Insights

By iA Private Wealth, September 29^th, 2023

Tune in weekly for insight and perspective on the macro and market landscape with iA Investment Management chief strategist and senior economist Sébastien Mc Mahon.

Watch Sébastien’s previous weekly updates on YouTube.

While many people want to purchase a home, it’s become a greater challenge in today’s economic environment. Consumers are financially stretched by high inflation that’s lifted the price of food, fuel and just about everything else. On top of that, central banks have raised interest rates to help control inflation, leading to soaring mortgage rates. Never mind that real estate valuations – while largely off their           peak – remain high, especially in large urban centres. What’s a prospective homebuyer to do?

In addition to sensible actions like watching your spending and trying to put away more of your earnings, the federal government also helps Canadians pursue home ownership via two targeted programs: the Home Buyers’ Plan (HBP) and Tax-Free First Home Savings Account (FHSA).

How the HBP works

This plan lets you withdraw, on a tax-free basis, up to $35,000 from your Registered Retirement Savings Plan (RRSP) to purchase your first home. Essentially, it’s an interest-free loan from your own RRSP to help you buy a home. You’re allowed to withdraw funds from more than one RRSP, to a cumulative total of $35,000, provided you’re the owner of each account. The institution(s) that issued your RRSP(s) won’t withhold tax on the money you withdraw. You should also note that certain RRSPs, such as locked-in or group RRSPs, may not qualify for the HBP.

You have up to 15 years to pay these funds back to your RRSP, beginning in the calendar year after the withdrawal. Repayment is based on a prescribed schedule with a minimum annual repayment of 1/15th the original withdrawn amount. Note, you may repay more than the minimum in a given year, or repay the entire amount at any time prior to the end of this 15-year period. If you fail to repay the full amount within the allotted time, your outstanding balance is considered taxable income.

How the FHSA works

This plan was introduced in the 2022 Federal Budget, and now that the legal and administrative details have been addressed, financial institutions are rolling it out. The FHSA is a registered account for Canadians aged 18+ who haven’t owned a home ever or, at a minimum, in the past four calendar years. It allows eligible Canadians to contribute up to $8,000 annually on a tax-deductible basis, to a lifetime limit of $40,000. If you contribute less than the maximum in a given year, the unused contribution room (up to $8,000) may be carried forward to the following year.

When you withdraw funds to buy a home, this amount is not taxable (including any income earned in the account). If you don’t withdraw all your FHSA funds to buy a home within 15 years, you must close the account. You can transfer the remaining assets, tax free, to an RRSP or RRIF; otherwise, withdrawal of residual FHSA funds will be taxable. As with many registered accounts, you may invest in various types of securities in your FHSA, such as stocks, bonds, mutual funds and ETFs. Your Investment Advisor can help determine which securities best suit your time horizon, risk tolerance and financial objectives.

How do you decide?

While the HBP and FHSA may have their own features and distinct rules, both plans can help accelerate the home ownership process. An HBP is valuable if you don’t have much cash available, since you’re withdrawing from your established and funded RRSP. An FHSA is valuable if you can contribute a significant amount of cash, since it’ll lower your taxable income and withdrawals are tax free. The good news is, you don’t need to decide. If you wish (and have money readily available), you may use both the HBP and FHSA to assist with funding the purchase of a first home.

Consult with your Investment Advisor to decide how best to use the HBP and/or FHSA to help buy your home, based on your tax situation and overall financial circumstances.

By iA Private Wealth, September 12, 2023

James Gauthier and his research team walk through the highlights of last month’s market and economic data.

Read the report (PDF)

By iA Private Wealth, August 23, 2023

Higher education provides many benefits to students, such as building a career foundation, expanding social skills and learning responsibility. However, this education can come at a steep cost. The price tag will depend largely on whether or not your child attends a nearby school. If your child is still years away from post-secondary education, you’ll need to budget for inflation as well.

Major expenses

With proper planning and budgeting, many families can manage an investment in the child’s future. Before exploring different ways to pay for education, let’s consider the three primary expenses.

Tuition: Factors that impact tuition include the school and program, whether your child attends full-time or part-time, and your child’s citizenship status. Also plan for the cost of school supplies, books and other course materials.

Accommodations: The cost is mostly dictated by living arrangements on or off campus (e.g., if your child rents solo or has housemates/roommates). Food expenses may involve a campus meal plan and/or groceries, dining out or eating at home. Other costs to consider include hydro and utilities, phone, internet/cable, insurance, clothing, personal care and entertainment.

Transportation: These expenses will vary. Students staying at home might rely on public transit, ride sharing, walking or cycling. Some may need (or choose) to drive, which means using a family vehicle or buying their own, and paying for maintenance, parking, insurance and fuel. If your child moves away, plan for transportation costs while at school, plus costs for roundtrip travel (car, bus, train or plane) whenever they return home.

Making ends meet

Once you gain a sense of the costs involved, the other part of your budget pertains to covering these costs. A budget organizes your expenses and income, and helps determine if your finances are on track. Here are five common sources of money to help pay for post-secondary education:

1. RESPs. The Registered Education Savings Plan (RESP) is a proven way to save for school. Not only is investment growth within the plan tax deferred until withdrawal, but if the student is in a low tax bracket when they use the funds for schooling – which is often the case – the tax impact will be minimal. As well, they may qualify for benefits like the Canada Education Savings Grant and Canada Learning Bond, which provide additional funds for education.

2. Personal savings. The student may opt to use some of their accumulated savings for school, plus parents and grandparents are often able and willing to help out.
3. Borrowing. The federal government offers financial assistance to students in need. Your child may be eligible for a government grant or loan; if approved, they can use the money for school-related expenses and won’t begin repaying until after they graduate, according to a specific schedule. Provincial governments may also offer funding, so check with your province for information.
4. Scholarships. Students with strong academic standing could be eligible for a range of scholarships. Scholarships Canada and the Government of Canada’s scholarships website are great places to start. High school guidance counsellors also have current information on scholarships and bursaries, plus they can offer direction on the application process.
5. Employment earnings. Many students build savings by working in the summer and part-time during the school year. You can guide your child on what employment opportunities may suit their experience, skills and interests. Remind them that earning money for school is great, but education should be prioritized and their work schedule must allow enough time for classes, study, assignments, etc.

By iA Private Wealth, August 8, 2023

Central banks in Canada and the U.S. have raised interest rates very aggressively over the last year to fight soaring inflation, putting a significant amount of strain on borrowers. But high interest rates have a silver lining: they give savers and savvy investors a great opportunity to boost their return potential.

Here are six ways you can take advantage of high interest rates:

1. Bank stocks. Banks usually generate more profit as the spread increases between the interest they pay to lenders and the interest they charge borrowers. When market rates are low, there’s less ability to widen spreads.

2. Energy stocks. Inflation lifts the price of most products, including energy. While other factors (like supply and demand) also influence energy prices, oil and gas prices are being well supported during this period of high inflation, so energy stocks might be worth a look.

3. “Price-maker” stocks. Some companies can pass along the higher cost of production to consumers without any meaningful reduction in sales and profitability. Many such companies (e.g., grocers, drugstores) are in the consumer staples sector.

4. Floating rate securities. As the name implies, the yield on these securities rises or declines according to general changes in interest rates.

5. Real return bonds. Issued by the government, these bonds are pegged to the Consumer Price Index (CPI), which tracks the inflation rate of key goods and services. They pay interest based on the CPI, so real return bonds may help protect investors against inflation.

6. Savings products. Guaranteed investment certificates, high-interest savings accounts and money market funds can help savers earn more income. Since the income they generate is linked to the central bank policy rate, savers benefit when interest rates are high.

Contact your Investment Advisor to discuss how your investments can be positioned for today’s high-interest-rate environment.

By iA Private Wealth, June 22, 2023

Summer has arrived and with it comes hotter days and warmer evenings – perfect for getting outdoors, travelling or gathering with family and friends.

Although it’s tempting to pack these sun-soaked summer days with activity after activity, be sure to keep your finances in mind. It doesn’t take much to derail a budget. The cost of taking a vacation or two, enjoying regular meals or drinks on restaurant patios, and attending special occasions like weddings, concerts and sporting events can add up quickly.

Of course, that’s not to say you shouldn’t enjoy summertime, because who doesn’t want to take advantage of Canada’s precious few weeks of beautiful weather? Just be realistic, stay conscious of your spending and don’t lose focus on your financial goals. Here are five simple tips for a budget-friendly summer:

1. Create a summer calendar. You can’t map out each day since circumstances change and all the planning in the world won’t account for the surprises that are bound to pop up. However, you can pencil in key dates that are certain, such as a vacation, wedding or summer camp for the kids.

2. Establish your costs. Once you’ve identified key activities on your summer calendar, estimate the cost of each one. Certain activities will be easier to price than others, but give it your best shot. Then add up the expenses and compare that total with how much you can reasonably budget for these events while also meeting your other financial obligations, including saving and investing for the future.

3. Make adjustments if required. If you’re like most people, your summer wish list may exceed the money you have available. That’s okay – everyone must revise their list occasionally if their overall budget dictates. You might need to make some decisions regarding how to stay on budget, which leads us to the next point.

4. Develop a spending plan. If you can’t squeeze in everything without overspending, create a spending plan that works for your budget. For example, if vacation expenses are running high, consider different destinations, shorten the length of your trip or cut back on the activities you had planned. Or, if you’ve been invited to several weddings, attend the higher priority ones (such as immediate family or close friends) and be mindful of gift costs.

   As you go through this exercise, keep in mind recurring expenses that may rise in the summer, such as your hydro bill when the air conditioner is running, or your fuel bill if you’re driving more. In addition, your water bill may jump if you have a garden or lawn, or if the shower gets an extra workout in the hotter months.

5. Consider alternatives. If you’re willing to be flexible, you can still have a great summer while spending within your allocated budget. For instance, avoid the typical summer travel destinations that are unduly expensive given high demand. Instead, off-peak travel is more affordable, so shop around online. Many parts of Asia tend to have wet summers that keep tourists away, while tropical areas like Hawaii and the Caribbean are quite hot in the summer. Don’t let less-than-ideal weather conditions prevent you from exploring all the beauty and fun that these locations offer.

   Staying local and doing a few day trips can also be entertaining for the family without blowing up your budget. Also consider exploring nature while taking a nice walk or hike, hanging out at the beach, camping, attending outdoor festivals or holding a picnic in the park. With a little imagination, you and your family can come up with a bunch of ideas for enjoying summer on a manageable budget.

Talk to your iA Private Wealth Investment Advisor about your wealth plan and to see how summer activities may fit into your overall budget.

By iA Private Wealth, May 18, 2023

If you’re approaching retirement, it can be both exciting and stressful. Sure, after years of juggling a full workload along with family and other obligations, having the freedom to set your own schedule is enticing.

However, given the recent spike in inflation and subsequent high interest rates, the basic cost of living has jumped significantly. Money isn’t going nearly as far as it used to, and you might be wondering if you’ve actually saved enough to enjoy your retirement years.

Running out of money is a legitimate concern. Many retirees live on a fixed income, such as government benefits, a company pension plan and maybe RRIFs or annuities. While some income sources are indexed to inflation to help keep pace with rising costs, ultimately you’re drawing down on your money in retirement, rather than growing wealth as you did when working. Nobody wants to experience a shortfall that may require amending retirement plans or result in financial insecurity.

Should you sell your home?

One possible solution as you enter retirement is to sell your home and rent instead. Although renting isn’t typically a goal for people who already own their home, let’s consider the potential benefits of this strategy.

Real estate values in Canada have declined somewhat as higher mortgage rates dampen the enthusiasm of prospective buyers. However, if you’ve owned your home for several years or even decades, chances are you’ve built considerable equity in that property as housing prices have risen steadily over time.

If you sell your home and rent when you retire, you’ll have a tidy sum of cash available. Some of it can be put toward regular living costs and discretionary expenses like a vacation, a new vehicle or pursuing hobbies. You may also wish to invest for the future. With guidance from your Investment Advisor, you can decide how to allocate your money across various investment products. Having the potential to grow your assets through investing is a proven way to extend how far your money can stretch in retirement.

Over longer periods, the stock market has generated higher returns than real estate (here’s one study as an example), so relying on the value of your home might not be the best option to achieve long-term growth. Also, investing in a range of securities provides diversification as you tap into different sources of growth potential. This approach may help reduce overall risk if one (or more) of your investments declines in value at a given time. On the other hand, when the bulk of your assets is invested only in your home, you may face a sharp decline in wealth if the real estate market weakens.

Three other benefits of renting

1. Home ownership involves maintenance and repair costs, property taxes, insurance, utility bills and other expenses that add up in a hurry. The older your home, the higher the expenses could be. Also, the older you are, the less likely you’ll want to deal with the maintenance and repairs. Renting will shift the burden to your landlord.
2. Property taxes usually increase each year, taking a bite out of your retirement savings and cash flow. If you sell your home, you avoid property taxes, plus capital gains from the sale of a principal residence are tax exempt, leaving more money in your pocket.
3. Selling your home gives you flexibility to decide where to live. Maybe you want to move to a warmer climate or be closer to children and grandchildren. Perhaps relocating near parks, golf courses or other preferred amenities is appealing. Selling also provides an opportunity to downsize from a large house to a condo or apartment, for a more carefree lifestyle with less hassle and fewer responsibilities.

Speak with your Investment Advisor for guidance on which approach is best suited to your unique needs and goals.

Do-it-yourself (DIY) investing is nothing new, but in recent years it has grown in popularity thanks to the proliferation of self-styled experts on the internet, particularly YouTube and social media channels such as TikTok. The idea is that personal finance and investing really aren’t that complicated, and that you’ll save money on advisor fees if you go it alone.

The truth is that only a very small number of people – people who live and breathe investing and personal finance in their spare time – have a reasonable chance of doing a good job of managing their own finances. But even they would significantly benefit from the unbiased assessment of a professional advisor, in the same way that doctors and lawyers turn to other doctors and lawyers when they need health or legal advice.

For virtually everyone looking to build and preserve wealth, save for their children’s education, and meet all the other goals that define our financial lives, working with an advisor will be the best financial decision you ever make.

Let’s take a closer look at some of the key benefits of working with an advisor.

A dedicated professional

An accredited advisor has the training, skills and experience to help build and maintain your wealth plan. Think of this plan as a roadmap to help you navigate life’s many twists and turns. For instance, if you buy a home, get married (or divorced), start a family, have a change in job status, experience a serious illness    (or a death in the family), or receive an inheritance – just to name a few notable events in life – your advisor will adapt your plan so you can remain on track towards achieving your financial goals. It’s similar to how GPS recalculates your route if you miss a turn or encounter an unexpected construction zone. Advisors also have proven methods of helping you save better, spend more wisely and budget smarter.

It takes time and skill

Not many people have the time or expertise to monitor their finances, including their investments. If major economic or geopolitical issues arise (recent examples include skyrocketing inflation and interest rates, the war in Ukraine and the global pandemic), would you know how they may impact your investments and overall financial situation? Would you be able to make the required adjustments to address current and impending conditions? Your advisor can be proactive and make financial decisions in your best interests, using the latest professional research and analytical insights to inform those decisions.

A nose for savings

Advisors know how to maximize tax efficiency so you can pay less tax and keep more money working for you. They’ll assess your life circumstances and recommend sophisticated solutions and strategies as part of your plan. Depending on your and your family’s needs, an advisor may suggest an RRSP to save for retirement, an RESP to save for your child’s post-secondary education, a TFSA to cover an upcoming large expense, an RDSP to provide financial support for a child living with disabilities, an FHSA to help save for your first home, etc. An advisor can also make you aware of certain government benefits and programs, and help you apply for them.

Focus and discipline

One of the biggest pitfalls of DIY investing is failing to maintain proper discipline. So many people react to short-term market and economic events (positive or negative) by being impulsive and either buying or selling when they shouldn’t. Investing is a long-term endeavour and you shouldn’t allow short-term “noise” to influence your decisions or interfere with your carefully developed wealth plan. Fear, panic, greed and overconfidence are just some of the emotions that can lead you to make poor or risky investment decisions. An advisor can help you stay calm and focused, so you can enjoy peace of mind even when markets are highly volatile.

What all of this means is that any money you think you’ll be saving by going the DIY route will almost certainly pale in comparison to what you’ll save once an advisor has put your finances under the microscope.

If you’re ready to take the next step towards securing your financial future, get in touch with an iA Private Wealth Investment Advisor today.

By iA Private Wealth, April 12, 2023

When you get a tax refund, it’s very tempting to see it as a windfall you can guiltlessly spend on things you want rather than need. And while there’s usually no harm in setting at least part of it aside for such expenditures, the reality is that, for most Canadians, the lion’s share of the refund is best used in other ways.

5 ways to allocate your tax refund

1. Pay down debt. Sending money to creditors isn’t much fun, but it may help relieve some anxiety by reducing your debt obligations (mortgage, credit card bills, car loan, lines of credit, etc.). Especially with today’s higher interest rates, paying down debt can have a huge impact on your finances, leaving you with significantly more money in your pocket.

2. Invest for the future. Using a tax refund to invest is a proven way for money to earn its own money, which can help build long-term wealth. Your Investment Advisor can help you decide which investments are most appropriate for your objectives, risk tolerance and time horizon. Investing in a registered vehicle like an RRSP, TFSA or RESP also provides the benefit of tax-advantaged growth.

3. Contribute to an emergency fund. Whether you already have an emergency fund or want to start one, putting away some money for a “rainy day” can be a great use of your tax refund. It’s typically recommended to have several months of expenses in an emergency fund, in case you lose your job, experience a death or major illness in the family, or need urgent home or vehicle repairs.

4. Donate to charity. The pandemic put a spotlight on the struggles many people face, and how many organizations that commit to helping others deserve greater financial support. When you dedicate some of your tax refund to charitable causes that hold meaning for you, not only are you helping people in need, but you also earn donation tax credits that can lower your future taxes.

5. Enjoy yourself. As mentioned, it’s often okay to spend some of your tax refund on something pleasurable, like a short trip with the family, a nice night out or a little retail therapy. Just know that your tax refund isn’t “found money.” It’s yours to start with and should be used wisely. In fact, getting a big refund may indicate that you paid too much tax during the year, such as from your paycheques. An advisor can provide guidance on how to ask your employer to deduct less tax from your pay. Sure, that’ll reduce your refund, but instead of waiting for a lump-sum amount you’ll be gaining access to your money throughout the year, which can help you invest regularly or pay down bills sooner.

We can help you with a wealth plan that addresses tax efficiency, so contact us today.