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ACCUMULATION

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Wealth Accumulation: Saving, Investment, RESP, RRSP & Seg. Funds

 

Wealth is measured, not by how much money you earn but how much you save. Most people spend first and try to save what's left. Often times there's nothing left. Successful people save a certain amount of money first and spend from what's left. Wealth accumulation is the result of taking deliberate steps to save some money and investing these funds.

 

Savings and Investments instruments are: RESP, RRSP, Term Account (Term Deposit),  Guaranteed Interest Account (GIA / GIC), Annuity, Deferred Annuity, Segreated Funds,  Leveraged Investment Loan, Universal Life Insurance and  Whole Life Insurance.

 

 

One practical and effective early wealth accumulation strategy is for parents to own a life insurance contract on their child while it is accumulating  value and subsequently transfering ownership of the contract with it's values to the child. A particularly good time when a transfer would make a lot of sense is when your child goes off to College, University, could use some extra cash, has a low tax bracket and deductible tuition fees.

 

There are stages we all go through in life and the accumulation stage essentially starts from the time you enter the workplace on a full-time basis and continues until you retire. This typically will be after graduating from College or University and really is the begining of your independent years, where you are responsible for putting your own plans in place.  In some cases, it may be the time when you take over responsibility of financial plans your parents may have put in place earlier.

 

We recognize that during the early part of this accumulation stage, some individuals will not have very nuch disposable income because they maybe repaying student loans, pus paying rent, food and clothing if living away from home. A typical progression would be getting married, having children and buying their first home. Until the "child-raring" years are over it s difficult for many to accumulate nuch wealth but a conscious and disciplined effort must be made to save and invest some of their disposable income.

 

Those practising the principle of spend first invariably are the individuals who end up working for the individuals practising the save first i.e. pay yourself first principle.  We have also all heard that the only way to get ahead is to have money working for you. Let me leave you with an illustration of the penalty of waiting or cost of procrastination and the real benefit of starting your accumulation plan early.

 

Bill at age 30 invested $5,000 per year tax-sheltered for 30 years and earned 7% return compounded annually. Bill at age 65 has an investment fund worth $715,000. Jim decided to wait 5 years until he turned age 35 to start his investment and invested the same $5,000 per year tax-sheltered for 30 years earned the same 7% return compounded annually. How much do you think is Jim's penalty for waiting? Jim at age 65 has an investment fund of $505,000. A penalty of waiting, the cost of procrastination and an opportunity lost to the tune of $210,000. 

 

 


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