cannot be replaced in the same year
  • 24. Invest in an RRSP and TFSAA TFSA AND AN RRSP ARE BOTH DESIGNED FOR TAX BENEFITS BUT THEY HAVE DIFFERENT ADVANTAGES TFSA RRSP Are your contributions tax-deductible? No Yes Will you pay tax if you withdraw your No Taxed as ordinary income money? Can withdrawn amounts be added to your Yes No contribution room for the following year? Contribution room is based on $5,000, regardless of How much can you contribute? your earned income, with a income level maximum of $22,000 for 2010 Will withdrawals affect your eligibility for government benefits and credits such as Old Possibly depending on your No Age Security or Guaranteed Income income level Supplement? Yes, an RRSP must be Do you have to close or convert your No, you can continue saving in a converted to a Registered account at a particular age? TFSA for as long as you want Retirement Income Fund (RRIF) or annuity at age 71 A wide variety of investments, including mutual funds, Where can you invest the money? stocks, bonds and GICs
  • 25. What are my investment options?Equities (Stocks) Ownership in company, Share in company profits Canadian or foreign, collect dividendsFixed Income (Bonds) Promise to repay debt, Receives interest Government and CorporateMoney Market/GICs Federal government debt, Short term, bank certificatesMutual funds / Segregated FundsExchange Traded Funds (ETFs) 24
  • 26. What Do I Invest In? cont. 25
  • 27. 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 26
  • 28. Considerations for RRSP Strategy1. Risk/Comfort Level Should be comfortable with what your holding / stock market exposure; complete a risk profile questionnaire2. Expected & Required Rate of Return When preparing a financial plan calculate what return you will need to meet goals?3. Flexibility/Liquidity4. Portfolio Management - Do it Yourself vs. Work with an Advisor (TIE Time, Interest, Expertise) 27
  • 29. 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) 28
  • 30. 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 29
  • 31. 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 30
  • 32. Mutual Fund Profile example 31
  • 33. Fixed Income lowers volatility in a portfolio even with rising interest rates BOND AND STOCK PORTFOLIOS (1941 1981)* 16% 14% 14% Avg. Return Std. Dev. 12% 10% 10% Total Return (%) 7% 8% 6% 5% 4% 11% 9% 4% 8% 6% 2% 3% 0% 100% Bonds 30% Stocks / 50% Stocks / 70% Stocks / 100% Stocks 70% Bonds 50% Bonds 30% BondsSource: Ibbotson Associates, FMRCo (MARE) as at September 30, 2009.
  • 34. 30-Year Fixed Income Bull Run is Nearingits EndWhat Got Us Here, Wont Get Us There 10 9 8 7 Yield (%) 6 5 4 3.4% 3 3.0% 1.9% 2 1 1995 1999 2003 2007 2011 Govt. of Canada Bond 10 Yr Prov. of Ontario Bond 10 Yr Canadian Corp. Bond A 10 Yr Source: Bloomberg, as of December 31, 2011.
  • 35. Little Left After Tax & Inflation Gross Yield Net of Interest Income Net of Inflation Tax Federal 46.4% 2.9% Government 1.9% 1.02% -1.9% Bonds Provincial 46.4% 2.9% Government 3.0% 1.6% -1.3% Bonds 46.4% 2.9% Corporate 3.4% 1.8% Bonds -1.1%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.
  • 36. Being overly conservative in the recovery? $360,000 Remained invested $340,000 in a balanced portfolio $320,000 300,000 Most are $300,000Portfolio value somewhere $280,000 in-between $260,000 $240,000 Sold at low, invested 100% in $220,000 bonds S&P/TSX $200,000 Trough 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 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.
  • 37. 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) 36
  • 38. Why diversify? No one can tell whatSales will happen Sunglasses Umbrellas Timee 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
  • 39. or which asset class will lead 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008U.S. Emerging Canadian U.S. Canadian Canadian Emerging Emerging Emerging Emerging Canadianequity markets bond small cap. bond small cap. markets markets markets: markets: bond38.0% 57.2% 10.2% 8.9% 8.7% 50.2% 16.8% 31.2% 32.1% 18.6% 6.4%Global Canadian Canadian Canadian Canadian Emerging Canadian Canadian Foreign Canadian U.S.equity equity equity bond small cap. markets equity equity equity equity small cap33.5% 31.7% 7.4% 8.1% -4.9% 27.8% 14.5% 24.1% 25.9% 9.8% -17.9%Foreign Foreign U.S. Emerging Emerging Canadian Foreign Canadian Global Canadian U.S.equity equity small cap. markets markets equity equity small cap. equity bond equity28.8% 20.0% 0.4% 3.8% -7.0% 26.7% 11.5% 14.3% 19.6% 3.7% -23.3%Canadian Global Canadian Canadian Canadian U.S. U.S. Foreign U.S. Canadian Globalbond equity small cap. small cap. equity small cap. small cap. equity small cap. small cap. equity9.2% 18.1% 0.4% 1.1% -12.4% 20.5% 9.7% 10.7% 17.9% -1.4% -26.9%U.S. Canadian U.S. U.S. Foreign Foreign Canadian Global Canadian Foreign Foreignsmall cap. small cap. equity equity equity equity small cap. equity small cap. equity equity4.6% 17.4% -5.9% -6.4% -16.8% 13.4% 7.4% 6.7% 17.6% -5.7% -29.8%Canadian U.S. Global Global Global Global Canadian Canadian Canadian Global Canadianequity small cap. equity equity equity equity bond bond equity equity equity-1.6% 14.6% -10.2% -11.6% -20.7% 8.9% 7.1% 6.5% 17.4% -7.5% -33.0%Canadian U.S. Foreign Canadian U.S. Canadian Global U.S. U.S. U.S. Emergingsmall cap. equity equity equity small cap. bond equity equity equity equity markets:-19.0% 14.4% -11.2% -12.6% -21.3% 6.6% 6.4% 2.4% 15.4% -10.5% -41.4%Emerging Canadian Emerging Foreign U.S. U.S. U.S. U.S. Canadian U.S. Canadianmarkets bond markets equity equity equity equity small cap. bond small cap small cap.-19.9% -1.1% -28.2% -16.5% -22.9% 5.3% 2.8% 1.9% 3.8% -16.5% -46.6%Foreign equity: MSCI EAFE Index U.S. small cap. equity: Russell 2000 IndexGlobal equity: MSCI World Index Canadian equity: S&P/TSX Composite IndexEmerging markets equity: MSCI Emerging Markets Free Index Canadian small cap. equity: Nesbitt Burns Small Cap IndexU.S. equity: S&P 500 Index Canadian bond: DEX Universe Bond Index
  • 40. or what region will lead LEADING REGIONAVERAGE ANNUAL RETURNS (%) 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 -37.94Source: Fidelity Management & Research Company as at December 31, 2008. Expressed in CDN$. Indices used: Canada: S&P/TSXComposite 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.
  • 41. Leading sectors change without warning BEST PERFORMERS WORST PERFORMERS AVERAGE ANNUAL RETURNS (%) 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 Source: Ibbotson. Annual returns by sector based on the MSCI World Index, as of December 31, 2008. Expressed in CDN$."
  • 42. Making and sticking to a plan is moredifficult in times of high market volatility POINT OF FINANCIAL RISK Euphoria Wow, I feel great Temporary setback, about this investment Anxiety Im a long term investor Thrill Denial Excitement Fear Desperation Optimism Optimism Panic Relief Hope Maybe the markets Capitulation Depression just arent for me DespondencySource: Westcore Funds / Denver Investment POINT OF FINANCIALAdvisors LLC, 1998. OPPORTUNITY
  • 43. Emotions: The media Media headlines are influencing client decisions Source: Toronto Star, August 19, 2011.Source: Globe & Mail, August 19, 2011.
  • 44. Emotions: The MediaWorried about market volatility and your investments?
  • 45. Emotions: The Media What a difference a day makes!
  • 46. Can we learn from the past? Absolutely! S&P/TSX Bull and Bear Markets 1956 to 2011Period Length of Bear Bear Decline Subsequent Period Length of Bull Bull RiseApr 56Jan 58 21 mos. -24% Jan 58Jul 59 19 mos. 46%Oct 73Nov 74 13 mos. -33% Dec 74Aug 75 9 mos. 27%Jun 81Jun 82 12 mos. -39% Jul 82Dec 83 18 mos. 99%Aug 87Nov 87 3 mos. -25% Dec 87Jan 90 26 mos. 34%Apr 98Sep 98 4 mos. -27% Sep 98Aug 00 24 mos. 109%Sep 00Sep 01 14 mos. -38% Oct 01Apr 02 6 mos. 16%Jun 08Mar 09 10 mos. -50% Mar 09Aug 11 30 mos. 69%Average 11 mos. -34% Average 19 mos. 57%Source: FactSet and Morningstar Research, S&P/TSX as of July 31, 2011 (Bear Markets) and August 31, 2011 (Bull Markets)
  • 47. Market behaviour: Volatility is part and parcel of investing15% 25 years of S&P/TSX Composite Index returns Monthly: October 1983 to September 200810% 5% Average monthly 0% return: +0.8 %-5%-10%-15%-20%-25% Source PerTrac46
  • 48. Market behaviour: Staying the course produces healthy returns$120,000 Value of $10,000 invested in S&P/TSX $88,227.63 or 9.1% annual 25 years ended September 30, 2008 compound$100,000 return 2008 Global financial crisis $80,000 $60,000 $40,000 Early 90s Economic recession Slowdown 2000 - 2002 $20,000 1998 market bear market crisis Crash of 1987 $- Oct-07 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-06 Oct-83 Oct-84 Oct-85 Oct-86 Oct-87 Oct-88 Oct-89 Oct-90 Oct-91 Oct-04 Oct-05 Sept-08 Source PerTrac 47
  • 49. Sound investor behaviour: Staying on course is the best strategy S&P/TSX Composite Index performance14%12% 11.6% Missing just a few days of good10% performance can significantly 8% 7.2% reduce overall returns 6% 4% 3.8% 2% 0.9% 0%-2% -1.6%-4% -3.8%-6% Last 10 years -10 best days -20 best days -30 best days -40 best days -50 best daysSource: Bloomberg 10 years ended August 29, 200848
  • 50. Stay invested- It pays offS&P/TSX 20 Years Ending July 31, 2011 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% $10,374Source: Bloomberg as of July 31, 2011.
  • 51. Investor misbehaviour:Difficult to win by trying to time the market While the S&P 500 returned 13.2% over 20 years, the average investor return was only 3.7% 13.2% Dalbar Inc. $100,000 investment over 20 years $1,193,792 Market timing is the #1 reason investor returns pale in comparison 3.0% 3.7% $180,611 $206,812 US Inflation Average US Investor S&P 500 Index (US$) Source: 2006 Dalbar Inc. (US) Research Report. 50
  • 52. Sound investor behaviour:Long-term strategies limit worries about losses S&P/TSX Composite Index performance over 25 years 80% Best and worst 1-year returns differ by more than 90% Annual compounded rolling period returns 60% No negative 7- or 10-year periods in over 25 years. 40% 20% 0% -20% -40% 1-year 2-year 3-year 4-year 5-year 7-year 10-year Source: Pertrac, S&P/TSX Composite Index, 1983 to 2008. 51
  • 53. Protecting your Retirement PlanHealth Risks:Premature Death, Critical Illness, Disability, Long Term CareSolutions: Various Insurance plansLongevity Risk: (Outliving Money)Solutions: Life Annuity; Variable Annuities (Guaranteed Income for Life)Investment Risks: Asset Allocation / Diversification Capital / Income Guarantees 52
  • 54. Final Tips: Investing 10 Commandments1. If you havent started saving, start now. Its 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. Dont 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 dont have savings.9. Transfer your non-registered investments to an RRSP for tax savings.10. Dont wait until the deadline to submit your RRSPs- its better not to be rushed! 53
  • 55. 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