Weekly Macro & Market Update
Video duration 7:50
By iA Private Wealth, February 3, 2023
Watch Sébastien’s previous weekly updates on YouTube.
*Refers solely to the Investment Industry Regulatory Organization of Canada licensed advisors within HollisWealth.
Video duration 7:50
By iA Private Wealth, February 3, 2023
Watch Sébastien’s previous weekly updates on YouTube.
Video duration 24:31
By iA Private Wealth, January 26, 2022
By iA Private Wealth, January 23, 2023
Looking for something positive about soaring inflation? Given the rising cost of many goods and services, the Canadian government has raised the 2023 contribution limit for the Tax-Free Savings Account (TFSA) to $6,500, an increase of $500 from 2022. That’s good news for people who can contribute the maximum amount this year, and it may even benefit those who can’t (more about that later).
In 2009, the TFSA was introduced as another tax-advantaged way for Canadians to save for the future, joining established programs like the Registered Retirement Savings Plan (RRSP).
While both savings vehicles are valuable, there’s a big difference between them. RRSP contributions are made with “pre-tax dollars” because you deduct the amount from your taxable income. Investment growth in the RRSP is tax deferred until you start withdrawing from the account. TFSA contributions are made with “after-tax” dollars with no deduction on your income tax return. However, investment growth isn’t taxed, nor are any withdrawals you make from your TFSA.
Here's another great feature of TFSAs: since income earned in the account is tax-free, it won’t affect eligibility for income-tested benefits like Old Age Security, Employment Insurance, the Canada Child Benefit and credits related to HST/GST.
If you’re a Canadian aged 18 or older with a valid Social Insurance Number, you can open a TFSA at a qualifying financial institution and start contributing. The federal government sets the annual contribution limit based on several factors, including the rate of inflation. If you don’t contribute the maximum amount in a given year, you may accumulate contribution room for future years.
That’s why, as mentioned above, you can benefit even if you don’t contribute the maximum in 2023. TFSA contribution room is currently $88,000 (i.e., the amount available if no contributions were made from 2009 to 2023). Let’s say you managed to contribute $63,000 to your TFSA over the years. If you have the money available this year, you can contribute $25,000 ($88,000 – $63,000) to reach the limit, or chip away at your contribution room in the years to come.
Just be sure you don’t exceed the contribution limit in any given year, because over-contributions face a penalty of 1% per month. For instance, if you contributed $8,500 in 2023, that’s $2,000 above the limit. You’ll be penalized $20 per month for every month the over-contribution remains in your account. Paying this tax defeats the purpose of a tax-free account, so keep track of your contribution amounts each year.
Also note you can withdraw from your TFSA without tax consequences, and may recontribute the withdrawn funds to preserve your total allowable contribution amount. The only stipulation is that you cannot recontribute in the same calendar year of the withdrawal.
Ideally, you’d allow your contributions to grow in value over time, and then make use of your savings when you need cash flow in retirement. However, there are also shorter-term uses for a TFSA. You could use your account as a tax-efficient way to save for a vacation, auto purchase, down payment for a home or another financial goal. When you need the funds you can withdraw them tax-free and still have the option to recontribute the withdrawn amount in future years.
There’s no right answer since it depends on your unique circumstances, such as time horizon, risk tolerance and financial objectives. Like the RRSP, many different investments can go into a TFSA, from stocks and bonds to mutual funds, ETFs and more. Work with your Investment Advisor to create a suitable approach to TFSAs that can meet your short-term and long-term needs. For all the reasons listed above, the TFSA is a powerful tax-free investment account, so consider making the most of it for your portfolio.
By iA Private Wealth, January 20, 2023
10 min read
By iA Private Wealth, January 12, 2023
By iA Private Wealth, January 04, 2023
Planning for retirement is a challenge under normal circumstances. It might be many years before you retire, so imagining your future lifestyle, estimating expenses and anticipating your level of savings and income is difficult.
Today’s high inflation and rising interest rates add complexity to retirement planning. For decades, inflation and interest rates were low, making the planning process more predictable since people didn’t worry much about a soaring cost of living. These days, you only need to look at gas and food to recognize that prices have jumped significantly.
Retired people often live on a fixed income, so it doesn’t take many years of high inflation to erode savings faster than expected. For example, the income stream of retirees with a workplace defined contribution (DC) pension plan is linked to how their investments perform. If markets are declining – which typically happens during periods of high inflation – the investments in their DC plan might not generate returns that keep pace with inflation.
As you plan for retirement, it’s valuable to work with an Investment Advisor. They’re trained to help create and maintain customized wealth plans flexible enough to endure different economic and market conditions. Experienced advisors can also recognize shifting circumstances and make financial adjustments accordingly.
By iA Private Wealth, December 28, 2022
There’s been a lot of talk lately about an economic recession. Technically, a recession is a significant and prolonged economic decline. It’s generally defined as two consecutive quarters of negative economic growth, as measured by a country’s gross domestic product. When a recession occurs, you’ll likely feel its impact on your finances – there will be fewer jobs, lower wages and more businesses tend to fail.
Many people fear recessions, given the expected economic weakness and instability. If economic growth slows and debt piles up, businesses may pause expansion plans and lay off a portion of their workforce. High unemployment curbs spending as many individuals and families manage their finances more cautiously.
In the early stages of a recession, we encounter rising prices on goods and services as inflationary pressures mount, causing higher interest rates and decreased purchasing power. Trying to make money stretch and maintain their quality of life without accumulating too much debt, people often forego discretionary expenses like travel and dining out, which slows the economy in general and negatively impacts businesses in those industries.
Keeping a close eye on debt is important in recessionary times. If interest rates are high (and rising), you could face larger payments on your credit cards, mortgage, loans and other debts. Try to reduce the amount you owe and watch your spending to avoid incurring excessive interest charges. Cooking at home, walking or taking public transit instead of driving, and cutting back on costly entertainment are some ways to lower your bills.
Since the economy slows in a recession, stock markets often decline to reflect diminished prospects for business growth. It’s tempting to sell during a severe market downturn, but that’s usually an unsound strategy. Your Investment Advisor has worked with you to build a customized long-term plan to meet your financial objectives. Reacting rashly to short-term market declines may keep you from reaching your goals by locking in your losses and eroding your wealth.
Remember that recessions come and go, and the overall market’s long-term trend is upwards. With help from your advisor, you can stay focused on your financial goals and ignore short-term market challenges. Depending on your circumstances, risk tolerance and time horizon, your advisor may even recommend investing more during a market downturn when prices are lower, so you can be better positioned to benefit when the economy rebounds. It’s also generally wise to hold a well-diversified portfolio across asset classes, industries and geographies, which may help reduce portfolio risk while enhancing long-term returns. A skilled Investment Advisor can guide you through the economic cycle – including recessionary periods.
By iA Private Wealth, December 05, 2022
As we begin a new year, some people make resolutions like dropping a bad habit or exercising more often. Other common resolutions pertain to financial well-being, such as earning more money, watching credit card debt or investing regularly.
Working with an Investment Advisor is a good way to address all aspects of your financial circumstances in your wealth plan. Here are some key elements an advisor will cover:
As you can see, a wealth plan has many components that will impact your financial future. You’ve also seen how an advisor plays a crucial role in creating and maintaining your plan. As circumstances change (e.g., marriage, children, job, home/business ownership), an advisor can revise your plan accordingly and ensure the investment component of your plan remains sufficient to fund life’s needs.
By iA Private Wealth, November 30, 2022
Setting up your own foundation and maintaining it can be costly and administratively intensive. This is why community foundations and some asset managers outsource these functions through donor-advised funds (DAFs).
Donating cash to charity is good but donating publicly listed stocks (or other qualified securities, such as mutual funds, exchange-traded funds, and bonds) that have gained in value is even better. That’s because donations of publicly traded securities are exempt in Canada from the capital gains tax that would otherwise apply when selling securities at a profit.
Flow-through shares are specially designated shares of companies engaged in mining and energy-related industries. The Canadian government offers tax incentives to promote support of these industries by allowing investors to deduct from their income certain exploration and development expenses incurred by the companies. While this incentive reduces taxable income, any sale of flow-through shares will trigger capital gains equalling the sale proceeds (i.e., the entire amount is considered a capital gain).
Another tax-efficient method of supporting charities is through a life insurance policy. You may wish to consider donating your policy now or in the future. To do it now, simply name the chosen charitable organization as beneficiary and owner of your existing policy. You’ll receive a donation tax receipt for the policy’s cash surrender value. You’ll need to deduct any loan amount outstanding on your policy, but to help offset that, your tax receipt amount can include dividends or interest accumulated in the policy.