47 - Wednesday, November 29 , 1989 - Ne:in Shore News

BUSINESS

Start financial planning in mid-40s

IF YOU are under age 45, you will love Michael Ryan’s fi-

nancial planning advice.

“You might as well spend and
enjoy your money,"”’ said Ryan,
vice-president of Leith Wheeler
Management Ltd., investment
counsellors.

**People are often told to start

doliars
and sense

Michael Grenhy
Fn

their financial planning early, to
start saving and investing as soon
as they start to earn money.

“*But until you are about 45, you
spend most of your money on
housing and perhaps bringing up a
family. And you don’t really have
the experience to make effective
decisions about your life and your
mongy.”

Ryan, who was speaking on
wealth accumulation tc a meeting
of the Canadian Association of
Financial Planners, Pacific
Chapter, said changing economic
conditions can wreak havoc on the
best-intentioned savings schemes.

“‘My mother coniributed to a
postal savings program for 40
years,”’ he said. ‘‘When she was
65, this program produced two
pensions for her — totalling $47 a
month.”

By the time you are 45, said
Ryan, not only are you more expe-
rienced and mature, ‘‘but you also
have a clearer picture about your
future. You are more settled and
can face the reality of what lies
ahead.””

Ryan said many people experi-
ence “major one-shot financial
events’’ later in their lives, which
could dramatically affece both
their personal and financial expec-
tations.

“*Perhaps you come into an in-
heritance,”” he said. “in some of
the major centres, that could result
ia the sale of a family home worth

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“You might sell your own
home, receive a large amount of
severance pay or a pension payout,
be involved in a legal settlement
after a mavriage breakdown, for
example, or sell your share of a
business.

“These events become a vital
part of your plans for the future,
yet you have to wait until they oc-
cur before you can do any mean-
ingful planning.”’

Ryan, 59, said his own life bears
out these observations.

“After my divorce when I was
40, I practically had to start all
over again financially,’’ he said.
“Sull, time gave me ihe chance to
do that. Then 1 bought a con-
dominium. But by the time I mov-
ed itu, it had cost me much more
and I had far less extra cash than I
anticipated.”’

Ryan had built up his own in-
vestment business which, after a
merger and eventual sale, ‘‘pro-
duced the financial reward I knew
I had always been working toward
in my haphazard way.”’

Even if major financial events
are not to be part of your life,
Ryan still feels you can leave
serious saving and investing until
you are into your mid-40s.

““Wealth accumulation is not an
orderly process for most people —~
despite the advice you often get to
Start a regular investment prograin
early in life and stick with it,’’? he
said.

“Wealth accumulation usually
spans 15 to 20 years in later life,
which often are your highest earn-
ing years. So if you manage your
investments effectively, you can
increase your wealth dramatically
during that length of time.”

Over 15 years, for example,
Ryan said, $100,000 will grow at
eight per cent a year to $317,000,
at 10.per cent to $418,000 and at
12 per cent to $547,000. Over 20
years at those same three rates,
$100,000 will grow to $466,000,
$673,000 and $965,000, respective-
ly.

Qver 15 years, saving $500 a
month at eight per cent will pro-
duce $173,000, at 10 per cent
$207,000 and at 12 per cent
$250,000. Over 20 years at the
same three rates, $500 a month will
produce $295,000, $380,000 and
$495,000, respectively.

“That shows what a difference a
higher rate of return or a few more
years can make,"* said Ryan.

He said the threz critical ele-
ments to consider in wealth ac-
cumulation are:

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(i) Inflation. ‘‘Expect it to
average about five per cent &
year,’’ Ryan said.

(2) Return. “Decide what your
objectives are, calculate the return
you need to earn on your money to
achieve those objectives, then in-
vest accordingly.""

(3) Risk. ‘‘How much price vol-
atility cam you accept?”’

Ryan said over the past 40 years
in Canada, inflation has averaged
4.68 per cent a year while Jong

next 10 years,

5.5 ner cent.

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bonds have earned 0.88 per cent,
Treasury biiis 1.43 per cent and
common stocks 6.4 per cent.

In the iast 10 years, inflation has
averaged 6.21 per cent while bonds
earned 6.95 per cent, stocks 5.21
per cent and T-bills 5.2 per cent.

Ryan predicted that over the
inflation will
average 4.5 per cent while both.
bonds and T-bills will earn 3.0 per
cent and common stocks will earn

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wert

Based locally, Mike Grenby
writes a money column which ap-
pears in newspapers across
Canada. Mike will respond to
readers’ questions and story ideas
through the paper. Write to Mike
Grenby, Money Columnist, North
Shore News, 1139 Lonsdale, North
Vancouver V7M 2H4, Mike cannot
reply individually but will answer
as many of your letters a:: possible
: in his column.

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