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p28 weekender may i 193 house and growth funds arent mutually exclusive while a record number of canadians have purchased a record amount of mutual funds so far this year millions of cana dians continue to shy away from mutual funds and stocks because they fear they will even tually lose their money its a natural fear especially in canada where we are generally considered to be a very cautious lot but its the wrong one if youve ever owned a house you should also consider stocks and mutual funds they are all assets historically good quality assets rise in value given your money brian costello enough time how much is any bodys guess but based on past performance you can expect to make a reasonable rate of return when you own real estate stocks and mutual funds the term reasonable is important as interest bearing investments dont offer the rates of return weve become used to throughout the 1980s the house is a key comparison even with a decline in house prices thanks to the recession few people have lost money on their house purchase and if you live in it you get an extra advantage when the value rises which it almost always does over a reasonable period of time you can say that you lived there for nothing in fact you made a tax free profit every body i mean everybody should own a principal residence they rise in value and they do it tax free with rental real estate we no longer enjoy tax free capital gains however its still a popular choice as prices normally rise and you enjoy regular cash flow from rents and tax relief from operating expenses the key point though is that we buy real estate because we feel comfortable that we wont lose our money for example lets turn the clock back to 1967 our centen- imports arent worth a grand am now look ai 1 rill grand am good price yourpontiac performance dealers purchase price lor grand am se swan equipped as otkrotd wiin casti tuck applied cain oack includes gst f renjni 550 wence insurance gst and n applicable laetnot included dealer order or iradt may be necessary omi may sen lor less imwtd lime tiler starting irom march 2 1993 ohercanrkiirccnibimkjranyoimrmrceplcoiicjgroatef 1s4tdeaurrorcompk1edtmlt nial year an average house purchased in toronto at that time for 24078 is today worth 214971 based on the multiple listing service numbers thats an increase of 79281 per cent remember also that this is tax free if its a principal resi dence and much of the gains earned prior to february 1992 would be tax free if this was a rental property obviously real estate as an asset pays off as a comparison though its important that we consider what inflation has done to the value of our money if your 24078 in 1967 has not escalated to at least 11547574 in todays dollars you have lost purchasing power thats correct weve lived through almost 380 per cent inflation from 1967 until now and dont forget that taxes will also play a roll here you need 11547574 after tax to match inflation one alternative might have been a term deposit or guaran teed investment certificate according to the bank of cana da review a five year gic pur chased in 1967 for 24078 would today be worth 25025931 thats a gain of more than 939 per cent in the last twentyfive years remember though that interest is fully taxable the return of the original invest ment is tax free but the remain ing 226000 is taxable just to match inflation you need 11547574 so your real profit is not going to be large initially it looked like the gic was going to outperform real estate but after taxes are con sidered its obvious that owning the asset paid off now lets consider a mutual fund while there are 700 or so in canada ill use templeton growth fund it has a long and highly visible track record 24078 invested in templeton growth in 1967 is now worth 127983276 thats a gain of 5215 per cent over the past quarter century while you still have to consider inflation you do get some tax breaks with mutu al funds they often pay some interest which would be fully taxable however the bulk of the income from quality mutual funds comes from dividends and capital gains dividends qualify for the dividend tax credit that reduces the tax obligation sub stantially and capital gains from stocks and mutual funds still qualify for the 100000 tax free capital gains deduction many of the capital gains earned in earlier years would have been taxed when capital gains were taxed at 50 per cent of our normal tax rates regardless the numbers are overwhelmingly in favor of the mutual fund heres the part i have trouble with many people say they dont want to buy stocks and mutual funds because they arent guaranteed they might lose their money yet theyll buy a house in this example the mutual fund is now worth five times more than the house the mistake is looking short term yes stock markets will go up and down from time to time but in the long term assets will outperform interest bearing investments the trick is look ing long term and spreading your risk around