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.