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The Canadian Champion, Frnday, February 4, 2000-31 Estat & Financial Planning The Pros And Cons 0f Investing In à"Seg", Funds (ILC-Many people will be attracted this RRSP seasan ta fund investmants that are marketed with the promise of a "guarantea," What you should know before you buy ana of these, is that you are not completely covared against losing your money. n most cases thase funds-called segra- gated. guaranteed or protected funds- will -only give you back your original investment after 10 years or on your death. If you withdraw your money in lest than 10 years, you stand ta lose money and get back lest than you invasted. The chances of losing monay in thesa funds is highest if you need ta withdraw your money, after jutt a short while. The risk diminishes the longer you hold the investment. That's becausa these funds are invested in stocks or bonds that flue- tuate in value, which in turn affect the value of your investment in the fund. What Are The. Costs 0f These Funds? Most of these funds are really juat mutual funds with insurance policies attached. As with mutual funds, there are ongo- îng costs you pay ta the fund manager, including a fea ta manage your money. These costs are known as the Management Expense Ratio (MER). The MER on many seg funds is typically highar than for ordinary mutual funds. This refleets the extra cost for the insurance. The insurance premium may add as much as 1 percent or more to the MER on an equity seg fund issued by a mutual fund company. Seg funds offered directly by insurance companies are typically lest expansive and compare favourably with traditional mutual funds. Howaver. a more variable cost are the sales commis- sions or "loads" insurance company seg funds charge. These have historically been higher than for regular mutual funds, and somne seg funds still lavy both a sales charge when you buy and a sales charge when you seli aven though this practice has been abandaned by mast of the f und industry. Given the higher MERs and salas com- missions for many seg funds, the question to ask yourself is do you naed the insur- ance guarantea, and if you do, what price are you prepared to pay? Since stock markets have historically risen over the long tarm, the likalihood of actually needing the guarantea ta get your original capital back after 10 years would be small. Consultants William M. Mercer found thare's a 2 percent likali- hood of losing monay in tha stock markat ovar 10 yaars. Of course, this is no guar- antea that history will repaat itself. Some companies salling segregated funds offer a "freeza" option. If your fund's value rites, you hava the ability to lock in that naw, higher value as the guaranteed amount. The guarantea date would then be reset to a new date 10 yaars dlown the road. So yau would have to wait another 10 years ta actually get that naw guaranteed amount, although your benaficiary; of course, wauld collect sooner if you died. Baware that the guarantea, depending on the policy, may be reduced ta 80 per- cent or tomae othar percentaga once you reach age 90, for example. Yau can't buy toma of these policies after you turn 80. When the 10 years is up, you can leave your money in the seg f und, gat your monay out or convert it into an annuity. The name "segregated fund" cama about because the assets in the f und are held separately from the insurance com- pany's other aýsets. Segregated funds are alto raferred t&.es "individual variable annuity contracts" or "variable insurance contracts.", What Are The Unique Features 0f A Seg Fund? if you dia, the segragated fund, unlika other investmants, goas directly ta your benaficiary without your province charg- ing probate fees. Sagregatad funds can giva you protec- tion from craditors, if the policy names an immediate family member as beneficiary. This may be particularly useful if you are self-amplayed. This protection may be aost if a court found you had set up the seg fund to avoid your debts. Remember that while they offer bene- fits, intured funds are flot a solution to volatile markets. Seg funds might meet your needt if: *You are retired, or close to retire- ment, and worried about risk. *You want some equities in your polt- folio, but you know volatile stock markets will keep you up at night. *You want ta pravide for someone after your death. 91Pratectian from creditors is important to yau. Seg funds might flot suit you if: *You are young and have many years for your savings to grow. *You don't believe the equity markets will drop for a 10 year period. *Estate planning is flot a concern. (More details on investment basics are available from the not-for-profit Investar Learning Centre of Canada (ILC) in their plain-language Bottom Line Guide To lnvesting. You can order it for $9.95 by credit card by phoning 1-888-452-5566, or by visiting the ILC Web site at www.investorlearning.ca.] Investor Learning Centre 0f Canada 1 MONEY4 Linda Myronyk " How RRSP's work as a tax shelter " Spousal RRSP's and incomne splitting DATES February 8, Tuesday February 15, Tuesday " Make your RRSP grow faster " RRSP contribution limnits TIME 7:30 - 8:30 p.m. " Are "self-directed" RRSP's for you? e Increase foreign content with clone funds PLACE MONEY CONCEPTS MILTON 420 Main St. East (Above Harvey's) Affiliated with Money Concepts Croup Capital Corp. and National financial Marketing Services insurance Agency lnc. ADMSIN SFE Get the straight facts about RRSP's INVESTING FOR THE MILLENNIUM Bob Reid, CFP Recent market trends suggest that 2000 will continue to be volatile f'or equity and bond markets. Is your RRSP, or other investments for that mat- ter, equipped to deal with these fluctuations (up and down) and assure you of the capital required to fund your retirement? THIS IS NOT ABOUT RRSP'S There are several strategies that can be employed ta reduce volatility. One way is to establish a monthly contribution plan and inveat a tixed number of dollars each month. Even if you have sufficient funds ta make a lump- sumn purchase now, this can be effective strategy. Essentially this approach takes the worry out of whether the markets will go up or down after your initial purchase and you wind up at the end of the year with a cast base that is the average price of aIl the monthly purchases. By choosing to create a retirement plan and to t'ollow a disciplined approach to investing your sav- inga, you enhance your chances ta enjoy a succesaful and enjoyable retire- ment. IT'S ABOUT YOUR RETIREMENT PLAN! Did you know that my office is equipped to provide you with an RSP loan, usually with instant approval? Great advice, great service and now, great convenience too. DONALDSON-, Bob Reid, CFP FI N ANCIAL GRO UF Suite 101-310 Main Street East Milton. Ontario L9T 1P4 Voice 905-t75-3366 fax 905-875-3574 e-litait reidb@ocg.cew nR~ INV.STMENT CENRE