Your Wealth Plan Requires a Team Effort

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By iA Private Wealth, June 29, 2021

When you think about your wealth plan, chances are you turn to your Investment Advisor when you have questions or need guidance. That’s understandable, since your advisor is a trusted financial professional who has helped to build and maintain your wealth plan and investment portfolio.

However, life is complicated and so are finances, which means there are times your advisor may wish to engage external resources* such as accountants, lawyers or insurance professionals. Whether you already work with them or they’re part of your advisor’s network of contacts, these professionals can bring a valuable perspective on your unique financial situation.

It’s common for people to compartmentalize their financial needs and seek assistance accordingly. For example, when you want to sell your business, you approach a lawyer to address the legal aspects of this transaction. When you want to minimize your tax obligations, you may turn to an accountant for strategies to implement. It might sound logical enough, but if each professional only sees a portion of your financial picture, you’re not benefiting from an efficient and harmonized action plan.

Assign a leader

While it may make sense to use the services of professionals in specific fields, it’s wise to appoint one of them as your “quarterback” who will coordinate your overall plan to ensure a holistic approach rather than working in isolation.

Typically, the quarterback is your advisor, given that advisors are highly involved in both everyday finances and long-term wealth planning. Advisors have a comprehensive view of your financial life and everything that feeds into it, plus they are integral to helping set and achieve your various goals. On the other hand, external resources are usually consulted on an as-needed basis.

Open the lines of communication

Since it’s important for each professional to be aware of what the others are doing on your behalf, transparent communication is key. Keeping everyone informed is critical as major life events take place (e.g., marriage, children, buying/selling a business, divorce, inheritance). For example, if you get divorced, your lawyer might be required to amend your will, your insurance needs could change and your personal budget may have to be reworked. Or, if a family member unexpectedly suffers a terminal illness, you have weighty estate and insurance issues to consider, and you may also face new financial challenges.

It doesn’t matter whether you take it upon yourself to spearhead communication efforts or leave it to your advisor. The main thing is to get everyone on the same page as soon as your circumstances change, to determine what actions must be taken.

If the professionals you rely on don’t know each other, it may be helpful for them to meet (virtually or in person) so they can discuss where each of them fits into your overall financial affairs. Even if they know each other, it’s valuable to bring them together to share information and insights, or to identify complex issues that may require coordinated planning and a group solution.

When you work with a team of professionals – with an emphasis on “team” – that has your best interests in mind, it means you can benefit from greater efficiencies and harmonized planning. It may also help uncover new opportunities to save or earn money, bringing you closer to achieving your financial objectives.

Get in touch with an iA Private Wealth Investment Advisor today to learn more about how a team-based approach can help you achieve all your financial goals.

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. *Products and services offered by external collaborators and/or professionals are provided independently and separately from iA Private Wealth Inc. Only products and services offered through iA Private Wealth Inc. are covered by the Canadian Investor Protection Fund. 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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Debt Avalanche or Snowball?

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By iA Private Wealth, January 10, 2021

It might sound like an issue specifically for winter, but deciding whether to follow the “avalanche” or “snowball” approach to tackling debt is relevant at any time of year.

If you’ve accumulated debt – something that’s more likely once the bills arrive after the holidays – trying to reduce it can seem intimidating. Where do you start? How do you limit the amount of interest you have to pay?

The avalanche and snowball approaches are proven ways to pay off consumer debt. Before we consider how each strategy works and which one may better suit your circumstances, let’s see what these strategies have in common.

For each method, make a list of all your consumer-related debts and commit to making the minimum payment, except for one. The debt balance that you’ve singled out is what you’ll target to eliminate first. Once that balance is cleared, proceed to the next balance on your list, and so on.

With that in mind, here’s how the avalanche and snowball approaches differ.

Debt avalanche: Start by making a big impact

Organize your list of debts by the interest rate that’s being charged, from highest to lowest. The primary objective of the debt avalanche method is to minimize the overall interest you pay. After making the minimum payments on all debt balances except the one with the highest interest rate, put as much money as possible toward reducing the balance on this highest-rate debt (while ensuring you still have enough to live on and can maintain an emergency fund for unexpected, urgent expenses).

As you retire that highest-rate debt, set your sights on the debt with the next highest rate, and apply the same approach of paying down as much as you can each month, until that debt is retired. As you work through your list of balances – always targeting the one with the highest rate – you’ll reduce your debt and save on interest charges.

The debt avalanche strategy may help you get out of debt sooner, but it requires consistent discipline and a steady flow of discretionary cash to put towards your balances.

Debt snowball: Get momentum on your side

Organize your list of debts by the balance owing, from the lowest-dollar balance to the highest. As with the debt avalanche approach, ensure you have sufficient money to live on and to sustain an emergency fund. After making the minimum payment on all balances, your first target will be the smallest balance on your list. Each month, apply discretionary cash to eventually pay off this smallest balance, and then do the same for your next-smallest debt.

The snowball approach focuses on systematically eliminating the number of balances outstanding. It may be good for people who enjoy the sense of achievement that comes from seeing fewer bills arrive in their mailbox or inbox. A series of small wins could help people stay motivated to repay their debts.

With the snowball method you’ll likely end up paying more interest and will take more time to eliminate your debt, but you’ll see tangible progress sooner.

Be proactive with your debt

The avalanche and snowball methods have their merits and drawbacks, but each can put you on track to eliminate debt faster. While it’s important to stay disciplined with the strategy you choose, it’s also crucial to manage future debt obligations.

Being mindful of how much money you spend – and what you spend it on – can help you evaluate your spending habits and avoid impulsive, unnecessary expenses. These expenses can quickly increase your debt balances again and potentially unwind the work you’ve done with the avalanche or snowball method. Stay focused on debt management and you’ll be in a stronger financial position over the long haul.

An iA Private Wealth Investment Advisor can help get your budget back on track for a successful 2022. Contact one today.

Lower Your Tax Bill with Tax-Loss Selling

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By Grant White, December 03, 2021

As we approach year-end, it’s very important to think carefully about your investment portfolio from a     tax-efficiency perspective. If you have mutual funds, ETFs, stocks or bonds in a non-registered account, that means looking into whether there’s an opportunity to benefit from a strategy known as tax-loss selling.

How it works

No matter how rigorous and thorough we are when making investment decisions, some of our ideas won’t turn out as planned. But there’s a silver lining: when you sell a non-registered investment at a loss, you can use that loss to help offset any capital gains tax you owe for the current year or future years. You can also apply the loss retroactively to capital gains realized in the previous three years.

Tax-loss selling may be right for you if:

  • Holdings within your non-registered account have appreciated exceptionally well for the year and you’d like to reallocate some of your gains to other opportunities.
  • You realized gains on non-registered investments to fund a major purchase this year or within the last three years.
  • You have paper losses on investments that are unlikely to recover meaningfully or for a significant amount of time.

When tax-loss selling, it’s important to be mindful of the “superficial loss” rule, which says that once you crystalize a loss on a security, you can’t rebuy that security within 30 days if you want to retain the ability to use the loss to offset capital gains tax. The rule also specifies that if you bought the security within the 30 days prior to the sell date, you cannot use the loss to cut your capital gains tax.

The superficial loss rule also applies to what the Canada Revenue Agency refers to as “affiliated persons,” which include your spouse or common-law partner, or a corporation that you or your spouse or common-law partner controls. This means, for example, that if you sell a stock at a loss to lower your capital gains tax and your spouse buys the same stock a week later, you’re no longer able to use the loss to reduce the tax you owe.

Let’s look at a simple example to illustrate the benefits of tax-loss selling.

Case study

Lynn invested $10,000 in each of TD Bank and Peloton at the start of the year, both within her non-registered account. Year to date (as of November 23, 2021), TD has shot up 33% to $13,300, while Peloton went the other way, dropping 71.7%.

Lynn still believes in the future of Peloton but thinks it’s time to take some profits on TD, so she sells half of her position. This triggers a capital gain of $1,650, 50% of which, or $825, is subject to tax at Lynn’s marginal rate. Since she’s in the top tax bracket, that works out to a $412.50 tax bill.

The alternative is for Lynn to harvest the loss on her Peloton shares to eliminate the tax liability on her TD gains and then rebuy Peloton after the 30-day superficial loss period. To eliminate her taxable gain, she sells just over 23% of her Peloton shares ($7,170 × 23% = $1,649.10). The capital loss of $1649.10 is then used against the gain from her TD shares and leaves her with 77% of her total shares.

The right advice

The idea behind tax-loss selling may seem straightforward, but for most investors with a well-diversified portfolio, deciding when to use this strategy – and with which holdings – typically requires professional-level judgment.

For example, you may have multiple holdings that stand out as candidates for profit-taking, but in the absence of in-depth analysis it may not be clear which ones still have meaningful upside potential and which ones are likely running out of gas and therefore worth selling off.

Thinking through considerations like this and crafting a strategy that optimizes both your portfolio’s performance potential and your tax situation is best left to an experienced advisor with intimate knowledge of your investments as well as your short- and long-term goals.

Grant White, CIM®, CFP® is a Portfolio Manager & Investment Advisor with Endeavour Wealth Management | iA Private Wealth in Winnipeg, Manitoba. He can be reached at (204) 515-3440 or grant.white@endeavourwealth.ca

Spend Wisely During the Holidays

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By iA Private Wealth, December 06, 2021

Most people look forward to the holiday season because it’s a time to shift focus from work to family and friends. Whether the holiday gatherings are in-person, virtual or a combination, it’s nice to reconnect with loved ones in a festive setting.

It’s also traditionally a time to exchange gifts, which most children – and children at heart! – anticipate well in advance of the season. If managing your bills after the holidays is a regular challenge, there are ways to keep costs reasonable while still joining in the fun.

A budget is your spending roadmap

First, create a budget for your holiday spending. Although few people enjoy going through the process of listing what gifts they plan to buy and how much money is assigned to each gift, having a budget is a practical way to keep spending under control.

If your budget starts looking tight relative to the money available, consider how to cut discretionary costs as a way to compensate. For example, if you usually buy coffee, use ride-sharing services for nearby trips or treat yourself to restaurant meals, you can brew your own beverages, walk or use public transit, and cook more often. You might even find you’re able to sustain these spending adjustments permanently! Once you’ve set a realistic budget, do everything in your power to stay within it.

Resist the temptation to overextend on credit

If you promptly pay your bills every month, credit cards are a good way to make purchases without fronting the cash. However, many people find it easy to spend using credit and then are shocked once the bloated card statements arrive.

The budget you create will cover your holiday spending, whether you use cash, credit cards or debit cards. It’s tempting to shop without keeping in mind that you’ll have to pay for your purchases at some point, and with credit cards the interest charges will add up quickly, which means more debt and more time required to pay it off. Debit cards may be preferable since you need enough money in your account to cover your expenses, so you won’t risk building more debt.

Be creative with gift giving

Many people enjoy creating their own gifts, and the recipient often treasures these homemade presents because they know how much thought and effort went into them. Think about what each person really wants or needs, and then consider if it’s something you can make. Not only does the process let you flex your creative muscles, but you’ll also save money. Buying gifts this holiday season could be more expensive than usual since higher inflation has raised costs significantly.

If you’re looking for other budget-conscious ideas, how about the gift of time? The busy people on your list may appreciate offers like free babysitting, being invited for a nice meal or relaxing at your place with popcorn and a movie. “Experience gifts” are also gaining popularity, so consider things like organizing a family hike somewhere fun that ends with hot chocolate and sweet treats, or taking a short trip with plenty of low-cost (or no-cost) activities booked.

Remember others in need

It’s easy to get caught up in the holidays and lose sight of less-fortunate people who may not be in a position to enjoy the season. Consider taking some time from your hectic schedule to volunteer at vital places like a shelter or food bank, or participate in a holiday gift-giving initiative. You may also wish to donate money or small items to organizations that provide presents for children and families in need. You’ll feel good about helping out and your efforts will reflect the true spirit of the season.

A trusted Investment Advisor can help you create a manageable and practical budget this holiday season. Find an advisor near you.

The Building Blocks of Financial Literacy

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By iA Private Wealth, November 10, 2021

November is Financial Literacy Month. It’s a great initiative, but in reality, every month is a good time to learn about personal finances. As you gain more knowledge, you’ll become a better saver, spender, consumer and investor.

Being financially literate touches almost every aspect of life. This article will consider some of the basics, giving you a foundation in case you wish to learn more about topics that are most relevant to you.

It can pay to shop

The world of financial products is more complex than ever, given the growth of online platforms. With so many financial institutions and so many products to consider, it can be overwhelming.

Before making a decision, shop around and weigh your options. Let’s say you want to open a bank account. Conduct an online search and learn what services each bank provides and what features each account type offers. Do you require a physical branch nearby, or will you do most of your banking virtually? Based on your circumstances, determine which account best meets your needs.

Similarly, credit cards come in all shapes and sizes, so shopping around can help you find the card with the features, rewards, fees and interest rates that work for you. Shopping around for the right mortgage is also crucial because purchasing a home is a major long-term financial commitment. Since mortgage rates and conditions vary by institution, careful shopping can make a big difference over the long run.

Know your rights and responsibilities

To satisfy regulatory requirements, financial institutions use clear, plain language in their contracts and other documents. For instance, banks provide easily understood information about their credit products, while investment managers publish materials like a Simplified Prospectus and Fund Facts document that highlight a product’s key features and risks. You should read these materials before signing any agreement, as understanding all terms and conditions will ensure you know what you’re getting into.

If your financial institution experiences insolvency, there are safeguards to help protect your money. For example, the Canadian Investor Protection Fund (CIPF) provides clients with limited protection for assets held by investment dealers that are CIPF members. Similarly, the Canada Deposit Insurance Corporation (CDIC) provides limited protection for eligible deposits held at CDIC members, such as banks, credit unions and trust companies.

Watch for scams

Protecting assets is the responsibility of every individual. Fraud and cybercrime are on the rise, targeting those who are vulnerable or careless. Scammers may call, email or text you, posing as a someone from a recognizable company or government agency. They often use aggressive tactics and threats that pressure you to provide banking or credit card information. If you question the identity of someone claiming to represent a legitimate organization, get their name/contact details and call the organization to confirm.

The Financial Consumer Agency of Canada (FCAC) ensures that federally regulated financial organizations comply with the appropriate measures to protect consumers. The FCAC also provides information to help you understand consumer rights and responsibilities, as well as how you can spot and avoid scams.

Understanding investment products

Everyone wants to build wealth for the future, but there are many investment products to choose from – and some are highly complex. Your advisor can help you choose products that best match your investment objectives, time horizon and risk tolerance.

If you don’t have an advisor, do your research as there are many options. Some people try investing on their own, but usually lack the necessary time and expertise. Others may use “robo advisors” that offer lower fees but typically provide limited services. For most investors, it makes sense to work with a professionally accredited advisor – one who offers personalized advice that can help them stay on track to meet their long-term financial objectives.

An iA Private Wealth Investment Advisor can help you navigate the financial marketplace as you work to achieve your wealth goals. Speak with one today.

5 Tips for Managing Your Expenses

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By iA Private Wealth, November 01, 2021

Are you looking for ways to keep expenses under control so you can improve your financial situation? That’s an important step toward achieving your objectives, since reducing debt and growing your savings will help you build wealth for the future. Managing finances has become more complex than ever, so the challenge for many people is taking the first step. Here are five actions to help you get started.

  1. Create a wealth plan. You want to reach certain goals and a comprehensive plan can help you get there. A professionally developed wealth plan will account for your unique circumstances, objectives, time horizon and risk tolerance. It can help you save and invest wisely, manage debt obligations and take advantage of tax-efficient vehicles to keep more money in your pocket. Also, it can adapt to changing circumstances so your plan can remain relevant at any life stage. A wealth plan keeps you on track to achieve your goals, helping you gain confidence and peace of mind. But creating a wealth plan requires a significant amount of training and skill, so it’s best to seek the help of a qualified advisor.
  2. Maintain a budget. A key aspect of wealth planning is setting a budget. Basically, a budget tracks your sources of income and your expenses over a given time period (typically monthly). Once you know how much money comes in and goes out, you can assess your financial health and make adjustments to strengthen your finances. For instance, if expenditures are higher than anticipated, look at your different expenses and determine which ones are essential (e.g., food, rent or mortgage payments) and which are “wants” (e.g., restaurant meals, new gaming system). Maintaining a regular budget will provide an ongoing snapshot of how well you’re managing money and where improvements might be possible.
  3. Consolidate your debt. Carrying debt is often unavoidable, as many people have mortgages, credit card balances, etc. An advisor can review your various debt obligations, working with you and your financial institution(s) to see if it’s advantageous to consolidate debt into one relatively lower-rate loan or line of credit. Doing so could help you pay off debts with high interest rates that may be unnecessarily eroding your wealth. Consolidating debt can streamline your finances since you only need to track one monthly payment instead of several. You might also consider contacting your financial institution(s) and negotiating a lower interest rate – it doesn’t hurt to ask or explore other institutions that may charge a lower rate.
  4. Commit to saving. Reducing your debt is important, but the flipside is increasing your savings. One common trick is to “pay yourself first” by taking a certain amount (e.g., 10%) of your monthly income and automatically depositing it into an interest-bearing account or investment plan. It’s tempting to spend money that’s readily available, so devoting some income to a regular saving or investment routine will keep you disciplined – chances are, you won’t even miss the money being saved. Another important part of saving is putting away money for emergencies (e.g., employment loss, major repairs/renovations, serious illness, etc.). Life is filled with unexpected situations that may require immediate access to cash, so an emergency fund (general rule of thumb is a minimum three months of household expenses) becomes essential.
  5. Make use of technology. Advances in technology can greatly improve your finances. To compare institutions and products to see which ones offer the best rates/prices or the features you need, simply conduct an online search. There are also financial-related apps that may enhance your banking experience, help you save or invest, find an appropriate mortgage or insurance policy, keep your finances secure from cybercrime, create a budget to help you track your income and expenses, and much more. Search online for financial apps that interest you, and then read reviews and conduct other research to determine which apps are most suitable for you. Your advisor may also have insights into how financial technology can work well for your circumstances.

An iA Private Wealth Investment Advisor can help you get and stay on track so you can reach your unique wealth goals. Speak with one today.