Third quarter update.
We hope that you and your family had an excellent summer and have finally settled in to your Fall routine.
After a prolonged period of low volatility and steady growth, financial markets have become increasingly unsettled. While no one can predict how prices will move in the short term, there are a number of circumstances that remain supportive of markets, including low interest rates, strong corporate earnings, and a strengthening North American economy. For example, the U.S. economy grew at an impressive annual rate of 4.6% in the second quarter, and the unemployment rate fell below 6% in September for the first time since July 2008.
I believe the best way to weather market volatility is to take a longer-term view and remain invested in a diversified portfolio tailored to your individual objectives. This will be explored further in the below article, and a few 'lighter' pieces have been included in this month's newsletter as well.
Please feel free to give us a call to discuss your portfolio.
Peter, Claudio and Joanna
Five strategies for dealing with difficult markets
by CI Investments
When markets are volatile, it's natural to be worried about the impact on your portfolio. And when you're worried, you want to take action.
However, it's important to recognize that sometimes the best course of action may be to do nothing. If you have a sound investment plan, you already may be in the best possible position to weather the market storms
We realize that it can be painful and upsetting to watch the value of your investments experience a significant drop. To assist you in understanding market volatility and in protecting your portfolio, we present five strategies for dealing with difficult markets.
To read the rest of the article, please click here.
Challenges to a successful retirement
by Donna McCaw - September 2014, retirehappy.ca
Somewhere between 30 to 60 per cent of Canadians approaching retirement have some sort of a retirement plan depending on which study is quoted. This plan could be throwing some extra cash into an RRSP or TFSA, having an employer pension or a savings account that may not keep up with inflation even at these historically low rates. Having a retirement plan is very important and those who have them have more peace of mind than those who do not. However, a retirement plan alone does not begin to address the various aspects of a whole life retirement. The people I meet in my retirement workshops have shared many challenges to a successful retirement. They have told me about their bad experiences and lessons learned late. May their hindsight be your foresight.
About 40 per cent of people do not control the timing of their retirement. Some people fall victim to a health crisis, an economic down turn, or unexpected downsizing. As a result, some retirees stress about not having extra insurance to cover any costs of the health problem, the nightmare of Employment Insurance (E.I.), a lack of savings or living pay cheque to pay cheque. Any of these issues can create a stressful beginning to retirement!
Sometimes a "Take This Job and Shove It" moment escalates into early and unplanned retirement. An emotional over reaction, conflict at work, or a bad day can suddenly become a whole new retirement reality with no financial or psychological preparation. This can be a dangerous shock and a big change to negotiate without some sources of support and a back up alternative. I have met many folks who have had to cash in savings, extend mortgages, or dig themselves a big debt hole at a very bad time to do so.
As one fellow told me, 57 is no age to get on your high horse and expect to ride into another good job the next day. As he put it, he did not realize he was up the creek of early retirement without a paddle for awhile.
Lack of retirement vision
Just as a business needs a plan, retirement needs a vision. What is life going to look like for you and for your family? What assumptions are you making that may not be correct?
If you google retirement planning, you will find pages of sites on financial planning but very few that deal with lifestyle or whole life planning. Developing an image of what retirement looks like for you involves way more than the financial aspect alone.
Figure out what your retirement pay cheque will be and adjust your lifestyle accordingly or vice versa. That sounds simple and straightforward but few actually take the time to look at this and see how these two aspects will match.
Related article: Seven paycheques in retirement
Then figure out how to stay engaged, active, purposeful, healthy, and young at heart. Then get your ducks in a row for health care and fitness, insurance needs, an updated will, powers of attorney, estate planning, housing, travel, hobbies and interests, social support and connection, and have lots of reasons to get out of bed in the morning. Simple start, eh?
Retirement is not a distant Utopia or a rest of your life party or something that just sort of happens. It is real life that requires time, attention, some discipline, and vision to get the freedom and range of choices that you want.
More to come
Other challenges of retirement have to do with social isolation, ruptured relationships, addictions, identity issues, and living the dream without a hold on reality, and believing in magic like the gold at the end of the casino rainbow. More about those next time.
What challenges have you encountered along the yellow brick road of retirement?
View original article here
You're Not Raiding Your Retirement If You Use The Home Buyers' Plan (Unless You Are)
by Sandi Martin - September 2014, boomerandecho.com
From what I can tell, most of the arguments against using the Home Buyers' Plan are really arguments against buying a house you can't afford, or castigations of the government for incentivizing home ownership...because people are buying houses they can't afford.
Remember: reduced to its simplest parts, the Home Buyers' Plan allows you to withdraw $25,000 from your RRSPs to use as a down payment on your first home. You have 15 years to replace the money in your RRSP (doesn't have to be the same account, any RRSP will do), or else pay income tax on the portion you don't replace in any given year.
A short example of the Home Buyers' Plan:
Amy and Rory each withdrew $25,000 from their respective RRSPs to buy a house together. This year, both will deposit $5,000 to their RRSPs, but Amy has decided to designate $1,667 of her deposit as her annual Home Buyers' Plan repayment - meaning it won't be deducted from her taxable income that year - and claims the remaining $3,333 of her deposit as a tax-deductible contribution.
Rory has decided that he will claim his entire $5,000 as a contribution, which means that $1,667- 1/15th of the $25,000 he originally withdrew - is added to his taxable income for the year.
The most common arguments against using the Home Buyers' Plan found in newspaper columns, blogs, and subreddits across the country go like so:
1. $25,000 isn't enough of a down payment, so the program is outdated.
Well, sure it's not...if you're buying in one of the big cities, or paying the average price of $398,000 or so. You know you can save up more than the $25,000 withdrawal limit outside of your RRSP, right?
And just because some of your savings are with pre-tax dollars and some are with after-tax dollars, does the fact of your after-tax savings existence negate the benefit of your pre-tax savings? Not really.
You also know that you can spend less than the average, right? $25,000 is a 20% down payment on a $150,000 home. $50,000 is a 20% down payment on a $250,000 home. We're talking about sums of money that can still go a long way in small-town Canada.
2. You have to pay it back over fifteen years or else add 1/15th of it to your income any year you don't, so it's just another debt.
Let's say you decline to pay back your 1/15th this year, and you make $90,000 a year. Your tax bill will go up by $724. I want to be really, really clear about this: If a) you can't afford to save $1,667, or b) pay an extra $724 in income taxes because you bought a house the problem is emphatically not that you used the Home Buyers' Plan. The problem is that you bought too much house or are spending too much money.
3. You will be robbing your retirement to buy a house.
Look, we rob our retirements to buy a lot of things. Just because the "robbing" doesn't always take the form of an RRSP withdrawal, it doesn't make it any less true.
Money diverted from long-term goals is money diverted from long-term goals whether it's taken from our RRSPs, our TFSAs, or from under our mattresses, whether we use it to buy a house, a new iPhone, or a series of piddling little purchases we can't even remember.
If you can really, truly afford to buy a house, and have been ruthlessly realistic about the amount of house you can afford while still saving appropriately for retirement, using your RRSP to defer income taxes on your down payment is a smart thing to do.
View original article here.
Initiative Signals New Era of Investor Disclosure
by The Investment Funds Institute of Canada
New regulations promote simpler, clearer information for mutual funds investors
A new era of investor disclosure has begun with the first set of rules coming into effect today that make it easier for Canadians to understand their investments.
"These new rules are putting us firmly ahead of the rest of the world in providing clear information to mutual funds investors," said Joanne De Laurentiis, president and CEO of The Investment Funds Institute of Canada (IFIC). "The industry is embracing these changes and collaborating to ensure their smooth implementation. Canada's regulators and the industry should take pride in what we are working to accomplish."
The changes that take effect today involve providing a clear description of benchmarks and disclosing fees before trades are made. By 2016, investors will receive statements showing, in dollar amounts, the costs associated with each of their products. On the performance side, investors will see how well their investments have performed in dollar terms since they started to invest and their percentage rate of return over several time periods.
The new rules, dubbed "CRM2", are the culmination of a journey that began in 1995 with the Stromberg report, leading to a series of regulatory improvements over time in a wide range of areas. Disclosure practices have developed over time, as the industry and its products have evolved along with our understanding of investors' information needs.
"CRM2 will lead to more informed investors, which will result in better conversations between investors and advisors," noted IFIC's second vice-chair John Adams, CEO, PFSL Investments Canada. "Informed investors are more committed to saving, resulting in a much improved financial future for themselves and their families. This supports the industry's vision to help Canadians plan and save for a secure retirement."
According to recent research, 94% of mutual funds investors indicate they trust their advisor to give them sound advice. Those working with an advisor are twice as likely to save regularly for retirement.
The successful implementation of CRM2 will help investors understand the value they get from their advisors. Having a financial advisor contributes positively and significantly to the accumulation of financial wealth. Households receiving financial advice for at least four years accumulate more than 1.5 times more assets than those who do not have an advisor, after all costs have been taken into account. After 15 years or more, households accumulate more than 2.7 times more assets, compared to those that do not have an advisor.
"It is important to investors and to the industry that CRM2 be implemented effectively, to empower investors through better information and education," De Laurentiis stated. "That is why the industry is actively seeking ways to create a new era in investor information by delivering on the spirit of the new rules."
View original article here.
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