Monday, November 11, 2013

Financial recovery from divorce

Divorce happens – approximately one in three marriages now ends that way – and without the right kind of planning, the financial fallout can be devastating. There are always legal issues involved in any divorce proceeding – everything from the right to division of family property and pension benefits to spousal and child support requirements – so contacting a lawyer is an absolute necessity. But there are certain financial recovery steps that need to be taken in almost any divorce.

Financial issues
  • Close joint accounts and open individual accounts
  • Cancel joint credit cards and any automatic payments made in favour of the former spouse
  • Develop a new, individual financial plan – including a personal budget and retirement plan
  • Transfer/assume joint assets – such as responsibility for mortgage payments and entitlements from RRSPs and non-registered accounts
Family law issues
  • With your lawyer, establish your right to a division of family property, pension benefits, spousal support and child support
  • Obtain a release from your ex-spouse’s financial liabilities
  • Decide who will continue paying for RESPs
Tax issues
  • Notify government agencies (CRA and RRQ in Qu├ębec) about your change in marital status for the Canada Child Tax Credit and other credits/child support calculations
  • Remove the ‘spousal’ designation on any spousal RRSPs/RRIFs
  • Assess the tax liabilities when negotiating the division of property – such as the principal residence exemption – as a means of reducing the resulting tax burden
  • Investigate the tax credits/deduction that may be available for spousal support, child support/child care expenses and other fees/expenses/payments
Insurance issues
  • Review your life, medical, disability, critical illness, long-term care, mortgage and other insurance coverage (including house, car and liability) and make any changes as required
Estate planning issues
  • Change beneficiaries for registered accounts, life insurance policies and any registered pension plans
  • Review your will, living will, health care directives and Powers of Attorney
Divorce is always difficult and expert advice is an essential requirement at this emotionally trying time. Your professional advisor can be the ‘team manager’ you need to keep your financial recovery on the right track.

Thursday, September 26, 2013

Christmas in September – plan now for a debt-free holiday season

It is more likely that you are recovering from the Back-to-School rush, or planning Thanksgiving than having started your Christmas shopping -- but by getting going right now on some early Yule holiday financial planning, you can give yourself the gift of a debt-free Christmas.

The best Christmas buying strategy is to ‘afford as you go’. That way you won’t use credit for your purchases or face any big, long-term, high-interest bills next year. But where will your ‘extra’ cash come from? The key is to set it aside before it gets chewed up in the cost of daily living.

Pay yourself first. When you set aside a portion of your weekly or monthly pay as soon as you get it, you won’t run out and spend it, and your Christmas gift nest egg will grow steadily. You can pay yourself first by saving a fixed-dollar amount or a percentage of your income – say, 3% -- each pay period. Just choose the amount you can most comfortably afford.

Get the best growth for your savings. A low-interest bank account is not a good place to park your savings. Yes, you can make it easy to save by arranging to have your weekly or monthly pay yourself first dollars automatically deposited into a dedicated savings account – but as soon as your savings start to build, move some into investments that generate higher rates of return, such as:
  • Money Market Mutual Funds that earn competitive returns and can usually be redeemed in a matter of days and, depending on the fund, may even allow chequing privileges.
  • Guaranteed Investment Certificates (GICs) or Term Deposits can be a good choice when saving for purchases – like Christmas presents – that are months away and you can commit your cash for a longer term. With these investments, you lock your money in for a fixed term in return for a higher interest rate.
  • Government Savings Bonds are often cashable at any time, but can be purchased only within a limited time each year. Your employer may offer an automatic purchase program for Government Savings Bonds.
Save long before the Christmas season and you will reduce the cost of your Christmas gifts, without looking like a Grinch, by taking advantage of off-season markdowns or sales as they happen and by paying in cash. That helps you avoid the Christmas rush when the spirit of the season can overtake reason and push you to the more expensive alternatives.

Your professional advisor can help you make the most of a pay yourself first strategy that will give you the gift of a debt-free Christmas and the best possible financial future.

Tuesday, August 13, 2013

Summer job money – a great time for life lessons in income management

Your teen has their first ever summer job – and an income! Part of your teen’s work experience will likely include on-the-job instruction and part of their summer experience should definitely include on-the-money instruction. Money management is an important life lesson everybody needs to learn and, with your teen about to enjoy a regular payday for the first time, you have the perfect window of opportunity to pass along some good information that will put them on the fast track to future financial success. Here are some on-the-money tips to pass along.

The early bird builds a bigger nest egg. How your teen handles money as an adult will depend largely on the habits they learn growing up. Be a good money role model and motivate your teen to be a regular saver and investor from day one.

Money manage for advantage. Peer pressure and relentless youth-oriented advertising have escalated teen overspending into an expensive – and potentially lifelong – epidemic. Effective money management is the cure. Explain to your teen the value of always controlling expenses so they don’t exceed income. Work with them to create a realistic budget with measurable and attainable goals – and be their guide along the way.

File today for better returns tomorrow. Your teen should file an income tax return to report the earnings from his or her summer job. Your teen’s income may be below taxable levels right now but they will start accumulating RRSP contribution room that can be carried forward indefinitely. When your teen reaches age 19, they 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 cheques.

Be a ten-percenter today for a richer tomorrow. Early savings take full advantage of the miracle of compound interest – so encourage your teen to save at least 10% of their take-home pay by using this dramatic example: Invest $1 a day for 40 years at an interest rate of 5% and you’ll have about $44,000!!1

You know the lifelong importance of saving, investing and money management and you want your teen to know all about it, as well – and to follow your teachings to a comfortable financial future. But sometimes teens develop selective hearing loss – especially when it comes to accepting advice from their parents. An external informed opinion can make the difference – so why not give your professional advisor a call for some additional help?

1The 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.

Wednesday, April 24, 2013

Teaching kids about money – start early

Kids today gain levels of sophistication and tech savviness at earlier ages than ever before. But this is a complex world and, more than ever, parents have a key role in making sure their children are equipped to deal with every complexity – and developing strong money management skills should be among the most important for helping your kids achieve their life goals, lead a better life and help others.

New research1 reveals that Canadian parents are very proactive when it comes to teaching their children about personal finance – with 82% of parents frequently or sometimes having conversations with their kids about good money habits. It’s important to start dollars and sense talks early so here are some age-related tips to get you going.

6-12 years Start with a ‘fun’ bank they can fill with coins; eventually graduate to a ‘real’ bank account and an allowance tied to certain tasks to learn responsibility. A fixed amount allowance is best because it teaches that there are serious choices to be made about spending and saving. Deposit at least 10% of their allowance in a bank account and explain how interest makes their money grow. Board games like Monopoly and interactive websites such as the Canadian Foundation for Economic Education are also great money education tools.

12-16 years Develop a simple budget that includes keeping tax receipts and statements to keep track of their money. A charitable giving component will show them how their money can have a positive impact on the community. Give an allowance ‘bonus’ for special work with the requirement that the extra money must be invested. Introduce the concepts of ‘compounding’ and tax-saving through such long-term investments as a RRSP eligible investment.

16-18 years Have each child file a tax return as soon as they have a job that results in a T4. It’ll give them a more ‘personal view of taxes and build up future contribution RRSP room. Co-sign for a low-limit credit card and carefully monitor its use. Stress the importance of making monthly credit card payments to maintain a good credit rating and avoid high interest rates or late fees. Use credit card statements to discuss spending patterns and best use of purchasing power.

More tips
• Involve you kids in family financial discussions.
• Show how your family budget must balance expenses and income.
• You can even start playing ‘money games’ with your kids as young as two years old.

Teaching kids about money is just plain smart. If you want to add a professional perspective, give your financial advisor a call.

1Investors Group online poll conducted by Harris/Decima, June 2012

Wednesday, March 27, 2013

The 5 Real Reasons to Hire a Financial Advisor

When investing, everyone wants their investments to outperform the the stock market ... it makes sense.  But if you choose to work with a Financial Advisor solely for this reason, you are making a mistake.

We know what has already happened in the stock markets, and we know what is currently happening, but no one knows, with absolute certainty, what is going to happen.  There is no crystal ball or magic formula that will guarantee big returns.  If there were, I would guess that there would be a lot more Advisors who are retired and living on a beach somewhere.

In a recent post on LinkedIn, Sallie Krawcheck, former president of the Global Wealth & Investment Management division of Bank of America which includes Merrill Lynch and U.S. Trust, shares her
thoughts on what some of the REAL reasons for working with a professional Advisor are.

If you believe much of the media, you hire a Financial Advisor to try to outperform the stock market. Never mind that this can have very little bearing on whether you can live or retire as you would like. Never mind that research has shown that even the hottest hedge fund managers struggle to outperform the markets. (Ok, they don’t struggle to; they don’t.)

The better reasons to hire one are to:

Press you to answer questions you don’t want asked, like how you plan to take care of your aging parents if you need to, whether your will is up to date, how you are going to send your kids to college, what you will do if you lose your job. These are the types of questions that make most of too uncomfortable to ask ourselves.

Put together a financial plan. Very few people ever, ever do this on their own. And most drag their feet on doing it with their Financial Advisor, too. It takes time and it can hurt. But it matters.

Identify risks in your portfolio that you might look right past, like being overweight the US (which is most of us in the US) or being mostly invested in tech stocks, when you’re in the tech industry.

Talk you through market volatility. Most of us energetically claim we don’t need this. It’s hard to project forward an image of ourselves being nervous or scared, and our recollection of past pain has been shown to fade over time. (Just ask any woman who has been through childbirth more than once!) But another voice besides your own during tough markets can be invaluable.

Identify your biases. This is a biggie. Many of us think we don’t really have any….which is exactly the point. One big one: women tend to be more risk-averse than men. That is neither good nor bad of itself, but it is something that should be tested and pushed at a bit, given that women as a group also earn less and live longer than men. As a result, they could perhaps tolerate a bit more risk.

Yes, Financial Advisors cost. But if they are able to provide the services above -- and particularly if they can do it earlier in one’s investing life -- their value can be meaningful.

Source The 5 Real Reasons to Hire a Financial Advisor

Wednesday, March 20, 2013

Comfortable investing – investment risk levels and you

The market goes up and down and so does your stress level. Are you uncomfortable with your investments or confident their value will be there when you need it? Investing for the future can be tricky. There are so many things to consider, including how much investment risk - the potential for your portfolio to decline in value over the short term - you’re comfortable with.

To help you get a solid read on what’s right for you, here are some tips for separating facts from feeling to create a comfortable portfolio that works.

Take your time to make the right decisions based on your personal risk level.  Carefully assess the investments from which your portfolio will be constructed. If you are uncomfortable with risk, focus on capital preservation and income generation in a portfolio comprised mainly of the more stable fixed-income type investments. As your capacity for risk increases, add equities for a potentially higher rate of return and potentially higher volatility.

Determine your personal capacity for investment risk
Ask yourself fact-based questions like this:
  • What is my investment timeframe? If it’s less than four years, don’t invest in higher risk assets. If you have an investment horizon beyond ten years, experts believe that you should invest in a more aggressive portfolio because historical trends show that, over the long term, you will benefit from a higher rate of return with ample time to recover from short-term volatility.
Ask yourself feeling-based questions like this:
  • Can I sleep soundly at night? Regardless of your investment horizon, the way you feel in the short term when the markets go through a severe decline will not change. Feeling-based questions should serve as a tool to prepare you for what you should expect and focus your logic and emotions to identify a consistent pattern of how you perceive investment risk and what you are realistically capable of withstanding.
The biggest mistake investors make is to overstate their comfort level with risk because that often leads to abandoning their investment strategy at the first sign of volatility. When you choose the right strategy from the start and stick with it, you will be rewarded over the long term. Of course, you should revisit your portfolio and investment strategy as conditions and your financial and life goals change to keep it in tune with you.

With so many different types of investment products, different asset classes, different industries and countries, determining the right strategy can be daunting. Get help from your professional advisor and ask them if they can provide you with an investment questionnaire, which is a great tool for identifying your personal risk level and creating a framework for constructing a sound, well-diversified strategy for you.

Monday, March 4, 2013

Small business succession planning

It is your small business and you’ve worked hard to make it a success.  But one day it won’t be yours. You’ll decide to step back and hand over day-to-day responsibilities to someone else, or a medical event may make the decision for you. That’s why you should put a succession plan in place that ensures your hopes for your business – like funding a comfortable retirement or leaving a legacy for your family – are realized. Here are some essential planning items to consider.

Sell it? At some point, sell your business to the highest bidder. Or if you have co-owners, partners or other shareholders, have them buy you out. Be sure you have a buy-sell agreement in place. Speak to your lawyer about putting one in place before you are in a position that you want to sell your business. Alternatively, you could offer ownership to certain key employees. The most difficult task may be setting a value on your business.

Keep it in the family? You’ll have to decide how to finance the transfer. The new owner could purchase an interest in the business but at what value? You might plan on leaving shares to a person, like one of your children, but have you considered if -there are enough other assets in your estate for other children? Do you need to increase your insurance coverage to provide that inheritance?

Wind it down? If your knowledge and expertise is the biggest asset in your business, you may not be able to sell it unless your client list has some value. There are many different aspects to deal with when winding down a business, such as disposing of remaining inventory, giving notice to landlords, creditors and customers and, if your business is incorporated, decide whether to keep the corporation going for tax purposes or winding it up.

Other things to consider: Assessing the tax liabilities of the sale to you, your family or estate; ensuring the growth on your business receives the most favourable tax treatment; considering capping the tax liability on your business through an estate freeze by transferring ownership and future growth of capital assets, usually to your children, now rather than after your death; or placing the business in a family trust that becomes a separate taxable entity and is not included in your estate. When making your succession plan for your business you should consult a lawyer to deal with the legal aspects.

It’s hard to imagine your business without you – but you need to plan for that day now and your legal and tax advisors and professional advisor have the knowledge and perspective to help you make the right decisions for your business and every other aspect of your financial life.

Thursday, February 14, 2013

Pre-authorized RRSP contributions pay off large in the long run

The RRSP contributions deadline is coming up fast.  And while you may have every good intention of matching or increasing your contribution from last year – it can be difficult and stressful to come up with a significant amount of cash in short order.  Here’s a better plan for next year: a Pre-Authorized Contribution (PAC) program is a great strategy for getting the maximum amount of money into your RRSP eligible investments.

When you PAC, you are simply setting up a regular payment plan – usually an automatic withdrawal from your bank account -- in an amount you can afford.  Your investment starts growing right away, meaning it will likely enjoy more growth than if you wait until the end of the year.  Plus, you may benefit from the magic of compounding returns which can produce a larger nest egg than contributing a lump-sum at the RRSP deadline.

A regular PAC becomes part of your budget as a monthly cash outflow that you probably won’t miss and removes the temptation to spend those available dollars for personal consumption.  When markets decline, automatic contributions allow you to purchase more mutual fund shares or units, resulting in a lower average cost over the long term.

Here’s an example of the power of PAC-ing:
  • You set up a regular investment plan to invest an amount you can afford – say, $250 into your RRSP eligible investments on the first of every month.
  • At a compound annual return of 6.5%, you’ll have $278,000 of pre-tax assets after 30 years.*
  • If you wait until the end of each year and invest a lump sum of $3,000 into your RRSP eligible investments (presuming you can up with that large chunk of cash on short notice) you’ll have only $259,100 of pre-tax assets after 30 years.
  • By PAC-ing each month, you could potentially add $18,900 to your retirement fund – and it doesn’t cost you an extra penny!
  • In addition to the extra long-term tax-deferred appreciation, your contributions also deliver a nice tax benefit for the current tax year.
PAC-ing removes the stress of finding scarce dollars as the RRSP deadline looms and enhances your retirement income opportunities.  It’s a good investment strategy and there are many others.  Your professional advisor can help you PAC up all your life goals in one sound financial plan.

*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, February 4, 2013

Smart strategies for top-up RRSP loans

If you’re like most Canadians, your RRSP eligible investments will likely be a vital source of retirement income.  However, like most Canadians, you’re probably not making the most of your contribution room. According to Statistics Canada, in 2010, almost 93% of taxfilers were eligible to contribute to RRSP eligible investments but only 26% actually made contributions, adding up to $33.9 billion in total contributions – but representing only 5.1% of the total room available.*

If you’re having trouble coming up with enough money to fill your available RRSP eligible investments contribution room this year or if you’ve got unused room from previous years, an RRSP loan may be a smart strategy.

RRSP eligible investments can provide solid tax savings along with tax-deferred, compound growth so the short-term interest costs of an RRSP loan can be outweighed by the long-term benefits.  Here’s an example **:
  • You’re entitled to make a maximum contribution to your RRSP eligible investments of $10,000 for the 2012 tax year but you have only $5,000 of cash on hand. So you borrow the additional $5,000 (at 7% interest) and – here’s the important part – pay it back in a year.
  • If your marginal tax rate is 35%, your additional $5,000 contribution gets you an immediate tax refund of $1,750 and (at an annual return of 8%) your $5,000 top-up loan earns an additional $400 at an interest cost of $190 for the loan.
  • If you leave the additional $5,000 in your RRSP eligible investments for 25 years, that top-up contribution will grow to more than $34,000 (at an average rate of 8%).
The keys to the success of a top-up RRSP loan strategy include:
  • Get a low interest rate that does not eat up your potential tax savings and investment returns.
  • Repay the loan as quickly as possible – preferably one year but, in most circumstances, no longer than two years.
  • Use your RRSP-related tax return to pay down your loan.
  • Consider using the cashflow from a Pre-Authorized Contribution (PAC) program to fund your RRSP loan payments. Depending on the interest rates using PAC income can help you by, for example, avoiding cash crunches that might prevent loan payments.
An RRSP loan is not the right strategy for everyone.  Your professional advisor can help you make that decision as well as how to make the most of your investment savings for retirement.

* Statistics Canada, The Daily, Friday, December 2, 2011,
** 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.
Borrowing to invest involves risk and may not be suitable in all situations. Speak to a professional Consultant to see if this strategy is suitable for you.

Tuesday, January 29, 2013

The Value of Advice

Still not sure if you need a Financial Advisor?  Advisors provide a wide range of valuable services to clients,  including the planning and maintenance of targets and helping them to choose the right vehicles and the right asset mix to achieve those targets.

Not convinced that there is enough value in working with a professional advisor?  In a study of over 1,000 Canadian households, Ipsos Reid findings show that advised households have substantially higher investable assets than non-advised households.

For example, advised households with income levels between $35,000 and $55,000 had nearly 5 times the level of investable assets compared to non-advised households. Further, these observations are consistent across all income levels and age groups.  How is that for convincing?

 These results show that good advice adds value.  Talk to a professional advisor to see how they can make a difference in your life.

Monday, January 14, 2013

Why All Investors Need an Advisor

If you were a doctor, would you perform surgery on yourself?  What is it they say about lawyers who represent themselves in court ... They have a fool for a client.

There are good reasons that professionals such as doctors and lawyers hire other doctors and lawyers to handle their personal matters, and the same goes with investing.

Larry Light, a contributor to, recently reviewed some of the reasons why anyone who invests needs a professional financial advisor ... primarily Expertise, Objectivity, Discipline and Time Saved.

The truth is, in terms of advice, there is nothing a professional advisor provides that a normal, intelligent person couldn't research and do themselves.  In reality however, how many of us can be objective enough about our own situations and past decisions to make some of the tough decisions that may be necessary?

Anyone can research and keep on top of changing interest rates, global markets and changing legislation, but with work and personal responsibilities taking priority, who has time to do that on an ongoing basis?  That's what a professional advisor does ... takes the time to understand how these various subjects may affect you and help pull everything together. Their purpose is to analyze, explain, advise and help solve financial problems.

Or as Larry says, "You’re working like a galley slave to make ends meet. Do you have the breathing room to research what alternatives are available and then to build a better financial structure to take care of your family?

Likely not. That’s where an advisor comes in."


Wednesday, January 9, 2013

Does making your annual RRSP contribution leave you feeling uneasy?

The Bank of Montreal recently released a study which found that almost half of respondents to the survey -- 49 per cent -- who make an annual RRSP contribution, do so in a lump sum.

The uneasiness around the March 1 deadline is understandable when Canadians have to deal with other financial priorities, said Marlena Pospiech, senior manager BMO Wealth Planning Group.  "If they haven't saved regularly it could be really hard, especially coming out of the holiday season and if they have racked up a lot of debt over that time."

While it is important to save for your financial goals, it doesn't need to be stressful.  Monthly contribution plans can take the stress out of trying to come up with lump-sum contribution, and even if you find that you can't put aside as much as you would have liked, contribute something.  Something truly is better than nothing when you consider the tax-deferred compound growth that will make your money work harder for you.

Another option may be an RRSP loan.  While borrowing to invest isn't for everyone, it can be a great option for those who want take advantage of unused RRSP contribution room.

There are many 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.


Wednesday, January 2, 2013

2013 recipe for financial success

2012 is behind us and a new year underway.  For many, this is the time to resolve to make changes for the better in the coming year.  Since your overall quality of life is directly related to the overall quality of your finances, getting your financial life in order should be near the top of your list.  Here are ten essential financial planning tips to make that resolution a 2013 reality.
  1. Set a budget and stick to it - Take a critical look at your income and expenses and set a realistic monthly budget that includes an amount for saving and investing.
  2. Get your debt under control and keep it there - Develop good spending habits and use debt wisely. Always pay off credit cards and other high-cost, non-tax deductible debt first.
  3. Maximize RRSP contributions - Investing in RRSP eligible investments is the best tax-sheltered savings builder for most Canadians. Strive to make maximum contributions for faster and bigger potential investment growth.
  4. Develop an education savings plan for your children - A tax-sheltered, compound-growth Registered Education Savings Plan (RESP) eligible investments is an excellent way to cover escalating education costs and give your kids a head start on life.
  5. Be a prudent money manager - Carefully consider each dollar before it’s gone. Start with a careful and critical assessment of your life goals and your income and set aside enough on a regular basis to achieve those goals.
  6. Check and revise your insurance coverage to match changing needs - As your life changes your need for income protection and estate planning changes. Be sure your insurance coverage keeps pace.
  7. Make ‘tax-efficient’ investment decisions - Certain investments are more tax-efficient than others. For example, interest income is taxed significantly higher than dividends and capital gains – so it’s often better to hold investments that earn dividends and capital gains outside your RRSP eligible investments and interest-earning investments inside it. Take advantage of the Tax-Free Savings Plan (TFSA) eligible investments, which allows investment income to grow and be eventually received on a tax-free basis.
  8. Establish an asset allocation plan that complements your financial planning needs - An effective asset allocation plan delivers a portfolio that includes the right balance of assets from the three asset categories -- cash, fixed income investments and equities -- for steadier long-term growth.
  9. Minimize your taxes - Take advantage of all the tax deductions and tax credits available to you including moving expenses, child-care expense, tuition fees, medical expenses, charitable donations, and safety deposit box charges.
  10. Develop a financial plan and stick to it - A consolidated financial plan – and the common sense and discipline to stick to it – plus the help of a professional advisor will keep you on track to achieving your dreams.