Edmonton Real Estate Blog

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History shows that the relative performance of various sectors changes from year to year. More importantly, these changes are not predictable. That’s why an investor’s biggest ally is staying invested and diversifying according to their comfort level with market volatility. The chart reinforces this strategy by illustrating that sectors that are among the best one year could be among the worst the next. By diversifying across different sectors and not trying to time the next hot trend, investors can offset risks and reduce volatility by balancing exposure in both positive and negative market environments.

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For the most part, RRSP concepts and facts are easy to understand: You regularly contribute to RRSP-eligible investments, the accumulating investment amounts are tax-deductible and tax-sheltered until you make withdrawals in retirement, and you enjoy the considerable benefits of compound growth over the longer term. Those RRSP facts are plain and simple but here are a few lesser known facts that will help you get the most from your RRSP eligible investments.

The Home Buyer’s Plan allows you to borrow from investments held in your RRSP for the purchase of your first home. You and your spouse can each borrow up to $25,000 but you can only participate in the program once and you must repay investments held in your RRSP over the next fifteen years or you’ll pay tax on any amounts not repaid.

The Lifelong Learning Plan makes it possible for you to use funds held within your RRSP to pay for training or education. If you qualify, you can withdraw up to $10,000 in a calendar year with the total withdrawal amount capped at $20,000 over a maximum of four consecutive years. You must repay within ten years to avoid penalties.

If you cease to be a resident of Canada you can still make contributions to your RRSP eligible investments using only Canadian-source earned income to calculate your contribution limit. There is a 25% withholding tax for payments to non-residents from investments held within a RRSP or RRIF but you can transfer qualifying lump-sum pension benefits or retirement allowances directly into your RRSP eligible investments without paying the withholding tax. You can also transfer funds between investments held within RRSPs without incurring a tax penalty.

In the year you turn 71 you must wind up your RRSP and take the cash, purchase an annuity or transfer the money to RRIF eligible investments, from which you will be required to withdraw annual amounts based on your age. If you are not earning much income, it might be more advantageous to start making withdrawals from your investments held within a RRSP/RRIF prior to age 71 to smooth out your taxable income in later years. After age 71, you can no longer make contributions to RRSP eligible investments for yourself but if your spouse is under age 71, you can still make contributions on their behalf.

Knowing the facts about RRSPs and RRIFs and using the right strategies will help ensure you can realize all your retirement dreams. You can get the right RRSP (and all other financial) facts and strategies from your professional advisor.

This column, written and published by Investors Group Financial Services Inc. (in Québec – a Financial Services Firm), and Investors Group Securities Inc. (in Québec, a firm in Financial Planning) presents general information only and is not a solicitation to buy or sell any investments. Contact your own advisor for specific advice about your circumstances. For more information on this topic please contact your Investors Group Consultant.

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Since 1956, the S&P/TSX has delivered an annualized return of 9.16% and has proven to be resilient through the worst market conditions. Market volatility is a regular occurrence of investing. Over the same period of time there have been many instances when the TSX declined by more than 10%. Each time, the market recovered and achieved new ground. Staying the course is of the utmost importance during periods of volatility as it ensures investors are able to fully recover from these periods and achieve their long term investment goals.

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Duration is a measure used to assess the impact that a change in interest rates will have on a bond. Shorter term bonds are generally less price sensitive than longer term bonds. If a bond fund has a duration of 5 years and interest rates increase by 1%, the bond fund’s unit price may decrease by approximately 5% (5 x 1). Bonds are also affected by other factors such as inflation expectations and the supply and demand for bonds. Different bond funds will react differently to those economic factors, making it important to diversify across asset classes.

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Stock markets are not static and move both up and down. As a result, your asset mix—that is—the basket of different types of investments that make up your portfolio, may have shifted. Over time, your portfolio may have become weighted towards fixed income and away from equities, or conversely, overweighted in equities and underweighted in bonds. It’s important to regularly rebalance your portfolio.

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Tax-Free Savings Accounts (TFSAs) are a nearly brand new and quite flexible investment vehicle; Registered Retirement Savings Plans (RRSPs) have been a vital tax-advantaged retirement savings opportunity for many years; and non-registered investments are an important component of virtually every financial plan. If you are currently weighing the advantages of each of these investment options as you restructure your investment portfolio to match your overall financial goals during this difficult economic climate, you need to know how each is taxed. So let’s compare the tax treatment rules for TFSAs, RRSPs and non-registered investments.

There are tax and income-building advantages and disadvantages to each of these investment options. You need to look at them in relation to your overall tax situation and financial objectives. Your professional advisor can help you make the right decisions for your unique situation.

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Often by playing it safe financially, you think you’ve protected yourself from investment losses. Think again. Sometimes the price of playing it safe is the erosion of your money over time thanks to inflation. Certain investments often thought of as being safe may not keep pace with inflation, especially after considering taxes. The best way to ensure your investment stands the test of time is by investing in a diversified portfolio. A diversified approach should include exposure to higher yielding equity mutual funds. If your portfolio is appropriately diversified and tailored to your time horizon and tolerance for volatility, you’ll ultimately be playing it even safer over the long term.

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Investors are led to believe they pay no fees when investing in Guaranteed Investment Certificates (GICs). The truth is that the interest you are paid on a GIC is much less than what the bank earns when they subsequently invest your money in loans or mortgages.

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Taxation of income

Your investment plan needs to consider all the financial possibilities, including the impact to your annual tax bill. One key component is to understand that there are three basic asset classes (cash, fixed income, and equities) and three types of income you can receive from these types of investments (interest, dividends, and capital gains). Different types of income are taxed at different rates, depending on your level of income and your province of residence. Understanding this can have a significant impact on your financial success. Talk to us about how The Plan can help you manage taxes.

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