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A relaxing summer.. continued.
Greetings!
Many of us are finally in the full swing of long Summer days, so this month's articles will be a continuation of last month's theme: keeping a passive, yet still involved, eye on your finances.
Feel free to give us a call to discuss your portfolio.
Be well.
Regards,
Peter, Claudio and Joanna
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A Simple Way to Boost Your Retirement Savings
by Robb Engen - July 2014, boomerandecho.ca
One of the core tenets of financial planning is to pay yourself first. Automating your savings is a painless way to save for retirement and, in all likelihood, you'll barely notice that you're living on less.
Most experts suggest putting away 10 percent of your income for retirement, but that number might seem out of reach for many Canadians today. The key to developing good savings habits, however, is that you need to start somewhere.
That's why I suggest setting aside what you can afford, be it three or five percent of your income, and try to increase that amount every year.
Small changes lead to big improvements
Before we had kids I used to go to the gym at least three or four times a week to lift weights. After our first child was born, I stopped going to the gym and never got back into the groove.
Now that I have a bit more free time, I started working out at home. My strength was nowhere near what it was five years ago, but I knew I had to start somewhere. I could barely do 10 push-ups, but I kept at it every day, eventually working up to three sets of 30.
Take the same approach with your retirement savings. If the thought of saving 10 percent of your income seems like such a daunting task that it's preventing you from getting started, tone it down and start with a smaller amount, increasing it over time.
Most retirement calculators assume that you save a fixed amount every year and that number doesn't grow with inflation.
According to Talbot Stevens, author of The Smart Debt Coach, inflating a monthly savings plan by two or three percent a year might not sound like much, but it's a truly painless way to make a meaningful increase in the size of your retirement fund.
John is 25 and earns $50,000 per year. He decides he can afford to save $250 per month ($3,000 per year) toward retirement - that's six percent of his income.
The conventional "pay-yourself-first" approach doesn't assume any increase in that amount over time, and so after 40 years of saving $3,000 per year John will have $480,000 saved for retirement. Not bad.
How much would John have if he simply increased his savings rate with inflation? An annual increase of just two percent would mean an additional $145,000 at retirement - or $625,000.
"As this example shows, big improvements come from small changes applied consistently over time," said Stevens.
Will John miss the additional $60 or so that gets funneled into his retirement savings every year? Not likely.
Final thoughts
In his book, Stevens explains that one of the big challenges to saving for retirement is that if the task seems too difficult in any way - too much of a sacrifice, too complicated, or too much effort - many people throw up their hands and don't even try.
I know that if my goal was to do 100 push-ups a day, I would have given up after the first day. I had to start small and build my strength back up over time.
That's why, while it's important to start the habit of savings, it's much easier to start small and increase slowly.
Do you try and increase your savings rate every year, matching it with your salary increase or otherwise?
View original article here.
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How to Tell an Investment is Too Risky for You
by Miranda - July 2014, financialhighway.com
When you invest, you have to be prepared for risks. Every investment comes with risk. However, that doesn't mean that you should ignore risks and invest anyway. It's important to understand what is too risky for you, and what you can do to mitigate your risks while still earning an acceptable return.
Understand Your Risk Tolerance
First of all, it's important to understand your risk tolerance. You need to take a look at your financial situation, your life situation, and other factors. Can you handle a riskier asset allocation? What are your goals now and for the future?
Take a look at where you are at, and where you want to be. Think about what you can afford to lose - and what you can't. It's important to invest if you want to get ahead, but you don't want to get in over your head.
Get a clear idea of your risk tolerance right now. If you aren't sure about how to figure your risk tolerance, consider consulting with a financial professional. A reputable, fee-based financial professional can help you create a risk profile that you can use as a guide as you choose assets for your portfolio.
Signs an Investment is Too Risky for You
Once you have your risk profile squared away, it's time to start investing. When building your portfolio, it's important to be on the watch for signs that an investment is too risky for you. Here are some things to consider:
- A loss will financially impact you: How much of an impact will you experience from a loss? Are you stretching your finances to make your investment? It's one thing to set aside $400 a month in an index fund. If you can afford that $400 a month, you will probably be ok long term. However, if you are stretching to scrape together $1,000 for an "opportunity," you could be in trouble. What happens if it doesn't pay out and you lose that $1,000? How would your finances be impacted?
- The asset's volatility is very high: Do you find yourself checking for daily updates on your investment? Does that asset's price shift around a lot? If you look at the history of the asset, is there a lot of very wide price swings? If that is the case, and you worry about the volatility, the investment is probably to risky for you. Some investors can handle the price swings. They have enough money to handle the losses, and they don't panic at wide swings in price. If you aren't like this, stay away from the investment.
- You need stable income: At some point in your financial lifecycle, you will need stable income. As you approach retirement, some investments are too risky. You might lose capital that you need to sustain your income during retirement. This is more of a life situation factor than anything else. If you need a stable income, and the investment can't offer that, you might be looking at something too risky for you at this stage in your life.
- You have to borrow to make it work: Many investors find great success by investing on margin. Basically, they borrow money and make a big play, hoping that it will pay off enough to overcome the interest charges. If you have to borrow to make it work, though, the investment might be too risky for you - especially if you can't afford the outcome if you lose. Just as gains are magnified when you invest on margin, the losses are magnified as well. If you don't have the assets to deal with that kind of loss, a margin investment is too risky for you.
For most investors, it's more about creating a long-term plan that relies on consistency. If you invest in an index fund regularly over the course of 30 years, you are likely to come out ahead. The index fund reduces your exposure to volatility and risk, while still providing a reasonable return over time. Dollar cost averaging is a great strategy for many investors, and it can help ensure that you build your nest egg over time without getting in too deep with risk.
Before you decide to invest, make sure you understand the amount of risk you can handle, and make a plan for getting in too deep.
View original article here.
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Save Money this Summer
by The Perspective, Summer 2014
Canada is a country of extremes, from a high of 5959 metres (Mount Logan in the Yukon) above sea level to a low of sea level Canada spans roughly 9,984,670 square kilometers. Over such a diverse landscape that has its northern most point on Ellesmere Island in Nunavut and its southernmost, on Middle Island in Lake Erie, it should be expected that Canadians are accustomed to diverse weather. And we are, as our climate varies from temperate on the west coast of British Columbia to subarctic in the north. In fact while parts of northern Canada have snow for most of the year non-coastal Canada tends to have a continental climate, not to mention the summer humidity experienced in Southern Ontario. Meanwhile parts of Western Canada have a semi-arid climate and arguably Vancouver Island has Mediterranean-esque weather.
With such environmental diversity it is not entirely unexpected that Canadians would be used to extreme weather. However, there is extreme weather and then there is the record setting $3.2 Billion in weather related insurance claims that the Insurance Bureau of Canada has stated was covered in 2013. If you don't remember, it was 2013 that saw Albertans engulfed in floods in June, followed by the wild July storms in Ontario and the ice storm that hit Ontario and Eastern Canada over the Christmas holidays.
Despite these recent chaotic weather patterns there are opportunities to save money this summer from both a lifestyle perspective as well as from a tax perspective. This summer you may want to:
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Grow your own food - Growing your own food can really cut down on grocery bills
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Turn off the air conditioning or program it to be cooler only when you are home
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Cook outside - Keep the heat generated by your stove outside
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Dry your laundry outside- the suns rays are free
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Replace your air conditioner filters
Summer Tax Savings
There are two federal government programs that allow parents to meet the hefty price of summer fun. These programs come in the form of the Children's Fitness and the Children's Art Tax Credits. Both of these programs allow for a non-refundable federal tax credit of up to $500 per child for those who were under 16 at the beginning of the year.
The Children's Fitness Tax Credit has been available since 2007 and allows parents to realize tax savings of up to $75 per child for programs that are at least eight weeks long or five consecutive days.
The Children's Art Tax Credit has only been available since 2011. Similar to the fitness credit, it also allows parents to realize tax savings of up to $75 per child for programs that most would typically classify as arts related, such as drama, music, design or dance.
Although these tax credits provide some relief to the added cost of summer, more lucrative tax deductions are also available to those parents who have not exceeded the maximum child care deductions of $7,000/year/child under the age of seven and $4,000/year/child age seven to 15. The tax savings associated with these deductions are claimed by the lower earning spouse and as a result are dependent on that individual's tax bracket. These savings can be significant and can allow parents to claim deductions on camp fees of up to $175 per week for children under the age of seven and $100 per week for kids age seven to 15.
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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.
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