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15 Ways to Keep More of Your Money

Top financial planners give their best advicefree of charge


BY STUART FOXMAN

re! "eddie and his !ife# A$%# had &the big tal'( in Septe$ber )**+ after !al'ing their dog one Sat,rda% near their Toronto apart$ent- "assing b% all the for sale signs in their neighbo,rhood re$inded the$ of ho! hard it !as for the$ to save for a ho$e of their o!n- Their invest$ent choices had been hapha.ard and !eren/t doing nearl% as !ell as the% !o,ld have li'ed- The% !ere spending too $,ch# and the% had no financial strateg%&0e !ere fr,strated#( sa%s "eddie# a +12%ear2old phar$acist- &0e tho,ght there had to be a better !a%-( Toda%# !ith s,pport fro$ a financial planner !ho revie!ed their b,dget and helped the$ $atch their savings and invest$ents to their goals# the "eddies are $,ch closer to their drea$- The co,ple are p,tting aside abo,t +* percent of their after2ta3 inco$e# vers,s ten percent before# thro,gh an a,to$atic deposit into a savings acco,nt- And the%/re investing $,ch $ore# also !ith their planner/s help# in a $ore foc,sed and aggressive !a%&0e !ent fro$ thin'ing !e co,ldn/t b,% a ho,se for another five %ears to loo'ing for one this %ear#( "eddie sa%s- &0e learned that %o, have to have a good plan in place-( 4i'e the "eddies# $an% people are rethin'ing their financial plans to $a'e better ,se of their $one%- B,t it/s not al!a%s eas%- 0ith the range of savings# $ortgage and invest$ent options available# people are often terrified of $a'ing a $one%2 losing $ista'e- S,ch thin'ing can lead to inaction&5t/s !orse to do nothing#( sa%s ebbie A$$eter# vice2president of advanced financial planning for 5nvestors 6ro,p in 0innipeg- &"rocrastinating can cost %o, $one% in the long r,n-( So ho! do %o, ta'e the right action7 8ere/s !hat so$e leading financial advisors reco$$end to their clients19 steps to saving and $a'ing $ore $one%Saving Basic first steps Before $a'ing an% decisions abo,t !hat to do !ith %o,r $one%# %o, have to $a'e s,re that %o, have eno,gh of it on handDO pa% %o,rself first- &That/s $% $ost i$portant r,le#( sa%s Alison :eene# a senior vice2president and $anaging director of BMO Nesbitt B,rns in ;algar%&Ta'e an a$o,nt fro$ each pa%che<,e and set ,p an a,to$atic savings or

invest$ent plan-( 8o! $,ch to p,t aside7 Ma%be ten percent of %o,r gross# b,t don/t spread %o,rself too thin- &After a !hile %o, !on/t even $iss it#( sa%s :eeneDO pa% off %o,r cons,$er debt before investing- 5t/s li'e earning a re2t,rn that e<,als the interest charged on %o,r debt# e3plains A$in Ma!ani# a ta3 professor at Yor' Universit% in Toronto and a financial planner4et/s sa% %o,/re carr%ing a credit2card balance of =1#*** !ith 1> percent si$ple ann,al interest- That/s =1>* a %ear in charges- "a% off that debt and %o,/ve saved =1>*- That/s the sa$e as investing =1#*** in so$ething that earns an 1> percent ret,rn after ta35n fact# if %o,/re in a 9*2percent ta3 brac'et# %o, !o,ld have to earn +? percent to e$erge !ith the sa$e =1>* in %o,r poc'etThe truth about mortgages 0hile %o,r ho$e/s val,e $a% have greatl% increased# %o, $a% also be pa%ing $ore than necessar% on the $ortgageDO refinance %o,r $ortgage if %o,r rate is $ore than t!o percent higher than c,rrent rates# and %o, have less than t!o %ears ,ntil $at,rit%# sa%s Aileen "olloc'# a Toronto financial advisor- ;hec' !ith %o,r $ortgage holder to deter$ine the penalt% for getting o,t of %o,r dealDO consider a variable or floating rate $ortgage if %o, have b,ilt ,p e<,it% in %o,r ho,se and are able to tolerate the ris' that %o,r $onthl% pa%$ents !ill fl,ct,ate- Appro3i$atel% >> percent of the ti$e# %o, !ill find that the interest rate on %o,r variable2rate $ortgage is lo!er than the rate on a traditional five2%ear fi3ed2rate $ortgage- This is the finding in a st,d% e3a$ining the last 9* %ears of $ortgage rates# cond,cted b% Yor' Universit% professor Moshe Ar%e Milevs'%DO consider a sec,red line of cred2it to replace %o,r $ortgage# s,ggests ale 8ein# an Otta!a certified financial planner- &Ban's !ill often !aive fees or penalties# and it co,ld save %o, interest if %o,r $ortgage rate is higher than pri$e#( he sa%s- &Besides i$proving %o,r rate# %o, have $ore fle3ibilit% in %o,r $onthl% pa%$ents- The $ini$,$ %o, have to pa% is the interest# b,t %o, can also $a'e a big pa%$ent against the line of credit !itho,t penalt%-( P an for your chi !"s e!ucation Most parents don/t save nearl% eno,gh for their children/s ed,cation- &For a child born toda%# if %o, ass,$e that c,rrent t,ition is =9#*** and ed,cational inflation is five percent# %o, can e3pect to pa% abo,t =9*#*** for fo,r %ears of postsecondar% ed,cationand that/s conservative#( "olloc' sa%sDO open a registered ed,cation savings plan- The earnings aren/t ta3able as the% gro! !ithin the plan# and there/s the added incentive of the ;anada

@d,cation Savings 6rant=A** fro$ the govern$ent on the first =)#*** of contrib,tions per child per %ear- &That/s a g,aranteed )* percent ret,rnit/s a no2brainer#( sa%s "olloc'#nvesting $%pect ups an! !o&ns Recent %ears of tepid ret,rns have changed the behavio,r of $an%b,t not all investors- So$e have shifted to lo!er2ris' invest$ents or have sta%ed on the sidelines- Others see$ to have forgotten the lessons of a volatile $ar'et and are ta'ing chances again0hile too $,ch ris' can h,rt %o,r portfolio/s gro!th rate# so can hiding in ,ltrasafe invest$ents pa%ing one percent or less- 5deall%# %o,r portfolio sho,ld be able to 'eep its head above !ater d,ring prolonged $ar'et do!nt,rns and be positioned to gro! !hen the econo$% and $ar'et soarDO loo' at sta%ing invested for the long ha,l- & on/t chase ever% fad#( sa%s aniel 6ood$an# associate portfolio $anager and director of private client gro,p !ith ,ndee Sec,rities ;orporation in Toronto8e sa%s tr%ing to ti$e the $ar'et is a fool/s ga$e- &St,dies have sho!n that it/s long2ter$ discipline that provides above2average ret,rns- 4oo' at %o,r asset allocation on a reg,lar basis and rebalance it !hen necessar%- B,t %o, have to start !ith a plan and stic' to it-( DO diversif%- &Yo,r portfolio volatilit% !ill be red,ced !hen one invest$ent .igs !hile another .ags#( sa%s Bohn e 6oe%# a financial advisor !ith Assante ;apital Manage$ent 4td- in Toronto and a,thor of The "rofessional Financial AdvisorB,t don/t overdo it# 6ood$an sa%s- To start# %o, need the right $i3 of stoc's and bonds- &A general r,le of th,$b is that the percentage of %o,r invest$ent portfolio consisting of fi3ed2inco$e holdings sho,ld e<,al %o,r age#( 6ood$an sa%s- &So at +9# %o, sho,ld have +9 percent of %o,r portfolio invested in fi3ed inco$e and ?9 percent in e<,ities-( The thin'ing is# %o, beco$e $ore conservative as %o, get olderAs for the n,$ber of holdings to have# &5 see too $an% portfolios !ith too $an%#( sa%s 6ood$an- &Yo, end ,p !ith a portfolio that/s g,aranteed to perfor$# at best# in a $ediocre fashion beca,se an% good holding is !atered do!n-( For e3a$ple# %o, co,ld have a holding that gains )* percent in one %ear- B,t if it constit,tes one percent of %o,r portfolio# the effect on %o,r overall perfor$ance is a gain of C,st *-) percentDO 'no! !hen to sell- &The to,ghest thing for an% investor is to sell#( sa%s :eene- &No one !ants to leave that e3tra dollar on the table or sell at a loss- B,t !e often beco$e collectors of stoc's-(

One s,ggestion is that no holding sho,ld $a'e ,p $ore than five to si3 percent of %o,r portfolio- 5n other !ords# if %o, have a =1**#*** portfolio# %o, can have a =9#*** to =?#*** position- 5f it gro!s be%ond that# sell eno,gh to go bac' to five to si3 percent and allo! the position to contin,e to gro!- B,t %o,/re not living or d%ing !ith one invest$ent- Sa%s :eeneD &5f %o,/re not $a'ing $one%# the ne3t best co,rse of action is not to lose too $,ch- 0hen a stoc' is do!n )* percent fro$ its 9)2!ee' high# it/s ,s,all% not the botto$# and it/s ti$e to sell-( 'ocus on the bottom ine DO foc,s on %o,r net ret,rn# !hich $eans being $indf,l of costs- @ver% dollar in invest$ent fees co,ld theoreticall% be in %o,r acco,nt# earning ret,rns- &Most investors pa% far too little attention to costs#( sa%s e 6oe%- 5t/s si$ple# he sa%sThe higher %o,r fees# the $ore %o,r invest$ent has to $a'e to 'eep pace !ith a si$ilar invest$ent that charges lo!er fees- There are other factors in ever% invest$ent choice# of co,rse# s,ch as %o,r ris' tolerance and ret,rn re<,ire$ents- &B,t the botto$ line#( sa%s e 6oe%# &is that it isn/t !hat %o,/re earning# it/s !hat %o,/re 'eeping-( DO arrange for the higher2earning spo,se to pa% for living e3penses# letting the lo!er2earning spo,se acc,$,late invest$ent assets and pa% ta3es at a lo!er rate on that inco$e- This strateg% offers $aCor ta3 savings# e3plains Ma!aniO!ning invest$ents Cointl% does not $a'e sense fro$ a ta3 perspective if the t!o spo,ses are in significantl% different ta3 brac'ets- &4et/s sa% the h,sband is in a 9*2percent brac'et and the !ife is in a +*2percent ta3 brac'et#( sa%s Ma!ani&The% earn ten percent interest on their invest$ents- B,t he gets to 'eep onl% five percent after ta3# !hile she gets to 'eep seven percent after ta3-( For an%thing interest2earning# fro$ g,aranteed invest$ent certificates to $,t,al f,nds# the lo!er2earning spo,se sho,ld hold the invest$ents(etirement 'eather your nest egg Tina N%ar%# a ?E2%ear2old $anager of a private sailing cl,b in Toronto# tho,ght she !o,ld be set financiall% !hen she retired- Then# three %ears ago# her retire$ent savings sho!ed signs of tro,ble- She had $ade an =>*#*** profit in C,st one %ear b,t !as invested in f,nds that !ere too ris'% her portfolio started to go so,th shortl% thereafter- She felt she had no choice b,t to ride o,t the bad ti$es- N%ar% event,all% lost abo,t =)**#***- &5f 5 had thro!n the $one% in the $attress# 5 !o,ld have had $ore#( she sa%s- &No!# 5/$ C,st tr%ing to $a'e ,p as $,ch as 5 can- B,t !hat can people do at $% age7( DO be ca,tio,s as %o, approach retire$ent age- &Tina invested far too aggressivel% for her ris' profile#( sa%s "olloc'# !ho has since beco$e her planner- &She !as in all 'inds of volatile sectors and !as C,st too close to retire$ent- She sho,ld have at least had so$e rebalancing in her portfolio-(

DO esti$ate ho! $,ch cash %o,/ll need each %ear to s,stain %o,r standard of living !hen %o, reach retire$ent- 0ith this %earl% s,$ in $ind# calc,late ho! big %o,r nest egg has to be to prod,ce that inco$e strea$- For instance# "olloc' sa%s that a ?92%ear2old toda% !ho !ants a gross ann,al retire$ent inco$e of =9*#*** ,p to age E* !o,ld need a l,$p s,$ toda% of =??*#***- FThat ass,$es a si3 percent rate of ret,rn-G 5f the% !anted a =9*#*** inco$e inde3ed to inflation at three percent# the% !o,ld need a nest egg of =>H9#*** toda%- That/s a sobering n,$ber# and if people have fallen behind in their planning# the% have their !or' c,t o,t for the$- B,t it can be doneDO save as $,ch as possible in a Registered Retire$ent Savings "lan FRRS"GYo,r acco,nt gro!s ta32deferred# and %o, get to ta'e f,ll advantage of co$po,nding- 5f %o, have no co$pan% pension plan# this beco$es even $ore vital- One !a% of b,ilding %o,r portfolio <,ic'l% is to borro! to invest# sa%s 0arren ;heng# a financial planner !ith RB; 5nvest$ents in Ianco,ver- For e3a$ple# if %o,/re setting aside =)9* a $onth to!ards an RRS"# p,t that a$o,nt to!ards the loan pa%$ents instead- &Yo,r cash flo! re$ains ,naffected# and a larger l,$p s,$ can be p,t to !or' right a!a%#( sa%s ;hengo the $ath# b,t in $an% cases the long2ter$ benefits of deferring ta3es and earning co$po,nd interest far o,t!eigh the interest costs of borro!ing to $a'e the contrib,tion- Yo, can also appl% %o,r ta3 ref,nd directl% to the loan# i$$ediatel% red,cing the pa%$entsDO ,se a spo,sal RRS" no! to split inco$e in retire$ent and red,ce %o,r overall ta32b,rden as a co,ple- B% having the higher2ta32brac'et spo,se $a'e ro,ghl% e<,al contrib,tions in each spo,se/s RRS"# the higher2inco$e spo,se doesn/t then have to !ithdra! as $,ch and bear a larger ta3 b,rden later&Yo, !ill save $ore ta3#( sa%s 8ein# &b% having the high2inco$e earner $a'e as $,ch of the RRS" contrib,tions as his or her roo$ !ill allo!# and ,se a spo,sal acco,nt so that each spo,se contin,es to b,ild the sa$e RRS" savings-( There %o, have it# 19 !a%s to 'eep $ore of %o,r $one%- Yo, don/t need an M-B-A# special talent or tonnes of l,c' to p,ll it off- All %o, need is a =) calc,lator and a plan-

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