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 But RRSP contributions are tax-deductible and TFSA contributions are not, although amounts can be withdrawn tax-free at any time and the withdrawn amounts added back to your TFSA contribution room.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are your RRSP contributions tax deductible, all other taxes on your registered investments are deferred until money is withdrawn during retirement.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.