Victory Lap

Once you achieve Financial Independence, you may choose to leave salaried employment but with decades of vibrant life ahead, it’s too soon to do nothing. The new stage of life between traditional employment and Full Retirement we call Victory Lap, or Victory Lap Retirement (also the title of a new book to be published in August 2016. You can pre-order now at VictoryLapRetirement.com). You may choose to start a business, go back to school or launch an Encore Act or Legacy Career. Perhaps you become a free agent, consultant, freelance writer or to change careers and re-enter the corporate world or government.

Great things you can do with your TFSA

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By Mark Seed, myownadvisor

Special to Financial Independence Hub

A Tax Free Savings Account (TFSA) is far more versatile and powerful than you might think.

Now that we’re into the start of a new year (Happy New Year!) here are some great things you can do with your TFSA.

TFSA Backgrounder

The TFSA was first introduced in the 2008 federal budget.

It became available to Canadians for the 2009 calendar year – as of January 1, 2009. Launched part-way through The Great Recession (where markets collapsed significantly during 2008 triggered by a financial crisis), the account was designed as a savings account (hence the name) to encourage Canadians to save more money.

But the “savings” word in the name is very misleading, no?

Correct. 

Since account introduction in 2009, adult Canadians have had a tremendous opportunity to save and grow their wealth tax-free like never before.

While this account is similar to a Registered Retirement Savings Plan (RRSP) there are some notable differences.

As with an RRSP, the TFSA is intended to help Canadians save money and plan for future expenses. The contributions you make to this tax-free account are with after-tax dollars and withdrawals are tax-free. Consider it like an RRSP account in reverse.

For savvy investors who open and use a self-directed TFSA for their investments, these investors can realize significant gains within this account. This means one of the best things about the TFSA is that there is no tax on investment income, including capital gains!

How good is that?!

Let me tell you … here is summary of many great account benefits:

  1. Capital gains and other investment income earned inside the account are not taxed.
  2. Withdrawals from the account are tax-free.
  3. Neither income earned within a TFSA nor withdrawals from it affect eligibility for federal income-tested benefits and credits, like future Old Age Security (OAS) income.
  4. Anything you withdraw can be re-contributed in a following year, in addition to that year’s contribution limit.
  5. While you cannot contribute directly as you could with an RRSP, you can give your spouse or common law partner money to put into their TFSA. Do it without any income attribution!
  6. TFSA assets could be transferable to the TFSA of a spouse or common-law partner upon death. More details below for you.
  7. The annual contribution limit is indexed to inflation in $500 increments, that happened in recent years …. and more!

I’ve got my preference for which account I focus on for wealth-building purposes (related to the RRSP vs. TFSA debate, including what account I would suggest you max out your contributions to first) but let’s compare each first:

RRSP

TFSA
A tax-deferral plan. A tax-free plan.
Contributions can be made with “before-tax” dollars as part of an employer-sponsored plan or “after-tax” dollars when a contribution is made with a financial institution. Contributions are made with “after-tax” dollars.

 
Contributions are tax deductible; you will get a refund roughly equal to the amount of multiplying your contribution by your tax rate. Contributions are not tax deductible; there is no refund to be had.
If you don’t contribute your maximum allowable amount in any given year you can carry forward contribution room, up to your limit.
If you make a withdrawal, contribution room is lost. If you make a withdrawal, amounts withdrawn create an equal amount of contribution room you can re-contribute the following year.
Because contributions weren’t taxed when they were made (you got a refund), contributions and investment earnings inside the plan are taxable upon withdrawal.  They are treated as income and taxed at your current tax rate. Because contributions were taxed (there was no refund), contributions and investing earnings inside the account are tax exempt upon withdrawal.
Since withdrawals are treated as income, withdrawals could reduce retirement government benefits. Withdrawals are not considered taxable income.  So, government income-tested benefits and tax credits such as the GST Credit, Old Age Security (OAS) and the Guaranteed Income Supplement (GIS) aren’t affected by withdrawals.
You can’t contribute to an RRSP after age of 71. Accounts must be collapsed in the 71st year. You can contribute to a TFSA after age of 71.
The Summary:  part of your RRSP is borrowed money (i.e., you owe the government taxation.) The Summary:  all of your TFSA is your money.

Based on my personal investment plan, I feel the TFSA ultimately trumps the RRSP as a retirement vehicle to focus on first at any income level even though I contribute to both every year. All the money in the TFSA is mine to keep, grow and manage with no taxation withdrawal consequences.

Since inception, here are the annual and cumulative limits assuming no withdrawals over that period were made:

TFSA contribution limit 2009 to 2025:

Year TFSA Annual Limit TFSA Cumulative Limit
2009 $5,000 $5,000
2010 $5,000 $10,000
2011 $5,000 $15,000
2012 $5,000 $20,000
2013 $5,500 $25,500
2014 $5,500 $31,000
2015 $10,000 $41,000
2016 $5,500 $46,500
2017 $5,500 $52,000
2018 $5,500 $57,500
2019 $6,000 $63,500
2020 $6,000 $69,500
2021 $6,000 $75,500
2022 $6,000 $81,500
2023 $6,500 $88,000
2024 $7,000 $95,000
2025 $7,000 $102,000
Based on the recent bull run in recent years, I know some individuals that have over $200,000 in their TFSAs.

I also know some couples who have their combined TFSA assets worth more than $400,000 in value.

Pretty impressive tax-free money!!

Q&A with Mark – What has worked for me/us over the years?

Well, we’ve bought various assets, namely Canadian stocks and ETFs over the years.

To date, we have avoided any TFSA withdrawals. Instead, like I referenced above, we use our TFSAs for owning equities and wealth-building purposes.

Q&A with Mark – What types of investments can you own inside the TFSA?

Thankfully lots!

Similar to the assets you can hold within a Registered Retirement Savings Plan (RRSP), the TFSA can also be used to help Canadians build significant wealth beyond just holding cash savings. You can own a number of different types of investments inside the TFSA: Continue Reading…

5 things you can do now to gain control over your financial future

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By Billy and Akaisha Kaderli

Special to the Financial Independence Hub

No matter what goes on in the news, Washington or the world, to build a stable tomorrow, we must take control of our own lives. Even with all the current upheaval, here are five things you can do today to empower yourself.

Track spending

This is the number one most useful financial technique to implement today. Imagine if businesses did not track their expenses. How would they know the financial health of their enterprise? It is no different for you and me. It is paramount to know where your money is going and what percentage of your net worth you are spending.

Know your net worth

Assets minus Liabilities equals Net Worth. Place a value on everything you own and subtract what you owe. This figure is your net worth. Now divide how much you spent last year by your net worth number and you will have your percentage of spending to net worth. Continue Reading…

Hello 2025: Investing in the Zero Visibility Age

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By Dale Roberts, cutthecrapinvesting

Special to Financial Independence Hub

While there is only one trading day left in 2024, it is clear that it is another year that fooled everyone. The year 2023 fooled economists and market prognosticators with U.S. stocks up over 26% in U.S. Dollars (and up more in Canadian Dollars). 2024 is shaping up as a carbon copy in performance and in big swing and miss predictions. Canadian stocks are looking to finish the year up over 20%. Good luck making predictions as we enter 2025: a zero visibility age. Trump economic ‘policy’ will likely shape the year. There’s just no tellin’ what will happen.

But before we move on to 2025, some Santa stock market rally housekeeping.

Here’s the history of Santa rallies from 2000 on Seeking Alpha.

As can be seen from the chart, a Santa rally has successfully occurred 18 times out of 24 in the 2000s. One year saw a flat performance, while five years saw a decline, including as recently as 2023.

But so far, Santa read the Trump economic policy and went back into Santa’s house to have a nice hot chocolate. Here’s the equal-weight S&P 500 (RSP), more representative of broader market sentiment.

Or maybe Santa went inside for something a little stronger, perhaps a few hot totties.

And more holiday fun …

Did a rally start last Tuesday? Who knows. True, US and Canadian markets took a big hit down yesterday  with the Dow down 418.5 points or 1% and Nasdaq fell 1.2% (Monday, Dec. 30th). But it doesn’t really matter it’s obvious that 2024 was a wonderful year for investors who stayed the course, stayed invested; for investors who stuck to their investment plan. The final returns for stock markets will simply be statistics for the record books.

Trumpenomics and 2025

In the Globe & Mail John Rapley did a nice summary of the battle between the Fed, bond markets and Donald Trump’s economic ‘policy’. I put policy in quotes because the incoming U.S. President’s platform is currently more threats than anything else.

Here’s a key paragraph …

But it now looks like the Fed may be girding for a battle with the administration, with some governors hinting that they’re beginning to factor the inflationary impact of his policies into their own projections. If they decide to counterbalance a loose fiscal policy with a tight monetary one, the economic prognosis may well change.

Translation: proposed Trump tax cuts and looser regulations will battle with inflationary tariffs and deportations. Add in crippling U.S. debts and deficits. The bond market has been moving rates higher. The stock market (other than the magnificent tech) is moving lower over the last month. Both stocks and bonds are repricing Trump. But Trump is like a box of chocolates – you don’t know you will get.

The zero visibility age

Ian McGugan (also in the Globe & Mail) frames why forecasts are likely to be wrong (again) in this zero visibility age …

The simple explanation for these forecasting failures is that the world has entered some very odd economic territory. Lingering effects of pandemic weirdness, manic exuberance around artificial intelligence and a surprising resurgence of strongman politics are helping to create a thick fog of uncertainty.

It’s a weird mix of optimism, fear and uncomfortable uncertainty that can make you make all kinds of strange (and uncomfortable screwed-up) expressions. Continue Reading…

7 Tips to Save on Health Insurance in 2025

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Image courtesy Pexels: Leeloo The First

By Evan Tunis

Special to Financial Independence Hub

As healthcare costs continue to rise, finding ways to save on health insurance is becoming increasingly important.

In 2025, it is estimated that the average American family will spend over $25,000 a year on healthcare expenses.

This high cost not only affects individuals and families but also puts a strain on the overall economy.

 

Here are 7 tips to save on health insurance in 2025

Compare Plans

With the rise of online marketplaces, comparing health insurance plans has become easier than ever. Take the time to shop around and compare different plans from various providers. Consider factors such as premiums, deductibles, and coverage options before making your decision. You may find a plan that offers the same coverage for a lower cost.

Consider High-deductible Plans

High-deductible health plans (HDHPs) typically have lower premiums but higher deductibles. This means you will pay less each month for insurance, but will have to pay more out of pocket before your insurance kicks in. If you are generally healthy and do not require frequent medical care, an HDHP could save you money in the long run.

Utilize Preventive Care Services

Many health insurance plans cover preventive care services at no additional cost to the patient. Take advantage of these services — such as check-ups, screenings, and vaccinations — to catch any potential health issues early on and avoid expensive treatments in the future. Continue Reading…

Big Canadian Bank Earnings: Three ways to invest with ETFs

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Here’s a look at the different ways investors can express a view on Canada’s banking sector via ETFs.

Getty Images courtesy BMO ETFs

 

By Skye Collyer

BMO Global Asset Management

(Sponsor Blog) 

The first week of December brought a flurry of earnings reports from Canada’s “Big Six” banks: Bank of Montreal (BMO), Royal Bank of Canada (RBC), Toronto-Dominion Bank (TD), Scotiabank (BNS), Canadian Imperial Bank of Commerce (CIBC), and National Bank of Canada (NA).

The best way to describe the results? A “mixed bag.” For example, BMO missed earnings expectations and increased provisions for potential loan losses.

Meanwhile, CIBC reported a jump in Q4 profits year-over-year and raised its dividend, a move mirrored by NA and RBC. BNS posted a rise in Q4 profits but warned of headwinds from a slowing economy and decelerating loan growth.

The biggest disappointment came from TD, which fell 7% intraday after adjusted earnings took a hit from penalties tied to anti-money laundering violations in the U.S. and a cap on asset growth for its U.S. retail banking business1.

What’s the takeaway for investors? Short-term fortunes can vary dramatically among the Big Six, so unless you have expertise in this space and the time to stay on top of developments, stock picking might not be ideal.

Historically, Canadian banks as a group have delivered strong earnings and dividend growth, making them a more reliable bet for long-term investors.

Instead of zeroing in on individual names, you might consider investing in the entire industry through ETFs. Here are three ETF options, catering to different risk profiles2 and objectives.

BMO Equal Weight Banks Index ETF (ZEB)

The flagship ETF for investors looking to express a neutral, bullish view on Canada’s banks — without worrying about which one will outperform — is the BMO Equal Weight Banks Index ETF (ZEB).

This ETF is a heavyweight in the space, with just shy of $4 billion in assets under management as of December 19, 2024, and it has been a staple for Canadian bank investors since its launch in October 20093.

It tracks the performance of the Solactive Equal Weight Canada Banks Index, which — as the name suggests — gives equal weight to all six banks regardless of their size. This approach is rebalanced periodically, introducing a natural “buy low, sell high” mechanic.

ZEB charges a 0.28% Management Expense Ratio (MER) and currently pays a 4.00% distribution yield4. What’s particularly attractive for income-focused investors is the monthly distribution schedule, compared to the quarterly payouts of individual bank stocks.

BMO Covered Call Canadian Banks ETF (ZWB)

If you’re seeking higher cash flow and don’t mind capping some potential share price appreciation, the BMO Covered Call Canadian Banks ETF (ZWB) could be an appealing alternative to ZEB.

ZWB holds the exact same six Canadian bank stocks as ZEB and is also well-capitalized, with $3.2 billion in assets under management as of Dec 19, 20245. However, it boasts a higher 6.67% distribution yield as of Dec 19, 2024. How does it achieve this? By employing a covered call strategy. Here’s how it works:

ZWB sells call options on the bank stocks it holds and receives premiums , which generate additional yield for the fund (with premiums taxed favourably at the capital gains rate).

In exchange, ZWB agrees to sell a stock at a set price (the strike price) if the stock’s market price exceeds that level by the option’s expiration. This caps the upside price appreciation of the shares over and above the selected strike price.

However, if the stocks stay flat or decline, ZWB keeps the premium and the underlying shares, adding a layer of enhanced yield while providing a volatility cushion.

While this strategy increases cash flow, it does come with trade-offs. Investors sacrifice some of their potential price gains for enhanced monthly cash flow. The fund charges a 0.71% MER as of June 30, 2023, reflecting the costs associated with managing the options. Read more about our covered call ETF methodology here.

BMO Canadian Bank Income Index ETF (ZBI)

Stocks aren’t the only way to invest in Canada’s banking sector. Banks also issue a variety of securities such as corporate bonds, preferred shares, and limited recourse capital notes (LRCNs).

LRCNs are hybrid securities that function like bonds but are designed to absorb losses in extreme scenarios, providing a layer of stability for the issuing bank.

These instruments often provide returns that are less correlated with bank stocks and typically come with lower volatility. However, accessing them as a retail investor can be challenging. That’s where the BMO Canadian Bank Income Index ETF (ZBI) comes in.

ZBI offers a convenient way to gain exposure to all these securities in a single ETF. As of Dec. 12, its portfolio is diversified as follows: 53.46% in corporate bonds, 26.61% in limited recourse capital notes, 10.83% in preferred stock, and 9.10% in non-viable contingent capital securities7.

Rated as low risk*, ZBI charges a 0.28% MER as of June 30th, 2023 and offers a 3.55% distribution yield as of December 19th, with monthly payouts. It’s an excellent way to complement common bank stocks with quasi-fixed-income exposure.

Want more insights on Canadian bank earnings?

Listen to our deep dive into the fourth quarter earnings from Canada’s Big Six, breaking down recent results and examining key economic variables. Listen here. Continue Reading…