There are many potential pitfalls on the road to financial security. Our Investment Planning Advisors*, who work exclusively with dentists, tend to see common errors that may hinder financial success. These are some they typically see and how you can avoid them.
- Not having concrete savings goals
Goals are at the core of any sound financial strategy. They help you determine how much you need to save and how much risk to take on to achieve objectives. They also help you stay on course in times of market volatility. An advisor will ask the right questions to help define your goals.
- Paying more tax than you need to
There are many tactics available to help you be as tax efficient as possible. The best way is for a financial planner to work with your accountant to create a comprehensive tax saving strategy for the short and long term.
- Not starting early enough
Compound interest is a powerful tool for increasing your wealth—the earlier you start, the longer your savings have to grow. For example, if you were to save $1,000/month for 30 years at 5% interest, you would earn over $475,000 in interest. If you were to save $2,000/month for 15 years, you would invest the exact same amount, but the interest earned would be about $177,000—a difference of nearly $300,000!
- Paying too much in fees
Fees can significantly eat into your earnings over time. For example, the difference between a 5% and a 4% return in the example above would translate to a loss of nearly $140,000 over 30 years! Due to CDSPI’s group buying power, you pay management fees that are generally lower than what you would pay at a bank or mutual fund company for a similarly managed fund. This means more of your hard-earned money is invested and growing for you.
- Taking more risk than you need to
If your investments are on target to meet your goals, there is no need to take on more risk than is necessary. For example, you may have a higher proportion of equities than you need, or your investments may be higher risk than required. Similarly, you need to take on enough risk to meet your goals. A financial plan helps you define a target and make the right investments to achieve it.
- Underestimating your needs in retirement
For most dentists, the goal is to maintain the same lifestyle in retirement that they had while working. Canadians are living longer, healthier lives~ so that needs to be incorporated into your plan. In fact, your plan will project multiple scenarios based on different life expectancies, rates of inflation and other variables.
- Not having the right retirement withdrawal plan
Withdrawals from registered and non-registered plans, CPP, OAS and other sources need to be coordinated for maximum tax efficiency.
- Not having a tax-efficient estate plan
It goes without saying that you want to leave as much as possible to your beneficiaries. There are several strategies available, such as permanent insurance plans, trusts, and corporate structure options, to help you achieve this. This will be an essential part of your overall financial plan.
Start now.
It’s easy to avoid mistakes with the right advice and a financial plan in place. We invite you to take the first step by speaking to a non-commissioned Investment Planning Advisor who understands the unique needs of dentists. This service is provided as a member benefit of your dental association.
investment@cdspi.com t: 1.800.561.9401
* Advisory services are provided by licensed advisors at CDSPI Advisory Services Inc. Restrictions may apply to advisory services in certain jurisdictions.
~ Source: Health Canada, 2019