For the past several years, only Nova Scotia, Newfoundland & Labrador and New Brunswick have operated under the HST. Quebec introduced the Quebec Sales Tax (QST) in 1992, which quite closely resembles the HST. In 2009, both Ontario and British Columbia introduced plans to harmonize their respective provincial sales taxes with the federal GST to create an HST, effective July 1, 2010. In Ontario, the new HST would have a combined tax rate of 13 percent and would include the current general Ontario RST rate of 8 percent and the federal GST rate, currently set at 5 percent.*  As a result, a greater proportion of Canadians will be subject to HST. This paper will discuss what harmonization means to consumers and more specifically, how HST will affect your mutual fund investments.

* In British Columbia, the new HST would have a combined tax rate of 12 percent and would include the current B.C. Social Service Tax (SST) of 7 percent and the 5 percent federal GST rate.

How does Harmonization affect Canadian mutual fund investors?

Mutual fund investors pay a management fee on their mutual funds in order to obtain the benefit of professional money management advice and other services. Since professional money management is considered a service, mutual fund investors currently pay 5 percent federal GST on the management fee and certain operating expenses of the investment funds. These costs are included in the Management Expense Ratio (MER) of each particular mutual fund. As a result of the HST, investors will now be required to pay an additional provincial tax on management fees (and certain other expenses of the MER) where it did not apply previously. Therefore, this will result in a proportional increase in the MERs of mutual funds and an additional cost to investors. Higher taxes on mutual funds will result in lower returns to investors.

Using Ontario as an example, assume a mutual fund has a pre-tax MER equal to 2.28 percent1  and earns an 8 percent rate of return. Under the current rules, the MER is equal to 2.39 percent when GST is applied2. In this case, the investor would receive a net return of 5.61 percent. If the HST legislation is approved, the MER will increase by a further 0.18 percent to 2.57 percent. As a result of the additional taxes imposed by the government on mutual funds, the investor’s return would be reduced to 5.43 percent.

In other words, this tax increase imposed by the government will directly result in a lower net return to the investor. The following chart summarizes the implications to investors on investments returns because of HST.

1 MER is comprised of a 2.00% management fee, 0.25% fixed administration fee plus 0.03% other fund costs

2 It is assumed that GST/HST is only applied on the management fee and fixed administration fee

Without HST

Rate of Return 8.00%

Less Total MER:

Pre-tax MER 2.28%

GST (5%):  0.11%

8.00% Rate of Return minus total MER (2.39%) = Net Return 5.61%

With HST

Rate of Return 8.00%

Pre-tax MER 2.28%

GST (5%): 0.11%

Ontario RST 0.18%

8.00% Rate of Return minus total MER (2.57%) = Net Return 5.43%

What is the rationale for the HST?

The HST provides a single tax base and consistent administration across federal and provincial governments. Without it, there are multiple tax bases, each with their own set of rules and processes.  One of the fundamental differences between GST and a separately operated provincial sales tax is the ability for businesses to recover sales taxes paid on inputs required in the course of providing goods and services to consumers. Under the GST, businesses are reimbursed for any GST paid on inputs while they are not reimbursed for any provincial sales tax. Therefore, the added costs of provincial sales tax becomes embedded in the prices paid by consumers on goods.

The adoption of the HST will help remedy this situation and allow businesses to recover not only the GST paid on inputs, but also the provincial sales taxes. This will help reduce costs and allow businesses to be much more competitive in Canada and internationally.  In addition, harmonization will simplify the sales tax collection process and significantly reduce administration and compliance costs associated with the collection and remittance of sales taxes to the government.

Summary

The HST can have a positive impact for the Canadian economy and for many industries, especially in manufacturing. Unfortunately, the same benefits will not apply universally to all industries, particularly to investment managers where cost recovery on inputs is minimal. More importantly, the HST represents an additional cost to investors and can impair investor savings. Mackenzie Financial Corporation, among other fund companies, strongly opposes the proposals as they currently stand.  Government should be encouraging investors to save for their retirement and should not impose additional tax on savings. Accordingly, Mackenzie is actively engaged with industry groups and government officials working diligently to promote alternative strategies that would protect your savings and those of investors like you.

This article was prepared by Mackenzie Financial Corporation for Andray Domise, Independent Financial Advisor, who is an Investment Professional with International Capital Management.

How much do I need to retire?

The answer to that question depends very much on the lifestyle you envision in retirement.

Perhaps you want to travel the world or trade your expensive house in the city for a smaller one in the country, and just enjoy yourself. But no matter what your goals are in retirement, financial planning at this stage forces you to admit that your retirement is almost here and you have to make some critical decisions. For example, have you considered gradually moving to a more conservative portfolio. An independent financial advisor can walk you through a new strategy and introduce you to ideas that fit with this period of your life.

For a complete analysis of investing in your 50s click here.

Your retirement checklist

Here are some questions to ask as you move closer to retirement.

• How many years before I retire?
• How much money will I need on a monthly basis?
• What are my guaranteed sources of income in retirement?
• How much money do I have in investment assets?
• How much money will I need to generate from my investment assets?
• How much more money do I need to save?
• How can I invest to reach my ultimate savings goal?

Developing your retirement strategy

It’s important to sit down with your financial advisor and develop a plan of action that answers a number of questions, including: how much time is left before you retire, how much money you’ll need and how comfortable you are with risk. Striking a balance between what’s ideal and what’s realistic is your challenge.

For example, on the one hand this is your last opportunity to build your assets through aggressive saving and investing. On the other hand, with retirement quickly approaching you may want to protect the wealth you’ve already accumulated.

Setting your course to retirement

To figure out the ideal proportion of investment growth versus income that you’ll need, you’ll have to decide when you want to retire, or more specifically, when you need to rely on your money (rather than work) to support you. The most difficult part of devising an investment strategy is being realistic about how much risk you want to take. Your advisor can help run some scenarios to see how you may react. The key is to be honest. Don’t take more risk than you can comfortably handle.

Building an investment portfolio in your 50s

Until recently, equity funds may have dominated your portfolio. That’s a good thing since historically equities have offered average annual returns of about 8%. The problem is, from one year to the next, you never know what will happen in the markets.

As you get closer to retirement, you need to be able to count on the money in your portfolio. You don’t have the luxury of time to recover from significant stock market losses. But swinging to an ultra-conservative stance could also backfire. A portfolio that’s 100% in fixed income and cash – while less volatile compared to equities – may not generate sufficient returns to fund a rewarding retirement.

For many of us, the best strategy is the middle road: a mix of stocks and bonds to provide income and growth opportunities. In fact, many of the first mutual funds sold to investors took this balanced approach, and balanced funds remain popular to this day. Your financial advisor can help you determine the optimal asset allocation, after looking at your personal situation, your appetite for risk and the amount of time you have to invest.

Cash flow in retirement

A good way to get monthly income – rather than through a straight withdrawal – is through investment funds that make monthly payouts. These can be in the form of fixed or variable distributions. With a regular, monthly income stream, you can better plan your finances and support your lifestyle. Your financial advisor can recommend an appropriate income fund.

Creating your retirement investment portfolio

When you start seeing each of your investments in context of your investment strategy, the choice of what to actually invest in becomes easier. You’ll see how each element of your portfolio contributes something different toward your overall investment goals. Work with your financial advisor to develop a consolidated view of all your investments. Your asset allocation – the portions you will divide into equity, fixed income, cash and other assets such as gold and
commercial real estate – will depend on your investment strategy.

What if you’ve fallen behind in your retirement plan?

Studies show that many of us haven’t saved enough for retirement. If you’re in your early to mid-50s and have several years until retirement, here are some suggestions for catching up:

Boost your savings. Figure out where you can cut expenses to save more. You’d be surprised how the changes you make can translate into extra dollars for retirement.

Add to your RRSP or employee pension plan. Make catch-up contributions for those years you didn’t contribute. As well, be sure to contribute to any plan where your employer matches contributions – this is free money.

Raise your risk. If you’ve switched your portfolio into bonds, consider switching a portion back to equities to provide some growth. Be careful not to increase investment risk beyond your comfort level.

Get a second job. You or your spouse may be able to take on a second job to earn extra income. Alternatively, one of you may be able to make more money by switching jobs.

Push back your retirement date. Working an extra year or two may help you meet your retirement target. Alternatively, you may continue to work part-time or on a freelance basis during retirement.

Downsize your home. Moving into a less expensive home, or renting, can provide you with a lump sum to help finance your retirement.

Rethink your retirement lifestyle. If there seems to be no way that you’ll be able to retire in the manner you envision, you have no choice but to live a more modest lifestyle in retirement. Be sure to talk to your financial advisor to see if they can provide ideas to bridge the gap between what you’d like and what you have.

This article was prepared by Mackenzie Financial Corporation for Andray Domise, Independent Financial Advisor, who is an Investment Professional with International Capital Management, Inc.

© 2009 Mackenzie Financial Corporation. All rights reserved.

The beauty of GICs is that they are straightforward and easy to understand. Because market values for GICs aren’t readily available, there’s a built-in discipline to commit to the maturity date. There’s no point in monitoring the financial pages every day, nor in worrying that you won’t get your money back. Once you’ve decided to put your money into, say, a five-year GIC, there’s really nothing to think about until it matures.

Short-term thinking leads to rash decision-making

The approach many investors take can be very different when it comes to mutual funds. That’s because with mutual funds there’s always the option to redeem or to switch into a different fund that appears more attractive. This can lead to the temptation to track the performance of mutual funds on a daily basis. Unfortunately, this focus on the short term can lead to rash decisions that are made without proper perspective.

It’s similar to driving in heavy traffic on the highway and being convinced that every other lane is moving faster than the one you’re in. You typically won’t get to your destination any faster by switching back and forth between lanes, although it can be tempting. And in the same way, it takes discipline to see beyond all the day-to-day fluctuations in the markets – but it’s still the best way to reach your financial goals over the long term.

Treat your mutual funds like they’re GICs

The secret to successful investing is to focus only on the information that’s relevant to you over the long term. While it takes far more self-discipline to invest in mutual funds, the potential returns can make it worthwhile. Cut back on how frequently you check the value of your funds, as it doesn’t matter how the markets perform on a daily basis. Invest in mutual funds in the same way that you invest in a GIC. Once you’ve made the decision to invest, it can be detrimental to start second-guessing yourself. Your advisor can also help you by ensuring that your investment portfolio is meeting your long-term objectives and by helping you filter the information that’s relevant to you.

Example: Trimark Canadian Fund - the benefits of thinking long term

Let’s take a look at how this strategy paid off for investors in the past. For example, the following chart shows Trimark Canadian Fund’s rolling five-year returns since inception (September 1981) through December 2007. As you can see, the Fund did not lose money over any five-year period. Instead, investors who took a long-term view and weren’t sidetracked by short-term market value were well rewarded – the average five-year rolling return annualized since inception was 10.99%.

(Note: The current 5 year average, as at Sep. 30 2009, is 2.7%)

Invest and leave well enough alone

Treating your mutual funds like they’re GICs can be the most effective way to ensure you stay on track to meet your long-term financial goals. That’s because, to be successful over the long term, you have to think long term. It’s as simple as that.

Mutual fund securities unlike GICs are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. Commissions, trailing commissions, management fees and expenses may all be associated with mutual fund investments. The indicated rates of return are the historical annual compounded total returns, including changes in security value and reinvestment of all distributions, and do not take into account sales, redemption, distribution or optional charges, or income taxes payable by any securityholder, which would have reduced returns. Mutual funds values change frequently and past performance may not be repeated. Please read the prospectus before investing. Copies are available from Andray Domise, Independent Financial Advisor, or from Invesco Trimark Ltd. 
 
* Invesco and all associated trademarks are trademarks of Invesco Holding Company Limited, used under licence.
Trimark and all associated trademarks are trademarks of Invesco Trimark Ltd. © Invesco Trimark Ltd., 2008

A mutual fund is a professionally managed pool of money invested by people like you. There are many different types of mutual funds, each designed for a different type of investor with a different financial profile. When you buy a mutual fund, you are pooling your money with other investors who share your investment profile and your objectives.

There is strength in numbers. By pooling your money with other investors who have similar objectives, you can enjoy increased purchasing power and reduce your investment costs. Professional mutual fund managers trade securities at discounted institutional rates. Consequently, the savings they realize are passed along to you.

Keep your options open. A key benefit available through mutual fund ownership is diversification. The range of security types and asset classes offered in mutual funds can help to shield your investments from market fluctuations. If the value of one security held in a fund falls, the loss may well be offset by a rise in the price of another security. By investing in a variety of asset classes, you can profit from the growth of one type of security, while shielding your portfolio from potential losses in another. Whether it is by security, company, industry, or country, mutual funds offer investors a level of diversification that would be difficult to achieve on their own.

Mutual funds come in a variety of shapes and sizes. The most familiar mutual funds are equity funds, bond or fixed-income funds, money market funds, and balanced funds. A basic equity fund invests in the shares of various corporations. Equity funds differ in their selections of individual company characteristics, industries, or geographic locations. Bond funds offer investors the benefits of steady interest income and the opportunity to realize capital gains over the long term. For the interim investor, money market funds provide the chance to insulate capital while receiving returns superior to those offered by a bank savings account. Finally, balanced funds (or asset allocation funds) exist for those investors who want the benefits of greater diversification along with the convenience of owning bonds, money market instruments, and equities in one mutual fund.

Do you need ready access to your capital? Mutual funds are structured in such a way that accessing your money is as simple as calling your Investment Professional. As your investment needs change, your personal financial plan can also be easily changed. Your Investment Professional can move money from one fund to another or cash in all, or part, of your investment at any time. To help build assets over the long term, you can institute a plan of regular investment contributions or, conversely, a plan of regular systematic withdrawals.

Mutual funds give every investor the advantage of continual professional money management. These mutual fund experts have access to some of the best quality investment research in the world monitoring both domestic and foreign markets around the clock. The knowledge, experience, and resources available to these professionals ensures that your investments will keep pace with today’s ever-changing markets.

When selecting a mutual fund, remember to choose a fund that matches your personal objectives. Look for consistency in the long-term performance of the fund and the professional who manages it. Try to select a mutual fund that invests in securities you understand and that has a portfolio manager whose style you are comfortable with. Your Investment Professional, who has reviewed your unique investment objectives and understands your concerns is positioned to provide you with information on mutual funds and help you select mutual funds that add value to your portfolio.

Mutual funds are an excellent way to protect and build your capital. As you go through life, your financial goals change, and so too should your portfolio. Your Investment Professional is there to monitor your investments and help you modify your portfolio on a regular basis to ensure long-term, consistent growth.

This article was prepared by Fidelity Investments for Andray Domise, Independent Financial Advisor, who is an Investment Professional with International Capital Management.

Read a fund’s prospectus and consult your investment professional before investing. Mutual funds are not guaranteed; their values change frequently and past performance may not be repeated. Investors will pay management fees and expenses, may pay commissions or trailing commissions, and may experience a gain or loss.

The temptation, of course, is to sell-off a portion of their funds, wait on the sidelines until the market has bottomed out, and then go back in when it’s safe. This anxiety is especially pronounced for newer investors who have less experience with market cycles, and how it can impact their mutual funds.

Although market volatility may be unnerving to novice and experienced investors alike, these kinds of corrections are nothing new, and are a common market phenomenon. The best approach to handling these worrisome periods is to arm yourself with proven historical investment information, and seek professional advice from an Investment Professional.

So let’s begin by taking a closer look at what causes market volatility. There are several factors that can impact market movement, and subsequently, the rise and fall in the value of the various types of mutual funds. Among the most common factors are corporate profitability, inflation and large scale events such as political and economic factors. Corporate profitability is the most obvious. When profits go up, the market goes up, and most types of mutual funds tend to benefit with corresponding growth. When profits decline, the market drops and the repercussion is felt on certain types of equity based mutual funds as well. Corporate profits are in turn impacted by global economic conditions which go through natural cycles of growth and recession. Also, equity mutual fund performance historically weakens during times of rapidly rising inflation, which drives up interest rates thereby making fixed-income mutual funds more attractive. Thirdly, unanticipated political occurrences such the 1990 Kuwait crisis can have a significant impact on world market. In that instance the Toronto Stock Exchange dropped rapidly from 3,000 to 2,200 points, effectively ending eight years of recovery from the 1981-82 recession.

How Drastically Does This Affect Mutual Funds?

Although these ups and downs can create tension and uneasiness among investors, when viewed from a long term perspective, their detriment to mutual funds is less dramatic than often feared. Historically, rises have followed shortly after steep falls in the market, and mutual funds resume an overall upward trend.

What is the Smartest Way to React During Market Volatility?

One thing is certain, trying to time the market by getting in and out during these periods does not make sense. This practice is termed “lightening up” but is rarely successful because no one can predict exactly when the drop will occur. And if investors sell, there is always the danger that they will miss out on any subsequent rise in the market. If investors had tried to time the ups and downs of the market, they would have risked missing out on days that registered some of the biggest gains. The smarter way to view volatile periods is to think of them as opportunities to review your exposure to risk, discussing it if necessary with your Investment Professional.

What Should Drive the Selection of Mutual Funds?

Smart Investment Professionals and investors select their mutual funds based on fundamental financial indicators rather than on short-term industry or market trends. A mutual fund manager is focused on balance sheets, cash flows, and earnings to reveal a company’s true potential for long-term growth.  Your focus should be on the same indicators. Solid performance and corporate profits drive market performance in the long run.

What’s the Bottom Line on Market Volatility?

The world is an ever-changing place, and volatility along with the potential for higher returns is the nature of equity markets. Investors who maintain a long-term outlook for their investments have an advantage over those who do not. Successful long-term investors understand that the market will always experience periods of decline, and that although stock investments are considered riskier, history has shown that stocks have a record of outperforming more conservative investments over longer time periods. In the past, equity investments have offered the highest returns. The key to surviving market volatility is a long-term approach, diversification, and a comfort level with your exposure to risk. Talk to your Investment Professional to set your mind at ease if you find yourself worrying too much about your investments.

This article was prepared by Fidelity Investments for Andray Domise, Independent Financial Advisor, who is an Investment Professional with International Capital Management.

Read a fund’s prospectus and consult an investment professional before investing. Mutual funds are not guaranteed; their values change frequently and past performance may not be repeated. Investors will pay management fees and expenses, may pay commissions or trailing commissions, and may experience a gain or loss.

Myth: The best way to diversify is buy as many different mutual funds as possible.

While spreading your portfolio thinly across many funds might achieve diversification to some degree, it is likely at the expense of performance, fees and focus. Your choice of mutual funds should be tailored to your objectives. How long before you retire? How risk tolerant are you? These kinds of questions should determine the selection of investments, including mutual funds, best suits you. A large number of mutual funds alone isn’t the answer. In fact, it becomes less manageable to track the performance of each fund if there are too many. Diversification is better achieved through an analyzed and strategic selection of funds. Consider, for example, asset allocation mutual funds. These funds are configured with diversity as the primary benefit; with investments dispersed across different asset classes such as stocks, bonds and fixed-income instruments. This way, if one asset class suffers a loss, chances are the loss will be offset by a rising return in another asset class. Choosing the right, not the most, funds is the best way to diversify.

Myth: The way to beat the market is to get in (or out) at the right time.

There is always temptation to sell-off a portion of your funds when the market shows signs of volatility. The theory is to sell just before the market drops, and then buy again just before it rises. If only life were that simple. Unfortunately, no one can predict precise market timing, and more often than not, investors who try this approach get burned. History has proven time and again that investing with a long-term view produces better results in the long run.

Myth: It’s good enough to wait until February and then buy mutual funds with any extra savings.

One of the great advantages of mutual funds is the ability to purchase them in small units. This allows the investor to make regular contributions throughout the year, and proves to be the superior method for mutual fund purchases. First of all, Iit imposes a measure of discipline that most of us need to ensure we are setting aside enough money for a decent retirement. Secondly, it allows the investor to take advantage of ‘dollar cost averaging’, a strategy whereby selected mutual funds are purchased regardless of the price of the fund. This way, if the fund goes down you can buy more of it, thereby strengthening your fund position when the prices rise again. On the other hand, if the fund price rises, your current holdings benefit. Could we add something that refers to PACs as a seamless forced savingsThe point is: the best way to buy mutual funds is to set aside an affordable monthly contribution and stick to it.

Myth: The nice thing about mutual funds is you don’t have to pay attention to them.

Many people get caught up in the daily running of their lives, and neglect monitoring their investments. However, It’s critical to follow the progress of your funds, and it’s easy! The mutual fund companies are an excellent source of information, as well as your newspaper, and of course, your Investment Professional. If there is a significant change in your personal situation (loss of job, purchase a new house, the arrival of children) you should review your investment objectives and determine whether changes to your strategy are warranted. The truth is you should always pay attention.

Myth: The best way to pick a mutual fund is to pick a top performer in the last year.

While past performance can be a very good indication of the fund manager’s ability to generate superior returns in one year, it is not necessarily a sure bet for another year. It is therefore much more preferable and advisable to evaluate a fund based on it’s long-term track record. Keep an eye on the consistency of the fund. These are much better criteria to measure against. Also, when you rate past performance, keep in mind market conditions at the time.

In summary, give your portfolio the attention that it deserves, and remember that a qualified Investment Professional can help provide objective and sound advice, and can answer any questions that you might have.

This article was prepared by Fidelity Investments for Andray Domise, Independent Financial Advisor, who is an Investment Professional with International Capital Management, Inc.

Read a fund’s prospectus and consult your investment professional before investing. Mutual funds are not guaranteed; their values change frequently and past performance may not be repeated. Investors will pay management fees and expenses, may pay commissions or trailing commissions, and may experience a gain or loss.

If you aren’t up to date on your contributions, don’t feel too guilty.  Most Canadians play catch-up with last year’s RRSP contributions after the New Year.  The problem with this strategy is threefold:

• Your growth potential on your RRSP investments is much lower if you aren’t starting at the beginning of the year
• Your savings strategy is done on a one-off basis, instead of automatically
• You are giving an interest-free loan to the government.

Every dollar of income taxes are subtracted from your pay is one less dollar you can put to work for you.  Instead, it’s being put to work for the government.

When you file your tax return, and get a refund, you have informed the government about the deductions and credits you normally claim throughout the year (e.g. Those generated by RRSP contributions, tuition & education expenses for your child,  deductible interest,  etc).  To lower the amount of income tax deducted from your paycheque, tell Canada Revenue Agency about these deductions and credits ahead of time.

Instead of playing catch-up with your RRSPs, set up an automatic withdrawal plan to transfer money from your bank account to your RRSP investment.

Example: Your usual RRSP contribution each year is $6000.  Instead of making a lump-sum contribution, you break up the contribution into $250 payments that are invested bi-weekly.  Not only is this more manageable, your first $250 has had one year in the market to grow.  The next contribution has one year less two weeks, etc.

It makes more sense to have the withdrawal come out the same day your pay is deposited into your bank account.  This way, you won’t be tempted to spend it.  The resulting increase in your take-home pay should be used towards building your savings automatically. If you then deposit that money in a Tax Free Savings Account (TFSA), not only have you avoided having to pay tax on the income, you also won’t pay tax on any of your investment growth.  As with all investments, this should be done automatically as well.  Your monthly budget will be the same, but you will build a decent investment portfolio instead of waiting for the government to give you your own money back.

That said, let’s examine some steps to follow when reviewing and planning your mutual fund portfolio and your overall financial or retirement goals.

Five Key Steps to Achieving Your Investment Goals Through Mutual Funds

1. First off, if you haven’t already done so, enlist professional advice. An Investment Professional, working in true partnership with you, can bring unparalleled value to your mutual fund portfolio. Just think, a seasoned expert will be there to watch-over your funds on a regular basis, especially when you can’t. And remember, there is a multitude of mutual funds including equity, asset allocation and fixed-income funds. The bottom line is: there is no substitute for professional guidance and involvement.

2. Clearly identify your overall investment goals before you begin to select which mutual funds are best suited to you. You are unique. Your personal lifestyle and financial goals are unique. Factor in your current income-level, anticipated future income, and investment time horizon. Think long and hard about your needs before you arbitrarily jump-in and buy a batch of mutual funds. Consult with an Investment Professional who is skilled at listening and knowledgeable about your investment options.

3. Match your mutual funds to your situation. For example, equity and growth funds are best suited for long-term objectives because of the risk and volatility of these types of funds. As well, it’s a good idea to determine your risk tolerance along with the guidance of your Investment Professional. If you are averse to risk, then less volatile funds are likely the answer (although returns tend to be lower).

4. Once you’ve assessed your investment objectives, don’t delay purchasing the selected mutual funds. Get started early. Research has verified that attempting to ‘time’ the market doesn’t work. There is no better time than the present to begin. This way, you’ll be harnessing the power of compounding over a greater time period to make your investments grow.

5. Invest in your mutual funds regularly, not just once a year during RRSP season. Set up a schedule with your Investment Professional. Even if you can only contribute small amounts to your mutual fund investment program, you’ll still be ahead of the game. Consider it a regular part of your monthly budget, such as rent or the mortgage. A pre-authorized chequing plan (PAC) is your easiest and most direct way to execute this – whereby a set amount of money is deducted from your bank account. This method gives your money more time to grow tax free, and the difference is remarkable. Suppose you put $500 per month into an RRSP mutual fund over 25 years. If your fund grows 8%, you’d end up with $454,500 – or $15,850 more than if you made the same investment at the end of each year.

In summary, by following these simple but important steps, your financial future is poised for optimum growth. Every mutual fund investor should remember that planning, patience, and a long-term outlook are the cornerstones to success for the wisest investors – and for good reason – it works!

This article was prepared by Fidelity Investments for Andray Domise, Independent Financial Advisor, who is an Investment Professional with International Capital Management, Inc.

Read a fund’s prospectus and consult an investment professional before investing. Mutual funds are not guaranteed; their values change frequently and past performance may not be repeated. Investors will pay management fees and expenses, may pay commissions or trailing commissions, and may experience a gain or loss.

In the 1920’s, when Canada established a retirement age of 65, life expectancy was only 61. Not many people were expected to survive and collect pensions. Now however, life expectancy is 78, which means the average Canadian will depend on benefits and investment income for over 10 years.*

These new realities point to the importance of having a healthy heart at the centre of your portfolio – something that will grow with you, providing for the long years ahead. Many investors are now favouring a well-managed mutual fund—one that focuses on Canadian equities.

That’s because equities (or stocks) have consistently outperformed the other two asset classes – bonds and money market investments – over the last 50 years. And, by choosing a well-managed fund, whether all-equity or part-equity—as in an asset allocation fund, investors can spread their risk over a number of securities that are continually monitored by a professional mutual fund investment manager.

In the past, many investors were content to hold “low-risk” investments such as GICs and Canada Savings Bonds. The returns, however, were not always enough to keep pace with inflation and pay the taxes. As a result, investors weren’t gaining very much at all, which meant the heart of their portfolio wasn’t as healthy as it could be.

Today, investors are looking to, both equity and asset allocation mutual funds, to put them in a more favourable position. These funds have the potential to outpace inflation and still have enough left over to achieve long-term goals.

There are a number of different Canadian equity mutual funds from which to choose: large, mid, and small capital funds, disciplined funds that mirror stock market indices (such as the TSE 300 Index) to name a few. Regardless of which type you favour, the most telling indicator of a fund’s ultimate success is its ‘marriage.’ A good fund will have a strong mutual fund company paired up with a top mutual fund manager.

This combination is critical because a large fund company has the ability to conduct and gather research from around the globe, putting valuable information into the hands of its managers. And that’s when solid investment returns can be made over the long term.

That’s because a talented manager digs deep, analyzing the data for clues that other managers may miss. Then, they go well beyond the data to make informed decisions for the investors who hold units in the fund.

In the end, as we begin to take increasing charge of our own destinies, it behooves us to consider the benefits of a well-managed Canadian equity mutual fund. That’s because, along with a solid asset allocation fund, it can provide a key component to the healthy heart we’ll all need in our investment portfolios to carry us into the long and rewarding years ahead.

This article was prepared by Fidelity Investments for Andray Domise, Independent Financial Advisor, who is an Investment Professional with International Capital Management.

*Source: Boom Bust & Echo, David K. Foot, Macfarlane Walter & Ross, Toronto, 1996.

Read a fund’s prospectus and consult your investment professional before investing. Mutual funds are not guaranteed; their values change frequently and past performance may not be repeated. Investors will pay management fees and expenses, may pay commissions or trailing commissions, and may experience a gain or loss.

There’s a lot of misinformation floating around about how certain assets are taxed when the owner dies.  I’ve heard tell that RRSPs are not taxed if beneficiaries are named on the RRSP application.  This is only partially true and if you think you’ll be able to leave RRSPs to your adult child with no tax consequences, they are in for an unpleasant surprise. 

I’ve also heard tell that the principal residence passes free and clear to the named beneficiary.  This is also only partially true.  The principal residence isn’t taxed at death but it is still part of the estate and thus subject to probate fees.  There will very likely be some price to pay on the principal home.

Let’s start with RRSPs.  RRSPs aren’t just passed to the beneficiary tax-free unless they qualify as one of the following:

1. Your spouse
2. Your financially dependent child or grandchild under 18 years of age
3. Your financially dependent child or grandchild, of any age, who is physically/mentally disabled

We’ll call the people in this category “qualifying beneficiaries.”

When you pass away your RRSP assets are deemed disposed, meaning that you have sold all of your RRSP assets at their Fair Market Value (FMV).  The entire amount of your RRSP savings is then added to your income for the final tax return.  Your estate is then responsible for paying the taxes on that RRSP.  If you have been a diligent saver and have a large amount of RRSPs to pass on, they will likely be taxed at a high marginal tax rate (MTR).  One of two things will happen:

1. The other savings/investment assets in the estate will have to be used to pay the tax bill first, before being passed on to your non-qualifying beneficiaries; or
2. The tax bill will be subtracted from the RRSP assets

Either way, Canada Revenue Agency will get its share.

Next, your principal residence.  This situation gets messed up when people try to avoid paying a bill.   Your principal residence is not taxed when you pass away.  If you leave your principal residence to your children, they will not get a tax bill.  However, the residence is part of the estate, so there will be probate fees.  In Ontario, those fees are 0.5% on the first $50,000 of estate assets and then 1.5% on any amount over $50,000.

Example: if your entire estate is valued at $500,000, you can expect to pay $7000 in probate fees.

In order to avoid paying the probate fees, it has become popular to name children and other beneficiaries as joint tenants.  This is where people often get burned.  When you name a non-spouse as a joint owner on your property, they are now a 50% owner of that property, meaning that you have just given away half the ownership rights of that property.  If you sell the property and your adult child doesn’t live in the home with you, they are on the hook for the taxable capital gains resulting from the sale.  Normally, a principal residence exemption would apply on capital gains resulting from the sale of the home.  However, that exemption becomes totally non-existent for your joint owner’s half of the interest in the home for every year the joint owner does not live in the home with you.

Additionally, if they have outstanding debts, their creditors can now come after their interest in the property.  Your property.  Worst of all, if your adult child gets taken to the cleaners in a divorce case, their 50% interest in the home is fair game for the ex’s lawyers.

And all of that doesn’t even consider the cost of the legal paperwork to put their name on your home.  Ask yourself if all of this risk is worth avoiding the probate fees.

Here’s an example of how an “equal” share of assets in a will can quickly become unequal:

Jim, a resident of Ontario, passes away.  He owns a mortgage-free home worth $500,000, a mutual fund portfolio worth $500,000 and an RRSP portfolio worth $500,000.  The adjusted cost base (ACB – the net cost of building that portfolio, including contributions) of his portfolio is $250,000.  He sets up joint ownership on the house with his son Jack, leaves his RRSP portfolio to his daughter Jill, and his non-registered mutual fund portfolio to his other son Jesse.  Here is a basic rundown of what will happen (not including deductions, credits, etc.):

Probate fees on $1,000,000 estate: $14,500

Tax payable on $500,000 RRSP portfolio (46.41% MTR): $232,050

Tax on $250,000 capital gain in the mutual fund portfolio (46.41% MTR): $58,012.50

The taxes and fees payable ($304,562.50) will be subtracted from the non-registered mutual fund portfolio.

So Jack will receive the $500,000 home, Jill receives the $500,000 RRSP portfolio, and Jesse receives only $195,437.50.  Granted, it’s nearly two hundred thousand more than he started out with, but this kind of unequal distribution is what leads to nasty estate disputes (and even lawsuits) between family members.  Is that really what Jim wanted for his children?

Is that what you would want for yours?