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January/February 2008

Commentary - Hans H. Mathisen

Financial resolutions for 2008 - LIFE LETTER for the first month of the new year serves as a reminder to us all. Let's try to follow these simple, basic rules.

These financial mistakes can cost you a fortune - The February issue of LIFE LETTER should also be a wake-up call for us all. We must take a hard look at our financial affairs and plans to make sure we don't make any of these financial mistakes.

LIFE LETTER MATURE - For those of us over 55, these questions are worth pondering: "You've retired. Now what?" and "How much will I need to retire?" Maybe it's worthwhile for each of us to ask ourselves these questions.

THE STOCK MARKETS - WOW!! While the major world stock indexes produced acceptable returns for 2007, these returns were not at the high-teen-percentages we've been accustomed to realizing over the past 5 years. Below are the returns for 2007, with the performance for January 1 through February 1, 2008 in brackets: The S&P TSX gained 7.07% (-3.72); The Dow Jones grew 7.24% (-3.93); S&P 500 was up by 4.24% (-4.97); and NASDAQ rose by 10.73% (-9..01). In Europe, Germany's DAX was up 22.29% (-13.62); France's CAC 40 rose 1.54% (-11.33); and England's FTSE 100 grew 4.12% (-6.62). In Asia, Japan's NIKKEI fell 11.13%(-13.28), and Hong Kong's Hang Seng Index was up 37.09% (-13.26).

So, where should our money be invested now? For the conservative investor with at least 5 year horizon, it's my opinion that Canada still is the least volatile market to be invested in. If we use January, 2008 as a yardstick, the S&P TSX Index decreased less than any of the other major indexes. Canada is experiencing unprecedented job creation; our commodities are in high demand, and our economy is in very good shape. For the aggressive investor, China still appears to be a good place to be. {If money were invested in the Hang Seng Index on January 1, 2007, and held until February 1, 2008, the net gain would still be 23.83% for the 13 months (37.09 minus 13.26)}. And the economic growth in China will continue. Very few experts dispute that. With Hang Seng down 13.28% year-to-date, maybe a China Fund is a good value now? Please contact me if you want more information.

Hans Mathisen





Financial Resolutions for 2008

Give your finances a boost this new year. Here is a list of financial resolutions to help you become better off at the end of the coming twelve months:

Eliminate personal debt - Brad and Angie had fallen into the very common habit of buying lots of "stuff" with their credit cards and soon were carrying a balance from month to month. At 18.50%, it is very expensive to live this kind of lifestyle. And any new purchases attract the same financing charge from date of purchase.

To start getting ahead, they quit using their credit cards and simply stopped making truly unnecessary purchases. Brad and Angie realize that they have to be less inclined to make purchases of "luxury" items by convincing themselves that they are necessary.

Invest regularly - Curt and Courtney want to save regularly, but found that there was more month left at the end of their pay cheques. They decided to pay themselves first. Easily said, but how do you do it?

By committing to a set percentage of income each month is the best start. Curt and Courtney opened a joint investment fund account and arranged for 20% of Courtney's income to be withdrawn from their bank account each month for deposit to the investment account. They will adjust the amount withdrawn each year to reflect increases in income. Their goal is to have the investment fund account pay them income once the balance reaches $25,000 to help cover the cost of their annual summer vacation. Curt and Courtney will continue to make deposits to their plan from current income. This investment income will eventually cover more lifestyle expenses.

Be prepared for annual bills - Jason was always scrambling at property tax time to pay the bill. This year, he took last year's amount, added ten percent and divided by twelve. He arranged to have this amount withdrawn automatically from his bank account each month and deposited into a separate savings plan. A few months after starting this plan, Jason barely noticed the withdrawals. When property tax time comes, he will have the full amount to pay the bill without scrambling for the funds. Plus, he earns interest on his property tax deposits.

Invest tax refunds and windfalls - Kathie makes regular deposits to her RRSP and gets a nice refund every spring. In the past, she would go on a little spending spree and really had nothing to show for it at the end of the year. This year, Kathie will deposit her refund cheque in her RRSP. This will also increase her contribution amount and give her a larger refund next year.

Let's say, however, that her refund is $2,500 each year. By putting her refunds into her RRSP each year and assuming 7.50% annual compound return, Kathie's RRSP will have about $108,262 more in it in twenty years.

Don't give up - New Years Resolutions don't always get followed. If you fall off track, get back on and try again. Don't be too hard on yourself if you stray from your plan. Richard Exely said, "Failing doesn 't make you a failure. Giving up, accepting your failure, refusing to try again does!" Try starting with one financial resolution and add more over time. You don't have to do it all at once.

Want help with your financial resoluions?

Call Hans Mathisen today at (306)242-7042.
or email -

Copyright 2008 Life Letter. All rights reserved

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These financial mistakes can cost you a fortune

Some financial decisions get made without enough thought given to the long term consequences. Here are some financial mistakes you can avoid:

Mortgage amortized too long - More and more lenders are offering longer amortization periods for mortgages. It may look attractive to get a smaller monthly payment or to get into a larger house, but the extra interest charges only benefit the lender.

Rick and Jane are contemplating a $250,000 mortgage on a house. If payments are amortized over 25 years at 6.00 interest, they will pay about $1,600 per month which totals $480,000, a whopping $230,000 in interest. If they pay the mortgage over 35 years instead at the same 6.00 interest rate, their monthly payment will only drop to about $1,413 per month, but their total payments will balloon to $593,460, with a total of $343,460 in interest.

They could take the mortgage at 6.00 over 20 years with a monthly payment of about $1,780. Rick and Jane would pay about $427,200 in total with interest representing $177,200 of this amount. This means an interest savings of about $166,260 over the 35 year mortgage.

Carrying a credit card balance - Credit cards, like Visa and MasterCard, typically charge about 19.00 on outstanding balances. Any new charges made on the card while there is an outstanding balance will attract this high interest charge from the date of purchase. The monthly minimum payment is only 3.00 of the outstanding balance and any remaining balance will continue attracting the high interest charge. If only the minimum payment is made each month, it will take over 19 years to pay off the credit card balance. For example, a $5,000 credit card balance, with no new purchases, paid off at only the minimum monthly payment (which is very sneaky because the monthly minimum payment slowly declines as does the balance owing), will take 230 months. Payments will total $9,984.15, almost double what the original purchases were.

Taking money out of an RRSP before retirement -Jack and Diane had some debts that they thought they should pay off by cashing out some RRSPs. Both age 35, they would have to withdraw $30,800 to net about $20,000 after taxes. If they leave the funds in the RRSP until, say, age 65 at 7.50 average annual compound rate of return, they will grow to $269,652.62. The minimum RRIF payment the first year would be almost $900.00 per month. They decided to give up some lifestyle expenses instead.

Waiting to start an RRSP - The longer you wait to start an RRSP, the less you will have to retire on, assuming the same annual deposit throughout. Twins Samantha and Tabatha each started RRSPs with $5,000 annual deposits at 7.50 average annual compound rate of return. Tabatha started at age 21 and will make deposits right up until she turns age 65. Her funds will grow to $1,544,835. Samantha waited until she was 31 to start. Her funds will only grow to $717,798.17. For Samantha to accumulate the same amount as her sister, she would have to deposit $10,836.41 per year.

Want help reaching your financial goals ?

Call Hans Mathisen today at (306)242-7042.
or email -

Copyright 2008 Life Letter. All rights reserved

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