RRSP season is upon us. If you're
like most of your colleagues who responded to the National
Review of Medicine Personal Finance Survey conducted
last year, you make your annual contribution just before
the deadline. Fully 66% of respondents did just that.
Deferring taxes by funding an RRSP
is pretty much universally regarded as a good idea.
The money you put into the funds
goes in tax-free and, just as important, the accumulated
earnings aren't taxed until you withdraw the funds.
Most RRSP money goes into mutual funds.
There's a tendency among some physicians
to think that once the funds are placed in an RRSP that's
the end of it. The money will accumulate in an expeditious
manner and, lo and behold, when it comes time for retirement
the funds will be there. There's no guarantee though
as many investors discovered to their horror in the
mutual fund meltdown five years ago.
MONEY
LIKE ANY OTHER
The truth is, an RRSP investment is an investment like
any other and you, as the investor, are responsible
for getting the best possible return. For most, RRSPs
are a longterm investment and there's a natural temptation
to let things ride. Don't do it. Do your homework at
least once a year and pick the funds that look most
likely to give you the best yield. Here are a few things
to consider this year.
Income funds These are the
hot ones this year. These are mutual funds which hold
such things as stocks, which pay good dividends; income
trusts, which take advantage of tax breaks to increase
income; and bonds. The biggest such fund in Canada is
called Investor's Global Dividend (70% stocks, 30% bonds)
and it's offered by Investor's Group of Winnipeg but
there are many, many others. The idea behind these funds
is that while stock market performance has been lacklustre
of late, corporate profits have grown significantly.
If you're investing in individual stocks in a self-administered
fund, plan to add income producing stocks to your portfolio
if you haven't already.
MD Management funds These
various funds are offered exclusively to physicians
through membership in the CMA. They've been generally
good performers and have the advantage of offering low
management fees. The majority of doctor/investors use
these funds. Still, that's not to say you should simply
sock the money in and forget about it. As is the case
with all funds, MD Management sends out quarterly performance
reports. Don't toss them away without having a look
at them. Pay particular attention to the amounts at
which various investments are evaluated and check current
stock market prices. There's a temptation, even among
honest brokers, to choose dates at which stocks were
trading at their peak and the numbers in the report
may not show current values.
Funds of funds These are
funds which attempt to spread the risk by investing
in a basket of mutuals. They do spread the risk, but
don't expect anything more from them than an average
of across the board performance.
Index funds These follow
various indices and rise and fall with the market. You
can get them attached to almost any index you like;
the TSE is the obvious one. Again, you can't expect
an index to outperform the market, it is the market.
Watch the management Fund
managers aren't wedded to the funds they manage and
can and do change companies. When a fund that's been
doing well suddenly goes south, the cause may well be
a change in the fund's management. It's your job to
stay on top of who's managing your money.
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PHYSICIAN LIFE
