**************************************************************************** TWO CENTS WORTH FINANCIAL PLANNING NEWSLETTER ISSN 1488-397X MAR, 15, 2001 BY DOUG HUDSON, MBA, CD **************************************************************************** You have received this letter because you subscribed to it. If you no longer wish to receive this newsletter you may unsubscribe here: http://www.rrsp.org/newslet.htm or by replying to this email with the word "unsubscribe" in the subject. You may distribute this newsletter as you wish. NEW AT http://www.rrsp.org - STOCK QUOTES You may now obtain stock quotes, get company data and charts or monitor your stock portfolio from http://www.rrsp.org Need an advisor? Try here: http://www.rrsp.org/advisors/index.htm ************************************************************************************************** In this Issue - GLOBAL AGING AND CAPITAL MARKETS In mid-January of this year I was contacted by Maureen Culhane and Matthew Brennan of the Strategic Relationship Management Group, Goldman Sachs, and asked about the Canadian Pension Industry and RRSP's in particular. Maureen Culhane was authoring a study entitled "Global Aging - Capital Market Implications". I pointed her to the Statistics Canada, IFIC and a few other sites that I thought may be helpful. In appreciation Goldman Sachs sent me three copies of this report which arrived today. I just read it. The report deals with the problems associated with an aging population and what some countries are doing and not doing to help alleviate the problem. Why is this a problem? Well, in Canada in the year 2000 there were 4.1 actual workers for every person aged 65 and over. It is predicted that in the year 2015 there will only be 3.2 actual workers for every person over age 65 and that this will fall to 1.8 in the year 2050. This means that there will be relatively fewer taxpayers supporting a population that requires more public support in terms of OAS, CPP/QPP and increased health costs. I think everyone would agree that we have had some tumultuous times in the markets of late. The disintegration of the tech sector and the rest of the market being dragged down with it has shaken investor confidence. As I write this the NASDAQ has hit a new two year low. Nortel has gone from a high of $124 per share to $27 in a year. The newspapers have reported that we have had the worst RRSP season since 1995. Dazed investors don't know what to do. Amongst all this there is one thing that is certain. Due to factors such as the "baby boom", increased life span, medical and health care improvements - the population is getting older. Boomers are either preparing for their retirement or they are retiring and that is good for financial markets. The Goldman Sachs report focuses on eight countries: US, Canada, Japan, UK, Germany, France, Italy and Spain. These are the eight countries that hold 92% of the world's financial assets and 72% of the world's gross domestic product. Goldman Sachs predicts that as boomers focus on retirement, the capital markets in these countries should grow from $65 trillion to $144 trillion US dollars from 2001 - 2010. So what does that mean for investors? Well first off, over the next ten years, the financial services sector is likely to do well. Demographers have been telling us this for years. A good example of this last year is the Dynamic Wealth Management fund. As of February 28, 2001, this fund had a one year return of 48.44%. It is made up of companies in the financial services industry - companies that have posted solid returns on equity and have been trading at traditional "old economy" price earnings multiples. If the capital markets grow as predicted, companies in this sector can not help but make healthy profits. Some analysts predict an almost fourfold increase in capital markets. Is this unreasonable? The Investment Fund Institute of Canada (IFIC) reports that the amount of money invested in mutual funds in Canada was $24.9 billion CDN dollars in 1990. As of January 2001 IFIC reports $425.5 billion CDN dollars invested in funds. Think about the increase in management fees. Two percent on $425 billion is a lot more that 2% on $25 billion. If this trend continues a person may be better of buying a fund company's stock rather than buying their funds. If the markets have taught us anything over the last year it is the importance of diversity, value and balance. I'm not suggesting that anyone cash in their investments and put it all into the financial services sector. This is a sector that goes in and out of favor as Greenspan raises and lowers interest rates. However, over the long run it cannot help but do well. To obtain a copy of the report "Global Aging - Capital Market Implications" by Maureen Culhane, contact Daniela Panczel of Goldman Sachs at (212) 902-9065. *********************************************************************************************************** ADVERTISORS: To advertise in this newsletter or at http://www.rrsp.org/ contact Doug Hudson here: doughudson@rrsp.org *********************************************************************************************************** DISCLAIMER: Nothing in this newsletter should be misconstrued as an offer to sell mutual funds. Mutual funds and other investments should be purchased through a qualified represenative in your provice, licensed to sell these securities, and only after you have read the prospectus. Note that past performance is no guarantee of future performance.