Managed Money Reporter Newsletter Editors: Carl Spiess & Allan McGlade

Issue 145 March 1999

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Are You Planning to be Wealthy?

Plan Now for Later

"The purpose of acquiring wealth is to enjoy life more." - Dr. Morton Shulman

Do we plan to be wealthy? It's an interesting question. Undoubtedly most of us want to be wealthy, but do we actively plan for it? So often we are too busy making a living - putting money away when we can, and hoping that by the time we get to the age of retirement we'll be able to do some of the things we've dreamed of - to actually plan for wealth. And yet long term planning is crucial in every area of our life if we are to achieve the things we really want. If the purpose of acquiring wealth is to enjoy life more, we should be actively planning, every day, to be wealthy. We should have a road map that we follow, that determines our investments, so that we eventually get to where we want to be.

Only you can determine what "wealthy" means to you. In his novel Texas, James Michener lists the various levels of wealth ranging from "comfortable" ($1 million to $20 million) all the way up to "Texas Rich" ($1 billion to $5 billion). Based on this scale, most of us would probably quite happily settle for being "comfortable"!

What are the strategies that can be used by everyone when it comes to planning for wealth?

1. Make the maximum RRSP contribution possible - and make it as early in the year as possible. RRSPs are one of the few available tax advantages left to Canadians. Not only does your RRSP contribution mean a tax reduction, it also lets you accumulate income on your RRSP savings tax free until income is eventually withdrawn. Don't overlook this important wealth building strategy.
2. Take advantage of lower taxation. Work with your investment expert to build a portfolio (outside of your RRSP investments) that will take advantage of lower or deferred taxation. Remember: all investments are not created equal - it's the bottom line, the after tax dollars, that you should be most concerned with. Investments that pay dividends or capital gains are worth more to you in after tax dollars than the same amount earned as interest which is taxed at your full marginal tax rate.
3. Fight inflation. No matter how much money you have, if it's not invested wisely it will be worth less every year. The only way to keep up with inflation is to grow your assets and that means sometimes having to push yourself to the edge of your comfort zone, your risk tolerance.
4. Invest consistently. Consider setting up a Pre-Authorized Contribution Plan so that pre-approved amounts can be automatically withdrawn from your chequing account each month and used to purchase units of pre-selected mutual funds.
5. Build a diversified portfolio. This should typically be composed of three areas: Cash/Cash Equivalent; Fixed Income; and Equity (growth). Fixed income investments, such as GICs, alone will not help keep pace with inflation. The percentage that equities play in your overall portfolio depends on several factors and needs to be discussed with your investment expert.
6. Seek expert advice. Sharing your plan with appropriate professionals such as your accountant, along with your investment expert will enable them to assist you in realizing your goals.

Questions for Revenue Canada? Try them at 1-800-668-7622!

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Pension Adjustment Reversals (PARs) - deadline extended for 1998 RRSP Contributions

Revenue Canada has announced an extension to the deadline for contributing to an RRSP to utilize PAR room to April 30, 1999.

PARs help to recover RRSP room particularly for individuals who terminate from a defined benefit pension plan prior to retirement. Pension Adjustments for defined benefit plans usually overstate the value of the pension earned to date and thus understate RRSP room. Younger, high income plan members have been acutely aware of this problem.

A PAR is calculated when membership in an RPP or DPSP ends and the amount received from the plan is less than the total pension adjustment (PA) and past service pension adjustment (PSPA) previously reported.

Important considerations:

• The maximum contribution in the extended period is limited to the additional RRSP room created by the PAR
• PARs only apply to terminating or retiring members who choose to take the value of their pension out of the plan
• PARs do not apply on death nor for members choosing an immediate or deferred pension
• Members of Defined Contribution plans and DPSPs who are not vested at termination will have a PAR
• For 1997 forward, PAs for non-vested terminating members of DC-RPPs and DPSPs must include both employee and employer contributions
• PARs must be calculated on conversion of a DB to DC plan
• Windups of DB plans where benefits are fully commuted also result in a PAR even where surplus issues have not been resolved

Beginning in 1999, PARs must be reported to Revenue Canada no later than 60 days after the end of the calendar year quarter in which the termination takes place.

Full details are on Revenue Canada's web page http://www.cra-arc.gc.ca/tx/rgstrd/papspapar-fefespfer/par-fer/menu-eng.html.

Are You Getting a Pension Adjustment Reversal (PAR) for 1998... ...but don't have the spare cash to take advantage of a RRSP contribution? Consider taking advantage of a Scotiabank RRSP loan at prime! Drop by your local Scotiabank to make the arrangements. Remember, the last day for a 1998 PAR contribution to your RRSP is April 30, 1999.

Fund News

Vito Maida was removed from portfolio management responsibilities with Trimark. Vito was the lead manager for both Trimark Canadian and Trimark Select Canadian Growth funds. Senior portfolio manager Ian Hardacre will take over responsibilities as lead manager for the two funds. Trimark will also be looking to hire a second Portfolio Manager to join the Canadian Equity team

Spectrum United Mutual Funds announced that Kim Shannon has resigned from AMI Partners to move to Merrill Lynch Asset Management. Kim, formerly a partner at AMI, had been acting as the portfolio manager for the Spectrum United Canadian Investment Fund.