If you are planning to use the equity in your home to access the money you need to produce income at retirement, now may be the time to downsize or at least secure a home equity line of credit.

The following article shows historical data for all major cities as well as three potential scenarios of what may be coming. On top of the article, you will find tabs to click on to view more information.

Click here for Globe&Mail article

As most of you know, the HST will take effect starting tomorrow (July 1st, 2010) in BC and Ontario.  The HST will replace the 8% provincial sales tax and 5% GST with a 13% HST in Ontario. and 12% in British Columbia.  HST will affect the prices of various goods and services in each province (even mutual fund fees are impacted).  Here are few links on the matter:

National Post summary of HST changes:

Comprehensive list of all affected goods and services by the Vancouver Sun

Here is a summary of the changes compiled by Dynamic Funds:

Mutual Fund Fees
Management fees and operating expenses associated with investment funds will be subject to HST.  As an example, a hypothethical fund with a management expense ratio (MER) of 2.31, a typical MER for a Canadian Equity Fund, will have a revised MER of 2.44.  This results in a MER increase of 0.13 percentage points. 

Impact on Purchases
Those items that have no sales tax on them, such as basic groceries, municipal transit and prescription drugs, will continue to be purchased tax-free. Other products will be eligible for a point-of-sale rebate for the provincial part of the HST. This means you will only pay the 5% federal portion of the HST (equivalent to the current GST). These include print newspapers, books, diapers, children’s clothing and footwear, children’s car seats and booster seats, feminine hygiene products and diapers.

Around the House
Many household expenses that currently are not subject to the PST will be included under the HST. These include: basic cable TV, local residential phone, landscaping, lawn care, private snow removal, home renovations, and home service calls by an electrician, plumber or carpenter.

In addition, for new construction home purchases, the government of British Columbia will offer a rebate of 71.43% of the provincial portion of the proposed HST on the first $525,000 of the purchase price. This will provide a rebate of up to $26,250 for new homes across all price ranges. Resale homes are not affected. You will also have to pay HST on real estate commissions. Home insurance and mortgage interest costs remain tax-free.

Travel
HST will now be charged on taxi trips, hotel rooms and any domestic air, rail and bus travel originating in British Columbia, effectively making many vacations 7% more expensive.

Sports and Health
Beginning July 1st, you will be charged HST on gym and athletic memberships, green fees for golf, sports and fi tness lessons (ballet, karate, hockey, soccer, etc.), as well as hockey rink and hall rentals.  Massage therapy and fitness training are also subject to the HST.

Professional services
Accounting, veterinarian and esthetic services currently subject to just the GST, will be HST-taxable on July 1st. Funeral services will likewise be charging HST. These can present considerable additional expenses.

Tax Relief
Many British Columbians will be receiving supplemental taxfree payments from the BC government in order to help the transition to the HST:
* Individuals with incomes up to $20,000 will receive a $230 HST credit.
* Families with incomes up to $25,000 will receive a $230 HST credit per family member.

Source: Dynamic Funds, British Columbia’s New HST: What does it mean for your personal finances?

Several factors suggest that housing demand will weaken noticeably according to this research. 

Housing.pdf

Several factors indicate that the demand for housing will weaken noticeably.  Read the report here.

Housing.pdf

For all the young readers out there, I spotted an article titled “The Case for Investing in your 20’s”, in the “Wealthy Boomer” blog of the Financial Post.  Being in this age bracket myself, it’s good to be reminded of the advantages of investing at a young age. 

For the average person in their 20’s, putting away money for retirement is not high on their priority list.  Only 29% of people between18-34 put money towards their RRSP, compared to the national average of 36%.  Although it’s understandable for someone who’s 30-40 years away from retirement to value a car purchase or that next trip to Europe over their savings plan, he/she should consider the following scenario:

Between the ages of 21-29, if you invest $2,000 a year (for a total of $18,000), assuming a pre-tax return of 8%, you would have $430,711 in savings by age 65.  If you were to start putting away $2,000 a year at age 30, you would need to invest nearly four times as much ($70,000) to reach the same figure by 65. 

It’s a simple time value of money calculation, but it highlights how much easier it is to start investing for retirement at an early age. 

From a March 20th Globe and Mail articled titled “Small-Cap Funds Soar in Early Stages of Recovery”, which highlights the one year return of some well known Canadian small-cap mutual funds. 

Small-Cap mutual funds, which focus on buying shares of smaller companies, have historically outperformed in the first year of a market recovery, and last year was no different.  The popular BMO small cap index has a 1yr return returned 87.6% compared to 47.6% for the TSX Canadian index. 

Small-cap companies tend to do well in early stages of recovery because of their presumed higher growth potential than larger companies.  Also, they do not have the widespread stock analyst coverage that larger companies have.  Fund managers have a better opportunity to uncover overlooked companies. 

There is a flip side to this of course.  Small-cap funds are more volatile than large-cap funds. Smaller companies have a harder time securing credit and offer less diversified revenue streams than larger companies. It should be mentioned that the BMO small-cap index fell 46.7% during the “great recession” of 2008, versus only 33% for the TSX. 

From an Article titled “Lifeplan: Upgrade your Portfolio”.  From the SmartMoney website, part of the Wall Street Journal Digital Network. 

This article goes over some of the fundamentals and latest trends related to portfolio construction, asset allocation, and fixed-income. 

Summary: 
-Although stocks and bonds remain the pillars of any portfolio, some investors look to add certain “alternative asset classes” to their portfolio.  These include commodities, infrastructure, income trusts, and precious metals through the purchase mutual funds. 
-The benefits of these classes of funds is they offer low correlation to equity funds.  They tend to do well when equity funds go down. .
-Young investors should still load up on equity funds, as high as 80% of their total portfolio
-Interest rates have nowhere to go but up and the simple rule of thumb with bonds is that when interest rates go up, bond prices go down.  Fixed-income fund investors should be paying attention to the average bond duration in the fund.  The shorter the duration, the less sensitive the fund will be to rate increases.  The corporate and real-return bond weighting is also important as these tend to perform better in a rising-rate or inflationary environment. 

Getting a tax refund?  Before spending it all, read my suggestions below. 

Not getting any refund or not enough of a refund?  Start a monthly RRSP now!  You now have 12 months ahead of you to make this happen.  It is so easy to save for a comfortable retirement and increase your chances of a refund next year.  Just let us know and we will prepare the required forms for when you pick up your tax return. 

Many of you will be getting a tax refund soon.  Before spending your refund remember that a refund isn’t a gift.  It is the return of an interest free loan you made to the Government for overpaid taxes.  Even if advisors like me tell you that the best tax refund is no refund at all, the truth is that it is for most, the best forced saving.  So, now when it comes back to you, think hard before spending frivolously.  Why not spend some and save the rest!

Here are some thoughts on how you can use the refund to better your financial position.

1. Begin or add to your emergency savings plan: If you don’t have a cash emergency fund set aside, put some of your tax refund in a high interest savings account like ING or Dundee savings.

2. Make a 2010 RRSP contribution: Get a head start toward your 2010 RRSP contribution. This way you will add to your retirement fund, have more to spend later in life and get a tax saving for next year!

3. Invest in a TFSA: You can add $5000 a year to a Tax-Free Savings Account.  You can save it short-term or invest it for wealth accumulation and retirement!

4. Add to your children’s RESP: And get the 20% government Grant! You know this will cost you a bundle and an education is the best investment!

5. Reduce the mortgage: Please remember however that with interest rates this low, you will likely be better off investing your refund. More on that in a future Blog post.  Stay tuned!

Every situation is unique, whenever in doubt, just call us. We will review your situation and help you make an appropriate decision!