When’s a 10% return better than 11%?

Posted by Ravi Gulati | Posted in Financial Planning | Posted on 21-04-2014

In the quest to grow wealth, many people believe they have to seek out the highest return possible. However, investors often overlook their real objective: to generate the most money after taxes. That’s why it’s difficult to believe that, over the long haul, you can actually become wealthier by owning a fund that generates a 10% annualized return with no turnover than one that has an 11% return and 100% turnover.

Here, we explore how the power of compounding and the tax system can be leveraged to help grow wealth over time……….

MAXIMIZE REGISTERED PLANS

Registered savings plans are easy giveaways from the government, says Golombek.

The problem, he says, is “we still meet…clients who haven’t opened [accounts such as] TFSAs because they say it’s too much trouble,” notes Golombek.

Regarding RESPs specifically, he suggests people do more than contribute the annual bare minimum of $2,500. Most stop at this amount, finds Golombek, since government grants (which are equal to 20% of the amount contributed) are capped at $500. People should aim to reach the $50,000 lifetime limit of RESPs

When’s a 10% return better than 11%? | Advisor.ca.