Adrian Mastracci, president of KCM Wealth Management, says “The fixed income strategy, especially during lean interest rate periods, is important for a portfolio’s financial health. It is critical for a retiree who relies on the portfolio to provide ongoing income needs.”

For Immediate Release

Vancouver, BC (July 7, 2003): Notable changes have surfaced in the world of interest bearing investments in the past three years.

Adrian Mastracci, investment counsel & president of Vancouver's “fee-only” KCM Wealth Management, comments, “All categories of interest rates have been reduced, especially the short-term ones. While this is terrific for borrowers, it presents great challenges for investors who depend on their portfolios for income.”

Mastracci goes on, “The interest rate declines have affected all income portfolios. Personal and business accounts, RRSP’s and RRIF’s, pension funds and family trusts have all suffered the reduction in income. Investors in retirement are affected the most.”

“Income portfolios will have to adjust investment strategies to make the best of the current times,” says Mastracci, “Just examine the rates below to get a sense of the painful decline.”

Mastracci illustrates the interest rate damage since mid-2000:

NOTE: All rates above are from the same institution for non-redeemable Guaranteed Investment Certificates, paying annual compound interest, minimum investment of $1,000.

“This decline clearly demonstrates the significant impact inflicted on income oriented portfolios in such a short time,” points out Mastracci, ”Fixed income yields have slipped by about half in as little as three years.”

“Say someone had started a fresh 5-year fixed income ladder in mid-2000. Their average yield would have been approximately 5.3%,” observes Mastracci, “Now compare that to someone starting the same ladder today. The average yield would be a paltry 2.4%, or about 55% less.”

“The yields on other fixed income components, such as government and corporate bonds, have also slipped in a similar fashion over the three years,” notes Mastracci, “Not to mention yields on regular savings accounts.”

“Clearly, this has affected, and will continue to affect retirement plans,” indicates Mastracci, “Investors now contemplating retirement are concerned about the path they are about to embrace.”

Mastracci offers these comments for income portfolios:

• Review the investment expectations. Re-assess all investment policies and strategies to reach the chosen destination.
• The fixed income component is the stable part of the portfolio return. Therefore, make sure that the income generating portion is prudent for the situation.
• Studies show that asset mix decisions have the greatest impact on portfolio returns. They explain, on average, 94% of the contribution to total return.
• If asset mix is not the focus in the investment portfolio, it ought to be.
• A ladder of interest rate maturities offers protection against the ravages of gyrating interest rates.
• Review the investment horizon when structuring a ladder of interest rate maturities to match portfolio needs.
• Investors who hold large cash resources in short-term instruments often wait too long before they initiate suitable investments. Examining the appropriate steps to achieve a variety of suitable maturities assists the plan.
• Investors contemplating retirement, or in the midst of it, ought to be careful about choosing instruments that offer low quality. While the increase in yield is tempting, it may not be sufficient compensation for the added risk.
• Inquire about which guarantees, if any, apply to interest bearing vehicles being considered.

“The fixed income strategy, especially during lean interest rate periods, is important for a portfolio’s financial health,” summarizes Mastracci, “It is critical for a retiree who relies on the portfolio to provide ongoing income needs.”

“Saving more for retirement is becoming a higher priority for many,” concludes Mastracci, “While the dismal fixed income yields are not expected to last forever, time is required before improvements are expected to occur.”

NOTE: The information provided above is intended for general informational purposes only. It does not constitute advice for anyone's specific situation. Everyone should always first consult directly with their advisors to determine the appropriateness of any information contained above before taking any action. KCM Wealth Management Inc. assumes no responsibility for any loss or damage arising from the use of, or reliance upon the above information.