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Pay Only Your Fair Share to Canada Revenue Agency

Executive Summary

Tax season is hardly anyone’s favourite time of year.  What can make it even worse is seeing a negative balance on your tax account and having to pay extra income tax to the CRA.  Simply being aware of a few tax planning strategies can help ensure that you don’t get hit hard when tax season rolls around.

What You Need to Know

  1. RRSP Contributions – Contributions to an RRSP are deductible against your income tax, which can result in either a deduction in your taxes or even a refund.   RRSP contributions are reported on line 208 of your T1 General Tax Return. The financial institution that holds your investment will issue your tax receipts.  Contributions from March-December 2023 will be taxed on your 2023 return, but any contributions made between Jan 1, 2024- Feb 29, 2024 can be taxed on either your 2023 or 2024 return.  Taxpayers can contribute up to 18% of their income every year to their RRSP.
  1. Capital Gains/Losses – Many people are aware that any capital gains on their investments must be reported on their tax return; however, you can also report your capital losses.  Capital losses can offset capital gains on your tax return, therefore lowering your tax bill.   While there are a few exceptions, capital losses can generally be carried forward indefinitely and carried back three years.
  1. Carrying Charges – If you earned investment income last year, the CRA would allow you to claim carrying charges against certain types of income.  There can be some gray areas with carrying charges, it is always best to check with a tax professional regarding what can and cannot be claimed. Types of charges can include:
    • Investment fees and fees for looking after your investments.
    • You may be able to claim fees involved with obtaining financial advice.
    • Fees paid to an accountant.
    • Any interest paid for a policy loan that was used to earn income.
    • Legal fees involved in getting support payments that your current or ex-spouse will have to pay to you.
  1. Changing Tax Rules – Last but not least, the best way to make the most of your taxes is to keep up with the ever-changing tax rules.  New deductions and credits are being added all the time though they may not be widely advertised.  Taking some time to find out what’s new this year might present you with a tax-saving opportunity you may not have otherwise known about.

Pay-down your Mortgage or Top-up your TFSA

Executive Summary

The question of reducing debt or contributing to savings will continue to be debated for as long as people plan to retire in Canada.

Of course opting for both: reducing debt and increasing savings is the ideal. As for which is better, however, really depends on the individuals involved, their goals and feelings and their unique financial situations.

If you find you just can’t decide whether to save or pay off, start by contributing to a TFSA; those deposits can easily be withdrawn and applied to your mortgage.

What you need to know

Tax implications are not a consideration.  Mortgages and TFSAs both deal with after-tax dollars.  Any additional payments against your mortgage or sent to your TFSA will be after you have paid income tax, and there is no reduction in taxable income for making contributions to a TFSA.  Also, when the capital gain from the home (assuming it’s your principal residence) and any growth and withdrawals from your TFSA will not be subject to income tax.

To simplify the matter, the question becomes ‘can I earn more inside my TFSA than I pay in mortgage interest?”  If your mortgage interest is 4% per annum, paying down your mortgage by $10,000 will save you $400 in interest charges each year.  Placing the same $10,000 in your TFSA earning 4% per annum will earn you $400 each year.

One difference is that next year the original $10,000 will be $10,400 and at the end of year two at 4% become $10,816 with compound interest.

For some people becoming debt-free as soon as possible buys peace of mind and freedom, for others a nest-egg and the security and flexibility it provides is more important.

Bottom Line

If you find yourself torn between building a nest-egg and paying off your mortgage, we encourage you to get in touch to set up a short conversation where we discuss your goals, crunch some numbers and find the perfect solution for you.

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.

Prioritizing Your Debt

Prioritizing debt is an important skill to learn because it determines how fast you will pay down your debts. Debts have varying payback plans that will require you to place them on a scale to decide which should go first. Obviously, the interest rate is an important factor to consider when prioritizing your debt. It is advisable to have a strategy for paying your debts so that your other financial goals can be met. Debts are known to affect the attainment of one’s financial goals. There are a few strategies you can try that can help you prioritize your debts for easy payment. Some of these strategies include starting with the debt with the highest interest rate; starting with the least balance; starting with the highest balance; and consolidating your debts.

Starting with The Debt with Highest Interest Rate

This is known as debt avalanche. It entails you starting off paying the debt with the highest interest rate to the least. Debts with high-interest rates are always difficult to pay because of the accumulation of the interests. Getting it off your books first will save you money and help you focus on paying off other debts and financial goals. Picture an avalanche and imagine your debt tumbling down quickly. That is how this strategy works.

Starting with The Debt with the Least Balance

This strategy is good for gaining momentum. It is known as the snowball debt repayment strategy, and it is more motivational than strategic. If you are finding it difficult to figure out how to pay your debt, start from the lowest and gradually work your way up. Another advantage is that it gives you that little bit of extra cash to tackle your big debts. This strategy also comes in handy where you feel you cannot adopt the previous strategy. Start with the least balance.

Starting with Your Largest Balance

This is the opposite of snowball strategy. This strategy prioritizes the debt with the largest balance, and it is an unpopular strategy because it may be difficult to achieve. The question is why will I start with my highest debt? It may not give room for other financial goals because all your resources will be channeled towards paying off that debt. However, there are cases where you may opt for this type of strategy. An example is when that particular debt has a promotion of a reduced interest rate, and you need to pay it off before the promotion ends.

Consolidating Your Debts

This is usually what you resort to when it is taking too long to pay your debts, or the interest rates are making it difficult to get it off your books. When you consolidate your debts, it gives you the opportunity of paying all your debts at once. You can take a loan to pay for your consolidated debts which then leaves you with the repayment of that loan only. For example, you can consolidate all your credit card debts and pay them off with a balance transfer credit card. This strategy is particularly effective when you have multiple debts that are hindering you from achieving your financial goals.

 

 

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What Are Insurance Cash Values?

Cash value is a type of life insurance policy that lasts for the lifetime of the policyholder. This type of life insurance also has a cash value savings component that the policyholder can use for different purposes such as loans or cash to pay policy premiums. Some other distinctive features of a cash value life insurance are that it is known to be more expensive than term life insurance and does not expire after a number of years. To simplify further, the cash value is the sum of money that accumulates in a cash-generating permanent life insurance policy or annuity which is held in your bank account. Your insurance provider allocates some of the money you pay as premiums to investments portfolios such as stocks and bonds and then credits your policy based on the performance of those investments.

How Does Cash Value Work?

Cash value is a type of permanent life insurance that provides insurance cover for the policyholder’s life. Most cash-value life insurance policies require a fixed-level premium payment. A part of it is allocated to the cost of insurance and the remaining is deposited into a cash-value account and invested in different financial investment portfolios. It earns a tax-deferred modest rate of interest. This ensures that the cash value of your life insurance increases steadily over time. The implication of this is that as the cash value increases, the risk of the insurance provider decreases because the accumulated cash value offsets part of the insurance provider’s liability. You can also use the earnings to increase the death benefits in your policy or other living benefits, depending on your preference. Bear in mind that as you make withdrawals from the cash value in your insurance policy, the death benefit will also reduce.

Example

Assume you have a life insurance policy with a $35,000 death benefit with no outstanding loan or prior cash withdrawals. The accumulated cash value of the policy is $10,000. Upon your demise, the insurance provider will pay the full death benefit of $35,000 but the money accumulated into the cash value becomes the property of the insurer. The implication of this is that because of the cash value of $10,000, the real liability cost of the insurance provider is $25,000. This is calculated by subtracting the death benefit from the accumulated cash value ($35,000 – $10,000).

Types of Cash Value Life Insurance

Cash value insurance is usually used to augment your life insurance policy. However, you need to understand how it works for each type of life insurance policy.

Whole Life Insurance

If you have a whole life insurance policy, having a cash value policy will augment your life insurance policy. When you take a cash value insurance policy, your premium stays the same for the rest of your life. A small percentage of your premium is diverted into a savings account to accumulate interest. The rate of interest returns varies depending on the insurance provider, but it is known to hover around 2%. You have access to the funds in the savings account during your lifetime.   

Variable Life Insurance

This is slightly different from the whole life insurance policy. With this policy, you can determine how your accumulated cash is invested. You have the opportunity to invest the small portion diverted from your premium into investment portfolios such as bonds and stocks. This requires a good knowledge of the investment market. Variable cash value life insurance has a higher premium than the whole and universal cash value life insurance.    

Universal Life Insurance

Under universal life insurance, you have a bit of control over what you pay as your premium. For example, you can pay more than you usually pay for a premium and you can divert the surplus into your savings account. The advantage of this type of policy is that if you cannot meet up with the premium payment in a particular month, you can use the money in your savings account to pay your monthly premium. There are three types of Universal Life Insurance: Guaranteed Universal Life Insurance, Variable Universal Life Insurance, and Indexed Universal Insurance.

Advantages of Cash Value Life Insurance Policy

  • You can earn interest on a cash value savings account
  • You can overpay on your premium and divert more money into your cash value account
  • You can spend from your cash value account while you are alive
  • You can earn returns on a cash value investment account

Disadvantages of Cash Value Life Insurance Policy

  • Your returns are capped at a certain amount
  • If you remove money from your cash-value account, your death benefit decreases
  • You have to pay fees associated with your cash-value account

Tax Advantages

There are various tax benefits you and your beneficiaries enjoy with a cash value insurance policy. One of the benefits is that your beneficiaries can receive your death benefits tax-free. This is an advantage your beneficiaries get to enjoy with your cash value life insurance policy. Another tax advantage is that the earnings on your invested accumulated cash value are tax-deferred. Therefore, as your cash value grows, you do not need to worry about the CRA deducting from your earnings. One of the things you can use your accumulated cash value for is collateral for loans. When you borrow money against your policy, you do not have to worry about paying taxes on the loan as long as the policy is still active. However, if you withdraw your accumulated cash value or take the surrender value and terminate the policy, you may be taxed on the portion of the money that came from interest or investment gains on your invested cash value.  You should understand the tax rules before making withdrawals from your cash value policy.

Bottom Line

There are other minor considerations and questions you may have when considering this approach. Talk to us about your options.

Good Debt vs Bad Debt

The very nature of debt implies that there is nothing good about it. No debt is good debt. However, taking debt is almost the only way most people can stay afloat. What differentiates a good debt from bad debt is the purpose of the loan. While some loans are a necessary evil, some unnecessary debts drag one into a financial abyss that may be difficult to climb out of.

What Is Good Debt?

Good debts are generally referred to as future investments that will appreciate in due time. The phrase ‘it takes money to make more money’ comes to mind. There are loans you may need to take to generate more income and build your net worth. Such loans are justified because they are needed investments for a future reward. Paying such loans back is not usually a problem because you would have used it to make double the loan. Examples of good debts include student loans, business loans, and mortgages.

However, there is an inherent risk in taking a ‘good debt’. As was mentioned earlier, debts are generally an inconvenience on one’s financial plan, so there is always that inherent risk when taking a loan even when it is supposedly going to build your wealth and increase your net worth in the future. When you take a loan for investment, there are a lot of assumptions involved. Nothing is certain; you may not get the return you hope for but what’s life without risk. This is why it is always advisable to be conservative about your projections. In other words, when taking a loan, always consider when the return will start coming in and what will be the amount of returns you will be expecting. Juxtapose it with the loan you are taking and ask yourself if it is worth it. When it comes to debts, there are no guarantees, even for good debts, the purpose of the loan is all that matters.

What Is Bad Debt?

Debt is said to be bad when you are borrowing to purchase a depreciating asset or an asset you do not need. Borrowing money to acquire a want and not a need is usually ill-advised. Financial advisers will say if the money will not increase in value or generate more money for you, then don’t borrow. Borrowing money to purchase a depreciating asset will only put you in more debt. The risks in a bad debt are visible as day. Examples of bad debt include car loans, credit card loans for shopping, football tickets, etc…

Other Debts

There are other types of debt that do not fall within the category of good or bad debt. These are debts that are relative to everyone’s financial capacity at the time of taking the debt. These types of debts may be good for one person and bad for the other. Someone with enough financial cushion may afford to take further loans to pay off his other debts or invest in more portfolios compared to someone already drowning in debt.

Debt Choices

As discussed, be it a good or bad debt, the reality is that it is still a debt, and you must pay it back. In deciding what type of debt to take, you must consider the type and purpose of the debt. This will help you determine whether a debt is truly worth it. Are you investing in your future or satisfying your wants? That question will help you in deciding whether to take the loan or not.

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!

Why Every Family Should Have a Budget

Executive Summary

Creating a budget may sound boring but taking the time to do so will have a huge impact on your future.  It is easy to overspend and with the amount of household debt at an all-time high, managing your finances can seem hopeless.  However, the more attention you pay to your spending habits, the easier you will find it to achieve financial success.

What You Need to Know

Below are four reasons why you should create a family budget…today!

  1. It Will Help Keep Your Goals in SightSetting financial goals for yourself is one thing, having a plan in place to achieve them is another.   Setting a budget for yourself will help you set goals, make a plan to achieve them, and will allow you to track your progress.
  2. It Will Put an End to Spending Money You Don’t HaveWhen you have a realistic budget and commit to it, there are no excuses to spend on credit. You’ll know exactly how much money you have coming in, how much you can spend, and how much you need to save.
  3. You’ll Be Prepared for EmergenciesSometimes life happens, whether it be losing your job or becoming sick or disabled.  Having a budget means that you will have savings you can access if an emergency arises.  You will sleep better at night knowing that you are prepared for the worst.
  4. It Will Force You to Acknowledge Any Bad Spending HabitsSometimes we don’t know where we could improve until we start keeping track of our spending.  Even if you think you are doing well with your money, writing a budget may shed light on some areas that you could cut back.  This is a great opportunity to redirect some money into retirement savings or saving for another goal.

The Bottom Line

Everyone can benefit from writing a budget, whether you think you need it or not.  The key to achieving your financial goals is having a plan.  If you feel overwhelmed and don’t know where to start, reach out to us!  We will help you start a plan and will monitor your progress!

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!!!

Tips on Retirement Savings Plan

A retirement savings plan is a way of protecting your post-retirement financial lifestyle. However, in recent times, recessions, stock-market declines, housing market bubbles, joblessness, and, most recently, a global pandemic have created a series of challenges for people trying to start, grow, or maintain a retirement savings plan. With all the economic uncertainties, it’s natural to wonder if you’re doing all you can to protect your retirement nest egg. Taking a back to basics approach can instruct you on how to keep your retirement financial plan on track during uncertain economic times and beyond.

Consider these tried and tested tips that most financial advisors will recommend for a secure and enjoyable retirement.

  1. Make Realistic Budget and Lifestyle – Determining your retirement income needs starts with making realistic assumptions about your future. Because of increased life expectancy, retirement years are longer than they used to be. The average Canadian is expected to live to 78.79 years. Longevity can also be impacted by genetics, where you live, your marital status, and your lifestyle. All of these factors into how you plan for your retirement. It’s also good to be realistic about your post-retirement budget and lifestyle. Do not make the mistake of assuming that your post-retirement budget will be reduced. Retirement is becoming increasingly expensive, particularly in the first few years. It’s essential to have a plan to help mitigate expenses when you are no longer earning a paycheck.
  2. Have A Savings Plan – Based on these realistic lifestyle assumptions about your post-retirement days, you can begin to determine what you can do now to sustain yourself financially for at least 25 years post-retirement. The 4% rule is one popular method for working this out. In this model, you commit 4% of your savings for every year of retirement. Another approach is to draw down 2-3% of your total retirement portfolio annually, adjusted yearly for inflation.
  3. Consider Inflation – Speaking of inflation, failing to factor it into your plan could take a substantial bite out of your hard-earned nest egg. Inflation impacts how much your retirement savings will be worth over time, so understanding this is critical to ensuring that you have enough assets to last throughout your retirement.
  4. Grow Your Retirement Savings – Retirement means different things to different people, but the key is to enjoy this time of your life while making sure you don’t outlive your retirement savings. You are more likely to achieve this with a thoughtfully developed plan that allows you to withdraw money from your portfolio while enabling growth over the longer term. You can achieve this by using various investment vehicles with reasonable returns.

Bottom Line

Planning for the future is a complex and sometimes emotional process that is not easy to do without guidance. Financial advisors can help you remain objective and focused on your future goals. They also have the skills and tools you need to plan for a healthy financial future.

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6 Tips for More Successful Investing

There is no one and done way to invest, but there are a few tried and true principles that have served investors well over the years.

What You Need to Know

  1. Have patience and a long-term outlook – Great investment results do not happen overnight.  Think of your moneys earning potentials in the context of years, not months.
  2. Never buy on a tip… do your research – We all know someone who has “discovered” the next big money maker. Be wary of taking tips from friends and family members. Do your own research and make decisions that you are confident in.
  3. Don’t sell on bad news – This may be particularly relevant right now.  Markets tend to overreact on the downside, so be sure that you know the actual implications of any bad news on your investments before making a rash decision.
  4. Don’t allow your emotions to take over – Emotion has no place in the investment world. Facts, facts, and more facts are what should be making your investment decisions for you.  Having a plan and sticking to it can greatly help reduce emotion driven decisions.
  5. Stay invested and take advantage of compounding – Compound interest is one of the most powerful tools that investors have.  Leave you money invested as long as you possibly can to take advantage of compounding.
  6. Make an investing philosophy and stick to it – Know your comfort level and tendencies before you ever start investing. This way you will be sure to have a portfolio that will work for you instead of stressing you out.

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