Why Work with an Investment Advisor?
By iA Private Wealth, May 15, 2023
Do-it-yourself (DIY) investing is nothing new, but in recent years it has grown in popularity thanks to the proliferation of self-styled experts on the internet, particularly YouTube and social media channels such as TikTok. The idea is that personal finance and investing really aren’t that complicated, and that you’ll save money on advisor fees if you go it alone.
The truth is that only a very small number of people – people who live and breathe investing and personal finance in their spare time – have a reasonable chance of doing a good job of managing their own finances. But even they would significantly benefit from the unbiased assessment of a professional advisor, in the same way that doctors and lawyers turn to other doctors and lawyers when they need health or legal advice.
For virtually everyone looking to build and preserve wealth, save for their children’s education, and meet all the other goals that define our financial lives, working with an advisor will be the best financial decision you ever make.
Let’s take a closer look at some of the key benefits of working with an advisor.
A dedicated professional
An accredited advisor has the training, skills and experience to help build and maintain your wealth plan. Think of this plan as a roadmap to help you navigate life’s many twists and turns. For instance, if you buy a home, get married (or divorced), start a family, have a change in job status, experience a serious illness (or a death in the family), or receive an inheritance – just to name a few notable events in life – your advisor will adapt your plan so you can remain on track towards achieving your financial goals. It’s similar to how GPS recalculates your route if you miss a turn or encounter an unexpected construction zone. Advisors also have proven methods of helping you save better, spend more wisely and budget smarter.
It takes time and skill
Not many people have the time or expertise to monitor their finances, including their investments. If major economic or geopolitical issues arise (recent examples include skyrocketing inflation and interest rates, the war in Ukraine and the global pandemic), would you know how they may impact your investments and overall financial situation? Would you be able to make the required adjustments to address current and impending conditions? Your advisor can be proactive and make financial decisions in your best interests, using the latest professional research and analytical insights to inform those decisions.
A nose for savings
Advisors know how to maximize tax efficiency so you can pay less tax and keep more money working for you. They’ll assess your life circumstances and recommend sophisticated solutions and strategies as part of your plan. Depending on your and your family’s needs, an advisor may suggest an RRSP to save for retirement, an RESP to save for your child’s post-secondary education, a TFSA to cover an upcoming large expense, an RDSP to provide financial support for a child living with disabilities, an FHSA to help save for your first home, etc. An advisor can also make you aware of certain government benefits and programs, and help you apply for them.
Focus and discipline
One of the biggest pitfalls of DIY investing is failing to maintain proper discipline. So many people react to short-term market and economic events (positive or negative) by being impulsive and either buying or selling when they shouldn’t. Investing is a long-term endeavour and you shouldn’t allow short-term “noise” to influence your decisions or interfere with your carefully developed wealth plan. Fear, panic, greed and overconfidence are just some of the emotions that can lead you to make poor or risky investment decisions. An advisor can help you stay calm and focused, so you can enjoy peace of mind even when markets are highly volatile.
What all of this means is that any money you think you’ll be saving by going the DIY route will almost certainly pale in comparison to what you’ll save once an advisor has put your finances under the microscope.
If you’re ready to take the next step towards securing your financial future, get in touch with an iA Private Wealth Investment Advisor today.
Understanding Your Notice of Assessment
By iA Private Wealth, April 3, 2023
It may have taken some time and effort, but you managed to complete your income tax return for another year. While most of your work is done, you’re not quite finished yet.
After the Canada Revenue Agency (CRA) reviews your tax return, they will send you a Notice of Assessment (NOA). Go through it carefully and also think about sharing it with your Investment Advisor. Before we consider the main reasons why, let’s look at the basics of the NOA.
What is a Notice of Assessment?
The NOA is an annual statement that the CRA sends (through the mail and/or electronically) after you file your income tax return. It will state whether you received a refund or had an amount owing, and will provide the exact figure. If a balance due remains outstanding, you should pay it promptly to avoid additional interest charges.
The NOA is also an itemized tax assessment. It will list details from that specific tax year, such as your income, deductions, credits and tax payable (both federal and provincial). If you made an error when filing your return, CRA will correct it and provide an explanation of the adjustments they made. The NOA will also indicate your RRSP contribution limit for the next calendar year, as well as the dollar amount of unused net capital losses (if any) from previous years that you may apply to reduce taxable capital gains in the future.
An advisor can help decipher your NOA
As you can see, the NOA is a practical and informative snapshot of your finances for the past year. When you read through it, enhance your overall understanding of the types of income you generate and your primary sources of tax relief. Take note of any mistakes or incorrect calculations you may have made so you can avoid them when filing future tax returns.
An advisor has the experience and relevant skills to review your NOA with a critical eye and offer specific advice regarding matters you might be unaware of. Maybe you missed capturing some deductions or credits that would lower your income tax payable or increase your tax refund. If you donate to charities, an advisor may recommend – depending on your financial situation – that you donate securities instead of cash, or defer claiming donations to a future tax return in order to maximize your tax savings.
An advisor may also uncover opportunities to adjust your investment portfolio to increase capital gains and dividends while reducing income generated from interest, which is taxed at your highest marginal rate. Advisors are trained to develop and execute tax-efficient investment strategies so you can reduce the amount you owe each year. They may also work with other professionals* in their network, such as an accountant, to help build a tax-smart plan that is customized for your unique financial circumstances.
It’s also valuable for your advisor to know how much unused capital losses you have from previous years, as it could impact decisions on selling securities that trigger capital gains. Knowing your RRSP deduction limit for the upcoming year will help your advisor create or revise your strategy regarding how much to contribute. Your advisor may also help you take advantage of a pre-authorized contribution plan so you can automatically contribute a set amount to your RRSP on a regular basis (e.g., monthly) rather than try to make a large annual lump-sum contribution.
We can support all your wealth planning needs and help you manage your finances in a tax-effective manner. Contact us today.
Ready for Tax Time?
By iA Private Wealth, March 24, 2023
It’s that time of year again. Tax time is right around the corner, and the sooner you get your slips, receipts and forms in order, the smoother everything will go.
Preparing well is crucial
First off, you want to make sure you file your tax return on time. If you owe money, you won’t incur an interest penalty on your balance if it’s paid before the deadline, which is typically April 30, but this year it’s May 1 since April 30 lands on a Sunday. If you’re entitled to a refund, it’s better to receive it as soon as possible so you can put that money to good use (e.g., investing for the future, paying down debt, getting essential repairs done on your home).
Enlist a professional
It may also help to work with an accountant or other professional with experience filing income taxes. Not only can they ensure that you pay all the taxes you owe, but they’ll also help lower your tax bill because they know how to find and properly claim the credits and deductions you’re entitled to.
For instance, you may qualify for a tax deduction if your employer required you to work from home as a result of the pandemic. This deduction is valid for the 2020, 2021 and 2022 tax years, provided you worked from home 50% or more of the time over a period of at least four consecutive weeks. The deduction is calculated using one of two methods provided by Revenue Canada: the “temporary flat rate method” and the “detailed method.” Your accountant or tax preparer can help you choose the one that will yield the greatest financial benefit given your personal circumstances.
A tax professional will help you maximize your allowable tax benefits related to medical and childcare expenses, charitable donations, and more. If you earned employment income from foreign sources or investment income from foreign property in 2022, the tax calculations are fairly complicated, so they’re best left to an experienced accountant.
Once your income taxes are filed for the 2022 tax year, it’s not too early to begin planning for your next tax return. Be organized by having a good recordkeeping system for all tax-related forms and documents. It’ll make tax time run more smoothly next year, plus it will help you stay on top of whatever tax breaks you should be claiming.
You can work with your Investment Advisor and tax professional to ensure you do everything possible to minimize your taxes. You want to make the most of tax-advantaged plans such as the RRSP, RESP, TFSA, and RDSP. Your Investment Advisor can also work with you to implement tax-efficient investment strategies to optimize your long-term wealth-creation potential.
We can help you invest according to your needs while also saving on taxes, so please contact us today.
Does Compounding Capture Your Interest?
By iA Private Wealth, March 1, 2023
Maybe it’s the rising price of goods and services, or the higher rates charged for mortgages, credit cards and other types of debt. Or it could be something else, but the reality is that financial challenges will always surface in everyday life.
While some factors are out of your control, you can take certain actions to improve your finances. For instance, consider investing regularly to help grow your wealth over the long term, or being mindful of any non-essential expenses. You can also take advantage of compound interest.
Understanding compound interest
With higher inflation comes higher interest rates to help cool off an overheated economy. That’s why it may cost you more these days to pay down your debt. On the flipside, savers have welcomed rising interest rates because, after decades of ultra-low rates (not too long ago, rates were sitting at or near zero), interest-bearing investments are finally providing some meaningful income.
From guaranteed investment certificates (GIC) to high-interest savings accounts (HISA) and more, the attractive interest rates they are now paying reflect the fact that the Bank of Canada raised its benchmark interest rate seven times in 2022 alone, to help slow the economy and calm inflationary pressures.
So, if you hold GICs and/or a HISA at your financial institution, you can put a dent into soaring costs by earning more interest income. But it gets better. When you earn interest on such investments, you may reinvest the interest as it’s paid, which means your interest will actually start earning interest as well. In a nutshell, that’s the concept of compound interest, and it can help you grow wealth faster.
Compound interest in action
Here’s a simplified example. Let’s say you invest $20,000 in a five-year GIC that pays 4% annually. Your principal amount will generate $800 of interest income after the first year ($20,000 x 4%). If you choose to reinvest the $800 in this GIC that’s yielding 4% per year – rather than take it as a cash payout – then that $800 will also earn 4% annualized interest. This means that for the second year of your GIC, you will receive $832 in interest ($20,000 original investment + $800 interest earned in year one x 4%).
For each year of your GIC, the accumulated interest you collect will continue to earn 4% annually on its own, in addition to your $20,000 original investment. The same principle applies to a HISA, where interest is typically calculated daily and then that interest starts to generate its own interest income. There’s the magic of compound interest as an effective wealth builder over time.
Here’s one more notable benefit of compound-interest savings vehicles like GICs and HISAs: you may hold them in registered plans or accounts – such as the RRSP, TFSA, RESP, RDSP and RRIF – that each have their own tax advantages, allowing you to retain more of your hard-earned money. Your Investment Advisor can work with you to help determine which account(s) to utilize.
Although the cost of living continues to rise, you can help keep pace by taking advantage of compound interest. It doesn’t even require you to invest a large lump sum. Some plans allow you to get started with as little as $50, and then you can add to your investment whenever the money is available. Consider a pre-authorized contribution (PAC) plan that automatically invests for you on a specific schedule (e.g., $100 per month). PACs can be a convenient way to invest regularly and allow compounding to build your long-term wealth.
We can help you benefit from the power of compound interest, so contact us today to learn more.
Smart Ways to Get Smarter About Money
By iA Private Wealth, November 15, 2019
It would be too dangerous to get behind the wheel of a car without knowing the rules of the road or even where the gas and brake pedals are. Yet that’s the way many Canadians “steer” their personal finances, with no real understanding of how money works or how to get it to work for them. Adding to the challenge is that they often don’t recognize their blind spots. An IPSOS poll of over a thousand adult Canadians asked them 15 questions to gauge their financial literacy. Although 78% of Canadians surveyed rated themselves as financially literate, more than half (57%) failed the literacy test1.
Gaining a handle on the five basics of saving, spending, debt and credit management, and investing better empowers you to build a nest egg, control how much you owe, and ultimately achieve your desired lifestyle. Here are some tried-and-true approaches for focusing on these five money essentials to develop your financial literacy.
Having savings is integral to your well-being, financially and otherwise. Besides being able to cover unforeseen expenses that can pop up regularly, saving enough for big milestones like retirement requires starting in time. If you wait until the last minute, you’re more likely to fall short of your goals or worse – find yourself in financial hot water.
A proven and straightforward approach to saving is to “pay yourself first” through automated transfers to your bank account that coincide with paycheque deposits. Your savings then become just another bill, but one that you’ll benefit from in the future.
Monitor and control spending
It’s easier to prioritize saving when you know how much money you have to begin with. Track where your money goes in order to identify your spending habits and find saving opportunities. You can then create a budget based on allocating your money between your must-haves and nice-to-haves. There are countless user-friendly online resources you can turn to for support. The convenience of accessing many of these applications from your smartphone can help you keep your budget top of mind. Even simple changes like packing your lunch and using cash instead of credit whenever possible can help keep your spending in check.
Manage debt effectively
Like your spending, it’s important to have a clear picture of exactly what you owe. That’s because interest can work both for you and against you. You can borrow a small amount of money and end up owing much more than you need to over time as the interest piles on.
With borrowing costs at historical lows, it’s tempting to rely on debt to fund your lifestyle, but that’s neither economical nor sustainable. Living within your means is most effective for managing debt. In other words, you need to spend less money (or make more of it) to lighten your debt load. One of the first steps in managing debt is to tackle the amounts you owe that are incurring the most interest. Don’t be afraid to negotiate with creditors for reduced rates – every little bit counts and can shave off substantial time and money from your repayment plan.
Use credit responsibly
When you pay off your credit card on time, all the time, it functions as a handy, interest-free loan that’s more secure than carrying around the same amount in cash. When you only pay the minimum monthly balance, month after month, it becomes an expensive means of buying things. It’s important to understand what you’re getting into, from the interest rate you’re being charged and fees that may apply to what your credit limit is. That way you can appreciate the true cost of your credit card purchases. A general rule of thumb is to never borrow more than 20% of your annual income outside of your mortgage. That said, even if your credit is out of hand, take heart – it’s possible to recover by having a concrete plan for repaying the debt and sticking to it.
The point of investing is to grow your money so that you have more in the future than you have today. How you choose to put your money to work is contingent on your personal situation, including your goals, time horizon and risk tolerance.
Investment choices available to you typically fall into three main categories: cash and cash equivalents (think T-bills and money market mutual funds), fixed-income products like Guaranteed Investment Certificates (GICs) and government bonds, and equities (stocks). In general, the higher the expected return on an investment, the more risk you’ll need to take to achieve that return. Cash and GICs are typically on the lower end of the risk continuum, while equities are on the higher end.
This is where it’s valuable to work with an investment advisor, as he or she can help you evaluate your investment options and determine the balance of risk and reward that makes sense for you.
Lessons to last a lifetime
In today’s increasingly complex world of money, financial literacy is more relevant than ever. Dealing with personal debt, planning for longer life expectancy and navigating a growing range of sophisticated financial products all become more manageable when you grasp the fundamentals. Mastering these concepts takes time, but with practice provides a lifetime of benefits. For more information in how to advance your financial literacy, contact one of our Investment Advisors today.
1 Source: https://www.lowestrates.ca/reports/lr-financial-literacy-canada-report.pdf