Take Control of Taxation

Six Steps to Financial Freedom, Step Five

I’m not a tax expert. But I do know a few things about taxes and how to mitigate them as you build wealth. That’s why step five, in the six steps to financial freedom is Take Control of Taxation.

In this world nothing can be said to be certain, except death and taxes. – [Benjamin Franklin]

death and taxes

I don’t know if it was Ben Franklin who said it first or not, but that is the most widely accepted first form of the statement I could find. What’s not certain is when you will eventually die or how much tax you will be expected to pay. I’ve already touched on some of what we need to do about early death in step two – Regulate Risk. Now let’s take a closer look at taxes.

First the bad news, everybody pays. Nothing I’m going to show you here is going to change that fact. But it might not have to be paid all at once, or even by you.

I already talked about this back in step three – Rule Retirement. In Canada we have the RRSP program. One of the great things about RRSPs is that any money you put in now reduces your tax bill until you take it back out. If you make $100,000 per year you have an average tax rate of 35%. That means you pay $35,000 in taxes and have to live on $65,000. If instead you put the maximum (18%) of your income into an RRSP you could report an income of $82,000, your average tax rate would then drop to about 20% and you would get to live on $65,600. ($82,000 x .2 = $16,400, $100,000 – $18,000 – $16,400 = $65,600). Granted that’s not much of a difference until you consider that you would then turn around and invest that $18,000 at say 6%. Do it every year for about 30 years and you have $1.6 million!

If you stop working and start taking it out when you are 65 you must take out a minimum of about 4% or $70,000 per year. Now I already said it’s taxed when you take it out but as you might have guessed, your tax rate on $70,000 is even less, about 18%, so now you are living on after tax income, in retirement when your expenses should be a lot less, of $57,400.

My math isn’t exact here and I doubt very many of my readers are going to be able to put the full 18% maximum into RRSPs, but you get the picture. By putting money away now, in your higher earning years you reduce your tax bill and differ your payments until such a time as you are in a lower tax bracket. It might not feel like it but you will pay considerably less tax in the long run and if you follow my instructions in steps one through four you will have the money to do this.

But here’s where it gets really interesting. What if I told you there was a way that your estate could pay almost no tax upon your death?

There is nothing that eats away the value of your estate faster than probate taxes and capital gains. If you follow the above plan and retire with $1.6 million, kept investing at 6% and then died at age 90, there would still be about $1 million left over in your account. If that money went into your estate it would automatically be subject to tax at about 45%, plus probate tax at an additional 1.5%. As a result your estate would only be worth $535,000. Ouch!

Did you know life insurance proceeds are tax free and never subject to probate? Did you also know that participating life insurance continues to grow cash value right up until the moment you die, even after the contract is fully paid up?

I already pointed out that you will always pay the tax, there is nothing we can do about that but let’s compare the cost of a participating life insurance policy to a $465,000 tax bill.

In the above scenario we know that you will need $465,000 to pay the taxes on your estate if you die at age 90. So if you’re 40 now, and you project out the growth of a participating life insurance policy for 50 years, how much life insurance to you need? Answer – $125,000. And how much does that cost? For a male non-smoker about $4,500 a year on a 20 year contract or $90,000. When you turn 60 you stop paying and watch the value of the policy continue to grow for the rest of you life.

So, pay the government $465,000 of your hard earned money when you die, or pay a life insurance company $90,000 over the course of 20 years while you are living. Seems like a no-brainer to me. Put in terms of percentages, pay the government 46.5% of your estate or pay the insurance company 9% and keep then rest!

Now I’m not saying this will be everyone’s situation but if you follow my advice from the earlier steps it’s not that far-fetched of an idea. And because we are working in percentages the math works pretty much the same no matter what the actually dollar figures are.

Bottom line – save as much as you can in an RRSP to reduce your tax bill now and in retirement and buy a participating life insurance policy to pay the capital gains and probate taxes on your estate. Overall you could reduce the amount of tax you pay out of your pocket significantly.

For information on this and other Meekonomist approved methods for Taking Control of Taxation write to themeekonomicsproject@gmail.com

Engineer Education

Six Steps to Financial Freedom, Step Four

Smiling Graduate Holding up Diploma

I have to confess, I personally did not follow my own advice when it comes to paying for my own education. There are a lot of reasons for that, not the least of which being that when I was young the government programs were different and my parents did not have any extra to set aside anyway. So I did what just about everyone else does, I worked my way through college and got a loan backed by the government that I repaid when I got my first job. Fortunately I went to an inexpensive school and was able to find work right away after graduation so I was able to repay my loan within the first year.

In this day and age there are a number of ways that parents can start saving for their children’s education at an early age and eliminate the need for student loans. The key in all of it is to start early and invest wisely. But I put it down as step four because you should never prioritize children’s education over debt freedom or your own retirement plan. If you can’t afford it you are better off teaching your kids the value of hard work, setting them up to work their way through college or university and yes, in this one circumstance a small student loan is not the end of the world. But I stress small loan. A student loan is not a substitute for work, even if your program is so intense that you can only work in the summer, that’s something at least and it helps set you up for the real world.

So that being said, how do we start saving for our children’s education now?

In Canada there are essentially three vehicles that people can use to save for a child’s education: Registered Education Savings Plans (RESP), Life Insurance and Non-Registered Savings.

The RESP is the most common method and in most cases the best option. People place money into a mutual fund or other type of investment plan tax differed, the government matches your investment with a small grant and when you start school you can withdraw the money at the student’s marginal tax rate, which should be close to zero. If you put the money in a decent growth mutual fund it’s reasonable to expect a return of 8-10%. Add to that the government matching grants and it’s not unreasonable for a well designed RESP to return close to 30% on the money you put in. There isn’t another (legal) investment in the world that gives you that type of return.

Consider this, if you were to start investing $100 per month in an RESP returning 10% with the government grant adding an additional $25 per month to your contribution, the investment will have grown to $70,000 by the time your child is 17. Compare that to a non-registered plan without the government grant you would need to contribute $260 per month, more than 2.5 times a much to amass the same amount of money.

Of course if your child doesn’t go to an accredited school the government takes back their grant money but you would still have the $100 per month that was invested at 10% for 16 years that you could use for anything you chose. That’s still $50,000.

So that’s two ways you can invest for education, RESPs and Non-Registered investments but what about using Life Insurance for education?

Now to be clear, I am not proposing that you purchase Life Insurance as an investment. The purpose of Life Insurance is to cover expenses associated with early death or to replace the income of a wage earner. In the case of a juvenile, if there is a history of illness in the family it’s a good idea to start an insurance program in ensure their life-long insurability before they develop something that would make them difficult to insure in later life, like diabetes or a brain tumor (like happened to my niece at the age of 17). But of none of that happens we can’t ignore the cash value in certain types of life insurance.

Take that same $100 per month. If we were to use it to fund a life insurance policy on a one year old boy we could purchase a Life Insurance policy with a starting death benefit of $110,000. In 17 years that policy would be worth $240,000 with the option to purchase up to another $150,000 of insurance with no medical exam. In terms of funding education, that policy could be used as collateral for a loan at better terms than a traditional student loan or could simply be cashed out for about a third of its official face value. As a pure investment play, Life Insurance is not your best option but if you’ve already maxed out the RESP option and there is any concern about the future insurability of your child you should consider purchasing Life Insurance as a long term strategy.

Life insurance is never any less expensive that it is today. No matter what you do it will always cost your children more to buy insurance for them self than you can purchase it for them today, assuming they are even insurable when the time comes.

For more information on these strategies for Engineering Education, or anything else discussed on this page please write to themeekonomicsproject@gmail.com

Rule Retirement

Six Steps to Financial Freedom, Step Three

I apologize for not posting this on the weekend. I know many of you have come to expect my Saturday morning posting but circumstances got in the way this week and things go pushed back. Besides, I never intended to posts only on Saturdays, that’s just a rhythm I have fallen into from time to time, it’s good to mix it up once in a while.

Anyway, here goes step three in the six steps to financial freedom. – Rule Retirement.


Many people think that this should be the first step, or at least the second step but I have placed it as the third step for a couple of simple reasons.

First, if you are deeply in debt, especially high interest debt like credit cards it’s pretty much impossible to make any headway on your retirement dreams anyway. At the end of the day it’s all about your net worth, if you have a negative net worth, meaning if you sold everything you owned you’d still be in debt, or you are paying a higher interest rate on debts than you can earn in savings than it doesn’t make much sense to save. You’re still falling behind in the race, pay off your debts first then save.

Secondly, if you are at risk of losing it all due to dumb luck or crazy circumstances, i.e. death, injury or a prolonged illness, either yours, your spouses, your kids or someone else close to you need to protect your assets as you build them and that infrastructure needs to be in place before you go too far or it might already be too late.

So now, once you have Dominated Debt and Regulated Risk you are ready to start Ruling Retirement.

Step three necessarily begs two questions; how much do I save and where do I put it?

The simple answer is of course, as much as you can and at the highest possible interest rate. But the simple answer is not always easy.

In terms of how much it is difficult to put a number on it. My personal rule of thumb is 15% but it really depends on too many factors, age, risk tolerance, how much money you need to live on in retirement etc, for me to recommend that to everyone. In order to answer the how much question for you we would need to sit down and have a very frank discussion about where you are on the first two steps, where you want to be and when you want to get there. So for now the only answer I can give you that makes any kind of sense is “as much as you can.”

The where do I put it question is a bit easier to answer, but not much easier. In Canada we have two retirement savings vehicles, four if you are lucky. These are not investments, they are tax treatment options, the actual investments they hold can vary but before we get into a discussion of where to invest we first need to decide what vehicle to use. First off we have the TFSA or Tax Free Savings Account that holds after-tax dollars and grows the interest tax free. Second we have RRSPs, or Registered Retirement Savings Plans, which hold pre-tax dollars but are taxable as regular income when you remove the money. Third, if you are lucky enough to work for a government agency or another large employer you might have a pension plan which is taxed in the same way as an RRSP, pre-tax going in, taxed coming out. And fourth, if you are really lucky you have enough money not to need to worry about taxes and you simply invest after tax dollars and pay taxes on the growth you earn along the way, this is what we call a non-registered investment.

If you make less than $40,000 per year the tax advantages of saving in an RRSP don’t make much difference so you’re better off in a TFSA. You can’t put more than 18% of your income in an RRSP or a pension and if you make more than about $125,000 per year the tax deferral amount is capped so you have to put anything over and above that in a non-registered vehicle.

Once we’ve decided how much, and which vehicle to use, the last question is where. This is now a question of risk. The simple answer as I mentioned before is, at the highest interest rate possible. The highest interest rate is usually the most risky however, so you need to balance your risk tolerance with your time horizon and your stomach for potentially losing money in the short term. For most people with a time horizon of ten or more years I recommend a Balanced Growth Mutual Fund. We can usually get about 6-8% return on something like that with minimal volatility. But some people take exception to my recommendation of mutual funds, saying their either too risky or too conservative. A lot of people got burned back in 2008, 2009 because they didn’t understand risk or market cycles and that’s on their investment advisors, I personally take as much time explaining risk as I do anything else, if not more.  There is a great saying in the investment business that goes like this, “the only people who get hurt on a roller coaster are the people who jump off”.  If you don’t want to take the ride, then don’t get on in the first place.

Mutual funds are the simplest way for most people to get into the stock and bond markets without having to know a lot about how they work. In that regard Mutual Funds are really good, low maintenance, buy and hold investments that offer the most bang for your buck. If you bought in 2008 you lost a lot of money in 2009 but you were back where you started by 2011 and the markets have been steadily rising ever since. The key to all of this is to be able to buy and hold long enough to ride out the market cycles.

If you are risk averse or have a shorter time horizon then there are a number of more conservative options that may return 4 or 5%. But when we start looking at even lower returns, say 3% or less or if you are completely unprepared to accept any short term loses at all you might be better with just a traditional savings account or even using Life Insurance as an investment vehicle, more on that in Step Five and Six “Take Control of Taxation” and “Leave a Legacy”. Conversely if you enjoy a good roller coaster and have a longer timeline we can have some real fun getting aggressive and going for 10 or 12% return, just be prepared from some big swings in the value of your portfolio.

At the end of the day, Ruling Retirement isn’t rocket science. You just need to understand two things, number one, the greater the risk, the greater the potential return and two, the longer you can stay in the more you will take out.

For more information on Meekonomist approved retirement planning vehicles and investments contact themeekonomicsproject@gmail.com

Regulate Risk

Six Steps to Financial Freedom, Step Two

Quick, what’s your biggest asset?

Did you say your house, your car, or if you’re lucky your investment portfolio?

Wrong, wrong and wrong again!

The fact is your biggest asset is you.

Step Two in my Six Steps to Financial Freedom is to Regulate Risk. Since your biggest asset is actually yourself and your ability to earn and income that means your biggest risk is the risk of losing that ability. Once you have taken control of your debts and before you start investing you need to make sure you protect yourself and your family from some the unthinkable (and inevitable) events.

Here are some sobering statistics.

–          The average working individual has a 1 in 3 chance of being off work due to illness or injury for more than 90 days at least once between the ages of 25 and 65.

–          The average length of disability is 2.9 years.

–          1 in 2 and 1 in 3 women will develop heart disease resulting in a prolonged absence from work.

–          1 in 2.3 men and 1 in 2.7 women will develop cancer, resulting in a prolonged absence from work.

–          80% of heart attack patients make a full recovery.

–          100% of deaths are permanent.

Regardless of what the personal opinion and compassionate position of your banker might be, the bills will keep coming. Nothing can derail your retirement plan or increase your debt faster than an unexpected illness or the premature death of a wage earner.

As a result before you start investing I strongly recommend you carry 4 types of insurance. Depending on your employment situation not all of these products are necessary for everyone and budget is always a consideration but these are the basics.

1 – Health Insurance.


The good news is that most employers offer some form of group health plan to their employees to cover prescription drugs, dental and other incidental health care related costs. Many health insurance plans also include a small amount of Life and Disability Insurance. In most cases however the Life and Disability portion is very small and severely restricted, read the fine print and ask a licensed insurance specialist to help you interpret what it all means. There is nothing worse than surprises when it comes time to make a claim. And of course, once you leave your employer you no longer have coverage. If you work for an employer who does not offer a group plan, or you are self-employed look into getting some personal coverage, it may seem expensive at first but believe me, no one who makes a big claim for cancer treatment or restorative dental work ever says they paid too much for their insurance.

2 – Life Insurance.


Despite what you might think dying is not a get out of debt free card. Especially for the people you leave behind. The number 2 cause of bankruptcy in North America is the early death of a wage earner. If you carry debt – get life insurance! Even if you don’t carry debt or your spouse thinks they can handle it without your income you should still get at least enough insurance to cover the cost of a funeral. The average cost of a funeral in Canada is $12,000 add to that final expenses related to a prolonged illness and possible legal fees incurred in settling your affairs and the cost could easily exceed $15,000 or $20,000. It just makes good sense to make sure the last thing your loved ones remember about you it’s how much your funeral cost.

3 – Disability Insurance.


Back to point one, most employers offer some form of Disability Insurance within their group health plans but read the fine print. Most group disability coverage only starts paying after you’ve already been off work for several months and stops paying after about two years. From the stats above we know that the average length of disability is closer to three years and that’s if you’re lucky enough to even qualify under the definition of disability in your plan. Many policies define disability so narrowly that even though you can’t do your job, if you can do any job at all for any amount of pay, you don’t qualify. Think about that for a minute.

A personal disability insurance plan tailored to your income and special skills, even in conjunction with a group plan, might be the difference between making your mortgage payment or being forced to sell your house and move to a cheap apartment.

Any guesses as to what’s the number one cause of bankruptcy?

4 – Critical Illness Insurance.


Many critical illnesses, cancer, heart attacks etc, have a fairly quick recovery time and as you can see by the stats above, medical science has given us a pretty good chance of surviving. You could have a heart attack and be back to work, at least part-time in less than a month. You could be taking cancer treatments in the morning and going to work in the afternoon. If that’s the case you might not be off work long enough or have your hours reduced enough to qualify for disability insurance. But the economic cost could still be significant.

Disability Insurance only replaces your income it does not cover the cost of one-time expenses like home renovations to accommodate a wheel chair or expenses associated with a long hospital stay. Things like extra commute costs or the loss of income from a spouse who takes time off to be with you for example are not generally considered in a disability insurance claim. That’s where a critical illness policy becomes valuable it provides a one-time lump sum payment at the time of diagnosis to help cover initial expenses associated with the condition.

As you can see there are quite a few areas of risk associated with your ability to earn an income that need to be addressed early in your financial plan.  When bad things happen, it doesn’t take long to wipe out a retirement nest egg if you aren’t prepared with a proper amount of insurance. The exact structure of an insurance plan is different for everyone based on your budget and how exposed you are but the bottom line is this; if you have any debt, a job or are currently breathing, you are exposed to risk that a good health, disability and life insurance plan can mitigate and you should do that before you invest a dime.

Next week we’ll look at step three, Rule Retirement.

If you have any questions or would like more information on how to Regulate Risk in your life write to themeekonomicsproject@gmail.com

Bank Offered Life Insurance; why that’s not really a good thing

Manos entregando una casa

So every once in a while, when speaking about the topic of Life Insurance I get this objection, or something similar.

“When I took out my mortgage the bank offered me Life Insurance too, since that’s my only debt my family will be fine.”

The fact of the matter is that under Canadian law a bank employee is actually prohibited from selling any type of insurance product, whether it be life, disability, property (such as home and auto) or casualty insurance to consumers.  What they are really selling you is not insurance for yourself but the privilege of paying premiums on behalf of the bank so that if you die (or in the case of disability insurance that they also sell, become disabled) while you still owe them money the insurance company will step in and pay off your debt.  You won’t ever see a dime of that money.   You do not actually own the policy and cannot a name beneficiary, both the owner and the beneficiary remain the bank itself.

If that’s not enough to give you pause it doesn’t end there.  There is no real underwriting on a bank owned life or disability insurance policy.  Instead they ask you about half a dozen questions and then wait until you get sick or die to do any kind of due diligence on your answers.  If you lie, forget the facts, or simply misunderstand the questions your claim could be denied right at the time when you or your loved ones are the most vulnerable.  Your family could be left holding the proverbial bag for a mortgage payment they can no longer afford.

There is also the small matter of the pay out.  Since the bank is the beneficiary and the policy is design to only pay out the balance of your mortgage it makes sense that over time, as your mortgage balance drops so too does the amount the insurance company needs to pay the bank.  With that being the case you would think that your premiums would drop as well but they don’t.  You pay a level premium for the entire time you hold the mortgage, regardless of the balance.

By contrast a true life insurance policy that you own allows you to designate any beneficiary you like, both payout and premiums remain level for the entire life of the policy and all underwriting is done prior to the policy going into force so if you have high blood pressure or forget to disclose your genetic predisposition to heart disease the insurance company will be aware of that before offering the coverage and will build the possibility into the premium you pay, resulting in far fewer instances of claims being denied.

The good news is that the bank is also legally obliged to give you the chance to opt out of their coverage.  When buying a house, as with any major purchase or life event it’s always a good idea to consult with a qualify third party financial advisor.  Independent financial advisors work for you, not the banks, and they may be able to help you identify far more than just your insurance needs.

For more information and a better explanation of the payout arrangements on bank owned life insurance check out this article from a fellow financial advisor posted a few years ago (Mortgage Insurance vs. Life Insurance) or email me at themeekonomicsproject@gmail.com


3 ½ Things Canadians Need to Know About Permanent Life Insurance

I’m a fan of Dave Ramsey.  He’s the host of the aptly named “Dave Ramsey Show”, an American radio- call-in show on over 500 stations where he talks about “You Life and Your Money” and helps people get out debt and invest wisely.  Ninety-nine percent of what Mr. Ramsey says is right-on and applies as much to Canadians as it does to Americans but there is one thing that he is completely wrong on.  At least wrong for the thousands of Canadians who listen to his show every day, and that is his take on Permanent Life Insurance.

You see, the American marketplace and the laws surrounding Life Insurance are different in Canada and Canadians need to understand that difference before they go making any decisions based on the opinions of Dave Ramsey, Suze Orman or any other foreign commentator on the subject.  So before you go taking advice from people who don’t live or work in Canada, here are three and a half things Canadians need to know about Permanent Life Insurance.

Thing #1 – The cash value can be ADDED to your death benefit.

Permanent Life Insurance is a bundled product with both an insurance and investment component.   When you purchase the product you start with a basic death benefit and over time the value of that death benefit increases depending on the dividend rate of return in the investment component.  Your dividends can be reinvested inside the policy to purchase more insurance or paid out in cash.  For example, according to one of Canada’s largest life insurance companies, if a 40 year old male purchased a $50,000 policy and got hit by a bus on his way home from the insurance agent’s office his beneficiary would receive a $50,000 pay out, but if he lived for a year his dividend would be $209.  If he reinvested that dividend and purchased additional coverage his beneficiary would receive approximately $51,094.

According to Mr. Ramsey, and other American financial gurus, the cash value in a permanent life insurance policy is only accessible if you take it out as a loan while you are living and once you die you are only paid the face value of the policy.  While that may be true in the United States, I don’t know, it is categorically false in Canada.  When the dividends are used to purchase additional insurance it is actually worth even MORE if left inside the policy until you die.  If you do need cash throughout your life you can access it by surrendering only the additional insurance without reducing the original face value of your policy.

Thing #2 – The rate of return on your investment is (currently) 6.26%.

This is a bit more complicated to understand.  For that same 40 year old the cost of the $50,000 coverage for a year is $1403.  The dividend in the first year is $209 you can either take the cash and treat as a refund or purchase additional coverage.  To really see the value here you need to contrast that against what the same level of coverage would cost on a term basis (i.e. without the investment component).

Now term insurance is a lot cheaper than permanent insurance.  The same amount of 20 year term insurance would cost $216 per year.  So really what you are doing is investing the equivalent of $1187 per year with the insurance company.  Over the course of 25 years this 40 year old would have invested the equivalent of $29675 over and above the cost of insurance and received cash dividends of approximately $47342.  That’s an annualized rate of return of 6.26%.  According to Mr. Ramsey the average American can only expect to receive 1.9% on their investment in a permanent policy, again, that may be true in the USA but definitely not in Canada.

Thing #3 – Permanent insurance is, well permanent!

Aside from the difference in cost and the ability to build cash value the other main thing Canadians need to understand about permanent life insurance is that it is permanent.   As long as you continue to pay your premiums, which are guaranteed never to increase, you will receive your payout and unlike a traditional investment, once the dividends are paid into the policy they can never be clawed back, (i.e. they are not subject to market volatility).  Sure some traditional investments are returning better than 6%, I’ve seen some mutual funds as high as 15% lately, but you could just as easily lose money in the market even after several years of growth.  Not so with a permanent life insurance policy, once the dividends are paid, they’re paid.  With a term insurance policy on the other hand, at the end of the term the premium always increases and if you don’t continue to pay the higher premium your coverage goes away.  In short if you don’t die during the term of the policy your beneficiary doesn’t get paid.

Back to our 40 year old example, when he turns 60 the cost of insurance increases to $2424 per year, that’s an increase of more than a 1000%! And he hasn’t received a cent in investment value.  Our fictional 40 year is now paying 58% more per year for $50,000 of coverage than if he had purchase the permanent policy.  By contrast the permanent policy has increased the death benefit to over $90,000 and he would be sitting on over the $32,000 in cashable dividends.

Thing #3 ½ – Canadian’s should never take financial advice from Americans.

This should go without saying and that’s why I only give it half a point.  We are a different country after all, with a different culture and different laws, but in our heavily integrated continent it’s hard to get away from the influence of the American media.  So here is my modest appeal; for every minute you spend watching CNN, MSNBC or Fox News, Canadians should spend at least 2 minutes on CBC Newsworld, CTV News Channel or BNN.  I promise you’ll still know what’s going on south of the boarder but you’ll at least get it from a Canadian perspective and you’ll learn what it really means in the context of our laws and our culture.

One last thing; according to Mr. Ramsey, the only people who have anything good to say about permanent insurance are the people who sell it.  In the interest of full disclosure, I do make a portion of my income off of the sale of permanent insurance but only a portion.  I also sell term insurance and mutual funds, in short I sell it all.  Depending on your needs, goals and dreams, permanent insurance can be an important part of a comprehensive financial plan.  But don’t take my word for it, as the speed read disclaimer at the end of Mr. Ramsey’s radio show says, “Because the details of your situation are fact dependent you should additionally seek the services of a competent professional”.

Your Financial Security – May 2012

The following is a reprint of the email newsletter I send out to my address book of clients and contacts as part of my day job as a Financial Security Advisor/ Small Business Specialist. 

Participating whole-life policies offer attractive returns – On April 7, columnist John Archer published a great article on participating whole-life insurance in the Montreal Gazette.  If you’ve ever wondered how to get consistent, better than average returns on your investment with little to no risk maybe you should consider including a Participating Whole-Life insurance policy in your portfolio, this article is a great primer on a great product.  Call me for more details;

 Click Here to Read Article

Staying out of the market puts financial goals at risk

 If you’ve decided you’re better off staying out of the markets, you’re not alone. Many investors still feel uncertain with the after-effects of the economic downturn, and they’re concerned about their savings being diminished. It’s a valid concern, especially when headlines today continually remind us how risky investing can be.

However, staying out of the market creates its own risks.  Many investors still have money in either cash or cashable short-term investments like money market funds, guaranteed investment certificates (GICs), and low-interest rate bank accounts.

These investors are staying out of the market to protect their capital from market volatility. This strategy can have long-term consequences to their financial security. By limiting the growth potential equity markets can provide, low or no interest rate investments mean individuals aren’t keeping up with inflation. This could create a scenario where they may not have enough money to meet their goals.

During periods of market volatility, it’s important to have investment funds with some component of equities, if appropriate, as part of your overall portfolio. By including sound investment principles into your financial security plan, and staying invested for the long term, you’re more likely to meet your goals.

Maintaining a long-term view and being properly diversified are two key principles for managing volatility. A portfolio with a variety of investments – like bonds and equities from various sectors around the globe – that match your risk tolerance is called asset allocation. It’s something your financial security advisor and investment representative can help you put in place.

Having a wide range of investments and a long-term outlook works well with the investment strategy called asset allocation. Asset allocation is a relatively simple concept to explain and a much more difficult one to implement. Done effectively, the result is an investment portfolio designed to create the best return based on a client’s comfort level with risk.

Implementing this model is no easy matter.  You have to select the right mix of investments, including diversifying among asset classes, geography, investment management styles and sectors.

Asset allocation funds are portfolios containing individual funds. These portfolios are strategically constructed using sophisticated investment management methodology. They’re designed to help you participate in market upswings while helping to protect capital during downturns.  The goal is to deliver stable returns that take risk tolerance into consideration. In addition, the funds are automatically rebalanced so they always match your comfort level with risk. You pick the fund best suited to your needs and participate in equity markets, to your desired amount, without ever getting overexposed.

Asset allocation funds take the emotion out of investing. This can help keep you focused on the long term – even when markets become volatile.

Call me anytime and ask how asset allocation funds could help you achieve your investment goals.

Point to PonderSomeone with $100,000 invested in a GIC for five years would have $110,408 before taxes, assuming a compounded rate of two per cent. Is this the kind of return you’re looking for?

 Take into account inflation and it’s even less. In terms of purchasing power, assuming a modest 2.5 per cent inflation rate over that same five years, the $100,000 would have a relative worth of only $97,525.

Ontario Probate Changes Pending (reprinted from Advocis; The Financial Advisors Association of Canada, monthly update for April 2012)

Changes to the Ontario Estate Administration Tax Act will take effect on January 1, 2013.

The changes add new penalties for false or misleading filings, and will permit the Ministry of Revenue to audit and reassess probate applications for four years after an application for probate is filed.

Regulations are expected to specify the information that will be required to be filed with an application for probate.

The amendments may have been prompted by concerns on the part of the government that applicants failing to accurately declare the value of estate assets has led to declining revenues.

Concern has been expressed that the changes could impose liability on an estate administrator if there is a re-assessment after the estate is distributed. As well, recent changes in the common law regarding the presumptions of advancement and resulting trust could lead the Ministry to take the position in a re-assessment that some jointly held assets should have been included in the estate.

Advocis is monitoring developments and expects to participate in consultations when the government publishes the draft regulations. I will keep you posted!

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