Now that the Canadian elections are over, Investors can focus on the business of making money. Let's leave ugly politics aside. In spite of my confessions, to CARP and 50 Plus last December, on insider trading with Income Trust Investments, which were published on their website: http://www.carp.ca . Investors, Senior Citizens and Equity-rich Home Owners are still looking for a good strategy to invest for income. Income Trusts remain the best Investments I know that would deliver: good Income and decent returns at a low level of risk. Under current market conditions, Trusts are the ideal investment. The new Conservative government likes profits, Investments and income. The word is out that they would leave alone the issue of Income Trusts taxation. They may even sweeten dividend tax credit incentives and capital gains as well.
For those investors who are worried about loosing Pension benefits through these Investment income receipts, the good news is that all Income from your Income Trusts or Dividend Funds does not get reported to CRA, or Revenue Canada on a dollar for dollar basis. Some Income is received as a return of capital, some as capital gains and some as dividend income. For example, investment earnings last year were close to $800.00 from one fund, for one Investor. The T3 Form she received reports a much smaller figure, $429.00, I believe. Due to the preferred tax treatment of Income Trusts, the rest of that income is reported as a return of her money.
Many an investor has a problem not knowing how to secure a steady and reliable fixed income source. Seniors cannot afford to loose their capital. Neither could they live retirement years on severely reduced returns from the guaranteed investment certificates, the GIC or Term Deposit. Equity Funds are still out of favor because Investors have not yet made the distinction between the frothy bubbles of the high tech stocks, the devaluation of equity funds and the promise of a steady income from Income Trust Mutual Funds. For too many, the term Mutual Fund has not yet recovered its sweet savor. Enron Officials still make the six o'clock news, flanked by an escort of the New York Police finest on their way to an appointment for sentencing with the judge of the day. Meanwhile, in Canada, not all Investors in the Eron Mortgage fraud have received their money back. And from Nortel Networks we still hear promises of great returns to come.
The poor, (as in pitiable), Investor is still confused and is in fact a good deal poorer because American Stocks and hence mutual funds have just about all given poor rates of returns for the past five years. The huge difference in investing in stocks compared to investing in mutual funds means that investing is Stocks carries a bigger risk because you must guess which one of the thousands of stocks to choose. This is not unlike placing a bet at the horse races. If you have no insider information on a specific stock, then there goes your money. And this could mean huge chunks, if not all of it. Investing in Mutual Funds on the contrary allows you to choose a fund, have the Fund Manager pick the basket of stocks, then design a strategy to reduce your risk. If, for example, one of those stocks in your Fund Manager's list was to perform poorly, you and he would have the other 99 Stocks or businesses to take up the slack. In a perfect world, you would not even notice that you held a Nortel or an Enron stock in your mix.
Mutual Funds therefore give advantages like diversification into different businesses and sectors, different countries, different management. They offer lower costs especially if you trade less. You enjoy economies because the Fund managers buy in bulk. You get special tax advantages. Special fund managers lend their expertise as Investment Managers to help you make decisions on your own investment selections. All of these are special advantages to all Investors investing in mutual funds generally. The same is true of income trusts funds.
I recommend that Beginning Investors and Seniors should favor only those Income Trusts that are organized as mutual Funds. We already listed their benefits over the single-stock pick Income Trusts. You could select a winner stock by chance, and consider yourself a Wiz Kid. On the other hand, you could choose a dud. Then, there goes your money. As an investor you ought to realize that these Trusts have a specific objective to deliver a specific monthly payment to their subscribers. You can tract the payment history of the fund you plan to select. Many would promise to pay from four cents to six cents per unit. So you could calculate the return on your money if the payments they promised were in fact made. Usually, these returns rival GIC returns. But, they lack the guarantees. So, you could be promised a 5% or 6% rate of return on your money as a monthly payment. In addition to that, many of these Income Trusts have delivered much higher rates of returns for three to five years. Unit prices have often increased as well so that at the end of one year, a $10,000.00 Investment could increase to $11,500.00, for example, in addition to delivering anywhere from $30.00 to $100.00 each month as a regular monthly pay cheque. This is not intended as investment advice. I cannot predict the returns on any fund. In fact I encourage you to seek investment advice from your own professionals.
If you are in the market for investment income, I would recommend generally that you select a good mutual fund style Income Trust as a reasonable income source. Some Advisors scare Investors away with the fear that the Income Trust market could fail. While that may have a higher probability with a single-business Income Trust, with the Mutual Fund style income trust, the possibility of drastic losses smilar to the technology bubble burst are more remote. In fact, many an Income Trust mutual fund is a balanced fund. Balanced Funds are the funds recommended in the industry for those Investors and seniors averse to taking unnecessary risks. This is why I encourage Investors to use Income Trusts as a preferred Investment Income source. You can join the dialogue, judge for yourself and learn by visiting the Blog on the subject with this link: http://www.investinginincometrusts.blogspot.com .
Now, I believe Investors are beginning to understand the difference between an investment in a single business organized as an Income Trust and a Mutual Fund Income Trust. Investors still need more help to remove much mis-information in the debates over the safety and risk levels of Income trusts. You will be pleasantly surprised at the wealth of information available on the clever, tax-saving strategies for income trusts. The savings potential are sufficiently large to rival the new ideas for huge savings with fast repayment of a mortgage.
You heard it here first. My call now is that Income Trusts are the way to go. Pension Funds and Institutional Investors have yet to complete their massive entry into the Income Trust market because of bad press and intense political scrutiny. Politics ought not to have a place in the pocket books of Canadian Investors. Unfortunately in Canada, our politics this time around have hit seniors and other investors very hard in places where it really hurts.
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Alfred Fraser, MA, is a Debt Specialist, and Financial Advisors' Coach. He demonstrates techniques that fast pay mortgages to deliver spectacular savings to Clients. Explore these unique Investment ideas further at http://www.mortgage-freedom.com . You can reach the author at:
Consumer Credit Solutions
720-999 West Broadway Ave
Vancouver, BC, V5Z1K5