THE RIGHT (AND WRONG) APPROACH TO GROWING YOUR PRACTICE EARNINGS

It doesn’t take a math whiz to recognize that a 1.25 per cent return on your money is next to nothing. Yet, that’s exactly the rate some banks have paid with what they call “high interest” savings accounts.

Of course, there are practical reasons for dentists to have business chequing accounts. However, by keeping a significant amount of money in that type of account, you could potentially miss out on thousands of dollars in growth if those earnings were earning a better rate of return in a different environment.

Fortunately, your investment advisor can show you how to benefit from a better environment for your practice funds ─ such as through the use of a non-registered investment plan using tax-advantaged investment funds (see chart below).

As your practice grows, your advisor can show you other ways to enhance your business earnings (such as through use of tax-reducing strategies and by establishing an individual pension plan).

As shown in the hypothetical example on the right, $10,000 invested over a 10-year period in a corporate class fund structure could put you ahead by over $4,000 — compared to a business bank account offering a low rate of return.

Assumptions for the CDSPI Investment Account for Business: Based on an individual in the highest tax bracket, investing in CDSPI Corporate Class funds.

Assumptions for the business bank account: Based on an individual in the highest tax bracket, earning interest income only in a bank savings account. The 1.25 per cent interest rate is based on the business account rate offered by a major Canadian bank, as of March, 2011.

For More Information:

Investment Account

IPP

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The Growth of $10,000 Over 10 Years

Savings Vehicle

Annual Rate of Return

Total Savings
(after tax)

CDA Investment Account for Business

5% (assumed)

$14,800

Business Bank Account

1.25%

$10,700

 

Difference = $4,100

For no-cost insurance and investment planning advice when opening a dental practice, contact an advisor at CDSPI Advisory Services Inc.