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MoneyTips
The following money tips have appeared in
Canadian MoneySaver's recent editions.
The dividend payout ratio is simply calculated by dividing the company's
dividend by its earnings.
If a company with a low payment ratio experiences an earnings decline, it may
continue to pay the same dividend. Or, at least, it may weather the downturn
without cutting the dividend.
TOP
Three helpful RRSP-related calculators can be found at TaxTips.ca. Note that
these calculators use 2010 income tax thresholds and rates.
 RRSP vs Mortgage Calculator - This calculator helps you to decide whether to
increase your monthly mortgage payment, or contribute the extra monthly amount
to an RRSP using 2010 income tax thresholds and rates. Visit
http://www.taxtips.ca/calculator/rrspvsmtg.htm
Borrow to Invest Calculator
- This calculator lets you see the advantages of
borrowing to invest in stocks and exchange-traded funds (ETFs) using the
eligible dividend gross-up and dividend tax credit rates from 2010 to
2012. Years after 2012, use the 2012 rates. Visit
http://www.taxtips.ca/calculator/borrowtoinvest.htm
Sheltering RRSPs Calculator - This calculator shows you how to reduce your taxes
while withdrawing from your RRSP. Visit
http://www.taxtips.ca/rrsp/shelterrrsps.htm
TOP
This free booklet was produced by the Certified General Accountants of Ontario.
It was designed to help businesses successfully transition to the new HST system
taking effect in July 2010. Details include how to prepare for the HST, the
application of HST, transitional rules and the general background of HST by
provinces.
Order from the CGAs' website at
http://www.cga-ontario.org/Publications/Information_Booklets.aspx
TOP
The general rule for the recovery of investment losses is that if these losses
were caused by a financial advisor's misconduct then they are recoverable but,
if not, these losses are simply a market risk that all investors are exposed to
and for which no one can be held responsible.
To help investors decide whether they have an actionable, meritorious claim for
reimbursement of their investment losses Robert Goldin, an investment dispute
consultant, has compiled a list of 244 instances of broker misconduct giving
rise to investor losses.
All investors need to do to find out if they have a claim is to simply consult
this list to see whether the circumstances giving rise to their investment
losses are listed. The list is at
http://www.macgold.ca.
TOPMutual Funds - 53%
Term Deposits/GICs - 37%
Individually Held Stocks - 27%
Corporate or Govt Bonds - 16%
Income Trusts - 9%
Exchange-Traded Funds - 6%
Options - 2%
Principal Protected Notes - 2%
Hedge Funds - 1%
Other - 15%
None Of The Above - 7%
Don't Know - 12%
Source: 2009 IPSOS Reid
TOP
The ETF filter is a tool that allows you to compare and contrast all of the
major ETF offerings in Canada. Users of the tool can get performance and cost
information, and as a bonus the correlation calculator creates efficient asset
allocations. Visit
www.advisoretffilter.ca/public/home.jsf
Source: Advisor.ca Bulletin
TOP
Coupon clipping has returned more vigorously than ever – and now you can do so
electronically. For example, shopaneer.ca is a Canadian online coupon and deal
provider that was created to provide consumers with an easy way to save money
while shopping at online stores. The site features over 1000 online coupons and
deals from 500 stores and brands.
Other coupon sites include:
CouponClick.ca,
SaveLand.ca,
SmartCanucks.ca,
RedFlagDeals.com and
FrugalShopper.ca.
TOP
You can easily and quickly receive your free credit report by calling Equifax at
800-465-7166. You must provide your address, Social Insurance Number and a major
credit card number. That's it!
TOP
A very revealing formula that you may find handy is one discovered when reading
The Little Book that Saves Your Assets by David Darst (John Wiley, ISBN:
978-0-470-25004-4).
TOP
The Investment Industry Regulatory Organization of Canada (IIROC) notice,
dealing with leveraged and inverse ETFs, points out that these sorts of ETFs are
increasingly popular, and while they may be useful in some sophisticated trading
strategies, it cautions that they may not be appropriate for many retail
investors.
IIROC states, "They are highly complex financial instruments that are typically
designed to achieve their stated objectives on a daily basis. Due to the effects
of compounding, their performance over longer periods of time can differ
significantly from their stated daily objective. Therefore, leveraged and
inverse ETFs that are reset daily typically are unsuitable for retail investors
who plan to hold them for longer than one trading session, particularly in
volatile markets."
Source: IIROC, http://www.iiroc.ca
TOP
Many people say that you should increase your deductible to reduce your
insurance premium. I have also found out that you should also consider canceling
windshield replacement coverage. The reason being is that replacing a windshield
typically costs less than $500. Your higher deductible would therefore not allow
you to get any money back. I'm sure this varies from company to company but with
TD Meloche Monnex, I save over $100/year by doing this.
J.S., e-mail
TOP
One spouse can split up to one-half of his/her CPP/QPP entitlement with the
other spouse who worked fewer years. A CPP cheque is issued to the second spouse
from the government.
If you are 65 or older you can split pension income with a spouse who is under
65.
Pension income splitting could have an impact on several other tax calculations
and credits including OAS benefits, medical expense credits, spousal credit, age
credit clawbacks, and quarterly tax instalments.
You don?t have to split pension income 50-50. Split amounts can change each year
based on your personal tax situation that year
TOP
A Morningstar analyst, Russel Kinnel, reports in his recent book,
Fund Spy, on
the effects of mutual fund fees. In an Advisor's Edge Report (June 2009), Esko
Mickels reports: "There's also a strong relationship between costs and
survivorship, which compounds the negative attributes of high-cost funds. For
instance, with U.S. taxable bond funds, Kinnel found funds in the most expensive
quartile had a much greater rate of closures and mergers (57%) than those in the
least expensive quintile (35%) over 10-year rolling periods since 1995. Not only
are investors paying a lot, they also risk having their fund close on them.
TOP
BC proposes to harmonize its 7% PST with the 5% GST to result in 12% HST,
effective July 1, 2010. Many items that are currently PST exempt will not be
subject to the provincial 7% portion of the HST.
Full details at
http://www2.news.gov.bc.ca/news_releases_2009-2013/2009PREM0017-000141.htm#
TOP
On June 19, 2009, regulatory changes were filed which increased the amount of
unlocking permitted from Ontario Life Income Funds (LIFs) from 25% to
50%. Changes were also made for old LIFs. Rules were also changed to provide
pension plans with solvency funding relief. Further information available at
1-800-668-0128 or
http://www.fsco.gov.on.ca/english/pensions/li-account-regchanges2009.asp
TOP
Just like putting "leftover" nickels, dimes and quarters in a jar, a few
financial institutions are extending this savings practice. When you use your
debit card, the purchase is rounded up to the nearest dollar and the difference
is placed in your savings account. Two credit unions, Island Savings and
Envision, plus Scotiabank, have kicked off this unique concept.
TOP
The majority of Canadians have not yet taken advantage of the new tax-free
savings program, launched by the Federal Government in January 2009, according
to research conducted by Radix Market Research for ING DIRECT.
The online survey found that among clients of the "Big 5" banks, on average only
6% have opened a Tax-Free Savings Account (TFSA). However, at ING DIRECT 31% of
clients have opened a TFSA. A TFSA can include an investment savings account, a
GIC, or mutual funds.
All Canadian residents 18 years of age or older can save up to $5,000 (for all
combined TFSA accounts they hold) each year. Any unused contribution room can be
carried over to the next year. There is still time to contribute to this year?s
maximum contribution of $5,000 per adult, with interest earned being tax free.
ING DIRECT is offering 3% interest (calculated daily, paid monthly) for a
limited time. Added to the tax-free benefits of a TFSA are no minimums, no
service charges and no fees at ING DIRECT. Canadians can also take advantage of
the Automatic Savings Program (ASP) feature for their ING DIRECT Tax-Free
Investment Savings Account.
"We're paying the kind of interest usually reserved for investments that make
you lock away your money at other banks," says Peter Aceto, CEO of ING DIRECT.
"Through tax-free savings options, such as the TFSA, your money works harder
because you don?t pay tax on the interest earned. This means the power of
compound interest works even faster to grow your money."
For more information, visit to
www.ingdirect.ca/tfisa or call 1-800-464-3473.
TOP
Understand the implications of the generic term "financial planner". Financial
planning is not regulated in most Canadian provinces. This means that anyone can
call themselves a "financial planner". Not everyone who refers to themselves as
a planner is indeed qualified; many so-called financial planners are licensed to
sell products but have no financial planning training or expertise. In the
absence of government regulation, consumers must ensure their planner is indeed
trained, certified, and held accountable to provide professional financial
planning.
Ten questions to ask a potential financial planner:
1. What are your qualifications?
2. What experience do you have?
3. What services do you offer?
4. What is your approach to financial planning?
5. Will you be the only person working with me?
6. How will I pay for your services?
7. How much do you typically charge?
8. Could anyone besides me benefit from your recommendations?
9. Are you regulated by any organization?
10. Can I have it in writing?
More info at
http://www.fpsccanada.org/public/articles/10_questions_ask_your_planner
Source: Financial Planners Standards Council (FPSC), 1-800-305-9886
TOP
Toronto-based ShipGooder, Inc. was founded in October 2006 and has developed a
multi-carrier rate engine that allows users to quickly compare services from
national, regional and local couriers in the U.S. and Canada.
ShipGooder.com
provides an easy, fast rate engine to obtain the best shipping rates.
ShipGooder provides free rate comparison services to businesses and consumers
with no account registration required. Visitors to the website simply enter two
zip codes and a package weight. ShipGooder instantly displays a simple table of
courier services, delivery charges and delivery dates.
TOP
We asked what you thought of a newsletter which declared that the Tax-Free
Savings Account should only be used to hold cash.
That 'well-respected newsletter' is right out to lunch when it comes to what
can be held in a TFSA. Almost anything can be used as a TFSA investment. Both
my wife and I put our $5,000 maximum in a trading account with a discount
broker. (The local bank did not know how to process our accounts so it did take
almost 2 months, plus a pile of paperwork.)
We each bought a REIT and have done very well in only 6 months. My wife's
account is now over $7,500. When mine doubled recently, I sold it and now have
$10,000 in cash ready for another investment. The added bonus is that there is
no capital gains tax on the profit. Unless you are using your TFSA strictly as
a savings account, most people would probably make the best investment with a
conservative, dividend-paying stock, a REIT or an income trust.
D & B Bober
TOP
Investment counseling firms usually charge annual fees in the range of 1% to
1.5% of the value of a portfolio under management. For example, an annual fee of
$30,000 would be charged on a $2,000,000 portfolio assuming a fee rate of 1.5%.
It has always been thought that such fees are subject to GST because they do not
fit within the definition of financial services under the Excise Tax Act. At the
current GST rate of 5%, $1,500 of GST would have been charged on the $30,000 of
management fees in the above example.
A recent Federal Court of Appeal case ruled that investment counsel fees are a
financial service and therefore GST does not apply.
It remains to be seen whether the court decision will be acknowledged by Canada
Revenue Agency or whether they will simply change the law retroactively.
Therefore, investment firms will continue to charge the fees.
Taxpayers can file rebate claims to receive back GST paid for up to 24 months
after GST payments. Taxpayers should file now in order to claim refunds as far
back as possible if the court decision is upheld.
Ed Arbuckle, (519) 884-7087 or (877) 883-3970
TOP
You cannot claim premiums for a long-term disability insurance plan as a
tax-deductible medical expense, whether a group or an individual plan.
You can, however, claim premiums to a private health services plan.
TOP
The Canadian Foundation for Advancement of Investor Rights (FAIR), a recently
formed, non-profit organization whose intention is "to be a voice for investors
on security regulations and a catalyst for enhancement of Canadian shareholders
and retail investors" has produced a report on leveraged ETFs. They came to the
same conclusion as David Stanley, i.e. retail investors should be very wary of
these products.
See David's comprehensive article on page 9 of this issue of Canadian
MoneySaver. Visit
http://faircanada.ca/en/currentissues/submissions to read this
report.
TOP
Q. What happens if there is an excess of funds after a guaranteed prepaid
funeral has been provided?
A. If you prepaid after June 1, 1990 the balance, if any, of the prepayment
funds that are in excess of the cost of delivering the services and supplies
contracted for must be refunded to the estate. If you prepaid prior to June 1,
1990 the funds will be refunded at the discretion of the funeral establishment.
Q. How are prepaid funds protected?
A. Legislation provides several means for ensuring protection of prepaid funds.
At the time of prepayment, the funeral director or transfer service operator
must provide the purchaser with a contract, signed by the purchaser and the
funeral director, showing clearly the services you have selected and the monies
paid. Within 10 days of the investment of the prepaid funds, the funeral
establishment operator must deliver to the purchaser an investment receipt from
the financial institution where the investment has been held in trust for you.
Source: The Funeral Advisory and Memorial Society (formerly the Toronto Memorial
Society), 55 St. Phillips Road, Toronto, Ontario M9P 2N8 (416) 241-6274,
www.fams.ca
TOP
Jim Gillespie of Sudbury, Ontario discovered that he could obtain a good-sized
tax receipt by donating his van to a non-profit organization that needed a used
van.
He was given a tax receipt for the book value of the vehicle, which reduced his
income taxes.
TOP
If your qualifying investment, such as a GIC, is held in a TFSA with a CDIC
member institution, the deposit is eligible for Canadian Deposit Insurance
Corporation protection.
Mutual funds do not qualify for CDIC insurance inside (or outside) of the
Tax-Free Savings Account. Deposits in a TFSA are added to all your deposits
within the same CDIC
member institution for the $100,000 basic coverage.
TOP
The Canada Revenue Agency recognizes the need to make a beneficiary designation
with your TFSA. In other words, the intention is to permit this declaration.
However, it will be a matter of time before all provinces are onside with this
policy. Make certain that your TFSA holder notifies you when you can declare
your
beneficiary once the provincial legislation is passed.
TOP
"Any Canadian with a simple tax return, regardless of income level, can now
prepare and file taxes this year with QuickTax Online Free. The free version is
an easy, online tax preparation solution for Canadians who have income from
employment or pensions.
QuickTax Online Free eliminates the confusion and cuts the time with
easy-to-follow instructions and automatically completes the forms as users input
T4 or T4A slip information, tip income, pension income and other income.
Designed for simple returns, it does not include income from investments and
self-employment.
Users can prepare their tax return in minutes, file with Netfile, and receive
their refund in as little as eight days, compared to four to six weeks for paper
returns. Netfile immediately sends a receipt confirming the filing, giving
Canadians confidence that the Canada Revenue Agency received their tax return.
Students can also prepare their taxes free with the new QuickTax Online Student
Edition. Designed specifically for students, it checks every possible tax credit
and deduction available to them and is free for those who made less than $20,000
last year. It's available at www.quicktax.ca" (Source: Intuit Canada)
The Netfile website (Netfile.gc.ca) explains how to file with them. You can also
find other software that is available for do-it-yourself tax filers (click on
"software").
TOP
"You can contribute foreign funds to a TFSA. However, your financial institution
will convert the funds to Canadian dollars when reporting this information to
the
CRA. Your contributions cannot exceed your annual contribution limit in Canadian
dollars.
You can also make "in kind" contributions to your TFSA, as long as the property
is a qualified investment. We will consider that you have disposed of the
property for its fair market value (FMV) at the time of the contribution. If the
FMV is more than the cost of the property, you will have to report the capital
gain in your income tax return. However, if the cost is more than the FMV, the
resulting capital loss cannot be claimed. The amount of the contribution will be
equal to the FMV of the property."
Source: Canada Revenue Agency
E.E., e-mail
TOP
New exchange-traded fund features make all Claymore ETFs more attractive by
reducing the costs associated with their purchase. Briefly, the 3 new services
follow:
SWP - The
no-cost systematic withdrawal plan allows regular fixed withdrawals from your
ETFs.
DRIP - Investors
have their ETF dividends automatically reinvested in more (whole) shares at no
cost - or you can accept cash instead.
PACC - Monthly,
quarterly or annual purchases can be made with the preauthorized cash
contribution, without paying a commission. Investors must purchase at least one
share of the ETF and enroll in the plan. This initial cost will depend on the
brokerage fee charged for the first purchase.
TOP
In February 2002,
MoneySaver published an article on an income splitting
strategy where a "high tax bracket" spouse lends a "lower tax bracket" spouse
money to invest. The objective is to transfer investment income so it is taxed
in the lower tax bracket spouse's hands and, therefore, the after-tax return is
increased.
To comply with income tax rules the loan must be made at Canada Revenue Agency's
prescribed rate of interest. The rate of interest can be locked in for the
duration of the loan. The rate back then was 3%.
Well, CRA's prescribed interest rate, for at least until March 31, 2009, is now
only 2%. The income splitting strategy is now even more attractive!
If you're considering this strategy, it would be a great time to implement it.
Should the lower income spouse earn more than 2% on the borrowed money, the "couple" is better off in terms of the after-tax return.
If you have an income splitting loan at a 3% or higher interest rate, you may
want to arrange to have the loan paid off and a new loan arranged at 2%!
Brian Quinlan, CA, CFP, TEP, Campbell Lawless Professional
Corporation, bjq@camlaw.on.ca
TOP
There's a new kid on the block when it comes to saving for the future. So what
makes the most sense now — contributing to your RRSP or to a new Tax-Free
Savings Account (TFSA)?
"It all depends on your income tax rate at the time when contributions are made,
as compared to the rate during the withdrawal phase," explains Chartered
Accountant Kenneth Lancaster, Tax Principal, MacGillivray LLP in Hamilton.
"If the two rates are identical, then the TFSA is a preferred option because it
is more flexible and withdrawals do not affect income-tested benefits.
"Many individuals fall in the category where their income tax rates in the
accumulation phase are higher — that's because they are in their peak earning
years and are paying high income tax rates. Presumably, when they retire, they
will be paying much lower income taxes. Since their contribution income tax rate
is much higher than the withdrawal income tax rate, an RRSP contribution is
probably the preferred option for this category of individuals," says MacGillivray.
"For the few Canadians who pay a higher rate in their withdrawal years than in
their contribution years, a TFSA is probably the better choice."
Courtesy of the Institute of Chartered Accountants of Ontario.
TOP
Are you faced with the unhappy prospect of withdrawing from your RRIF, even when
it has declined in value?
"Seniors can take advantage of what's called an in-kind withdrawal," explains
Chartered Accountant John Mott in Toronto.
"An in-kind withdrawal allows you to transfer stocks, mutual funds or other
assets from a RRIF to a non-registered account at no cost. Just like a cash
withdrawal, you will pay tax on the securities being transferred, but there is
no sale involved and no extra charge."
Seniors should discuss this with their financial institution. The federal
government has also requested that institutions apprise clients that when
withdrawals in excess of the minimum amount are made, the RRSP lump sum
withholding tax rates will apply.
Courtesy of the Institute of Chartered Accountants of Ontario.
TOPWatch Out!Real estate experts suggest you avoid the foreclosure funds now being offered in
Canada. There are too many real obstacles in the way for these funds to meet
their projected promises.
TOP
There are fees associated with RRSPs that you should know about when looking at
the whole RRSP picture.
"Fees are usually charged if you make withdrawals from your plan, or your plan
is wound up, or transferred to another RRSP insurer. These fees can range from
$25 - $100. In addition, there are annual administration fees associated with
trusteed RRSPs. For a self-directed plan, fees usually range from $100 - $200
annually and are not deductible for tax purposes. If they are paid with RRSP
funds, this will reduce the amount available for future withdrawals," says
Chartered Accountant John Wonfor, National Tax Partner, BDO Dunwoody LLP
National Office in Toronto.
Courtesy of the Institute of Chartered Accountants of Ontario.
TOP
You do not need to sell assets within a RRIF to satisfy RRIF withdrawal
requirements.
You may make in-kind transfers, such as mutual funds or stocks, to other
non-registered accounts to be sold later.
However, the transferred assets are fully taxable at their fair market value at
the time of transfer. After the transfer the assets are no longer tax sheltered.
TOP
Despite what promoters may tell you — the answer is no.
"The Income Tax Act stipulates that withdrawals of retirement funds must be
included in taxpayer's income, and the amounts withdrawn are subject to
withholdings of 10 to 30 per cent for income taxes," says Chartered Accountant
Howard Sone, Partner, Sone & Rovet in North York.
"Be careful of promoters who advertise — 'Take advantage of your RRSP now — no
tax to pay.' They will present a complicated financing scheme that involves
using your self-directed RRSP funds to purchase shares of a private company. The
funds used to purchase these shares are then loaned back to you at a low, or no
interest rate.
However, there are no rules and regulations in the Income Tax Act that permit
this or similar schemes. The amount withdrawn for such a purchase will be
subject to income taxes by the taxpayer."
Canada Revenue Agency (CRA) has issued a warning that these and other types of
plans will be vigorously challenged. More information on RRSP schemes such as
this one and many others can be found under "Debunking Tax Myths" on the CRA
website at
http://www.cra-arc.gc.ca/nwsrm/myths/menu-eng.html.
Courtesy of the Institute of Chartered Accountants of Ontario.
TOP
The Russell Financial Health Index tool allows Canadian investors to assess
their financial health against a national index, based on research done in early
2008. With this easy-to-use online tool, Canadians can review their financial
health across four different areas and print off a report. Visit:
http://www.russell.com/ca/retirement/my_retirement/RFHI.html#ep
TOP
The rules for transferring assets
"In Kind" into a Tax Free Savings Account are the same as those for RRSPs. If
there is an accrued gain on the asset being transferred, it is recognized at the
time of transfer (an accrued loss is not registered).
The financial services industry
wants a chunk of your TFSA funds. Before depositing your money determine: the
annual administration fee, the withdrawal fee, the termination fee, transaction
fees and any other restrictions. However, lower fees may not always reward you
with a higher return.
TOP
You may register a
phone number with the
Do Not Call List (DNCL)
at www.lnnte-dncl.gc.ca
or 1-866-580-DNCL.
Telemarketers will be
forbidden from calling
numbers on the DNCL.
TOP
To help investors gain perspective about these uncertain
markets, Fidelity Investments Canada launched four powerful and easy-to-use
online tools that illustrate how global markets and asset classes have reacted
and recovered from major upsets.
Available at
www.fidelity.ca/volatility, the interactive
tools help to put market volatility in a historical context. One tool, for
example, illustrates how long it took markets to recover following major
incidents including the Asia crisis, the tech meltdown and Black Monday in 1987.
Fidelity's new volatility tools include information about
the following basic investment concepts that investors should keep in mind in
times of market volatility:
Market crises: illustrates how markets have recovered
from past corrections.
Timing the market: shows how market timing can affect
your returns.
Stock picking: shows how stock picking can help you
outperform the market.
Unpredictable returns: demonstrates the volatility of
different investment classes.
TOP
A Thomson Reuters study (from March 31, 1994 to December 31, 2007) of the S&P
400 MidCap index revealed that analysts selected the group
which performed the worst. Similarly, on the Dow Jones
industrial average, the lowest analyst-rated stocks
returned average gains better than the index.
The underlying result, with these studies and others
which we published earlier, clearly indicate that you can
do better by avoiding analysts' picks. Their highly
recommended stocks regularly underperform substantially.
TOPThe Pension CreditCash withdrawals from RRSPs have never been recognized as eligible for the
pension credit. So, the only solution is to convert all or part of your RRSP to
a RRIF in order to obtain the $2,000 credit. It's certainly worth doing, even
partially in order to get the credit.
Kirk Polson, Fee-Based Financial Planner, Markham, ON,
kpolson@pbfinancial.com.
TOP
Tax Treatment of Dividends
The federal government announced changes to the dividend
gross-up factor and the dividend tax
credit for eligible dividends in response to the reduction in
federal corporate tax rates from 19% in
2008 to 15% in 2012. The budget proposes to adopt the gross-up
factor reduction applicable to eligible dividends received
by Ontario individuals. Ontario proposes to maintain its plan to
increase the tax credit rate on grossed-up eligible dividends
from 7.0 percent in 2008 to 7.4 percent in 2009, and 7.7 percent
in 2010 and subsequent years. The proposed adjustments
are summarized below:
| |
2008 |
2009 |
2010 |
2011 |
2012 |
| Federal and Ontario dividend gross-up |
45% |
45% |
44% |
41% |
38% |
| Federal dividend tax credit on grossed-up dividend |
18.97% |
18.97% |
17.97% |
16.44% |
15.02% |
| Ontario dividend tax credit on grossed-up dividend |
7.0% |
7.4% |
7.7% |
7.7% |
7.7% |
| Top federal rate |
14.6% |
14.6% |
15.9% |
17.7% |
19.3% |
| To Ontario rate |
9.4% |
8.5% |
7.8% |
7.6% |
7.4% |
| Combined proposed top rate: federal and Ontario |
23.96% |
23.06% |
23.65% |
25.33% |
26.74% |
| (Other provincial rates may differ.) |
Source: Soberman LLP, Chartered Accountants, Toronto, ON,
www.soberman.com
TOP
Qualifying Dividend-Paying CompaniesWhether a dividend on a stock qualifies as a dividend from a Canadian
corporation is not impacted by which exchange the shares are traded through, but
by the jurisdiction the corporation is incorporated in. For example, Tim
Horton's, though it does trade on the TSX and is otherwise regarded as a
Canadian corporation, it is actually incorporated in the U.S. As a result, their
dividends are classified as foreign income, and does not qualify for the
dividend tax credit.
Irving Silver, irsa@alum.mit.edu
TOP
Tuition Transfer to Parents"When a child heads off to postsecondary education, many parents contribute to
tuition and living expenses. However, there may be some relief at tax time
through the transfer of tuition, education and textbook amounts. All
post-secondary students receive a T2202A form either in the mail or they can
download it via the school's website. The T2202A shows the amount paid in
tuition during the tax year and the number of months a student can claim, either
the full-time or part-time education and textbooks amounts.
Even if the parents paid tuition or residence fees, students must first use the
T2202A amount to reduce their tax payable to zero. So, if your child worked
part-time during the year, they may need some of the amounts to reduce their tax
payable.
Once the student's tax payable is reduced to zero, any remaining amount can be
transferred to a spouse, parent or grandparent to help reduce their tax payable.
This means that students must do their own tax returns before their parents can
use the T2202A transfer.
Alternatively, a student can carry forward any leftover amounts to future years.
This could help reduce the tax bill once a student starts a career after
graduation. The decision is completely up to the student since the slip is
issued in their name.
Is it more tax advantageous to carry forward or transfer? Since tuition and
education amounts are non-refundable tax credits, they do not normally generate
a bigger tax savings for taxpayers in a higher tax bracket. However, provincial
surtax could make a difference. If the parent is a resident of a different
province, he or she may also benefit if the rate for converting amounts into
non-refundable tax credits is higher than the province in which the student is
residing.
If you are using a transfer from the T2202A, you need to keep the paperwork
since Canada Revenue Agency tends to audit these amounts later in the year. It
is usually just a request for copies of the slips, but not sending in the
supporting documentation can mean a tax bill. If the paperwork isn't provided to
the CRA, they may disallow the credit and calculate your tax payable based on
the new numbers."
H&R Block Canada,
www.hrblock.ca
TOP
Dividend SplittingThe new dividend tax regime, effective since 2006, has introduced unique
dividend splitting opportunities, according to Chartered Accountant Sonja Chong,
Partner, Harris & Chong LLP in Toronto.
Under the rules, a taxpayer in Ontario with no other income can earn about
$32,000 in "ineligible" dividends from a Canadian company without paying any
income tax (except for the Ontario Health Premium).
"That number goes up to approximately $45,000 for "eligible" dividends. For a
top-rate taxpayer, this represents annual tax savings exceeding $11,000," says
Chong.
"Private companies with dividends from public companies, or those with high-rate
business income should consider distributing eligible dividends to family
members who earn little or no income, such as university-aged children.
"If such family members are currently not shareholders, then think about
freezing the interest of current shareholders. This would allow other family
members to become shareholders with nominal investments and be entitled to
receive dividends from the private company. This is particularly useful for
Ontario's doctors," explains Chong.
Another strategy is loaning funds to a family trust in order to generate
dividend income from public companies. That income can be taxed in the hands of
the trust's beneficiaries without the application of attribution rules.
Courtesy of the Institute of Chartered Accountants of Ontario.
TOP"You can help finance your education by withdrawing funds tax-free from your RRSP," says Chartered Accountant Gary H. Kopstick, Senior Tax Partner, Soberman
LLP in Toronto. Under the Lifelong Learning Plan, RRSP funds may be withdrawn
for the purpose of financing full-time training or post-secondary education for
the annuitant of the plan, or his or her spouse or common-law partner. A total
withdrawal of up to $20,000 over a four-year period is available ? but the
withdrawal cannot exceed $10,000 in any particular year.
Withdrawal amounts must be repaid to your RRSP in equal installments over a
10-year period. "Otherwise," Kopstick explains, "the repayment amount will be
included in income where it will be subject to tax."
Courtesy of Institute of Chartered Accountants of Ontario.
TOP
Check out
www.campusi.com which compares over 200 online bookstore prices to
find you the best deal on any new, used books
and textbooks. Their book price search is quick and easy. Thanks to A. H. for
alerting us to this service and the potential savings.
TOP
How much do you have to spend on student textbooks to claim the Textbook Tax
Credit?
Actually, you do not need to spend anything on textbooks. You can claim $65 per
month for each month you are entitled to the full-time education amount and $20
per month you are entitled to the part-time
education amount, regardless of what you actually spend.
Courtesy of H&R Block Canada, Inc
TOP
I use health supplements and herbal medicines and I was told by the health store
that I could claim them as medical
expenses on my tax return. Is this true?
In order for drugs, medicaments or other preparations to be claimed as a medical
expense, they must be prescribed by a medical practitioner and
recorded by a pharmacist. According to several recent court decisions, a sales
slip or invoice from a pharmacist is insufficient for this purpose. Items
purchased off the
shelf may therefore not be claimed.
Courtesy of H&R Block Canada, Inc
TOPFor further information on RESPs,
please visit
www.investored.ca/en/investoranswers/Pages/topic-resp.aspx. Some of the
topics covered are:
How do Registered
Education Savings Plans (RESPs)
work?
How much do Registered
Education Savings Plans
(RESPs) pay?
How do I open a
Registered Education Savings Plan
(RESP)?
How do I save for my
child's/grandchild's education?
TOP
Discussing RRSP contributions with the over-65 crowd may not be so unusual these days, according to Chartered Accountant Tina A. Di Vito, Director of Retirement Solutions, BMO Financial Group in Toronto.
"That's because Canadians are working longer. The 2005 BMO Retirement Trends Study revealed that 33 per cent of current retirees either work for an employer or are self-employed. Canada Revenue Agency taxation statistics also show that individuals aged 65 and over who contribute to RRSPs make average contributions of $8,600. That's
73 per cent higher than the average contribution made by those aged 45 to 64."
How is this possible?
Canadians who continue working beyond age 65 will continue to accumulate new RRSP room annually. These individuals are no longer in employer pension plans so RRSP contribution limits are not eroded by pension adjustments.
Canadians may have unused RRSP room carried forward from their working years.
"While Canadians who are over 71 cannot have their own RRSP, they may continue to make tax-deductible RRSP contributions to a spousal RRSP if they have a spouse or common-law partner who is not yet 71. During the RRSP season, remember that you don't need to be working to take a deduction for an RRSP contribution. If you have RRSP room and taxable income from which to take the tax deduction, you can make a contribution to your own or a spousal RRSP."
Courtesy of Institute of Chartered Accountants of Ontario.
TOP
No matter your age, filing tax returns as early as you can, helps build RRSP
contribution room and saves taxes down the road.
"Many individuals know that a threshold income can be earned prior to the
requirement to pay any tax," says Chartered Accountant Carmelo Linardi, Tax
Partner with Hilborn Ellis Grant LLP in Toronto.
"Once that level is surpassed, the income in excess of that level is subject
to tax at the various graduated rates in effect for that particular year. The
threshold amount of income is based on the "basic exemption" for a given year — and in 2007 the federal government increased that level to $9,600."
How does this tie into RRSPs?
Many children earn income below the basic exemption level (from jobs
including part-time work or babysitting), and their parents typically do not
bother filing tax returns for their children to report this income. One of the
downsides of this situation is that the RRSP room that could have been built up
from these income sources is lost.
According to Linardi, this RRSP room could be significant, given the proposed
increased exemption threshold and depending on the child's income and number of
years he or she is below the threshold.
"Imagine a child who earns $5,000 per year doing summer work for a period of
at least six years. While that's $30,000 of tax-free income - it's also
$5,400 of lost RRSP room. When that child is older and can make RRSP
contributions to shelter tax at top personal marginal rates, the savings could
be as high as $2,500 - well in excess of the trouble of preparing tax returns
for six years."
Courtesy of Institute of Chartered Accountants of Ontario.
TOP
Contact the Canadian Marketing Association to have your name removed from the
appropriate list so that unwanted telephone and mailing solicitations are
avoided. CMA: P.O. Box 706, Don Mills, ON, M3C 2T6, fax: (416) 441-4062,
www.the-cma.org.
TOP
You may want to request a copy of the ecoAUTO guidelines and rebate
application form by calling toll-free: (866) 506-6804 or at
www.ecoaction.gc.ca/ecoauto.
TOP
Despite what promoters may tell you - the answer is no.
The Income Tax Act stipulates that withdrawals of retirement funds must be
included in a taxpayer's income, and the amounts withdrawn are subject to
withholdings of 10 per cent to 30 per cent for income taxes, according to Howard Sone, Partner, Sone & Rovet in North York.
"Be careful of promoters who advertise -'Take advantage of your RRSP now
- no
tax to pay.' They will present a complicated financing scheme that involves
using your self-directed RRSP funds to purchase shares of a private company. The
funds used to purchase these shares are then loaned back to you at a low or no
interest rate. However, there are no rules and regulations in the Income Tax Act
that permit this or similar schemes. The amount withdrawn for such a purchase
will be subject to income taxes by the taxpayer," cautions Sone.
Canada Revenue Agency has issued a warning to the public about these and
other types of schemes and can be found under "Debunking Tax Myths" on the CRA
website (www.cra-arc.gc.ca).
Sone warns taxpayers that, if it sounds too good to be true, it is too good
to be true! So be cautious!
Courtesy of Institute of Chartered Accountants of Ontario.
TOP
A recent study (conducted over a 10-year period) has found that
the more mutual fund managers rely on public information, the poorer the returns
are. Marcia Kacperczyk of the University of British Columbia and Amit Seru of
the University of Michigan determined that some investment managers are better
than others. Their performances are directly related to their ability to
interpret research information and their analytical ability — not their dependence
on financial statements or company announcements.
TOP
"The RSI measures recent gains against recent losses of a specific security. The
measure indicates whether a certain security (or entire index) is currently
overbought or oversold. A stock (or index) that is overbought indicates that it
may be currently overvalued and ready for a downward correction - this would be
a bearish signal for a long position. A stock (or index) that is oversold
indicates that it may be currently undervalued and ready for an upward
correction — this would be a bullish signal for a long position." Brandon
Larson, Disnet Direct
RSI data can be found on
www.bigcharts.com. For a Canadian stock, type ca, e.g.
ca:bce. Proceed to Interactive Charting.
TOP
The positive news story of an outperforming company generally results in poor
performance after the story is released.
The average outperformance figure is 43% before the public release but only
about 4% outperformance of its index after the release. Negative company
coverage is followed by an outperformance of its index by 12%.
Three finance professors from the University of Richmond concluded that the
article's contents are no longer news by the time the story is published.
TOP
The Investment Dealers Association of Canada (IDA) released the "Due
Diligence Guide on Principal Protected Notes". The guide will assist investment
dealers, their registered representatives and investors to evaluate the merits
and risks of a principal protected note. The guide addresses due diligence
questions, such as evaluating the issuer and structure of a principal protected
note, its product features and liquidity, fees, expenses and investors' risks.
The guide was developed to implement a recommendation made in "Regulatory
Analysis of Hedge Funds", a special study produced by the IDA in May 2005, which
had found that principal protected notes accounted for 50% of the $14.1 billion
of hedge fund assets in Canada. http://www.ida.ca
TOP
Steve Weinstein of Chicago's Altair Advisers LLC has found that
rebalancing is sensible whether in a bull or bear market. One should avoid
short-term rebalancing as transaction costs and taxes can erode the benefit.
A New York State University professor, David Smith, discovered the optimal
rebalancing period to be between 39 and 44 months. Under a year is negatively
impacted by the resultant market and tax costs.
TOP
Prepaid FuneralsOnly PEI requires that all prepaid funerals be guaranteed to cover
what you contract for, without inflation issues.
Other provincial residents should request the same guarantee when completing
these arrangements.
TOP
Pay Down Your
Mortgage FirstRecently, a major Canadian financial publication supported the fact that it is
prudent for us to save and pay down the mortgage before putting monies in an
RRSP.
Malcolm Hamilton, a respected actuary, at Mercer Human Resource Consulting
confirmed the wisdom of your mortgage payment. He says that there is no
significant tax advantage of RRSPs over mortgage payments. When you pay down the
mortgage, you pay less interest totally over the life of your mortgage. Since
mortgage payments are made in after-tax dollars, you save tax and interest on
the reduced principal.
Of course, your mortgage rate is guaranteed, unlike most investments. You
control this percentage rate as it's based on the mortgage rate for your
property. When your principal property is sold, it can be tax-free, unlike other
investments. Other personal factors can support this decision too.
TOP
Travel BargainMy wife and I have been staying at community college residences in various
Ontario cities for several years now, ever since the travel bureau in Niagara
Falls suggested them to us. The residences are almost all newly constructed and
managed by Campus Living Centres. The floor plans for each residence are
similar: two bedrooms with a common kitchen (equipped with microwave and
refrigerator) and bath. Parking is free or low cost. They usually have free
cable TV, Internet and telephone. Breakfast is included for $60-$80, with an
additional $10 discount for graduates (and several other groups).
Rooms are readily available during holiday periods and on a limited basis at
other times. The central reservation number for the residences is
1-877-225-8664. A complete overview of all the Ontario facilities (14) — and one
in Kamloops, BC — is given on their website:
www.checkintothecentre.com. The residences are far from luxurious
accommodation, but certainly represent good value if you want a convenient
location and to cut down on meal costs. And they are lots of fun, if you like to
chat with fellow travellers at breakfast!
Robert MacKenzie, Ottawa, Ontario
TOP
Education Savings CalculatorGet an instant snapshot of the money your child will need for an education after
high school by using the Education Savings Calculator at
canlearn.ca, a one-stop,
online source to help Canadians plan, save and pay for their child's education
after high school. You'll find the calculator inside the Parents' section under
"Save". You can also call 1-800-622-6232 for more information or visit
canlearn.ca.
NewsCanada,
www.newscanada.com
TOP
Warren Buffett's Stock PicksDo you want to know what Buffett has chosen for his portfolio? Visit the U.S. Securities and Exchange Commission's website at
www.sec.gov. U.S.-based money managers with over US$100 million in assets must disclose their holdings within 45 days of the last day of each quarter.
This site and others (included in our recommended sites at
canadianmoneysaver.ca) may help you become a copycat. Loads of other investors are trying to do it.
Other "guru" sites you might consider are
www.gurufocus.com and
www.validea.com.Warren Buffett's
Stock Picks
TOP
How Many RRSPs Can I Have?There is no limit to the number of RRSP plans you can have, but there are
limits on how much of your investment can be insured.
"Most people find it simpler to have only one or two plans, making it easier to
keep track of their RRSP investments. If you are investing in assets which are
insured by the Canada Deposit Insurance Corporation (CDIC), it may make sense to
have more than one RRSP with different RRSP insurers," says Chartered Accountant
John Wonfor, National Tax Partner, BDO Dunwoody LLP National Office in Toronto.
"The CDIC only insures up to $100,000 with each member financial institution. By
having RRSPs with more than one institution, you can increase the amount of your
investments that are covered by the CDIC. Assets usually covered include bank or
trust company deposits and GICs, but not mutual funds."
Institute of Chartered Accountants of Ontario
TOP
Small-Cap Funds: Too
Much Money HurtsWhile investing in funds with extremely low asset levels can be questionable,
funds with too much money to manage can have problems that are avoided by more
moderately sized funds. Size is particularly important for small-cap equity
funds.
A recent study from the Schwab Center of Investment Research divided the world
of small-cap funds based on Morningstar data into five groups based on fund size
and expenses. Comparing performance data for each group over 12-month periods
between October 1996 and May 2004, the study found the smallest, least expensive
funds returned an average of 12%, while the largest, most expensive funds
returned only 7.7% on average. For example, if a person had invested $10,000 in
the average funds from the best group at the beginning of this time (rebalancing
annually), it would have been worth about $23,000 at the end of the period,
versus just $14,750 for the average fund in the worst group — a difference of more
than $8,000 in less than nine years.
Source: AAII Journal
TOP
Watch out!The B.C. Securities Commission wants investors to avoid the lawless OTC Bulletin
Board and "pink sheets" in the U.S. There are well over 800 B.C.-related
companies that trade on them.
These 2 entities are not real stock exchanges. As reported in Investment
Executive (July 2006), "They have no minimum listing requirements, trading is
not monitored and news releases are not reviewed.
Bulletin board companies are required to file financial statements, but
companies can be totally insolvent and still trade. Pink sheet companies don't
even have to file financial statements. The result is that almost any piece of
junk can trade on either market.
The migration of promoters to the U.S. OTC markets has created a strong demand
for shell companies that can be used as vehicles for stock promotions. To meet
the demand, promoters have established groups of locally based shareholders who
will, for relatively modest remuneration, lend their names to meet share
distribution requirements.
The putative shareholders usually agree to sell their shares to whomever
acquires the shell, thereby ensuring that the supply of stock is carefully
controlled. Their activity is critical to the process. With a restricted supply
of stock, only small demand will be required to boost the stock price."
TOP
Analyzing Your Portfolio
Risk OnlineTo measure the overall risk of your portfolio and the effectiveness of your
diversification, go to the RiskGrades website (www.riskgrades.com). You can
enter your entire portfolio — including stocks, bonds and mutual funds — and
determine its risk and its diversification efficiency. You can also compare it
to several indexes in terms of performance and risk. And you can determine the
amount of return per unit of risk, to see if you are being compensated enough
for the level of risk you have taken on.
RiskGrades uses standard deviation as the basis for its risk measurement, but
makes it more meaningful through standardization — it takes the average of all the
world's equities and assigns it a standard deviation of 100. All other standard
deviations are expressed as a percentage of that figure. For example, a
portfolio RiskGrade of 77 implies it has a risk of 77% as high as the average
risk of all equities in the world.
The RiskGrades website provides the mathematical details of the approach, and it
is free of charge for individual investors.
Source: AAII Journal
TOP
Investor AlertA report by the Investment Dealers Association of Canada should set off warning
bells. Amongst disclosures are statements regarding principal-protected notes (PPNs):
"The regulatory issue, particularly with respect to PPNs, is whether these types
of investments, with locked-in maturity periods of as long as five to 11 years,
little or no certainty of positive returns, minimal disclosure and minimal
assessment of suitability, should continue to be sold to small retail investors
on an exempt basis, without even the asset and income backing of an accredited
investor," the IDA report stated.
TOP
Go Long TermThe chief investment strategist at Merrill Lynch, Richard Bernstein, released a
study this past summer. He found, in summary, that the longer you hold most
asset classes, the more you reduce the chance of investment loss.
For example, with the S&P 500 index for the period from 1985 to mid-2006, if you
bought the index and held for one day, the risk of loss was 46% due to market
movements:
1 week-42%,
1 month-35%,
1 quarter-27%,
1 year-18%,
3 years-14% and
5 years-17%.
TOP
With the ongoing increase in electricity and heating costs, you would be prudent
to compare prices and terms with various suppliers. You may purchase contracts
up to 5 years. Suppliers' rates can be found at
www.energyshop.com.
One of the suppliers, Ontario Energy Savings Group, provides practical
information on your options. See their website at
www.oeb.gov.on.ca. Ontario
residents may welcome some relief from upcoming electrical charges.
The Cool Savings Rebate (http://www.coolsavingsrebate.ca/about.php or
1-800-990-2708) being offered to Ontario residents with existing central air
conditioning systems. The rebates are:
$50 rebate on an AC tune up, and
$500 rebate on replacement of an existing system with an energy star
qualified system.
TOP
CDIC insures eligible deposits now up to $100,000 per person at each member
institution. It reimburses depositors for the amount of their insured deposits
when a member institution fails. Not all deposits are eligible. Contact CDIC at
(800) 461-2342 or www.cdic.ca.
TOP
You should be aware of the fees associated with RRSPs.
"Fees are usually charged if you make withdrawals from your plan, or your plan
is wound up, or transferred to another RRSP insurer. These fees can range from
$25-$100. In addition, there are annual administration fees associated with
trusteed RRSPs.
For a self-directed plan, fees usually range from $100-$200 annually and are
not deductible for tax purposes. If they are paid with RRSP funds, this will
reduce the amount available for future withdrawals," says Chartered Accountant
John Wonfor of BDO Dunwoody LLP National Office in Toronto.
Courtesy of the Institute of Chartered Accountants of Ontario
TOP
An RRSP Can Finance Your Home
"If you plan on taking advantage of the RRSP Home Buyers' Plan, there are some
important details to consider," says Chartered Accountant Glenn Lott, Partner at
Lott & Company, Chartered Accountants, in Markham.
"If you're buying your first home you can withdraw up to $20,000 from your RRSP.
But you'll need to have the $20,000 in your RRSP at least 90 days before making
that withdrawal. So, be sure to make any additional contributions to your RRSP
prior to making your Home Buyers' Plan withdrawal.
"Consider deferring repayment of Home Buyers' Plan withdrawals if you have a low
income year (for example, you're on maternity leave or collecting employment
insurance). If the required Home Buyers' Plan repayment is not made, the amount
of the required repayment is subject to income tax in the year. If your spouse
is in a higher tax bracket, have your spouse use this money to make an RRSP
contribution. The tax savings on the spouse's contribution will exceed the
income tax paid on the Home Buyers' Plan income."
Courtesy of the Institute of Chartered Accountants of Ontario
TOP
Are You an Investor or a Speculator?
1. If your average holding time is measured in days, weeks or months?
2. If you own stocks worth less than $5.00/share?
3. If your average dividend yield is less than 1%?
4. If your opinion of fixed-income investments is that it is for sissies?
5. If you trade daily or weekly?
6. If you think index funds are for losers?
7. If capital losses are an important part of your tax return?
8. If most of your investments are in one sector?
9. If you think that utility and financial stocks are boring?
10. If your biggest holdings are listed on the TSX Venture Exchange?
11. If most of your investment information comes from chat rooms, television
gurus, chart diviners and your Uncle Albert?
12. If most of your U.S. stocks have 4-letter symbols?
13. If you are expecting a margin call?
14. If a day without Maria Bartiroma is like a day without sunshine?
15. And, finally, if you picked up this magazine only because all the copies of
Investor's Business Daily were gone?
You might be a speculator!
Submitted by David Stanley
TOP
Contact WILink at 888-301-0506 or
www.wilink.com
for single or multiple orders of company reports.
TOP
Financial
Consumer Agency of Canada
The FCAC
supplies information to help you make sound decisions when
choosing your financial services and products. Their web
site at
www.fcac-acfc.gc.ca
has
an interactive tool to help you choose the best banking
service package for your needs. This exhaustive guide is
available for all ages. A print version can be obtained by
calling toll free: 866-461-3222. (All services are free.)
TOP
When
you covert your RRSP to a RRIF, you can elect to use your
younger spouse's age for RRIF withdrawals. If your spouse
is younger, you can use his/her age for the minimum
withdrawal amount. Doing so, can increase your RRIF holdings
since you can defer the withdrawal of larger amounts.
TOP
If
you hold single share certificates for the qualifying DRIP
companies, you may not want to hold them forever. What can
you do?
The
trustees for these companies do not offer safekeeping
services. Anyway, you don't want these certificates, as
the paper work for your executor would be onerous. To date,
certificates remain in the physical form in the owner's
name. In the future, this dilemma may be overcome if shares
can be held in book form.
Often,
brokers will not sell single shares or it is too expensive
to do so through them. Therefore, you could sell or transfer
the single share to a new owner.
You
contact the trustee for the company and request that the
share be deregistered from your name and reregistered in the
new owner's name. The new owner will later receive a
single share certificate. It is now out of your hands! This
practice is also a prudent method for allowing others to
start their own DRIPs and SPPs.
Complete
details for making such a transfer have been described in
earlier editions of MoneySaver. You can always
contact the trustee and they'll walk you through the
process. It is relatively painless.
TOP
Moshe
Milevsky produced a NYSE (New York Stock Exchange) table
showing the effects on your portfolio's investment risk of
holding randomly selected stocks. As can be seen, risk is
reduced by increasing the number of stocks in your
portfolio. Just holding 10 stocks has a significant impact
on risk reduction.
| NYSE Stocks
Held |
Risk Reduction |
| 2 |
42% |
| 4 |
64% |
| 10 |
76% |
| 20 |
81% |
The "Beating the TSX"
strategy of 10 stocks is a sound risk reducer.
TOP
A recent
study by Moshe Arye Milevsky examined the better choice
between a fixed-rate mortgage or a floating-rate mortgage
(changes monthly based on the prime lending rate).
Suppose you are amortizing
your payments over 15 years. Regardless of the 15-year
period you were paying the mortgage payments (during the
past 50 years), the floating-rate mortgage came out ahead.
Therefore, if you can
handle the fluctuating payments, it appears that the
floating rate may be your best bet.
TOP
You've decided to place
your RRSP money in an equity investment. But you haven't
been following the market. Don't panic. Be patient.
Wait until you can identify a bargain purchase. During the RRSP season
(January and February), many institutions will offer you a
bonus, such as 1/2 percent interest on your money, if you
deposit it with them. Take the offer.
"Park" your money until you can decide what equity
purchase is best for you. Do check to determine
whether there is any penalty for withdrawing or transferring
your money out in a few weeks/months. Often, with money
market funds, there is a 90-day waiting period or a penalty
may be imposed if withdrawn beforehand. Historically, the stock
market is expensive during this period. By
monitoring/charting the stocks or equity mutual funds that
you may purchase, you'll identify when the cost is low or
lower later in the year. Using this strategy, you
still receive your RRSP deduction and make your purchase
when it is better to do so.
TOP
Fund Comparison & Banking Calculators
The
U.S. Securities and Exchange Commission's Calculator
lets you compare the costs of mutual funds and run what-if
scenarios. Variables used are the amount invested, average
annual return, how long the fund is held and sales or redemption
fees. Check it out at
www.sec.gov.
This
site also has loads of data on US mutual funds. However,
you may find it easier to receive the same information faster
on EDGAR Online (www.edgar-online.com) or FreeEDGAR (www.freeedgar.com).
EDGAR is an acronym for Electronic Data Gathering Analysis
and Retrieval System.
Want
to compare the monthly cost of most business accounts? Visit
Industry Canada's Web site at
www.strategis.ic.gc.ca.
Their Financial Services Charges Calculator can help you.
TOP
IPOs Are High Risk
The April Investment Executive edition highlighted its
annual report on the underperformance of the TSX's IPOs. Although the TSX was hot in 1999,
Investment Executive
found IPOs underperformed by an average of 7.8% one year
after issue. And the report only included the Initial Public
Offerings that were still trading.
The
average IPO was 9% behind the TSX index after 2 years, 13%
after 3 years, 19% after 4 years. It gets worse for the
fifth and sixth years! There is a 70% chance that an IPO
stock will decline in value.
Investors
may not make money but it isn't difficult to figure
out who does! Ignoring the IPO hype and investing elsewhere
is a prudent practice for most investors.
TOP
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