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Terms Every Investor Should Understand

Executive Summary

Investing today, whether for the short-term, long-term or in-retirement, can be complicated. An Advisor can guide you but there are many terms that investors should know in order to best understand the direction, recommendations and outcomes of their investments.

The following is a glossary of terms to help you understand some of the jargon and technical terms you have heard, and will likely hear again.  Please use it as a reference tool.

Investment Terms

  1. Rate of Return: gain or loss of an investment expressed as a percentage of the invested capital and is calculated on an entire investment portfolio to determine performance. Planning your Rate of Return to match financial goals and your risk/reward profile is a necessary step to successful investment planning.
  2. Asset Allocation is an investment strategy that balances Risk and Return by placing investments inside an investment portfolio into different Asset Classes like equities/stocks, fixed income, and cash. Each class has its own characteristics and can contribute more to the total as proportions increase. Asset allocation helps manage risks and rewards to meet your financial needs.
  3. Equities is a broad term used to describe ‘stocks’ or shares of a company. Most owners of shares believe they own shares, but, in fact, they own the company. In the case of publicly traded companies people investing for retirement own a very small percentage of the company, but they are the owners.
  4. Fixed Income is a category of investments that generate interest at a predictable, stable amount. Fixed income instruments inside a portfolio are often meant to be the safest investments. In the case of GICs, the balance is guaranteed by insurance and the interest payments typically have a very strong track record of occurring.
  5. Cash and Cash-like instruments are highly liquid investments. These investments can take advantage of market opportunities, and accommodate short-term unexpected personal expenditures without forcing the sale of an investment at an inopportune time.
  6. Capital Gains: Increase (or loss) in the value of a security at the time it is sold versus its cost when purchased. Since capital gains are taxed in Canada at a lower rate than interest income, depending on the province or territory, the highest marginal tax rate for capital gains is approximately 25%.
  7. Interest Income: Payments made to the owner of capital for the use of that capital and is calculated by multiplying the capital amount by the interest rate being paid for a particular period of time. Example – a $10,000, one-year annual-pay GIC paying 1.5% generates $150 of interest income each year, and would be paid on the anniversary date.
  8. Dividends: Payments made monthly, quarterly, semi-annually or annually to the “owner of record” of a share of a company. The dividend yield is calculated by dividing the expected dividend for the next year by the current share price.
  9. Basis Points a single basis point is one-one hundredth (1/100th) of a percentage point (1%) or 0.0001. Mathematically, a basis point is equal to one ten-thousandth.  Basis Points are used to express very small changes in numbers like percentages or the value of the Canadian dollar compared to the US dollar, for example.
  10. Volatility: the reaction of an investment to changes in the overall market. In other words, if the market goes up by 10%, will the stock react more, less or the same. Volatility is called ‘Beta.’ An investment’s Beta expresses how it reacts relative to the market, meaning the stock market in total.
  11. Diversification is a way to mitigate risk by placing investments in different kinds of investments (see Asset Allocation above) and by placing investments within an asset class in different industries, sectors, countries, etc. Diversification is a method used to manage risk by not having all of your eggs in one basket. If a country or an industry or a single company has a bad day, month or year your entire portfolio will have a measure of protection by being spread around.

The Bottom Line

We are here to help guide and advise you through the sometimes complicated world of finances and investments. To best understand our recommendations and their implications it is important for you to understand investment terminology. Keep this filed away as a tool for your reference or contact us for assistance or clarification anytime.

Boost Your Savings with Automated Contributions

Let’s dive right in on a powerful savings strategy that can make a significant impact on your financial well-being: automated contributions. By leveraging technology and setting up automatic contributions, you can effortlessly save money and build a stronger financial future. Let’s explore how this simple habit can pave the way to financial success.

“Set It and Forget It: Automate Your Savings for Stress-Free Financial Growth!”

The Power of Automation: Life can get busy, and amidst the hustle and bustle, saving money often takes a backseat. However, by automating your savings, you can remove the mental burden of manual transfers and make consistent progress towards your financial goals. Setting up automatic contributions ensures that a portion of your income is saved without requiring any active effort from you.

“Make Savings a Priority: Pay Yourself First!”

Pay Yourself First: One of the fundamental principles of successful saving is to prioritize yourself. Instead of saving what’s left at the end of the month, make it a habit to save first. When you receive your paycheck, allocate a predetermined percentage or fixed amount towards savings and have it automatically transferred to your investments. This way, you ensure that your future self is taken care of before other expenses arise.

“Small Steps, Big Impact: Watch Your Savings Grow!”

The Magic of Compound Interest: Automating your savings not only instills discipline but also allows you to take advantage of the power of compound interest. Over time, even small contributions can grow exponentially as interest compounds on your savings. By consistently funneling money into your investment, you can harness the magic of compound interest and watch your wealth grow steadily.

“Incremental Increases: Boost Your Savings Effortlessly!”

Incremental Increases: As your income grows or expenses decrease, consider increasing the amount you automatically contribute to your investments. Gradually bumping up your savings rate can be painless, as it adapts to your financial circumstances without disrupting your lifestyle significantly. Aim to periodically review and adjust your automated contributions to ensure they align with your financial goals and aspirations.

Conclusion:

Automating your savings is a game-changer when it comes to achieving financial success. By making consistent contributions to your investments without the need for constant monitoring, you can build a solid financial foundation. Remember, every small step you take today will lead to a brighter financial future tomorrow. So, set up those automated contributions, pay yourself first, and enjoy the peace of mind that comes with knowing your savings are on the right track. Happy saving!

 

Did You Get a Raise or Bonus? Save it!!!

Executive Summary

Receiving a raise or a bonus is a great accomplishment that lends a feeling of accomplishment and celebration. Many of us opt to use the bonus to buy something we’ve been wanting, like that flat screen television, for example. Rather than splurge, however, why not hold onto that bonus or raise and invest in wisely?

Saving a Raise

If you are not already on a pre-authorized contribution (PAC) to a savings or registered account, now is a great time to do so. Each pay, or each month, have a predetermined amount removed from your bank account and placed into savings. Once the funds are in a savings account (and removed from quick and easy debit card access), they can be used for several purposes:

Pay down debt:

    • Especially high-interest consumer debt like credit cards
    • Pay off your mortgage sooner: Save money for the future by increasing the mortgage payments above the minimum amount or increasing the payment frequency (bi-weekly instead of monthly)

Maximize the use of a “Registered” account:

    • Place the pay increase directly into a registered account like an RRSP to increase savings

In most cases a blended approach is best. Paying down debt alone doesn’t afford you the opportunity to amass a small, liquid, emergency nest-egg to cover unexpected expenses.

Saving a Bonus

Unlike a raise that should affect all future earning and raises that follow, the one-time bump on a bonus can disappear as mysteriously as it arrived. Rather than spend your bonus on a one-time, self-gratification, why not use it to strengthen your financial future?

Pay down debt:

As explained above, the pre-tax earnings required to pay post-tax debt can be significant. A large, one-time bonus can significantly affect the short and long-term savings of your family.

    • Paying off a large portion of your mortgage: a reduced balance causes each subsequent mortgage payment to have a larger portion dedicated to reducing the principal

Maximize the use of “Registered” accounts:

    • Place the bonus (or part thereof) directly into a registered account like an RRSP to increase savings

Often you may feel that as if your raise or bonus didn’t actually happen. You earn more, but don’t enjoy any of the benefits. A small celebration allows you to acknowledge and move forward. The celebration could take many forms, but it is best if it is unusual and distinctive.

Bottom Line

Getting a raise or bonus is an impressive accomplishment. Often, you may feel like you didn’t even get a raise which is why it is important to commemorate your accomplishment with a small celebration. Take some of that money and treat your family to dinner, go to the spa or celebrate however you see fit. Then, contact your Advisor for assistance to determine how to best utilize the extra funds.

What Does it Actually Mean to Diversify?

Executive Summary

Diversification is a concept that many investors understand on some level.  It makes sense to not put all your eggs in one basket, but diversification is more than just investing in more than one fund or stock.  Diversification is the basis of modern portfolio theory, and it is an essential risk management tactic that every investor should be utilizing. Here’s how it works:

Correlation

The measure of correlation indicates how closely two assets follow together when the markets go up and down. The scale of correlation goes from -1 to 1, with -1 being a perfect inverse correlation and 1 being a perfect correlation.   For example, Oil Company A and Oil Company B will both fall if oil prices fall, and they will both rise if oil prices rise.  Therefore, they have a perfect correlation.  Conversely, when Oil Company A rises, Automobile Company A will fall.  This indicates an inverse correlation.  If one company’s rise and fall does not affect another company, then they have a correlation of 0.

The key to diversification is having varying degrees of correlations so that your portfolio is getting the most out of the market, while offsetting losses. 

Asset Allocation

Picking a group of stocks that have varying degrees of correlation is a good place to start, but to truly diversify one must take on a variety of different assets.  This is where assets allocation comes into play. Determined by risk tolerance and time horizon, holding a variety of different asset classes is the best way to curb volatility in your portfolio.   Asset classes include stocks, bonds, commodities, mutual funds, real estate trusts… to name a few.  Each asset class brings different risks to the table, so it is important to make sure you are thoughtfully choosing investments that complement one another and work well together.

Overdiversification

Too much of a good thing isn’t a good thing at all, and that is especially true when it comes to diversification.   It is possible to hold too many different investments that correlate in too many different ways. This might diversify the risk out of your portfolio, and it may stop you from making any gains.   It is important to work with a wealth professional who can help you pick an appropriate amount of investment holdings while still utilizing an appropriate asset allocation so that you stay on track.

The Bottom Line

Understanding that you need to diversify your portfolio is not always enough as it can be a bit more intricate than it seems.  We can help you understand how your investments work together to optimize your portfolio.

Young Professionals – Get Started Right

By: William Henriksen, CFP

Congratulations! Officially becoming the professional that you studied so long to become is an amazing achievement and that deserves to be recognized! The path to becoming a professional such as a doctor, dentist, or lawyer requires almost a decade of post secondary education or more. Take a moment here to acknowledge your achievement. Think of all the work you’ve put into those years and think of all the various paths you can take your career from here. It’s exciting, scary, stressful, and wonderful all at once. Let’s explore how you can best position yourself for the future.

Managing your cash flow as a professional

The moment you start making an income, you begin feeling the biggest cashflow flip that you’ve ever had. This is where you have an opportunity to set up a great habit for yourself by creating a budget that incorporates your values, priorities, and the wellness of your future self.

Things to consider when creating a budget:

  1. Your fixed expenses: This establishes a baseline for all future lifestyle expenses so be careful.
  2. Your insurance premiums: If you are running your own practice you may need to get individual insurance and should factor the premiums into your budget early on.
  3. Your savings rate: How much should you be putting away for your future self and for your long-term goals? Do you have an emergency fund in place and how much should you aim to have in it? The amount will vary from person to person and should be discussed in the context of your unique goals and situation. As a professional, keep in mind that you will likely need to fund your own pension as you may not have an employer to fund a pension plan for you.
  4. Debt repayment: Many professionals come out of school with significant student debts. Should you focus on paying it down first? If so, how aggressively? This will also depend on your unique situation.
  5. Automation: Having all the above automated will create the possibility to implement point number 6.
  6. Guilt-free spending: What’s left over in your budget is non-allocated money. In the real world the amount will vary from month to month depending on how often you get paid, but if you’ve automated everything to come out on the same date, once it’s past you can confidently spend money that’s left over with a clear conscience because you will have already allocated money to pay your fixed expenses, protect your income, health and family through insurance, and you will have paid yourself through saving and debt repayments. If the amount you’ve allocated to points 1-4 allow you to reach your goals, the amount left over can be spent guilt free.
  7. Reviewing regularly: Keep in mind that being financially organized is a continuous process, so learning and adapting your strategies as your financial status evolves is key.

Following these steps and living below your means is a huge step toward reducing the stress or uneasiness you may feel about your financial situation. It will also have the effect of increasing your confidence that you’re doing the right things to align your capital with your values and priorities.

Protecting your future self and your loved ones

It’s easy to avoid thinking about what happens if life doesn’t go the way we plan because we don’t want to believe bad things can happen to us. We tend to avoid difficult conversations until we’re prompted to have them. As a planner I have a responsibility to have these kinds of conversations with clients when evaluating their insurance needs. More often than not, people don’t know what would happen if they got sick or injured to an extent where they can’t work to receive an income. They aren’t sure if they would be leaving enough financial support for their loved ones should they pass away. Ask yourself now, what kind of financial impact would something like that have on you and your family? Without insurance, your potential income you’ve studied for would go down to zero. If you passed away, those who depend on you may be left with financial hardships. You may want to consider if your current needs are going to change down the road and structure your insurance to account for those potential needs. Disability insurance, life insurance and critical illness insurance are ways to ensure that you and your loved ones will be financially taken care of if you’re faced with such events which are out of your control.

A common reason people avoid looking into insurance early on is that they believe it will be too expensive. This doesn’t have to be the case. Not only does it cost less to get insurance the younger you are, but you can also structure insurance plans as starter policies that are easily graduated into more robust long-term policies later. This keeps costs low until you have a handle on your cash flow and protects you right away with the coverage you need. If your insurance need today is relatively low compared to what it will become, you may want to have the option to buy more later when your situation changes without needing to prove you’re insurable. This is possible and should be discussed when evaluating your insurance needs.

Incorporating

As a young professional, you may be considering starting your own business or working as a freelancer. If you plan to grow your business, you may want to consider incorporating. Incorporating means creating a corporation, which is a separate legal entity from its owners.

Why should you consider incorporating? Here are some reasons:

  • Limited liability protection: One of the main benefits of incorporating is limited liability protection. As a corporation is a separate legal entity, the corporation’s creditors cannot go after your personal assets. This means that your personal assets are protected from any lawsuits or debts incurred by the corporation. This can be particularly important for businesses that are exposed to higher risks or liabilities.
  • Tax advantages: Another benefit of incorporating is tax advantages. A corporation pays corporate income tax on its profits, which is typically much lower than personal income tax rates. Additionally, as a corporation, you are subject to many different rules that create opportunities for various tax planning strategies.
  • Insurance strategy benefits: Incorporating can also provide benefits for your personal insurance strategy. When I mentioned graduating your insurance policies earlier, this would be the place to graduate them to. Some of them anyway. This point could be an article on its own and is not the focus for today, but seeing the full game plan from a bird’s eye view can make the action plan for your current stage easier to understand.
  • Credibility: Incorporating can also enhance your business’s credibility. It shows that you are serious about your business and committed to its success. It can also give your business a more professional image, which can help attract more clients or customers.
  • Access to capital: If you plan to raise capital to grow your business, incorporating can make it easier to do so. Corporations can issue shares or bonds to raise funds, which can help you grow your business faster.

However, incorporating also comes with some drawbacks:

  • Higher costs: Incorporating can be more expensive than other business structures. You will need to pay fees to incorporate and file annual reports with the government. There may also be legal fees associated with incorporating.
  • More paperwork: As a corporation, you will need to keep detailed records and file annual reports with the government. This can be time-consuming and requires a higher level of record-keeping than other business structures.

In conclusion, incorporating can be a smart choice for young professionals who want limited liability protection, tax advantages, insurance strategy benefits, credibility, or plan to raise capital. However, it also comes with higher costs and more paperwork. If you are considering incorporating, it is important to speak with a financial professional or legal expert to determine whether it is the right decision for your specific circumstances.

Creating Options 

All things considered, there are a lot of big topics to approach at this stage of your life and of your career. You likely have some degree of uncertainty regarding the future and it’s very possible that your life changes significantly in your early career as you juggle your personal goals and your professional ones. To get off to the best start, and to account for these possible changes, it’s important to create options for your future self. Finding the right financial planner for you, creating a budget, getting the right type and amount of insurance in place, and working with your planner and their team to build your vision are the best things you can be doing now for your future self. Your future you will thank you!

If you would like to discuss this – book an appointment with us, we would love to hear from you!

The New First Home Savings Account (FHSA)

By: Louai Bibi, Advisor Associate

We are pleased to announce that we will be able to offer our clients the new First Home Savings Accounts (FHSA) at Ecivda Financial Planning Boutique as of June 12, 2023!  If you are in the market for your first home, or if you know someone that is in the market for their first home, this is an exciting new opportunity!

Outlined Below:  What is the FHSA & how does it work, who is eligible to open one, the benefits & planning opportunities around this new account, what happens if you no longer wish to buy a home, and how to get in touch if you’d like to review considering this account for yourself.

What is the FHSA and how does it work?

This exciting new account came about as part of the 2023 federal budget to help Canadians build more tax-free savings to fund their home purchase goals. The FHSA characteristics are a blend of the TFSA, RRSP, and RESP rules; so it is easy to get confused. I have compared the FHSA to the RRSP & TFSA in a past blog, which I encourage visiting if you’d like to look at specific differences and similarities of each account.

The basic premise is:

  • You can contribute $8,000 per year, up to a lifetime limit of $40,000. Contributions are tax-deductible!
  • Since the FHSA came into effect on April 1st of 2023, you can only deduct contributions made between April 1st and December 31st of 2023 for the 2023 tax year. Contributing in the first 60 days of the following year does not count towards your 2023 taxes like RRSP contributions do.
  • You can carry forward the tax deduction indefinitely to a year where your taxable income is higher.
  • These contribution limits are separate from those of the TFSA and RRSP.
  • You can hold a variety of investments in the FHSA, or you can simply choose to keep the funds in savings plan within the account.
  • If you are withdrawing from this account to purchase a home, you can do so tax-free. Otherwise, you would pay taxes on the withdrawal at your respective tax rate.
  • You can carry forward unused contribution room to future years. So, if you open a FHSA in 2023 and don’t fund it, in 2024 you can contribute $16,000. You can only carry forward room if you have already opened your FHSA.

Who is eligible to open a FHSA?

Most of us read ‘first home savings account’ and immediately assume that this account won’t be relevant to them if they have owed a home in the past. This is not necessarily the case! The definition of first-time home buyer is unique here and I’ll address this further below.

You are eligible to open a FHSA if you satisfy the following conditions:

  • Canadian resident for tax purposes.
  • Between the age of 18 and 71 years old.
  • Have not owned a home in the current year or last four years prior to opening a FHSA.
  • Have not lived with a spouse or common-law partner who owned a home in the current year or last four years prior to opening a FHSA.

Disclaimer: this account may not be appropriate for US taxpayers. Please consult with your advisory team to ensure the FHSA is an appropriate fit if this applies to you.

What are the benefits and planning opportunities of the FHSA?

I’ve addressed the features and eligibility of the FHSA and you may be wondering how this account may benefit you. Here are a few benefits that you may find compelling:

  • You get to deduct your contributions against your taxable income. If you had $50,000 in taxable income in 2023 and contributed $8,000, you will be taxed as though you made $42,000 instead.
  • As great as the tax deduction can be now, you may wish you took advantage of it when your income was higher. You can absolutely do so!
  • While there is a lifetime contribution limit, there is no limit on how much you can withdraw and it is tax-free if it is for a qualifying home purchase! Your account could have doubled in value and you won’t owe a cent in taxes.
  • Many of us may be familiar with the Home Buyer’s Plan feature of the RRSP (RRSP HBP) that let’s us borrow up to $35,000 from our RRSPs tax-free as a loan. If you have existing savings in a RRSP that you may want to use for your home purchase but also want to save regularly in a FHSA, why not take advantage of both programs?
  • Better yet, if you are buying a home with your spouse or common-law partner, how great would it be if you each leveraged the RRSP HBP and the FHSA? That is a lot of tax-free money to put towards your home!
  • There are more advanced tax applications of the FHSA that can be assessed on a case-by-case basis, regardless of what life stage you are in. I’ll save these for another blog, but there are some unique and beneficial ways to merge your first-home savings goals with your ongoing tax planning.

What if I change my mind about buying a home?

if buying a home is no longer a part of your current financial plan, this is no problem at all. You can transfer the funds in your FHSA into your RRSP without needing to withdraw and pay taxes.

Beyond this, you need to close your FHSA by no later of December 31 of the year in which the earliest of the following events occur:

  • 15th anniversary of opening your first FHSA.
  • You turn 71 years old.
  • The year following your first qualifying withdrawal from your FHSA.

How do I get in touch if I’d like to learn more?

The FHSA is an exciting opportunity for eligible Canadians and we are exciting to be able to offer it to our clients. We would love to review the merits of implementing the FHSA into your financial plan but believe it is also important to consider the existing options available to first-time home buyers as well how each account fits our individual circumstances.

If you are saving for your home purchase goal, please get in touch with any member of our advisory team to coordinate opening/funding your FHSA. We will be happy to help you tailor your FHSA contributions & investment portfolio to your goals!

You are welcome to book yourself into any of our calendars here.

6 Recession Tips . . . it is never too late to plan

The traditional definition of a recession is two consecutive quarters of economic decline measured in Gross Domestic Product.  A more complex definition is a slowing of economic activity and an increasing unemployment rate.

Financial and lifestyle preparations should take place to lessen the effects of a recession.

What You Need to Do

  1. Examine your monthly budget – You cannot save money that you have already spent.  Almost everyone has regular, recurring expenses that are not necessities.  Subscriptions to multiple streaming services are one example.  Find lower cost alternatives like a home, family movie night using a streaming service versus a $100 trip for four to the local cinema.  Delaying many small and large purchases can free your budget and your mind from stress.
  1. Contribute to your Emergency Fund – Once you have identified unneeded expenditures in your regular spending, remove them from temptation by placing them into your Emergency Fund.  Having 3 to 6 months of income set aside is the recommendation and is almost impossible to achieve until a thorough examination of your budget occurs. Consider a TSFA.  A Tax-Free Savings Account (TFSA) containing liquid and low-risk investments provides tax exempt earnings and withdrawals.
  1. Maintain your scheduled savings contributions – Whether a recession occurs or not, continue adding to your retirement savings in RRSPs and TFSAs, ad education savings in RESPs.  Skipping a few monthly contributions and the compounding of interest on them could free up a few thousand dollars but cost you tens of thousands of dollars at retirement.  The 20% grant (up to $500 annually) on RESP contributions and the $2,500 contribution to generate the maximum grant could grow into a year of tuition.  Treat savings like one of your bills that you pay first.  Your mortgage, insurance, and utilities must be paid.  Paying your savings first helps reinforce your budgeting efforts.
  1. Reassess your investments – During a recession, like any other period, some types of investments can withstand the challenges better than others.  A frank conversation with your financial professional is an excellent step to preserve assets and investment income.
  1. Eliminate, reduce, and avoid debt – Paying high interest rates is never a great idea, so it is best to pay them down as quickly as possible.  Interest rates are rising on the actions of central banks around the world, and those high interest rates will rise even higher.  Taking on new debt that will increase your monthly expenditures for both capital repayment and interest charges is not advisable.
  1. Update your skills and resume – Should your employment be affected personally, it would be better to be prepared than react when feeling the pressure of replacing your existing income.  Revisit and update your resume with accurate dates and roles.  List your newly acquired skills and capabilities, and if applicable, don’t forget your online profile/s.  You can also consider investing in yourself by taking internal and external courses to bolster your skillset.

The Bottom Line

None of the six steps, above, require a recession or even the threat of recession to become valuable.  Each of them is prudent regardless of the overall economic and employment climate, so get ready for a rainy day, and you will be able to enjoy the sunshine, too.

Opening an Investment – What to Expect

By: Natalie Thornhill Pirro, Supervisor – Wealth & Client Experience

As an investor you will, no doubt, have a lot of questions for your advisor.  How much money do I need?  How do I get started?  What are the best investment strategies? What type of investment should I open?

When you meet with your advisor, they will ask you to provide information so that they can better understand your unique situation as well as your immediate and long-term financial needs.  With this information, they will be able to come up with “a plan”, recommend investments that are suitable for you, and answer all your questions.  Securities legislation and regulations require that each recommendation your advisor makes be suitable for you in relation to your investment objectives, risk tolerance and other personal circumstances.  This is referred to as the “Know-Your-Client” (KYC) Rule under securities law. This Rule requires your firm and advisor to collect the following information from you.  Your advisor may be restricted from opening your account if you do not provide this information.

    • Annual Income – Your approximate annual income from all sources.
    • Net Worth – An estimate of the value of your assets less your liabilities.
    • Investment Objectives – The specific characteristics of investment products and how they relate to the achievement of your investment goals.
    • Time Horizon – This is the period from now to when you will need to access a significant portion of the money you invest in the account.
    • Investment Knowledge – This is your understanding of investing, investment products, and their associated risks.
    • Risk Tolerance – This is your willingness to accept risk and your ability to withstand financial losses.
    • Full Legal Name and Date of Birth – This is required by the Proceeds of Crime (Anti-Money Laundering) and Terrorist. Financing Act. This legislation is designed to prevent the use of the financial system for hiding proceeds of criminal activity or financial terrorist activity.
    • Proof of Identity – This is required for certain accounts by Anti-Money Laundering legislation. To verify your identity, you may be asked to provide a driver’s license, citizenship card, passport, or birth certificate.
    • Residential Address and Contact Information – This is required by Anti-Money Laundering legislation. This information will allow your firm to contact you to provide investment advice or notify you of any changes with respect to your investments. This information is also required for account reporting.
    • Citizenship – This is required for tax reporting and may be used to determine if you are permitted to purchase certain types of securities.
    • Social Insurance Number – This is required for tax reporting.
    • Signature – This is required by Anti-Money Laundering legislation.
    • Employment Information – This is required by Anti-Money Laundering legislation to help your firm and advisor determine suitable investments for you.
    • Number of Dependents – This is required by regulation to help your firm and advisor determine suitable investments for you.
    • Politically Exposed Persons – This is required to meet requirements under Anti-Money Laundering legislation. Your firm will need to determine whether you or a member of your immediate family have ever held a position with a foreign government that qualifies any of you as a “Politically Exposed Person”. You can find more information on this requirement HERE.
    • Other Persons with Trading Authorization on the Account/Financial Interest in the Account – This is required by Anti-Money Laundering legislation. Your firm is required to maintain the names, dates of birth, employment information and the relationship of any individuals with trading authority or a financial interest in your account.
    • Source of Funds – This is required to meet requirements under Anti-Money Laundering legislation. (banking information will be required for Electronic Funds Transfers “EFT”)
    • Trusted Contact Person – (“TCP”). A TCP acts like an emergency contact for your account, although they cannot make financial decisions or account changes.

Important To Know

Your advisor is required to keep this information current. Depending on the type of account you have, your advisor may check in with you every one to three years to confirm your information remains accurate and update your KYC. As your circumstances may change over time, you should keep your advisor up to date on any changes to the information above, such as:

  • Changes to marital status
  • Relocation to another province or territory
  • New job or job loss
  • Long-term illness
  • New debt financing
  • Major increase or decrease in your financial resources (for example: due to inheritance)

In Conclusion

While this may seem like a lot of personal information, it allows your advisor to recommend investments suitable to your present circumstances and your financial goals.  Whenever you are scheduled to meet with your advisor, whether you are setting up a new investment or discussing current investments, you should always have your list of questions for the advisor; and be prepared to have a list of any, or all, of the above information.  If you use this Blog as a checklist, you will be ready-to-go!

Happy Investing!!!

RRSP: How much to deposit?

By: Louai Bibi, Advisor Associate

Tax time is approaching quickly, which leaves many of us scrambling between now & the RRSP deadline of March 1st to figure out how to minimize our taxes owing for 2022. The objective of this blog is to equip you with the ammunition required to make an informed decision as to how much you may want to contribute.

A quick reminder as to how the RRSP works:

  • The amount you are allowed to put in per year is based on your earned income for the year. You accrue 18% of your salary in the form of deduction room, up to a CRA prescribed dollar maximum which sits at roughly $30,000 for 2023.
  • Unused contribution room carries forward. This means that if you haven’t made lots of contributions over the years, the deduction room that you earned in each of those calendar years would accrue with leave you with a healthy cumulative RRSP deduction limit for you to use as needed. Best place to check this limit is your MyCRA online account!
  • As you read in the first sentence of this blog, the RRSP deadline for 2022 is on March 1st. This means that if you wanted to make a deposit in 2022 and were slammed with all the holiday festivities leading up to 2023, you are not out of luck!
  • The amount you contribute (up to your respective limit) gets deducted from your taxable income. For example, if you made $70,000 in 2022 but made a $20,000 RRSP contribution, the CRA treats you as if you’ve made $50,000 at tax time.

So, in this example, someone earning $70,000 in salary should be paying close to $13,000 in federal/provincial taxes if you live in Ontario. Since our employers withhold taxes on our paycheque, let’s assume they have only withheld $10,000 for all of 2022. This results in a tax bill of almost $3,000 at tax time, which represents the difference between what should be paid versus what was paid over the course of the year. Assuming this person contributed $20,000 to their RRSP & deducted this from their taxable income in 2022, a tax refund of roughly $3,000 is created.

We have a graduated tax system in Canada. This means that the more you make, the higher your tax rate can be. So, since your employer has been withholding taxes as if you made $70,000 but the CRA taxes you as if you made $50,000, you are refunded your over-payment.

I’ve attached a great calculator that Wealthsimple has put together that helps you estimate your tax liability in advance. All you have to do is choose your province & fill in the respective prompts to get your estimate, which you can generally get the answers to from a year-end earnings statement if you have a straightforward tax situation. Click HERE to view this calculator.

Our standard disclaimer would be to discuss a potential RRSP contribution with your advisory team, in conjunction with your tax advisor. The tax calculator I’ve shared offers a great estimate, but sometimes there are implications or considerations that are not visible to the naked eye that need to be discussed before making your contribution. The intention with this calculator is for a curious individual to be able to plug in their details & model a few RRSP contributions (within their allowable limit), so that they can be prepared for a discussion with their advisory team! As always, Shawn, Corey, Mike & I are happy to be service & you can click HERE to book yourself into our calendar to discuss this further.

 

Happy RRSP season!

Bring the Compass on your Hike. Why should you plan twice?

By: Shawn Todd, CFP

Just before the New Year of 2023 – I was fortunate enough to go for a short adventure trip with my wife Michele, where we planned to do some extraordinary hiking in Arizona.  The first thing I did when I packed for my trip on the days we hiked – was making sure that I had packed a GPS, a compass, enough water, and had a plan.  It sounds simple, but you’d be surprised on how many people venture out with just their shoes.  I saw many with no gear, or the wrong gear.

Some short stats:

  • 57.8 million hikers every year in the US.
  • There are 4 deaths per 100,000 hikers
  • 70% of hikers who die are male

Looking at these stats – right away it becomes a very good message to me that not only should I be careful, but I should always be packing a compass.  I’m male, I hike, I Iove my wife and family, and I’m planning a hiking trip.

When it comes to our personal lives, and our business lives, it’s very easy to overlook what you need to be packing in your ‘day to day’ backpack.  It’s very easy to be comfortable with life ‘as it is right now’. The home & your after-hours routine, and your work & your normal ‘day at the office’ routine all flow one day to the next without any issues.  Sometimes we neglect how each of these affects the other. How impactful our personal lives are with our work, and how significant a role our work plays in providing comfort in our personal lives.

 

 

The merging of our personal and business lives give way to four key themes on this Venn diagram above. These dual areas are:

Time – how much time can we spend with our loved ones, what kind of quality time is it?  How much flexibility does our business provide us, how hard have we worked to have it be this way?

Security – Our business without questions provides the security for us to make decisions that affect our spouse, our children and ourselves.  Where are the children going to post-secondary school?  Do we need to have two incomes or just one in the home? What will happen if one of our family is sick and needs care? Does our life feel safe and secure?

Income – We all start off with a life wanting to not be only concerned about money.  You may be more interested in your community, in charity, in just time with loved ones.  The income that comes in now, and the income that may or may not come in – if you weren’t working – will impact most of the decisions we make with the other three areas – time, security, and our goals.

Goals – This is where it’s always interesting.  Every single person has different goals, different needs, and different wants.  Spending a great deal of time here, really helps with a good foundation to mapping out where we want to go in life [and mapping out what trails we want to explore on that hike]

Many times, when we meet new clients – and we ask – “would you like us to spend time doing financial planning for you personally, and also for you corporately?” they may feel initially positive about it, but also feel slightly tentative about planning twice.  Why would I need to do this?

Some more short stats:

  • 96 percent of small business [with 1-100 employees] survive for one full year
  • 70 percent of small businesses [1-100 employees] survive for five full years
  • There are over 1.3 million businesses in Canada with employees
  • Small businesses provide over 70% of the total private labour market
  • A healthy growth rate for a small business should be between 15%
  • A business will double in 5 years at a 15% growth rate
  • 350 people out of 100,000 [ages 45-49] will be diagnosed with Cancer [87 times the chance of dying hiking]
  • 1,000 people out of 100,000 [ages 60 and older] will be diagnosed with Cancer [250 times the chance of dying hiking]

Spending time planning can’t take away all the risks of business failure, of financial stressors, or of getting a critical illness that impacts your business. It certainly can help make you aware of your blind spots.  Having an opportunity to see the risks, whether they are in your investment portfolio, in providing enough retirement income, or possibly in your business structure – really help make you more aware of your current situation, and your future situation combined.  You wouldn’t go on a hike without the proper gear, and I wouldn’t suggest you tackle life and business without the proper gear.

Take the time to review your own strategy and plan. If you’re unsure on areas, or need guidance, consider having a finanical plan completed, or updated.  Keeping both your personal and corporate worlds safe is key.  If you need to pack a compass to stay on track, I’d certainly recommend doing so.

Just my thoughts for the day,

Shawn Todd, CFP

Future Outlook

By: Corey Butler, Wealth Advisor

2022 is in our rear-view mirror and 2023 is now staring us in the face with a sea of uncertainty. Inflation, supply chain, Covid, China, Ukraine war, stagflation, interest rates… it never ends. This is where you come to the realization that you can only control your own day to day decisions and life. The world has, and will always have, issues. As far back as we can look, there is always civil unrest, famine, war, and natural disasters. So why do we react with such negative assumptions when we know history always repeats itself? Markets go up and markets go down. Buyers and sellers get to make their decision on what something is worth and whether there is upside or downside.

If we look at real estate which is under pressure as of late with massive interest rate increases by both the Bank of Canada and Federal Reserve. Market values have certainly retreated as of late, offering a lower entry point for buyers, but with interest rates at current levels, we essentially end up in the same place with monthly payments vs 2021 pricing. The exposed variable rate debt has gotten much more expensive but when compared to the 5-year fixed rate, the variable is still cheaper option. We need to accept that these rates are going to stay much higher than what we experienced throughout the pandemic. Historical Prime Rate Average has been 5-6%.  If you look out over the next 20-25 years at a modest 5% growth rate on real estate, you still have more than doubled the home value.  It is an incredible asset class.

There are so many conflicting outlooks across all sectors which result in complete paralysis in making decisions or taking a stance. A well-diversified investment portfolio is truly the key to your success during turbulent times. “The trend is your friend until it’s not, and trying to catch a falling knife hurts a lot.” These are wise words bestowed on me from mentors that I have had the pleasure to work beside.

An Investment Policy Statement “IPS” is one of the best ways to keep yourself on the straight and narrow to not get tactical during turbulent times. An IPS becomes your compass to help you find the North Star. It should be reviewed annually with your wealth advisor to ensure risk, goals, and behaviour are on track. If you currently have not created an IPS roadmap, please feel free to reach out and we can grab a coffee to discuss.