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| Adrian Mastracci, president of
KCM Wealth Management, says "It's truly a marathon,
especially since the funds are designed to last
the investor's lifetime and perhaps also the spouse's
lifetime." |
By: Michael Kane
The Vancouver Sun
RRSP Extra
Wednesday, February 12, 2003
Financial consultants advise investors, some of whom
had retirement plans delayed up to five years, to keep
emotions in check.
While many of us long to build a fortune in a 100-metre
dash, managing an RRSP requires the staying power of
the long-distance runner.
It’s truly a marathon, especially since the funds
are designed to last the investor’s lifetime and
perhaps also the spouse’s lifetime, says Adrian
Mastracci, fee-only investment counsel with Vancouver’s
KCM Wealth Management Inc.
If you are longing for the investment returns of the
‘90s and that over-all sense of feeling wealthy,
it’s time to let go of the past and focus on the
future, says Winnipeg-based Greg Bieber, an investment
behaviour consultant.
The decline in stock markets to their 1998 levels has
delayed the retirement plans of some investors by as
much as five years. Current retirees are now compromising
their lifestyle because of reduced income from a lower
capital base.
“Yet it is important for investors to check their
emotions to keep from making rash decisions,”
Bieber says.
He sees a similarity between today’s longings
for good times past and the inflationary ‘80s
when investors favoured one-year through five-year guaranteed
investment certificates. They hoped interest rates were
going to return to previous highs of 20 per cent and
waited for a time when they could lock in for a longer
duration.
“That was just another form of market timing
and it took a decade or more of that kind of thinking
to work through the minds of investors,” Bieber
says.
“People need to drop the emotional baggage and
learn from the past. Pining for what could have been
– ‘if I had only followed by gut and sold
two years ago’ – only magnifies the emotional
pain and inhibits keeping the process in place that
maintains and/or furthers wealth creation.”
Ask yourself if you will have enough capital to generate
the income necessary to preserve your lifestyle. If
not, it’s time to make some adjustments to your
expectations and your investment plan.
Mastracci offers five steps to assemble an appropriate
RRSP strategy:
Establish your RRSP goals.
Your RRSP portfolio is influenced by how close you are
to retirement, your age, your appetite for risk, and
your investment personality.
It is also affected the capital and saving capacity
available for investment and the rate of return required
to achieve your investment goals.
Establish your appropriate investment
mix.
Studies show asset allocation decisions have the biggest
impact on RRSP portfolios. Asset allocation is the combination
of asset choices such as cash, bonds and equities. It’s
also about choices such as large versus small companies
and value versus growth.
An investor’s profile does not usually change
quickly and a diversified portfolio incurs less risk.
Remember, even at age 65, your investment time horizon
could easily be 15 to 20 years.
Stop chasing yesterday’s
winners
Stop chasing the best performing stocks and mutual funds.
It’s an excellent way to get burned.
A portfolio which emphasizes consistent returns will
serve you much better than one which emphasizes hot
performance.
Know when to cut your losses.
Making RRSP portfolio selections is not about always
being right. Part of investing is about coming to grips
with being wrong.
Understand that a capital loss in an RRSP becomes a
real loss because there is no offset against any capital
gain.
Some investors choose to concentrate fixed-income investments
inside the RRSP and equity investments outside where
capital gains face lower tax rates.
Astute portfolio managers admit to being wrong. What
is most detrimental to RRSP portfolios is not incurring
losses but keeping them far too long.
Adopt a loss strategy, such as a 30 per cent drop and
out. Think of Nortel, Enron, Lucent, Yahoo.
Accumulate, accumulate, accumulate.
Accumulate as much and for as long as you can inside
your RRSP. Don’t worry about the taxes you will
eventually face years from now. It will be a nice problem
to have.
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