How market volatility can work for the investor

What is market volatility? Volatility is when prices of stocks and equity funds increasingly shift in value up or down. When a low-volatility period is followed by increases in volatility, stock markets may begin to offer lower prices, which can effectually present lower priced fund units, both offering a buying opportunity for the investor.

The stock market can both gain value in a “bull market” and can have periods of slow down referred to as a “correction” or if more prolonged, a “bear market”.

Many investors have seen their investments increase dramatically since the 2008-9 financial crisis that affected all the world’s markets. Further, since 2020 during the pandemic, the market has experienced remarkable gains as investors moved into another big opportunity after an extreme correction based on fear in mid-March 2021 occurred. Many of these investors have also witnessed a remarkable bull market taking many stocks and equity funds much higher than their previous years’ valuation. Conversely, investors who unwisely sold their holdings out of fear lost money.

The ideal strategy exercised by most successful contrarian investors like Warren Buffet is to buy investments when others are fearful, and they are selling their holdings at lowering prices.

When buying opportunities abound The market can experience increased volatility due to fears such as various wars, debt crises of countries, economic slow-downs, or the potential of rising interest rates.

Nevertheless, during periods of higher volatility, wise investors think positively, relying on the professionals managing their investment portfolios.

Predesigned investment plans are important Though periods of volatility occur, it is important to exercise patience while maintaining a balanced and well-diversified portfolio according to a prescribed investment plan.

Plan with your advisor to establish a buying plan when others may be fearful. Market cycles of volatility are normal and expected.

 

Long-Term Care Insurance (LTCI) 

We face a rapidly ageing population.

Since the 1920s, the ratio of seniors over the age of 85 has more than doubled. This number increases into the 2050s will be over age 85.

Who will care for you in your old age? When our health is fine, it is hard to imagine that we may, as many will, lose the ability to manage basic daily activities such as bathing, toileting, walking, dressing, feeding, or moving from our bed to a chair. Many also lose mental faculties that we often take for granted, such as memory, logical or conceptual thinking or referencing dialogue with others. Without assistance, it is near-impossible to function without these capacities.

Long-Term Care Insurance is an insurance contract with an insurer designed to provide care for our chronic illness, disability, or an accident, all of which have a higher potential of occurring as we age.

Some families are incapable of caring for a senior LTCI protects our families from the financial strain of providing long-term care, just as important as life and disability insurance protects the income of younger families. The question is, who will financially support long-term care for you? LTCI is not just for seniors but for those who become similarly incapacitated at any age.

Without a plan, your choices may be limited. It is essential to plan for our long-term care independently because our government healthcare budgets and initiatives are limited. They generally place people in government-funded facilities that have beds available. As we witnessed in the pandemic, many long-term care facilities had difficulty coping with the virus spread.

Most people entirely overlook the enormous expense of paying for a private long-term care facility (some cost up to a quarter of a million dollars for five years). Why are they so expensive? They offer 24/7 high-level nursing care in a highly secure environment. Note: Anyone can call a few private long-term care companies and inquire about their care costs.

Ageing baby boomers retiring will increasingly depend on long-term care insurance, either paid for by themselves, their children or professional health care services.

The need for Long-Term Care Insurance is increasing as medical intervention and medications keep us living longer.

  • Every year, about 50,000 strokes occur in Canada. A stroke is the leading cause of a transfer from a hospital to a long-term care facility.
  • Nearly 10% (1 in 11) of Canadians over age 65 are affected by Alzheimer’s disease or related dementia.
  • An increasing demographic (7%) of Canadians age 65 and over are residing in healthcare institutions.
  • An additional 28% of Canadians age 65 and over receive care for a long-term health problem outside of a healthcare institution.

As the populace ages, more care for the elderly, such as respite care (additional home care services), will increasingly be needed to provide family members with the medical guidance and support they need to continue caring for their loved ones. With this in mind, are our families financially prepared to deal with peripheral costs associated with providing long-term care for loved ones?

  • A study authored by Dr Marcus Hollander and Neena Chappell of the University of Victoria found that approximately $25 billion worth of unpaid care is provided willingly by family members and friends in place of paid care.

What does Long-term Care Insurance (LTC) offer? Long-term care insurance provides money to pay for the care that you both desire and need. With LTC insurance, you have:

  • Broader choices about the quality and amount of care you receive.
  • An increase of options when determining where you receive care and by whom.

Source: Statistics Canada, pre-baby boomer info

Sources: Canadian Institute for Health Information, Alzheimer Society website, Statistics Canada

 

Education’s effect on future income

How parents help shape the financial future of their children

In Canada, the government allows a welcome tax break when you save for your child’s education. As parents, we need to consider the effect that education will have on the future income and lifestyle of our children.

The Internet is bringing many changes quickly: Amazon is replacing many of our once-renowned retailers. Google sweepingly controls business success: who gets to view your website and consequently buy your services is based on paying for Google AdWords. The world has moved into one of the most profound eras of change in human history. Our children, for the most part, are just not prepared for this new reality. The gap to accessing a secure income, or obtaining a job with a substantial retirement pension is widening.

Parents who can see the chaos, the economic uncertainty, the stress and the complexity in the world, know intuitively that the new wave of robotics and artificial intelligence (AI) call for an educational revolution. Our children must be able to get a post-secondary education while aiming for higher accreditation in a career known to provide substantial income that keeps up with inflation. Serious financial planning can provide significant funds to go to university or college. The Financial Comfort Zone Study found the following:

“Canadians who establish registered education savings plans (RESPs) for their children are setting their kids up for financial success later in life because there’s a direct correlation between having post-secondary education and wealth”.1

The study revealed the following:

• Among those holding a postgraduate degree (the highest level of education), 23% have investible assets of $500,000 or more, whereas approximately only 11% if the schooling is at the post-secondary level.

• Of those with only a high-school diploma, only 8% have investible assets of $500,000 or more, while 72% have investible assets of $100,000 or less.

Parents can influence the education of their children by fostering the right attitude toward the need for educational training for a financially sustainable future.

“Among parents who gave education a high rating of importance and who had one or more children living at home, 49% indicated they had established an RESP for their children. Similarly, 45% of parents who gave education a medium rating of importance and who had one or more children living at home indicated that they had established an RESP for their children. In contrast, only 15% of parents who gave education a low rating in terms of importance and who had one or more children living at home had established an RESP for their children.” 2

What ways can we plan for our Child’s education? Consider using both the traditional Registered Educational Savings Plan (RESP) and the Tax-Free Savings Account (TFSA) as an educational savings vehicle. A TFSA offers parents another tax-efficient method to provide for education planning.

1 Credo Consulting Inc. and Investment Executive

2 ibid

Plan your RRSP Ahead to Reduce Taxable Income

It pays to plan your RRSP contributions before the end of the year to reduce your taxes that will be due on the current taxable year. To achieve this, assess your income and calculate how you can optimise the use of an RRSP to reduce your taxable income.

You may have Carry-forward Contribution Room

If you have not previously invested up to your maximum RRSP contribution limit, CRA allows you to carry over unused contribution room into future years for an indefinite period. Look on your Notice of Assessment.

What can you deduct on your tax return?

You can claim a deduction for:

  • contributions you made to your Registered Retirement Savings Plan (RRSP), Pooled Registered Pension Plan (PRPP) or Specified Pension Plan (SPP)
  • contributions you made to your spouse’s or common-law partner’s RRSP or SPP
  • your unused RRSP, PRPP or SPP contributions from a previous year

You cannot claim a deduction for:

  • fees charged to buy and sell within a trusteed RRSP
  • amounts you pay for administration services for an RRSP
  • the interest you paid on money you borrowed to contribute to an RRSP, PRPP, or SPP
  • any capital losses within your RRSP
  • employer contributions to your PRPP

What is the deadline to contribute to an RRSP, PRPP, or SPP for the purpose of claiming a deduction on your tax return?

The Income Tax Act sets the deadline as “on or before the day that is 60 days after the end of the year”, which is March 1st except in a leap year, when it will be February 29th; or where the deadline falls on a weekend, it may be extended.

Can contributions be made to a deceased individual’s RRSP, PRPP, or SPP?

No one can contribute to a deceased individual’s RRSP, PRPP or SPP after the date of death. But, the deceased individual’s legal representative can make contributions to the surviving spouse’s or common-law partner’s RRSP and SPP. The contribution must be made within the year of death or during the first 60 days after the end of that year. Contributions made to a spouse’s or common-law partner’s RRSP or SPP can be claimed on the deceased individual’s tax return, up to that individual’s RRSP/PRPP deduction limit, for the year of death.

What is not considered an RRSP, PRPP, or SPP contribution?

The following are not considered to be an RRSP, PRPP, or SPP contribution for the purpose of claiming a deduction on your tax return. We can point out the special rules that apply if you:

  • repay funds that you withdrew under the Home Buyer’s Plan
  • repay funds that you withdrew under the Lifelong Learning Plan

Note: It is recommended that you get more information on this subject by calling our office or your accountant.

How is your RRSP/PRPP deduction limit determined?

The Canada Revenue Agency generally calculates your RRSP/PRPP deduction limit as follows:

The lesser of:

  • 18% of your earned income in the previous year, and
  • the annual RRSP limit

Minus:

  • your pension adjustments (PA)
  • your past service pension adjustments (PSPA)

Plus:

  • your pension adjustment reversals (PAR), and
  • your unused RRSP, PRPP, or SPP contributions at the end of the previous year

Source: CRA

Revised: Jan 21

Investing is a strategic process, not the final goal

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Investing is the strategic planning process, not the final goal It is important to realize that investing is not the goal. The goal is based on a future result that you aim for using mathematical calculations. Investing is what you do in the meantime while facing a multitude of circumstances in the world that affects the market where stocks and securities lose or gain potential to grow, which means, intermittently affecting your control of the end results in relation to your goal.

While you are young and have a family and/or close dependents, you also want to enjoy life and create memories. You want to live in the present to minimize fear of the future during the investment process, being mindful that preparing to retire means engaging in the process with an advisor using timeless principles.

str-planning

Perhaps you’ve decided that you must accelerate your combined RRSP savings if you are to possibly realize your retirement dreams. Here is a strategic process that works all year round, well ahead of, and therefore, eliminating the annual RRSP deadline frenzy. This investment also works well when investing using TFSAs.

A systematic investment strategy called Dollar-Cost-Averaging (DCA). By pre-arranging a schedule of making equal monthly investment purchases of a mutual fund, you can realize big advantages:

1) Get your RRSP money working earlier. Every year, a good deal of money begins working long before the RRSP deadline. This gets part of your fund money invested earlier every year in small amounts you can afford. DCA allows for a convenient pre-payment of your annual RRSP contribution, instead of in the last anxious moments of February before the annual deadline.

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2) You can profit from more gains after buying during market downturns. You needn’t worry about market-timing decisions when you buy your mutual fund units. Investing a fixed dollar amount every month adds a benefit over the year. You will purchase more mutual fund units when the price is lower, fewer when the price is higher. While consistently purchasing throughout market declines, when units cost less, you buy more units with the same dollar. Thus, fears of the market dropping in value are replaced with the knowledge that you will eventually own far more fund units over time, as long as you continue to invest in the same scheduled manner when the market is down. The purchases are scheduled, not “timed”. There is a vast difference.

Not even the experts know exactly when the market will peak, or stop declining. This means that by waiting to purchase at a lower unit price, an investor might miss buying lower if the market begins climbing back suddenly. But, if you schedule consistent buying, using DCA, you won’t miss buying the lower-priced units.

What is the upside of DCA in a lower priced market? Fund units purchased during temporary market downturns can be very profitable once the market recoups any loss. Subsequent upward moving markets will greatly increase the value of every unit held (especially with the addition of those lower-priced bargain units bought when the market value declined, and as it inclines above each unit price purchase during periods of market gains). More units bought at lower prices, both while a market loses value and while the market swings back gaining momentum during a major bull market growth spell, offer the potential for future profit.

3) One more benefit. You’ll be less influenced by market fear factors if you remember: Investing is a strategic process, not the final goal. Dollar-cost-averaging fund purchasers are isolated from negative market psychology. Contrary to the crowd, they now automatically buy through periods of opportunity when the price is low, the time when most people often do the opposite — sell out of fear. Dollar-cost-averaging encourages determined, intelligent, and disciplined investment behaviour.

7 ways life insurance protects your financial foundation

Life insurance has been called the foundational strategy of building and protecting your net worth. The initial stages of your financial strategy should include adequate life insurance coverage.

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The following 7 tips will give you a template for your life insurance planning for a lifetime.

  1. Term life insurance is affordable protection when you are young When young, term insurance coverage offers the lowest cost per thousand dollars of coverage. It comes in various renewable periods of time, for example, 5-,10-, 20-year term and term to age 100.
    • Upon each renewal of term insurance, the cost can increase and may have a final term period ending at a certain age such as age 65, 75 or age 100.
    • Many term plans can be converted to lifetime insurance coverage without medical evidence, that will continue to cover you for the duration of your life.
  2. Life insurance can pay off large accumulations of debt  Many owe thousands of dollars on their credit cards or a large amount of business debt.
    • Replace the debt monkey with cash money Term life insurance often solves debt concerns. It can offer you the peace of mind that you will not be saddling your family with ongoing debt.
    • If you own a business You and your partners can enter agreements to redeem debt or buy business interests providing cash to your heirs.
    • Debt-free succession plans work better Infusions of cash into a business can help a succession plan to work well.
  3. Your life insurance plan can change to adapt to your needs Review your life insurance during each of life’s stages. Our circumstances change dramatically and so do our needs for life insurance. It may be time to review your life insurance and verify beneficiaries, policy amounts and any riders associated with the plans. As you evolve financially, so do your life insurance needs.
  4. You can protect your family when you have young children When you are newly married and starting a family, life insurance is purchased to provide tax-free capital in case one of the parents should die.
  5. When your children are going to college protect your liabilities Many of us tap into our savings to help meet their children’s tuition and housing expenses. We may purchase a child’s first car, or pay him/her an income for one or more years. If you die without providing continuing support, your young adult child may need to quit seeking a higher education due to a shortage of funds to pay for tuition and expenses.
  6. Special Estate Planning solutions When your estate will face a large tax bill, or you desire to leave a large sum of money to an heir or a charity, there are life insurance solutions. The proceeds of a death benefit can solve estate-related problems such as paying an estate’s tax liability on capital gains.
    • As you approach retirement, you may have accumulated assets that will be taxed as capital gains: such as a cottage, business, equity fund holdings, or a stock portfolio. Life insurance that continues for a lifetime, such as Term to age 100 or Whole Life (or Permanent Life)—can help pay the income tax due in your estate.
    • This can also replace an estate’s money used for paying taxes on remaining Registered Retirement Savings Plan (RRSP) or Registered Retirement Income Fund (RRIF) holdings, as these funds are fully taxable to the estate where there is no surviving spouse or dependent child.
    • It can also pay off large business debts that may be left as an ongoing liability, weighing on a surviving spouse’s financial security.
    • You may have an heir who will need a large sum of capital invested to provide a lifetime income from a trust fund. This is often the case with disabled children who may have special needs which can be expensive over a lifetime.
    • You may want to leave a significant sum of money to a charity of your choice.
    • You may want to transfer large sums of wealth in a controlled manner using life insurance beneficiary directives which may in some cases circumvent probate and notification to others when you desire privacy in your estate outside of your will.
  7. Your exact life insurance needs can be calculated Life insurance specialists use a calculating system referred to as “capital needs analysis”. Consider insuring the adults in your family. The breadwinner’s income can be replaced to protect your family’s financial security. You may have debts that you’d like redeemed. Final expenses can be paid. A mortgage can be paid off. Retirement money can be generated. There are many good reasons to strengthen your financial security with life insurance.

It is necessary to calculate the capital needed over any short or long period to meet any financial situation. Call for an appointment to have us review your life insurance.

Note: Talk to your advisor about potential tax exemption changes to investment components of life insurance.

Copyright by Adviceon.com

Remapping your mortgage finances

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Plan your mortgage shopping. It is essential to plan regarding your mortgage. A mortgage specialist can help you review your needs looking at developing your most beneficial financial strategies. Over a year, you may have increased your credit card balances or taken on a car loan and find the increased payments difficult. A mortgage specialist can help you consolidate debt, and it may save you thousands.

Watch for your renewal date. When you get a letter indicating it is time for renewing your mortgage, call us for advice. You will have an opportunity to have us negotiate your best possible rate.

Work the math. We will work the numbers for you to guide you on getting more from your repayment process to build your home equity faster. Instead of paying your mortgage monthly, pay weekly or bi-weekly. A small change can save you thousands over time.

Are you looking for a bigger home? You may want to renovate or relocate. It is often less expensive to renovate than to relocate. Financing options are available to remodel a kitchen, bedroom, bathroom — whatever dream you may have in mind for your current home.

Consolidate wisely. When considering consolidating, good credit behaviours are essential. An excellent credit rating helps you qualify for the best mortgage rate. Don’t let your credit accounts exceed 30% of the credit available, and pay your bills on time.

Significant goal planning prepares you. If you have substantial current needs such as funding education, a large purchase, investments, renovations, or paying down debt, your mortgage might be your most cost-effective financing option.

Source: Canada’s Economic Action Plan

A financial strategy is essential for a secure future

When making a plan for anything in life, choosing a career, getting married, buying a car, we must spend hours going over lists as we determine priority and timing. We must have clarity as we develop our essential plan. In his famous book, Essentialism, Ewen McKeown suggests that while sorting out priorities, we must decide what not to do while we are working on what we must do, and that  “When we really have clarity of purpose, it leads to success”. (Ewen has the third-highest following on LinkedIn so he knows something about priorities)

A good financial strategy is multi-faceted. That is why it needs to be developed and governed by a credentialed financial advisor. In his latest best-seller, “The Total Money Makeover”, Dave Ramsey notes: “Build wealth. Invest and enjoy counsel from advisers with a proven track record. ‘Even the Lone Ranger had Tonto'”.

Here are some priorities to achieve financial security – priorities that one must organize well:

  1. Have emergency funds on hand Save at least $1,000 cash and aim to build this up to $5,000. This can come in handy for any emergency that comes as a surprise.
  2. Eliminate all your bad debts List your credit cards, smallest to the largest balances–then pay off these debts, from the smallest to the largest, regardless of interest or amounts, one at a time. Make minimum payments on the rest. This will encourage you as you see each card is paid off.
  3. Save for a home downpayment Save for a down payment or cash purchase of a home. If you have a home, aim to pay down the mortgage, especially now when interest rates are low.
  4. Pay yourself first Invest 15-20 percent of your before-tax income in retirement. Ramsey from his book The Total Money Makeover, notes “Only people who like dog food don’t save for retirement”.
  5. Save for your children’s college education. Your child can’t get much of a job these days without an education though it is not necessary if he or she creates a great business. However, not everyone is Bill Gates or Steve Jobs.

Source: The Total Money Makeover. Dave Ramsey | Essentialism, Ewen McKeown

Living Will: Advanced Medical Directive

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The Living Will (or Advance Medical Directive) is a document in which you state your wishes regarding the continuance or refusal of extreme medical care, or just how much life support intervention you want prior to death as you age or if you become seriously ill. It comes into play only if and when you cannot make those decisions yourself. If you become incapacitated, with no possibility of recovery from mental or physical disability, would you prefer to live or die? This hard question, once answered, will determine the directives you set forth in your Living Will.

How to talk about dying An article in the New York Times by Ellen Goodman, How to Talk About Dying, looked at this question in retrospect from a child’s perspective recalling her own mother’s health decline:

Yes, my mother and I talked about everything — but we didn’t talk about how she wanted to live toward the end. The closest we ever came to discussing her wishes was when she would see someone in dire straits and say, “If I’m ever like that, pull the plug.” … Gradually and painfully, my mother lost what the doctors call “executive function,”… Eventually, she couldn’t decide what she wanted for lunch, let alone for medical care.

The same person that you are today, or you know today such as a parent, may not be able to make both financial and health care-related decisions due to a decline in health. You can decide in advance what medical treatments and care are acceptable and for how long. For example:

• If you heart stops or you stop breathing do you want to be resuscitated?
• If terminally ill, do you prefer to stay at home or be hospitalized?
• Is special care or medicine for a rare disease affordable?
• Is owning Long-Term Care (LTC) or Critical Illness insurance important to your future well-being as you age or if you become critically ill?

Everyone over age 18 should have a Living Will

Many government jurisdictions are writing new laws recognizing Living Wills. Even if not yet legally binding, a Living Will allows you to indicate your wishes providing guidelines for your family physician, family members and friends—those who would be asked to make health care decisions on your behalf.

Formulate your Living Will with a lawyer (or on your own) and discuss it with your potential decision-makers. Give each of them a copy, updated when necessary, for reference. Have at least two of them witness each copy.

The Living Will alleviates the heavy burden of a son or daughter or sibling, deciding to allow a loved one to die. By setting forth your request in advance with a clear mind, you intentionally share in that great responsibility, thus lessening any feelings of fear, guilt or indecision that these people may have to face. In the same article mentioned above, Ellen Goodman reflected on her mother’s situation in light of historic health decisions and recalled her earlier statement about what she didn’t want to endure:

In some recess of my mind, I still assumed that death came in the way we used to think of as natural. I thought that doctors were the ones who would tell us what needed to be done. I was strangely unprepared, blindsided by the cascading number of decisions that fell to me in her last years….I had to say no to one procedure and yes to another, no to the bone marrow test, yes and yes again to antibiotics. How often I wished I could hear her voice in my ear telling me what she wanted. And what she didn’t want.

Ellen’s reflections may help us think about our own reality, our own health care directives which in most cases can’t be thought out if someone is mentally incapacitated, or if an emergency health crisis ensues – then it may be too late – when the burden falls on our loved ones.

My own sister, a nurse, felt she had to make the right decisions to keep my own beloved mother alive. More than once she was faced with the frightful case of dialoguing with doctors about reviving my 81-year-old mother, who had taken a serious fall causing internal bleeding of the brain. Mother went through three years of being in several hospitals, then and Long Term Care homes. I vividly recall mom saying of a woman who sat muttering incoherently in her LTC home, in her own humorous words: “if I get like that, let me go”. I agree with Ellen Goodman’s statement:

When my mother died from heart failure and dementia, I began to talk with others. It was extraordinary. Everyone seemed to have a piercing memory of a good death or a hard death. Some of these stories had been kept below the surface for decades, and yet were as deep and vivid as if they’d just happened…Too many people we love had not died in the way they would choose. Too many survivors were left feeling depressed, guilty, uncertain whether they’d done the right thing…The difference between a good death and a hard death often seemed to hinge essentially on whether someone’s wishes were expressed and respected. Whether they’d had a conversation about how they wanted to live toward the end.

Talk to your life insurance advisor about Long Term Care, which is appropriate for your advanced medical directives. Also, talk to your lawyer about creating a Living Will to develop advanced medical directives while you are coherent and able to do so. Then let your loved ones know your wishes and give them a copy.

by Glen Jackman, Editor of Adviceon Media, copyright of Adviceon