Affiliated with Sentinel Life & Sentinel Financial Management Corp.
Commentary - Hans H. Mathisen
New Years Financial Resolutions - For the first month of the new year, LIFE LETTER brings you this timely list. Just to remind you of a few basic facts of our financial lives. Please call me if you need help or if you have any questions.
How Safe is Your Money? - The February issue of LIFE LETTER outlines the respective guarantees offered by Canadian banks and life insurance companies. As an additional comment to the guarantees offered by CompCorp on behalf of Canadian life insurance companies, it is important to know how Segregated Fund gurantees work: Segregated Funds are mutual funds marketed by life insurance companies. As the name states, any life insurance company's Segregated Funds are segregated from the other assets of that life insurance company. Therefore, if the life insurance company whose Segregated Funds you are invested in were to go under, those Segregated Funds belong to the investors and will not become a part of the bankruptcy.
THE STOCK MARKETS - Wow! Have we taken a beating over the past two years! On the positive side, however, it doesn't look that bad. Anyone who invests in the equities market directly or through mutual funds knows that our yield expectations must be spread over several years. Please remember: Investing is a long-term undertaking, not a "get rich quickly scheme". And the numbers back this up. In spite of the negative returns of 2000 and 2001, those of us who are in it for the long term have achieved the following returns:
Years Financial Resolutions!
Set Objectives - Goal setting is the foundation of achieving financial success. If they write down their goals, it will help Jack and Diane clarify them and establish their personal and financial priorities.
Pay Themselves First - There is no better way of building wealth than paying themselves first. It simply means Jack and Diane take their savings off the top of their pay cheques rather than from what little, if any, is left over. By building their investments through regular monthly deposits, they also benefit from dollar cost averaging.
Avoid Personal Debt - Since interest on personal debt, such as credit cards, car loans and a mortgage, is usually not deductible for income-tax purposes, paying it off is one of the best investments Jack and Diane can make. Too much personal debt is the most serious obstacle to achieving financial success.
Diversify Their Investments - Few people have the time or specialized knowledge to successfully manage their own investments. By choosing well managed investment funds, Jack and Diane will have the benefit of professional management as well as better diversification.
Maximize Their RRSPs - Jack and Diane's RRSPs are the cornerstone of their retirement financial plan. But they haven't been making enough deposits to meet their goals. They can boost their plans by using RRSP loans, setting up monthly automatic deposit arrangements and by depositing any refunds they receive into their RRSPs.
Prepare an up-to-date Will - They want to decide how their estate will be settled. A professionally prepared Will makes sure that their estate gets settled quickly when they die and reduces the risk of the courts making distribution decisions for them. Jack and Diane also want to choose who gets custody of their children.
Reduce Their Taxes - There are not as many generous tax breaks as in the past. In addition to RRSP deposits, they may be able to further reduce their tax bill by shifting investments into the hands of lower-income family members. Also, the tax-sheltered growth within a permanent life insurance policy should not be overlooked.
After carefully reviewing their list, Jack and Diane chose the strategies most important to them and adopted these as their New Years Financial Resolutions. With the help of their financial advisor, they'll get their year off to a good start. They will monitor their progress towards achieving their goals by doing periodic reviews.
© 1999 Bowen Financial Inc. and Donald F. Pooley, Inc.
Wand help with money resolutions?
Safe is Your Money?
Most money in Canadian depositaries is safe, up to a point. That point, for banks, trust companies and life insurers, is $60,000. Deposits in the first two are protected by the Canadian Deposit Insurance Corporation (CDIC) for up to $60,000 per depositor in each member institution. Deposits must be in Canadian currency, payable in Canada, and must be repayable no later than live years from the date of deposit.
Not all banks and trust companies are covered, so before you deposit your money, ask if they are a member of the CDIC One of the reasons the CDIC was created in 1967 was because of the high failure rate of such institutions. In the first 150 years of their history, 48.5% of our active banks had failed, were wound up or had their charters repealed. To find out more, phone the CDIC at 1-800-461-2342 or visit www.cdic.ca.
Similar coverage was introduced in 1990 by the Canadian Life & Health Insurance Compensation Corporation (CompCorp). In addition to the $60,000 per account per member, it also covers life insurance policies (up to $200,000), and annuities (up to $2,000 per month). Deposits with a maturity date greater than live years are also protected. To learn more, phone CornCorp at 1-800-268-8099 or visit www.compcorp.ca.
All things being equal, is your money safer under CDIC or ComCorp coverage? If you are within the $60,000 ceiling and live year CDIC time limit, their coverage is identical. But if you want a certificate that matures in more than live years, or an annuity that pays out over a period longer than five years, it cannot be insured by the CDIC, so use a life insurance company that insures your savings through CornCorp.
When asked about deposit safety, before the creation of ComCorp, the Toronto Star said, "You have less cause for concern with a life insurance company than with a bank, trust company or any other segment of the financial structure. While we have seen some shortcomings in the regulatory system after the collapse of two of the smaller banks, life insurance operates in a way that makes it far less prone to disaster.
"If you supply a company with RRSP funds for an annuity there must be a certainty of a cash flow to pay the annuity ThIs is one reason insurance companies invest heavily in Government of Canada long-term bonds, which are about the ultimate in security. If the federal government sinks, not many of us will find a lifeboat.
"That, and the fact that the companies are required to maintain large reserves, make them pretty solid bastions of finance." .
© 1999 Bowen Financial Inc. and Donald F. Pooley, Inc.
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