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It's Your Money  

Good returns risk free

Investors have come to accept the fact that earning returns require risk and that the higher return you want, the bigger the risks you must accept.

But what if I told you that this isn’t always the case? There are a few often overlooked ways to boost your investment return without adding any additional risk at all:

Make your portfolio more tax efficient

At the most basic level, this can mean utilizing programs such as TFSA and RRSP accounts, but it can also include a plan regarding how much you contribute to each.

More complex tax strategies include the utilization of investments such as corporate class structures that allow your fixed income investments (which can be taxed as high as 50 per cent) to be treated like equity holdings which can effectively cut the tax bill in half.

A “T-SWP” structure can allow you to draw a regular retirement income without creating any taxable dispositions and can therefore maximize the government pensions that you may otherwise not qualify for.

A good tax strategy could boost net returns by as much as 25 per cent yet many don’t focus on this area at all.

Pay down your debt

In particular, aggressively pay down any debt that is accruing interest at over 10 per cent. What is the point of taking on risk to earn six or seven per cent per year in your portfolio when you have debt that is sitting there costing a guaranteed eight per cent per year in interest charges?

Every dollar that you “invest” to pay down your debt generates a risk-free and tax-free return equal to the interest rate being charged.

If you’re holding a balance on a credit card that charges 20 per cent interest and contributing to your RRSP that earns an average of seven per cent per year, it really makes no sense unless you are getting employer matching benefits!

Reduce your fees

Some investors are paying far more in fees than they are aware of. Commission fees for buying and selling, annual account fees, administration fees, management fees and advisor compensation that are all reported separately and swept under the rug.

Yes, access to professional investment management costs money, but a good investment adviser will provide added value, help boost net returns and more importantly, help avoid losses during the downturns.

If you don’t know what you really pay per year, it’s time to ask. You should also ask the question “What can we do to lower my fees”?

Care about the little things

When investing money in term deposits, GICs and other “guaranteed” investments, a few extra basis points matter now more than ever. A three-year GIC at a major bank will pay you around 1.8 per cent per year right now. A comparable GIC through another lender will pay around 2.9 per cent.

While you might think 1.1 per cent isn’t that big of a difference, you’re giving up 38 per cent of your potential return. A GIC should be sourced through an independent investment adviser who is allowed to shop around across all providers to find the best rates for you.

Still skeptical on how much difference it makes?

Let’s assume you have $350,000 to invest and you put it in a GIC at the above three-year rates and renew it for two more three-year terms. Nine years later, the GIC money invested in the bank will earn $61,501 of interest while the GIC money invested at the better rate will earn $104,236.

Everybody would like to earn a higher rate of return but in today’s volatile markets, many aren’t willing to take on additional risk to do so.

Before you consider increasing the risk of your portfolio, take a look to see if the above ideas will boost your returns all on their own.



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About the Author

Designated as a chartered investment manager and certified financial planner, Brett holds life insurance and investment licenses in B.C., Alberta and Ontario.

In addition to being the owner of Kelowna-based SPEIR Wealth Management Inc., Brett also serves as the vice-chair of the Financial Planning Standards Council of Canada’s board of directors. 

Brett has been writing a weekly financial planning column since 2012 and provides his readers with easy to understand explanations for the complex financial challenges that they face in every stage of life.

Enhancing the financial literacy of Canadian consumers is a top priority of Brett’s and his ongoing efforts as a finance writer and on the regulatory side through the FPSC board focus on this initiative.   

Please let Brett know if you have any topics that you’d like him to cover in future columns by emailing him at [email protected].

For more information or to see a database of previous columns, visit www.speirwealth.com.



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The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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