economics : THE end of the RRSP séa- ‘son is'almost here, and it ¢an’t come a moment too “soon as far as I’m con- - ed,’ “don't know which is worse — the deluge of identical financial advice or the endless barrage of RRSP advertisements. . It’s not just that there is so ch of it. ix’s that so much of it pure, uzizelulterated hype. ‘The.ads extol the virtues of this at mutual fund but you’d probably. be better. off with the proverbial “dart board” fund where you select your investment - rtfoiic by throwing darts at the | mewspaper stock listings. wots c reason this does better . thani'the mutual finds is thar you". -are69, don’t have to pay the darts an ual 2% management fee." - - ‘not really recommending |” the ‘dart board method, but you should be able to beat the mutual funds by either buying a low-cost index fund or an informed selec- tion of good stocks. You also might want to have a good look at Index Participation Units (IPUs) which offer ennual management fees as low as 0.05%. The problem with the most of the RRSP advice we are subjected to is that it seems co come from the same people who are selling the funds. . A lot of it is just cheerleading for the RRSP funds, advising us that if we don't maximize our con- tributions we risk being labelled financial idiots. . - There are signs of hope though. Acoupie of weeks ago the Vancouver Province ran a list of . the Top 10 Reasons NOT to buy RRSPs. - Tn addition there have receatly been a couple of other newspaper articles challenging the conven- tional wisdom on RRSPs. The arguments against investing in RRSPs include an aversion to being subject to government controls on how you handle your - own money, such as the 20% for- _, eign content restriction and the x tules you have to follow in rolling your. RRSP in a RRIF when you Another argument is that you ‘could end up paying more income ‘ tax when.your RRSP funds are withdrawn than you saved when you put the money in. For example when you and your spouse dic, Revenue Canada taxes your RRSP savings as if you have withdrawn all the money at once. As a result the chances are your estate will be paying the highest marginal tax rate on those savings. There is also serious speculation that the federal government might lower the percentage cf capital gains that are subject to income tax. If they did lower it from the current 75% to 65% and eventually even lower, it might be better to have your capital gains outside of your RRSP because of course you eventually pay income tax on 100% of capital gains that are generated within your RRSP. However if these tax changes do come to pass, you can’t do any- thing about the investments that you alrcady have put into RRSPs. That money is stuck there. The point is that maximizing - your RRSP contribution is not necessarily the optimum strategy for everyone. In particular, homeowners may be better off paying down their mortgage rather than buying an RRS. : ; Ic depends on the interest rate ~ you expect to be paying on your mortgage as compared to the: Twin peeks “"NOATH Shore highrise apartment dwellers are almost in the clouds — or at feast in the mountain tops. These residences have a perfect view of The Lions. . down your mortgage. the key informa- | “" gage. Friday, February 25, 2000 — North Shore News - NV-3 FEBRUARY return you expect to make in your It also depends on other con- siderations such as your current marginal tax rate and the rate you expect to be paying when you finally take the money out of the RRSP. Finally it depends on personal financial considerations such as whether you can afford to pay for an RRSP and continue to pay your mortgage at the same time. If you are interested in crunch- ing some numbers on this, there is a Web site at that will calculate whether it is better for you to put your money into an RESP or to pay You just input tion such as your mortgage inter- est rate, the expected annual return in your RRSP and your marginal tax rates and it does the calculations. As a rough rule of thumb, the results show that it only pays to put money into an RRSP if the annual return is greater than the rate you are paying on your moxt- If it is not you are better off paying down the mortgage. _ Actually there is a way that you can bold your own mortgage in your RRSP. In other words you basically “ lend money to yourself from your * Re/Max” Grest Rea It sounds like the best of both worlds — you can get the tax sav- ings of contributing to'an- RRSP and you can use that monéy for your mortgage. . However it is a fairly complex ~. thing to set up and administer and . it isn’t necessarily the best scrategy for everyone: aes If you want to pursue this you’: should talk to a your financial: institution. ~ : et My intention in this column is: not to discourage people from investing in RRSPs. woe Rather it is to add a:firtle bal- ance to all the hype, by, pointing - out that there are.a-nutaber of - considerations to take jnto account. in deciding how to invkst your : money. zo . _Certainly RRSPs can. generate -.- significant tax savings’and serve as a valuable retirement savings vehi- ° cle. a a Also the feature that allows the borrowing of $20,000 from an - RRSP for a first-time home pur- chase is an excellent program. Maximizing your, RRSP contri bution ‘each year is probably the : best strategy for many-people.* .-But not for everyone. 0!’ “oo Trent. Appelbe is'a real estate. agent... and: an’ economist: with. fe: canbe, reached at 988-4797 or by e-mail'at . 2