Contact: Judy Culford

November, 1998

Phone: (519) 663-2252

New Analysis Revolutionizes How to
Choose Best Investment Strategy

According to respected leaders in the financial industry, a new approach has been developed that fundamentally changes how Canadians should choose the best investment strategy. It even goes as far as proving that sheltering investments inside RRSPs is generally the right strategy, but not always.

 "Talbot Stevens' new After-Tax Income analysis revolutionizes the process of choosing the best investment strategy. In some cases, unregistered equities can be better than RRSPs", says Wayne Lang, a senior investment advisor with Equion Financial in Toronto. Other industry leaders agree.

The analysis is the result of over two years of research by Talbot Stevens, a London, Ontario based financial educator, speaker, and author of Financial Freedom Without Sacrifice. Prompted by the threat of significant tax increases in the now cancelled Seniors Benefit legislation, Stevens recognized that it was critical to re-evaluate all investment strategies in terms of their ability to produce after-tax, after-clawback income.

Goal-Based Evaluation. "For income-based goals like retirement and education, after-tax income is all that matters. This is not the same as looking at after-tax returns," explains Stevens. "If your goal is to produce the most income over a 20-year retirement, then it only makes sense to evaluate investment approaches in terms of their ability to produce After-Tax Income over a 20-year period.

"Unfortunately, almost all existing analysis of investment approaches, including my own until recently, compares before-tax values at some time in the future. Professional advisors know that comparing before-tax values of strategies that are taxed differently can lead to the wrong conclusions."

To illustrate the importance of focusing on after-tax income, would you rather have $100,000 of RRSPs or $80,000 of unregistered equity funds? While 100 is certainly "bigger" than 80, will the RRSPs really buy you more food over a 20-year retirement period?

Accurate analysis of the math, tax, and perhaps most importantly, human nature parameters, is not simple, but it is essential to identifying the strategy that produces the most after-tax income over the desired time period.

"Perhaps due to the complexity, After-Tax Income analysis of fundamental investment strategies has, to the best of my knowledge, never been done," claims Stevens. "Between four and seven key parameters are critical to specify an individual's unique situation. One of the most important is the human nature factor of what is done with the RRSP refund. With the refund reinvested, RRSPs generally are better than unsheltered investments. But not always, as we will see."

 After-Tax Income Example. Consider Anne, a 60-year old B.C. resident in the top 54% tax bracket who expects to stay in the top bracket. She plans to retire at 65 and wants to invest $1,000 today to produce the most after-tax income over an expected 20-year retirement period, until age 85. After factoring in the 7% after-tax impact of the Old Age Security clawback, her marginal tax rate after 65 will jump to 61%. She wants to invest in conservative fixed income investments like GICs and expects to average 4.5% returns.

In Anne's situation, sheltering her $1,000 GIC investment inside in an RRSP will produce a 20-year After-Tax Income (ATI) of $36. If Anne is a very disciplined investor and reinvests all of her $540 RRSP refund, the $1,540 in RRSPs will produce a 20-year ATI of $55, a 54% improvement. If, however, Anne invests her $1,000 in unregistered GICs averaging 4.5%, she will produce an after-tax income of $65 a year from age 65 to 85. This is an 82% increase over the $1,000 RRSP investment, and an 18% improvement over RRSPs where every penny of the refund was reinvested. 

Stevens warns that After-Tax Income conclusions are very specific to the individual's situation and goals. Because ATI results are very dependent on between four and seven key parameters, no general rule-of-thumb conclusions are possible.

Next, we will focus on under­standing how, in some cases, unregistered investments, especially equity funds, can produce more after-tax retirement income than RRSPs.

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Talbot Stevens is a financial educator, industry consultant, and author of "Financial Freedom Without Sacrifice" and "Dispelling the Myths of Borrowing to Invest". For other story ideas, visit the Free Resources menu of For more information, contact Judy Culford, Communications Director for Talbot Stevens, by calling (519) 663-2252, or emailing