Wednesday, December 16th, 2009
We’re almost through the year 2009, and you most likely made a RRSP contribution at some point this year. But did you make a contribution to your Tax-Free Savings Account? If you haven’t opened one, you’re missing an excellent opportunity to save and invest without worrying about the future tax burden.
With a Tax-Free Savings Account (TFSA), if you are over 18 years old, you can save up to $5000 each year. You won’t get a deduction, like you would with the RRSP, but you do get a nifty bonus. Any investment return you get – interest, savings, or capital gains – is not taxed, not while it builds up inside the plan, and not when you withdraw it. This is a great companion strategy to help pay for education, plan for retirement, and buying a home. You can even set up a TFSA to help you budget for Christmas presents and annual vacations.
If you felt the crunch of the recession this year, and weren’t able to make a TFSA contribution, don’t worry. Any unused room from this year will carry forward. So if you only made a one-time $50 deposit into your TFSA, you still have $4950 in contribution room that carries forward to 2010. This means you have a total of $9950 of contribution room for next year. If you don’t contribute at all in 2010, you will have contribution room of $14,500 in 2011.
You get the idea.
Another important item: if you are saving your TFSA for future use, the withdrawals won’t affect any income-tested benefits. The Canada Child Tax Benefit, Old Age Security, and the Guaranteed Income Supplement aren’t altered when you make a withdrawal.
If you are thinking about making some big personal and financial changes next year, the TFSA is definitely a good starting point. Keep in mind, though, that you need to put together a financial plan, and find out where the TFSA fits in, in order to get the most out of it.
Tags: Investments, Tax Free Savings Account, Tax Planning, TFSA
Posted in Investments, TFSA | No Comments »
Monday, November 23rd, 2009
For the past several years, only Nova Scotia, Newfoundland & Labrador and New Brunswick have operated under the HST. Quebec introduced the Quebec Sales Tax (QST) in 1992, which quite closely resembles the HST. In 2009, both Ontario and British Columbia introduced plans to harmonize their respective provincial sales taxes with the federal GST to create an HST, effective July 1, 2010. In Ontario, the new HST would have a combined tax rate of 13 percent and would include the current general Ontario RST rate of 8 percent and the federal GST rate, currently set at 5 percent.* As a result, a greater proportion of Canadians will be subject to HST. This paper will discuss what harmonization means to consumers and more specifically, how HST will affect your mutual fund investments.
Tags: HST, Investments, Mutual Funds
Posted in Investments, Mutual Funds | 1 Comment »
Tuesday, November 3rd, 2009
Have you ever thought about going back to school as an adult, but wondered how you would be able to afford it? In this post, we look at using money from an RRSP to finance a Lifelong Learning Plan. Click here for a comprehensive overview.
In 1998 the Federal Budget contained a new education funding plan called the Lifelong Learning Plan (LLP), which allows people tax-free withdrawals from an RRSP to finance post secondary education and skills training, either for themselves or their spouse, under certain conditions. (more…)
Tags: Education Planning, Investments, RRSP
Posted in Education, Investments | No Comments »
Monday, November 2nd, 2009
Now that you’re in your 50s you’ve probably asked yourself this question a number of times:
How much do I need to retire?
The answer to that question depends very much on the lifestyle you envision in retirement.
Perhaps you want to travel the world or trade your expensive house in the city for a smaller one in the country, and just enjoy yourself. But no matter what your goals are in retirement, financial planning at this stage forces you to admit that your retirement is almost here and you have to make some critical decisions. (more…)
Tags: Investments, Mutual Funds, Retirement Planning, RRSP
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Friday, October 30th, 2009
If you’re like many investors, you’ve considered allocating at least a portion of your portfolio into a Guaranteed Investment Certificate (GIC). Why not? After all, GICs are secure investments that are guaranteed to pay back your money. On the other hand, many investors view mutual funds as being too risky, and so avoid them. But is this the whole story? (more…)
Tags: Investments, Mutual Funds
Posted in Investments, Mutual Funds | 1 Comment »
Thursday, October 22nd, 2009
A mutual fund is a professionally managed pool of money invested by people like you. There are many different types of mutual funds, each designed for a different type of investor with a different financial profile. When you buy a mutual fund, you are pooling your money with other investors who share your investment profile and your objectives.
There is strength in numbers. By pooling your money with other investors who have similar objectives, you can enjoy increased purchasing power and reduce your investment costs. Professional mutual fund managers trade securities at discounted institutional rates. Consequently, the savings they realize are passed along to you.
Keep your options open. A key benefit available through mutual fund ownership is diversification. The range of security types and asset classes offered in mutual funds can help to shield your investments from market fluctuations. If the value of one security held in a fund falls, the loss may well be offset by a rise in the price of another security. By investing in a variety of asset classes, you can profit from the growth of one type of security, while shielding your portfolio from potential losses in another. Whether it is by security, company, industry, or country, mutual funds offer investors a level of diversification that would be difficult to achieve on their own.
Mutual funds come in a variety of shapes and sizes. The most familiar mutual funds are equity funds, bond or fixed-income funds, money market funds, and balanced funds. A basic equity fund invests in the shares of various corporations. Equity funds differ in their selections of individual company characteristics, industries, or geographic locations. Bond funds offer investors the benefits of steady interest income and the opportunity to realize capital gains over the long term. For the interim investor, money market funds provide the chance to insulate capital while receiving returns superior to those offered by a bank savings account. Finally, balanced funds (or asset allocation funds) exist for those investors who want the benefits of greater diversification along with the convenience of owning bonds, money market instruments, and equities in one mutual fund.
Do you need ready access to your capital? Mutual funds are structured in such a way that accessing your money is as simple as calling your Investment Professional. As your investment needs change, your personal financial plan can also be easily changed. Your Investment Professional can move money from one fund to another or cash in all, or part, of your investment at any time. To help build assets over the long term, you can institute a plan of regular investment contributions or, conversely, a plan of regular systematic withdrawals.
Mutual funds give every investor the advantage of continual professional money management. These mutual fund experts have access to some of the best quality investment research in the world monitoring both domestic and foreign markets around the clock. The knowledge, experience, and resources available to these professionals ensures that your investments will keep pace with today’s ever-changing markets.
When selecting a mutual fund, remember to choose a fund that matches your personal objectives. Look for consistency in the long-term performance of the fund and the professional who manages it. Try to select a mutual fund that invests in securities you understand and that has a portfolio manager whose style you are comfortable with. Your Investment Professional, who has reviewed your unique investment objectives and understands your concerns is positioned to provide you with information on mutual funds and help you select mutual funds that add value to your portfolio.
Mutual funds are an excellent way to protect and build your capital. As you go through life, your financial goals change, and so too should your portfolio. Your Investment Professional is there to monitor your investments and help you modify your portfolio on a regular basis to ensure long-term, consistent growth.
Tags: Investments, Mutual Funds
Posted in Investments, Mutual Funds | No Comments »
Wednesday, October 21st, 2009
The temptation, of course, is to sell-off a portion of their funds, wait on the sidelines until the market has bottomed out, and then go back in when it’s safe. This anxiety is especially pronounced for newer investors who have less experience with market cycles, and how it can impact their mutual funds.
Although market volatility may be unnerving to novice and experienced investors alike, these kinds of corrections are nothing new, and are a common market phenomenon. The best approach to handling these worrisome periods is to arm yourself with proven historical investment information, and seek professional advice from an Investment Professional.
So let’s begin by taking a closer look at what causes market volatility. There are several factors that can impact market movement, and subsequently, the rise and fall in the value of the various types of mutual funds. Among the most common factors are corporate profitability, inflation and large scale events such as political and economic factors. Corporate profitability is the most obvious. When profits go up, the market goes up, and most types of mutual funds tend to benefit with corresponding growth. When profits decline, the market drops and the repercussion is felt on certain types of equity based mutual funds as well. Corporate profits are in turn impacted by global economic conditions which go through natural cycles of growth and recession. Also, equity mutual fund performance historically weakens during times of rapidly rising inflation, which drives up interest rates thereby making fixed-income mutual funds more attractive. Thirdly, unanticipated political occurrences such the 1990 Kuwait crisis can have a significant impact on world market. In that instance the Toronto Stock Exchange dropped rapidly from 3,000 to 2,200 points, effectively ending eight years of recovery from the 1981-82 recession.
Although these ups and downs can create tension and uneasiness among investors, when viewed from a long term perspective, their detriment to mutual funds is less dramatic than often feared. Historically, rises have followed shortly after steep falls in the market, and mutual funds resume an overall upward trend.
One thing is certain, trying to time the market by getting in and out during these periods does not make sense. This practice is termed “lightening up” but is rarely successful because no one can predict exactly when the drop will occur. And if investors sell, there is always the danger that they will miss out on any subsequent rise in the market. If investors had tried to time the ups and downs of the market, they would have risked missing out on days that registered some of the biggest gains. The smarter way to view volatile periods is to think of them as opportunities to review your exposure to risk, discussing it if necessary with your Investment Professional.
Smart Investment Professionals and investors select their mutual funds based on fundamental financial indicators rather than on short-term industry or market trends. A mutual fund manager is focused on balance sheets, cash flows, and earnings to reveal a company’s true potential for long-term growth. Your focus should be on the same indicators. Solid performance and corporate profits drive market performance in the long run.
The world is an ever-changing place, and volatility along with the potential for higher returns is the nature of equity markets. Investors who maintain a long-term outlook for their investments have an advantage over those who do not. Successful long-term investors understand that the market will always experience periods of decline, and that although stock investments are considered riskier, history has shown that stocks have a record of outperforming more conservative investments over longer time periods. In the past, equity investments have offered the highest returns. The key to surviving market volatility is a long-term approach, diversification, and a comfort level with your exposure to risk. Talk to your Investment Professional to set your mind at ease if you find yourself worrying too much about your investments.
Tags: asset allocation, Investments, Mutual Funds
Posted in Investments, Market Commentary, Mutual Funds | No Comments »
Tuesday, October 20th, 2009
Investment Professionals have been providing advice and answering questions for generations of Canadians since the inception of mutual funds. While these days the average investor is much more knowledgeable about financial issues than ever before, it is often reported that a few misperceptions regarding mutual funds surface time and again. Likely, these myths are perpetuated by the media which tends over over-simply financial matters. To set the record straight, the following highlights some of the myths, and then sheds some light on the reality behind the perception.
While spreading your portfolio thinly across many funds might achieve diversification to some degree, it is likely at the expense of performance, fees and focus. Your choice of mutual funds should be tailored to your objectives. How long before you retire? How risk tolerant are you? These kinds of questions should determine the selection of investments, including mutual funds, best suits you. A large number of mutual funds alone isn’t the answer. In fact, it becomes less manageable to track the performance of each fund if there are too many. Diversification is better achieved through an analyzed and strategic selection of funds. Consider, for example, asset allocation mutual funds. These funds are configured with diversity as the primary benefit; with investments dispersed across different asset classes such as stocks, bonds and fixed-income instruments. This way, if one asset class suffers a loss, chances are the loss will be offset by a rising return in another asset class. Choosing the right, not the most, funds is the best way to diversify.
There is always temptation to sell-off a portion of your funds when the market shows signs of volatility. The theory is to sell just before the market drops, and then buy again just before it rises. If only life were that simple. Unfortunately, no one can predict precise market timing, and more often than not, investors who try this approach get burned. History has proven time and again that investing with a long-term view produces better results in the long run.
One of the great advantages of mutual funds is the ability to purchase them in small units. This allows the investor to make regular contributions throughout the year, and proves to be the superior method for mutual fund purchases. First of all, Iit imposes a measure of discipline that most of us need to ensure we are setting aside enough money for a decent retirement. Secondly, it allows the investor to take advantage of ‘dollar cost averaging’, a strategy whereby selected mutual funds are purchased regardless of the price of the fund. This way, if the fund goes down you can buy more of it, thereby strengthening your fund position when the prices rise again. On the other hand, if the fund price rises, your current holdings benefit. Could we add something that refers to PACs as a seamless forced savingsThe point is: the best way to buy mutual funds is to set aside an affordable monthly contribution and stick to it.
Many people get caught up in the daily running of their lives, and neglect monitoring their investments. However, It’s critical to follow the progress of your funds, and it’s easy! The mutual fund companies are an excellent source of information, as well as your newspaper, and of course, your Investment Professional. If there is a significant change in your personal situation (loss of job, purchase a new house, the arrival of children) you should review your investment objectives and determine whether changes to your strategy are warranted. The truth is you should always pay attention.
While past performance can be a very good indication of the fund manager’s ability to generate superior returns in one year, it is not necessarily a sure bet for another year. It is therefore much more preferable and advisable to evaluate a fund based on it’s long-term track record. Keep an eye on the consistency of the fund. These are much better criteria to measure against. Also, when you rate past performance, keep in mind market conditions at the time.
In summary, give your portfolio the attention that it deserves, and remember that a qualified Investment Professional can help provide objective and sound advice, and can answer any questions that you might have.
Tags: asset allocation, Investments, Mutual Funds
Posted in Investments | No Comments »
Tuesday, October 20th, 2009
As we get closer to the end of October, the spectre of the RRSP contribution looms ever closer. If you’re like most people, the end of the year means scraping together for gifts – and RRSP contributions. My clients are familiar with my philosophy on RRSP contributions: Make them early and make them often. But I don’t just flog RRSPs because they promote retirement savings and give you a shot at a nice tax refund. I promote RRSPs because they can help increase your take-home pay.
If you aren’t up to date on your contributions, don’t feel too guilty. Most Canadians play catch-up with last year’s RRSP contributions after the New Year. The problem with this strategy is threefold:
Every dollar of income taxes are subtracted from your pay is one less dollar you can put to work for you. Instead, it’s being put to work for the government.
When you file your tax return, and get a refund, you have informed the government about the deductions and credits you normally claim throughout the year (e.g. Those generated by RRSP contributions, tuition & education expenses for your child, deductible interest, etc). To lower the amount of income tax deducted from your paycheque, tell Canada Revenue Agency about these deductions and credits ahead of time.
Instead of playing catch-up with your RRSPs, set up an automatic withdrawal plan to transfer money from your bank account to your RRSP investment.
Example: Your usual RRSP contribution each year is $6000. Instead of making a lump-sum contribution, you break up the contribution into $250 payments that are invested bi-weekly. Not only is this more manageable, your first $250 has had one year in the market to grow. The next contribution has one year less two weeks, etc.
It makes more sense to have the withdrawal come out the same day your pay is deposited into your bank account. This way, you won’t be tempted to spend it. The resulting increase in your take-home pay should be used towards building your savings automatically. If you then deposit that money in a Tax Free Savings Account (TFSA), not only have you avoided having to pay tax on the income, you also won’t pay tax on any of your investment growth. As with all investments, this should be done automatically as well. Your monthly budget will be the same, but you will build a decent investment portfolio instead of waiting for the government to give you your own money back.
Tags: Investments, Mutual Funds, RRSP, Tax Free Savings Account, Tax Planning, Taxes, TFSA
Posted in Investments, RRSP, TFSA, Tax Planning | No Comments »
Monday, October 19th, 2009
In the world of mutual funds, the key to success involves a few simple principles: Planning. Patience. Long-term thinking. While it seems like common sense, these virtues can make a big difference in achieving lasting and consistent investment growth.
That said, let’s examine some steps to follow when reviewing and planning your mutual fund portfolio and your overall financial or retirement goals. (more…)
Tags: asset allocation, dollar-cost averaging, Investments, Mutual Funds, RRSP
Posted in Investments, Mutual Funds | 2 Comments »
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