Friday, December 31, 2010

Yes! -- tax efficient investing still matters

It’s easy to be short-sighted in these uncertain economic times. Each day, you scan the business section of your newspaper or look online for concrete signs that the recession is receding. And even though the market now seems to be having more good days than bad, it still has some climbing to do. Which means that investment returns and interest rates continue to lag – and that makes it too easy to take a narrow focus on the short term and lose sight of your overall financial objectives.

It’s important to hold fast to the fundamental rules for a successful financial plan because they are proven principles for weathering any economic storm. Among the most important are:
  • Smooth out market cycles by staying invested for the long term.
  • Diversify your investments using effective asset allocation techniques.
  • Select investments that match your appetite for risk and take maximum advantage of the ‘miracle of compounding’.
  • And practice tax-efficient investing – an investing rule that assumes even more importance when returns and interest rates are low.
That’s why you should …
  • Make the most of your Registered Retirement Savings Plan (RRSP). Your RRSP is an exceptional tax-saving, nest-egg building investment – and you’ll get a maximum tax reduction by making your maximum RRSP contribution each year. Fill up unused past contribution room for even bigger tax savings this year and a much larger nest-egg over time.
  • Reduce taxes generated by your non-registered investments by selecting investments that benefit from lower tax rates – for example, investments that generate capital gains or dividends eligible for the enhanced dividend tax credit.
  • Make an annual $5,000 contribution to a Tax Free Savings Account (TFSA). Your contribution isn’t tax deductible but money and interest inside a TFSA is tax-free and so are withdrawals, which can be made at any time for any purpose.
  • Make the most of your spouse. Look into income-splitting with your spouse, having the higher-earning spouse contribute to a spousal RRSP, and/or having the spouse with a higher marginal tax rate make a prescribed rate loan to the other spouse in a lower tax bracket. When used correctly these ‘spousal options’ can effectively reduce a family’s taxes.
There may be other tax-reducing strategies that will work for you. A truly effective tax plan must be an integral part of your overall financial plan, investment program and life goals. Your professional advisor can help you put it all together in the best possible way for your unique situation.

Monday, December 13, 2010

Critical Illness insurance – why you need it

Critical Illness insurance – you need it not because you are going to die, but because you are going to live … and because you may have illness-related expenses that you may not have considered.

While you might be surprised at the growing number of Canadians who are being diagnosed with a critical illness at an increasingly early age, the good news is that medical advances are increasing life expectancy and there are much brighter prospects for surviving. Check out these statistics:
  • 70,000 Canadians suffer a heart attack each year and 1 out of 2 heart attack victims is under age 65 – but 95% survive their first attack*
  • 1 in 3 Canadians will develop some form of cancer – but 65% will survive at least five years*
  • After age 55, the risk of stroke doubles every 10 years and 1 out of 20 Canadians suffers a stroke before age 70 – but 75% will survive it*
  • Women have a 1 in 9 chance of developing breast cancer – but only a 1 in 27 chance of dying from it.**
  • Men have a 1 in 7 chance of developing prostate cancer – but only a 1 in 26 chance of dying from it**

You might expect that provincial or employee health plans will pay for all the expenses associated with critical illnesses like these but many are not covered.

The benefits of critical illness insurance are most important during the first few months after diagnosis when emotions and costs are typically at their most intense. With this type of insurance, you receive a lump sum cash payment, after a 30 day waiting period after diagnosis for any life-threatening illness covered by the policy, usually including the most common such as cancer, heart attack and stroke. The benefit is tax free under current tax legislation and yours to use any way you wish -- perhaps to pay for expenses not covered by provincial and health plans like these:
  • Many drugs or other medical expenses
  • Private treatment, a nurse, child care provider or housekeeper
  • Medical treatment outside Canada or in another province
  • Medical equipment – a wheelchair, scooter or home care bed
  • Retrofitting your home or vehicle to accommodate a wheelchair or chairlift
  • Pay off your mortgage, car loan, credit cards, lines of credit or business loans
  • Avoid dipping into your RRSP or your child’s RESP
You want to be able to focus on recovery not costs – and critical illness insurance can help you do that at a most critical time. Your professional advisor can show you how critical illness insurance can complement your other forms of insurance protection and fit into your overall financial plan.

*Disability Insurance and Other Living Benefits, CCH
**Canadian Cancer Society, 2006

Thursday, December 2, 2010

Emotional investing – the road to ruin

It’s a fact: Emotional investing doesn’t pay, it costs. Market study after market study has clearly proved that when investors are driven by emotions – jumping into and out of stocks looking for the next winner, pouring money into mutual funds following a period of strong market growth, and then moving to the next ‘hot’ asset class during market troughs – they often lose, and sometimes lose big.

Here’s an example: In 1999, the Canadian equities market jumped a spectacular 31.7 per cent, prompting a lot of investors to hop on board in the year 2000. Over the next two years, the market went negative, declining by over 12% in each of those two years and many of those ‘heat seeking’ investors bailed out. So, not only did they miss the big jump of 1999, they also absorbed large losses when they cashed out. However, had those investors stayed invested for the entire 1999-2007 period they would have enjoyed overall returns of close to 30 per cent.*

And that brings us to one of the prime rules for investing success: Trying to time the market or a stock almost never works. But time in the market does by delivering better overall returns – especially when you couple your long-term stay the course strategy with:

  • Effective asset allocation Markets are always volatile to some degree or another – it’s in their nature – but with a carefully selected and properly diversified ‘mix’ of assets, you can effectively reduce risk, and enhance your chances of achieving your long-term goals.

  • Dollar cost averaging This is the strategy of buying a stock or fund on a regular basis, at an amount you can afford, regardless of the stock or fund price. It is a systematic buying approach that saves you from trying to time the market, averages out the price of your stock or mutual fund units, and ensures you are always participating in the market so you will never miss out on periods of excellent returns.
When you invest with reason instead of emotion and wrap other effective strategies around the ones introduced here – such as investing according to your tolerance for risk, achieving instant diversification through a portfolio mutual fund, and dollar cost averaging to eliminate any concerns you may have as to when the right time to invest is – you will be well on the road to financial success, regardless of short-term market or economic downturns. Your professional advisor can make sure your investing strategies are right for your personal needs, expectations and goals.

*Source: Investor Economics as cited in Managing Emotions When Investing, Investors Group Inc. 2008

Sunday, November 21, 2010

Can you over diversify your portfolio?

Every investment expert will tell you the same thing: Be sure to diversify your investments. And really, it’s just plain common sense – limit the type of investments you make and they’re easily squished by a single bad market cycle; but diversify your investments among all asset classes – cash, stocks, bonds, mutual funds and fixed-income investments -- and your chances for loss are radically reduced while your opportunities for long term growth are vastly enhanced.
But is it possible to add too many investments to your portfolio so that you actually begin subtracting from portfolio performance instead of adding to it? The essential answer is ‘absolutely’ – which is why the key is to understand the objective of diversification and how it applies to your portfolio.
The basic purpose of diversification is to control risk. The market goes up and down; it always has and always will. But making emotional buy and sell decisions in response to dramatic market moves is one of the biggest threats to the well-being of any investor’s portfolio. The solution is two-fold: diversify to cushion your portfolio from regular market ‘spikes’ and ‘corrections’ and stay the course to flatten out inevitable market fluctuations.
By combining investments with different return patterns, you reduce the variability of the portfolio as a whole. Look for investments that perform well at different times – that way, some parts will produce above average returns while other parts may be producing below average returns … but the combination of all parts will create a portfolio with relatively less risk overall.
But be sure you are really diversifying. As long as you add elements to your portfolio that are truly different, you are diversifying and there is a benefit to your portfolio. The real risk is adding things that are not diverse – such as adding another petro stock to your existing array of petro stocks, which has no risk-minimizing benefit.
Diversification is more important than the number of investments you hold. The return on your portfolio is simply the weighted average return of each part of your portfolio taken together. Ten mutual funds returning 8 per cent will deliver a portfolio return of 8 per cent – exactly the same as if you held five of those funds … or one. The key is how consistent will that 8% return be over time. A diversified approach smoothes out the bumps caused by market volatility ensuring a more consistent return over time.
The bottom line is this: portfolio performance is dictated by investment choice … not investment quantity. Talk to your professional advisor about designing and constructing a well-balanced, effectively diversified investment portfolio that will meet your financial objectives and match your risk comfort level and time horizons.

Tuesday, November 9, 2010

Tax-free savings account a mystery to many

The CBC reported today that "While more than one-third of Canadians have opened a tax-free savings account, a survey by Leger Marketing found nearly 40 per cent don't know about investment options within a TFSA."

While the TFSA (Tax-Free Savings Account) may be the best thing since the RRSP (Registered Retirement Savings Plan), the fact that they are so widely misunderstood means that many people who have opened a TFSA may not be getting the most out of it.

As with any investment, it is important to ask the right questions before you take action. A good advisor can help make sure that you're getting the most 'bang for your buck'.

Let me know what you think ... Do you understand the rules governing TFSAs?

Source: Finance

Wednesday, November 3, 2010

It is basic – an RRSP is good for you

When it comes to investing and saving on taxes, you have options. Within your financial planning process, you should look at all of them and select those that work best for your unique situation. But there is one investment option that’s a no-brainer. The Registered Retirement Savings Plan (RRSP), since being introduced 53 years ago, has become the basic foundation of almost every financial plan. RRSPs have stood the test of time as the best tax-saving, income building vehicle for most Canadians.

Here are the keys to making the most of your RRSP opportunity.
  • Contribute to the max Always make your maximum allowable contribution each taxation year to get the most in immediate tax savings and to maximize the potential long-term growth of your RRSP investments. You’ve still got some time to contribute for 2009 – the deadline is March 1, 2010 – and you’ll find your maximum allowable contribution room on the Notice of Assessment sent to you from the Canada Revenue Agency (CRA) after filing last year’s income taxes.
  • Contribute regularly Making automatic monthly contributions to your RRSP is much more rewarding than contributing a lump sum once a year. Here’s how: By investing $250 regularly each month at a compound rate of return of 8%, you’ll have $372,590 in your retirement nest egg 30 years from now.* But if you wait until the end of each year to invest a $3,000 lump sum, you’ll have only $339,850. By investing monthly, you’ve added $32,740 at retirement without contributing a dollar more.
  • Play catch (up) If you have unused contribution room, fill it up as soon as possible for additional tax savings and longer-term tax-deferred, compound growth. You can fill your unused contribution room in a single year or over a number of years until you reach age 71.
  • Borrow to save An RRSP loan can be a smart way to maximize this year’s contribution or to play catch up on your past contributions – but you must get the loan at a low interest rate and pay it back as quickly as possible. A best practice: Use your RRSP tax savings to pay off the loan.
  • Spousal savings A higher-earning spouse can contribute to an RRSP for the benefit of his or her partner and enjoy a tax reduction on the contributions.
There are other RRSP strategies that can work for you – the right ones, incorporated into your overall financial plan, will help you save on taxes every year, retire with more and enhance your estate. Talk to your professional advisor about what’s best for you.

* The rate of return is used only to illustrate the effects of the compound growth rate and is not intended to indicate future returns on investment.

Thursday, October 21, 2010

Dump-and-chase – works in hockey (sometimes) but not in investing

If you’re a hockey fan, you know all about the dump-and-chase strategy. That’s when the offensive team gives up possession of the puck by shooting (or ‘dumping’) it into the attacking zone and then swarms after it to regain possession and set up a scoring chance.

In these difficult economic days, too many investors are pursuing a similar strategy with their investments. It’s not a good strategy, especially for long term success – here’s why.

  • When markets are volatile, it is very difficult to predict when a stock will go up or down. That is causing panicky investors to quickly dump underperforming equity investments (a stock or equity mutual fund) and go chasing after others that ‘look like’ they might go up. But ask any expert and they will tell you that quick selling to buy ‘the next big thing’ is almost impossible in practice.
  • There is no doubt that risk is a fact of life when it comes to financial markets. But there are different kinds of risk and one of the biggest is jumping into and out of the market instead of staying invested. That is a costly strategy because market upturns can be very sudden and a ‘dump-and-chaser’ can easily miss them.
  • The inescapable fact is: it simply doesn’t pay to chase performance. The keys are to stay invested for the long term and effectively manage risk by carefully selecting investments and employing an effective asset allocation and diversification strategy that takes full advantage of opportunities in any market.
There’s no single diversification formula that works for everyone – it depends on your goals, financial situation, the amount of time you have to invest and most importantly, your personal tolerance for risk. Your professional advisor can examine your portfolio structure and performance and help you put together a diversified portfolio that offers a comfortable blend of risk and return. No dumping-and-chasing required.

Sunday, October 3, 2010

Do you need a lifetime income guarantee?

Are you getting ready to retire or already retired? Are you looking for a secure, predictable, guaranteed retirement income? The answer could be a Guaranteed Investment Fund (GIF) with Lifetime Income Benefit.

A GIF (also known as a segregated fund policy) is a form of insurance that combines the growth potential of investment mutual funds – including built-in diversification, liquidity and professional management -- with the features of an insurance policy to provide the security of a guaranteed income for life. Depending on the features you choose, your GIF could provide:
  • A predictable income guaranteed for life, starting as early as age 50
  • Payments based on an income percentage that increases with age and will never decrease (unless withdrawals exceed the annual guaranteed amount) regardless of how your policy performs -- thus protecting you against the risks of market returns and volatility
  • Payments that can be deferred to increase the amount of the annual lifetime income
  • The possibility for income ‘resets’ – usually every three years – that can increase the amount of your income payments to help offset inflation. As your policy market value increases, you have the option of using those gains to ‘reset’ your lifetime income amount
  • Death benefit guarantees. When you die, your spouse, estate or another designated beneficiary will receive the greater of the market value of your GIF policy at the date of your death, or the death benefit guaranteed amount, which can range from 75% to 100% of all contributions allocated to the policy (less reductions for any withdrawals). You select the 75% to 100% guaranteed death benefit payout when you obtain the policy. Upon death, proceeds of your policy can be paid directly to a beneficiary other than your estate, thus avoiding the time and expense of probate
  • Access to your assets whenever they are needed but certain fees or RRIF minimums may apply to withdrawals. Withdrawals in excess of the annual guaranteed income amount will affect your lifetime income amount
  • For business owners and professionals, a GIF offers the potential for creditor protection of personal assets
If you’re looking for a measure of certainty in your investment portfolio and your retirement income, a GIF could make sense for you. Talk to your financial advisor about whether it’s the right fit for your financial plan.

Friday, September 24, 2010

As your life changes, so should your investment strategy

It is said that a constant in life is change. That is why the 'set it and forget it' investment strategy is outdated - especially when it comes to making sure that your investments will deliver the returns you need for the quality of retirement you want.

Let's look at how change can affect your retirement date, your retirement lifestyle and your requirement for retirement income:
  • Life expectancy is increasing. People are living longer and healthier lives and that means your retirement plan should ensure you don't outlive your income
  • It is no longer mandatory to retire at age 65 in most occupations. That means you may wish to work after age 65 to fund your longer retirement. Or, you may decide to continue working part time after retirement either to supplement your income or just because you want to
  • Companies are learning to value older, more experienced employees. Yours may offer incentives that will keep you on the workforce after the old-school 'traditional' retirement age of 65
  • Defined benefit pension plans are becoming less common. That means a growing number of employees can no longer assume they will have a 'defined' retirement income. Instead, these employees must bear more responsibility for their retirement plans and, perhaps, more uncertainty about a feasible retirement date
So, the key is to maintain a flexible investment strategy that allows you to make revisions on your own schedule as your personal 'life changes' dictate. The lifecycle approach to investing takes into account your financial needs and ability to save at the three main stages in your life:

Ages 25-40 - These are the saving years when you typically have higher expenses and less to invest. You should maximize contributions to your Registered Retirement Savings Plan (RRSP). However, because you have a long time horizon to retirement, you can also choose a more aggressive investment strategy that targets volatile investments that might go down in the short term but may produce higher returns in the long term.

Ages 40-60 - These are the wealth-building years. Your debt is reduced or eliminated so you have more capital to invest. Maximizing contributions to your RRSP is still a very important part of your retirement plan and, as your retirement years approach, you may want to redirect your portfolio into lower-risk, fixed-income investments.

Age 60 and over - These are the retirement years. You will likely need to begin tapping into your accumulated investments in order to sustain your retirement lifestyle. Focus on investments that preserve your capital but also consider growth investments that can add to your retirement income and protect against the effects of inflation over the extended years of your retirement.

There are other important aspects to your retirement planed based on an effective income investment strategy - such as diversification and asset allocation - and a professional advisor can help you make the best choices to suit your lifestyle, regardless of changes.

Tuesday, September 14, 2010

Financial planning beyond the numbers

What is a financial plan? Why do you need one? Good questions – and the answers should be as personal as your fingerprints. That’s because, even though financial planning might be perceived as a catch-all term for a set of steps and actions aimed at achieving financial security, your plan must be precisely designed for your unique situation and life goals. But to get you started in the right direction, here is a general answer to the first question: What is a financial plan?
  • A financial plan can include: investment planning, cash flow planning, insurance planning, estate planning, retirement planning, and tax planning.
  • To be successful, your plan should be developed according to the financial planning process, which includes:
    • Goal setting – to establish and prioritize your goals and concerns.
    • Data gathering – assembling all your financial info to understand your current financial situation.
    • Financial analysis – using your current and projected financial situation to find the best ways to reduce your taxes, assure you will have enough income to cover your expenses during retirement, meet your ongoing income needs, protect your family and income if you become disabled or die unexpectedly … and uncover any other personal financial questions that need to be answered.
    • Plan formulation and recommendations – discuss, review and decide on alternatives and solutions for achieving your financial and life goals.
    • Plan implementation – the steps you need to take to make your plan work.
    • Monitoring and plan review – your should review your plan at least annually or when major life events occur by looking at your important life goals, investment portfolio and performance, cash and savings management history, lifestyle protection
      (insurance), retirement planning, estate planning, and tax minimization strategies.
So, in a nutshell, that’s what a financial plan is. Now, to answer your second question: Why do you need one?

That’s easy: If you have an income, a family (or the hopes of one), dreams of a comfortable retirement, or any of the dozens of other personal financial or life goals, you need a financial plan!

Describing a financial plan is one thing, putting together a successful plan tailored specifically for you is another – and it can be a complex process. Your professional advisor can help you develop the plan that works for you and keep it on track to meet your ever-changing needs.

Tuesday, September 7, 2010

When is the right time to invest?

You’ve managed to put aside a little extra cash or you’re expecting a nice tax refund and wondering what to do with the money. You’re thinking about investing it – maybe in your Registered Retirement Savings Plan or by purchasing a few shares of this or that to add to your non-registered portfolio. But you’re hesitating – markets are volatile right now. Is it better to wait? When is the best time to invest?

The answer is: Make your investment as soon as possible. Here’s why:
  • Most seasoned investment professionals will tell you that it is almost impossible to time the market. They will also tell you that time in the market is much more valuable than attempting to time the market
  • Markets move up and down but the historic trend is up – so staying true to a long-term investment strategy delivers far higher returns than jumping in and out of the market
  • The best long-term strategy for most investors is to make your investments immediately – even if the market is at its lowest point of the year – and, even better, try to invest regularly instead of holding off and making a lump sum investment once a year
  • When you invest regularly, you accomplish three important investment goals:
    • You take full advantage of ‘dollar cost averaging’ – meaning you make your investment purchases (either in non-registered stocks or by acquiring more units in your RRSP) whether the price is lower or higher and, over time, this results in a reduction in the average cost of your investments while improving the potential for longer-term returns
    • You maximize the benefits of your RRSP. Your money grows tax-deferred inside your RRSP so regular contributions and the ‘magic of compounding’ can add thousands to your retirement nest-egg. For example, if you contribute $200 dollars a month to your RRSP (at an average compounding annual return of 8%)after 25 years you will have $190,205. But if you make a single lump sum contribution each year, you will have only $175,454 in 25 years
    • It’s much easier to come up with $100-200 each month (say through a Pre-Authorized Contribution – PAC – plan) than finding a lump sum to invest once a year
A regular and balanced investment strategy will ensure you achieve your financial goals. Your professional advisor can help you set up an investment plan that fits your budget and dreams.

Tuesday, August 31, 2010

Segregated Funds – an investment guarantee you can count on in any market condition

Market losses are on everyone’s mind in these volatile economic times. But there is an investment that guarantees to pay you back 75-100% of the money you originally invested, even if current market conditions significantly reduce the actual value of the investment. And, in addition to protecting your capital against losses, this investment also provides life insurance protection for your heirs.

That investment is a Segregated Fund. Here’s how it works:
  • A Segregated Fund is an investment wrapped in a life insurance policy.
  • Like mutual funds, a Segregated Fund pools money from investors and invests in a variety of individual securities
  • If you leave your money invested in a Segregated Fund for the duration of the contract and do not make any withdrawals over that time, you’re usually guaranteed to receive whichever is greater of the investment’s current market value or its guaranteed minimum. More frequent guarantee periods may be available on some contracts
  • In addition to the maturity guarantee, Segregate Funds offer a guaranteed death benefit. If you die before the contract matures, your heirs will receive the Segregated Fund’s market value or the guaranteed minimum if that is higher. The proceeds from a Segregated Fund can be held either inside or outside an RSP or RIF to avoid probate costs, since they are generally not considered part of a person’s estate. This can also speed-up payment to your heirs
  • If you are a business owner, self-employed or a professional and require creditor protection, a Segregated Fund may help protect your assets from creditors. Claims made by former spouses and the Canada Revenue Agency are not protected regardless of who has been named as beneficiary
  • If you are transitioning to retirement, a Segregated Fund may help preserve your nest egg
Keep in mind that creditor protection is not certain in all cases. Talk to your lawyer about the potential for creditor protection in your province. It’s also a good idea to talk to your professional advisor to determine whether a Segregated Fund is right for you in the context of your overall financial plan.

Thursday, August 19, 2010

Lighten your debt load -- strategies for eliminating debt

It’s such a slippery and subtle slope – sliding into debt, that is. A little here, a little there and before you know it, most of your money is going to servicing debt instead of enjoying life now or saving for a financially secure tomorrow.

If you have a life partner, debt can be a symptom of a larger problem – like poor communication, differing goals and life expectations, or if one of you is a saver and the other a spender. If that sounds like your situation, you’ve got plenty of company. Only 15% of Canadian couples have never disagreed about money and one in ten Canadians have left a relationship due to disagreements over money.

That’s why it’s important to look beyond your debt symptoms – spending too much, watching your debt mount – to uncover the real reasons for you debt issues, like identifying the behavior that got you into debt in the first place, and taking steps to resolve the issues so your slide into debt doesn’t cause even bigger problems down the road.

Start with a detailed financial review and by establishing financial life goals that both of you share, understand, and agree to. Focus on reducing your debt load by targeting ‘bad debt’ first – high interest rate credit or retail cards, for example – and through a debt consolidation/monthly debt reduction plan.

Then, look longer term with a realistic financial strategy for saving toward your kids’ education, your retirement, paying down your mortgage … and/or other life goals that are important to you.

Your strategy could include:
  • Establishing an emergency reserve using Tax-Free Savings Accounts (TFSAs)
  • Protecting your family with life, critical illness and disability insurance
  • Funding your children’s education with Registered Education Savings Plans (RESPs)
  • Funding your retirement (and/or your partner’s retirement) with Registered Retirement Savings Plans (RRSPs)

Depending on your personal situation, there are other debt-reduction, money-saving strategies that will help alleviate stress and get you debt-free and on track for financial security. Your professional advisor can provide both the third-party perspective and the financial planning expertise to develop the plan that will work for you.

Monday, August 2, 2010

Yes – a TFSA can work for you

One year ago, the federal government introduced the Tax - Free Savings Account (TFSA). It has been called the single most important personal savings vehicle since Registered Retirement Savings Plans (RRSP) were launched in the late 1950’s. Is the TFSA really that good – and should you have one? The answers are yes and yes – but only if you are just starting out in life, retired or anywhere in between. Is that you? Then here’s why you should have a TFSA.

Tax-free growth As a Canadian over the age of 18, you are eligible to save up to $5,000 a year in TFSA investments that grow in a tax-free basis.
Tax-free withdrawals You can make TFSA withdrawals at any time for any reason – and the money you withdraw is tax free.
Make the most of your contribution room You can contribute $5,000 a year plus the total of withdrawals made in the prior year. And if you don’t use all of your contribution room right away, it accumulates year after year – fill it at any time you choose. By the way, a contribution to investments held within a TFSA does not affect RRSP contribution room.
Investment flexibility Investments that are TFSA eligible can be the same as those available for investments held within RRSPs, including mutual funds, money market funds, Guaranteed Investment Certificates (GICs), publicly traded securities, and government and corporate bonds.
Personal financial flexibility A TFSA works well for short- or long-term financial goals such as:
  • A ready source of emergency funds.
  • Saving for a new car, cottage or dream vacation.
  • Saving for the down payment on a new home or starting your own business.
  • Reducing taxes on your non-registered investments.
  • Adding to your retirement savings.
  • Adding to education savings beyond RESPs.
  • Splitting income with your spouse to minimize taxes.
  • And TFSA withdrawals don’t affect your eligibility for income-tested federal benefits such as Old Age Security (OAS).
There are other ways in which a TFSA could work for you. Your professional advisor can take a close look at your personal situation and help you get the most from a TFSA and every other element in your overall financial plan.

Monday, July 26, 2010

Who is your mortgage insurance protecting?

Most people couldn’t afford a home without a mortgage loan. To keep that roof over your head, you budget carefully and make your mortgage payments each month. And to ensure your house is always home to your family, you prudently seek the protection of mortgage insurance.

The easy way to get that protection is through your mortgage lender. Mortgage life insurance is typically offered as part of their mortgage packaging and the cost of coverage is simply added to your monthly mortgage payment. But that may not be the best option. Here’s why:

With a lender insurance plan.
  • The lender is the beneficiary of the policy. There are no cash values and coverage expires when the mortgage is paid off.
  • Coverage decreases as the mortgage is paid down but your premiums remain the same for the entire period.
  • Depending on the lender's policies they may be able to adjust premiums, change or cancel the policy at any time. If you find a better mortgage rate at another lending institution, your existing mortgage insurance may not be able to be moved.
  • You pay the same premium as everyone else borrowing from the same institution.
  • No personal consultation is provided with the policy.
With a personal insurance plan.
  • You own the policy and designate the beneficiaries who can choose how to use the funds - to pay off the mortgage, provide a monthly income, or take care of immediate needs.
  • Your coverage isn't reduced by your declining mortgage balance. Coverage continues after the mortgage is paid so your beneficiaries stay protected for the life of the plan.
  • Premiums are guaranteed for the life of the plan and only you can cancel or make changes to your plan.
  • Your plan goes with you from one home to another, one mortgage to the next.
  • Your premium is based on your age, health and smoking status.
  • Your plan is 'personalized' -- designed by an expert consultant to be exactly what you need, with premiums that suit your budget.
Yes, mortgage protection is important. But be sure it protects you and not the lender -- talk to a professional advisor who can help make sure the protection you choose is suitable for you and your overall financial plan.

Monday, July 19, 2010

Making the right investment choices

One of the essential fundamentals of any financial plan is an investment portfolio. But given the many investment options available to you, how do you make the right investment choices – choices that will support your short- and long-term financial goals? There is no one-size-fits-all answer to that question – your answer will be unique to your needs, goals and expectations – but there are some general guidelines that can help aim you toward the right investment choices for you.

First, let’s take a quick look at why any investment choice is almost always a complex issue.
The question Should you invest in investments that are Registered Retirement Savings Plan (RRSP) eligible, or Tax-Free Savings Account (TFSA) eligible or both?

The answer Both RRSPs and TFSAs provide the benefit of tax-sheltered compound growth for investments held inside the plan. But RRSP contributions are tax-deductible and TFSA contributions are not, although amounts can be withdrawn tax-free at any time and the withdrawn amounts added back to your TFSA contribution room.

Generally speaking, RRSPs are the investment of choice for long-term objectives while a TFSA may be better suited for shorter-term goals, such as an emergency fund or saving for a major purchase.
There’s more to consider here, but you get the point - what seems like a simple investment choice turns out not to be so simple after all. Still, here are a four basic questions that, when answered from your personal perspective, can help you focus your investment choices.
  1. What are the tax implications of the investments? Not only are your RRSP contributions tax deductible, all other taxes on your registered investments are deferred until money is withdrawn during retirement. On the other hand, your non-registered investments will attract taxes. That’s why it’s usually a good strategy to place tax-attracting investments inside registered plans and investments that enjoy a preferential tax treatment in your non-registered portfolio.
  2. Will I be able to sleep well at night? You’ll need to evaluate your time horizon and your tolerance for risk. Younger investors may be willing to accept more risk and decide on a more aggressive portfolio; older investors typically opt for less volatile investments that deliver steady returns. Asset allocation and diversification are always important – but the essential rule is to pick the asset mix that lets you sleep soundly at night.
  3. Am I confident I will have enough income to fund my retirement dreams for all the years of my retirement? You’re likely to live a long time in retirement. Assess all your sources of income and make investment adjustments as required to be assured that your income will last as long as you do.
  4. Do I know what my financial legacy will be? Decide what you want to pass on and to whom – and then take the right steps to ensure that’s what will happen in the most tax-efficient way.

You may have the financial skills to put your own investment and financial plan together but why gamble with your future? Your professional advisor can help you make the best investment choices and keep them on track as time goes on.

Friday, July 9, 2010

When is the right time to invest?

You’ve managed to put aside a little extra cash or you’re expecting a nice tax refund and wondering what to do with the money. You’re thinking about investing it – maybe in your Registered Retirement Savings Plan or by purchasing a few shares of this or that to add to your non-registered portfolio. But you’re hesitating – markets are volatile right now. Is it better to wait? When is the best time to invest?

The answer is: Make your investment as soon as possible. Here’s why:
  • Most seasoned investment professionals will tell you that it is almost impossible to time the market. They will also tell you that time in the market is much more valuable than attempting to time the market.
  • Markets move up and down but the historic trend is up – so staying true to a long-term investment strategy delivers far higher returns than jumping in and out of the market.
  • The best long-term strategy for most investors is to make your investments immediately – even if the market is at its lowest point of the year – and, even better, try to invest regularly instead of holding off and making a lump sum investment once a year.
  • When you invest regularly, you accomplish three important investment goals:
    • You take full advantage of ‘dollar cost averaging’ – meaning you make your investment purchases (either in non-registered stocks or by acquiring more units in your RRSP) whether the price is lower or higher and, over time, this results in a reduction in the average cost of your investments while improving the potential for longer-term returns.
    • You maximize the benefits of your RRSP. Your money grows tax-deferred inside your RRSP so regular contributions and the ‘magic of compounding’ can add thousands to your retirement nest-egg. For example, if you contribute $200 dollars a month to your RRSP (at an average compounding annual return of 8%) after 25 years you will have $190,205. But if you make a single lump sum contribution each year, you will have only $175,454 in 25 years.
    • It’s much easier to come up with $100-200 each month (say through a Pre-Authorized Contribution – PAC – plan) than finding a lump sum to invest once a year.
A regular and balanced investment strategy will ensure you achieve your financial goals. Your professional advisor can help you set up an investment plan that fits your budget and dreams.

Monday, June 21, 2010

Take a critical look at your financial health

You work and you plan and you save – to pay everyday expenses and to achieve your longer term financial goals, whatever they may be. And everything is going well. Then, on one extra-stressful day at work, your heart says, “I’ve had enough for now, thank you.”

Heart attack – but you know the symptoms and get fast medical attention. Your doctor is confident you’ll be fine … after a few months of quiet recuperation away from work. But in the meantime, the bills will keep coming in and how will you pay them? How will you pay for the many costs of your medical care that are not covered by your provincial health plan? Who will support your family?

That’s the kind of stress you really don’t need at a critical time – and there is a solution: Critical illness insurance.

Think it can’t happen to you?

You might think that you’re immune to a critical illness or that it is only older people who need protection but …
  • 1 in 2 men and 1 in 3 women are predicted to develop heart disease in their lifetime

  • There are 40,000 to 50,000 strokes in Canada each year

  • During their lifetime:

    • 1 in 2.3 men and 1 in 2.6 women living in Canada will develop cancer
    • 1 in 9 women will develop breast cancer
    • 1 in 12 Canadians will develop lung cancer
Over 400,000 Canadians will suffer from a critical illness this year. Mortgage experts tell us that more than 40% of home foreclosures are due to a critical illness.

The good news is that with the tremendous strides in medical technology, you are far less likely to die from a critical illness and may even make a full recovery. The problem is that most people don’t have the money to keep going until they can once again earn a living – and that’s where critical illness insurance comes in.

A financial safety net when you need it

Critical illness does not replace your basic medical coverage. Rather, it pays a lump sum of money if you contract a specified illness. There are no strings attached – once you qualify for the payout, you get a cheque to use any way you wish: You can seek private or out-of-country treatment, keep a business running, or pay debts including your mortgage – it’s your call.

Insure that a life-altering critical illness won’t cause a critical blow to your financial life. Talk to a licensed insurance consultant.

Tuesday, June 15, 2010

The 'flaw' of averages - your retirement isn't average ... it's personal

Famed novelist Mark Twain is reported to have said: "There are three kinds of lies - lies, damn lies and statistics." An 'average' is also a statistic of sorts. Statistics Canada puts out all kinds of 'averages' drawn from statistics - the average age of Canadians, the average income of Canadians, and so on. The investment community also likes statistical 'averages' - especially when it comes to the amount of retirement income you'll need. And although statistics can be a good way to get a handle on things from a very general perspective, as Twain astutely observed, the easy use of 'statistics and 'averages' can mask some important 'personal' truths.

As you move toward retirement, you're likely to see many 'averages' bandied about, including this very popular one: 'If you are 30 now (or 40 or 50) you will need to average a certain amount in savings and investment for your retirement.' The 'lie' in this statistic is that there is no average retirement.

You are an individual. Your retirement lifestyle will be 'personal' - different than anybody else's. Your family situation and financial circumstances are unique to you. So don't be fooled by the 'flaw of averages'. An easy statistic is no substitute for personal planning.

As you approach the next phase of your life you take a more active interest in designing the retirement lifestyle of your dreams. (And, in this case, statistics do help because they tell us that Canadians, generally, are retiring earlier and living longer, so you can reasonably expect to live through many years of retirement.) That's where a practical and 'personal' retirement lifestyle plan comes in - because it will help ensure your retirement dreams are built on your financial realities.

When you know exactly what you want to do in retirement, you're in a much better position to know what it's going to cost. Once you've established that basic requirement, you can begin working on other important financial details like organizing sufficient retirement income, tax planning, and your insurance needs in retirement.

You should also expect your plan to change. Life is always tossing curves at us - so flexibility is another important aspect of a successful retirement life plan.

If all that sounds like a lot of work, here's some good news - you can get help.

The Investors Group Retirement Readiness Quiz is designed to give you a head start on your retirement life plan. You'll find it at . A professional advisor can also help ensure your saving and investing levels will allow you to realize your retirement dreams. No statistics, no 'averages' - just the 'personal' plan that will work best for you.

Tuesday, June 8, 2010

Your cottage and keeping it in the family

Ahh, your cottage – a place of sanctuary, family fun and warm memories. But passing along a cottage to the next generation can set off complex financial and family issues. Here are some suggested steps to ensuring cottage continuity.

Know what your kids want You know that cottage ownership is a big personal and financial responsibility that is not for everyone. Discuss this with your children and if any of them are not interested in inheriting the cottage, avoid family squabbles by making sure they are treated fairly in your will.
If you decide on shared ownership, keep in mind that it can be a difficult proposition. That’s why it can be useful to obtain legal advice when you put an agreement in place – about such things as who uses the cottage and when, who pays for repairs, maintenance and upkeep, and the other nitty-gritty aspects of joint cottage ownership – to avoid protracted disputes and misunderstandings.

Manage the tax burden If your cottage has appreciated in value, your estate can face a significant capital gains liability that could force its sale by your heirs.
Capital gains taxes are based on the difference between the cost of your property and its current fair market value at the time of your death. The cost of your cottage is what you initially paid for it plus the value of any capital improvements you made to it over the years – a new deck or roof, for example, including the cost of anyone you hired to do the work for you – so keep your receipts to account for all these costs to help offset capital gains. General upkeep costs such as painting the cottage are generally not considered capital improvements.
Consider taking advantage of the primary residence exemption. You are allowed to name a primary residence that is exempt from tax on capital gain. The residence must be a property you ‘ordinarily inhabited’. It can be either your city home or your cottage. You are allowed just one principal residence at a time but you can choose to exempt the property with the bigger gain.

Have a succession plan Include an effective strategy for passing on your cottage. One option is to purchase life insurance with tax-free death benefits that will cover the capital gains on your cottage and/or other expenses and avoid the forced sale of estate assets. Life insurance is also a good way to equalize an estate where one child wants to keep the cottage, whereas other children would prefer to sell it and divide the proceeds of sale.
Some of these estate planning options may not work in your situation, so it’s a good idea to talk to your professional advisor about your wishes for your cottage and the financial and estate planning options that will work best for you.

Wednesday, June 2, 2010

Dreaming of a new summer toy? Here's how to make it a reality

When the mercury plummets and the wind howls across our frozen landscape, summer dreams are born. Dreams of a new RV . or watercraft . or four-wheeler . or .? Well, your dreams are your own - but if they are filled with visions of a new summer toy, the first thing you need is the money to buy it. So, in the interests of getting through a woeful winter and into a summer of scintillating fun, here's how you will be able to afford your new summer toy: It's called saving and here are a few keys to developing a savings strategy that works:

Pay yourself first. Whether you're saving for a summer toy, a vacation, your retirement, or anything else, this is one of the best available saving strategies. Pay yourself first by saving an amount each pay period that you can comfortably afford -- either a fixed-dollar amount or a percentage of your income (3% is an often used guideline). You're unlikely to miss it, and it can allow your nest egg to grow nicely.

Get max growth from your savings. Get your savings out of low-interest bank accounts and into investments that generate higher returns yet are easy to access when you've reached your goal amount. Money Market Mutual Funds can be a good choice - they usually offer competitive returns and can often be redeemed in a few days. Guaranteed Investment Certificates (GICs) or Term Deposits are good, too - but, you lock your money in for a fixed period in exchange for a higher interest rate. Government Savings Bonds are another option - cashable at any time (usually with a small interest penalty) and often available for purchase through an automatic payroll deduction program that can be a great pay-yourself-first strategy.

Look around. By saving before you buy, you can also save on what you buy. You have the time to check out the best prices and times to buy - like at the beginning or end of a season when merchants are clearing stock.

Pay with real money. Don't finance your toy through high-interest credit cards or by 'stealing' money from investments or savings destined to achieve other goals, like a comfortable retirement. Buy what you can afford with cash on hand - that way you'll also eliminate the costs of financing and may be able to negotiate a better 'cash deal' with the merchant.

With some smart savings strategies, you can realize your summer dreams and with the help of a professional advisor, you can realize your lifelong dreams, as well.

Friday, May 28, 2010

Summer job money - how to help your kids manage their first income

Your teen has a summer job for the first time -- and that probably means he or she is also enjoying an income for the first time. Along with the new job, your teen is also learning other important ‘real life’ lessons like time management. Maybe you should help put money management on that list of lessons learned – because this is an ideal time to pass along some good information that’ll keep his or her financial future on track. Here are some tips to get you started.

Start early - The way your teen handles money as an adult will depend largely on the habits he or she learned from you growing up. Motivate your teen to become a regular saver and investor, and set a good example for your teen to follow.

Money management pays off - Relentless advertising and peer pressure make it easy for teens to overspend. Explain that effective income management begins with the cardinal rule of always controlling expenses so they don't exceed income. Help your teen create a realistic budget with goals that are measurable and attainable.

Start filing a tax return right away - If the summer job results in a T4 (a Statement of Remuneration Paid information slip issued by an employer) your teen should file an income tax return. Your teen's income may be below taxable levels but he or she will still start accumulating RSP contribution room, which can be carried forward indefinitely. When your teen reaches age 19, he or she should also apply for the GST/HST credit on each year's tax return. Based on net income, your teen will likely be eligible to receive quarterly GST/HST credit cheques.

Save today for a richer tomorrow - Encourage your teen to develop the habit of saving at least 10% of their take-home pay because early savings take full advantage of the miracle of compound interest. Here's a dramatic example you can use: Invest $1 a day for 40 years at an interest rate of 5% and you'll have about $44,000!

Teaching your teen about the value of money and money management will help ensure a comfortable financial future. Sometimes, with a teenager, an external informed opinion can help - so why not give your professional advisor a call for some additional help?

Tuesday, May 25, 2010

How does your advisor get paid?

Some people may think that it's not appropriate to ask someone how they get paid, but when it comes to your advisor, it's not just appropriate ... it's imperative.

While an advisor's compensation structure is in no way the only measure of the type of service you will receive, it is a very important question to ask when looking for an advisor.

An advisor may earn a salary, commissions, trailer fees, an hourly consultancy fee or any combination of the above, and while there is no right or wrong pay structure, the way they are paid certainly can help determine how comfortable you will be when dealing with that advisor should you decide to work with them.

Ted Rechtshaffen recently submitted a story concerning this very topic to Globe Investor, and raises some interesting points. Follow the link below and give his story a read ... then go ahead and ask your advisor how they get paid, it's worth your peace-of-mind.

Source: Globe Investor

Tuesday, May 18, 2010

Busy? Ten ways (plus one) to keep your financial life simple and sweet

In the rush of everyday life it is often the details that get missed. But the success of your financial life depends on getting the details right. To help you stay on track in a busy world, here are ten ways (plus one) to keep your financial life simple and sweet:
  1. Set a budget and stick to it. Take a critical look at your income and expenses and establish a realistic monthly budget that includes an amount for savings.
  2. Get debt under control and keep it there. Develop good spending habits and use debt wisely. Pay off credit cards and other high-cost, non-tax deductible debt first.
  3. Maximize your Registered Retirement Savings Plan (RRSP) contributions. Take full advantage of this tax-deferred savings builder by starting early and making maximum contributions.
  4. Develop an education savings plan for your children. Use the tax-deferred compound growth available under a Registered Education Savings Plan (RESP) to offset the rapidly rising cost of a post-secondary education.
  5. Be a prudent money manager. Carefully consider where each dollar is going. Set enough aside on a regular basis to achieve your goals with a Pre-Authorized Contribution (PAC) program that automatically invests a specified amount in securities held in your RRSP or non-registered portfolio.
  6. Check and revise your insurance coverage to match your changing needs. As your life evolves (career, marriage, family) your need for income protection and estate planning changes.
  7. Make "tax-efficient" investment decisions. Dividends and capital gains are taxed more favourably than interest. So it's usually a tax-wise decision to hold investments that earn interest inside your tax-deferred RRSP and those that earn dividends and capital gains outside your RRSP.
  8. Establish an asset allocation plan that complements your financial planning needs. Your investment portfolio should include assets from the three asset categories: cash, fixed income investments, and equities. Peaks in one category tend to cancel out valleys in another and the overall result should be steadier long-term growth.
  9. Consolidate and simplify. If you have a bewildering array of investments, simplify your portfolio so it's more easily managed and restructure it periodically to align it with your evolving personal goals
  10. Minimize your taxes. Take advantage of all of the tax deductions and tax credits available to you. Examples are moving expenses, child-care expenses, tuition fees, medical expenses, charitable donations, and safety deposit box charges.
  11. Develop a financial plan and stick to it. A professional advisor can help you 'simplify' the financial steps required to realize your life goals.

Friday, May 14, 2010

TFSAs still not used to the fullest

Talbot Boggs of the Canadian Press has reported that there is a lot of misinformation regarding Tax-Free Savings Accounts (TFSAs) and the majority of Canadians (68%) have yet to take advantage of them.  No real surprise there ... the name is a bit of a misnomer and they have been marketed as just another bank account.  I prefer to refer to them as Tax-Free Investment Accounts ... it seems to me to be a more fitting description.

Do you think there has been enough information about these accounts in the media to make an informed decision about opening one, or has the lack of information kept you from taking advantage of "one of the best financial savings instruments to come along in decades"?

Let me know what you think.


Thursday, May 13, 2010

Rethinking retirement – maybe it’s just a phase?

Years ago, you looked into the future and established a date for your ‘official’ first day of retirement. But recent economic events, perhaps accompanied by a downturn in your investment portfolio, could have you seriously considering drawing a big ‘X’ through that planned retirement date.

But cancelling your retirement is not your only option – and, in fact, that may not be the best option for you. Why not phase into retirement instead? Phased retirement is beneficial because it lets you ease into retirement while maintaining a higher income than you might otherwise receive in retirement. You could choose to stay with your current employer in a more flexible role (if your current employer’s retirement policies allow that), move to a new employer who will allow you to pursue phased retirement, or even start your own business in a field you enjoy.

People are living longer, healthier lives these days so you can reasonably expect to enjoy many active ‘mature’ years. Phased retirement can be a great way to maintain and enhance social connections, get more satisfaction out of life, and ensure you will not outlive your retirement income.

And speaking of your retirement income – while you’re rethinking the type of retirement you want, it’s a good idea to also reconsider your income requirements. Your retirement income will come from many sources – your scaled-back employment income (should you choose to phase into retirement) your investments and personal savings, government benefits, and employer-sponsored pension programs.
These are the keys to assuring sufficient retirement funds:
  • Know your expenses and manage them.
  • Use effective tax reduction strategies.
  • Maintain a balanced, diversified selection of investments. The shrinking real estate market has proven that it’s a flawed strategy to rely solely on home equity to fund a retirement. A more prudent investment strategy is to maintain a portfolio distributed among the three classes of investments: Cash or cash equivalents (government savings bonds, T-bills and money market funds); fixed income securities (GICs and fixed-income mutual funds); and equity investments (Canadian and international stocks and equity mutual funds).
Of course, the investments you choose should match your tolerance for risk – and remember that investments that are Registered Retirement Savings Plan (RRSP) eligible is the best tax-deferred, income-building investment available to most Canadians. In addition, investments held within the new Tax-Free Savings Account (TFSA) allows you to generate tax-free income for your retirement years.

You should be able to make your retirement decisions based on your retirement lifestyle goals and not because you’ve run out of options. Your professional advisor can help you have a plan for retirement that keeps on working for you.

Monday, May 10, 2010

What is a financial plan and how do I get one?

Financial Planning is a general term used by most professional advisors – but not all financial plans are created equal … and they shouldn’t be. Your financial plan should be a perfect fit for your life as it is today, easily and quickly adaptable to the constant changes life throws at you, and always focused on achieving your longer term life goals. That’s a big – and important – deal.

So, the first question you must ask yourself is, Do I need a financial plan? The simple answer is yes – if you have an income, a family (or the hopes of one), dreams of a comfortable retirement, and any of the dozens of other financially-rooted reasons that are unique to you.

The next question is, What are the elements of a sound financial plan? There are two answers to that question: the general and the specific.

In general, every financial plan should include: investment planning, cash flow planning, education planning, estate planning, insurance planning, retirement planning, and income tax planning.

The key to a successful financial plan is making sure that each of those elements is made specific to you and your needs – and to do that, a competent professional advisor will take you through this six step planning process:

1. Goal setting – to determine and prioritize your goals and concerns.

2. Data gathering – assembling the relevant financial information to understand your current financial situation.

3. Financial analysis
– using your current and projected financial situation to identify and answer questions like: “How much tax must I pay?” How can my taxes be reduced?” Will I have enough income to cover my expenses during retirement?” “How can I better meet my income needs?” “How can I protect my family and income if I should become disabled or die unexpectedly?”

4. Plan formulation and recommendations
– discussing, reviewing and deciding on various alternatives and solutions for achieving your financial goals and improving your overall financial life.

5. Plan implementation
– providing you with a written report summarizing the steps you need to take to make your plan work.

6. Monitoring and plan review
– financial planning is not a one-time event. You should review your plan at least annually or when major life events occur.

Comprehensive financial planning is complex and necessary. To be sure you get exactly the right one for your situation, it’s a good idea to put a professional advisor on your financial team – an advisor with the qualifications, tools and track record you can count on to develop a personalized
financial plan that will the job for you – today and tomorrow.