October 1999

Combination Strategy Plans
Turbocharge Financial Success

© Talbot Stevens

Last month's Strategy Sheet introduced how using conservative leverage as a complement to RRSPs produced a combination strategy approach that is better than either strategy individually.

Although good financial advisors do it everyday, I predict that the use of what we might call combination strategy plans will become more common, particularly as the financial industry continues to evolve from a product sales model to more value-added financial planning.

Three important benefits are realized by using any combination strategy approach.

1. The most important benefit is that combining several strategies satisfies the overlooked need to diversify by strategy.

While there has been much discussion about the importance of diversifying by asset class (equities, bonds, and cash), geographically, and even the need to diversify by management style (value, growth, bottom-up, top-down, etc.), there has been little focus on the need to not have all of our eggs in any single strategy.

Using more than one strategy is the best protection against the political risk that the government can change the rules in a negative way. Recall that the clawbacks of the cancelled Seniors Benefit legislation would have decreased the after-tax income from RRSPs by about 30%.

The RRSP-leverage combination, where RRSP tax deductions are used to make payments on an investment loan, reduces the political risk faced by using either strategy individually.

2. The most appealing combination strategies maximize the use of tax deductions by automatically directing them towards the individual's defined goals. The easiest strategies to combine are those that produce tax deductions or credits. The first strategy produces tax savings that are directed into a second strategy.

3. Automatic or planned commitment to defined goals is the third important benefit. By planning in advance to direct tax savings into another strategy, you increase the conscious and financial commitment to your goals, and hence financial success.

Consider the RRSP-RESP combination that can turn a $5,000 investment into $7,400 directed towards two of the most common financial goals, retirement and education. Someone in the 40% tax bracket contributes $5,000 to his or her RRSP, generating a $2,000 tax refund which goes into an RESP. As a bonus, the $2,000 RESP contribution produces a 20% government grant or gift of $400 that is added to the RESP.

A few of the strategies that are effectively combined include: RRSPs, leverage, RESPs, labour sponsored funds, and debt paydown.

Use these or other combination strategy plans to turbocharge your financial success and diversify by strategy, automatically increase commitment towards defined goals, and maximize the use of tax deductions.

For more information, visit