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Segregated Investment Funds

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.

With low interest rates that look like they will remain that way for the next couple if not several years, people are looking for a higher yield on their money and are often turning to professionally managed funds to get it.

The term "Segregated 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.  This is a life insurance industry investment vehicle.

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. 

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.

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 deferred RRSP contribution. You may also simply make your deposits to a non-registered Segregated Fund and pay the tax on the 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 predict the market.


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