Market Emotions Run High

We don’t know what the future holds for investors; no one does. What we can tell you is that the media has once again succeeded in creating significant fear about investing. This is just at the point in time that people should be courageous about investing and their investments.

How many of you sold some, or all of your investments recently? You just couldn’t take the “losses” any longer. How many invested in guaranteed investments with your RRSP contribution? You just couldn’t stand the “volatility” any more. But you committed to move your money back into mutual funds when things settle down. The risk of this action is that you miss the turn-around that inevitably occurs when markets recover.

We’ve all heard it before, “Buy Low and Sell High.” So why do so many people show fear and run away when the market declines. This is precisely the time to have courage. Good quality and profitable companies with sound management and expanding markets have had their share price decline significantly over the past few months. These companies are not going away.

There are those who boast about having some clairvoyant ability to be able to time when to get in and when to get out of the market. The vast majority, professionals included, admit with honesty that they have no idea when it’s the right time to sell or buy into the market.

This emotional roller coaster ride is not new and it’s been seen before. The late sixties saw a rapidly rising market come to an abrupt end in 1974 with the oil embargo and Nixon’s resignation. Then again in the eighties with the 30% one-day drop on October 19, 1987. And once again the markets peaked and fell when the technology bubble burst in 2000. This is the pattern of the past and will continue to be the pattern of the future.

So what is the average Canadian investor to do? Strap yourself in, like on a roller coaster. Know and develop an understanding that markets have ups and downs, just like a roller coaster ride. Don’t un-strap and jump off in the middle of the ride. This could prove be detrimental to your long-term financial health. The best course of action is to stay on the ride, stay invested, and bring new money into the market while its “On Sale.”

This is a monthly article on financial planning. Call or write to Rick Sutherland CLU, CFP, FDS, R.F.P., of Fundex Investments with your topics of interest at 613-798-2421 or E-mail at rick@invested-interest.ca.

Tax Planning Strategies to Preserve Your Estate

It has been said many times before; “The only certainties in life are death and taxes.” And although it may not be top on our list of financial planning issues, there are tax strategies you can implement for your time of passing. Failure to do so could result in substantially less for your heirs and inviting the government to become one of your beneficiaries. Here are a few ideas to help preserve the value of your estate.

The first step is to ensure that your will is current and beneficiaries are clearly identified. Making a charitable organization one of your beneficiaries is a popular way to reduce taxes, increase the value of your estate and leave a legacy to your favourite charity. Make sure your legal representative has the ability to transfer assets “in kind” as there may be significant tax benefits by donating assets rather than cash. There are also special ways of specifying your gift to ensure that the donation receipt is issued properly and the donation amount receives the maximum tax benefits. This can be a tricky area of estate planning and it is advisable to have your will drafted by a lawyer who specializes in charitable giving.

If you are married or in a common-law relationship, you can rollover most assets left to your spouse or common-law partner. In Ontario, the definition of a common-law couple is two people who have either lived together in a conjugal relationship for at least 3 years or; lived together in a relationship of some permanence and they are the adoptive or natural parents of a child. Unrealized capital gains can be deferred until your spouse sells the asset, or at the time of his or her death. This is a tax deferral idea, not an tax avoidance strategy.

If the deceased had unused RRSP contribution room, and they have a surviving spouse or common-law partner who is under the age of 71, their personal representative may consider making a spousal RRSP contribution. Although an RRSP contribution cannot be made to the deceased’s RRSP after the time of death, a contribution can be made to the RRSP of a spouse or common-law partner within 60 days of the end of the calendar year in which the deceased died.

It is possible that the deceased has unused capital losses from previous years or capital losses that occurred at the time of death. These losses can be used to reduce capital gains. However, capital losses can also be used to reduce any type of income in the year of death and the year prior to death. Utilizing unused capital losses can be quite complicated and it may be best if the personal representative consults with a tax professional to ensure the maximum use of their value.

We have literally scratched the surface of estate planning here. These are just a few examples of many strategies that can be implemented and you should seek the services of a qualified estate-planning professional or lawyer to assist you with preparing your will and making appropriate selections for your individual situation and personal goals.

This is a monthly article on financial planning. Call or write to Rick Sutherland CLU, CFP, FDS, R.F.P., of Fundex Investments with your topics of interest at 798-2421 or E-mail at rick@invested-interest.ca.

Investing in 2008

The following article was contributed by Ottawa-based financial planner Rick Sutherland, CLU, CFP, FDS, R.F.P.

The market conditions experienced during the second half of 2007 generated worry and angst among investors. It is important to realize that market dips have two sides and it is not all negative. The first side that causes concern is the “down side”. There is however a second side called a “recovery”. This is when long-term investors reap the benefits of patience.

Let’s first look at 2007 and try to assess what happened. The Canadian market had been surging ahead since 2002. This was largely driven by rising commodity and specifically oil prices. The Canadian dollar tapped $1.10 against the US dollar for a brief moment during 2007. And the sub-prime lending practices in the United States came to an abrupt halt in the summer of 2007.

The sub-prime affair was probably the most worrisome event of 2007. It is now apparent that lenders were loaning money to unqualified borrowers at ridiculous rates, creating a boom in real estate. Many borrowers did not document their income honestly, making it easier to over state their credit worthiness. As long as home prices were rising, borrowers could refinance to solve their credit problems. But eventually home prices stopped rising and borrowers fell behind. The situation became unsustainable. Thus, the value of securities backed by loans started to fall.

The financial service sector became vulnerable due to the sub-prime chain of events. Prices in this sector have fallen dramatically, some as much as 50%, or more. And the pain wasn’t just in the US. The financial sector in Europe and Japan felt the sub-prime effect. The substantial drop is being viewed as a very significant purchasing opportunity by long-term disciplined investors.

So what opportunities are available in Canada? Even though Canada has already seen tremendous growth, there are some who feel this trend will continue. Developing countries are moving from a rural to an urban society. This is creating demand in the oil, agriculture and commodities sectors. Canada has expertise in all three areas. On a note of caution, the high Canadian dollar may not bode well for certain manufacturing sectors that were previously beneficiaries of a low dollar.

Thus, being an astute investor sometimes calls on the demand to be an opportunity seeker. Realize that there are two sides to market movements and have courage to invest when others are running scared. This could be a great time for nerves of steel. Make your investments with conviction and be patient.


This is a monthly article on financial planning. Call or write to Rick Sutherland CLU, CFP, FDS, R.F.P., of Fundex Investments with your topics of interest at 798-2421 or E-mail at rick@invested-interest.ca.

Year-End Tax Planning Tips

The following article was contributed by Ottawa-based financial planner Rick Sutherland, CLU, CFP, FDS, R.F.P.

It is that time of the year again. The holiday season and year-end tax planning is upon us. We try to keep our opinions about the holidays to ourselves, but we do promote that tax planning is a year-round activity. Human nature prevails and many choose to make last minute decisions about both. This can lead to procrastination and inaction or hurried decisions and disappointing results. After December 31 there is very little that can be done to reduce your taxes and save money. However, here is a short list of year-end tax-planning ideas that can be implemented before the end of the year.

Make a donation to your favourite charity, but instead of giving cash you can benefit more by donating securities. Let’s assume you want to give $10,000. You don’t have the cash but you own an investment that has increased in value. By donating the investment, stocks or mutual funds for example, you will receive a donation receipt for the full amount of $10,000 and you do not pay capital gains tax on the sale of the investment. You win and the charity wins and the government has assisted in making the transaction attractive from a tax point of view.

Speak to your investment advisor about investing in a tax shelter. Certain tax shelters are sanctioned by the Canada Revenue Agency and may be eligible for deductions and credits for 2007. Others carry the risk of being declared invalid so caution must be exercised. Make sure you are comfortable with the underlying investment first. The investment is always more important then the tax savings.

For money held outside registered investments you may want to consider triggering losses or gains. If you have capital gains to report this year or reported capital gains in the three prior years, consider selling investments that have dropped in value. You can apply the loss against your gains this year or the three previous years. Losses can also be carried forward indefinitely into the future. It also makes sense to trigger capital gains if you will not suffer a tax consequence. You may be carrying forward a loss from previous years that will offset the gain in 2007.

You may want to make a withdrawal from your RRSP or RRIF before the end of the year if your 2007 income is low. You may pay little or no tax on the withdrawal. Remember the financial institution must withhold tax when you withdraw from your RRSP, but you may be eligible for most or all of the tax as a refund when you complete your 2007 tax return.

If you are self-employed you may have the opportunity to split income with family members. Review the services that family members provided in 2007 and decide if you can justify paying tax-deductible compensation in the form of salary or wages to family members before the year-end.

These few ideas only scratch the surface of tax-planning strategies. Speak to your investment advisor and tax specialist for more information. We wish everyone a save and happy holiday season and we look forward to speaking to you in 2008.


This is a monthly article on financial planning. Call or write to Rick Sutherland CLU, CFP, FDS, R.F.P., of Fundex Investments with your topics of interest at 798-2421 or E-mail at rick@invested-interest.ca.

Identity Theft – Protect Yourself

The following article was contributed by Ottawa-based financial planner Rick Sutherland, CLU, CFP, FDS, R.F.P.

Identity theft is one of the fastest growing crimes in North America. In fact, identity theft occurs every four seconds. Canadians are increasingly becoming concerned about falling victim to this crime and statistics reveal that 15% of Canadians have already had their credit card used fraudulently. So what exactly is identity theft? What techniques are the thieves using and how can you prevent yourself from becoming a victim?

Identity theft involves the theft of financial or personal information with the intent of establishing another person’s identity. For instance, identity theft will occur when a piece of identification is stolen, such as a driver’s license, and then an application is made for credit cards under the false identity. Where as, identity fraud occurs when the thief uses the new identity to make purchases or gain access to financial accounts.

Criminals do not have to be high tech in order to perform identity theft. One common method is known as “phishing.” This is a term used to describe the act of a criminal posing as a legitimate business, institution or government agency. They send unsolicited e-mails in an attempt to gather personal, financial and sensitive information.

Statistics reveal 24 % of Canadians have received “phishing” identity theft attempts. “Phishers: can replicate web sites so well that an estimated 3%-5% of recipients will unknowingly furnish “phishers” with personal data.

Another popular technique is called “Skimming”. This is a high tech method by which thieves swipe your card and capture your personal information using an electronic device. The theft occurs in an instant, often without the owner of the card being aware.

Further methods used to obtain personal information include “shoulder surfing” which is the use of a direct observation technique such as looking over someone’s shoulder to get information. The thieves learn to memorize numbers quickly as you are typing them. They may even carry a small camera designed to record keystrokes.

Here are some Internet precautions to follow in order to avoid becoming the next victim. Never click on or open e-mail when you are not sure of its legitimacy, even if it looks genuine. Delete the e-mail in question immediately. Avoid e-mailing personal and financial information.

But the Internet is not the only place to be cautious. Keep your eye on your credit and debit card at all times. Regularly review your account statements. Save receipts and compare them with your billing statements. Open bills promptly and reconcile accounts at least monthly. Report any questionable charges immediately and in writing to the credit card issuer. Notify card companies in advance of address changes. Shred or otherwise destroy credit card receipts, bills and related information when no longer needed. Avoid keeping a written record of your bank PIN number(s), social insurance number and computer passwords, and never carry these details with you. A SIN number and drivers licence together gives a thief most of the information needed to create a new identity.

It is important to be attentive to your personal information in today’s modern world. These tips only scratch the surface of how the scam artist works. Be aware and protect yourself. The time, stress and potential cost to recreate your identity can be avoided with awareness and diligence. An excellent resource on this topic can be found at www.phonebusters.com.

This is a monthly article on financial planning. Call or write to Rick Sutherland CLU, CFP, FDS, R.F.P., of FundEX Investments Inc. with your topics of interest at 798-2421 or E-mail at rick@invested-interest.ca.

Hot Investment Tips by E-mail!

The following article was contributed by Ottawa-based financial planner Rick Sutherland, CLU, CFP, FDS, R.F.P.

Are hot stock tips bombarding you by e-mail? If you’ve ever surfed the Internet looking up investment related topics you may have unknowingly given your email address to one of many Internet scam fraudsters, or should I say spam companies. They claim to be legitimate firms providing a valuable service to the investing public.

In 2005 the Canadian Government’s Task Force on Spam estimated that there are more that 100 million investment-related emails sent every week. With all this good investment advice so freely given out we should all be millionaires.

Its seems nowadays about 80% of e-mails received are junk mail, not that its illegal to send e-mails. However, a lot of the hot stock tip e-mails are outside the regulated industry. When it comes to investments, stock information comes in many forms whether it is from advisors, newspaper articles, Internet surfing, friends and relatives and yes, through e-mails.

Most, if not all, “hot stock tips” we receive in our e-mails are unsolicited. It’s very enticing when you receive a personalized e-mail promising high returns and very low risk, but you must buy now. But how can we decipher between a good and bad tip? Usually it’s only after money has been lost.

The Ontario Securities Commission (OSC), the Investment Dealers Association (IDA) and many brokerage firms have set up educational programs for the public, clients and advisors to help identify the difference between legitimate advice and spam e-mails. Visit the OSC web site at www.osc.gov.on.ca for more information about how to recognize and protect yourself against investment scams and frauds.

Before you decide to “jump on board” with one of these “hot stock tips”, do your homework. Search the company and look for any regulatory filings. Talk to your stockbroker to get their opinion. The advisor will review your goals and assist you in making a decision on whether this investment fits your risk profile. Their role is to look after your best interests. At this point you may still proceed and buy the stock, but if your advisor had cautioned you against this move you will be on your own if the investment turns out to be a flop.

A lot of these “get-rich-quick” scam e-mails, are sent by people who are just under the radar of the criminal authorities for fraud, theft or forgery. In the end these spam e-mails will always be around and it’s “buyer beware.”

This is a monthly article on financial planning. Call or write to Rick Sutherland CLU, CFP, FDS, R.F.P., of FundEX Investments Inc. with your topics of interest at 798-2421 or E-mail at rick@invested-interest.ca.

Less Taxes….More Retirement Income

The following article was contributed by Ottawa-based financial planner Rick Sutherland, CLU, CFP, FDS, R.F.P.

Further to our story on the tax changes proposed in the 2007 federal budget, we bring more detailed news on the opportunity for those who are retired. These changes specifically refer to the opportunity for couples to take advantage of income splitting.

Why should we be concerned about Income Splitting? In Canada we have a progressive income tax system. The more income you make, the higher your tax burden. Retired couples can now use the new income splitting rules to help reduce the ever-increasing progressive tax rates. This is achieved by transferring income from a higher income-earning spouse to a lower income-earning spouse. It has proven to be a significant tax reducer as a couple receiving two smaller incomes at retirement is taxed at a lower rate than one person receiving a large portion or all of the household income.

The new rules apply only to income that’s eligible for the pension tax credit. Therefore, if you are 65 years or older, you can split up to 50% of the following incomes: Registered Retirement Income Funds (RRIF), Life Income Funds (LIF), Locked-in Retirement Income Funds (LRIF) and Annuities purchased from Registered Retirement Saving Plans (RRSP) or Deferred Profit Sharing Plan (DPSP) assets. There is no age restriction on company Registered Pension Plan (RPP) benefits. You can also split Canada Pension Plan (CPP) benefits starting at age 60 but only for the benefits accumulated while you were a couple.

By way of an example, we can look at the tax saving where there is one spouse earning a pension plan benefit of $100,000 and neither spouse earns any other income. She decides to split income to the maximum amount of $50,000. The tax savings is greater than $5,000. And did we mention that both spouses are now eligible for the pension credit, which has doubled to $2,000? This extra income will be a welcome addition to all retirees who take advantage of the new rules.

Furthermore, if you are 65 or older you are eligible for the age tax credit and Old Age Security (OAS) benefits. This age credit is potentially worth another $5,066 in tax credits. Depending on your income there is a reduction for those earning more than $30,936. Any unused portion of the credit can be transferred to your spouse. OAS does have a claw-back feature that begins at income of $63,511.
You can see there may be thousands of tax dollars to be saved by implementing these income-splitting strategies starting in 2007. As always there are rules that must be followed and you should seek the advice of your trusted financial advisor to assist you with making these decisions. The sooner you start planning, the faster you can begin planning how to spend this newfound money.

This is a monthly article on financial planning. Call or write to Rick Sutherland CLU, CFP, FDS, R.F.P., of FundEX Investments Inc. with your topics of interest at 798-2421 or E-mail at rick@invested-interest.ca.