3 Common Reactions to the Market Cycle

3 Common Reactions to the Market Cycle

by FinancialFinancial PlanningInvestment Planning

Sometimes in life you find out the hard way that reality doesn’t always meet your expectations. This can be especially true when dealing with investments. You might think that you are comfortable with a temporary drop in your investment value, but when it actually happens, you may not be very comfortable with it. There are three common reactions investors have when dealing with the market cycle.

You become anxious and lose sleep

Your shiny new investment takes a dip in the first week, and dealing with it is way more difficult than you expected. Risky investments aren’t worth it if they cause you enough stress that you can no longer sleep at night. In this case, we recommend that you move your money into more conservative investments. You can talk with your financial advisor about adjusting your portfolio to be better aligned with your actual risk tolerance.

You don’t like it at first, but you get used to it

Your investment takes a dive and you start to worry. You talk to your advisor and they assure you that if you wait it out, you won’t regret it. You just have to be patient while seeing your investments through the market cycle. Once your investment rebounds, you experience the market cycle for yourself. This makes you more comfortable with accepting risk. You may even want to target more aggressive investments, or you may be happy with what you are doing. Talk to your financial advisor either way.

You don’t think twice about it

You keep an eye on your portfolio from time to time, but in general you realize that it’s not a good strategy to time the market and micromanage your investments. You and your financial advisor came up with an investment plan and you are going to stick with it. You don’t need to change your portfolio and you can sleep easy knowing your investments are in good hands.

No matter what your reaction is, every investor needs a good financial advisor to help them with their investments. This is true for investment veterans and for rookies. You should contact a financial advisor at The Beacon Group of Assante Financial Management Ltd. They will help your investment portfolio match your unique needs and personality so you can sleep easy if the market makes you nervous, or you can take some risks if you are more aggressive.

Finding Investment Common Ground with Your Spouse

Finding Investment Common Ground with Your Spouse

by AgingFinancialFinancial PlanningInvestment Planning

It can be hard to find common ground between two unique individuals, even when they are in a relationship. This kind of dilemma can occur when dealing with investments. Just because you love each other doesn’t mean you have the same risk tolerance as investors! You may not be able to sleep at night if the market has taken a hit, while your spouse may be sleeping soundly right next to you, knowing your investments are bound to go back up. If you find yourself in this kind of situation with your loved one, we can help. Here are three approaches that can help you find investment common ground with your spouse.

Agreeing on a goal and timeline

There are three key factors to take into consideration when creating an investment portfolio. They are called investment objective, time horizon and risk tolerance. Even if you and your spouse don’t have the same risk tolerance, you may be able to come to an agreement because of your circumstances. For example, if you want to save for a down payment on the home of your dreams, you may be able to convince the aggressive investor to stay away from high-risk investments knowing that your home purchase may rest in the balance. You both can agree on your objective and time horizon and come to an agreement on your risk tolerance for this investment.

Meeting halfway

You may be able to find common ground with your spouse by creating a diversified portfolio. This means you can adjust the risk level of the investment to please each spouse. You should be able to find a mutual fund with an agreeable mix of equities and fixed income that creates a suitable compromise for each spouse’s risk tolerance. This would eliminate the more aggressive and conservative holding, allowing you both to meet halfway. This strategy can be very beneficial as diversifying your portfolio is a smart investment strategy.

Separate portfolios

You won’t always be able to come to a compromise, so you may just have to agree to disagree. If this is the case, you may have to each keep your own separate portfolio. This actually isn’t a bad investment strategy; it can be considered a well-rounded approach to investing. You may be able to strike a nice balance between the two of you. One portfolio could focus on long-term growth while the other focuses on capital preservation.

If you and your spouse need help with your investments, you should talk to a financial advisor at The Beacon Group of Assante Financial Management Ltd.

How Do You Use Your TFSA?

How Do You Use Your TFSA?

by FinancialFinancial PlanningTax Planning

The recent federal election brought the Tax-Free Savings Accounts (TFSA) into the spotlight. The Liberals promised to lower the contribution limit from the Conservative Government’s $10,000 to $5,500. The Liberal government followed through with their promise, so the 2016 TFSA limit is now $5,500. Thankfully, Canadians aren’t losing the contribution room they’ve accumulated, so somebody opening an account today would be able to put in $46,500. The real question isn’t about how much room you have, but rather how to properly make use of the tax-free incentive. Read on to learn more about how to best use the TFSA to your advantage.

The Holistic Approach

We find that a lot of Canadians have “tunnel vision” when it comes to the TFSA. It’s much more effective to take a look at the big picture when deciding how to use the TFSA. You need to take your life goals and long-term financial plans into consideration first, and then make investment choices that will help you meet your objectives on time with an acceptable amount of risk tolerance. With that in mind, it will be easier for you to determine the securities you need to invest in, and if they are to be allocated in non-registered or registered accounts.

Short-Term Goals

If you are planning on, for example, purchasing a new car in the next five years, it would make a lot of sense to use some of your TFSA room for that goal. It would not make sense to then invest aggressively, as a risky investment could mean that there won’t be enough money in the account when the time comes for your purchase. It would be better to invest in conservative holdings to ensure some growth but also to have peace of mind knowing you will have the money when it’s needed.

Long-Term Goals

If you are looking to use your TFSA as a source of retirement income, or for other long-term goals, it would be wise to take a holistic approach instead of just focusing on one kind of account or one type of investment. In order to best save for your retirement, it’s a smart idea to build your nest egg strategically, with fixed income holdings and equity spread across different accounts. Investors should make the best use of the Registered Retirement Savings Plan (RRSP), TFSA and non-registered accounts to ensure tax-efficiency and flexibility.

Navigation through the world of registered and non-registered investments can be tricky. If you need help with your investment planning strategy, you should contact The Beacon Group of Assante Financial Management Ltd. today.

Taxes and Succession Planning

Taxes and Succession Planning

by FinancialFinancial PlanningLife ChangesTax Planning

You spend your whole life paying taxes, why should the last step into retirement be any different? As you prepare yourself and your company to be transitioned to the next generation of owners and operators it’s important to plan for the taxes associated with your succession plan. Be certain to discuss with your financial advisor and legal counsel to determine which succession plan is best for your tax situation. Here is a brief look into a few options available to someone who is wishing to retire or sell their business.

Selling shares held in your own name to an outside party

You are able to sell personally held shares, but they are subject to a capital gains tax. There is a lifetime exemption of $750,000.00 in qualified small business corporation shares that you may be able to apply to the sale of your business. This is a possible way to offset a portion of the capital gains tax; this should be discussed with your financial advisor.

Selling corporate assets or corporately-held shares to an outside party

Another option for selling the company is to sell the corporate assets or the shares of the business held by a corporation or a holding company. The types of assets sold and the amount of income generated by the sale will determine how the taxes are to be treated. Once the corporation has liquidated all of its assets and no longer operates, you can choose to either dissolve the corporation or keep it operating to hold some of the revenue generated from the sale as a way of deferring taxes. This income can be paid to shareholders as dividends over the course of time.

Estate Freeze

This method is best for transferring the ownership to a chosen successor, not an outside party. This is typically done by transferring the common shares into preferred shares and then issuing common shares to the beneficiaries. This essentially freezes the tax liability and allows the successor to come into the business with little investment contribution. This is a commonly used practice when it’s a family business and the next generation is taking over.

Succession planning can be an exciting time because it means the next chapter in your life is on the horizon. But be certain to plan closely with your financial advisor from The Beacon Group of Assante Financial Management Ltd. in order to achieve the most tax beneficial and best plan available to you and your company.

The Federal Budget and Your Small Business

The Federal Budget and Your Small Business

by BusinessFinancialTax Planning

The recent federal election brought Canada a new Liberal government, and with that came the promise to invest in the Canadian economy. What does this mean for small business owners in Canada? The new budget has brought upon some changes that are favourable to small businesses as well as some guarantees that life will not be made more difficult for small businesses from a tax perspective. It means that things have not necessarily changed for the better or for the worse. Here’s a small breakdown of what Canadian small business owners can expect going forward.

No Changes to Capital Gains Inclusions and Stock Options

Prior to the release of the federal budget there was concern that the capital gains inclusion rate would increase from its rate of 50% and that there would be changes to stop option benefit rules. The good news is that the release of the federal budget shows no changes to either the stock option rules or the capital gains inclusion rate.

Corporate Tax Rates

The bane of all small businesses is the amount of taxes owed to the government every quarter. The federal budget shows no changes to the tax rates on small corporations which is a relief because the proposed deficit needs to be answered for somewhere and small business owners are glad it’s not at their expense.

Small Business Deduction

Various loopholes have now been closed with respect to the previously allotted small business deductions. The small business deduction is available to businesses who earn less than $500,000.00 annually; the tax rate is 15% and can provide tax savings of up to $55,000.

Transferring Life Insurance

It used to be that you were able to transfer life insurance policy to a corporation and thereby obtain tax-free corporate money. The new federal budget has done away with this loophole and no longer allows it to occur. There may also be an inquiry to examine policies that did this prior to the release of the 2016 federal budget.

Life can go on normally for small business owners in Canada with the implementation of the 2016 federal budget. Many of the changes made were not harmful or costly to small business owners and are simply just procedural updates. The Liberal Government is being true to their word on the notion of building up the Canadian economy and providing support for small businesses.

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Tax-Free Investing By the Ages

by FinancialInvestment Planning

When the Tax-Free Savings Account (TFSA) was first introduced, nobody was quite sure of the best way to utilize it. Since then, different strategies have emerged depending on where you are in your life. Please read on to discover the best ways to use the TFSA at each stage of your life.

Young Adults

 When you are first starting to build your savings at a young age, using the TFSA to save for short-term goals is a good idea. It’s a tax-free way to save for a car or a down payment on a home. Basically, if you think you will need to withdraw funds in the foreseeable future, start with a TFSA. Parents can use TFSAs to their advantage to help get their children off to a good start. You can use your TFSAs to help cover the cost of university education. You can transfer your TFSA to your child’s TFSA when they turn 18, and they can use that to draw from during the school year.

Established Adults

Using a TFSA for high-return investments is a smart idea, as any returns are 100% tax-free within the account and once you withdraw from it. It’s also a great place for retirement savings, as a complement to your RRSP and work pension. You can also use the TFSA in your estate planning. You can dedicate the TFSAs belonging to you, your spouse, and your child and make maximum contributions each year. All these funds grow and are paid out tax-free, when the time comes. Your TFSA funds can be transferred to your spouse’s TFSA without affecting their own allotted contribution room. One other estate planning tip is designating your TFSA assets to help offset tax liabilities, so your beneficiaries receive more of what you planned on leaving them.

Retired Adults

 As mentioned before, withdrawing from you TFSA is not considered taxable income, so it is a great way to support your retirement. This is especially true if you are in a higher tax bracket, or if you are worried about your eligibility for Old Age Security (OAS). You can also consider putting any excess cash you have into your TFSA, so it can grow tax-free and be available to you whenever you need it.

 If you have questions regarding how to best utilize your TFSA, contact a financial advisor at The Beacon Group of Assante Financial Management, Ltd.

 

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How You Can Make the Most of a Financial Windfall

by FinancialFinancial Planning

Not every financial windfall comes from getting extremely lucky and winning the lottery. You might receive a large amount of money from the sale of property, a severance package, an insurance policy or an inheritance. For some, they might never have had such a large sum of money available to them. It’s tough to know what to do in that case. For others, they may know not to spend it all in one place, but may not be sure of the best course of action. If you find yourself with this nice problem to have, here are some guidelines to follow to make the best use of a financial windfall.

Reduce high-interest debt

 You may want to consider reducing any debt you are holding on credit cards, lines of credit, or personal loans. These typically have the highest interest rate so paying these off will have the biggest impact on your monthly interest costs. You may also consider making a large lump sum payment on your mortgage, as long as you can do so without a prepayment penalty. Your retirement gets a whole lot easier without a monthly mortgage payment!

Revisit your life goals

 With a sizeable lump sum available to you, some life goals that you may not have been able to pursue could become available to you. You may be able to launch a business you’ve been thinking about since you now have start-up money. You and your family could purchase a beautiful lake-side cottage to make your summers more exciting. You could retire earlier than you thought now that you have money available to put into your retirement savings. The possibilities are endless.

Adjust your risk tolerance

 A financial windfall may affect how and how much you invest going forward. For example, you can now consider lowering the risk level of your investment portfolio because you are no longer seeking as high of a return. One the flip side, it may give you the freedom to invest more aggressively, because having extra money will allow you to withstand extra volatility.

 If you find yourself in this situation, it is important to review your options, determine your priorities, and clarify your goals and aspirations. Once you have those in orders, you should contact a financial advisor at The Beacon Group of Assante Financial Management, Ltd. Your financial advisor can help ensure that your funds are managed according to your needs and desires.

 

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Making Your Tax Refund Work for You

by FinancialTax Planning

Are you expecting a nice, big tax refund for the 2015 tax year? If you are, you are probably thinking about how you can spend this free money. You shouldn’t think of a tax refund as free money, because it is really just money that the government owes you because you overpaid on taxes. This is money you could’ve been using to save, pay off debts, or invest throughout the year. Because of this, we highly recommend you use your refund for one of the following reasons.

Pay off Debts

The first thing you should do with your tax refund is use it to pay off any outstanding credit card debt. A standard credit card has an interest rate of 19.99%, so for example, if you carry a balance of $5,000 for a year, you are paying almost $1,000 in interest. If you pay off your balance with your tax refund, you will be saving more than you could if you invested it.

Contribute to your retirement savings

If you have contribution room left in your Registered Retirement Savings Plan (RRSP), you can add that amount to it in order to generate a higher tax deduction for the current year’s tax return. Of course, the main goal of an RRSP investment is to save towards your retirement, but the immediate tax boon is icing on the cake.

Save for your child’s education

If you’ve been neglecting saving for your children’s post-secondary education, now is as good a time as any to start. By contributing to a Registered Education Savings Plan (RESP), you can also take advantage of the Canada Education Savings Grant (CESG) which adds an additional 20% towards your plan.

Invest tax-free

Why not continue the trend of saving on taxes by using your tax refund to invest in a Tax-Free Savings Account (TFSA)? There are no tax deductions for contributing to a TFSA, so earnings and withdrawals from the account are tax-free. Much like RRSPs, the TFSA has a contribution limit, so it is best to make sure you don’t over-contribute, as any excess TFSA amount is taxable.

Of course, it’s OK to indulge if that shiny new 4K HD TV is too hard to pass up. In this case, you can consider enjoying the best of both worlds by buying a new toy and using the rest to solidify your financial future. For help determining how to best use your substantial tax refund, contact a financial advisor at The Beacon Group of Assante Financial Management, Ltd.

 

 

Two Adirondack chairs by the sea

A “Floor First” Approach to Building Retirement Income

by FinancialFinancial Planning

Canadians are living longer than they ever have before. This is great news, of course, but it does make it hard to plan out your retirement. How many years will you need to save for? To alleviate some of your doubts about how much you need to save, you can create a retirement income floor. This floor is the amount of annual income necessary to meet your basic living expenses. The following are the steps necessary to calculate your income floor.

List Expenses

The first step is to make a list of your basic yearly living expenses. This list will include things like your mortgage payments, groceries, insurance, and health care, among others. Remember to stick to the essentials. “Nice-to-haves” like vacations or a new car should be separate from your income floor.

Calculate Guaranteed Income

The second step is to calculate how much you (and your spouse) will get annually from your Canada/Quebec pension plan and old age security. Next, add any other pensions or incomes you may have. We call these your guaranteed incomes. If they are sufficient to cover your list of expenses above, you are lucky. Most Canadians won’t have enough guaranteed income to meet their basic needs, so investments are needed to fund the rest.

Funding to the Floor

In order to fund the shortfall, and to ultimately save enough money to go above the income floor, you need to invest. There are many options to choose from, including GICs, annuities, Tax-Free Savings Accounts, and Registered Retirement Income Funds (RRIFs). On your own, it’s hard to tell which options best suit you and your family’s needs.

Talk to a Financial Advisor

This is where The Beacon Group of Assante Financial Management Ltd. can help. Your financial advisor will work with you to help choose the investments that best fit your needs. The strategy of calculating an income floor can be implemented before, during, or even after retirement. Our retirement planning specialists can help you with these calculations along with other important decisions concerning your retirement.

Benefits to the “Floor First” Approach

Calculating and reaching your retirement income floor does more than just meet your basic needs, it also gives you more freedom to pursue more growth-oriented investments that you can use as income to fund that trip to Europe you have on your bucket list. It can also help you with estate planning because you will have a clearer picture of what you will be leaving behind.

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Managing Finances and Siblings

by FinancialInheritance

Even the most tight-knit family can come to blows if there is a dispute over money. Family conflict surrounding financial matters is common-place, and there are no set rules or guidelines when it comes to managing finances with your siblings. If you are much better off than another sibling, they might see you as an interest-free bank. If you become executor of your parent’s estate, you may have to deal with siblings who don’t believe their inheritance was fair. We have provided you with an outline of what to consider if you find yourself involved in these two scenarios.

Giving out Loans

What do you do if one of your siblings comes to you looking for a loan? It’s hard to say no to a loved one during their time of need, but you need to consider what the money is going to be used for. You don’t want to enable a sibling if you know that they are troubled. Not to mention that in this situation you aren’t likely to get your money back. If your sibling is looking for help to send your niece or nephew to post-secondary school, you would be helping them immensely and you are likely to get your money paid back. Even though it is family, it is recommended that you put the loan and the repayment terms in writing. This helps legitimize the lending and help protect your relationship. Just remember that you should only lend money if you can afford to go without it if it’s left unpaid.

Dealing with Inheritances

It’s common practice to name one child as executor of an estate, but that can lead to problems if there are other siblings involved. The children left out may feel that all of the siblings should be involved in the decision-making, which can cause some conflict. The inheritance can cause a lot of friction, even if the assets were split evenly. It all depends on the situation and the people involved. These types of conflicts usually involve expenses and delays. When writing a will for a family with siblings, it’s best to anticipate your family’s unique situation and the personalities involved.

When dealing with financial matters within a family, communication is key. Talking and gaining an understanding of each sibling’s needs and wants can help prevent potentially disastrous family conflicts. For help with such matters, you should contact a financial advisor at The Beacon Group of Assante Financial Management, Ltd.