Where Does Your Money Go?

Is it Time to Invest?

2010-02-24T16:32:00.002-05:00

There are those who feel that the market has risen too far too fast. Some are predicting a double dip decline. For every view that the market is rising there is an equal number who feel the opposite will be reality. Let’s see if we can shed some light on the subject.

Most agree that markets move in cycles. The inexperienced investor always waits for the market to rise to new levels before investing. A sense of euphoria sets in at market highs. Caution is thrown to the wind. At that point the market has given all it’s going to give on the upside and is poised to turn downward. As the market declines the ride down is filled with the emotion of anxiety, fear and panic. The inexperienced investor sells - exactly when they should be buying.

So how do you feel about investing right now? If you say you’re not comfortable, you’re not alone. The vast majority of Canadians are still sitting on the fence waiting for the “right time” to invest. Bank account balances and short-term investments are at record levels. Yet by the end of 2009 the TSX index went up more than 50% from the lows recorded only a few months earlier. But it hasn’t reached new highs yet. So according to our market cycle analogy people continue to wait.

Clearly we are not at the excitement, thrill and euphoric stage of the market cycle. However we may have seen the bottom and are now on a new upward trajectory. The ride won’t be smooth. It never is. By keeping your emotions in check you should be more comfortable investing at this stage than any other.

The US estimates for GDP are 2.2% for the third quarter and 5.7% for the fourth quarter of 2009. Although not a perfect indicator of financial health, it is a definite improvement from the previous four quarters while the global economy was in recession.

So what should your investment strategy be right now? It really doesn’t matter whether we are talking about right now or last year or next year. The investment principle is the same at any time. First decide how much money you may need in the short-term and keep this money absolutely safe. Then decide if you want to keep any money aside for mid-term contingencies. This money may or may not have market exposure depending on whether you are flexible with your timing to draw the money out. As your time horizon narrows this money should be moved into the safe account. The remaining money is your long-term savings. That’s the money that should be working and invested for your future.

One thing to keep in mind is that the easy money may have been made last year. Most equities showed a high correlation during the decline of 2008 and the following recovery of 2009. It is not normal for the majority of equities to move in the same direction at the same time. If you’re investing in mutual funds you want to be selective about the fund manager you choose. You want a manager who is picky about the equities in the portfolio. You want a manager who has a flair for finding undervalued equities with good profitability prospects and then commit to your investment strategy for the long-term.

This is a monthly article on financial planning contributed by Rick Sutherland CLU, CFP, FDS, R.F.P., of Fundex Investments. The foregoing is for general information purposes and is the opinion of the writer. This information is not intended to provide personal advice including, without limitation, investment, financial, legal, accounting or tax advice. Rick Sutherland CLU, CFP, FDS, R.F.P., of FundEX Investments Inc. can be reached at 613-798-2421 or e-mail rick@invested-interest.ca.

Budgeting to Reduce Debt

2010-02-15T16:51:00.002-05:00

Debt reduction is one of the most important goals to map out within your budget, but it is often the easiest one to neglect or put on the backburner.

Let's say you've finally gotten serious about creating a budget for your household and are committed to sticking to it. You've tallied up your income and expenses and set aside a chunk of your disposable income into savings. You're living at or below your means, so why does it seem like your financial situation is not improving? Why are you still unable to reach your financial goals?

Many times the reason is that you haven't taken a close enough look at your credit card debt. Sure, your credit card payments may be marked as monthly expenses in your budget, but are you budgeting at or near the minimum payment? If this is the case, you may have just discovered a fatal flaw in your current budget.

Finance guru Dave Ramsey gives the following advice to those in this situation using what he calls the Debt Snowball Plan. The plan starts with budgeting to sock $1,000 away in savings for emergencies, so you don't end up in even greater debt in the case that you lose your job, your vehicle breaks down, or you have a health crisis. Accomplishing this, your second goal is to shift your focus off of savings and on to debt reduction. You begin by budgeting as much of your disposable income as possible into paying down the credit card with the lowest balance, paying minimum payments to all your other creditors. Once you pay off the lowest balance, move on to the second lowest balance, overpaying your monthly payment with the excess leftover in your budget from the first paid-off card. This is where the "snowballing" starts taking place. If you encounter two credit cards with similar balances, attack the one with the highest interest rate. However, first you will need to calculate how much debt you owe to each credit card company. Credit card companies often profit from the fact that those they lend money to never quite nail down how much they owe. If you don't know how much you owe, it is difficult to set budgeting goals for debt reduction. There are a variety of free debt calculators to help you toward this end. Click here to access one of such calculators.

Debt reduction is still an important budgetary consideration even if you have zero credit card debt. Can you budget extra money to overpay on your vehicle or home mortgage? You could save yourself hundreds or even thousands of dollars in interest by accelerating re-payment of these debts.

It's time to ask yourself this question. When you set up a budget for your family, how much do you allocate for debt reduction? Significantly increasing that allocation could be your quickest ticket to financial freedom.

This guest post is contributed by Raine Parker, who writes for the online accounting degree blog. She welcomes your comments at her email Id: raine.parker6@gmail.com .

10 Ways to Save for Retirement

2010-01-23T11:51:00.001-05:00

In the aftermath of the Global Financial Crisis many people are wondering how they are going to be able to retire on their now depleted portfolios. Some are now planning to work longer, while others are looking for ways to avoid the same situation. Therefore, following are 10 pieces of advice and retirement savings strategies to help you feel more secure in planning for your golden years, and ways to ensure they truly are solid gold and not just gold-plated.

Why You Need to Think About Your Retirement Now

Financial experts agree that you will need around 75 per cent of your current income to maintain your standard of living after you retire. This is a general figure and of course depends on whether your mortgage is paid off, if you have other debts, and how you plan to spend your retirement. The 10 tips below address these issues.

It is also important to know that 50 per cent of working Americans who are actively saving for their retirement have less than $25,000 saved, and 70 per cent who are not saving for retirement have less than $10,000 in a savings account. This is why you need to start thinking about your retirement savings plan now, because it is a good chance to get your finances in order and start working towards some truly meaningful savings goals.

1. Curb your spending and plan your budget

Making a clear budget will help you with the rest of these tips and will help you clarify the standard of living you have now, what you can go without and what you’d really like to be able to afford. You’ll also be able to see how much money you are directing to your bad debts such as credit cards, and whether there is any extra spending room to pay down your mortgage faster.

When starting any savings plan it is important to first remove any bad debt like credit cards or personal loans. Any interest you earn in a savings account will be cancelled out by the interest you are paying on your debt, so budget to pay more than the minimum monthly repayment to wipe out that debt as soon as possible.

Once you have your debt under control, get your spending under control too. This means analyzing all of the luxuries in your budget and deciding which are necessary and which can be cut back on or removed all together. You don’t have to cut back on all your indulgences and you don’t have to cut back forever either – you can create a savings plan for six months or a year where you channel as much spare cash as you can into a high interest savings account to give it a boost, before sticking to a more flexible savings plan for the long term.

2. Know how much you need for your retirement

This is where your budget will help you again because you will be able to calculate which expenses will be constant when you retire and which will go up or down. Your fuel expenses may go down when you retire, for example, because you’re not driving to work every day, and so too may your food bills because you’ll be able to make more meals at home and avoid fast food and take away. Your mortgage repayments may be reduced, but hopefully paid off entirely when you retire so this part of the budget will be less too.

At the same time your entertainment portion of the budget will increase, and this is where you will decide how you want to spend your retirement. Is it important to have an overseas trip twice a year, or do you plan to purchase a boat and sail the local seas fishing? Will you move to a smaller house or will you keep your larger house to accommodate a growing extended family?

All of these factors influence how much money you need in your retirement savings account, and are important in helping you plan a way to achieve that retirement savings goal.

3. Know when you plan to retire

While we’d all love to retire tomorrow, that’s not always possible, so set a realistic retirement time frame. Would you like to retire at 60 or work to the traditional 65? Or perhaps you’d like to keep working part time until you’re 75 to keep active and maintain your working relationships.

These decisions will determine when you need your retirement savings to reach that magical number which means you have enough funds, and it also helps you determine how much money you will need. For example if you imagine you’ll live until 100, if you retire at 60 you need your retirement fund to last you 40 years, but if you retire at 75 you only need it to last 25 years. That can make a big difference in funds.

4. Save your windfalls

As for the practical retirement savings advice, from our first tip you know you need a high interest savings account to keep your savings separate from your everyday spending money, and to help you earn interest on your way to your retirement goal. So what else can you put in your retirement savings account?

Save every little windfall which befalls your finances and you will be surprised at how quickly your retirement savings can grow. Put your tax return straight into a savings account, along with any gifts of money for birthdays or Christmas, or inherited money. Plus, whenever you get a pay rise, have the additional money transferred directly to your savings account, and continue to have the same amount of money deposited into your everyday account each week. In saving the difference between your old and new wage, you are saving without even realizing it – it doesn’t get much easier than that.

5. Dedicated retirement savings accounts

Find out about specialized retirement savings accounts available to you. Some retirement savings products will allow your contributions to be taxed at a lower rate when you withdraw them for your retirement, and most retirement savings accounts will have a lower fee structure too.

There are differing retirement savings accounts available depending on your contributions and your age, but it is worth finding out about the incentives and assistance which is available to you. All you have to do is ask your bank, accountant or financial advisor, because someone who knows your financial situation will be able to advise you on the best retirement savings account for your needs.

6. Retirement fund

Depending on your job or career, you may also be eligible for employer contributions to a retirement fund. A retirement fund is an account held by a specialized investment institution that manages your contribution to keep it growing, while you keep working and your employer keeps contributing. Retirement funds are also tax protected, and even if you are able to access the money, it makes sense to leave it in the fund until you retire.

7. Salary sacrifice into a retirement fund

Choosing to negotiate a salary sacrifice with your employer can also help you save for your retirement as you can have a portion of your wage deposited directly into a retirement fund so you are saving for your future. Plus you will be taxed in a lower tax bracket because you have a reduced wage.

8. Make retirement fund contributions for your spouse

If your spouse is earning below a designated amount, in some cases you are able to make contributions to a retirement fund or a retirement savings account in their name. These contributions are also eligible for tax benefits, while accumulating retirement savings for both you and your partner.

9. Consult a financial advisor, now and into the future

Managing your finances can be a full time job, especially if you are looking for a way to aggressively grow your retirement savings or recover from a recent loss of retirement funds. The fees of a financial advisor are generally tax deductible, and having someone advise you on the savings and investment options which are best for your current situation, and which can help you achieve your dream retirement, is well worth the investment. Also be sure to seek a professional who can stay with you and continue to give advice as your life situation changes over the years.

10. Start as soon as possible

You may want to start saving for your retirement right now, but if you have credit card debt or are unprepared for a retirement savings plan then you are not going to effectively achieve those goals. Instead, work your way through these 10 tips before you start saving for your retirement to make sure you don’t waste any time when you do start saving.

At the same time it is important to start saving for your retirement as soon as possible, as there will be less ground to make up and more time to save the amount you’ve been dreaming of.

Fred Schebesta writes for Savings Account Finder, where he helps people to compare savings accounts and term deposits.

Ways to reduce debt by budgeting

2009-11-13T19:58:00.003-05:00

As the world moves out of recession, it's never been more important to assess your finances and sort out any debt problems you may have.

Although the recession will have left a lot of us with debts, it is important to understand that there are ways out. This article aims to highlight ways in which you can reduce your debts by budgeting.

Budgeting is all about understanding and controlling your finances: your income and your expenditure. But how is it done?

Create a realistic budget

To create a realistic budget, you will need to work out your total income (everything you earn/receive each month) and your total expenditure (everything you spend on your 'priority' debts and day-to-day living expenses - so, your mortgage/rent, secured debts, food, petrol, utility bills, etc.).

Then you should subtract your total expenditure from your total income, which will leave you with your 'disposable income'. This is simply the money you have available for saving, spending on yourself, and servicing your 'non-priority' debts (store/credit cards, unsecured loans, etc.).

Keep track of your spending

Now you have your budget, you will be able to see how much money you have available to spend each month. It is important that when you do spend, you keep track of it - it all adds up.

If you fail to keep track of everything you've spent, your budget won't be accurate, and you might find you start running out of money before the end of the month.

By keeping track of your spending you can also see where you are wasting your money, which leads us onto the next point…

Cut back on your non-essential spending

Once you can successfully keep track of where all your money is going, you should be able to identify any areas where you are spending money you could be using to overpay your debts.

By cutting back on this non-essential spending, you can 'free up' money to put towards your debts, so you can clear them faster than you would if you just kept making the minimum payments.

Plan what you need to spend for the month

At the start of every month, sit down and plan out what you need to spend for the weeks ahead - for example, food, travel costs, bills, debt repayments - taking into account any unusual expenses (the kind you just don't run into every month).

Once you have compiled your list, you should add up how much each expense will cost you. Of course, you may not be able to predict how much your travel will cost you, or how much you'll spend on food, so if necessary you'll need to estimate costs like these.

Planning how much you need to spend each month means you will be in much better control of where your money is going. What's more, you will be able to spot early on if you won't have enough money to cover your expenses - and see if you can find a way around it.

Unfortunately, budgeting alone won't be enough for everyone - some people's problems are so serious that their income simply isn't enough to cover their expenses.

If that sounds like you, you should contact a professional debt adviser.

The right debt adviser will be able to assess your situation and let you know if a professional debt solution could be right for you. This will vary from country to country - in the UK, for example, people with unmanageable debt may be able to enter into debt management plans or IVAs (Individual Voluntary Arrangement).

This guest post was written by Melanie Taylor, personal finance expert at financial solutions provider Think Money.

Planning Your Financial Strategy Using Your Rear View Mirror

2009-11-01T15:02:00.003-05:00

Let’s start with a metaphor. Your financial strategy is a bit like driving your car. You have a destination; let’s call it Retirement City. You plan your route to get from here to there. This is your savings and investment strategy. You know there will be traffic, bumps on the road, stop lights, highways and maybe even a crazy driver who will cut you off along the way. These are uncontrollable factors much like economic and financial events and life circumstances. Knowing your driving skill, you are confident you will arrive safely at Retirement City.

Now, can you imagine if you tried to make this journey by driving backwards only looking into your rear view mirror? It doesn’t take much imagination to know that you would not attempt to make this journey by only looking in your rear view mirror. Yet many investment decisions are based on recent short-term events. The assumption being that what happened recently will surely happen again. However that’s the past and you are looking into our rear view mirror with this strategy.

Over the past twelve months we have seen enough ups and downs in the markets to last a lifetime. Volatile markets often tempt investors into making financial mistakes. They sell their current “dogs”, perceived as poor investments because they went down, and switch into the next “hot” stock, mutual fund or other investment tip that has showed recent strong performance.

Using short-term trends to support decisions for a long-term investment strategy could be a mistake. No one knows what’s over the next hill or can predict the future. By making snap investment decisions based on recent short-term performance you could find yourself selling, only to determine later that you should have been doing exactly the opposite and buying.

As an investor you have certainly heard the disclaimer “past performance does not guarantee future results.” This becomes clear when we look at a Lipper study of the top quartile large cap US equity mutual funds from 1998 to 2002. The study followed the performance of these funds over the following four years. Only 19% stayed top quartile. Another 25% slipped to second quartile. While 32% of those top performing funds fell into third quartile and the last 24% fell all the way into fourth quartile ranking.

You can’t control the journey to Retirement City, just like you do not know how the economy or financial markets will behave. With proper coaching and discipline you can control your emotion and commit to a financial strategy that is crafted to meet your long-term needs and goals.

The foregoing is for general information purposes and is the opinion of the writer. This information is not intended to provide personal advice including, without limitation, investment, financial, legal, accounting or tax advice. Please call or write to Rick Sutherland CLU, CFP, FDS, R.F.P., of FundEX Investments Inc. to discuss your particular circumstances or suggest a topic for future articles, at 613-798-2421 or e-mail rick@invested-interest.ca

Get Paid to Wait

2009-10-07T13:10:00.001-05:00

The headlines continue to report bad news. Corporate bailouts, high unemployment figures and ballooning government deficits, not to mention swine flu, make the average Canadian wonder why they should invest in equities at all. But what are the alternatives? Interest rates are at historic lows. After taxes and inflation you are spinning your wheels and going backwards by saving in guaranteed investments.

Given the volatility and negative news we have witnessed over the past year, there are many who wonder if investing in equities is really worth it. Here’s a strategy that can prove to you that patience can really pay, with dividends.

Yes, equity prices did fall and hit bottom last March. However, the sky did not fall and we appear to be recovering nicely from the lows of last spring. Meanwhile, many mutual funds invest in businesses that have continued to pay dividends. Yes, some businesses have cut dividends while others have actually increased their dividend payout to shareholders.

But, let’s first explain what a dividend is and how we can use this information to our advantage. The cash flow or revenue of a company comes from the sale of goods and services. From this income the company pays expenses such as salaries, materials, rent and other operating expenses. The remainder is the amount that the company has to claim as income. The government takes a share in tax, and the leftover sum is either used by the company to re-invest in more modern equipment or buy supplies etc. The money that is left over after expenses, taxes and re-investment is what the company has to reward its shareholders by way of a dividend.

If you think about it, it’s very similar to the concept of cash flow management at a personal level. You earn income from employment. You pay your living expenses and taxes, and then you can either save or spend the remainder. The amount you save is your investment in your future. The amount you spend is your personal dividend to yourself. The problem is that over the past decade or so, people have been spending more than they could afford and not re-investing in their future.

Now let’s get back to our discussion on dividends. Equity prices have fallen on an abundance of good quality businesses with superior products and services that continue to pay dividends. These businesses are well managed and stand to benefit greatly as the economic recovery takes hold. Many dividend rates on these companies are currently in the 3-5% range, and in some cases higher. Have you looked at guaranteed investment rates lately? It’s not easy to find a guaranteed rate in the 3-5% range.

Our investment strategy is simple. Always keep your short-term savings in a safe and liquid investment. Have faith that there will be an economic recovery; there always has been. Only invest in equities with your long-term savings. This allows you to have patience and even invest more during market declines. Consult with a trusted advisor who can coach you through troubled times. And get paid to wait.

The foregoing is for general information purposes and is the opinion of the writer. This information is not intended to provide personal advice including, without limitation, investment, financial, legal, accounting or tax advice. Please call or write to Rick Sutherland CLU, CFP, FDS, R.F.P., to discuss your particular circumstances or suggest a topic for future articles at 613-798-2421 or E-mail rick@invested-interest.ca. Mutual Funds provided through FundEX Investments Inc.

Financial Advisor Scam

2009-10-07T13:04:00.001-05:00

The financial services advisory profession was shaken by a scam announced early in July 2009. Although the facts are still being gathered by the authorities, it appears that a Montreal resident, posing as a financial advisor for many years, has run-off with approximately $50 million in client funds.

It has been reported that Bertram Earl Jones was not registered with any securities regulator, not affiliated with any securities dealer or insurance distributor and has no professional designation. Yet for years he befriended Montreal residents and convinced them to entrust their savings to him and his company. For some, it was their life savings. Now his personal and corporate bank accounts are empty and Jones is nowhere to be found.

The problem only came to light when his clients started to receive cheques that were not honoured by his bank and no one was answering his phones. His phone message indicated that his company was not in a position to return funds.

Since Jones was not licensed there was no authority looking over his shoulder. This could make it difficult for clients, as there is no regulatory protection to get their money back from industry sources such as the Canadian Investor Protection Fund.

Let’s hope that Jones is in jail by the time you read this, however there are some lessons here for consumers dealing with financial advisors. Do your homework before placing your trust, and hard earned cash, with any individual or corporation. For your protection you should be dealing with a licensed person. That person is often sponsored by a larger organization who oversees compliance and industry regulations. Better yet, the person should also be affiliated with professional organizations.

The regulator and licensing body in Ontario is the Ontario Securities Commission (OSC). Mutual fund distributors are also required to be members of the Mutual Fund Dealers Association (MFDA). These regulatory bodies enforce the regulations and code of professional conduct that are designed to protect the consumer from scoundrels like Jones.

Professional organizations include: the Institute of Advanced Financial Planners (IAFP) who is responsible for the R.F.P. designation. The Financial Planners Standards Council (FPSC) is responsible for the Certified Financial Planner (CFP) designation. The Chartered Life Underwriters Institute issue and monitor the Certified Life Underwriter (CLU) designation. These are just a few of the professional organizations with which financial planners can be affiliated. Credentials in a professional organization assure consumers that there is another layer of credibility. Each of these bodies has minimum education standards and requires annual certification.

Here are a few additional tips for your protection. Never issue investment cheques that are payable to the individual planner. All cheques should be written payable to a trust account and you should receive confirmation of your investment shortly after your cheque is cashed. It sounds like the Jones clients weren't getting anything except letters from Jones himself. The Jones crime will probably come down as a case of a rogue individual posing as a legitimate financial planner who was nothing more than a common criminal.

Do your own due diligence to ensure your advisor is legitimate and that there are safeguards in place for your protection. As it stands today, anyone can hang out a shingle and call themselves a financial planner. No licence is required until financial products are sold. And there is no requirement in Ontario to be a member of a professional organization.

The foregoing is for general information purposes and is the opinion of the writer. This information is not intended to provide personal advice including, without limitation, investment, financial, legal, accounting or tax advice. Please call or write to Rick Sutherland CLU, CFP, FDS, R.F.P., to discuss your particular circumstances or suggest a topic for future articles at 613-798-2421 or E-mail rick@invested-interest.ca. Mutual Funds provided through FundEX Investments Inc.

Spending Profile, New Feature Release: Monthly Statements

2009-07-17T10:16:00.006-05:00

We released a new feature into Spending Profile today - you can now download monthly statements directly from the website. You can choose any month from any year without restriction. They are in html format with embedded images, so there is only one file to download. This means they can be viewed on any platform in any browser and do not require a plug-in.

Our next step is to re-instate the automatic emailing of monthly statements on the first of every month.

A big thank you to Charbel Choueiri, our lead architect, who worked very hard to release this feature for our members.

New version of Spending Profile released!

2009-07-15T17:40:00.002-05:00

We are very pleased to announce that a new version of Spending Profile has been released!

Version 3.1 contains numerous new features that our members have been requesting for a long time, as well as improvements in speed. Thanks for being patient!

Visit the site at www.spendingprofile.com. Recreate your password instantly here if you have forgotten it. Or use the Live Demo if you don't have an account.

What's NEW with Spending Profile?

Subcategories! Finally, you can divide your expenses into categories and subcategories. For example, you can create a category called Car, and inside it you can have Gas, Insurance, and Maintenance.
A new Accounts field so you can specify which bank account or credit card you used for each transaction.
Faster performance due to using Ajax. You won't have to wait so long for pages to load.
Pie charts that show subcategories. Click a slice to drill into it and see the data at the next level.
Export your data for use in other software programs, such as Excel or Microsoft Money.
Smarter importing - the program can learn from your past history and automatically categorize your imported transactions, making it faster and easier to stay up-to-date.
Many more improvements that you'll just have to log on to see!

To see the new version, visit www.spendingprofile.com. Please send us feedback at info@spendingprofile.com, or use the feedback form on the main page after logging in. Thank you!

Lisa Wall
Project Coordinator
Spending Profile

All GICs Are Not Created Equal

2009-07-13T09:51:00.000-05:00

(July 2009)

Given the performance of equity markets over the past year many people have decided to return to more secure investments such as a Guaranteed Investment Certificate (GIC). Even though we are currently experiencing historic lows in interest rates there are some who have decided it’s better to be safe rather than take any risk in the markets.

A recent survey of Canadian financial institutions told us that the rates quoted on a 5-year deposit were between 1.5 and 4%, and on a 1-year deposit were quoted between 0.1 and 3%. In a non-registered account, and depending on your taxable income, these deposits may be yielding a negative return after inflation. It is important to remember that guaranteed investments do carry a risk, that being purchasing power.

In the event you are deciding to invest in a GIC you should know that there are different institutions that have different features and benefits associated with guaranteed deposits. We will focus our discussion on insurance company and bank GICs.

Insurance and bank GICs are equal on a couple of fronts. Both offer guaranteed interest income with options for compound or simple interest and various options to draw interest income. Both have deposit insurance protection up to $100,000. Canada Deposit Insurance Corporation (CDIC) insures bank deposits for maturities up to 5-year terms, whereas Assuris will guarantee deposits for maturities up to 10-year terms. Therefore you have the option to lock in a rate for a much longer period of time with an insurance company.

Insurance company GICs include the ability to name a beneficiary, the person who will inherit your funds in the event of death. A bank GIC is automatically paid to your estate upon death. No other option is offered through banks. Bank GICs must pass through probate whereas insurance GICs with a named beneficiary will bypass probate and avoid probate fees, a saving of up to 1.5% in Ontario. Also, with a named beneficiary the proceeds are paid instantly without delay associated with the probate process.

Insurance company GICs allow for an additional tax break for those over age 65. Interest earned is deemed to be annuity income and eligible for the pension tax credit and pension splitting opportunities. Bank GICs do not allow for pension tax credits or income splitting.

Insurance company GICs with certain named beneficiaries offer protection against creditors. This option makes sense for self-employed individuals where bankruptcy is a possibility. However, do not expect creditor protection by shifting your assets to an insurance company in contemplation of bankruptcy. Courts are unlikely to uphold creditor protection in these circumstances. Bank GICs do not provide creditor protection and they are often the very entity that will go after the assets in the event of a bankruptcy, so it will most likely never become an option with banks.

It is evident that there are features and benefits worth considering before you decide where to park your money. Insurance company GICs are a life insurance product and are treated totally differently than those offered through the banks.

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-Round Tax Planning with Child Care Expenses

2009-07-13T09:50:00.000-05:00

(June 2009)

Now that you have filed your 2008 tax return, you may be wondering if you took full advantage of all your deductions and credits to minimize your income taxes. Child care receipts are accumulated throughout the year and are often misplaced or forgotten when it’s time to prepare your tax return. Nevertheless, it pays to keep these little slips of paper as they could be worth a significant tax refund.

Tax relief can come in the form of tax deductions or tax credits. Depending on your taxable income, deductions can be worth more than credits, but whether you are talking about a deduction or a credit, they’re both worth money to you.

It is important to note that child care expenses cannot be carried forward to future tax years. They must be deducted in the year that they are incurred. The only way to make a claim after the fact is to apply for a reassessment. It is expected that the lower earning parent must claim child care expenses. If you have children between the ages of seven and sixteen, you may deduct up to $4,000 per year in child care costs. If your children are under seven then you are entitled to deduct up to $7,000 a year. In the event your child is disabled, you are entitled to $10,000 per year of child care expenses.

In addition to direct child care expenses, there are other expenses and credits that can be claimed in order to reduce your taxes. Parents received a tax credit of $2,038 in 2008 for each child under the age of 18. Either parent may utilize this claim, however only one parent may make the claim regardless of the number of children. You may be able to transfer any unused portion to your spouse or common-law partner.

Starting in the year 2007, the Government of Canada now allows a tax credit based on enrollment in an eligible fitness program. The credit is available to all children under the age of 16. The yearly maximum is $500 per child, and the claim can be made by either parent. The cost of public transit passes for children under the age of 19 can also be claimed by the parents. There is also no restriction on who can claim transit passes and the fitness amount for children.

Parents can claim adoption expenses relating to a completed adoption for a child under the age of 18 years. Eligible adoption expenses include fees paid to provincially licensed adoption agencies, legal, administrative and translation fees, reasonable travel and living costs for the child and adoptive parents, and mandatory fees paid to a foreign institution. The maximum claim is $10, 445, and the expenses may be divided between the two adoptive parents as long as the total is not in excess of the maximum.

Raising children can be a huge expense. Some estimates are that it costs about $100,000 to raise a child to age 18. Ensure you take advantage of these tax saving tips to help relieve some of the financial costs. Keep all receipts in a file and then your task of making the most of your tax credits and deductions is much easier.

Have We Hit Bottom Yet?

2009-07-13T09:49:00.001-05:00

(May 2009)

Is it really different this time? These are the burning questions that most of us who have money invested in the equity markets are asking. Let’s look at the history of the Dow Jones Industrial Average (DJIA) and see if we can really see a light at the end of the tunnel. As of March 31, 2009, this major stock market index has seen six straight quarters of negative returns. This marks only the second time that this has happened since 1900.

The first paragraph doesn’t bode well for an up-beat and positive story, does it? Well here are some interesting statistics that may give you some insight into how you may want to allocate some of your personal wealth and savings.

The only other occurrence of six straight negative quarters was in the second quarter of 1970. Following that pitiful performance, the DJIA returned more than 11% the following quarter, more than 22% the following six months, and more than 30% the following year. Not bad for a market that appeared to be going nowhere.

Let’s dissect this wreckage further. Obviously the last quarter of 2008 was the fifth straight quarter of negative returns. Only six times has this occurred since 1900. Only once in 1970, as discussed above, did the trend continue. In the other five occurrences the DJIA recorded positive returns the following year. The average return was more than 43%, while the median was more than 15%.

In addition, March 31, 2009 was the ninth occurrence where the DJIA saw two straight quarters of double-digit negative returns since 1900. The average return one year later was almost 23% following these occurrences of back-to-back quarters of double-digit losses. The only exception where positive returns were not posted was after 1931.

So how are you feeling about your investments today? Historically speaking, the majority of the previous occurrences where equities were in a similar situation as today, it proved to be a significant buying opportunity. Of course there are no guarantees when dealing with equities.

Your decision to stay invested will hinge on your personal goals, and more importantly, your emotions. Unless your long-term goals have changed, you will not be helping yourself by changing your investment strategy. The only way to truly appreciate the spectacular returns that equities have provided over the last century is by staying invested. As an equity investor you must learn to live through the temporary declines that inevitably will occur. Your alternative today is to “cash in” at the bottom and live with 3% GIC rates to fund your retirement. Speak to your financial planner to assist with these most important financial decisions.

Separation and Divorce - The Agreement

2009-07-13T09:47:00.001-05:00

(April 2009)

So you’ve decided that you can’t work things out and it’s time to separate. The end of marriage may be viewed as a tragic event. Separation and divorce can be a difficult process both emotionally and financially. One of the first things you want to establish is a separation agreement. Your agreement becomes a legally binding contract once it is signed and witnessed by both parties. Among other things it outlines items such as spousal support, the division of property and debts, and provides for custody, visitation and support of children.

Where do you start? There are essentially four ways one can approach this situation. Hopefully you are still talking to your soon-to-be former spouse. This can lead to an amicable negotiated separation and a clean break from each other. If both parties see eye-to-eye they can draft their own agreement and take it to their respective lawyers for review. This ensures all legal aspects are covered. As long as there are no outstanding issues, you have an agreement.

If you’re still talking but just can’t seem to come up with an agreement, the next option may be the mediation approach. Mediators are objective participants who don’t take sides but try to work with both parties equally. They may provide guidance or refer other professionals for specialized areas such as the development of a parenting plan or financial planning calculations. Many mediators are also lawyers and provide their services from a legal point of view.

The third method is a process called the collaborative approach. In this case both parties retain their respective legal counsel and everyone meets together. There is a pledge not to go to court. Both parties exchange information honestly, and a solution is developed that takes into account the highest priorities of both parties and their children. The goal is to reach an agreement that everyone can live with.

Finally, the traditional method is the litigation process. Here each party retains their respective lawyers and all discussion is handled through their legal counsel. All communication between the spouses has ended. This process can be quite costly, time consuming, and can end with multiple court appearances.

One method is not necessarily better than the other. Despite the method chosen to draft your agreement, ultimately many of the issues of separation and divorce will revolve around finances and money. An exactly equal division of property is often not the same as a fair division of property. Sometimes a specially trained financial planner is required to assist with the complicated calculations needed in evaluating the division scenarios to ensure that financial decisions made today will not result in costly mistakes in the future.

During this emotional life transition it is important to know that there are many support services available to help with your agreement. Your team may include mental health professionals, child specialists, financial specialists and legal professionals. Your team will help to rebuild your foundation toward a happier and healthier life for the future.

Don’t You Just Love Market Volatility?

2009-07-13T09:43:00.001-05:00

(March 2009)

Has market volatility made you feel uneasy about your future? You’re not alone. Some people have tried to react to the situation by moving money around and converting to cash. This may not be the best course of action. Although the market is not rewarding investors right now, confidence is re-building and exceptional values are being realized by those with a long-term perspective.

Let’s go back to basics. Have your goals and objectives changed? Are you still thinking long-term, or have you succumbed to the hype and media stories about pending doom and gloom? There is no doubt that markets have been volatile for quite some time and the media has successfully created an atmosphere of fear and worry. This fear has caused some to panic and sell their investments. But is this the correct response to the current situation? We don’t think so.

There are many reasons to embrace market volatility. Let’s illustrate by example. Most of us probably don’t go to the store and search out the most expensive items to buy. We are natural bargain hunters. We look in flyers for products on sale. During the current market situation, the share price of many great companies has gone on sale, yet fear has caused panic-stricken investors to sell these great companies at discount prices. You must remember that for every seller of shares there is a buyer. That’s what makes the market. Only time will prove who was smarter: the buyer who bought a bargain, or the seller who sold at a loss.

When markets appear to be in crisis, it’s easy to lose perspective. As mentioned earlier, unless your goals have changed, you’re probably not finished buying equities yet. Review your time horizon and determine if you really need your money to be in cash today. History tells us that the biggest rewards are realized by the person who buys at the lowest points in the market cycle.

But do you have the knowledge and courage to make these decisions yourself? If you answer no, there are options. You can hire a professional money manager to do it for you. Mutual funds are one example of professionally managed money. These money managers employ proven investment strategies that work. But you must give them time. Embrace market volatility now and reap the rewards over time.

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.

Financial Planning for the Surviving Spouse

2009-07-13T09:40:00.000-05:00

(February 2009)

Dealing with the loss of a spouse is considered one of the most difficult events in a person’s life. It is expected for the survivor to be distraught and only able to deal with urgent matters for some time. Although people need time to grieve, it is also important to evaluate financial matters as soon as possible.

Provided the deceased spouse or common-law partner made sufficient contributions to the Canada Pension Plan (CPP) the survivor may be entitled to receive a monthly survivor benefit from the CPP. Survivor benefits will be based on the amount contributed to the plan, the age of the survivor at the time of the spouse’s death, and whether the survivor also receives a CPP disability or retirement pension. It is important to apply for these benefits at the earliest time possible following a spouse’s death, as retroactive payments are only permitted up to 11 months. In addition, surviving spouses or common law partners may also be entitled to receive a lump sum death benefit from the CPP equal to six months of the retirement pension, up to a maximum of $2,500.

Tax planning can play an important role for the survivor. Without proper tax considerations there may be a significant and unnecessary tax bill to the deceased. If the surviving spouse is the sole beneficiary of taxable investments, there may be an option to defer tax implication until the survivor’s death. Further, it is important to consider any unused RRSP contribution room of the deceased spouse. A spousal RRSP contribution is an option to reduce the tax implications on the deceased's final tax return. Otherwise, any unused contribution room will be lost. The spousal contribution must be made within 60 days of the end of the calendar year following a spouse’s death. If the deceased died in November or December, there may not be much time to make this decision.

It is recommended to review all insurance policies and pension plans. Many survivors lose their entitlement to medical insurance coverage upon their spouse’s death. In addition, the survivor may need to update personal life and disability insurance, especially if there are dependent children. A survivor who is not employed may alternatively have to look at critical illness insurance or long term care insurance.

Dealing with the death of a loved one is indeed a challenging experience. These few points only scratch the surface of the many financial issues that a survivor may face. Speak to your financial planner to assist with these and other planning topics as soon as you feel you are ready.

Retirement Fears May be Ill Founded (January 2009)

2009-07-13T06:34:00.002-05:00

The thought of retirement can be frightening. For many it’s a journey into an uncharted financial territory. A recent study found that about two-thirds of Canadians who are approaching retirement are stressed about the thought outliving their money.

Although this study focused on the financial aspects of retirement, it is important to remember that there are many other non-financial considerations. These include hobbies, volunteerism, fitness, lifestyle and travel, just to name a few. These may, or may not, have a significant financial consideration. It is equally important to have plans for these aspects of retirement life.

The survey of 2,200 Canadians found that only 40% of people in their first year of retirement felt comfortable with their retirement savings. This number dropped to 29% for those in their second year of retirement. However, confidence takes hold by the fifth year, when 58% said they were comfortable about their finances and after ten years 80% were comfortable about their financial future.

Once retirees settle into their new situation they tended to live within their means. They started to feel better once they figured out how much money they actually needed to meet their retirement goals and lifestyle needs. This study showed that many retirees were quite comfortable living on 60% of pre-retirement income. Many previous studies told us that the figure was closer to 75% or more. This may have been partly the cause of uncertainty and concern for those who were about to be, or newly retired.

In order to reduce some of this stress it is important for Canadians to prepare a retirement income projection before retiring. This allows for realistic planning rather than unrealistic dreaming. It will show the financial health of one’s retirement lifestyle desires. Only then can one relax and settle into their new situation.

The study also found that professional financial advice played a vital role in one’s comfort level, both before and after retirement. People who worked with a financial planner had a higher level of financial confidence and felt better about their financial health than people who did not use a planner.

Financial planners have an abundance of calculators and tools to assist with the planning process. Speak to your financial planner about your retirement income projection. Specialized computer programs are used to assist with these calculations. The result is a projection based on best and worst case scenarios. The work will be worth peace of mind and a stress reduced retirement.

Your Gift From the Government

2008-12-09T15:34:00.002-05:00

The Federal Government has given Canadians a special Christmas gift this year. Starting January 2009 all Canadian residents, age 18 and older, are eligible to open a Tax Free Savings Account (TFSA). The account allows a maximum contribution of $5,000 per year to be saved and sheltered from tax.

Although there are similarities to the Registered Retirement Savings Plan (RRSP) the TFSA differs in many respects. RRSPs are specifically designed as a long-term retirement savings vehicle. RRSPs should not be used for short- to mid-term expenses due to the loss of contribution room and full taxation of withdrawals, whereas the TFSA can be withdrawn at any time without restriction or tax consequences and used for any purpose.

Both RRSPs and the TFSA offer tax advantages with distinct differences. Contributions to a RRSP are tax deductible and reduce your income for tax purposes. In contrast, your TFSA contributions are not tax deductible. Both accounts will grow tax-free.

Withdrawals from your RRSP are added to your income and taxed at current income tax rates. However, your TFSA withdrawals are not subject to tax. The capital and growth of a TFSA are withdrawn tax-free.

The amount you withdraw can be put back into your TFSA without affecting your future contribution room. If you withdraw $5,000 in 2009, then your contribution limit for 2010 will be $10,000. The only restriction is that you cannot re-contribute in the year that you make your withdrawal. You must wait until the following year. Another important note is that neither income earned nor withdrawal of capital from a TFSA will affect your eligibility for federal income-tested benefits and credits such as the Guaranteed Income Supplement, the Canada Child Tax Benefit the GST credit or Old Age Security benefits.

You do not lose your TFSA contribution room if you do not contribute up to the limit in any given year. Your unused contribution room is carried forward to the next year and indefinitely. So if you contribute $3,000 in 2009 then your contribution limit is $7,000 in 2010.

The TFSA is anticipated to be a great new tax-sheltered account to help Canadians achieve their personal goals. With this program the government is encouraging Canadians to save rather than use debt - whether for a car, a vacation, home renovations, or a small business start-up. Talk to your financial advisor about the best strategies and options for you utilize this gift in 2009 and beyond.

The foregoing is for general information purposes and is the opinion of the writer. This information is not intended to provide personal advice including, without limitation, investment, financial, legal, accounting or tax advice. Please 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.

BUY – SELL – What to Do?

2008-11-19T19:04:00.001-05:00

We have had enough market volatility during 2008 to last a lifetime. As stock markets began a swift decline investors started to make panicked decisions, switching investments, changing advisors and altering their investment objectives. They may have become their own worst enemy. For many, discipline was overcome by fear. Thus, while thinking they were in control, they were actually losing control. These emotionally charged decisions might end up costing a bundle over the long-term.

We know that not everyone was panicking. Warren Buffett, touted as the most successful investor of our time, invested billions into distressed companies during the market set back. Is he crazy? Has he lost his touch? We don’t think so. Mr. Buffett did what he does best. He saw an opportunity and capitalized on it. He will no doubt multiply his investment multi-fold over the next few years.

You’ve heard it before and we’ll say it again. The path to investment success is to buy low and sell high. However, although this concept seems relatively simple to comprehend, putting it into practice can be quite difficult for some investors during a volatile market. Redemption rates are typically at their highest levels when markets are on the extreme negative side. The result is that frightened investors receive a very low price for their shares. Once the market is back on the up swing, money tends to resurface as investors are buying back at higher prices. Does this make sense? You pay $10 a share and sell at $5 a share, and then buy back at $10 a share. As markets improve it becomes clear that the anxious investor may have been better served by inaction alone.

For instance, during 2001 to 2003, the Canadian market fell 43%. Investors who fled during this period missed out on the profits of the market returning at 163% over the next few years. A key factor to consider is that the markets tend to go up more often then they go down.

All this is not to say hang in at any, and all costs. If your time horizon for needing your money is short, less than a year, then you probably should not be in the market at all. Typically you need at least three to four years at a minimum with the ability to buy during times of market weakness in order to have success with your investment strategy.

Investors must accept the reality that markets go down as well as up. You must be prepared for this at all times. This current financial crisis will eventually end and more normal markets will return. The best course of action is to review your investment strategy, time horizon and objectives. Confirm that your current asset allocation is consistent with your investment strategy. If not, then make adjustments. If it is, then stay the course and consider making further investments at these low prices.

The foregoing is for general information purposes and is the opinion of the writer. This information is not intended to provide personal advice including, without limitation, investment, financial, legal, accounting or tax advice. Please call or write to Rick Sutherland CLU, CFP, FDS, R.F.P., of FundEX Investments Inc. to discuss your particular circumstances or suggest a topic for future articles at 613-798-2421 or E-mail rick@invested-interest.ca.

Auto Insurance Secrets

2008-11-19T19:01:00.000-05:00

I want to relate a personal experience that has opened my eyes to the auto insurance industry. Back in 2005 my wife had a slight “fender bender” with a young driver. After exchanging information the other driver made mention that he was going to get a “whole new car” out of this event. Not exactly, but he said he would require the insurance company to give him a complete new paint job. My wife’s car had a minimal scratch that was buffed out in a mater of seconds and his damage was not much more.

Knowing very little about auto insurance and due to the fact that the other driver was adamant that he would make a claim we informed our insurance company about the incident. Our insurance advisor said we did the right thing and notified the insurance company of a pending claim. We never heard anything further but saw our premiums increase for the next three renewal years. We only assumed that the other driver had made a claim, our insurance company had determined my wife to be at fault and they had made a settled the claim with a payment.

As the years went by, our premiums seemed to be getting out of hand so we decided to shop around this year only to discover the “paid claim” notation on our policy was a black eye on our record. No competing insurance company would come even close to our premiums. It was all because of this claim on her record.

I could not believe the other driver had actually made a claim so began to make enquiries. I wanted to have details about the claim and how much was actually paid to the other driver in 2005. Our insurance company was not much help, but then we stumbled upon Autoplus reports. By signing an authorization, Autoplus was able to send a complete record of any and all insurance claims made by my wife. There was no cost to receive the report and it came to us by mail within two weeks. It went back to the mid 1980’s. To our amazement there was never a claim paid, not one.

We confronted our insurance company with this information and demanded an explanation on their justification for charging extra premiums and noting a paid claim on our insurance record. After a number of months we finally had this paid claim notation removed from our 2008-renewal document. We made a request that they reverse the extra premiums charged for the past three years. After almost four months from the beginning of our initial enquiry we received a refund cheque for more than $750. That refund represented a return of the extra premium that was collected in 2006, 2007 and 2008.

I did not take this incident personally. We were caught up in a “systems” problem. We needed human intervention to have the problem resolved. As long as the paid claim was on our record we would continue to have extra premiums charged and competing companies would have a difficult time giving us a competitive quote.

If you have a questionable claim on your insurance record you can go through the same process and determine if indeed the extra premium you are paying is justified. Ask your insurance company for proof that they actually paid a claim. If they cannot, or they will not supply this information, you can contact CGI Insurance Business Services and request your Consumer Autoplus Report. It will show the history of paid insurance claims made against you. You can then confirm if the extra premium you are paying is justified.

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.

RESPs and How They Work

2008-09-05T22:41:00.001-05:00

As your children return to school you may have wondered about how you will pay for their tuition when it comes time for college or university. There was a time when college was less expensive than university. However the cost of going to college is increasing and the gap is narrowing. The common denominator is that the cost of higher education is ever increasing. One way to save for a child’s education is through a Registered Education Savings Plan (RESP).

The federal government is offering free money to Canadians who make contributions into the RESP program. They will match 20% of all contributions up to a maximum of $2,500 per year until the year the beneficiary child turns 17. No grant is eligible the year the child turns 18 years of age. This means there is $500 per year opportunity to be gained from the Canada Education Savings Grant. Unused grant room can be carried forward to future years however the maximum grant available in any given year is $1,000.

Currently RESP contributions are not tax deductible. However, any growth on the contributions and the CESG is tax deferred until it is withdrawn from the plan. When the child begins to attend a post secondary institution, the funds can be withdrawn and taxed in the hands of the child, who will likely be in a lower tax bracket then the parent, and who will usually pay less tax on the withdrawals. The child may also be able to reduce the amount of tax owing through the use of education, textbook and tuition tax credits.

You can even open a family RESP, and name one or more children as beneficiaries under the same plan. The beneficiaries must be related to the contributor either as your own children, grandchildren or legally adopted.

Should the named beneficiary decide not to attend a post secondary education there are a few options available for the RESP funds. The beneficiary can be changed to the child’s sibling. If there is no alternate beneficiary the earnings may be transferred into the contributor’s RRSP, subject to available RRSP room. The contributor can then withdraw their capital and return the grant money to the government. Another option is to make a donation to an educational institution. It is important to talk to the plan administrator or representative to determine your options in this situation.

There are many more highlights and strategies involved with using a RESP. We recommend speaking with a professional advisor about your own personal circumstance to decide the best education saving strategy for you. Through further knowledge on the subject parents will gain a better perspective in financing their child’s educational needs.

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.

Market Emotions Run High

2008-03-04T10:57:00.001-05:00

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

2008-02-19T12:13:00.001-05:00

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

2008-01-03T10:10:00.000-05:00

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

2007-12-19T13:27:00.000-05:00

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

2007-10-19T10:27:00.000-05:00

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.