I don't know anything about the ALB.IR, but maybe you could fill us in.
Pengrowth was mentioned on this thread just a little while.
Now, here is a question from a chap who posted on <misc.invest.canada> who, unfortunately isn't on Silicon.
If anyone would like to take a stab at it, I'm sure we'll all be wiser. Thanks.
***************
From: "D. Zimmerman" <zimmerma@direct.ca>
Subject: systematic withdrawal plans and royalty trusts
I am a neophyte investor, so if this is a silly question I apologize.
Someone please explain the difference between receiving regular monthly income
from a systematic withdrawl plan and regular income from a royalty income trust.
In the former, I understand, you begin with a fixed amount of capital in an
equity mutual fund, take out a little each month, and hope that in the long run
the value of the fund grows enough so that your capital is not exhausted. In the
the latter, you also get attractive monthly checks. The people who sell these
royalty income trusts say you get regular tax-advantaged income of 10% or 15% on
your capital. Sounds great in these days of low interest rates. After some
study, it is my understanding that a large part of this monthly income is a
RETURN OF CAPITAL, that is, that some of your own money is coming back to you on
a regular basis. This is not often explained by the salesmen. Obviously, if such
a return of capital continued indefinitely, your money would eventually be
exhausted - unless the value of the fund increases enough over the years to
offset the regular withdrawls. My question is simply: For an investor, is there
any real difference between a systematic withdrawl plan based on an equity
mutual fund and income from a royalty income trust, apart from the fact that the
latter involves oil and gas reserves? In both cases, an investor receives a
return of some capital on a regular basis, hoping that in the long run the value
of the asset will increase enough so that withdrawls will not come to an end. If
this question is on the right track, it may also be pertinent to observe that in
the last few years the asset value of most royalty trusts has declined in a
market in which the value of equity mutual funds has been greatly increasing.
Sincerely,
Don |
