WPA ARATE ATTAINS Me TAM RT tad ETE PAELLA APIO SEM SMITE ROWS REA TE BS EPRI A NLD ILM YEE TEAS STA ANNA ARLE OD, ivestments Use your CSB S as Saving Michael DOLLARS AND SENSE ET’S THAT Canada Savings Bond time of the year again. Even if you aren’t into CSBs, let the promotional hype from both Ottawa and the various financial institutions offering competing products raise your awareness of your own savings and investments. RBC DOMINION SECURITIES a! 048: If you miss this CSB “motiva- tional moment,” you'll probably have to wait until next February or so for RRSP and then income tax time to reawaken your financial consciousness. One colleague told me: “I hold the mortgage on our home in my RRSP but I just haven't got around to reinvesting the moncy being built up by my monthly payments. | know f’m not earning a proper return.” As one possible strategy, I sug- gested: “Look at both CSBs-and the competing cashable term deposits for money you might need in the short term — perhaps for 25% of your RRSP funds. Or if you won't need those funds, add them to another 25% to go into GICs with staggered maturity dates. “Then if you feel comfortable with the risk and can take 4 long- term approach, put 30% into Canadian stocks or mutual funds and the remaiaing 20% into interna- tional equities. Do this at the rate of perhaps $1,000 to $2,000 a month — just in case the market takes a dive in the near cuture.” CSBs are being given a new lease on life with their three-year Seven Year Term Semi Annual interest Saleable anytime before maturity FOR MORE INFO & TODAY'S BEST GUARANTEED RATES, PLEASE CALL- 981-6600 North Shore’s #1 Firm Serving the North Shore Since 1985 Suite #201-250 15th St. escalating interest rate: guaranteed minimums of 5.75% the first year, 6.75% the second and 7.5% the third year — rates which also apply to all outstanding issues, (You might take that as a forecast of gradually increasing interest rates over the next three years.) “Ottuwa doesn’t want CSBs to die,” said retired stockbroker and Bank of Canada CSB spokesman Cliff Bird. “When the federal debt was $150 billion, CSBs represented about a third of that total. Teday, with the debt at about $500 billion, CSBs are down to 8%. At one time or another, one of every two Canadians has bought CSBs.” But should you buy them? All investments have risk. After you pay income tax, safe instru- ments like CSBs and GICs can lose buying power when inflation is run- ning high. Investments like stocks (and mutual funds investing in stocks), real estate and a business give you a chance to carn a higher after-tax return than CSBs and GICs — along with a chance to lose money. At the moment, inflation is rela- tively low. If your taxable income is below about $30,000 a year, your 5.75% CSS will yield 4.25% after tax. That allows your money to stay ahead of inflation (assuming you reinvest the interest after you pay income tax). Even if you are in the highest tax bracket, your CSB will still keep ahead of inflation — but only just. If inflation goes up, Ottawa can raise CSB rates. The key figure is the difference between the after-tax return and the inflation rate. Unfortunately, that spread turns negative all too often, meaning your money loses buying power. Always look at the alternatives to CSBs: * Combine cashable deposits and locked-in GICs (all within the deposit insurance limits) with stag- gered maturity dates. This approach should give you a higher return than holding all CSBs. Government bonds (which differ from CSBs) and mortguge-backed securities can also be used. * Pay off debt. Reducing a 10% mortgage is the same as earning around 17% interest before tax if your taxable income is between about $30,000 and $60,000. * Contribute to an RRSP, although you can also put CSBs into an RRSP. In general, look to CSBs as holding or saving instruments on your way to other investments. Mike Grenby is a North Shore- based columnist and independent financial adviser who works with individuals; he will answer your questions in this column as space allows. Write to Mike c/o 2444. Haywood Ave., West Vancouver, V7V IYI. 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