August 2011

Staying the course.....




We have seen many clients over the last couple of months.  It is such a pleasure to hear of the outings, reunions and excursions that people make and really get the most of out these summer days.  It really refreshes you and lets you stay on track personally, as well as for your financial well being.  Keeping your objectives and time horizon on track, let us keep your portfolio in line with your needs.

More and more of our clients receive our newsletters, commentaries and are accessing their portfolios on-line through our website.  Thank you for letting us be of service and we are always available for a discussion on your portfolio.



Peter    Richard    Claudio


Make saving, job no. 1

By Gail Vaz-Oxlade -  Online only on MoneySense, August 2011 


We love to pay lip service to how important it is to save. But how often do you walk the walk?


We should be piling up money in an emergency fund. We should be setting aside a little sumthin' sumthin' to help our kids get through college or university. But are we? Nope. That's because we haven't made the things we say are important into things urgent enough to do something about.

People come up with all kinds of great excuses for not setting aside any money for later. My favorites come from the folks who just don't want to stop doing what they're doing. From the small expenses like their smartphone's data plan, to buying $5 cups of coffee or dropping the odd $20 on new make-up, people are spending on stupid crap even as they don't save a cent. The consumption feels more urgent than the need to save.

Believe it or not, you don't HAVE to get a blow-out. And if you already own 2 pairs of runners, the next pair is sheer indulgence. So is that bottle of nail polish, the new DVD, or the beer after work. Whether you're a newbie nester who is determined to make her home picture-perfect or a fast-foodie who drops a ton on specialty coffee, lunch out at work and dinner with friends every weekend, your spending habits are all distractions from savings. How much would you have available to save if you chopped back on the Stupid Spending?


If you want to be "urgent" about savings, here's what you'll do:


1. Set a goal. Decide how much you want to have saved and by when. Write it down and post it on your fridge, on your office wall, on your bathroom mirror.


2. Go over your spending and decide what you're going to stop spending money on so you have the money to save.


3. Do it. Save.


4. Track your savings and reward yourself for each milestone you hit.


A penny earned is a penny saved.....


Since January 1, 2009 the Tax Free Savings Account (TFSA) has allowed Canadians to save $5,000/year with the added benefit of not having to pay taxes on either the income earned within the plan or the proceeds withdrawn from the plan. While much has been written about the merits of the TFSA very little has been written about the motivations for its introduction. 


Introduced in the 2008 federal budget the TFSA's launch coincides with a Canadian household savings rate that averaged a mere 2.9% over the previous five years, its lowest measure in almost 50 years.


To provide some historical context to this Canadians have traditionally been thrifty, and saved about 6.7% of income during the 1960's amid an economy characterized by relatively low and stable inflation. Savings then increased dramatically during the 1970's and 1980's peaking in 1982 at 20% and averaged 13.7% in the twenty five year period ending in 1995. Since then the savings rate has dropped dramatically and has in fact been surpassed for the first time since the early 1970's by the more compulsive American consumer who now saves approximately 5.8% of their income versus 4.2% for the Canadian shopper.


As the savings rate declined household wealth actually increased on average by 9.5% per year during the five year period prior to the credit crisis. This wealth accumulation was largely driven by increases in both the stock (16%) and housing markets (10.2%) from 2003-2007 and provided households with a sense of financial security thus allowing for spending increases at the expense of savings. However as a result of increased spending and easy access to cheap credit, when the economic cycle turned from peak to contraction households were more vulnerable to market corrections, thus compounding the effects of the credit crisis globally.


While savings have increased of late, Canadians should not take solace in a domestic economy that is the envy of many; rather Canadians should recognize that strong households and economies are built on savings and not spending. This recognition should also take into account strategic methods of savings, unencumbered by tax, attribution rules and probate.


When the Federal government first rolled out the TFSA it did so by calling it the single most important personal savings vehicle since the Registered Retirement Savings Plan was introduced by the St Laurent government in 1957. While there is certainly cause for such a strong statement, it may in fact understate the importance of this plan to Canadians.


While contributions made to the TFSA are made with after-tax dollars, withdrawals are tax free and also create an equal amount of contribution room going forward. Withdrawals also do not affect income-tested benefits such as the Canada Child Tax Benefit, Old Age Security or the Guaranteed Income Supplement. The TFSA also provides a higher income spouse the opportunity to split income with a lower income earning spouse by contributing to their TFSA account without the fear of income attribution. Finally TFSA's now allow for estate planning as most jurisdictions have recently provided for the naming of a beneficiary to the plan thus saving the planholders estate from the burden of probate.


While not as social and therapeutic as spending, savings need to once again be engrained into the consciousness of Canadians thus protecting our pocket books and providing long term security to our households.



Fun tax Facts....


Tuscan Bread

"Centuries ago, when the Papal State dominated Tuscany, these rulers imposed an extremely high tax on salt. As a form of protest, Tuscan bakers began to make their bread without salt.

Gradually, the taste for bread made entirely without salt became widespread, and to this day, Tuscan bread is salt less".



Narrow Houses of Amsterdam

"The narrowest house in Amsterdam is approximately 180cm wide, which is actually less than the height of the average Dutch person. Historically, property in Amsterdam was taxed based on the width, which is why many houses are so narrow and deep".

Mansard Roof

"Property taxes were often levied on the number of rooms in a house, and therefore, rooms on the second and third floor were considered just as ratable as those on the ground floor. But if a mansard roof was constructed on the third floor, those rooms were considered to be part of an attic and not taxed".

Issue: 8
Financial Markets
In This Issue
Make saving, job no. 1
A penny earned is a penny saved
Fun tax Facts....
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The information provided is general in nature and is provided with the understanding that it may not be relied upon as, nor considered to be, the rendering of tax, legal, accounting, or professional advice. Readers should consult their own subject matter experts for advice on the specific circumstances before taking any action. Commissions, trailing commissions, management fees, and expenses may all be associated with mutual fund investments. Mutual funds are not guaranteed, their values frequently change and past performance may not be repeated. Please read your funds simplified prospectus before investing.

Peter Bailey
Worldsource Financial Management
272 Lawrence Avenue West, Suite 203
Toronto, Ontario M5M 4M1