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Monday, April 23, 2018

Tax Free Savings Account


Now that RRSP season is officially over, I want to write about the Tax-Free Savings Account (TFSA).  This account is one topic that I discuss with pretty much everyone I meet, as it can have a huge financial impact especially at retirement.  Unfortunately, some investors are not aware how to maximize the tax savings potential.  I will explain this in a moment, but first I want to explain how a TFSA works.

When you contribute to a TFSA it differs from a RRSP as you do not receive a tax receipt for the contribution, you do not claim it on your taxes, and you do not get a tax refund.  The money initially invested is with after tax dollars (no tax savings there).  The tax savings is in the growth.  

Below, you will find a quick comparison chart between RRSP and TFSA:


TFSAs



RRSPs

Contributions



Not tax-deductible

Tax Deductible

Withdrawals
Tax-free - Withdrawals are added to contribution room effective the following year
Taxed – Withdrawals are not added to contribution room

Earned Income Requirement for Contribution Room



Contribution room is not based on earned income.

Contribution room is based on earned income.

Age Requirement for Conversion/Collapse

There are no conversion requirements for TFSAs.
A RRSP must be converted to a Registered Retirement Income Fund (RRIF) or annuity at age 71.

Any withdrawals from a TFSA will not only be tax-free but will also not interfere with any government income-tested benefits and credits you may be receiving. 
In order to maximize the tax savings, you should:
  • invest this account to achieve the most growth
  • and you should also give it time for the growth to accumulate. 
 Source:  getsmarteraboutyourmoney.ca

Above you will find TFSA illustration of an initial contribution if $5,500.00 plus your yearly contribution of $5,500.00 earning an annualized interest rate of 5%.  The result will be a TFSA worth $199,031.57 after 20 years! The growth on this investment is $83,531.57
Alternatively, an investment earning 1% per year would be worth $127,875.87 with growth of $12,375.87.

If you don’t have a TFSA now, then open one and start contributing today.  Don’t put it off because you feel you don’t have a large amount of money to invest.  Set up an automatic contribution either monthly or per pay period, and it will surprise you how it will build up over time.  Trust me, you’ll be glad you did!

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Gilda Saunders is a Certified Financial Planner professional at Credential Financial Strategies Inc.  She can be located at:
2 Herald Ave. Millbrook Mall
Corner Brook, NL A2H 4B5  
 709-634-0405
709-632-9427 


Credential Financial Strategies Inc. offers financial planning, life insurance and investments to members of credit unions and their communities. Mutual funds are offered through Credential Asset Management Inc. The information contained in this report was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This report is provided as a general source of information and should not be considered personal advice or a solicitation to buy or sell any mutual funds. Please speak to your Credential Financial Strategies Representative or personal financial representative before making any financial planning decision or implementing any strategy.

Friday, February 16, 2018

Market Volatility


For long-term investors, investing in the stock market provides a rollercoaster of emotions in which the ride is not always smooth.  Market corrections are a normal occurrence but are not easy to predict.  The important thing is to recognize when it occurs and to try not to let it dictate how you respond. 

As mentioned in my last blog, having a trusted advisor helps investors through these times and will keep you focused on the long-term growth potential of the investment not the short-term fluctuations.  Investors that don’t have guidance allow emotions to dictate how they invest.  When markets are strong and portfolio returns are high, it’s easy to jump in and sometimes take on more risk than you really should.  When markets are correcting, the fear kicks in sometimes resulting in decisions to sell these investments at a loss.  So, the end result in this instance is buying high and selling low which is opposite to the optimal scenario which is to buy low and sell high. 

Watching markets go up and down can be trying at the best of times… However if you stay focused on the long term, you will be rewarded, for example a $10,000 investment at the end of October 1998 would translate into $41,483, or an annualized return of 7.7% at the end of December 2017.*

                       
Weekly results from the S&P/TSX Composite Total Return Index. Sources: Bloomberg, Morningstar Direct and AGF Investments Inc. Data to December 31, 2017. The information provided is for illustrative purposes only and is not meant to provide investment advice. You cannot invest directly in an index.
* Annualized return for S&P/TSX Composite Total Return Index. Source: Morningstar Direct. Data to December 31, 2017. This information is for illustrative purposes only. Past returns are not indicative of future results.


I’ve included a diagram below which shows the length of bull vs bear markets.  For the novice investor; according to Investopedia, the use of "bull" and "bear" to describe markets comes from the way the animals attack their opponents. A bull thrusts its horns up into the air, while a bear swipes its paws downward. These actions are metaphors for the movement of a market. If the trend is up, it's a bull market, while downward trends indicate a “bear market”.  If you notice in this diagram, the bull markets are much longer and stronger then bear markets. 



 
When markets are turbulent, temptation to move to cash is on the back of some investor’s minds.  However, perfect timing is pretty much impossible to pinpoint; when to go to cash, and most importantly when to get back in.   Generally, when the markets have had a correction the rebound thereafter can be significant.  So, if you’ve made the decision to come out of the market, it will be likely that you would miss out on the best weeks.  Below you will see the cost of missing out on just a few of the best weeks in the market, vs staying invested. 



 
Keep this in mind as this volatility continues (or not), stay calm and ride the Bear.  The Bull will also be down the road, and you don’t want to miss out on that!  Remember investing is a marathon not a sprint. 


 

 *   *   *   *   *    *   *   *  *   *   *

 

Gilda Saunders is a Certified Financial Planner with Credential Financial Strategies Inc.  She can be located at:

2 Herald Ave. Millbrook Mall
Corner Brook, NL A2H 4B5  

709-634-0405
709-632-9427 

                                                                gsaunders@credential.com


 

Credential Financial Strategies Inc. offers financial planning, life insurance and investments to members of credit unions and their communities. Mutual funds are offered through Credential Asset Management Inc. The information contained in this report was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This report is provided as a general source of information and should not be considered personal advice or a solicitation to buy or sell any mutual funds. Please speak to your Credential Financial Strategies Representative or personal financial representative before making any financial planning decision or implementing any strategy.

 




Monday, January 22, 2018

Welcome to 2018

Happy New Year!

Now the new year is finally here, many now have New Year’s Resolutions.  Could be joining the gym, eating differently, spending more time with family & friends.  One resolution that should be on your list, is to be more aware of your financial health.  Seeking a Certified Financial Planner (CFP) to help with investing, managing taxes, and protecting your family would certainly be worth your time.  A Financial Planner can help prevent you from being blindsided by risks, avoid making big mistakes, help you understand your options and confront realities about your financial situation. 

 source: Fidelity Investments

Below you will find three ways a Financial Planner can add value:
1.       Investment guidance
Seems like the markets are constantly in the news.  The decision to invest becomes easy when the headlines scream of record highs.  However, the majority of investors underperform the stock market’s performance, largely because of poor timing.  When markets are high, greed kicks in and investors tend to go “all in” sometimes taking risks they would not normally take.  Alternatively, when markets turn volatile, fear kicks in resulting in investors selling their investments.  Having an experienced Financial Planner will not only help you place your money in investments that match your objectives and risk tolerance, but also helps keep you focused during market volatility.

 2.       Navigating the tax rules

Today more then ever, there seems to be so many Financial Acronyms; RSP, RIF, LIRA, LIF, TFSA, RDSP, RESP just to name a few.  Each of these accounts have different objectives, and are subject to different tax rules and regulations.  A Financial Planner can help navigate you through this alphabet soup, and give you direction on which of these account types would best suit your individual situation.  Having a strategy to invest your money and how to manage the withdrawals can potentially reduce the taxes you have to pay overall. 
3.       Financial Planning for life

Having a Financial Planner can not only create a plan to look at your investments, but also to ensure that you and your family are protected against unexpected events.  Health issues are a common cause of disability and/or early retirement.  Not having protection can derail any plans you have in place, and could cause financial devastation.  According to the Canadian Life & Health Insurance Association Inc. (CLHIA), 1 in 3 employees on average will be disabled for 90 days or more at least once before age 65.   Making sure the appropriate measures are in place for whatever curveball life throws at you will help protect you and your loved ones from financial uncertainty.
Remember, you are responsible for your and your family’s financial well-being.  Do not procrastinate!  The important thing is to take that first step, and before you know it you’ll be on your way to financial freedom.

Gilda Saunders is a CFP with Credential Financial Strategies Inc.  She can be located at:

2 Herald Ave. Millbrook Mall
Corner Brook, NL A2H 4B5

709-634-0405
709-632-9427

gsaunders@credential.com

 
The information contained in this article was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This article is provided as a general source of information and should not be considered personal advice. Please speak to your Credential Financial Strategies Representative or personal financial representative before making any financial planning decision or implementing any strategy. Credential Financial Strategies Inc. offers financial planning, life insurance and investments to members of credit unions and their communities