OVERVIEW

There are two concepts in saving and investing. Savings implies a commitment to systematic hoarding of discretionary assets. Investing is the concept of hoarding in a manner that sustains optimal growth of such assets. All our clients buy into the notion of Saving, we help them invest wisely.

Why Save?

There are two broad categories most Canadians identify as a reason to save. Short Term immediate and long-term distant purposes. The short term immediate is that special purchase, be it a wedding, down payment for a house, cottage, or that special vacation. Long term savings is for children's college education and retirement.

Why Invest?

Putting your savings under the mattress is one option, but it a guarantee that its going to shrink in value as inflation increases and eats away at your standard of living. Investing is method of putting your money to work just as you work for your family. Investing in the simplest terms is loaning your money to others for a price. There is a large variety of ways to put your money out to earn for you and selecting the right way to do it is the art of investing. When you combine saving and investing your accumulation of your money has a compounding effect. The following is a sampling of saving and investing options and techniques you can grow your savings.

RRSP - What does it stand for? 

These are containers of qualified investments that permits investment of pre-tax dollars and its tax deferred growth until age 69  at which point you must withdraw  it, in a lump sum or systematically via an annuity or Registered Retirement Income Fund. (RRIF). A consequence of effective tax planning of  your financial affairs generally is the serious curtailment your RRSP tax shelter limit. To the extent allowed, it is on the whole, the most tax effective way to save for the average Canadian.

A Registered Retirement Savings Plan, or RRSP, has met Revenue Canada statute and regulation that allows pre-tax dollars to be used in the plan. The government or Revenue Canada, does not guarantee in anyway, either the capital or the performance of the investment vehicle.

Some common investments in an  RRSPs are

• • GICs, GIAs
  • T-Bills
  • Mutual Funds
  • Segregated Funds

You can have unlimited number of RRSP accounts with a variety of financial institutions, there is an annual maximum tax sheltered savings that may be put in an RRSP. It is

• • 18% of your previous year's taxable income to an absolute maximum dollar amount. (less pension adjustment)
  • For 2021 tax year the maximum is $27,830 For 2022 it will be $29,210.

RRSPs are usually used to shelter from tax retirement savings up to the end of the year in which you turn age 71. At that point you must do one of two things.

• • Cash in the plan in one lump sum, or
  • Convert it to a systematic income plan like an annuity or a RRIF.

The Canada Revenue Agency (CRA) sets the requirement that only qualified investments are allowed in registered plans like your RRSP. Generally, if a security trades on at least one exchange that Canada's Finance Department considers a Designated Stock Exchange, it will be recognized as a qualified investment. Among those global exchanges – which total around 46 — are the New York Stock Exchange, NASDAQ, the London Stock Exchange, the Toronto Stock Exchange, the TSX Venture Exchange and more. Each singular investment can be "wrapped" to qualify as an RRSP. An investor can hold many different investment each individually "wrapped" to qualify  as an  RRSP.

 

RRIF [LIF]

RRIF or Registered Retirement Income Fund is the most popular extension of terminating or maturing RRSP plans. If not redeemed for cash, or converted into an annuity, RRSPs typically become RRIFs. RRIF is essentially the same as an RRSP with two distinct differences.

• • No new money may be added to a RRIF, and
  • a prescribed minimum must be taken out of a RRIF annually.

Like and RRSP any  amount of money coming out of an RRIF is fully taxed as if it was interest income.  The underlying investment of a RRIF can be just like an RRSP.

A LIF is a special income plan that was funded by pension or severance money. The underlying investment can be like an RRSP.

A few or many individual investments can be wrapped into one RRSP plan. This then is called a self directed RRSP or RRIF. The advantages of self directed are:

• • One annual maintenance fee
  • One consolidated reporting,
  • Allows for more flexibility in portfolio design, and
  • More flexibility in your Foreign content compliance

Considering the fees associated with Self directed plans, they become attractive once you have $50,000 or more of investment in an RRSP.

Open Accounts

Open accounts are investments that are not RRSP LIRA, RRIF or RRIF. Essentially, they are investments that attract tax on their growth annually and have no tax deferral component. "Pay as you go", sort of speak. Tax planning become more important in these investments as the type of income they generate determines the tax rate they attract. Capital Gains, realized or unrealized, dividend or interest income are the typical income types.

Capital Gains income is the most attractive from a tax viewpoint for two reasons. First, only 50% of the gain is taxable. At a marginal tax rate of 50% that's only 25% of the gain a tax. Secondly, the tax is only due upon the actual or deemed disposition of the asset. In other words, the tax on any gain is deferred until you actually realize the gain buy taking the cash or  be deemed realized by CRA by an event like death.

Dividend income is the next most attractive form a tax view-point; specifically, those that generate dividends from a Canadian corporation. While they are taxable annually it is at a favored rate.

Interest income is the least favorable investment income from a tax view-point. It attracts tax annually at the full rate.

We offer you four types of investment vehicles with which to fund your investment strategy:

• • GICs - We shop the market for the best rates in the country. 1 to 5 year CDIC guaranteed.
  • GIAs (like GICs but may be creditor proofed). They may be registered as RRSP or Open Accounts. There is a wide array of term options, both on a locked or unlocked basis. Terms of up to 10 years are available.
  • Life Insurance. Specifically, a Universal Life Plan A financial product with incredible flexibility and applicability to a wide array of financial planning strategies. This product combines the protective elements of life insurance, the tax deferred growth elements of an RRSP the with significant investment flexibilities. Universal life plans are now in their 6th or 7th generation of evolution since they began in the early 1980s and are quite sophisticated and have become an actively sought option.  There is even a contract available in in U.S. dollars.

• • Segregated Funds. Similar to Mutual Funds but different. Segregated Funds are governed by the Insurance Act and not the Securities Act. As such segregated funds are offered by life insurance companies exclusively. This differentiation in governance creates advantages. Creditor Proofing capability is one. Minimum guarantees of the capital at death or maturity is another.  Some segregated funds allow you to reset the maturity date, typically 10 years from deposit.  You can reset the Death Benefit guarantees as well. This resetting allows you to "lock in" the periodic growth of the fund as part of the minimum guarantee. This is particularly attractive to seniors looking to preserve the capital. Many segregated funds are valued weekly not daily, as are most mutual funds. There are hundreds of segregated funds to choose from to fund your retirement savings strategies. Many segregated funds mirror mutual funds, some do not. The legal entity in which Segregated Funds is a differed annuity contract.

 

Canadians are looking to open investments to augment RRSP savings as well as for other investment opportunities.

DOLLAR COST AVERAGING

It is a well known fact that putting your money into a savings vehicle at the beginning of the year is more fruitful than at the end. Likewise it is better to accumulate your savings monthly in advance than annually in arrears. There is one additional advantage to monthly in advance than annually in arrears. It is called Dollar Cost Averaging.

Market values are constantly changing, one they are up another day they are down.  The chart illustrates the point for a $12,000 investment one made on January 1 and the other spread over four quarters of $3,000 each. the investment is made into a segregated fund.

 

Date	Unit Value	Units	FMV
A)    Jan 1	$10.00	1,200	$12,000
B)    Jan 1	$10.00	300	$3,000
B)  April 1	$8.00	375	$3,000
B)   July 1	$9.00	333.33	$3,000
B)   Oct. 1	$12.00	250	$3,000
A)  Dec 31	$11.50	1200	$13,800(15%)
B)  Dec 31	$11.50	1258.33	$14,471 (20.6%)

As you can see by spreading the investment over several months the growth is enhanced.   ~

SWP

The SWP acronym stands for Systematic Withdrawal Program The term is applied to programs usually associated with Segregated Funds, or RRIFs that the investor initiates, to create regular flow of income , monthly, quarterly, semi-annually or yearly. You request a specific periodic amount to be cashed in from your investment and deposited into your bank automatically, like clockwork.

We can help our clients structure a SWP to suit their income needs.

 

Prescribed ANNUITIES

Annuities -   have an advantage in that the income you contract to buy from a life insurance company  is guaranteed for your lifetime. In return you give up investment & income flow flexibility during changing economic conditions.  Traditional annuity is like a mortgage in reverse. You give an insurance $100,000 in cash they return this to you in the form of income payments that are a blend of interest and principal. In the early years the bulk of any payment is interest and thus that larger portion attracts tax. With the consent of Canada Customs & Revenue Agency (CCRA), a prescribed annuity is structured so that the level of the tax liability is fixed from the first to last at the same level. A terrific tax planning tool. One of the qualifying elements of a Prescribed Annuity is that the owner must also be the annuitant.

We can not only arrange for a prescribed annuity but we can shop the market for the best rate.

Matching your savings asset growth to your objectives, and risk tolerance through design and diversification is the fundamentals of portfolio design. Maintaining that balance in shifting market conditions and shifts in client's circumstances is the essence of Portfolio management. We can arrange a private interview to assess your circumstance.

 

TFSA

Tax Free Savings Account (TFSA) is another vehicle that the Government made available to Canadians over age 18 to save on a tax free basis. It is not a tax deferral program. It is a Tax free program. Put your after tax money in, let it grow, take it out. NO TAX, NONE, EVER.

 Investment LOANS & LEVERAGED Investing

With the recent change in the tax law on RRSP unused room carry forward you can take advantage of previous years' unused RRSP contribution limits in any year in addition to your current year's contribution. Financial institutions are willing to loan you the cash at or near prime to entice your contribution to them.

You can also borrow to invest in a non registered investment  and TFSAs to accelerate you return potential. Leveraged investing is not for everyone, but can be a very useful strategy for some.

We can assist you in the loan process.

 

Our job is to provide you with the best options for your circumstance and risk tolerance so that you can make an informed decision and then facilitate the implementation of those decisions in an intermediary capacity between you and the insurer. ~