Managed Money Reporter Newsletter — Issue 191, January 2003

Editors: Carl Spiess & Allan McGlade

Featured Articles

RRSP Special Report - Who Contributes?

Each year we hear shocking news about how little Canadians are contributing to RRSPs.  According to Statistics Canada, only 2% of Canadians have actually used up all of their RSP room, and only 20% make an RSP contribution in any particular year.  

Of those that do contribute, the average RRSP contribution is around $4,500.  If you make regular  contributions, you may feel that you are in a small minority, and wonder what the rest of Canadians will do at retirement.

However, those numbers include all Canadians.  (Retirees, children, members of generous employer sponsored Pension Plans and people earning less than $20,000, should not actually be contributing to RRSPs.)  So when the statistics calculated based on the number of people who can and should make RRSP contributions, the statistics look a lot better, with numbers indicating that around two thirds of Canadians who should be contributing to RRSPs, do so.  The Fraser Institute published a good article on this recently.

Your RRSP Investment Options for 2003 - What To Do?

How Much to Contribute?

We continue to recommend that individuals use up as much of their RRSP room as possible each year.  Your RRSP room will be shown on last year's Notice of Assessment from the Canada Customs and Revenue Agency (CCRA). Can't find your Notice of Assessment? Not to worry - you can also find your RRSP room on the CCRA TIPS page. We have a minimum recommendation of saving 10% of gross income (the "pay yourself first" rule).  If you contribute regularly to your RRSP through a Pre-Authorized Plan, then most of your RRSP decision has already been made.  

What is the Deadline?

Consider Friday, February 28th to be your deadline for making an RRSP contribution.  (Technically Saturday, March 1st is the end of the first 60 days, and as, such CCRA has confirmed that contributions can still be accepted on Monday, March 3rd.)  Why leave it to the last minute though, when there are so many easy ways to contribute?

How to Contribute?

ScotiaMcLeod has many ways to make contributing easy.  Of course, you can use our handy RRSP Order Sheet and mail in a cheque.  You can also use Scotia Online to make your contribution, if you are already signed up.  Finally, you can arrange a cost effective RRSP Catch Up Loan at prime lending rate (4.5% as of January 20, 2003) from Scotiabank, and have the loan proceeds deposited to your ScotiaMcLeod RRSP account.

Tax Splitting Opportunities?

A spousal RRSP allows you to get the tax receipt, but put the money in an RRSP in your spouse's name, allowing income splitting at retirement, if you spouse will have a lower tax rate in his/her retirement years.  Click here for more information.

In What Should You Invest? 

As always we will be pleased review your current investment holdings, and provide specific comments and advice for this year's contribution.

We will begin with a review of your Asset Allocation.  If you are low on bonds or GICs, we will likely recommend laddering some new bonds with maturities in years where you currently have no others coming due.

If you are very high in your bond holdings, we will look at adding Canadian or foreign equity funds, with an overall view to equalizing your exposure to Canadian and foreign markets.

If you mention that you are worried about this year's tax situation, a Labour Sponsored Investment Fund (LSIF) as profiled last month may be the right solution.  For many investors, the LSIFs which have the 12 year principal repayment feature may be the right vehicle.  (See this page on the Venturelink Diversified Balanced Fund - defunct link - content kept for archival purposes.  Scroll down to the bottom of the page where they show how their fund buys a strip bond with half the portfolio, and invests the rest. You wind up getting a 30% tax break to buy a AA rated bond!)  As always, the normal labour funds have good growth potential, but have risk and do need to be held for 8 years.  LSIFs are appropriate for up to 10% of your overall portfolio.

The best part of using an asset allocation process for your contributions, is that we ensure you are topping up any under performing asset classes.  For example, if your asset allocation was set perfectly last year, you are now likely weighted heavier in bonds, and lighter in stocks due to the out performance of bonds over stocks in the last 12 months.  Thus, we would be adding to stocks this year, buying in when the markets are low.

No matter what your situation, we will review your portfolio and provide advice that is appropriate for your needs, your present investment holdings, and the current market environment.

Recommended Reading

Clients who use ScotiaOnline and asked to be included in regular emails from "The Vault" will have seen the recent article on Asset Allocation.

If you missed the article we recommend you take a look at: Look at your total portfolio to gauge investment success and Ready to invest? Find the right amount of risk first

Investment Profile - Income Trusts

One investment category that has become very popular in the press recently are income trusts. They are not new, however.  Many real estate income trusts have been available for years and have
performed well.

With posted yields in the 8-10% range and companies that are generally in stable businesses, these investments have become the hottest area for new issues in 2002. It seems every public company is considering converting itself to an income trust but the best candidates are those that generate lots of cash but have poor reinvestment opportunities (eg. resource extractors).

Like all equity based investments however, income trusts have risks. And unlike bonds, there is no principal repayment, making quoted yields somewhat suspect.  Each of the trusts has unique features and require thorough analysis (click here for a sample of ScotiaMcLeod's research).  As a result, we recommend against trying to invest in these as individual securities, but rather have a professional manager select and monitor the best ones for you.

Several funds hold income trusts as a portion of their overall assets, and there are now several pure income trust funds. While this is our annual RRSP issue, we would also comment that these funds are often best held outside the RRSP.   Click here for a listing of available income trust funds and their recent performance.  The Dynamic Focus + Dividend Income Trust fund has been the best performer over the last 12 months.

One particular fund that is worth mentioning is the Acuity High Income fund, which is also available in a low management fee pooled fund version for accounts over $150,000.

Staff Profiles - Jane-Ann Crombeen & Fiona Ali

Your Investment TeamIn 1993, there were 4 team members that were assisting John Zufelt and Carl Spiess serve their clients and assist in their duties as editors of the Mutual Fund Reporter.

We profiled the whole team in Issue 81 of the Mutual Fund Reporter.  Some 10 years and 110 newsletters later, it is exciting to report that all four of the original team members are again helping to serve the same clients they have helped for so many years.

Jane-Ann Crombeen has returned from maternity leave (now that her twin girls are over 1 year old) and will be resuming her Investment Associate role within the team.

Fiona Ali, has returned (now that her boys are in school) and will be handling special projects on a part time basis.

I urge the clients who enjoyed dealing with Jane-Ann and Fiona in the past to be sure to ask for them next time you call.

Incidentally, of the five staff we had in 1994, all five continue to work together.  Clearly our team enjoys working together and serving our clients.  In a world where so much is changing, this kind of consistency is very reassuring for everyone!

Fund News - Scotia Partners Portfolios

In keeping with this month's theme about Asset Allocation and diversification, Scotiabank recently announced their new Scotia Partners Portfolios. These portfolios use top fund managers to provide diversified vehicles for investors who don't want to make too many decisions about their investments.  See a recent Morningstar article for more details.

Many of these fund combinations are ones that ScotiaMcLeod clients already hold. You, as ScotiaMcLeod clients, have had access to these top fund managers for years.  It is good to know that other Scotiabank clients now have access to them as well.  Please contact us if you have any questions about these funds.

Mutual Fund Reporter Recommended Webpage of the Month 

This month, we are featuring one of the most popular pages on our own website - our "Forms" page.

If you are looking for a quick way to transfer one of your other RRSPs to ScotiaMcLeod, or a form to help you make this year's RRSP contribution, please visit our Forms page:


Contact Us

T.  416.863.RRSP (7777)
F.  416.863.7479

ScotiaMcLeod is a division of Scotia Capital Inc., member of CIPF.

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