Investing Issues

  1. Looking at your total financial picture, I can help you decide how much to allocate to security, income, and growth. The following generally indicates the relationship between risk and return for the allocation of your finances. Remember, mutual funds are a long term investment. Returns fluctuate daily and are not guaranteed. Segregated mutual funds contain principal guarantees and creditor protection as well as other benefits. Ask me about these.
Return Type General Risk Classification Investment Type
Income (Security) Low Risk/Return GIC's, Money Market Mutual Funds
Income and Growth Low To Medium Risk/Return Bond, Balanced Mutual Funds
Growth Medium to Medium/High Risk/Return Funds With Mainly Conservative Stocks
Speculation High Risk/Return Funds With Mainly Aggressive Stocks
  1. What is your gross income? There may be a better way to manage your unused contribution room. For example, if a $6,000 contribution will put you into a lower tax bracket, you can contribute $500 a month to accomplish this goal. You may need to use previous unused contribution room but this will save you money. This takes advantage of an investment strategy called dollar cost averaging to ignore market timing issues.
  2. One of the best investments you can make is an RRSP. If you pass on making a $4000 contribution and are in a 35% tax bracket, then you must pay the government $1400. $4000 now growing at 9% for 25 years comes to about $35,000 and it cost you $2600 ($4000 - $1400). If you don't contribute this year, you are taking this amount out of your final RRSP total, unless you make it up later which gets more and more difficult. As you can see, time, not big money, is your best friend. Use a spousal RRSP for income splitting. You can get caught up on unused contribution room by using RRSP loans.
  3. After you have maximized your RRSP and TFSA, capital gains and dividends have better tax treatment than interest income. You need about 10% in interest income to equal about 8% in capital gains after tax. This reduces to about 7.5% in the long run. What are the chances in today's environment of making 10% in interest income? What are the chances of making 8% in capital gains?
  4. The cost of a post secondary education is expected to rise substantially.  Ask me about RESP's to better your chances of obtaining this goal through 20% government grants on contributions.
  5. A home can be a great investment.  You can sell your principal residence without paying any tax, nor will your estate pay any tax on a principal residence.  Ask me about estate taxation issues.  In Calgary, rent payments may be higher than mortgage payments.
Questions? (Remember, there are no silly questions). Contact Dan.