Maximize Your Child’s RESP

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By iA Private Wealth, August 15, 2022

A post-secondary degree remains one of the most valuable forms of education, as well as the entryway to countless career options. But funding that education can require years of saving by parents and grandparents before your child graduates high school. Thankfully, a little help from the government in the form of a Registered Educations Saving Plan (RESP) can go a long way.

How an RESP works

An RESP is tax-sheltered account that offers a government grant up to a certain amount each year, boosting parents’ savings for their children’s education. There are two types of RESP accounts: individual and family. Almost anyone in Canada can open an individual RESP account for a student (beneficiary) residing in Canada, while opening a family RESP is limited to the child’s (or children’s) parents or grandparents. There are some differences between these two account types – notably regarding certain beneficiary stipulations – but the nuts and bolts are the same.

A key objective is to contribute regularly to an RESP and take advantage of government grants. The earlier you start the plan, the more your money can benefit from compound tax-sheltered growth, which may create a significant pool of funds when the child is ready to pursue a post-secondary education. While earlier is better, even a late opening of an RESP can make a difference to your child’s ability to afford the cost of higher learning.

You may hold a number of different investments in an RESP, including stocks, bonds, GICs, mutual funds and ETFs. An Investment Advisor can help you choose the right mix of investments for your plan. Contributions are not tax deductible, but any investment growth in the plan remains tax deferred until the beneficiary withdraws funds for school. Since students are typically in a low tax bracket, RESP withdrawals should not result in a large tax bill.

Take advantage of government grants

The lifetime RESP contribution limit is $50,000 per beneficiary. Although you could contribute $50,000 in one lump sum, it may be advantageous to make smaller regular contributions. Why? Until the beneficiary turns 17, the federal government will match RESP contributions up to 20% annually through the Canada Education Savings Grant (CESG) program, to a maximum of $500 per year.

Therefore, many people aim to contribute roughly $2,500 a year to maximize the CESG. If you contributed $50,000 in one year, the RESP would only receive $500 in lifetime CESG, as compared to the $7,200 lifetime limit if you had made regular annual contributions. If you don’t maximize the CESG in a given year, you may carry forward the unused grant room to a maximum of $1,000 received annually.

What happens to an unused RESP?

An RESP may remain open for up to 36 years, and it’s flexible regarding what programs qualify (i.e., the child can attend post-secondary school full time or part time, and the focus can be on academics or trades). If the original beneficiary does not pursue post-secondary education, you may change the beneficiary in an individual RESP or add another beneficiary to a family RESP.

Overall, an RESP is a practical and tax-effective means of helping cover the ever-increasing costs associated with post-secondary education. An Investment Advisor can work with you to:

  • Complete all required RESP paperwork
  • Set up a contribution schedule that suits your financial situation
  • Implement an investment strategy to meet your (and your child’s) specific needs
  • Help maximize the growth of CESG grant money and RESP contributions

We can provide support for all major aspects of your wealth management plan, including RESPs, so please contact us today.

This article is a general discussion of certain issues intended as general information only and should not be relied upon as tax or legal advice. Please obtain independent professional advice, in the context of your particular circumstances. iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.

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Investing in Inflationary Times

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By iA Private Wealth, August 26, 2022 If you’re shocked by rising interest rates, it’s understandable. For developed-economy countries like Canada, interest rates have been very low – sometimes at historic lows – for decades. Recently, the Bank of Canada (BoC) has been among the central banks raising rates aggressively, with more increases expected. Why? In a word, inflation. Inflation means rising prices for goods and services. Since it occurs when the economy is growing, some inflation is good. If inflation soars well above target – the BoC prefers inflation around 2% annually, but Canada’s inflation rate hit 8.1% in June – then buying power decreases drastically. Central banks raise interest rates to help control surging inflation by cooling off consumer demand. Impact of high rates on investors Investing is a proven way to build wealth over the long term, but under these trying conditions of high inflation and rising interest rates, how are investors affected? When rates are low, the overall economy runs smoothly. People are more willing to spend when they know that borrowing costs (e.g., mortgages, credit cards, loans) are reasonable, so demand grows for many goods and services. In turn, companies tend to be more profitable and the markets perform well as stock and bond prices rise. The reverse happens when inflation is high. As interest rates rise, corporate earnings and stock prices tend to fall. The bond market may decline since bond prices usually move in the opposite direction of interest rates. So, where can you find attractive opportunities when rates are high? Here are seven possibilities: Big bank stocks. Banks can generate more profit as the spread increases between the interest they must pay to lenders and the interest they can charge borrowers. When market rates are low, there’s less ability to widen spreads. Energy stocks. Historically, high inflation means soaring energy prices, and the current environment is no exception. Investors with a healthy allocation to Canada’s energy sector heading into 2022 have seen a handsome return year to date1, even with the recent dip in oil prices. Price-maker stocks. Some companies have the ability to pass higher costs of production on to the consumer without any meaningful reduction in sales and profitability. Many such companies will be found in the consumer staples sector. Floating rate securities. As the name implies, the yield on these securities will move up or down in tandem with rising or falling interest rates. 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. Real return bonds are designed to help protect investors against inflation since they pay interest based on the CPI. Savings products. Guaranteed Investment Certificates and high-interest savings accounts are two popular products to help savers earn more income. Their rates of interest are linked to general market rates, so when inflation pushes interest rates higher, savers benefit. Annuities. Issued by insurance companies, annuities pay out a fixed stream of income to individuals, sometimes for the life of the annuity holder. They are generally long-term products designed to generate steady retirement cash flow. If you purchase an annuity when interest rates are high, you can receive higher cash flow than with annuities bought when rates are low. Investing is difficult at the best of times, but an environment of high inflation and rising interest rates adds complexity. When markets are volatile, staying focused on your financial plan and long-term goals can help you through the challenges – and remember, inflation will eventually subside and market conditions will improve again. We can help you invest for the long term under a wide range of economic and market conditions.      Contact us today.
Protect Your Finances by Naming a Trusted Contact

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By iA Private Wealth, August 22, 2022 When it comes to finances, most people can make their own decisions. They may seek support and guidance from an Investment Advisor, of course, but they’re able to take the advice they’re given and make sound decisions for themselves. But what happens if you lose mental capacity? Wouldn’t it be reassuring to know that someone will step in and protect your financial interests? That’s where a trusted contact comes into play. Designating a trusted contact Canada’s securities regulators understand the risks of incapacity, so they’ve introduced the Trusted Contact Person (TCP) standard. A TCP is someone you authorize your advisor to contact if they believe you may be experiencing physical or mental incapacity, or if they suspect you’re a victim of fraud or another form of financial exploitation, including undue financial pressure exerted by a loved one. Your designated TCP should have good knowledge of your overall personal and financial circumstances. A family member, close friend or caregiver are common choices for a TCP, but you could turn to a trusted lawyer or accountant to uphold your best interests in the event of your incapacity. Whomever you choose, be sure to notify them and confirm that they know what the responsibility involves and that they’re willing to accept this important role. What does a TCP do? Let’s say your advisor suspects you may be experiencing a cognitive decline or demonstrating signs of dementia. You could be making uncharacteristic financial decisions or taking on more risk than usual. Or maybe a fraudster has taken control of your email and is sending unusual requests to your advisor, such as asking to sell certain investments and transfer money to an external account. In cases like these, your advisor will reach out to your designated TCP and ask them if they’ve noticed anything unusual about your recent behaviour or actions. The TCP will respond to the best of their knowledge and may follow up with you to confirm their opinions. Unlike someone with power of attorney, a TCP cannot make financial or health care decisions on your behalf and holds no trading authority over any of your investment accounts. They won’t even have access to your accounts. The primary role of a TCP is to protect your best interests. Who needs a TCP? Having a TCP is a best practice, and everyone should consider adding this layer of protection to their investment accounts. However, since seniors tend to be more vulnerable to financial abuse, adding a TCP to their accounts should be a top priority. A TCP is also useful if you travel a lot and may not be easily accessible by your advisor. If your advisor cannot reach you and there’s a crucial, time-sensitive financial matter requiring your immediate attention, the advisor may ask your TCP to provide your contact information. Confidentiality remains paramount in the advisor-client relationship, so your advisor will only disclose information the TCP needs to know under the circumstances. Similarly, your TCP is only obligated to vouch for your current health or state of mind as it pertains to your financial situation, or provide your contact details to the advisor on an as-needed basis. A TCP is important to protecting your best interests and ensuring the integrity of your financial circumstances. Naming a TCP can provide you with peace of mind and gives you and your family an added measure of protection and reassurance when it’s needed most. For more information on how a TCP can help safeguard your finances, contact us today.
New Tax-Advantaged Account for First-time Homebuyers

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By iA Private Wealth, August 2, 2022 It’s no secret the housing market in Canada has been overheating for years. As real estate prices continue to soar, 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 a 2023 rollout. What is the FHSA? The First Home Savings Account (FHSA) is a registered account targeted at Canadians 18 years 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 cannot be carried forward to a future year (as it can with a TFSA or RRSP). The FHSA provides two notable tax benefits: Contributions are tax deductible, so your taxable income for the year in which you contribute will decrease by the amount contributed to your FHSA. 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 may 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 may only remain 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 your Investment Advisor for guidance on the securities 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 or HBP: What’s better? 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 to repay 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. Each plan has benefits and drawbacks, and be aware that you cannot use both the FHSA and HBP. Which plan to choose depends on your personal circumstances – your Investment Advisor can help you decide. Many people start contributing to an RRSP before they’re ready to buy a home, so the HBP lets you tap into money that you’ve already saved up. It’s not feasible to open an FHSA if you don’t have much cash available. However, if you can contribute a meaningful amount, the FHSA might serve you better than the HBP since you have no obligation to repay any account 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. The new FHSA doesn’t address the weighty issue of exorbitant real estate prices, but it does provide prospective homebuyers with an additional means of saving to purchase their first home. For comprehensive wealth planning advice that includes saving to buy a home, contact us today.
Understanding Advisor Credentials

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By iA Private Wealth, July 20, 2022 Investing is an essential part of building a retirement nest egg. But it can be complex, time consuming and even detrimental if done without proper research and guidance. That’s why many Canadians work with an advisor to help them select the right investment solutions and strategies to achieve their financial objectives. When choosing an advisor, it’s important to inquire about their credentials and the services they’re qualified to offer. Learning about industry-specific titles and designations may help you determine what an advisor brings to the relationship and how they can assist with your wealth goals. Regulatory oversight Two regulatory bodies are responsible for advisor licensing in Canada. The Mutual Fund Dealer’s Association of Canada (MFDA) oversees regulation of mutual fund dealers and sales representatives. MFDA-licensed advisors can offer advice and execute trades related to mutual funds. If they meet enhanced proficiency requirements, they can also provide access to exchange-traded funds. These advisors often offer insurance solutions as well, though this activity falls under a separate provincial and federal regulatory regime. The Investment Industry Regulatory Organization of Canada (IIROC) oversees regulation of “full-service” investment dealers and their advisors. In addition to the products and services offered by MFDA-licensed advisors, IIROC-licensed advisors can provide access to securities such as individual stocks, bonds, derivatives and commodities. Many IIROC-licensed advisors also provide access to insurance products. IIROC and the MFDA are proposing to merge into a single regulatory organization, which should allow for more efficient and consistent industry regulation. Job titles The industry has moved increasingly toward standardization and transparency of titles. For instance, an advisor registered as a Registered Representative may use the title of Investment Advisor or Wealth Advisor. If such advisors meet certain criteria (e.g., minimum five years of experience, responsibility for $40+ million in client assets), they’re entitled to be called Senior Investment Advisor or Senior Wealth Advisor. As an investor, you can gain a better understanding of an advisor’s experience and qualifications just from their title alone. Industry designations The professional designations an advisor has earned reflect their skill set. To uphold their designations, advisors must fulfill certain ongoing education and training requirements. Here are some common designations among advisors: CERTIFIED FINANCIAL PLANNER® (CFP®). Advisors holding the CFP designation have completed intensive education in all aspects of financial planning, and are equipped to create customized financial plans. In Quebec, the comparable designation is Financial Planner (F.Pl). Personal Financial Planner® (PFP®). Advisors with this designation focus primarily on financial planning for individuals. PFPs are knowledgeable about investments, insurance solutions, and tax and estate planning. Chartered Investment Manager® (CIM®). Those who have earned the CIM designation commit to deciding which investment solutions are most appropriate for each client by managing investments according to prevailing market and economic conditions. Chartered Alternative Investment Analyst (CAIA). CAIA charterholders may be responsible for managing, analyzing, distributing or regulating alternative investments. As more investors use alternatives to help enhance risk-adjusted returns, the role of a trained CAIA charterholder gains relevance. Chartered Financial Analyst (CFA). CFA charterholders are highly educated in disciplines such as portfolio management and investment analysis. Only a small percentage of advisors hold this elite designation. Responsible Investment Specialist (RIS). Advisors licensed to sell mutual funds may complete the requirements to earn the RIS designation and focus on selecting investments for clients that meet environmental, social and corporate governance (ESG) criteria. While industry-related licensing and designations vary, all qualified advisors can offer significant value. In the case of an Investment Advisor, they may provide extremely knowledgeable guidance around financial planning, investment selection and monitoring, and tax management. As well, when markets are volatile and emotions tend to run high, they help keep clients disciplined and focused on their long-term goals. There are many ways our advisors can help you meet your financial objectives, so please reach out and connect with a member of our team today.
Navigate Bear Markets with Professional Advice

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By iA Private Wealth, June 23, 2022 If you’re like most investors, emotions tend to creep into your investing decisions. When markets are strong and your investments are rising in value, you may become overconfident and less careful, investing money in the next “sure thing” without thoroughly researching the potential risks involved. On the other hand, when markets decline and your investments start losing value, your initial response might be to panic and sell before you lose even more money. It’s human nature to bring emotions into investing, but it’s also a likely way to fall short of your longer-term financial goals. That’s where an Investment Advisor’s steadying influence and expert advice can help. Guiding you through the tough times An Investment Advisor is trained to approach the markets rationally and with a long-term perspective. They understand that markets are volatile, rising and falling in response to macroeconomics, geopolitics and, yes, the emotions of other investors. Let’s say we’re in a bear market, which is commonly defined as a prolonged decline where investment prices have dropped by 20% or more from recent market highs. Would you have the confidence and resolve to stick with your financial plan and long-term investment strategy? Most people wouldn’t. However, Investment Advisors aren’t like most people. A key part of their role is to help you invest methodically and without emotions so you can remain focused on your long-term goals. They know bear markets don’t last forever. In fact, history shows that bear markets are typically much shorter in duration and less pronounced than bull markets (i.e., when overall prices have risen at least 20% above recent market lows). It’s just that most people feel more pain when they lose money than happiness when their investments gain. Strategies to weather the storm An Investment Advisor will help you stay the course and continue investing through short-term market turbulence. Bear markets may even be a good time to buy, as they often create opportunities to invest in attractive companies trading at undervalued prices. A strategy of “buying low” may lead to significant gains once the markets recover. If you’re hesitant about investing a large lump sum when markets are challenging, consider a “dollar-cost-averaging” (DCA) strategy where you invest a set dollar amount at regular intervals. For instance, you may choose to invest $250 per month in a particular mutual fund. That way, if the unit value of this fund declines, your $250 will allow you to buy more units. As values rise, you’ll buy fewer of the higher-priced units. A pre-authorized contribution plan, often referred to as a “PAC,” pairs well with a DCA strategy because it provides the convenience of investing automatically without emotions getting in the way. Not only can an Investment Advisor help you stay invested and potentially profit from “oversold” markets, but they also review your investment portfolio regularly. They will work to keep your portfolio tax efficient and well diversified, allocating to investments that suit your specific circumstances, risk tolerance, time horizon and financial objectives. If required, they’ll make adjustments to your portfolio. While it’s dangerous to be greedy when markets are performing well, it’s equally risky to let fear cloud your judgement when markets are declining. Without proper guidance, you might not stay on track to meet your goals and secure the financial future you want. A trusted Investment Advisor will offer the advice and direction you need, especially during bear markets when you’re probably most vulnerable to investing emotionally. We can help you create – and stick to – a personalized investment strategy as part of your overall financial plan. Contact us today.