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Vancouver, B.C. (January
29, 2001): Much has been written about
RRSPs, especially on which securities to select
for your plan. This time of the year brings no
shortage of expert RRSP advice.
However, fee-only investment counsel
and financial advisor Adrian Mastracci
says that, "Investors spend far too much time
on the selection process and not enough time on
the investment policies and strategies they will
follow to reach their unique RRSP goals."
Mastracci, president of Vancouver
based KCM Wealth Management is often asked,
"What is the best way to manage my RRSP?" He replies,
"Managing your RRSP is a marathon, not a 100-yard
dash. The proven and consistent approach to create,
grow and retain your RRSP wealth is with the long-term
investment perspective."
Mastracci begins with this question
for each investor, "What is important about
the RRSP to you?"
- Is it a comfortable retirement for you and
your family?
- Is it your major investment?
- Is it the only form of "pension" available
to you?
- Is it the preservation of your present nest
egg?
- Is it long-term growth of your RRSP?
- Is it minimizing your income taxes?
Mastracci comments, "Every investor
can have different answers to this question. However,
everyone should have a comprehensive game plan
for both their RRSP and non-RRSP portfolios."
He goes on to say, "Asset allocation
decisions have a far greater impact on your RRSP
portfolio than any other factor."
Mastracci's philosophy on developing
the long-term RRSP game plan includes some key
points:
- Do your homework before you invest. Park the
funds temporarily until you have all the answers.
- Start the process of deciding on your personal
investment policies and strategies by considering
your unique goals, your risk profile, your time
horizon and your desired level of diversification.
- RRSP asset allocation is vital on a total
portfolio basis; thus, relate your investments
to personal goals.
- Your RRSP is a form of pension. Therefore,
be very aware of the level of risk taken, the
qualifying investments, and foreign content
decisions. This is especially important to investors
who do not belong to an employer sponsored pension
plan, as it may be their only form of pension.
- Some benchmarks of investment success are
the TSE 300, the CSB rate, or the best performing
mutual funds. However, none of these are relevant.
The only important one is your personal rate
of return required to reach your unique financial
independence and retirement goals.
- Your unique personal rate of return becomes
your minimum investment benchmark. Is yours
5%, 10%, 15% or have you reached your goal?
Nothing else matters.
- As an example, consider a man age 47 wishing
to retire at 60 with $75,000 of before-tax annual
income in today's terms for the rest of his
life. He needs to accumulate about $2,000,000
by age 60. A woman of the same age needs about
$2,200,000 simply because she lives longer.
- The determination of whether you are a conservative,
income, balanced, growth, aggressive, or speculative
investor will clarify the composition of your
RRSP portfolio.
- It is common for many RRSPs to exceed $300,000
to $500,000. Accordingly, it is critical to
spend sufficient time on your policies and strategies
before you select any investment.
- The investment selection process has taught
many that chasing the best performing, hottest
funds is an excellent lesson on how to get burned.
This has particular ramifications in your RRSP,
as capital losses become "real losses" because
there is no offset against gains for tax purposes.
Mastracci prefers that, "RRSP investments
not be selected from the school of 'stuff happens'
- that is, when no one can explain why the investment
was bought." More important, "RRSP management
philosophy is very similar to building your home
- the blueprint comes first."
Mastracci summarizes, "Investors
that concentrate on the investment policy and
strategy aspects of their RRSP game plan make
better investment selections for their portfolio,
and are rewarded with returns more in keeping
with their expectations."
Last question, "What is important
about the RRSP to you?"
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