You figure that you can produce 6 - 8% annual increase in value of your assets, when a substantial proportion of them is invested in a type of asset where the principal amount can't grow, resulting in the current income being reduced not only by income tax ... but also, since the number of units of the principal can't grow, by the rate of inflation, in order that the purchasing power of the principal not be eroded??

How??

Where can you find a GIC, CD, bond or whatever interest-earning asset that can produce like that?

Several years ago, a parishioner asked me how I, a clergyperson, could subscribe to "The Financial Post". I told him that bread costed me the same price that it costed him. My divorce, over 35 years ago, when clergy, " ... didn't *do* that!" ... caused deep hurt to that career.

Having been a personal financial advisor for over 25 years, now at almost 80 years of age, I was until recently about 80% invested in equity-based assets ... somewhat less, now, though I sold none ... though I've used some cash on hand last year and this to buy more stocks ... whose value has gone down.

Our banks and mortgage system are more strongly regulated - a recent international study has concluded that the Canadian banking system is about the strongest in the industrialized world (or, what until now *has been* the industrialized world).

I bought shares in a bank 41 years ago,at $4.20 or so, paying about a dime to 12 cents dividend annually (which is taxed here at low rate, but interest income at top rate). The share value has gone up, down and sideways over those years ... and dropped substantially a few years ago, when they were involved with a rotten deal that ran by the name of "Enron".

In May of '07, whatever it was "worth" ... each share could be sold for $107.00 ... and paid $3.08 dividend annually ... which was raised to $3.48 in the fall of '07.

Unfortunately, the bank was involved with some nefarious mortgages in another land ... and/or some "Asset Backed Commercial Paper" ... that turned out to be more "paper" than "asset".

Share price in the 90s through the summer of '07, back over 100 in early fall ... then down to 70 by year-end, 60s by spring, 50s in the summer ... 49 on Oct. 6, 55 last week, 52.74 now ... which, though it has paid about 3% dividend over the years, is now returning 6.6% dividend, at an even lower tax rate than a couple of years ago, thanks to our government which helps the rich ... as does yours.

The stable portion of my asset has been ... a mortgage-related mutual fund, whose value per unit has scarcely moved in recent years, and pays decent interest - that's taxed at top marginal rate.

I'm fortunate that frugal I live comfortably on less than my two gov't. and one private pensions, plus mandated income from tax-deferred individual retirement account.

At age 70, I felt that I should plan to finance to age 100, i.e. 6 blocks of 5 years each.

Since each dollar of the first block that I eat in the first five years is no longer able to produce income, I'd better not eat all of the dollars in that block of funds in the first five years.

As I'll need more dollars to pursue the same lifestyle in later years due to inflation, that's another reason to preserve some/many of those first-block dollars.

The fact that we often need to incur more medical costs, plus cost of care, e.g. residential or (horror of horrors, nursing home) during the latter days/years of our lives, that's another reason to preserve a larger proportion in the early years.

It seemed to me wise not to spend more than that first block of funds in the first ten years ... and many people say that it's wise to invest much of the part of one's assets that's to run for more than 10 years in equity-based assets.

That would mean that I could invest up to 83% or so of my asset in such a way.

In order to qualify for employment income I must have physical, mental and emotional health well enough to carry out my assigned duties, or I don't qualify ... plus hope that my employer remains viable, doesn't shift my job elsewhere, sell out, go broke, etc.

Though pension systems often suffer erosion of value of assets in a mArket downturn, so payouts might be adversely affected ... all that I must do in order to continue to qualify for my pension income is ...

... stay topside the grass!

Since coverage for my living expenses via pension is pretty well guaranteed, I feel that I can play games with my investment system.

Also .. when I die, there'll be disposal costs to meet, and a substantial income tax bill to pay early on.

But much of the assets will be transferred to charities and my executor will get a tax-deductible receipt for full value ... plus will have no income tax to pay on the capital gain of that asset.

Neither of my two offspring, as beneficiaries, will need to liquidate the assets which will be transferred into their names in the short term ... and if they need money, if the stock seems undervalued at the time, can use those assets as collateral to fund a loan (though if the proceeds were used for a consumer situation, the interest would not be deductible).

Though I've seen several market downturns over the years, some lasting for a substantial period, this is the worst downturn that I've seen ... but a downturn in the markets doesn't get me all bent out of shape.

Usually, the longer the downturn, and/or the further the drop, the more likely that the recovery will be strong and long ... and sometimes rise rather quickly, early on. Which means that one needs to be invested, in order to participate in the first part of the recovery.

I think that the current extraordinary circumstances may mean that the market drop may be prolonged.

If a deal goes through as proposed, I'll soon have some more cash to invest.

If it goes on longer, I plan to use a line of credit at the bank, expanding it if necessary ...

... to continue to invest periodically through the time of reduced values.

As a mutual fund manager told us sales people 25 years ago when I sold them for a brief period, "I like to buy a dollar for 40 - 60 cents".

It was almost 17 years ago that I made my most recent purchase of a mutual fund: their managers, very few of whom outperform the market averages consistently, are paid too much. Plus ... they get theirs, whether they produce anything for me or not.

Good wishes for developing increasing skill in managing your income and assets.

ole joyful

Learn how to manage your money yourself ...

... put the mutual fund manager's fee into your own pocket!

Well - manage at least some of it!

ole joyful

P.S. That bank whose shares that I bought 41 years ago at $4.20 ... could have sold them for $107.00 or so in May '07 ... and could have sold for $52.74 a week ago, Nov. 14?

Share price closed at $41.65 on Fri., Nov. 21!!

Drat those skullduggerous U.S. mortgage lenders!!

However ... it's grown $1.00 into about $10.00 in those 41 years ... and it paid about 3% dividend rate throughout (which has been taxed at a lower rate than they charge on interest income, at top rate ... which rate on dividend income was reduced even more, a couple of years ago).

Where could I have found a bond to have grown 10:1 in 41 years?? GIC?? CD???

Current dividend rate is 8.355%.

Guess I'd better use the current shares as collateral to borrow some money, at 4.75% deductible interest ...

... to buy more shares!

Hey, wait a minute - remember that bank that offered 1.9% on balances transferred to their credit card, for, was it 9 mos?

Remember how you said, a while ago, when they charged 6.25% on your Line of Credit, that you could come close to breaking even in the current situation, if you could earn 3% dividend (2.5% after tax) on the shares purchased with the loan??

Sign up for the new card, buy similar shares using your current credit card for up to 2/3 - 3/4 of the credit limit on the new card, then transfer the balance, and pay off the full amount owing on the new card from the Line of Credit, just before the low rate expires.

And - don't charge any new stuff on the new card, for interest on that'll be at full rate, from the start ... and can't have one cent owing paid off till the transferred balance is fully paid off.

To earn 8.3%, probably 7.3% or so after low tax rate ... and pay 4.75% deductible ...

... with a potential growth in value of 25 - 40% of the value of the newly purchased shares within a year or so of the market turnaround??

And that increased value of the shares not taxed till you sell them (or, at age 80, possibly die - whichever comes first!) ... and then at only half of regular rate??

Plus ... get a receipt for the full amount of the gift, deductible against tax owing on other income and no tax on this gain if you give them to a charity?

Looks like a risk worth taking!

o j