Hub Blogs

Hub Blogs contains fresh contributions written by Financial Independence Hub staff or contributors that have not appeared elsewhere first, or have been modified or customized for the Hub by the original blogger. In contrast, Top Blogs shows links to the best external financial blogs around the world.

Time to add $6,000 to your TFSA but consider holding off investing it until after Jan 6th

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Happy New Year! However, this first business week of the new year promises to snap investors rudely out of their holiday moods, given political events south of the border.

As of last Friday, January 1st, Canadians could add another $6,000 to their TFSAs, taking their total cumulative lifetime contributions to $75,500. As I outlined in my latest MoneySense Retired Money column, it’s generally a good idea to do this early in January just to maximize the time value of money.

However, I’d hold off committing to particular equity investments until the dust settles, given that this morning’s headlines no doubt focus on the incredible political drama taking place in Georgia on Tuesday, Jan. 5th and then in Washington on Wednesday, Jan 6th.

After this weekend’s dramatic capturing on tape of soon-to-be-ex President Trump’s attempt to persuade the State of Georgia to “find” (aka steal) almost 12,000 votes, both the Georgia runoffs and Wednesday’s supposedly ceremonial formal certification of the state electors votes confirming Joe Biden’s victory promise to be full of fireworks.

Fireworks almost inevitable in Washington this Wednesday

Things were simmering even before Sunday’s saturation TV coverage of what seemed yet another impeachable offence from Trump. Violence from far right-groups fomented by Trump’s fanning the flames in anticipation of Wednesday’s ceremony in Washington already seemed to be in the cards even before this weekend. That can be hardly good for stock markets although pre-market Monday futures were strongly up in the three major US indices.

Add in the ongoing stress of the still-raging pandemic and recent euphoria over vaccines, and the fact US and many global stocks have been hovering near record highs: not to mention cryptocurrencies and Bitcoin, which this weekend smashed through US$30,000 for the first time.

So it hardly seems like there’s a need to rush to invest new TFSA money when all these portents mean prices could be cheaper later this week. Whether this creates yet another proverbial buying opportunity remains to be seen.

Some ideas for how to invest new TFSA money

Those in doubt who would rather invest sooner than later on any anticipated market downturns Monday could always hedge their bets with value-oriented balanced mutual funds or the Asset Allocation ETFs often mentioned on this site, from BlackRock iShares, BMO ETFs, Horizons ETFs or Vanguard Canada. Hard to believe it was just three years ago that the Hub published this blog about these “game-changers”  and they seem to me to make a lot of sense for the large “core” of most portfolios.  Continue Reading…

A smart guide on how to invest in 2021

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By Alex Barrow

Special to the Financial Independence Hub

2020 was a difficult year in markets and the economy. There remains a high level of uncertainty heading into the new year. Below we’re going to walk you through some time-tested practical steps on how to prepare for the coming year, in order to make sure you’re financially set for whatever may unfold. 

1.) Assess your personal balance sheet

When planning your finances for the new year it is critically important to know and understand the strength of your current financial position. You can do this by running through the exercises below. 

• Understand your financial obligations relative to your income: 

Are you carrying high levels of debt relative to income? What is the composition of this debt: is it mostly in high-interest credit cards or a low fixed-rate mortgage? The 36% Rule states that your debt to income (DTI) should never surpass 36%. When your DTI rises above 36%, your personal balance sheet is fragile and you become more exposed to financial risk. In these difficult times of uncertainty, it’s important to keep your DTI low so as to maintain financial flexibility. 

• Upcoming big-ticket expenses: 

Do you plan to make any big purchases or financial outlays in the coming year? Perhaps you’re planning to buy a home and purchase a new car or pay the tuition for your child to attend their first year of college … These are big expenses that can stress the strongest of personal balance sheets if one doesn’t plan properly. That’s why it’s important to note these at the start of the year so you can start preparing for the expense. 

  • Nonessential spending: 

Frequent dinners out and vacations at the beach are fun but if they come at the cost of putting a strain on your financial security, they can cause more stress than they’re worth. A good exercise for planning for the coming year is to look back at your expenses from the year before and see where you’re maybe spending a little more money than you’d like. Those $6 lattes every morning add up! 

2.) Set your personal financial goals 

To cite the oft-quoted baseball sage, Yogi Berra “If you don’t know where you’re going, you’ll end up someplace else.” Financial planning and goal setting are critically important to protecting your resources and securing the future you want. From a practical standpoint, this means doing a number of key things at the start of each year. 

  • Set a target retirement savings amount: 

Retirement might be a ways off for you, or not. Regardless, it’s never too early or too late to start planning for it. The rule of thumb is that you should aim to stash 10%-15% of your pretax income into a retirement savings account each year. The earlier you can start doing this the better because that puts the power of compounding in your favor.  

  • Invest, invest, invest: 

The best way to grow your wealth over time is to start investing early and often. This means putting a percentage of your income into low-cost stock and bond indices, on a consistent and regular basis.  

  • Take control of your debts: 

Turning back to keeping your DTI below the key 36%, debt is a financial burden that has to be dealt with before it grows out of hand. This takes time and planning. Just like how the power of compounding works in your favor in investing, it works against you when you carry large amounts of debt if you’re just paying the minimum. Continue Reading…

3 days or less left for key End-of-year Investing and Tax actions, CERB repayments

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While most people will be glad to put paid to the year 2020, there remain three business days and several actions on the investing or tax front must happen before December 31, or even today (Tue., Dec 29) if you want trades to settle in time to qualify as a year 2020 taxable event (capital gains or losses, chiefly).

Allow time for trade settlements

According to this piece from Taxtips.ca, the last trading date for 2020 for Canadian and US publicly traded stocks will be Tuesday December 29th in order to record the gain or loss in the 2020 taxation year.  Canadian stocks purchased or sold after this date are settled in 2021, so any capital gains or losses on sale apply to the 2021 tax year instead of to the 2020 tax year. 

The Canadian market was of course closed on Monday and reopens at 9:30 am today (Tuesday), although the US market was open on Monday too.

Courtesy RBC Direct Investing, where our family does much of our banking (with some editing):

2020 Year End Registered Retirement Savings Plan (RRSP) Withdrawals    

For an RBC Direct Investing RRSP withdrawal to be applied for the 2020 tax year, you must submit your online cash requests before Thursday, December 31 by 4:00 p.m. ET.

If you are requesting an in-kind withdrawal please ensure to call an Investment Services Representative prior to 3:00 p.m. ET on Thursday, December 31.

Note: RRSP withdrawals requested after these times will be applied to the 2021 tax year.

2020 Registered Education Savings Plan (RESP) Online Contributions Deadlines

Please note, to make a contribution to an RBC Direct Investing RESP account from an RBC bank account and still claim an applicable government grant for 2020, you must submit your request online before Thursday, December 31 by 7:30 p.m. ET.

If you are contributing from your non-registered RBC Direct Investing account to your RBC Direct Investing RESP account, the cut-off time is 4:00 p.m. ET on Thursday, December 31.

Kindly note online contributions are automatically split equally among plan beneficiaries.

2021 Tax Free Savings Account (TFSA) Contribution Limit
The annual TFSA contribution limit for 2021 is $6,000 Canadian dollars. Any unused contribution room from previous years carries forward.

Please be aware that due New Year’s Holiday, our normal trading hours will be impacted as follows:

Thursday, December 31
– GICs will close at 11:30 a.m. ET
– All other fixed income will close early at 1 p.m. ET

Friday, January 1
– Both Canadian and U.S. markets are closed
– Foreign exchange transactions will not be processed until Monday, January 4

Monday, January 4
– Markets resume normal trading hours

Last day to place trades for 2020 settlement
– Canadian and U.S. equities: Tuesday, December 29
– Canadian and U.S. options: Wednesday, December 30

That’s the input from RBC.

CERB repayment deadline

This year there are also some actions needed on the government grant Covid front, chiefly involving CERB and related programs. CIBC Wealth’s Jamie Golombek had a good summary of this in Saturday’s Financial Post: Click here.

Golombek says Canada Revenue Agency recently sent out 441,000 “educational letters” warning individuals that they may not be eligible for CERB:  individuals whom the CRA said it was “unable to confirm … employment and/or self-employment income of at least $5,000 in 2019, or in the 12 months prior to the date of their application.” Continue Reading…

How Travel prepares you for the unexpected

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Lake Atitlan, Guatemala

By Billy and Akaisha Kaderli

Special to the Financial Independence Hub

Even before we met, as individuals, Billy and I have always loved to travel.

I have written about my cross-country adventure on the back of a motorcycle when I was 19. Billy also traveled with his van to Guatemala in the 1970s and back again to his hometown of Cincinnati, Ohio.

As a couple we lived and journeyed through Europe for six months before we purchased our restaurant in Santa Cruz, California.

These trips were life-changing experiences and we just got hooked on adventure.

When we left the traditional work force in 1991, we sold everything and began to travel the world. These experiences forced us to be flexible even when we didn’t want to be.

Power outages

For instance, when we lived on the tiny island of Nevis, West Indies, every afternoon or early evening, the power in our home would go out. It could happen at 4pm or at 7:30, but it would happen. Lights would go out and the TV would click off (right as the plot thickened in the movie we were watching). The pump bringing water to the kitchen sink or toilets wouldn’t work without the electricity, so things like doing the dishes, taking a shower or using the restroom had to be prepared for in advance.

We read books by flashlight or had discussions on future travel plans.

No running water!

Speaking of taking a shower, in Nevis we shared the Governor of Nevis’s home with other housemates who were opening the Nevis Four Seasons Resort on the island.

Aside from us and Billy’s best friend who was the head chef, all the rest of the roomies were young twenty-somethings and used to First World Living. One young woman would start her hot shower, go to the kitchen, toast bread, smother it in peanut butter and jelly, eat the sandwich, then return to a steam-filled bathroom with the water still running and take her hot shower.

As natural water-savers ourselves, we thought this was over the top.

However, we had no idea how much so, until one day … we found out the cistern was empty. The only way the tank was filled was by rain that fell or by water trickling out of the city’s pipes from 10 am to 11 am daily. And by trickle, we mean drizzle by drop.

Our spectacular house in Nevis, West Indies with a view of the Atlantic Ocean

We were out of water, with all the conveniences that running water brings to living, so how were we going to take a shower?

Being in the tropics, rain came fairly regularly, like every other day or so. One morning around 9:30, it was a typical tropical downpour. Billy and I saw the flooding of water through the gutters and into our rain barrels and we both grabbed towels and soap. Moving a barrel and standing under the drainpipe of the gutter we lathered up and enjoyed this pleasure of a beautiful shower out in nature. The jungle and sugar cane fields pushed up against our house, and we had a straight shot of Nevis’ volcano. Spectacular.

Then … the rain stopped.

Oh Lord. There we were, soaped up, naked, and out in our back yard when the maid popped in for her thrice weekly cleaning. Continue Reading…