November 2013
Looking ahead.




As we move through November, we are reminded that the year is coming to an end. Now is generally the time that many of us begin to reflect on the past year and all that we have accomplished so far, and what we hope to accomplish in the future. This month's collection of articles were gathered to help you keep your goals in line until we hit year-end.


Give us a call or send us an email to book your portfolio review. Now would be the perfect time, as we begin to prep our finances for a new year.


Be well.



Peter, Richard, Claudio and Joanna

Do Budgets Allow for Overspending?

by Marie Engen - October 2013,


Preparing a budget is a very basic element in a financially ordered life.  It enables you to monitor your spending and become more conscious of where your money goes.


But a survey done jointly by Brigham Young University and Emory Business School surprisingly found that consumers with a budgeted amount for goods are likely to purposely spend an amount close to their limit instead of exploring cheaper options that offer a better value.


When I worked as a manager of administration I had an annual budget amount for various expenses.  If I didn't use the entire amount budgeted, it was reduced in the following year, and so it was always spent to avoid that.


I didn't think that people viewed their own personal budgets in the same way. You can always re-adjust budget categories, carry unused portions forward, or add to your savings - they are a lot more flexible.


Price vs. value

The survey found that budgeting could actually increase a consumer's preference for higher priced items, which were perceived to have a higher value.

One respondent said: "Once you get to the store and see the options, you usually end up buying the higher priced product because you want to get the best value for your dollar."


Do you think that the higher the price, the better the value?  It's not necessarily true.


Practice conscious spending

It doesn't matter whether you have a strict budget with set amounts for each category, or have a more "loose" budget - as I do, spend your money on the things you truly care about, want, and need, and then look for deals and discounts to lower your costs.


Determine the most important characteristics of what you want to buy, and then choose the option with the lowest price point that matches your needs.


For example, if you're purchasing an appliance, consider the features that you need, do research and check consumer reports, then, when you've narrowed it down you can look for the lowest price.  With you needs and price point firmly in mind you won't be tempted by non-essential features - no matter how cool they seem to be when the salesperson gushes over them.


Sometimes the cheapest option is the best choice.  Other times you'll regret it when you have to replace the item too soon, or it's otherwise not suitable.

If a name brand food item tastes better to your family, there's no use in buying an off-brand they won't eat.



Budgets are helpful, but only if they are realistic and tailored to your situation.

Setting a certain budget amount for your purchases is only a guideline, not a free pass to overspend.


Conscious spending plus a realistic budget go together.


View original article here.

How Much Do You Need to Retire? The Rule of 20

by Tom Drake - October 2013,


Retirement rules of thumb are all about trying to help you determine a sensible rate of withdrawal from your account, as well as helping you figure out how much money you need to set aside now so that you can enjoy a successful and comfortable retirement later.


While the 4% rule has become a standard quick calculation for retirement planning, there is a new rule that is similar: The Rule of 20. A recent Money Talk on BNN featured Irshaad Ahmad, President & Managing Director of Russell Investments Canada, on the show to discuss this new calculation.


What is The Rule of 20?

The Rule of 20 states that for every $1 of retirement income you want, you will need $20 saved in your retirement portfolio. At first glance, I thought this might just be a "5% rule". The extra percentage point is likely due to the fact that this rule already accounts for inflation, where the 4% rule only addresses the first year, and then adjusts each year for inflation. Also, The Rule of 20 states that you only need $20 in savings for every $1 of annual retirement income; no where does it say you should withdraw 5% each year. So the end result is likely similar to the results you see with the 4% figure. It's just as a simpler calculation for determining your retirement needs.


Something to Keep in Mind with The Rule of 20

Just as with the 4% rule, one key thing to keep in mind is that CPP and OAS will cover a substantial portion of most Canadians' retirement income. So if your goal is a annual retirement income of $50,000 for you and your spouse, the CPP and OAS payments will get you half way there since you can expect $25,000 for the average retired couple.


Since you have CPP and OAS to help you out, the amount that you actually have to base your retirement savings on (in our scenario) is $25,000 per year. Using The Rule of 20, you calculate that you will need a retirement portfolio of $500,000 in order to retire comfortably.


This amount is hard to compare to the 4% rule calculation since the portfolio has to be larger to allow the same dollar amount to be withdrawn. Let's look at the comparison another way. Using the 4% rule for $500,000 in savings, you would withdraw only $20,000 in the first year and then increase for inflation each year going forward.


This means that, with the 4% rule, you are withdrawing $5,000 less the first year. By the time you add the $25,000 for OAS and CPP to the $20,000, you only end up with $45,000 a year in income. You either need to adjust your withdrawal, or become used to the idea of dipping into your capital more than you had expected.


How Should You Calculate Your Retirement Planning?

Whichever calculation you decide to use, remember that it is just a quick method to plan your retirement. Neither rule can properly account for market volatility or personal factors such as your plans for travel or leaving an estate to your loved ones.


With retirement planning, it makes sense to thoroughly consider your options, and make your plans accordingly. Rules of thumb can help you, but you shouldn't become a slave to them.


View original article here.

The End is Near, Invest with Caution

by Jim Yih - November 2013,


When I refer to the 'end is near', I am not referring to the end of the world or the bull market (as markets display extreme volatility). Rather, I am referring to the end of the calendar year.


As we approach the end of the year, it may be prudent to invest into mutual funds with caution. December is an important month for mutual funds because it is the month when many funds make their annual distributions.


All mutual funds are required to distribute the realized gains and profits of the fund before the end of the year. If you are a shareholder of a mutual fund outside the RRSP or a TFSA on the date that this distribution of profits is issued, you will have to pay tax on the profits. If you bought the fund late in the year, you will have to pay tax on the entire year's distribution even though you only owned the fund for a short period of time. Purchasing the fund after the distribution will defer any taxes into the following tax year.


Not all funds have big year end distributions

The story is not that you should avoid making any investment decisions before the end of the year. Rather, the story is to be aware that some funds can have significant distributions (especially in years with strong growth) and these are the ones to avoid purchasing until the new year.


Some funds can have very significant distributions, while others have little to no distributions. Every fund has different distributions depending on a couple of factors. Firstly, distributions can result from funds that trade actively. Active trading may be a good investment strategy but it is not always a very good tax deferral strategy. Secondly, distributions are more likely to occur in funds that have had success in choosing winning stocks. When stocks are sold for big profits, the good news is you have great returns. Unfortunately, the bad news is you will have to pay tax on those profits. Investors are usually drawn to these funds with great performance.


If you are looking to invest before year end and you do not want to delay the investment, look for funds that have low distributions, low activity, issue distributions more frequently (like monthly or quarterly) or are new.


Mutual Fund companies can estimate the distribution

Usually at this time, the mutual fund companies are trying to get a grasp of the timing and amounts of the distribution. These calculations are only estimates and are subject to change before the end of the year.


As an example, let's say you had $1000 invested in XYZ Mutual Fund which is going to have a distribution of $0.11 per share.  That means 11% or $110 would be taxed as income at your current marginal tax rate. Remember that the $110 of income may be capital gains, dividends or interest and that each of these have different tax implications.  The mutual fund company will issue a tax receipt showing the taxable amounts for the year and investors will have to add this income to their tax returns.


For investors who bought these funds late in the year, they have to pay tax on the whole about but will have a higher Adjusted cost base as a result which means they will pay less tax later when they sell the investment.  I know this can be confusing but tax has never been an easily understood topic so seek tax advice if needed.


Caution with GICs too

Avoiding year end investing into mutual funds might also apply to investing in interest bearing investments like GICs (outside the RRSP).


If you buy a GIC on December 15, 2013 you will have to report the interest in the 2013 tax year because the interest is generated on the anniversary of the GIC. If, on the other hand, you purchased that same GIC in the new year on January 1, 2014, you will not have to report the interest until the 2015 tax year, thus deferring the tax on interest by a full year.


Combine all this information with tax loss selling strategies and you have a lot of confusion. If this stuff makes your head spin, consult your financial advisor or accountant for help.


View original article here.

Issue: 36
Financial Markets
In This Issue
Do Budgets Allow for Overspending?
How Much Do You Need to Retire? The Rule of 20
The End is Near, Invest with Caution

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

The information provided is for general information purposes only and is based on the perspectives and opinions of the owners and writers. The information 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. Some of the information provided has been obtained from sources, which we believe to be reliable, however,  we cannot guarantee its accuracy or completeness. Worldsource Financial Management Inc. does not assume any liability for any inaccuracies in the information provided.Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Mutual Funds and Segregated Funds provided by the Fund Companies are offered through Worldsource Financial Management Inc. Other products and services are offered through Peter Bailey.