A solid investment plan can withstand market volatility
 
Retirement dreams can come true if you have a solid investment plan in place. In this four part series we look at the rules of successful retirement planning.
 
RULE #3 Invest regularly
 
Believe in the power of compounding and make it a priority to pay yourself first. Skipping just one annual RRSP contribution of $5,000 could reduce the value of your retirement nest egg by more than $34,000 after 25 years (assuming an 8% average rate of return, compounded annually).
 
If you’ve been holding onto your cash, ease back into equity mutual funds by setting up a Pre-Authorized Contribution (PAC) Plan. You’ll automatically invest a fixed amount of money every month in your chosen mutual funds.
 
This graduated approach is called dollar cost averaging. This strategy helps you weather turbulent times. Your regular fixed dollar contribution naturally buys more units when prices are lower, and fewer when prices are higher.
 
Dollar cost averaging minimizes risk and maximizes returns. When you purchase the same dollar amount of a particular mutual fund at a regular interval, you’ll naturally buy more fund units when prices are lower, and fewer fund units when prices are higher. Over the long term, this approach tends to reduce the average price you pay for units, allowing you to enjoy higher potential gains.
 
More money in your pocket
 
If you set up a PAC Plan for your RRSP, you can request permission from Canada Customs and Revenue Agency for a reduction of tax at source. That way you keep more money in your pocket now, instead of waiting for your tax refund later.
 
Next week: RULE #4: Diversify
 
Mutual funds are offered through Credential Asset Management Inc. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Unless otherwise stated, mutual fund securities and cash balances are not insured nor guaranteed, their values change frequently and past performance may not be repeated. This article is provided as a general source of information and should not be considered personal investment advice, tax advice, or solicitation to buy or sell any mutual funds and other securities. ^®Credential is a registered mark owned by Credential Financial Inc. and is used under licence.
 
January 16, 2008