A Proven Track Record

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Canada Savings Bond?

Don’t Be Fooled!

They are popular with people who save their money rather than INVEST their money.

SAFE? Assume the bonds come out at 11%. Let’s see the impact of taxes and inflation on this interest outcome. Assume your marginal tax rate is 45%.

Example: $10,000 invested at 11 percent

Interest income  - $1,100

Less income tax at 45% $495

After tax return $605 or 6.05%

Less inflation at 5.5% $550 or 5.5%

Real return after tax/inflation is $55 or .55% -  NOT EVEN 1%!

What’s your alternative?

Well John Grow governor of the Bank of Canada has kept interest rates up in order to slow the economy and control inflation. We feel he has been successful and with the oncoming recession interest rates are now finally trending lower. As interest rates decrease, bond prices increase, making bonds a very attractive investment.

The Prudential income Fund of Canada should perform very well over the next 12 to 18 months. Because the fund is primarily invested in bonds. As interest rates decrease: bond prices will increase. This will result in significant rates of return when you combine the capital appreciation with the relatively high coupon rates on our current holdings.

Let’s see what happens:

11 ½ percent bond maturing in 15 years

In other words:

If interest rates were to decrease by one percentage point, the value of the bond would increase eight percent. Combining the eight percent bond appreciation with the 11 ½ % coupon gives a total return of 19 ½ % of which eight percent is mutual gain. If it drops two percentage points, the total return would be 7.5%.

Call DAN TIFFIN at 396-8476

Insurance & Financial Services

Member Canadian Association of Financial Planners