All of the individuals mentioned above may be subject to personal liability as a result of their professional activities. Creditor protection is critical for any individual whose work might jeopardize personal assets. A segregated fund is held within an insurance contract, so assets may be protected from creditors under certain conditions.

Assets of the annuitant may be protected if the named beneficiary of the contract is a spouse, parent, child, or grandchild of the annuitant, or if the named beneficiary is irrevocable. In Quebec, the named beneficiary should be a spouse, parent, child, or grandchild of the contract holder.

While the creditor proofing value of segregated funds is effective in most situations when certain conditions are met, clients should consult legal advisor's to discuss their specific situation and ensure their investments are protected from creditors.

Estate Planning

The death benefit paid from a segregated fund does not have to pass through the estate. If a beneficiary is named, the death benefit will be paid directly to the beneficiary. Costs of probate and executor fees are saved and delays are avoided as the beneficiary does not have to wait for the estate to be settled. In addition, privacy is preserved because segregated fund contracts are not public documents as are assets distributed through a will.

Death Benefit Guarantees protect the principal invested in segregated funds. Most contracts guarantee 100% of deposits reduced proportionately for withdrawals. Some segregated fund contracts decrease the amount of death benefit as the annuitant reaches certain ages, therefore the information folder accompanying segregated fund purchases should be reviewed carefully before investments are made.

Conservative Investors

Segregated funds allow investors worried about financial risks to participate in the returns of the stock market while safeguarding their principal. Deposit guarantees range from 75-100% of deposits less withdrawals depending on the contract. Reset options are also common and allow investors to lock in appreciation and increase the value of their guarantees.

Segregated funds may provide some answers for investors seeking creditor protection, estate preservation or security of principal. The information folder and annuity contracts provided by the company offering the segregated funds should be reviewed carefully before any decision is made.

Investing in a variety of assets and individual styles help reduce risk and increase returns. Markets and the economy are in a constant state of change. Various investments react differently to these changes. Some may increase in value at the same time that others decrease. When both types are combined in one portfolio the result is diversification. By including investments that do not react the same way to market changes, such as a change in interest rates, the strength of one will balance any weakness in the other.

Diversification by asset class

Stocks, bonds, and cash (short-term, money-market instruments such as treasury bills) are the three major asset classes. Each class will perform differently in any given year and one class will usually do well, even when the other two are not performing as well. Consequently it makes sense to hole some of each asset class in your portfolio.

Diversification by management style

When buying a segregated fund or a mutual fund you are also buying the management skills of the fund manager. Value managers buy under priced investments and hold them in the fund until their value increases. They then sell these fully priced investments and reinvest in new, undervalued investments. Growth managers use various indicators to identify possible growth stocks and hold them until a target price is reached. Investing in funds that use both styles will increase your chances of good performance every year.

Diversification by country or region

The small size of Canada's market and our dependence on resource based stocks makes it prudent to invest in foreign markets as well. Investing in other countries and regions helps decrease the impact of any one market on your portfolio.

Diversification by market capitalization

By combining small-, mid-, and large-cap stocks in a portfolio, you benefit from the growth potential of smaller companies and from the stability of larger companies. (In Canada, large-cap stocks are defined as having a market capitalization of $1 billion or more. Small-cap stocks have a market capitalization of $500 million or less. Mid-cap companies fall in between.) Small and mid cap companies have greater potential for spectacular growth than large-cap stocks, but when investors are nervous they purchase the large-cap stocks they are familiar with.

Diversification by asset class, management style, country or region, and market capitalization will help your investment portfolio weather the changing economic and market conditions.

Seeking Advice

Asset management can consume a considerable amount of time and energy. Today's complex financial marketplace and changing tax laws can make it even more difficult to keep up with the changes and how they affect you.

Because of these implications, it is highly advisable to seek a qualified professional to help you understand all the complexities involved.

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