Rodney Gelineau - Financial Tips

BMO and CIBC drop mortgage rates

2010-08-23T16:35:00.000-07:00

Bank of Montreal and Canadian Imperial Bank of Commerce on Monday announced a series of reductions to their regular mortgage rates, including a 10-basis-point cut to the benchmark five-year, fixed rate.

This puts the interest rate for these terms at 5.39% as of Tuesday for both banks. Last week, BMO, CIBC and other major Canadian banks reduced their key mortgage rates 10 basis points to 5.49%

In my opinion, this is to provide a slight stimulus to the economy, especially given that the interest rate decrease was not larger.

BC's Deficit Higher than Reported

2010-08-19T20:04:00.000-07:00

B.C.'s budget deficit should be $73 million higher than reported, says a report released Thursday by the province's auditor general, who took issue with the way the government accounted for a massive infrastructure project.

John Doyle reviewed the government's financial statements for the 2009/2010 fiscal year and in a 62-page report, concluded B.C.'s budget deficit should be $1.85 billion as opposed to the $1.77 billion reported by the government.

"I suspect if you went out to citizens and said, 'Is $73 million a lot of money?' they'd probably say 'Yes,"' said Doyle.

Opposition New Democrat Rob Fleming said the Liberal government's deficit grows with Doyle's report.

Fleming said the Liberals campaigned in May 2009 on a promise that the budget deficit would be no higher than $495 million, but the actual deficit number turned out to be more than three times that.

"Government was fast and loose with the facts about that," he said. "They are facing a crisis of trust on financial issues and I think the auditor general's report has reminded us what kind of accounting trickery they have been using."

Doyle's report included three reservations regarding the government's method of accounting, saying it deviates from the accounting norm, known as generally accepted accounting principles or GAAP.

He said the government is not following GAAP when it comes to the $3.2 billion Port Mann Bridge project, the largest infrastructure project in British Columbia history.

Finance Minister Colin Hansen said Doyle raised the same three budget objections in last year's report, but the government did not make any changes because it received the endorsement from the Finance Ministry's comptroller general, who essentially monitors and ensures the integrity of the province's books.

"He did not take issue with the transparency of our public accounts -- that everything is disclosed -- he just has disagreements with the accounting principles we apply to those three items," Hansen said.

"This comes down to differing opinions between the comptroller general and the auditor general as to what constitutes generally accepted accounting principles."

The government classified the Port Mann project as a revenue generator on the books when it will take 40 years to pay for itself, said Doyle.

"Yes, it is a big deal," he said. "Basically, government is saying that this is a commercial activity which is self-sustaining when in fact they haven't even built the bridge yet."

The government is working on a revised bridge funding model that it will present to the auditor general later this year, the report said.

Doyle's report said his increased deficit number also results from the government subtracting royalty credits for oil and gas producers from revenue rather than reporting them as expenses.

As well, the government is not recording liabilities for deep-well credits owed to oil and gas producers, he said.

The report said the government did adjust 25 other monetary issues that were of concern to the auditor general.

Of bond funds, T-bills and higher interest rates

2008-02-03T18:19:00.000-08:00

Question: In 1994, I purchased a bond fund. Why has it gone down in value since then, because interest rates of gone up?
L.S., Chilliwack

Answer: A bond fund will normally hold govern-ment bonds (federal, provincial and municipal) or corporate bonds, which can have maturities from one month up to 30 years.These bonds are traded in a huge, liquid market (similar to the stock market) and have a guaranteed coupon/inter-est rate when they are purchased.

These bonds should not be confused with the Canada Savings Bonds or B.C. bonds offered in the fall which are cashable either once or twice a year.

Using last year as an example, let’s assume someone purchased $10,000 in 10-year Govern-ment of Ontario bonds paying six per cent. This year a comparable bond might return nine per cent.

If the last year’s buyer wanted to sell this spring, he would have to sell it in the bond market, because the government will not redeem the bond for another nine years.

A buyer of this bond might only pay the seller $9,500 for the bond because the bond only has a six per cent coupon on it. So in summary, as interest rates rise, bond prices fall, and as interest rates fall, bond prices rise.

Question: Can you explain the difference between the bank rate and the prime rate?
T.J., Sardis

Answer: The Bank of Canada influences interest rates through setting a Canada Treasury Bill (T-bill) rate. It does this by buying and selling T-bills on the open market. When it wants interest rates to rise, it sells the T-bills at a higher interest rate.

The bank rate or the rate charged by the Bank of Canada to the chartered banks is set at one-quarter per cent higher than the T-bill rate. This rate is set on Tuesday morning of each week. This rate, in turn, influences the prime rate, which is the rate charged by the chartered banks to their best customers. All loans are based on this rate, including mortgages and credit cards.

Canadian dollar is vulnerable to fickle foreign investors

2008-02-03T18:16:00.000-08:00

Over the past couple of years a great deal of attention has been directed towards public indebtedness in the U.S. and Canada.

Despite all of the attention given to this topic, few Canadians understand why they are being asked to make sacrifices to bring debt under control.

The total Canadian debt now stands at $661 billion or $23,065 per person. Out debt as a percentage of our GDP or gross domestic product, is approximately 93 per cent.

The U.S. total debt is now a staggering $4.55 trillion or $18,000 per person. As a percentage of GDP, the debt is approximately 69.9 per cent of the GDP. Although Canada’s debt is much lower in dollar terms, it is much higher in terms of the GDP. The Canadian figures do not also take into account the unfunded liabilities such as the Canada Pension Plan or Canadian Crown Corporations which could bring the total to well over $1 trillion.

Another important factor is that 43 per cent of our debt is owed to foreigners, especially the Japanese, while only seven per cent of the U.S. debt is owed to foreigners.

Because of this, the Canadian dollar is very vulnerable to fickle foreign investors. This is why the Loonie, while valued at .72 compared to the U.S. dollar is forecast to be from a pessimistic .60 to an optimistic .90 over the next three years.

What does this mean to the average Canadian?

Firstly, the public sectors’ demand for money crowds out businesses who need funds for job

Secondly, interest rates will be higher in Canada than they otherwise would be which hampers growth.

Thirdly, taxes must be higher for corporations or individuals to control the deficit. This means less disposable income for citizens and less profit for corporations. Invariably, skilled workers or corporations will relocate and unskilled workers or uncompet-itive subsidized business will remain. To protect client assets against a debt crisis, many financial advisors recommend allocating a portion of client’s portfolio outside of Canada dollars. In the event of a currency crisis, foreign investments will maintain their value on a global basis while Canadian investments will plummet.

This type of strategy is especially vital if your retirement plans include Florida or anywhere down south. If a portion of your savings or RSP is diversified outside of the Loonie, you can carry on with your retirement plans after your golden handshake. If you are 100 per cent invested in Canadian investments and the Loonie is valued at 60 cents or less, you may have to work longer or change your retirement plans.

Choosing a Mutual Fund

2008-02-03T18:13:00.000-08:00

With more than 600 mutual funds sold in Canada, choosing which mutual fund to invest in can be difficult, even for the experienced investor.

But by exploring the possibilities and deciding what goals the investor has in mind, the choices can be narrowed down to a few funds, some of which are eligible for tax shelters like Registered Retirement Savings Plans.

While there are no guaranteed techniques for picking a top performer in the mutual fund field, there are a number of trends the investor should examine before making an investment decision.

Past performance is the best way to judge a fund. Although pas performance doesn’t always accurately reflect the way a fund will perform in the future, it will reveal how a fund performed under particular market conditions.

For example, some funds might perform well in strong, active markets but not fare so well when the market takes a downturn.

An excellent tool for examining the various funds and their performance records is the newspaper.

Larger daily papers such as The Globe and Mail, the Financial Post and The Financial Times of Canada publish surveys of mutual fund performance on a monthly basis.

The Financial Times, for example, publishes six performance figures for each fund; one month, three months and one year and average annual compound rates of return for one year, five years and ten years.

Another method of researching the funds is to use the various databases than can be accessed through your computer modem or at the library.

There are a number of organizations, such as Infoglobe and Infomart – On-line, that specialize in financial research and will gladly help you gather information on mutual funds.
Newspaper libraries are also open to the public.

You may be wondering: What is more important, short-term or long-term performance?
Many financial professionals consider mutual funds to be long-term investments.
But investors should also examine the fund’s current performance as it may reveal some changes that could conceivably cause an investor to change or reconsider their investment.
For example, a well-established fund with a long and proven record may begin to fall behind competing funds in a market that is recovering from a crash.

This could be an indication that the fund manager has changed his or her strategy or is being ultra-conservative, believing that the market is not ready to recover.

Make Your Money Work for You by Compounding

2008-02-03T18:11:00.000-08:00

Make Your Money Work for You by Compounding

You’ve probably heard someone tell you to make your money work for you. There’s a way of doing just that and it’s called compounding. The short-term benefits of compounding are admittedly limited. The long-term benefits, however, can be dramatic.

If you invested $100 on the first business day of each month for 10 years at a 10% rate of return compounded monthly, you would accumulate $20,665, including your principal of $12,000. If you invested the same amount at a 15% rate of return, the total investment would be worth $27,866, a difference of $7,211.

But imagine investing that $100 over a longer period. After 20 years your principal investment of $24,000, earning 10% compounded monthly, would be worth $76,570. Your $100 a month invested over 30 years would earn $277,933, a substantial increase. Extend that over 40 years and your money would grow to $637,687.

Combine a higher rate of return with your investment and the effects of compounding are markedly greater. For example, if you invested your money at 15% over 40 years, you would have earned a staggering $3.1 million. Those five additional percentage points mean a difference of $2.5 million!

Compounding is money multiplying itself. Investors earn income on theirInvestors earn income on their income earned. Income payments grow each year because the amount upon which the payments are based, grow each year, too.

Let’s suppose you invest $1,000 at 12%. At the completion of the first year, your investment is worth $1,120, including the $120 in income earned. After two years, your investment will have grown another 12%, or $134.40. Your investment is now worth $1,254.40. After three years, your investment will be worth $1,404.92, including income earned of $150.52. As you can see, your income payments have grown steadily.

A handy tool for measuring the growth of your investment is the “rule of 72”. Simply divide the number 72 by the annual rate of return your investment will earn and the result will tell you how many years it will take for your investment to double.

For example, if you invested $1,000 at 10% your investment will double in 7.2 years (72/10 = 7.2). Invest the same amount at 15% and it will double in 4.8 years (72/15 = 4.8).
These examples illustrate that the two most important factors when making an investment decision are time and rate of return. The longer you allow your investment to grow and the greater the rate of return, the larger the future value of your investment will be. You’ve seen the dramatic difference between a 10-year and 20-year investment and what can happen when the rate of return is appreciably higher within the same period.

In the past, you might have put you money in term deposits or guaranteed investment certificates because they provided guaranteed returns and a low risk factor. As an alternative, you might want to consider mutual funds.

Remember to have patience, to allow your money to work for you. The cumulative effect of compounding can work wonders for your investment and your peace of mind.

If you’re saving for retirement, your children’s education or perhaps a dream vacation, choose an investment that will work hardest for you and give them time to grow. The longer you delay, the harder your money will have to work for you.

Discover the benefits for compounding. You won’t be disappointed.

Everybody’s RRSP goals are different

2008-02-03T18:09:00.000-08:00

In the past years, purchasing an RRSP was a relatively easy task for many concerned people who simply went to the local bank and purchase a Term Deposit or GIC (Guaranteed Investment Certificate) RRSP. The tax break of anywhere from 25-54% is a great incentive for those putting aside a few dollars for retire-ment. What is also important, though, is the investment returns on this money invested in the RRSP. Where a Term Deposit RRSP at the bank once returned over 10%, investors this year are looking at returns in the 4% range. Another problem is that many people also have money coming due from term deposit RRSP’s with reinvestments risk. The alternative of choice this year appears to be mutual fund RRSP’s.

Mutual Fund RRSP’s are similar to Term Deposit RRSPs in that the investor receives a tax deduction up front and tax-free growth while the money remains within the RRSP umbrella. What is different is the type of investment. Mutual funds are simply pooled investments that allow you to purchase a diversified portfolio of securities. The fund manager combines your money with that of other investors. This large pool of money is then invested for you and other mutual fund unit-holders by the fund manager. Before mutual fund investing became an alternative, only very wealthy individuals could access the services of professional money managers.

For obvious reasons, mutual funds are becoming the investment of choice for RRSPs. When looking at mutual funds, do your looking at mutual funds, do your homework and use the following checklist:

Because mutual funds are not guaranteed, one of the best ways to review a mutual fund is to find a mutual fund manager with a good, consistent long term track record.
The stock market or bond market statistically goes up with time. Give the mutual fund time and don’t bail out if the market corrects.
Statistics have shown that higher returns can be achieved and volatility of the mutual funds can be decreased when investing one’s money globally.

Set realistic goals for your RRSP. It’s difficult to get to your destination without a roadmap. Every person’s RRSP goals are different; don’t worry about what others invest in their RRSPs.

Consult with your financial advisor to set up a mix of mutual funds that are right for you.

Save for your child’s education – mutually

2008-02-03T18:06:00.000-08:00

Preparing for a post-secondary educa-tion today requires planning.
The price of a college or university education has been rising steadily over the past years.
According to Statistics Canada, the average annual cost of a post-secondary education today can be up to $8,500.

And within the next two decades, experts believe that this figure will at least triple, especially with the cost of a university education outpacing the rate of inflation.

The three most common ways to save for a child’s education are:
1. to use a bank savings account
2. saving through a Canadian scholarship plan
3. invest on your own using mutual funds

Using the bank savings account method, you do not get the potentially higher return available from other investments. The Canadian scholarship plans which use RRSP’s are restrictive and inflexible. All growth earned within your plan must be used to pay for post-secondary educational expenses only.If not, your earnings will be forfeited.

You are restricted to annual payments of $1,500 with a lifetime contribution of $31,500 and can only exist for a minimum of 21 years.

You cannot transfer the plan from one child to another.
On the other hand, mutual funds can offer tax-free income, are flexible and transferable and have no restrictions to the amounts you want to contribute. You may transfer the plan from one child to another or you can use all or part of your money for any personal use, such as a trip, or a new car.

The longer the money is in a mutual fund, the greater the potential for higher growth.
Therefore, it is obvious that the best alternative for saving for a child’s education is to put the money in a mutual fund.

Why not consider a family of n-load mutual funds, which means you would pay nothing to get in or out of these funds at any time.

Assessing your current investment strategies - Q&A

2008-02-03T18:03:00.000-08:00

Whether you recently became interested in international investing or are a seasoned global investor, a quick overview of some basics about foreign stocks should help you assess your current investment strategy and future plans.

Q. How does the international equity market compare in size with that of Canada?
A. Nearly 97 per cent of the world’s equities (measured by market capitalization) originate and trade outside of Canada.

Q. How are foreign stocks traded?

A. There is no global stock exchange, but information about the various national and regional markets – many of which are quite sophisticated – is available to international investors every day through computer networks and satellite communications.

Q. What are the primary factors affecting returns on international stocks for Canadian investors?

A. The principal factors are the same as for Canadian Stocks: the outlook for corporate earnings, interest rate and credit market conditions, actual and expected inflation, and the pace of economic growth, to name a few. Naturally, the price of each stock also reflects the financial health and prospects of the underlying company as well as the current stock market psychology. There are however, important differences between domestic and foreign investing that can increase overall risk.

1. Politically, many countries are considerably less stable than Canada and have much less diverse economies.

2. The special factor in foreign investing that probably generates the greatest day-to-day concern is the impact of currency translation. Initially, dollars must be conver-ted to the local currency to purchase a foreign security. Subsequently, share price quotations, stock dividends, and sale or redemption proceeds must be converted from that currency back into Canadian dollars. Because foreign exchange rates fluctuate constantly with changes in each currency’s supply and demand situation, currency translation can increase or decrease the dollar value of the investment even if the security’s price remains unchanged.

Q. Given the added complexities, why invest abroad?

A. A principal advantage of investing overseas is diversification. A diversified portfolio gives you the opportunity to enhance your overall return while reducing risk. Diversification beyond a single market, such as Canada, should reduce the overall volatility of your stock or mutual fund portfolio over time. In addition, it is likely that equity markets in one or more foreign countries will outperform the Canadian stocks each year.

Taken as a group, foreign stocks will generate higher returns than Canadian stocks in some years, but not in others. The important point is that Canadian and foreign markets do not often mirror each other, therefore, combining Canadian with foreign stocks cushions the investor’s overall portfolio against the full impact of potential down markets in one country or another.

Invest in Chilliwack’s future – forestry

2008-02-03T17:48:00.000-08:00

Given the importance of natural resources, particularly here in British Columbia.

It is in the forest industries best interest to get as much money as possible for the pulp, paper and other products that they produce. As a result, it is wise for an investor to take a look at the prospects for the products being produced by the industry.

A strong recovery in pulp markets has resulted in 140 per cent increase in product prices during the first half of this year. While seasonal inventory corrections during the second half of the year, the longer term outlook is promising.

With more than 40 per cent of world demand for market pulp centred in Western Europe, a sustainable pulp market recovery must be directly linked to continued improvements in the European economy.

Lumber markets have recently been adversely affected by temporary oversupply conditions.
With estimates for U.S. housing starts in the 1.4 million unit areas, industry sources are citing consumer confidence as a determining factor rather than mortgage rates.

A seasonal resurgence in construction activity should increase lumber demand and a reduction in lumber inventories and subsequently higher prices.

In the newsprint industry, producers have struggled to implement a second quarter price increase. As a result, further price increase will likely depend on continued consumption growth. In summary, pulp and newsprint markets appear to be in the initial stages of a long term recovery. The recovery will depend on continued economic growth in the US and an economic revival in Europe.

For those investors looking for western Canadian paper and forest product companies, I’ve included a list of the following companies: Canfor Corp., Crestbrook Forest Inds., Doman Inds., Fletcher Challenge Canada Ltd., Interfor, MacMillan Bloedel, Noranda Forest, Pacific Forest Products, Slocan Forest Products, Weldwood and West Fraser Timber.

Don’t be afraid to check your agent’s credentials

2008-02-03T17:44:00.000-08:00

If you have decided to buy mutual funds, choosing who to buy them from can be confusing.

There are mutual fund specialists, investment dealers, financial planners, stock brokers, bank and trust company employees and life insurance agents.

Where do you begin?

You start by looking at products available and services provided. For example, some stock brokers and fund specialists will offer to sell you funds from several different groups. But other specialists, known as “captives”, represent only one mutual fund family. Likewise, insurance agents sell only funds affiliated with the company they represent.

Still, the question remains: who are you going to give your business to? An independent salesperson or planner may offer a wider range of funds than a “captive” representative. But this has little bearing on the quality of the funds themselves. Many funds sold by “captive” sales agents have performed as well as those sold by representatives of several different fund groups.

As with any situation where you are paying your hard earned dollars for a service or a product, the smart shopper will investigate the salesperson as well as the product. Unfortunately, virtually anyone can call themselves a “financial planner”. Provincial securities regulators are aware of the potential for abuse and are considering requiring all financial planners to register with them. Already in Quebec, only those individual who have the proper qualifications, such as the Chartered Financial Planner designation (provided to those men and women who successfully complete a series of educational courses), are allowed to use the title of “Financial Planner”.

Ask your friends about who they trust with their investments. And when you narrow the possibilities down, don’t be afraid to check the credential of the financial planner or planners you are considering. Remember, it’s your money.

An important criterion for judgement should be how well the salesperson understands the investment your money is going in. Any broker or fund dealer can fill your order. But if you want a full service package, which includes a detailed analysis of your financial needs followed by investment recommendations, you could pay a higher commission.

Decide from the beginning what type of service you expect from your salesperson. There is more to looking after your money than simply sending you an occasional account statement. Consider asking you prospective financial planner the following questions.

• How much will it cost to buy into the fund after commissions and fees?
• Will you receive an annual review of the fund manager’s investment strategy?
• Will you be notified of any significant changes?
• Is detailed information about the fund or funds you are considering readily available?
• Will your investment be compared periodically with competing funds?
• Will your salesperson check with you on a regular basis to see whether your investment needs have changed?

Ultimately, a successful relationship will depend on personal chemistry. Do you feel comfortable with your broker or sales representative? How confident do you feel about his or her investment expertise? Have they been in the market long enough to understand how it works? Do they know the risks underlying the investment strategy of the funds they are selling?

Mortgage usually your biggest expense

2008-02-03T17:37:00.000-08:00

The biggest personal loan you will ever have – your mortgage.

Your mortgage probably represents your single biggest monthly commit-ment, and it’s paid from after-tax dollars. Depending on your tax rate, you have to earn between $1.40 and $1.50 to pay off every dollar of your mortgage which is just one of the reasons to pay off your mortgage as quickly as possible.

The second reason is that it costs you a tremendous amount of interest. If you pay off your mortgage over 25 years at 12 %, the interest alone will be about double the original amount borrowed.

Below are four ways to pay off your mortgage faster:

Reduce the amortization period. A $50,000 mortgage amortized over 25 years at 12%, costs $516.00 per month, or about $154,785.

Of that total, $50,000 is the repayment of the principal and the rest is interest paid in after tax dollars.

If the borrower decides to take a 20 year amortization period the monthly payments will increase by only $25 and the debt will be paid off five years earlier. In this case the total mortgage cost would be $129,715 – saving more than $25,000. If we reduce the amortization period to 15 years, we pay $591 a month, or a total of $106,344 and save more than $48,000 compared with the cost of a 25-year amortization.

When purchasing a mortgage, pay as much as you can afford monthly in order to obtain the shortest amortization period and you’ll save thousands of dollars in the long run.

Make “double-up payments” whenever possible. By making to “extra” monthly payments a year (making 14 payments a year rather than 12) the amount of interest saved by doing so is over $88,000. The result is that the mortgage will be paid off almost 10 years earlier.

The “double-up payments” serve to reduce the principal owing faster and therefore also reduce the interest paid.

Make weekly rather than monthly payments. The advantage here is similar to making double-up payments. By paying monthly you have 12 payments in the year, buy by paying weekly there are 52.

This extra cycle really constitutes a double-up payment and therefore saves you money in the long run.

Make lump sum payments. Many lending institutions now allow the option of making a one time annual lump sum payment of 10% to 15% of the original mortgage amount.

If you borrowed $50,000 you could be allowed to pay $5,000 to $7,500 against the principal amount annually.
Once again, the effect is to reduce the amortization period and reduce the total amount of interest you pay.

For many people, their home has been their very best investment.
Depending on when you bought and what down-payment you had, you’ve probably made a solid return on your money.

In dollar figures, most people’s home shave a increased substantially over the past 25 years.
In addition, your principal residence is completely tax free when you sell it, but keep in mind the interest you pay on your mortgage greatly affects the overall return on your investment.

Next time we’ll look at how to protect yourself against that most dreaded of all enemies…the tax man. Remember, it’s your money.

Many women now seeking investment advice

2008-02-03T17:32:00.000-08:00

Women today face a formidable challenge. They are paid an average of two-thirds of what men make, yet are attempting to put money away for a future that is more likely to last longer than the male gender.

Women are more likely to hold guaranteed investments which normally carry a lower interest rate. For example, a recent poll by the Angus Reid group reveals that RRSP’s for the male and female genders were very different. In 1993, 70 per cent of women held guaranteed investments within their RRSP’s. In 1994, 62 per cent of women held guaranteed investments within their RRSP’s.

Part of the problem is that women don’t see themselves as investors. Women represent one of the fastest growing markets in the financial services industry. An increasing number of women in the workforce, high divorce rates, the maturing baby boomer generation and mortality figures that favour women have put huge amounts of wealth in the hands of an increasing number of independent women.

As more women find themselves in control of large sums of money, many are seeking to learn more about investing so that they can keep that money growing and plan for their financial futures.

In my mother’s situation, she was a good budgeter but poor with her investment decisions and long term planning. She was left alone with some money but without any clue of what to do with it.

Furthermore, she felt that she couldn’t identify with the marketing efforts of the financial institutions. She never thought she would have to handle the financial affairs on her own and therefore delayed learning about investing.

At the moment, Canadian women represent one of the biggest sources of growth for equities and equity mutual funds.

Through education and improved marketing efforts on behalf of financial institutions, women continue to hold more mutual funds and fewer guaranteed investments.

Every woman needs to be responsible for her finances. If you are in the workforce, you are probably part of those who earned one-third of the national income in 1990. Women now make up about 45 per cent of the Canadian workforce; that’s double their presence in 1960.

Whether you’re on your own or not, it’s better to be educated now so you’re not thrown into this responsibility during a crisis situation. It’s better for you to be involved in the financial planning process that affects you from the onset.

Remember, it’s your money.

Prospectus important when investing in mutual funds

2008-02-03T17:26:00.000-08:00

Aspects of investing in mutual funds
The most important things you should do before you buy into any fund: read the prospectus.

So what is a prospectus anyway?

A prospectus is simply a legal document that describes securities being offered for sales.
It must be prepared in conformity with requirements of the securities commission in the jurisdiction where the securities are being offered.

In the case of mutual funds, the prospectus is the single best source of pertinent information about the nature of the fund and the securities in the fund.

A mutual fund prospectus normally has three main sections: one that highlights the fund and its securities, one that gives technical information about the fund and its methods of operation and one that contains financial statements of the fund company over the previous few years.

Reading a mutual fund prospectus before purchase is akin to reading a purchase agreement before buying a house.

It’s the best way to find out exactly what your purchase includes…and what it doesn’t.
These are many particulars you will want to look for in a prospectus.
The nature of the fund’s business is clearly explained, including the specific investment objectives of the fund and any restrictions that may apply to the types of investments the fund can make. Any risk factors associated with purchase of the fund must be summarized clearly for the benefit of the purchaser. The tax status of the fund itself, as well as the tax consequences for fund-holders, must be disclosed. The way the fund determines the amount of the management fees and other expenses will be explained. And the prospectus must distinguish between fees charged to the fund itself and fees charged directly to fundholders.

Also appearing in the prospectus will be a listing of the actual individual securi-ties that make up the fund’s portfolio as of the latest fiscal year-end. Although the fund company is not required to disclose normal portfolio changes as they occur, it must make a prospectus amendment if changes in the portfolio are significant enough to represent a material change in the fund’s affairs.

You’ll also find the prices of securities being sold and redeemed.
This will include details on how, and how often, the fund’s net asset value is calculated and the time when the quoted prices become effective. This is not an exhaustive list, but it does highlight for you some of the important information you’ll find in a mutual fund prospectus.

Be sure to read it. It would be a mistake not to.
And discuss any questions you may have with your financial advisor before you make the purchase decision.

It’s truly the best way to avoid the disappoint

A Very Mutual Misconception

2008-02-03T17:20:00.000-08:00

Many people presume that to be a successful investor you need $50,000, a lot of investment experience, and lots of free time to monitor changes in the financial markets.

But this misconception doesn’t take into account other options, such as mutual funds. Mutual funds do not require large amounts of money to be invested or lots of time and experience to ensure your investment does well.

A mutual fund works on the idea of shared risks and rewards. As an individual investor you have a limited amount of money you can invest. You will probably be able to invest in only a few different types of investments to begin with and that leaves you vulnerable to how well each investment does or does not perform.

In contrast, a mutual fund pools together the financial resources of thousands of individual investors and invests the money in a number of different investments – often 35 or more companies, in a variety of industries. The benefit of mutual funds lies in the fact that your investment dollar is now spread across several corporations and industries and that means that you are no longer dependent on the performance of one particular investment. Your investment profits depend on the performance of all investments in the portfolio, both good and not-so-good and that has a way of balancing out.

Mutual funds are managed by professional investors, people who are educated and experienced in the investment management. Their job is to study the investment market and decide where the best opportunities for investment are to be found.

Because they are managed by professionals, mutual funds enable investors who don’t have the time or experience to effectively manage their money, to pool and diversify their investments while maintaining easy access – an investor’s money is available at any time.

In choosing a fund, an investor must decide what best suits his or her personal needs. Investors in Canada can choose from more than 600 mutual funds. Each fund reflects a variety of investment philosophies from the extremely conservative to the highly speculative. A mutual fund portfolio may include common stocks, preferred stocks, bonds, treasury bills, real estate or a combination of these types of investments. Each fund’s portfolio is overseen by a professional manager or group of managers who decide what and when to buy and sell.

The majority of Canada’s mutual funds are open-end. Open-end means the investor is free to make deposits or withdrawals to or from the fund at any time. When new investors join a mutual fund, their money is added to the pool, thereby increasing the fund’s total assets. When an investor redeems his or her units, the amount of money received depends on the value of their portion of the fund’s assets at the time or redemption.

Each unit in a mutual fund represents a fraction of the fund’s total assets – like a slice of equally divided pie – and has a net asset value, know as NAV. The value of all the investments in the fund determines the value of each unit. The NAV is calculated by taking all the fund’s assets, subtracting administrative expenses, and dividing the remaining figure by the number of units.

The value of most open-end mutual funds is determined on a daily basis at the close of the stock markets. However, some are valued on a weekly basis while others, featuring real estate investments, are valued monthly.

Some funds are referred to as no-load funds because they charge no fees. Other funds charge a back-end load – a fee charged to the investor upon redemption of the investment. This fee usually declines over time. Some redemption funds allow you to redeem up to 10 per cent free each year, before paying any fee. It is important to find out if the redemption fee is charged only on the original investment or on the end value of the investment (minus the 10 per cent fee).

Other funds are referred to as “front-end load” because they charge the fee up-front. The fee for these funds can be as high as nine per cent – but it is negotiable with the representative.
Selection, versatility and long-term benefits – these are the hallmarks of mutual funds.

Useless shares can be written off for gain

2008-02-03T17:14:00.000-08:00

Question:
I purchased some Las Maderas Mining and Petroleum Ltd. Shares back in the mid-70s and I can no longer find them listed in the newspaper.
Can you tell me what has happened to them and if they are worth anything now?
M.D., Abbotsford

Answer:
The company was dissolved and struck from the register on August 30, 1976. Unfortunately, the shares are now worthless. You may be able to claim a capital loss for income tax purposes on these shares and should speak to your accountant.

Question:
Last year, I purchased mutual funds. Will I be getting a tax slip for them and from who?
R.S., Mission

Answer:
If distributions (interest, dividends and capital gains) are paid out by the fund company to its unit holders, a T-3 form for income tax purposes will be mailed directly to them or you by the fund company.

If you haven’t received this T-3 form, you should give the mutual fund company a call. It is very important that you hold onto these tax forms, and I recommend to all my clients that they start a binder of all the paperwork they receive on their portfolios.

Question:
I am approaching retirement, could you explain the options I have?
P.S., Abbotsford

Answer:
You have three options for your RRSP upon retirement.

Firstly, you could withdraw the whole amount in a lump sum
The problem with this strategy is that the tax would be very prohibitive.

Secondly, there is a registered retirement income fund. With the RRIF, you would have a minimum amount which you would have to withdraw every year. The main advantage with this is the flexibility you have with the money.

Thirdly, there is an annuity.
An annuity in many respects is the opposite of a mortgage.

An annuity is a product whereby you yield control of your money to an insurance company who would guarantee you a monthly income. An annuity in some cases may provide a higher income due to mortality factors.

Smart choices today provide opportunity to enjoy retirement

2008-02-03T17:10:00.000-08:00

Once again we are rapidly approaching the retirement savings contribution season. Everyday we are bombarded with statistics and articles about the need for retirement income. Whether you plan to retire at age 50 or 65, the decisions you make now will directly affect your future – years which should be worry free and providing the opportunity to enjoy the fruits of past labours.

Unfortunately, investing in an RRSP does not automatically guarantee a profitable retirement. The investments you select to hold inside your tax sheltered portfolio are just as critical to the success of your retirement program. RRSPs are available from just about every financial institution in Canada, including banks, trust companies, savings and loan corporations, insurance companies, mutual fund companies as well as brokerage firms.

Basically there are three types of RRSP plans – the Managed Plan, the Mutual Fund Plan and the Self Directed Plan.

In a Managed Plan RRSP, the control lies largely in the hands of a financial institution such as a bank or trust company. Annual contributors are generally committed to an investment whose rate of return is locked in for a specific time period (no matter what happens in capital markets or the economy) or to an in-house product or service.

Some investors are often content to “lend” their money in exchange for a guaranteed rate of return. The disadvantage to this strategy is that in the current economic climate, the guaranteed returns received often barely outpace inflation.

As well, the banks and trust companies are often limited to products and services they can offer and do not always have the necessary resources to provide individual guidance and advice.

By investing in Mutual Fund RRSP, you have access to professional management and liquidity coupled with access to a range of investments, including Canadian and foreign stocks, government and corporate bonds, mortgage backed securities and money market instruments to suit your financial objectives.

In pursuing growth and income from a wide range of sources, mutual funds offer safety through diversification plus the potential for better returns for your RRSP.

The Self Directed plan recognizes the fact that every person is different and therefore has unique financial needs and goals. It is usually held at a brokerage firm and offers a wide array of products and services from many financial markets and institutions. Not only can you choose from a broad list of eligible investments, but you have the benefits of changing the mix of investments to correspond with changes in age, risk exposure and economic climate.

This plan offers flexibility, access to the latest research and market reports, accurate monthly reporting and the opportunity to shop the market for the best investment alternatives.

Today, it is up to the investor to shop the market and to ensure their money is doing the best it can. Ownership and responsibility for financial planning belong to the individual or their financial planner. Do your research before making your RRSP contribution this year – with the goal of developing a flexible, responsive investment program that ensures your RRSP enjoys maximum growth.

Establish personal financial scheme

2008-02-03T01:32:00.000-08:00

by Rodney Gelineau
written for The Chilliwack Times

The idea of financial health.

Being financially healthy means that you are in a position to enjoy life more and experience the freedom to do the things you really want to do.

To start managing your money you will need to establish a personal financial plan which really has three purposes:

1) To take a hard look at the condition of your finances

2) To help you think about and establish some financial goals

3) To be used as a measuring stick to evaluate your progress in achieving your goals

Creating a personal plan may sounds complicated but it doesn’t need to be. Some books contain very extensive worksheets but for our purposes a financial plan should contain three simple parts:

Part 1: Create a snapshot of where you are financially; for example, list all your assets and obligations. When you subtract the obligations from the assets you will have determined your net worth.

You might also want to answer these questions:

Do you have a will?
What is your current income from all sources?
What is the approximate rate of return on your current RRSP?
What is the approximate after-tax rate of return on your return on your non-registered investments? Dividends, Income, and Capital Gains are all taxed differently, so keep this in mind.
How much income tax did you pay last year?
How much life insurance coverage do you have?
How many years to retirement?
What is your expected retirement income?

Part 2: Create a statement of goals of where you want to be in the short term (one year) and the longer term (three to five years). Write them down.

Do you want to buy a new car?
Are you saving for a house?
Are you trying to pay off debt?
Do you want to pay off your mortgage or take a vacation?
Now do the same thing looking three to 5 years into the future.
Are you preparing for your retirement?
Do you want to start your own business or acquire an investment portfolio?

Part 3: List a course of action to take you from where you are, to where you want to be.

Consider age when making decisions

2008-02-03T01:19:00.000-08:00

by Rodney Gelineau
written for The Chilliwack Times

One of the worst errors you can make is to invest your RRSP funds without considering the number of working years you have left before retiring. Your age can help you determine how to best achieve your financial goals.

Consider the case of John Smith and Jane Doe.

John Smith is a 48-year-old advertising associate earning $50,000 a year. He wants to retire when he’s 65. Jane Doe is a single, 25-year-old electrical engineer earning $40,000 a year.
She doesn’t plan to retire until she’s 60, so she’s not sure she needs to bother with an RRSP.John should take into account that he will probably need about 70 per cent of his annual salary to live on in retirement. To support his current lifestyle, his annual expenses at retirement will probably amount to about $35,000 a year. This 70 per cent factor is based on studies which show your living expenses actually decline by 30 percent when you retire. Assuming John will live 20 years beyond his retirement, he will need $700,000 in today’s dollars in a lump sum. Chances are he’s paid off a large part of his home mortgage and he’s relatively debt free. That means he can save and invest a large portion of his annual salary to build retirement capital. I would suggest he set his sights on saving $15,000 annually.

As much of this amount as possible should be invested in RRSP, which will help him build a nest egg faster because of tax-free compounding. John has to invest a significant sum due to the short time span (17 years). Assuming he saves $15,000 annually at a 12 per cent rate of return, he can look forward to living the lifestyle he has become accustomed to. Jane would be foolish to ignore her retirement needs, even though she is far away from retiring. She relatively debt free and has capital to invest. Also, she only needs a small amount of money a year to generate a lump sum for retirement.

If Jane invests $2,000 a year for the next 40 years in an RRSP and earns an annual average rate of return of 12 per cent, she will have built up a retirement nest egg worth $1.5 million when she turns 65. That sounds incredible, but Jane has to worry more about inflation than John because inflation will have a greater opportunity to deplete her savings. At the same time, if she utilizes her advantages of more years of tax-free growth, the rewards can be tremendous. Jane should consider setting her financial goals high. Even a $3,000 a year contribution might not affect her lifestyle.

I also recommend asking for independent advice when it comes to choosing your RRSP investments.

Tax-effective investing a challenge

2008-02-02T23:59:00.000-08:00

By Rodney Gelineau
written for Times Financial Columnist

Canada has become a very highly taxed country. Our taxes can only remain high, or go higher, given the stringent fiscal situation at both the national and provincial levels. This means that investments and taxes must become more and more inter-related. “Is it a sound investment?” remains the golden rule of investing. Thereafter, however, it is becoming imperative to devise the most effective tax strategy for accomplishing one’s investment goals. Nonetheless, the challenge of tax-effective investing should not be viewed punitively.

The fiscal side excepted, Canada’s underlying economic fundamentals are sounds and investors should be capitalizing on these fundamentals are sounds and investors should be capitalizing on theses fundamentals in a manner that is best for them. For example, a valuable tax credit is provided on dividends so as to reduce the effects of double taxation (of corporate profits), and there remains a number of compelling individual inducements for deferring taxes to advantage.

Tax Planning Checklist

Have you made your full contribution?
Can you make next year’s RRSP contribution as early as possible so as to increase the tax deferred accumulation period?
Have you considered whether “spousal” RRSP contributions are appropriate in your case?
What capital gains or losses have you realized so far, and what further sales should you be making for this year (no later than December 22nd for settlement in the case of most Canadian securities and December 23rd for the U.S.)?
Should you consider income splitting with low tax rate members of your family?
Are you deducting interest expenses incurred on funds borrowed to purchase investments for tax purposes?
Have you considered the relative after-tax returns on various types of fixed-income securities?
Do foreign tax rules affect you, do you own U.S. securities or U.S. real estate, and have you considered the effect of U.S. income and estate taxes in your planning?

Investment 101

2008-01-30T14:30:00.000-08:00

By Rodney Gelineau
written for the Chilliwack Times

A young friend of mine, new to the world of work, taxes, and saving (in that order!), recently asked me for some investment basics. This prompted me to dig up the financial columns I wrote for the Chilliwack Times in the 1990s. This column, originally published on August 14^th, 1993, has held up surprisingly well over time.

Looking into the future is often a difficult exercise.

It is necessary though to look ahead and to set goals. These goals should incorporate your personal financial ambitions and be tough yet realistic. Set targets on where you’d like to be at retirement and then set shorter term desires which you feel will also ultimately get you to you longer term targets. Goals will keep you focused on your financial and personal affairs.

If nothing else is gained from this column, two concepts should be remembered.

Firstly, when setting aside money toward your goals, you are assembling pieces of the puzzle for your goals and dreams. Look beyond the obvious and review all possible options for that money. In reviewing all possible options, you are ensuring that you are getting the best possible rate of return (which allows you to achieve your dreams faster)

Getting the highest return is not of utmost concern, what is of utmost concern is the after tax return on your money. Taxes are different with each investment and should be an important consideration.

Secondly, in order to achieve your goals, time is the most important asset most people have. Due to compounding, slow and steady wins the race. There is no secret – just common sense and compounding. In order to do this, set your goals and begin putting money aside toward your goals today.

“Pay yourself first” and don’t put off reaching your goals. You will be surprised at what you can achieve with a consistent and focused investment plan.