Insights

By iA Private Wealth, May 26^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.

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, May 10, 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, 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.

It may have taken some time and effort, but you managed to complete your income tax return for another year. While most of your work is done, you’re not quite finished yet.

After the Canada Revenue Agency (CRA) reviews your tax return, they will send you a Notice of Assessment (NOA). Go through it carefully and also think about sharing it with your Investment Advisor. Before we consider the main reasons why, let’s look at the basics of the NOA.

What is a Notice of Assessment?

The NOA is an annual statement that the CRA sends (through the mail and/or electronically) after you file your income tax return. It will state whether you received a refund or had an amount owing, and will provide the exact figure. If a balance due remains outstanding, you should pay it promptly to avoid additional interest charges.

The NOA is also an itemized tax assessment. It will list details from that specific tax year, such as your income, deductions, credits and tax payable (both federal and provincial). If you made an error when filing your return, CRA will correct it and provide an explanation of the adjustments they made. The NOA will also indicate your RRSP contribution limit for the next calendar year, as well as the dollar amount of unused net capital losses (if any) from previous years that you may apply to reduce taxable capital gains in the future.

An advisor can help decipher your NOA

As you can see, the NOA is a practical and informative snapshot of your finances for the past year. When you read through it, enhance your overall understanding of the types of income you generate and your primary sources of tax relief. Take note of any mistakes or incorrect calculations you may have made so you can avoid them when filing future tax returns.

An advisor has the experience and relevant skills to review your NOA with a critical eye and offer specific advice regarding matters you might be unaware of. Maybe you missed capturing some deductions or credits that would lower your income tax payable or increase your tax refund. If you donate to charities, an advisor may recommend – depending on your financial situation – that you donate securities instead of cash, or defer claiming donations to a future tax return in order to maximize your tax savings.

An advisor may also uncover opportunities to adjust your investment portfolio to increase capital gains and dividends while reducing income generated from interest, which is taxed at your highest marginal rate. Advisors are trained to develop and execute tax-efficient investment strategies so you can reduce the amount you owe each year. They may also work with other professionals* in their network, such as an accountant, to help build a tax-smart plan that is customized for your unique financial circumstances.

It’s also valuable for your advisor to know how much unused capital losses you have from previous years, as it could impact decisions on selling securities that trigger capital gains. Knowing your RRSP deduction limit for the upcoming year will help your advisor create or revise your strategy regarding how much to contribute. Your advisor may also help you take advantage of a pre-authorized contribution plan so you can automatically contribute a set amount to your RRSP on a regular basis (e.g., monthly) rather than try to make a large annual lump-sum contribution.

We can support all your wealth planning needs and help you manage your finances in a tax-effective manner. Contact us today.

It’s that time of year again. Tax time is right around the corner, and the sooner you get your slips, receipts and forms in order, the smoother everything will go.

Preparing well is crucial

First off, you want to make sure you file your tax return on time. If you owe money, you won’t incur an interest penalty on your balance if it’s paid before the deadline, which is typically April 30, but this year it’s May 1 since April 30 lands on a Sunday. If you’re entitled to a refund, it’s better to receive it as soon as possible so you can put that money to good use (e.g., investing for the future, paying down debt, getting essential repairs done on your home).

Enlist a professional

It may also help to work with an accountant or other professional with experience filing income taxes. Not only can they ensure that you pay all the taxes you owe, but they’ll also help lower your tax bill because they know how to find and properly claim the credits and deductions you’re entitled to.

For instance, you may qualify for a tax deduction if your employer required you to work from home as a result of the pandemic. This deduction is valid for the 2020, 2021 and 2022 tax years, provided you worked from home 50% or more of the time over a period of at least four consecutive weeks. The deduction is calculated using one of two methods provided by Revenue Canada: the “temporary flat rate method” and the “detailed method.” Your accountant or tax preparer can help you choose the one that will yield the greatest financial benefit given your personal circumstances.

A tax professional will help you maximize your allowable tax benefits related to medical and childcare expenses, charitable donations, and more. If you earned employment income from foreign sources or investment income from foreign property in 2022, the tax calculations are fairly complicated, so they’re best left to an experienced accountant.

Looking ahead

Once your income taxes are filed for the 2022 tax year, it’s not too early to begin planning for your next tax return. Be organized by having a good recordkeeping system for all tax-related forms and documents. It’ll make tax time run more smoothly next year, plus it will help you stay on top of whatever tax breaks you should be claiming.

You can work with your Investment Advisor and tax professional to ensure you do everything possible to minimize your taxes. You want to make the most of tax-advantaged plans such as the RRSP, RESP, TFSA, and RDSP. Your Investment Advisor can also work with you to implement tax-efficient investment strategies to optimize your long-term wealth-creation potential.

We can help you invest according to your needs while also saving on taxes, so please contact us today.

By iA Private Wealth, March 15, 2023

It’s no secret the housing market in Canada has been overheating for years. With real estate prices remaining stubbornly high, many prospective first-time homebuyers are feeling squeezed out of the market.

While there are no instant fixes for the challenges created by insufficient affordable housing, the Canadian government introduced a measure in its 2022 Federal Budget that aims to help first-timers save money to purchase a home. The government is working with financial institutions on finalizing details of the Tax-Free First Home Savings Account (FHSA), with expectations for an April 2023 rollout.

What is the FHSA?

The FHSA is a registered account for Canadians 18 years of age or older who have never owned a home or haven’t owned one in the past four calendar years. While the account is a bit of a misnomer since you technically don’t need to be a first-time homebuyer, nonetheless the FHSA allows eligible Canadians to contribute up to a lifetime limit of $40,000.

The annual contribution limit is $8,000 and unused room can be carried forward to a future year. For example, if you contribute $3,000 in 2023 your limit for 2024 will be $13,000 instead of $8,000.

The FHSA provides two notable tax benefits:

1. Contributions are tax deductible – just like your RRSP contributions – so your taxable income for the year in which you contribute will decrease by the amount contributed to your FHSA.
2. Any withdrawals (including investment-related gains) from the FHSA are tax free, provided that you withdraw the money to help purchase a home.

Like most other registered accounts, you can hold a wide range of investments in your FHSA, from stocks and bonds to mutual funds, ETFs and more. Keep in mind, however, that your FHSA can only stay open for up to 15 years. If you invest in risky securities prone to dramatic price movements, you might not have enough time to recover from significant losses – especially if the securities decline sharply closer to the 15-year mark. The best course is to consult with an Investment Advisor for guidance on the investments that best suit your specific timeline and capacity for risk.

If you don’t use your FHSA to buy a home within 15 years, you must close the account. You can move the assets to an RRSP or RRIF tax free or simply withdraw the funds, but in the latter case the amount will be fully taxable as income.

FHSA, HBP, or Both?

The FHSA is not the only option the government has provided for first time home buyers. The Home Buyers’ Plan (HBP) allows you to withdraw up to $35,000 from your RRSP on a tax-free basis to purchase your first home. You’re given 15 years to repay that amount to your RRSP, based on a prescribed schedule that includes a minimum annual repayment (you’re permitted to repay a larger amount in a given year, or the entire amount any time before the 15-year period ends). If you don’t repay the full amount within 15 years, the outstanding balance is considered taxable income.

Whether you should choose the FHSA, the HBP, or both will depend on your personal circumstances. Many people start contributing to an RRSP before they’re ready to buy a home, so the HBP lets you tap into money you’ve already saved. If you don’t have much cash available, it’s not feasible to open an FHSA; but if you can contribute a meaningful amount, the FHSA might serve you better than the HBP since you have no obligation to repay any withdrawals. The FHSA is also useful if you’ve maxed out annual contributions to other registered accounts and want another tax-efficient way to save for a home.

Get in touch with one of our Investment Advisors today for personalized guidance that can help you achieve your dream of homeownership.

By iA Private Wealth, March 1, 2023

Maybe it’s the rising price of goods and services, or the higher rates charged for mortgages, credit cards and other types of debt. Or it could be something else, but the reality is that financial challenges will always surface in everyday life.

While some factors are out of your control, you can take certain actions to improve your finances. For instance, consider investing regularly to help grow your wealth over the long term, or being mindful of any non-essential expenses. You can also take advantage of compound interest.

Understanding compound interest

With higher inflation comes higher interest rates to help cool off an overheated economy. That’s why it may cost you more these days to pay down your debt. On the flipside, savers have welcomed rising interest rates because, after decades of ultra-low rates (not too long ago, rates were sitting at or near zero), interest-bearing investments are finally providing some meaningful income.

From guaranteed investment certificates (GIC) to high-interest savings accounts (HISA) and more, the attractive interest rates they are now paying reflect the fact that the Bank of Canada raised its benchmark interest rate seven times in 2022 alone, to help slow the economy and calm inflationary pressures.

So, if you hold GICs and/or a HISA at your financial institution, you can put a dent into soaring costs by earning more interest income. But it gets better. When you earn interest on such investments, you may reinvest the interest as it’s paid, which means your interest will actually start earning interest as well. In a nutshell, that’s the concept of compound interest, and it can help you grow wealth faster.

Compound interest in action

Here’s a simplified example. Let’s say you invest $20,000 in a five-year GIC that pays 4% annually. Your principal amount will generate $800 of interest income after the first year ($20,000 x 4%). If you choose to reinvest the $800 in this GIC that’s yielding 4% per year – rather than take it as a cash payout – then that $800 will also earn 4% annualized interest. This means that for the second year of your GIC, you will receive $832 in interest ($20,000 original investment + $800 interest earned in year one x 4%).

For each year of your GIC, the accumulated interest you collect will continue to earn 4% annually on its own, in addition to your $20,000 original investment. The same principle applies to a HISA, where interest is typically calculated daily and then that interest starts to generate its own interest income. There’s the magic of compound interest as an effective wealth builder over time.

Investment flexibility

Here’s one more notable benefit of compound-interest savings vehicles like GICs and HISAs: you may hold them in registered plans or accounts – such as the RRSP, TFSA, RESP, RDSP and RRIF – that each have their own tax advantages, allowing you to retain more of your hard-earned money. Your Investment Advisor can work with you to help determine which account(s) to utilize.

Although the cost of living continues to rise, you can help keep pace by taking advantage of compound interest. It doesn’t even require you to invest a large lump sum. Some plans allow you to get started with as little as $50, and then you can add to your investment whenever the money is available. Consider a pre-authorized contribution (PAC) plan that automatically invests for you on a specific schedule (e.g., $100 per month). PACs can be a convenient way to invest regularly and allow compounding to build your long-term wealth.

We can help you benefit from the power of compound interest, so contact us today to learn more.