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The Benefits of Segregated Funds for Older Investors

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For older investors, segregated funds provide the benefits of a low-risk option with good returns.

What are segregated funds?

Sold by Canadian insurance funds and advisors, segregated funds are a type of investment vehicle that allows your money to grow, while providing certain guarantees such as reimbursement of capital upon death. Put simply, segregated funds offer you the growth potential of a mutual fund with the guarantees of life insurance.

While those interested in avoiding market risks used to focus on GICs and short term bonds, particular segregrated funds now allow older Canadians the full ability to take advantage of the upside of investments with protection against losses!

Advantages of Segregated Funds

a) If you are under the age of 70 as a new investor, most segregated funds guarantee 75% or 100% of your principal investment over 10 years OR when an investor dies, as long as you are under the age 0f 70. For older investors, Empire Life, a large Canadian insurance company, now has a great segregated fund offer with 100% guarantee for all clients who are under 80. This 100% death guarantee has some real value if you are 70+. This benefit becomes very valuable for an individual who is not in great health (there is no physical health check required). This ability for an older investor to still have a 100% death benefit guarantee is crucial to this opportunity as it means that the guarantee might kick in over a much shorter period than the traditional 10 years.

b) Because it is considered an insurance product, the proceeds (on death) for non-registered money will pass directly to your beneficiaries’ tax free and without probate.Segregated-Funds-Benefits

c) Segregated funds are not only offered as Balanced or Income funds. Traditional “higher risk, higher reward” asset class funds are also available. For example, Empire Life’s Elite Equity Fund has an annualized return of 10% going back to 1969.

d) Unlike mutual funds, the segregated funds can be reset up to twice a year. If the value of your funds increase, you get to lock in a higher floor value.

e) As an example, Empire Life only charge fees in the 2.5% to 2.75% range. While this would seem high in comparison to an ETF or index fund, the principal guarantees, reset features, and avoidance of probate fees make this investment significantly more valuable for older investors.

If this article was of interest to you, read about why an age-based investing strategy might not be right for you!

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