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| Adrian Mastracci, fee-only
investment counsel says, "It's critical
to spend sufficient time on your strategies
before you select any investment." |
By Adrian Mastracci
Sounding Board
The Vancouver Board of Trade
January 2002 Issue
Much is written about which securities to select for your RRSP.
This time of the year brings no shortage of expert advice.
You've seen these headlines: "The top 10 funds", "The
best 10 stocks", "The top picks", or perhaps "The
10 must have".
But have you really thought about developing your RRSP strategy?
My experience is that investors spend too much time on the selections
and not enough time on the investment policies and strategies they
ought to follow to reach their unique RRSP goals. The same applies
to RRIF's.
I am often asked, "What is the best way to manage my RRSP?"
My reply is that managing the RRSP is a marathon, not a 100-yard
dash. I begin with this question, "What is important about
the RRSP to you?"
Develop your RRSP/RRIF game plan with these key points in mind:
- Make security selection the last item on your list, not the
first.
- Park the funds temporarily until you've developed your game
plan.
- Consider your unique goals, risk profile, time horizon and level
of diversification.
- Determine if you are a conservative, income, balanced, growth,
aggressive or speculative investor.
Asset allocation is vital on a total portfolio basis. Thus, relate
your investments to personal goals.
Your RRSP/RRIF is a form of pension. Be aware of the risks, the
qualifying investments and foreign content decisions, especially
if it is your only form of pension.
Forget chasing the best performing stock and fund. It's an excellent
lesson on how to get burned.
Measure your investment success against your personal rate of return
required to reach your financial independence goals.
Treat your personal rate of return as your minimum investment benchmark.
Is yours three per cent, five per cent, nine per cent, 15 per cent
or have you reached your goal? Nothing else matters.
As an example, a man age 50 wishing to retire at 60 with $60,000
of before-tax annual income in today's terms needs to accumulate
about $1,450,000 by age 60. A woman needs about $150,000 more because
she lives longer.
Don't wait. Make your 2002 deposit early in 2002. Your ending balances
will be higher at retirement.
Many RRSPs and RRIFs exceed $300,000 to $500,000. It's critical
to spend sufficient time on your policies and strategies before
you select any investment.
Stop making your RRSP selections from the famous investment school
of "stuff happens" - that is, when you can't explain why
the investment was bought. Managing your RRSP is like building your
home - the plan comes first.
Investors who concentrate on their RRSP investment policy and strategy
make better portfolio selections. They are also rewarded with returns
more in keeping with expectations. It works for my clients.
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