How You Invest Matters, Especially Today

As investors fret about the latest market gyrations, there is much that can be done to hedge against loss. How you invest, when you invest and for how long has significant impact on wealth accumulationówhich determines whether you'll have income for life and beyond.

Retirement income adequacy, according to post-crisis research by the Department of Finance "critically dependsî on three things:

∑ the tax assistance for savings (RRSP versus nonñRRSP),

∑ timing of investments and

∑ the type of investment.

According to the study, by Dr. Vijay Jog (December 2009), an individual investing 18% of her saving. . . in blended portfolio at zero cost and invested in corresponding passive equity, debt and t-bills would have saved 18years worth replacement income (60% of salary). The same amount invested outside RRSP would have resulted in 14years worth replacement income. Both these numbers assume a 35% tax rate during workyears and a 20% tax rate at the retirement year.[1]î

Predictable investment income returns result from a combination of efforts. Performance of your investment is important, but so is financial behavior. For example, when you manage your spending carefully (cutting back expenses by 4% is akin to an 8% return on the money before taxes at a 50% marginal tax rate), more money is available for savings.

All savings plans begin with the end in mind. Through precise planning and product selection, you will be able to build the income sources to generate income for life, even though there are many hurdles to jump or avoid along the way. A series of questions to review at year end include the following, to facilitate decisions that could still impact the opportunity to create new wealth in 2011, despite current market conditions:

1. What is your life expectancy, compared to the national average?
2. How much money can you save? (Project this out over your lifetime)
3. How much money can your savings generate in income for you?
4. How long will your money last if you start withdrawing your capital to live?
5. What investments will help you achieve your goals?

ADDITIONAL EDUCATIONAL RESOURCES: Distinguished Advisors Workshops: November featuring year end tax planning.