Beaton Insurance Services

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John Beaton


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Segregated Investment Funds

Will Rogers once said, "It's not so much the return on my money that concerns me as much as the return of my money."

These days, investors are concerned about the low interest rates available in GICs, treasury bills and bonds and yet many don't want to give up the guarantees on their invested capital. In the past, such fixed income investments have been considered conservative, safe and secure. For the retired, they paid interest in regular instalments, providing a steady income. Inflation, however, erodes the value of fixed-income investments. To continue relying on such investments with low rates of return, the retired person risks outliving their retirement fund. The only way to protect your retirement fund is to diversify part of your investments into equity investments which will keep growing as long as you live.

One of the most successful, and popular, investment vehicles of the past decade has been the "Mutual Fund". With low interest rates that look like they will remain that way for the forseeable future, people are looking for a higher yield on their money and are often turning to professionally managed funds to get it.

The term "Mutual Fund" is often used generically, to cover a wide variety of funds where the investment capital from a large number of investors is "pooled" together and invested into specific stocks, bonds, mortgages, etc.

Life Insurance companies offer "Segregated Funds", the insurance companies' version of Mutual Funds, with some important differences.

Since Segregated Funds are actually annuity contracts issued by life insurance companies, they offer probate and creditor protection if a preferred beneficiary such as a spouse is named. Mutual Funds do not have this protection.

Unlike Mutual Funds, Segregated Funds offer guarantees at maturity (usually ten years from date of purchase) or death on the limit of potential losses - at times up to 100% of original deposits are guaranteed which makes them an attractive alternative for the cautious and/or long term investor. On the other hand, with regular Mutual Funds, it is possible to have little or nothing left at death or plan maturity.

Under most conditions, at death, proceeds of a Segregated Fund pass directly to a named beneficiary, and are not subject to probate, lawyer's or executor's fees.

Regular monthly deposits to a Segregated Fund can be registered to qualify for your annual tax sheltered RRSP contribution. You may also simply make your deposits to a non-registered Segregated Fund and claim capital losses which are acculative or pay the tax on any capital gain year by year.

There are no costs or brokers fees charged to you for commencing deposits to a Segregated Fund. Most insurance companies have reducing surrender charges on their funds which reduce to 0 after several years. There is also a small management fee charged by the insurance company.

Even though there are varying degrees of guarantee of original capital you must remember that Segregated Funds mirror the rise and fall of the stock markets around the world. It would be very unusual to see a steady increase in the markets. It is more natural for the markets to rise and fall as economic conditions change. If you are the kind of person who wants to watch your investment day by day and your breath stops along with your heart missing a beat when the market declines, this kind of investment may not be for you. We believe in buying and holding a well managed segregated fund for a long period of time. We are not trying to second guess the market.

My Recommendation:

Over the past 25 years, I have marketed the segregated funds of several major insurance companies. It is easy to find current performance information concerning these funds in most Canadian Newspapers. If you have questions, call me. Historical performance information is available upon request. Please note that past performance of any segregated fund is not a guarantee of future performance.

Beaton Insurance Services
15310 Pacific Avenue
White Rock, British Columbia, Canada V4B 1P9
Tel: (604) 535-2404
Toll Free Canada: 1-800-667-8818

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