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By Nancy Truman
Financial Post
RRSP Preview
December 5, 2001
More than ever, investors are searching for safer investments for
their registered retirement savings plans. The events of Sept. 11
and the ensuing layoffs in many sectors of the economy added fuel
to an already volatile financial marketplace.
For investors looking for 100% security and a sense of patriotism,
Canada Savings Bonds and their no-fee registered options could be
that safe product. However, at their current low rates of return,
they
are not for investors looking for top performance.
Maureen Bird, financial advisor, says although she has not sold
any in the past, they are an investment "people buy for the
sleepability factor." Investors are getting a 100% guarantee
on their investment, while investing in Canada. On Nov. 1, she got
a better rate on one-year cashable guranteed investment certificates
from a Canadian bank.
The Government of Canada-sponsored plans, Canada RSP and Canada
RIF, allow investors to hold the more liquid Canada Savings Bonds
and longer-term Canada Premium Bonds in a registered plan. Investors
can also buy and hold them in a self-directed registered plan.
For the Canada RSP, Jacqueline Orange, Toronto-based president
and chief executive of Canada Investment and Savings, says the CPB
is the more appropriate instrument because of its escalating rate
feature. Both bonds mature after 10 years but the CPB is priced
for only three years at a time. Therefore, there is an incentive
to hold the bond for at least that period because of the guaranteed
return of, for example, 2.8% a year on the 2001 CPB series.
The CSB pays 1.35% as of Dec. 2. The CPB, which pays a higher rate
of return, has a payout schedule for the series released on Jan.
1, 2001, of 2% for the first year, 2.5% in the second year and 4%
in the third year.
Ms. Orange says early indicators show sales of the bonds are doing
as well this year as they did last year. They see 75% to 80% of
their sales in October. For the fiscal year ended March 31, 2001,
total sales for CSBs were $1.5-billion and CPBs garnered $1.8-billion.
However, Adrian Mastracci, president of fee-only investment
advisor KCM Wealth Management Inc. in Vancouver, prefers
other investments for portfolios that concentrate on an income strategy.
For clients with an income component
in their RRSP, Mr. Mastracci recommends
a five-year ladder approach
"In the past, CSBs played a bigger role for RRSPs because
their rates were more competitive with other investments. Certainly,
its no-fee, high-quality attributes plus its redemption feature
still make it attractive for some."
For clients with an income component in their RRSP, Mr. Mastracci
recommends a five-year ladder approach. This means only 20% of the
portfolio matures every year for five years.
Unless investors need a portion of their RRSP to be redeemable
on short notice, he says a CSB is generally a less-attractive investment
than GICs, bonds or strip coupons, because the latter pay higher
rates of return.
One attractive feature is that investors who already own CSBs or
CPBs and who have RRSP contribution room available, can contribute
those to their Canada RSP at any time.
There is a minimum contribution amount of $500 per series for the
RRSP or RRIF options. Contributors do not receive a certificate;
instead, semi-annual statements are sent to holders of a Canada
RSP and quarterly statements for the Canada RIF.
Investors in a Canada RSP will receive a notice from Canada Investment
and Savings at the end of the 10 years, at which time they can decide
whether to turn over the proceeds. After the maturity, there is
no interest on the bond.
The CPB is cashable once a year on the anniversary date of purchase
and up to 30 days after that date. CPBs held within a Canada RIF
are redeemable at any time for regular periodic payments.
There is always room in a balanced portfolio for CSBs and CPBs,
Ms. Orange says. "Especially in this environment, you don't
want to lose capital and they are 100% backed by the Canadian government."
The no-fee feature means the interest rate is not reduced further,
as with some other income investments, she adds.
The bonds and Canada RSPs can be bought online at www. csb.gc.ca,
or call 1-888-773-9999, or through a bank or investment dealer until
April 1, 2002
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