Tuesday, December 6, 2011

Why you should be an investor, not a gambler.

There are a lot of misconceptions with financial planning, and with personal finance in general. Some are based on incorrect information while others are based on a lack of it altogether, but either way it is my job to address these misconceptions so my clients can make informed decisions.

One of the larger misconceptions people have is about the stock market. Many people fall into one of two groups when it comes to this particular misconception … they either fear losing everything and stay away, thinking they don’t know enough about the markets, or they think they know more than they do and jump in with both feet.

It is an advisor’s job to be the voice of reason in these situations and help protect clients from their own tendencies.

John Heinzl, a columnist for the Globe and Mail, provides an interesting and well-written commentary on this topic which helps to underscore the value of speaking with a professional advisor when dealing with your finances.



Globe and Mail - Tuesday, Oct. 26, 2010

When I tell people I write about investing for a living, often the first question they ask is: “So, have you got any hot stock tips?”

“Yeah,” I tell them. “Ignore hot stock tips.”

From what I can tell, most lay people operate under a huge misconception about the stock market. They believe that the surest way to make money is to buy a stock just before it is about to take off, then cash in when the price has doubled or tripled. They aren’t the least bit interested in incremental gains or holding for the long term. Instead, they lust after the adrenalin rush that comes with making a fast buck.

In their quest for an immediate payoff, they focus on risky stocks with a great “story” – a mining exploration company that’s supposedly about to hit the motherlode, or a technology company whose latest invention promises to revolutionize (insert industry name here). It doesn’t matter if the company has no earnings now; the important thing is that the cash will soon begin pouring in like Niagara Falls.

These short-term “investors” – a more accurate term is gamblers – gravitate to initial public offerings, hot sectors (think Internet shares in the late nineties or Chinese stocks a couple of year ago), takeover scenarios and anything else that promises a big payday for very little of the investor’s time or effort.

Are some investors successful at this game? Sure. They’re usually the ones who are privy to insider knowledge, have access to sophisticated high-frequency trading algorithms or are just plain lucky. But the vast majority of ordinary people who treat the stock market like a giant casino will get casino-like returns. Reinforced by an occasional win at the slots, they’ll keep going back for more, frittering away their cash in a futile attempt to make their capital grow.

The casino mentality prevails with “anti-gamblers” as well. For every punter who sees the market as a place where quick fortunes are made, someone else sees it as a place where fortunes are lost. “Invest in stocks? You gotta be crazy!” is the familiar refrain. These two groups could not be more different in their behaviour, yet both view the stock market as largely a gambling parlour.

And they’re both wrong.

Investors who “get” the stock market aren’t seduced by the allure of quick profits. Nor are they scared away by risk, which they accept in measured doses because they know that without risk, there is little reward. They focus, not on short-term winnings, but on the growth of their investment over years or decades. They accept that the stock market is manic depressive in the short run, but that the key to building wealth is to buy and hold high-quality companies whose sales, earnings and dividends grow over the long term. If they can buy them at an attractive price, all the better.

Warren Buffett's words of wisdom

The stock market is merely a tool for acquiring these companies. As Warren Buffett once said: “I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.”

One reason I am a big fan of dividend growth investing is that it is the antithesis of the casino approach. To prosper from companies whose dividends increase regularly, an investor has no choice but to buy and hold. It is a get-rich-slow strategy that rewards patience and commitment.

Knowing (or at least strongly suspecting) that a company will be increasing its dividend regularly is a powerful incentive to stay invested (assuming, of course, that the company’s fundamentals haven’t changed in some dramatic way), regardless of the market’s inevitable ups and downs.

Investors who trade frequently, on the other hand, usually pay the price in lower returns. That’s partly because taxes and commissions eat into their capital, but also because individuals often make decisions based on emotion.

In a 2000 paper titled “Trading is Hazardous to Your Wealth,” Brad Barber and Terrance Odean of the University of California studied the trading activity of 66,465 households at a large discount broker between 1991 and 1996. The U.S. market returned an average of 17.9 per cent annually during this period, but households whose trading frequency was in the top 20 per cent made 11.4 per cent. In a separate paper, the authors found that 80 per cent of day traders in Taiwan lost money over a typical six-month period.

As the late value investor Benjamin Graham once said: “The investor’s chief problem – and even his worst enemy – is likely to be himself.”

Now that’s a stock tip worth remembering.

Stats to ponder:

1% - Proportion of day traders in a Taiwanese study who were “predictably profitable,” according to University of California finance professor Brad Barber, quoted in The New York Times.

8.2% - Annualized total return of the S&P 500 for the 20 years ended Dec. 31, 2009.

3.2% - Annualized return of the average mutual fund investor over the same period, according to Dalbar Inc., reflecting fees and the tendency of investors to buy and sell at the wrong times.

Source: Globe and Mail

Monday, December 5, 2011

Canadians give themselves B, C in financial literacy

When it comes to finances, Canadians are not completely illiterate, but they might be over-rating their own knowledge of financial matters.  There is definitely room for improvement, according to the inaugural BMO Financial Literacy Report Card.

Canadians were asked to give themselves a grade on their level of personal finance knowledge. The majority said they deserved Bs (37%) or Cs (31%), but only 9% gave themselves top marks (an A).

When broken down by product and program area, Canadians claimed the most knowledge about RRSPs (69%), tax-free savings accounts (64%) and the CPP (61%). Canadians are less confident in their knowledge about registered disability savings plans (15%), exchange-traded funds (14%) and dividend reinvestment plans (14%).

The study also found that 61% of Canadians feel they would benefit from a “Personal Finance 101” course.

“Financial matters can be complicated and sometimes intimidating. However, Canadians can improve their overall financial knowledge by first getting a better understanding of their own financial ‘big picture,’” says Tina Di Vito, head of the BMO Retirement Institute and author of 52 Ways to Wreck Your Retirement…and How to Rescue It.

“In many cases, Canadians are well-informed financially, but a common stumbling block is understanding how everything fits together.”

“It’s clear from the numbers that Canadians see room for improvement when it comes to their overall understanding of personal finance. Given the challenges faced by households in Canada, enhancing this skill set should be a priority for everyone involved—including the financial services sector,” says Su McVey, vice-president, BMO Bank of Montreal.

Source: Tammy Burns - Advisor.ca

Thursday, November 24, 2011

Making the most of what you’ve got -- retirement tax planning strategies

You’ve worked hard, planned carefully, saved and built your wealth – now it’s time to retire and enjoy the life you’ve dreamed about. But to be certain your retirement dreams aren’t pierced by the reality of an eroding income, you need to make the most of what you’ve got by taking advantage of all the retirement tax planning strategies available to you. Here are some basic strategies to help you keep more of what you’ve earned.
    • Tax credits Retirees can take advantage of a number of federal tax credits (some with equivalent provincial credits) that can reduce the amount of tax you pay.
      • Pension income credit – Available on your first $2,000 of pension income. Canada Pension Plan/Québec Pension Plan (CPP/QPP) or Old Age Security (OAS) benefits do not qualify for this credit.
      • Age credit – You may qualify for this credit if you are 65 and your net income is below a pre-determined threshold.
      • Medical expenses credit – Pooling expenses on the return of the spouse with the lower income can generate a larger credit.
      • Disability credit – Available to those suffering from a severe and prolonged physical or mental impairment.
      • Charitable donations credit – Combine spousal donations to earn a higher credit.
    • Keep your taxable income to a minimum. Lower your taxes and take full advantage of the Age Credit while preserving your OAS benefit.
      • Split pension income and/or CPP/QPP benefits with your spouse.
      • Live off capital rather than income.
      • Withdraw only the minimum from your Registered Retirement Income Fund (RRIF).
      • Select non-registered investments that offer preferential tax treatment.
      • Take full advantage of the tax sheltering benefits of your Registered Retirement Savings Plans (RRSPs) by making your maximum contribution for as long as possible – up to the end of the year you turn 71.
      • Contribute to a spousal RRSP until your spouse turns 71.
    The benefits of some of these strategies – such as income-splitting – depend on your personal situation and can have unexpected tax implications. There are also many other good strategies for maximizing your retirement income. Your professional advisor can help you decide which strategies will work best for you.

Monday, November 7, 2011

Debt danger! – know the warning signs and solutions

If your debt load is heavier than you want it to be, you are not alone. According to Statistics Canada, Canadian household debt-to-income ratios have reached record highs – ranging above 148 per cent1, which means that Canadians owe $1.48 for every dollar of disposable income they have. Here are a few strategies for lightening your load.  
Take charge of your cards A high credit card limit can be a benefit or a trap – if it influences you to buy more than you can afford. Spend more than you can pay off each month and the interest – often at rates more than 20 per cent – really builds up on the balance.

The key: pay off your credit card balance each month. You’ll avoid debt and take full advantage of any reward points offered by your card(s).

Check your impulses That giant TV certainly looks great – but do you really need it?

The key: Think before you buy, weigh your options and make prudent purchase decisions. You’ll avoid escalating debt and lingering buyer’s remorse.  

Take command of your life Establish a realistic strategy for saving toward your most important life goals.

The keys: First, reduce ‘bad’ debt (credit cards). Explore debt consolidation and a monthly debt reduction plan. Second, start an emergency reserve fund, perhaps in a Tax-Free Savings Account (TFSA). Third, protect your income and family with life, critical illness, and disability insurance. Fourth, fund your children’s education with Registered Education Savings Plans (RESPs). And a very important fifth, fund your retirement by contributing to a Registered Retirement Savings Plan. You can even pay off some of your debt or add to your savings with the tax refunds you’ll get.  

Protect your credit rating Be sure the information in your credit report is accurate by checking it at least once a year and reporting any inaccuracies. (The two major Canadian credit rating/reporting agencies are Equifax Canada, Inc., www.equifax.com. and TransUnion Canada, www.transunion.ca.)
The keys to maintain a good credit score:
  • Establish a credit history by, for example, applying for a credit card that you use for monthly expenses and paying off the balance each month. Married couples should have credit arrangements for each spouse so they have their own credit history. 
  • Be careful about co-signing another person’s loan. By doing so, you accept responsibility for the debt and the information is included on your credit report. 
  • Pay bills on time. Pay just one day late and it appears on your credit report as a late payment. It’s better to pay the minimum than miss a payment. 
  • Limit your credit. Every time you apply for credit it is noted on your credit history, even if you never use it. 
Lightening your debt load, saving more, planning for a financially secure future – whatever your goals, your professional advisor can help you get there.

1The Daily, Monday, December 13, 2010.

Thursday, October 27, 2011

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.

Tuesday, October 11, 2011

The ages of insurance – what it means for you

Change can be tough but we live with it every day. We age, our working, personal and family life changes. Our financial goals and expectations change. And as these things change so does our need for insurance. Here are the types of insurance that make the most sense for each of life’s three main stages.

Under 40 As you begin to build your family, insurance should be a simple and economical solution to your emerging needs. You’ll want to protect your family by establishing a source of cash that will pay off your mortgage and other debts should you become unable to do so. You’ll likely want to provide funds for the education of your children.

Life insurance pays a lump sum to your beneficiaries. Term insurance is often the most affordable kind of life insurance for young families. It pays a specified amount should you die, but premiums increase with each policy renewal and get very expensive over time.

Disability insurance is a must. It provides a regular income stream should you become disabled and unable to work. You may already have some disability insurance as part of your employment benefits package but backing it up with your own personal plan is a good idea.

40 – 60 Your personal and financial life are maturing and becoming more complex. To keep pace, consider increasing life insurance protection for both you and your spouse. Look at changing to a type of permanent insurance coverage that can fulfill your estate plan. Whole Life insurance offers a guaranteed amount of coverage for life and, unlike term insurance, the premium never goes up.

Disability insurance assumes even more importance and now is the time to also check out Critical Illness insurance. It provides a lump sum payment that you can usually use any way you wish when you are diagnosed with a medical condition covered by the policy, such as heart attack, stroke or cancer.

Over 60 You now have different reasons for revising your insurance protection – like using life insurance to pay estate liabilities (the taxes on your registered savings plans, capital gains on real estate and other investments) so your beneficiaries can inherit the entire value of your estate free of tax consequences. Universal life and whole life insurance work well for estate creation and preservation and the investment component can be a source of non-registered retirement savings. Term insurance isn’t a good option. Most term policies don’t allow renewal after age 75 or 80 and the premiums are prohibitively expensive.

The chances of disability rise with age, so check your coverage and consider adding Long-Term Care insurance to protect your loved ones from the financial burden of a lengthy illness requiring nursing home or home care.

Yes, change can be tough. Make it easier with the help of your professional advisor who can tailor your insurance program to every stage of your changing life.

Wednesday, September 21, 2011

The benefits of knowing all about your employer-sponsored benefits

You probably keep a close eye on your regular income, RRSP and other personal investments but what about the investment and health benefits plans sponsored by your employer? They provide valuable insurance coverage and an important source of retirement income – but do you really know enough about them – what you are and are not covered for; if there are gaps in your coverage that need to be filled; or even if you are paying for coverage you may not need?

All your work-related plans
  • You were given explanatory booklets when you signed up for your employer-sponsored plans and you’ve probably received updates. Read everything carefully so you’ll know exactly what benefits you are entitled to receive under each plan. Pay particular attention to periodic notices -- and look carefully for changes. Employers often revise plans and may even terminate them but must give plenty of notice. (Some employers provide this information on an Internet site).
  • Keep track of your benefits information slips – especially pension plan statements – for each organization you’ve worked for during your career.
Retirement savings plans
  • Know the type of pension plan provided by your employer.
    • A Defined Benefit (DB) plan provides a pre-set pension for life from the time you retire. The amount of your pension benefit is set according to your length of service and salary, and may or may not be indexed for inflation.
    • A Defined Contribution (DC) plan does not guarantee the amount of your future benefits. Your retirement income depends on the accumulated contributions and the investment returns earned by those contributions.
    • Your employer may offer a Group RRSP instead of, or in addition to a formal pension plan. You may be required to make full contributions or your employer may subsidize them. Either way, the total contributions to a Group RRSP and any personal RRSPs can’t exceed your personal annual maximum contribution limit set by the Canada Revenue Agency.
    • Deferred Profit Sharing Plans (DPSPs) are paid for by an employer and are often restricted to investment solely in the employer’s stock. The retirement benefit depends on investment performance over time.

Health benefits plans
  • Know plan limitations and gaps.
    • Group plans may not provide all the coverage you need. Most plans provide only partial coverage and/or a percentage of your salary that ignores any pre-disability income from overtime or bonuses.
  • Know who should pay for coverage.
    • If you and your spouse both have work-related plans, you may be doubling up on coverage and costs. Compare plans and eliminate double-covered items.
Your professional advisor can help you understand your employment benefits plans and how to most cost effectively merge them with your overall financial, insurance and health plans.

Tuesday, August 30, 2011

Uncover hidden investment money

Facing what seems to be a never-ending flow of day-to-day living expenses, it can appear difficult to set aside money for investing. But you know you should – ‘paying yourself first’ by contributing regularly to your RRSP eligible investments and other investments is the best way to achieve your retirement and long term financial goals.

To help you do the right financial thing, here are three do’s and dont's for uncovering hidden money you already have that you can use to regularly fund your investments.

Do consolidate debt Gather up your small loans and credit card debt and combine them in a larger debt consolidation loan at hopefully a better interest rate and a lower overall monthly payment. Another option: Transfer your credit card balances to a personal line of credit at an interest rate that is lower than the 18 to 28 per cent annual rates of most credit cards.

Use the ‘found’ money now available from your lower monthly loan/debt payments to fund your investments.

Do make your life less taxing “Great,” you think. “I just got a big tax refund cheque.” Well, really not so great. By having too much tax withheld from your pay each month, you are actually lending the government your money, interest-free. Instead, apply to reduce the amount withheld from your cheque (file a T1213 form with the Canada Revenue Agency) and invest that extra money each pay period.

Don’t make that a double-double You buy a coffee on your way to work each day – probably paying two, three, or even four dollars or more for that large latte. Seems like a small amount – but cut your coffee habit and invest those small dollar amounts in your RRSP and here’s what happens: Thanks to the magic of compounding, the price of your daily coffee will add up to an additional $11,000 in your plan in 10 years (based on an annual return of six percent). Over 30 years, you would accumulate $67,000 – and that would provide an annual pre-tax annual retirement income of approximately $5,000 over 25 years. And that’s just for investing the price of a regular coffee. Cut your (more expensive) latte habit and you would have an additional $22,000 in your RRSP after 10 years and over $132,000 after 30 years – for a pre-tax annual retirement income of $10,000 for 25 years! Besides, your nerves won’t be as jangled.

It can be tough to discipline yourself to invest those hidden dollars – make it easier with a Pre-Authorized Contribution Plan (PAC) where direct withdrawals are made from your bank account to an investment account. And remember: Your professional advisor can help you use these and other strategies to get the most out of your money and reach your financial goals faster.

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

Monday, August 22, 2011

Thinking about handing over the cottage? It could be less ‘taxing’ these days

Your vacation property has always been a prime place for family fun and enjoyment. And you want it to continue to be your family’s happy gathering place for many years to come – even after you are gone. If you’re considering ways to make the transfer to your children, an economic downturn could actually be to your advantage – your tax advantage, that is.

When you die, your assets can usually be passed to your spouse or common-law partner without incurring a tax liability. But if you leave capital assets – such as your cottage – to anyone else, including your kids, you’re deemed to have disposed of those capital assets at fair market value. If your cottage property has appreciated in value, your estate could be hit with a significant capital gains liability.

If you leave your cottage to your children in your will, you have no way of knowing how much of a tax hit they’ll take – maybe a big enough hit that they won’t be able to afford to continue owning the cottage.

While real estate values are ebbing, it may not be an entirely bad thing. Real estate prices may rebound in the future – historically, that has been the case. Instead of leaving the property as a bequest in your will, you can transfer cottage ownership to your kids now, either as an outright gift or by selling it to them. The transfer will trigger an immediate capital gain but the property will be valued at the current reduced market level, which could save a significant amount of tax.

If you are going to sell the property to your children, be sure to sell it to them for fair market value. When you transfer a property to a close family member, you will be deemed to have received fair market value even if you actually receive much less than that on the sale, meaning that you will still have to pay tax on the capital gain regardless of whether or not you have received any cash. Also, selling a property for less than fair market value can actually result in some double taxation, so speak to your tax specialist before transferring the property. If you want to spread out the capital gains tax (and make the payments more manageable for your children), consider making the payments payable over a 5 year period and claiming the capital gains reserve, so that only 20% of the capital gain is taxable in any one year.

If you are more comfortable with leaving the property to your kids in your will, one good way to alleviate the inevitable capital gains tax hit is with permanent life insurance. The death benefits are usually tax-free and can be used to cover capital gains and/or any other estate taxes – so your executor won’t be forced to sell your cottage or any other assets to pay taxes.

Your family cottage is an important part of your life. Make it an important part of your overall financial plan, too. Your professional advisor can help you make the right choices for your personal situation.

Wednesday, August 10, 2011

Market Update

When we hear news of big drops in the stock markets it's easy to think the worst, especially coming out of the very difficult period through 2008 and 2009.  While there might be a sense of 'deja-vu' accompanying the reports of highly volatile market activity, the reasons for that volatility are quite different.

The events of the past few weeks should be viewed as global economy working through some persistent and long-standing problems. One should never make snap decisions or make major changes to your portfolio in the middle of a market correction. Focus on your long-term goal, not on day-to-day fluctuations. A well-diversified and appropriately balanced investment portfolio focused on your long term objectives remains the best solution.

Pat Foran of CTV helped share a similar message here: Sympatico.ca

Thursday, August 4, 2011

Get the most from your child’s RESP

You thought investing in a Registered Education Savings Plan (RESP) was a good idea. And now, as another school year is nears and you look deeper into the real costs of that education, you know that your investment was a great idea. Now it’s time to get the most out of that RESP – here’s how.

Hand the income to your student to save on taxes When you elect to withdraw RESP income as a part of Education Assistance Payments (EAPs) – which consist of plan income, the Canadian Education Savings Grant (CESG), the Canadian Learning Bond (CLB), and any provincial grants1 – they will be taxed in the hands of the student beneficiary, who will likely be in a lower tax bracket than you.

Take out plan income first If your student completes (or leaves) a post-secondary program and there are earnings remaining in your RESP, you might be required to refund some CESG grant money. Avoid potential clawbacks by using the plan’s earnings and CESG before withdrawing contributions.

Wait until your student begins school to withdraw contributions Taking them out earlier may trigger a CESG repayment.

Spread out EAPs By spreading EAPs over the expected length of your student’s educational program, instead of taking them as a lump sum, you’ll avoid saddling your student with a huge taxable income in the first year and take advantage of your student’s (very likely) lower marginal tax rates over a number of years.

Limit initial withdrawals Government restrictions typically cap plan income withdrawals in the first 13 weeks of your student’s program at a maximum of $5,000 including CESG (or, in some cases at $2,500). You can supplement these limits by redeeming a portion of your RESP contributions – but try not to because removing contributions harms the plan’s tax-deferred growth and could trigger a CESG payback.

Do it now! Your RESP carrier can’t release an EAP without proof of enrolment – so get that documentation in as early as possible.

Make a meal of leftovers Contributions that remain in your plan after your student finishes college or university can be used any way you wish. You can transfer the cash to another child’s plan or withdraw it for your personal use.

There’s no doubt about it, your RESP investment was a great idea that is about to provide some very welcome financial relief. Another great idea is to talk with your professional advisor who can help you make more good decisions that will achieve financial security for your family and a debt-free education for your children or grandchildren.

1 The Canada Education Savings Grant and Canada Learning Bond (CLB) are provided by the Government of Canada. CLB eligibility depends on family income levels. Some provinces make education savings grants available to their residents.

Monday, July 18, 2011

Start young – the value of saving and investing NOW!

You’re twenty-one, newly graduated, starting a career, with a few dollars of your own money in your pocket for the first time, and solid prospects of more to come for a long time. What to do with that money? Save for a trip to Europe? Buy that new car? Or get a head start on your retirement portfolio?

Who’s thinking about retirement at twenty-one? If you’re not, you’re far from alone. A recent survey1 found that Canadians aged 18 to 34 were among the least likely to have contributed to an RRSP for the 2009 tax year at 29 per cent, compared to the national average of 36 per cent. The same was true of TFSAs – while 32 per cent of all Canadians had opened a TFSA as of March 2010, less than a quarter (23 per cent) of those aged 18 to 34 had opened one.

Sure, it’s always difficult to save for the future – especially for young Canadians, often strapped for cash, with student loans to pay off, and lots of new expenses to support their new lifestyle – but the experts and many years of investing experience tell us in no uncertain terms that starting young – even if you have to start small – is the key to investing successfully for retirement. Think of it this way: You’ll be working for between 30 and 40 years so you should get your investments to work as long as you’re working for your retirement.

The longer you are in the markets, the more your savings will grow over time. Slow and steady can win the race to a comfortable retirement – here’s why:

  • Mary invests $2,000 at the beginning of each year between ages 21 and 29, for a total of $18,000 over nine years. Assuming a pre-tax return of 7 per cent, by age 65, she will have $315,675 in savings.
  • Lynn also invests $2,000 at the beginning of each year with the same pre-tax returns but starts at age 30. To get near Mary’s savings total of $315,675, Lynn will need to invest nearly four times as much -- $70,000 over 35 years.
And here are some investing tips to get you going:

  • Are you investing to buy a house or for retirement? Knowing where your money’s going will help you define how to invest.
  • Do your research. You need to be comfortable with your investments and the best way to do that is to become knowledgeable.
  • Talk to a financial planner. Even if you only have a little money to invest, a financial planner will be happy to help you. It’s in their interest to establish a relationship with young investors who will be clients for a long time.
It’s always profitable to start investing early and developing good financial habits. That way, you’ll have more options for how you want to live your life from here to retirement … and beyond.

1Investors Group RRSP Exit Poll (Harris Decima, March 5, 2010)

Thursday, July 7, 2011

Decisions, decisions – is it better to contribute to investments held within an RRSP or a TFSA?

You have limited funds and you’re wondering whether it’s better to put them in your Registered Retirement Savings Plan (RRSP) or in a Tax-free Savings Plan (TFSA) eligible investments.  That depends on two factors:

  1. How frequently the funds will be removed from and re-contributed to either investments within an RRSP or TFSA in the years leading up to your retirement. If you are going to need the funds prior to retirement and intend to re-contribute them at a later date, a TFSA may be the better option because you can make withdrawals at any time and the contribution room is restored; but when you make RRSP withdrawals, you lose that contribution room.
  2. What your marginal tax rate is today and what your marginal tax rate will be when you finally remove the funds. Generally, if your marginal tax rate is lower at the time the funds are removed from your registered plan at retirement, the RRSP option will usually produce a better result – but that is only true if your marginal tax rate actually is lower.

    Your marginal tax rate can be influenced by income-tested benefits including the Age Credit, Old Age Security (OAS), the Guaranteed Income Supplement (GIS) and the GST Credit. Because they are income-tested benefits, they are reduced or clawed-back as your income increases, ultimately disappearing entirely at an upper threshold that is different for each of the benefits. If the funds you remove from your RRSP after age 65 increase your taxable income and result in the loss of some or all of your income-tested benefits, you will have effectively – and perhaps substantially – reduced your income and increased the tax you pay. And you would have cancelled out some or all of the value of your RRSP withdrawal.
There is no doubt that RRSPs and TFSAs play key roles in financial and retirement planning and there are strategies – like income-splitting – that you can use to reduce your taxable income and avoid clawbacks. Your professional advisor can help you decide what’s best for your situation.

Monday, June 27, 2011

Got a summer job? Here are a few financial planning tips just for you

Learning is necessary … and expensive. But you know that. It’s why you put in so many hours hitting the books. And why your summer isn’t a vacation – it’s valuable time to make the money you need to help fund your education.

So it only makes sense that your summer job should pay off in every way possible. Here are some financial planning tips for getting the most from your summer employment cash*.

Give yourself all the credit Tax credits directly reduce the actual amount of your federal taxes and, in many cases, your provincial taxes, as well. As a student, you are eligible for these credits:
  • The Canadian Employment Credit on the first $1,000 of your employment income.
  • Tuition, Education and Textbook credits for tuition fees of more than $100 per year, for education costs of up to $400 for each month of enrolment for full-time students (or part-time students with a disability) and $120 a month for part-time students, and textbook costs to a total of $65 a month for full-time students and $20 a month for part-time students.
  • A Public Transit Pass Credit for monthly or longer transit passes. You will need receipts to make this claim.
Get a tax reduction through deduction Tax deductions like these reduce the amount of your income that’s subject to tax:
  • Moving expenses – when you move more than 40 kilometres to be closer to school or for your summer job.
  • Child care expenses – can be claimed by a higher-earning spouse or common-law partner when the lower income partner is enrolled in a qualifying secondary or post-secondary program.
Take an interest in saving You are eligible for a tax credit on interest paid for a loan that is part of a federal or provincial student loan program but has not been renegotiated with a financial institution or consolidated with other loans. If you have no tax payable in the year the interest is paid, you can carry forward the unused credit and apply it in any of the next five years.  

Save for emergencies … and your future You can contribute up to $5,000 to a Tax Free Savings Account (TFSA) each tax year. 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 – such as providing emergency cash for unexpected education costs.

Find out about even more tax-saving strategies by talking to a professional advisor.  

* Information in this article is based on federal rules only. Provincial and territorial rules may differ.

Monday, June 6, 2011

Get equities in your equation – putting diversification to work

Stock markets around the world have been very volatile in the last few years. If your portfolio has lost some of its lustre because of this, you may be seeking ways of protecting yourself from investment losses by moving more of your money into ‘safer’ investments. It can be appealing to look for the stability of fixed-income investments like bonds, mortgages, T-bills, Guaranteed Income Certificates (GICs), or mutual funds investing in those types of securities. But seeking less volatility by loading up on fixed-income investments could cause damage to your financial future. This type of conservative investment usually offers a low rate of return, and potential for a drop in value when rates go up. Combining this with the eroding effects of inflation can virtually eliminate any longer-term benefits.

Market experts agree, and decades of investment experience has proven, that a diversified investment portfolio through effective asset allocation is the best way for investors to achieve the long term goals of their overall financial plan – and equities (including equity mutual funds) play a key role in achieving the highest returns for a given level of risk. Here’s how (and why) an appropriately diversified investment portfolio can help buffer market turbulence:
  • Asset classes tend to move in different directions. By loading your portfolio with a single asset class, you concentrate your risk and limit your sources of returns. A well-designed, adequately diversified portfolio encompasses all asset classes which can offset the downward movement of one class with the upward movement of another.
  • Nobody knows in advance which asset classes will outperform or underperform, and when. Because asset performance is constantly changing and the asset allocation process is dynamic and fluid, investors are best served by covering all the bases at any given time.
  • Studies have shown that the correct asset mix offsets selection risk – making asset allocation, not individual investment selection, the major driver in investment returns. In fact, as much as 90 per cent of portfolio variability can be attributed to the choice of asset types, with only 10 per cent coming from the choice of individual investments.
  • Since 1950, fixed income investments have generally reduced investment risk but have also lowered long-term growth. Over the same period, Canadian equities have produced the necessary asset growth to achieve long-term investment objectives1. The takeaway: Even conservative investors should allocate at least 25 per cent of their long-term investment portfolio to equities (including higher yielding equity mutual funds).
  • The amount of risk in your portfolio depends on your personal tolerance for risk and your time horizon. For example, if you’re close to retirement, you might want to reduce risk to protect a portion of your investments from inevitable periods of market volatility.
Diversification works. And knowing the basics can help you understand and take advantage of the risk that may be in your portfolio. The best way to play it safe? Get the asset allocation help you need from your professional advisor.
1S&P TSX Composite vs DEX Long Term Efficient Frontiers (1950-2010)

Tuesday, May 31, 2011

Fixed income investments and the trouble with interest rates

Fixed income investments – savings accounts, bonds, mortgages, T-bills, Guaranteed Income Certificates (GICs) and the like -- are typically viewed as ‘safe haven’ investments by many investors. And for the past 30 years or so, bonds especially have enjoyed an almost uninterrupted period of steady, if not spectacular, growth. But with interest rates sitting at historical lows, there is likely little opportunity left for further appreciation in the price of bonds. So, what can you expect from an investment in bonds? That depends on whether interest rates begin to go up or remain flat. Let’s take a closer look.

If interest rates rise, expect increased volatility in bond prices. As interest rates go up, new bonds are issued at the higher rate, making them more attractive than existing bonds. For example, if you buy a bond that yields (pays) 5 per cent interest and interest rates rise to 6 per cent, your bond will be worth less because new investors are getting a better yield.

Keep in mind that the impact of interest rate changes on existing bonds depends on the type of bond you invest in. For example, if interest rates increase by just 0.25 per cent, the value of a long-term bond could drop by more than 1 per cent, while a short-term bond would typically see a much smaller drop in value.

If interest rates experience a steady rise, income from bond mutual funds will eventually climb as fund managers find greater value by adding bonds with higher yields, which will help to slowly rebuild income levels and provide better volatility protection.

Inflation expectations can also produce bond market volatility. Inflation usually leads to higher interest rates and even the expectation of an inflationary period can drive down bond prices well in advance of an actual interest rate change.

If interest rates remain flat or fall, cash flow from bond interest flat lines or declines making it more difficult to achieve your financial goals and effectively eliminating protection against price increases.

Faced with low interest rates, some investors choose to move to higher yielding corporate bonds in hopes of increasing their income. Corporate bonds typically perform well in a stable economy but during economic crises there is more risk that high yield bond issuers will become insolvent. That creates volatility in high yield bond prices and results in a flight to quality investments and risk free assets like T-Bills or perhaps Canadian government bonds, further reducing the value of lower credit quality assets such as high yield bonds.

Any way you look at it, volatility and low yields are expected continue in the bond market for some time. Even so, investors should still view fixed income investments as an important asset class to manage market risk. The cost for this relative stability is it’s lower long-term growth potential, which makes portfolio diversification among all asset classes – cash, stocks, equity mutual funds, bonds and other fixed-income investments – the key to successfully reaching your long-term financial goals. Talk to your professional advisor about how to keep your financial life safe and balanced come what may.

Monday, May 23, 2011

Tax Freedom Now! Or at least earlier.

Tax Freedom Day is the day of the year when most Canadians finally start working for themselves after paying their total tax bill to all levels of government. It occurs either in late May or early June, depending on where you live. Maybe you feel like you’ve missed the party this year but with some smart tax and financial planning, you won’t miss the celebration next year – and if you really buckle down, you could end up celebrating your personal Tax Freedom Day a month or more earlier than everybody else.

The concept of Tax Freedom Day was developed by Canada’s Fraser Institute to provide a practical calculation of the taxation levels placed on Canadians. It uses a statistic model and tax calculator to estimate a household’s tax liability based on province of residence, age, income, marital status, and number of dependants.

A significant portion of the taxes you pay are federal and provincial government income tax – and how much you pay can be positively influenced by taking full advantage of tax planning opportunities. You can bump up your personal Tax Freedom Day with strategies like these:
  • Use an RRSP to pull the trigger on taxes Depending on your province of residence and with a marginal tax rate of 46 percent, if your family were to make a $10,000 tax-deductible RRSP contribution, you could save as much as $4,600 in taxes and advance your Tax Freedom Day by as many as 18 days.
  • Invest your non-registered dollars tax-efficiently For example, if your family earns $10,000 in interest income, taxed at a personal marginal rate of 46 per cent, you will pay $4,600 in taxes. But if that $10,000 of interest income is derived from more advantageously taxed investments – say, $3,000 invested in Canadian equities that pay dividends, $2,000 in realized capital gains investments, and $5,000 in deferred capital gains investments – your tax cost would be reduced by $3,361 – advancing your Tax Freedom by about 13 days.
  • The family that tax-plans together, saves together Families can reduce their tax liability by having the spouse with the higher marginal tax rate make a prescribed rate loan to the spouse at a lower marginal tax rate. Often referred to income-splitting, this strategy may also be used with children or other relatives. Here’s an example: Transfer $10,000 from a family member taxed at a 46 per cent marginal rate to another family member taxed at a 25 per cent marginal rate and (based on a prescribed loan interest rate of 1 per cent), the tax savings would be $2,100 – or 9 tax freedom days.
Put all three of these tax-saving strategies to work and your family could save over $10,000 in taxes and speed your personal Tax Freedom Day by 38 days. When wise tax planning and the right investment choices work together, you stand to achieve the best possible returns on your savings. Your professional planner can help make that happen for you.

Sunday, May 15, 2011

Are you planning for long term care?

If you’re like most mature Canadians, you’re planning for a long and comfortable retirement. But, as we learn anew every day, planning is one thing, reality is another. The hope is that you and your spouse will stay healthy through all your retirement years. But the probability is that your health or your spouse’s health will change during those years and you may require nursing services and/or long term care.

How common is the need for long term care?
  • About 50,000 strokes occur in Canada each year* – and stroke is the leading cause of transfer from hospital to long term care.
  • 1 in 11 Canadians over 65 is affected by Alzheimer’s disease or a related dementia.**
  • 7% of Canadians age 65 and over reside in health care institutions.***
  • An additional 28% of Canadians 65 and over receive care for a long term health problem but do not live in a health care institution.***
Many Canadians believe that all long term care services are paid for by their provincial health care system or are covered by group plans. The reality is that skilled nursing care, personal health care, facility costs, some supplemental medication costs, special equipment, adaptive devices, home alterations and other services can add thousands of dollars to monthly long term care costs that come out of your pocket. In fact, in 2003, about two-thirds (65%) of Canadian adults who needed personal care did not receive that care from government-subsidized programs.***

Will the retirement nest egg you’ve built be adequate to cover long term expenses? Why risk putting your retirement, assets and estate at risk or becoming a financial burden on your family when there is an effective alternative: Long term care insurance.

Long term care insurance pays out benefits when you require nursing home care or – and this is important – care in your own home. This type of insurance generally provides benefits related to physical or cognitive impairment, including: medical care, home care, daily care in an adult day care center, 24-hour care in a long term care facility, the services of a registered nurse in your home, homemaker services, respite care to allow a caregiver a needed break, or any other costs that may arise during the period of impairment. With long term care insurance, you will not have to rely on your family for financial help or hands-on care – giving you and those you love the opportunity to spend quality time together in a financially stress-free environment.

A long term care insurance policy can help protect you, your family and your assets from the financial impact of health care services by providing cash when you need it, for as long as you need it.

* Canadian Institute for Health Information, 2003

** Alzheimer Society website, 2009

*** Statistics Canada, 2002

Sunday, May 1, 2011

Fixed-income fixation

Conservative investors typically gravitate toward ‘safe’ investments, usually fixed-income investments. But with interest rates still hovering at historic lows, conservative investors may be concerned about whether their fixed-income investments will keep up with rising inflation levels or unexpected life events and adequately fund their retirement years.

Those are valid concerns. Let’s look into and beyond fixed-income investments to see what can be done to alleviate them.
  • Conservative investors like fixed-income securities such as bonds, GICs, and savings accounts because they have a reputation for reliability, stability, and security – and they do have an important place in a well-diversified portfolio. The suitability of fixed-income investments really depends on each investor’s objectives. If you’re looking to generate a steady income over many years, long-term bonds and GICs can make sense. If you are seeking capital preservation and liquidity, money market investments may be for you. If you need growth in a rising interest/inflation rate environment, short-term bonds may be the answer. As well, equity investments can be a good way to further diversify the portfolio while potentially improving the return, even for a conservative investor.
  • The key is to always have a well-balanced portfolio tailored precisely to your expectations for growth, tolerance for risk, and life/retirement objectives. But well-balanced today doesn’t necessarily mean well-balanced tomorrow.
    • Interest and inflation rates go up and down
    • Markets and the economy go up and down
    • Your life changes – maybe you are now taking care of an adult child or have additional health care costs
    • You revise your retirement dreams – adding more travel or deciding to downsize earlier rather than later
  • That’s why reassessing your financial life and plans are critical to ensuring a well-funded retirement. Your initial plan provided guidance on your goals at that time and how to invest to achieve them. But, as time goes by, the actual returns on your investments may be different than anticipated, or your retirement objectives may have changed – so you need to re-evaluate … and the best way to do that is through an annual review of your current portfolio and retirement plans to ensure your investment plan and retirement income measure up to your expectations.
By consistently evaluating your investments based on the potential for changes in the economy and your personal life, you can help ensure you are prepared to cope with the challenges while continuing to financially prepare to achieve your retirement dreams. Your professional advisor can work with you to determine the right diversification based on both personal and external factors.

Sunday, April 24, 2011

Financial planning pays off

Value – according to a pair of long-term, in depth studies by two of the country’s leading professional standards and investment organizations, that’s exactly what Canadians get when they engage in thorough financial planning with a professional advisor. Value that pays off in the twin benefits of financial and emotional wellbeing.

The Value of Financial Planning1 -- a comprehensive five-year research study by the Financial Planning Standards Counsel (FPSC) -- delivered real empirical evidence that Canadians who engage in financial planning are far better off than those who don’t. Among the report’s findings:
  • Of respondents who engage in comprehensive planning, 51% said they were on track to reach their desired lifestyle in retirement, compared to just 18% of those who don’t receive any financial advice.
  • The research also revealed that of individuals who engaged in comprehensive, integrated financial planning:
    • 61 % felt confident they would be satisfied with their desired lifestyle in retirement, compared with 27% with no financial planning.
    • most also felt that they had improved their ability to save, had greater peace of mind, are less concerned about their financial situation, and feel better about having discretionary income to be able to lead the life they want.
A second report – The Value of Advice: Report2 – from the Investment Funds Institute of Canada (IFIC) drew similar conclusions:
  • Third party empirical data (from Statistics Canada, Ipsos Reid and others) showed that when Canadians choose financial advice, they accumulate more assets and are better prepared, financially, for retirement.
    • 74% of advised households agreed that they feel confident that they will have enough money to retire comfortably.
    • 71% of advised households agreed that a year from now, they will be financially better off than they are today.
The IFIC report highlighted the wide range of valuable services that professional advisors provide for their clients, including: setting and achieving planning targets; choosing the right vehicles and plans; setting the right investment mix; and delivering customized solutions based on individual choice and personal goals.

As these studies confirm – and as so many Canadians have already discovered for themselves -- financial planning pays off. Get the value you deserve by talking to your professional advisor today.

1The first phase of the study was conducted by The Strategic Council for FPSC, August 2009 to January 2010 and surveyed 7,300 Canadians.
22010 Value of Advice: Report, IFIC, July 2010

Sunday, April 17, 2011

Wow! A tax refund – spend or save?

It’s great to get a tax refund, isn’t it? (Maybe not – but more on that later.) So, what are you going to do with it? You could spend it but then, it would just be … gone. In the interest of a long-term improvement to your personal financial picture, here are a few alternative tax refund uses to explore.

RRSP it Make your 2011 RRSP contribution right now and you’ll get the benefit of nearly an extra year of potential long-term tax-deferred growth and a tax deduction against next year’s taxes.

TFSA it You are allowed to save up to $5,000 a year in a Tax-Free Savings Account (TFSA). Your contributions are not tax-deductible but you will not be taxed on a cent of the investment income generated by your TFSA and you can re-contribute any of your tax-free withdrawals in a future year.

Invest it If your RRSP and TFSA are topped up, consider adding to your non-registered investments. It’s a sound strategy to hold stocks and equity mutual funds outside an RRSP or TFSA because these types of investments are taxed at a more favorable capital gains inclusion rate and Canadian investments qualify for the dividend tax credit.

Learn from it Set up Registered Education Savings Plans (RESPs) to fund future education costs for your kids. RESP contributions are not tax-deductible but their growth is tax-deferred and they qualify for Canada Education Savings Grants (CESG)1 of up to 20 per cent of your contribution.

Take interest in it Pay down costly credit debt with interest rates that can range from 15 to 29 per cent and then pay down non-deductible debt such as your mortgage – a single prepayment can chop months or even years off your repayment schedule and potentially save hundreds or thousands of dollars in interest payments.

Park it Got a large refund? Why not park some cash in a short-term investment that you can access without penalty. You’ll have a ready source of cash for a rainy day or maybe a new car without having to borrow or use your credit card. (You can also use a TFSA as a rainy day fund.)

Eliminate it Here’s why getting a tax refund isn’t the greatest: That refund cheque is not a gift from the government. It’s money you overpaid during the year and are now getting back without interest. Put more money in your pocket each pay period by applying to lower your withholding tax, using File Form T1213, available from your local Canada Revenue Agency (CRA) office or from the CRA Website www.cra-arc.gc.ca. (Québec residents must also fill out the Québec form TP-1016-V.)

A tax refund is great – a comprehensive tax-reducing, life-goal-achieving financial plan is much better. Your professional advisor can help make it all work for you.

1CESG is provided by the Government of Canada

Sunday, April 3, 2011

Tips to help keep the CRA out of your pockets

No one wants to pay more tax than they have to ... I think we all feel that we pay enough as it is. With this in mind, Andrew Beattie shares some ways that all Canadians can limit their tax exposure.

Read through this Globe Investor article and see if there are any strategies that you can take advantage of ... or perhaps let me know if you have come up with something else.

As always, the right advice is key, so if you have questions be sure to talk to a professional advisor or your accountant to get the information you need.

Source: Globe Investor

Wednesday, March 30, 2011

Time for a portfolio check-up?

Your personal health is important to you. That’s why you have periodic check-ups, follow your doctor’s recommendations on diet and exercise, and take your medications. Your financial life is also important to you. That’s why you should periodically perform a portfolio check-up and follow this prescription for maintaining its health.

Why a check-up? For two very good reasons:
  • One, the value of each investment in your portfolio will change over time as a result of fluctuations in its market value. By periodically rebalancing your portfolio, you’ll get it back on track to reaching your financial goals.

  • Two, your financial situation and goals change over time – and that means your portfolio probably needs to be revamped to meet your evolving needs.


When to check-up? You get statements from your bank, mutual fund investments, registered plans, stock purchases and sales, and your other investments. Review them at least every three months to compare your current returns against your longer-term goals and overall financial plan and if you’re off-track, make changes.

Your prescription for portfolio health: Here are a few important strategies for successful investing:
  • Follow a planned asset allocation strategy by constructing – and, very importantly, maintaining – a portfolio with a mix of investments across the three principal types of financial assets (cash, fixed-income vehicles and equities) that balance risk, create diversification, and will deliver the long-term returns you need to reach your financial goals.

  • Diversification is always the right way to go – even to the point of looking beyond Canadian markets. International markets don’t always follow Canadian or U.S. patterns. By adding foreign investments to your portfolio, you can lessen volatility and add the opportunity for enhanced returns.

  • Balance is the key. Experts and study after study agree that a balanced portfolio strategy is best over the longer term. Avoid chasing ‘winners’ and quickly dumping ‘losers’. If you do that, your portfolio is bound to become seriously unbalanced.

  • Rebalance to match your tolerance for risk. Your optimal asset mix depends on your age, income expectations, retirement dreams and much more – and it should contain investments that allow you to sleep comfortably at night. When the mix is right for you, you are not overly concerned about volatility or which asset class is performing or not performing at any particular time.

Your financial plan is not written in stone; it’s a reflection of your changing life. A professional planner can help you perform a portfolio check-up that maintains your financial health.

Wednesday, March 16, 2011

Participating in your life insurance – a good investment?

Life insurance is a vital and necessary part of every financial plan. But there are a whole lot of life insurance types and products out there – so making the decision about what’s right for your personal situation, budget and longer-term financial and retirement goals can be difficult.

In this column, we will focus on one type of insurance that you should consider if your needs and wants match this profile:
  • You have a low to moderate tolerance for risk

  • You want protection for a lifetime with guaranteed premiums, guaranteed cash values and tax-free benefits guaranteed for your beneficiaries

  • You want an investment component included with your insurance coverage providing the potential for tax-deferred growth without the need to manage those investments

  • You want to build tax-advantaged savings that you can draw upon as needed for personal or business needs (although any cash values withdrawn from such a policy may be subject to tax)

You can get all of these benefits and a few more from Participating Life Insurance or also known as PAR Whole Life.., Participating Insurance combines life insurance with an investment component that also pays dividends.

PAR Insurance works like this:
  • Your premiums go into an account with the premiums from all the other policyholders holding a PAR policy with that life insurance company

  • The amount of your premiums and the other coverages in your policy are calculated using long-term assumptions for death claims, investment returns and other factors. Your guaranteed premium, values and death benefit are based on these factors and are guaranteed for the life of your policy

  • The pooled premiums from all policyholders are invested in a balanced portfolio managed by investment professionals

  • When the actual returns on these investments are greater than the assumptions in place for the life of the policy, there is an account surplus that is paid to policy owners in the form of dividends (although policy owner dividends are not guaranteed)

  • Dividends have a cash value that is credited to your policy and owned by you. You can use the dividends to: increase the policy’s cash value on a tax-advantaged basis, to withdraw cash from your policy or borrow against it, to buy additional insurance without the need to prove your insurability, or to lower your out-of-pocket premiums

PAR insurance products are available with many coverage and payment options. Your professional advisor can show you how to tailor your insurance coverage to meet your needs today and tomorrow.

Friday, February 25, 2011

Hesitating to make an RRSP contribution?

Here we are with just days left until this year's RRSP contribution deadline and there are still many of us who are on the fence about making a contribution. Sonali Verma of the Globe and Mail Blog outlines some of the hurdles to contributing -- and how to overcome them.

Check it out ... this year's deadline for contributions is March 1st, so if you haven't yet, don't hesitate to make your contribution. If you still have questions, talk to a professional advisor and get the advice you need before you make any decisions.

Source: Globe Investor

Thursday, February 10, 2011

Better than lemonade -- critical info about insurance.

There’s an old saying: When life hands you lemons, make lemonade. That’s a commendably positive and proactive way of looking at what might otherwise be a very gloomy life event. But life is always unpredictable and can throw you some real curves – and that’s where critical illness insurance comes in.

If you think a critical illness couldn’t happen to you, think again:
  • An estimated 166,400 new cases of cancer occured in Canada in 2008. *
  • Heart attacks strike 70,000 Canadians each year. **
  • Almost one quarter of Canadians had to personally care for a family member or close friend with a serious health problem during the past year – many had to use personal savings during this time and take a month or more off work to care for this person. ***
That’s a bit of bad news – here’s some better news:
  • Mortality rates from heart disease and stroke have decreased by 70% since 1952. ****
  • While women have a 1 in 9 chance of developing breast cancer, they have only a 1 in 27 chance of dying from it. *****
  • While men have a 1 in 7 chance of developing prostate cancer, they have only a 1 in 26 chance of dying from it. *****

Plenty of Canadians expect that provincial or employee health plans will pay critical illness expenses but many expenses – such as travel, day care and home care – are often not covered. Nor are some drugs, private treatment, or the costs for medical treatments outside Canada.

The first few months following the diagnosis of a critical illness are often the most critical in terms of emotional and physical trauma and expense. That’s when the benefits of critical illness insurance really kick in. With this type of insurance, you receive the ‘living benefit’ of a lump sum cash payment (once you’ve satisfied the waiting period) for any life-altering illness covered by your policy, usually including the most common such as cancer, heart attack, and stroke.

The money is yours to use any way you wish, and with current tax legislation is paid out as a tax free benefit. Pay your medical bills, replace lost income, pay your mortgage, hire a nurse or caregiver, or even retrofit your house or vehicle to accommodate a wheelchair or chairlift – the choice is yours.

If a critical illness strikes, you want to be able to focus on your recovery and not be distracted or defeated by the extra costs. Talk to your professional advisor about how critical illness insurance – and perhaps other forms of insurance protection – fit into your lifelong financial plan.

* Canadian Cancer Society, General Cancer Stats for 2008,
www.cancer.ca

** Heart and Stroke Foundation, Statistics,
www.heartandstroke.com

*** 10th Annual Health Care in Canada Survey, February 2008
**** Heart and Stroke Foundation of Canada, 2002
***** Canadian Cancer Society, 2006

Wednesday, January 26, 2011

When it makes sense to borrow for your RRSP

Loans are a part of life for most Canadians. We take out loans to pay for our cars and our homes, for vacations, furniture and TVs. And, at this time of year, as the deadline for making your 2010 Registered Retirement Savings Plan (RRSP)contribution looms, you may be asking yourself if it makes sense to make one more loan – a loan to increase your RRSP contribution.

The right answer for you depends on the overall shape of your financial life. Let’s look at the factors you should consider.

Makes sense to borrow …
  • Because contributing to your RRSP can pay off in two ways: First, you’ll increase the size of your tax refund; second, you’ll have more tax-deferred money growing inside your retirement plan. But the first rule is this: The loan must fit your budget.
  • When you intend to pay off the loan within a year. Remember: Interest on an RRSP loan is not tax-deductible. Consider a series a smaller RRSP loans with payments within your budget. Longer term loans are more suitable for purchasing non-registered investments (when the interest is tax deductible).
  • When size of the loan maximizes tax savings. Tax rates rise with income. More tax can often be saved by spreading RRSP deductions over more than one year. While contributions made in one year can be deducted in a future year, it does not always make sense to borrow to make an RRSP contribution if it will take several years to fully utilize the deduction. Again a series of smaller loans may produce the better financial result.
  • When you use your tax refund to pay off the loan as quickly as possible.

Or maybe not …
  • If you expect to be taxed at, or near, the lowest marginal rate over time. In that case, you won’t get the full tax-reduction benefit of making your maximum RRSP contribution, so the cost of taking out an RRSP loan doesn’t make sense. Instead, you might want to consider contributing to a Tax-free Savings Account (TFSA). The contribution isn’t tax deductible but money and interest inside a TFSA is tax-free and, unlike your RRSP, so are withdrawals, which can be made at any time for any purpose.
  • If your increased RRSP refund is already earmarked, in whole or in part, to pay taxes you owe on other income.
  • If you are unsure your income level will allow you to meet your RRSP loan obligations, which you will be required to do regardless of your income level and the performance of your RRSP in the shorter term.

Borrowing to increase your RRSP contribution can be a useful strategy but it also comes with specific risks. Perhaps you can avoid the need to borrow next year through a Pre-Authorized Contribution (PAC) plan that automatically deducts and saves any amount you want from your regular paycheques.

And, of course, your professional advisor can help you map out the RRSP contribution strategy that fits the overall shape of your financial life.

Wednesday, January 19, 2011

RRSP fast facts – what you need to know to save and grow

The deadline for making your 2010 Registered Retirement Savings Plan (RRSP) contribution is fast approaching – but you still have time to take advantage of a few last-minute RRSP facts and tips that will reduce your tax load this year and help build a financially comfortable retirement.
  • Don’t miss the deadline. This year’s contribution deadline is March 1st, 2011
  • Maximize your RRSP contribution. The best strategy is to always make your maximum allowable contribution each taxation year. That way, you’ll get the most in immediate tax savings and maximize the potential long-term growth of the investments in your RRSP. You’ll find your personal maximum allowable contribution room on your most recent notice of assessment from the Canada Revenue Agency (CRA)
  • Catch up on past contribution room. You can fill your unused contribution room in a single year or over a number of years until the year you reach age 71 – but the faster you fill it, the better for additional tax savings and longer term tax-deferred, compound growth
  • Borrow to save. Taking out an RRSP loan can be a smart way to maximize this year’s contribution or to catch up on your past contributions. The key is to get a loan at a low interest rate and pay it back as quickly as possible. You can even use your RRSP tax savings to help pay off the loan
  • Split income to save. While you can take advantage of the pension income splitting rules in retirement, in the right situation, a spousal RRSP can still make sense to save taxes in your retirement
  • Diversify for better growth. The government caps the amount you can contribute to your RRSP(s), so it’s highly likely you’ll need additional income to afford the retirement of your dreams – and that’s where a Tax-Free Savings Account and your non-registered investment portfolio comes in. A well-balanced portfolio is based on an asset allocation plan that matches your risk profile and time horizon
  • Choose an RRSP beneficiary. You can designate a beneficiary on your RRSP (in Quebec, this must be done through the Will). If you die without a beneficiary designation, up to 48% of your total RRSP value could be lost to taxes. Generally speaking, the RRSP assets do not form part of your estate and, therefore, do not attract probate fees. And, if your beneficiary is your spouse (or a disabled dependent child or grandchild) your RRSP may be transferred on a tax-deferred basis to your beneficiary’s registered plan
With the right RRSP strategies wrapped in a sound, overall financial plan, you will save on taxes every year and retire with more. Your professional advisor can help make your future dreams into a financially secure reality.