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!

One of my 27 year old clients said to me today: “I could have made an extra RRSP contribution before the deadline but I didn’t because, I don’t care....really, I’m serious, I really don’t care!”

For all of you 27 years old out there, let me just say that it is totally normal or ok to not care at this time in your life but I can guarantee that you will care later when you get to 60.  So, I thought I would design an “I don’t care plan” for you!  This plan is simply a way for the young and carefree individuals to make things happen automatically without having to talk about it, think about it or even care about it!

Here is the “I don’t care plan” that I prepared for her.  After factoring her employer Group RRSP contributions, her retirement income need based on current income plus inflation, I figured that she would need a retirement fund of about $875k at age 60.  Based on an 8% rate of return, she will need to save an extra $1600 per year. Yep!  That’s all.  Can you imagine having to save only $1600 per year??  If she waits to age 50, she will have to save a whooping $27,000 a year!!! Ouch!  That is a lot of pub nights!

If she ask s her employer to increase her RRSP contribution by $66 per pay, the net difference on her paycheque will only be $46 (she is in a 30% tax bracket). 

$4000 a year seems like a lot but if you work out the numbers, look at your situation and divide the figure per pay cheque, $46 is a lot more manageable! The best part is that you won’t have to give up a lot of pub nights, think about it, talk about it or even “care about it”!!

She looked at me, smiled and said, I can do that!  I think she liked her new “I don’t care plan”.  She left my office after signing the form to adjust her Group RRSP plan, smiling and went straight to the pub!

Peter Lynch, legendary investor, believes that in the next ten years, active fund managers will produce a better return than index funds and ETFs

The full story here

Canadians are fortunate to enjoy one of the best lifestyles in the world.  The comfort and luxuries we are accustomed to are the envy of many other societies.

A new client came in for a meeting.  I asked her, “ what is the most important financial issue on your mind currently “ .  She answered jokingly:  “I am here to ensure that I don’t become one of those Wal-Mart greeters in retirement”. 

Not that there is anything wrong with being a Wal-Mart greeter but there is a big difference between having to be and wanting to be a greeter.  This may seem an extreme scenario but really, could this be the reality of some? 

To preserve your lifestyle, you need to plan and most importantly, save enough and early enough.  Many recent studies clearly show that Canadians do not save enough.  Most will need to continue working well past their 60s and will even see their lifestyle drop when the paycheques stops. The amount of money required to fund one’s lifestyle for 20, 30 and even sometimes 40 years, will be, for most, over $1million.  It takes time and discipline to achieve this.

Saving adequately and investing wisely is required to preserve lifestyle.  If it weren’t for inflation, cash and bonds would be all you need. But even with modest inflation of 3% a year, your buying power would be cut in half in about 25 years, so you need to invest for future growth, too. We all have to turn to equities to provide the inflation protection we need for that lengt h of time.

Invest consistently to ensure that your nest egg grow with your lifestyle!  For most, an RRSP is the best place to save for retirement.  Make your contribution by March 1st 2010!

RRSP loan rates are the most inexpensive I have seen in years.  Our best rate is 2.75% for a one year loan.  Even 3, 5 and 10 years loans are low.  Does it make sense to borrow to make an RRSP?  Well it depends on your personal circumstances.

Generally speaking if the rate of return exceeds the loan rate it is a good idea.  With markets in recovery mode, it could not be a better time to invest also, for the long-term.  You also have to consider your cash flow however.  Make sure the payments are affordable and that your income is secure.

If you have a debt that you are trying to repay at a higher interest charge, you could use any refund to reduce it or pay it off!  You would have effectively used Canada Revenues’ money to reduce your debt!! I like that!!

Otherwise you could use the resulting refund to reduce the RRSP loan or apply it to your mortgage or use it for an extra RRSP counting for next year! 

Just contact us to assess your personal situation! 

Find out how much of your charity dollars goes to administration click to read

Canadians largely unaware of market rally click to read

Reading “The BRIC countries are Rich, But Poor” click to read

Reading “Jeff Rubin: Riding Hard and Fast on Energy” click to read

Are you a moving target?: How to avoid falling for an unscrupulous mover. http://bit.ly/5P5jxh

Bank of Canada keeps rate at 0.25%: Mark Carney stays true to promise and keeps interest rates low. click to read
Enjoy your week!

From a November 28th, 2009 Financial Post article titled “Now is No Time to Learn Pitfalls of Bond Market”. 

Article Summary:
-Lisa Myers, lead manager of Templeton’s flagship Templeton Growth Fund warns that now is not the time to increase your bond weighting. 
-Interest rates are at all-time lows and have nowhere to go but up
-There is an inverse relationship between interest rates and bonds
-The past 30 years have been favorable for bonds as interest rates have mostly fallen, therefore bond prices rose.
-Balanced fund managers are reducing their weighting in longer-term bonds to mitigate this interest rate risk.

Comments:
-As explained in the article, bonds have negative relationship with interest rates.  Given where we are with interest rates, it is understandable to have a weary outlook for bonds moving forward. 
-There have been a lot of articles written about inflationary concerns and what will happen once interest rates start rising again.  This is partly why gold has risen to record levels, due to its strong correlation with inflation. 
-Certain fund managers are starting to recommend real-return bonds (where the rate of return is adjusted for inflation) as a good fixed-income solution to a possible rising interest rate / inflationary growth environment.
-Fund managers are still pointing to the favorable yield spread between corporate bonds over government bonds.  Corporate bonds tend to be less sensitive to interest rate changes than government bonds.
-For those looking for higher yielding income solutions, in the past year, CI Investments, Mackenzie, and Dynamic Funds have all introduced some type of “Strategic or Diversified Income Fund”.  The objective of these funds is to seek income from the most attractive opportunities in corporate bonds, income trusts, infrastructure, and high-yield equities.  As market conditions change, managers have the flexibility to move in and out of these assets as they see fit. 

The link below provides 5-minute outlook on bonds given by John Braive, Vice-Chairman CIBC Global Asset Management in November 2009.  He goes over a lot of the issues discussed above.

Bond Outlook

The Investment Fund Institute of Canada reported that the return of billions of parked investment dollars continued last month as long-term mutual fund mandates experienced another strong month of net sales. The total mutual fund assets grew by $4.3 billion during the month of September to a total of $582.7 billion.

Investor money is coming back to long-term fund assets.  Investors are buying overwhelmingly balanced funds or fund-of-fund mandates. So, they are playing safe but they do take the action to move from low yielding cash to investments.

This recovery is a strong one. Don’t miss the boat if you have not taken action yet.  Make your investment now!