Hoping readers have a pleasant and profitable 2024. Retirees should be cheered by the fact CPP and OAS payments rise 4.7% as of today as explained here.
And of course, as of today, you can add another $7,000 to your Tax-free Savings Accounts or TFSAs.
And there’s other inflation-related good news on tax brackets, the OAS clawback threshold and contribution limits on other tax-sheltered retirement plans, as outlined in my last MoneySense Retired Money column, which you can find here.
The Hub will resume its regular blog scheduling this time tomorrow. In the meantime, time to make that TFSA contribution, even if you can’t actually invest it until markets re-open Tuesday.
Yet another year has gone by. With 2023 behind us and 2024 on the horizon, it’s important to take stock, set goals, and make plans – keep steadfast in your quest for long-term financial planning and wealth management success.
In 2023, I shifted my focus to keep some core financial planning principles at the forefront of your mind. These principles are timeless and are a good touchpoint for whenever your financial resolve starts to soften.
Let’s look back at these timeless financial tips from 2023…
Let’s talk about the price of stocks. To make money in the market, you need to sell your holdings for more than you paid. Of course, we’re all familiar with good old buy low, sell high. But despite its simplicity, many investors fall short. Instead, they end up doing just the opposite, or at least leaving returns on the table that could have been theirs to keep.
You can defend against these human foibles by understanding how stock pricing works and using that knowledge to your advantage.
In investing and life, information overload, aka “noisy news,” has long been a thing. In fact, before the Internet came along, I used to publish a hardcopy newsletter called “Rising Above the Noise.” Because even then, investors seemed awash in TMI (too much information).
If media noise was a problem back then, imagine the implications today. Which brings me to today’s Play It Again, Steve – Timeless Financial Tip #2.
To be a successful investor, it’s as important as ever to dial down all the noisy news you invite into your head.
I would be remiss if I didn’t dedicate at least one post in my “Play It Again, Steve” series to everyone’s least favourite, but still significant topic: taxes. It’s a good thing there’s no tax on writing about tax planning; if there were, I would surely owe a lot.
Read about these six timeless techniques for reducing your lifetime tax load.
So, what’s really going on inside your head as you make critical decisions about managing your money? By considering this pivotal question each time you’re tempted to react to the latest news, you stand a much better chance of being the boss of your investment outcomes.
There are countless external forces influencing your investment outcomes: taxes, market mood swings, breaking news, etc.
Let’s look inward, to an equally important influence: your own financial behavioural biases.
If I could, I would grant amazing investment returns to every investor across every market. Unfortunately, that’s just not how it works. In real life, we must aim toward our financial ideals, knowing we won’t hit the bullseye every time.
That’s why I recommend evidence-based investing: or investing according to our best understanding of how markets have actually delivered available returns over time, versus how we wish they would. Our “best understanding” may still be imperfect, but it sure beats ignoring reality entirely.
I’ve spent my entire career railing against the dangers of market-timing — i.e., dodging in and out of markets based on current conditions. But there is a time when “timing” of a different sort matters. I’m talking about your investment time horizons.
Your driving force for when to invest — and stay invested — is ideally based on the timing of your own spending plans, rather than external market moves. Let’s look at how to use your personal time horizons to successfully separate today’s spending from tomorrow’s future wealth.
Retirement isn’t the only reason to set aside current income for future spending. But since it’s usually the elephant in the financial planning room, it’s worth a Timeless Tip of its own.
Essentially, this is what retirement planning is all about:
By being thoughtful about how to save and invest toward retirement, you can best sustain, if not improve your ongoing lifestyle: especially once your prime earning years are over.
If you are walking the line between investing, spending, and your investment time horizon, check out these 6 ways to leverage lifelong financial planning, so you can retire on your own terms and on your own timeline. Continue Reading…
Jeremy Siegel recently wrote, with Jeremy Schwartz, the sixth edition of his popular book, Stocks for the long Run: The Definitive Guide to Financial Market Returns and Long-Term Investment Strategies.
I read the fifth edition nearly a decade ago, and because the book is good enough to reread, this sixth edition gave me the perfect opportunity to read it again.
I won’t repeat comments from my first review. I’ll stick to material that either I chose not to comment on earlier, or is new in this edition.
Bonds and Inflation
“Yale economist Irving Fisher” has had a “long-held belief that bonds were overrated as safe investments in a world with uncertain inflation.” Investors learned this lesson the hard way recently as interest rates spiked at a time when long-term bonds paid ultra-low returns. This created double-digit losses in bond investments, despite the perception that bonds are safe. Siegel adds “because of the uncertainty of inflation, bonds can be quite risky for long-term investors.”
The lesson here is that inflation-protected bonds offer lower risk, and long-term bonds are riskier than short-term bonds.
Mean Reversion
While stock returns look like a random walk in the short term, Figure 3.2 in the book shows that the long-term volatility of stocks and bonds refutes the random-walk hypothesis. Over two or three decades, stocks are less risky than the random walk hypothesis would predict, and bonds are riskier.
Professors Robert Stombaugh and Luboš Pástor disagree with this conclusion, claiming that factors such as parameter and model uncertainty make stocks look riskier a priori than they look ex post. Siegel disagrees with “their analysis because they assume there is a certain, after inflation (i.e., real) risk-free financial instrument that investors can buy to guarantee purchasing power for any date in the future.” Siegel says that existing securities based on the Consumer Price Index (CPI) have flaws. CPI is an imperfect measure of inflation, and there is the possibility that future governments will manipulate CPI. Continue Reading…
Today’s headline is borrowed from a Tweet that you’ll find later in this post. That notion is so bang on and perhaps summarizes what has been going on for a year or three, and well, forever.
The investors and portfolio managers that have been scared off by the risks have been treated to some level of underperformance, or what we’d call opportunity costs. Greater returns were available for those who stayed invested and stuck to their investment plan. The economy and stock markets have been fooling most everyone. Bears sound smart. Bulls make money.
In a Tweet (below) you’ll find the recent and very generous returns for U.S. and Canadian stocks.
Awareness is preparedness
In this blog I often shine a light on risk. Awareness is preparedness. The idea is to reinforce the basic investment truth that we have to invest within our risk tolerance level. And the fact is, most investors take on too much risk. Studies show that when we enter recessions and severe stock market corrections most investors (or too many) will end up buying high and selling low. Essentially doing the opposite of how we build investment wealth over time.
Use the awareness of risk to embrace a portfolio that aligns with your risk tolerance level so that you can stay fully invested. We don’t use risk and the discussion of risk to time the markets. The last few years have offered a pronounced demonstration that guess work does not work.
Tax time can be overwhelming, but a financial advisor can help simplify the process and ensure you’re maximizing all the credits and deductions available to you and your family. While financial planning should take place year-round, there are important considerations, strategies and dates that should be top of mind at year-end to help reduce your taxes and keep more of your hard-earned money in your pocket.
Year-End Tax Planning Checklist for Individuals
• Saving for retirement with a Retirement Savings Plan (RSP)
Most of us know making an RSP contribution is generally a sound decision if you have unused room available. Once you’ve decided to contribute settled on how much, you should then determine whether it’s best to contribute to your own plan or a spousal RSP for your spouse or common-law partner. Making a spousal contribution before the end of the year rather than waiting until the first 60 days of next year could affect who pays tax on eventual withdrawals.
Planning your retirement income
Speak with a financial advisor to discuss retirement income options, including basing your Retirement Income Fund (RIF) withdrawals on the age of your younger spouse or common-law partner. Determine if you qualify for the pension income credit, which may allow you to significantly reduce federal taxes (provincial credit amounts vary) on the first $2,000 of your pension or RIF income. If you have or will reach age 71 this year and have unused RSP contribution room, you should make your RSP contribution by December 31 or you may lose that option.
Tax-Free Savings Accounts (TFSAs)
You should always consider contributing to a TFSA to take advantage of tax-sheltered savings. The contribution limit for 2023 is $6,500 and rising to $7,000 for next year, but don’t forget about any unused contribution room that is carried forward from year to year. Gifting money to your spouse or common-law partner to make their contribution can also provide additional tax advantages. The sooner you contribute to a TFSA, the faster your investments can grow tax-free. Meanwhile, if a TFSA withdrawal is in your plans, doing so before year-end rather than early in the new year gives you back your contribution room a lot sooner.
Registered Education Savings Plans (RESPs)
Contributions to an RESP entitle you to a Canada Education Savings Grant (CESG) of up to $500 per year, or $1,000 if there is unused grant room from previous years. If you’ve accumulated even more than $1,000 of room, making an RESP contribution prior to year-end will allow for more combined grants this year and next. Speak with a financial advisor to help you maximize your CESG.
Home Buyers’ Plan (HBP)
The Home Buyers’ Plan allows you to borrow funds from your RSP to purchase your first home, so long as you purchase the home before October 1 of the year following the withdrawal and all withdrawals are made in the same calendar year. Repayment of the withdrawals begins two years following the year of the withdrawal. Delaying your withdrawal to next year rather than late this year will allow more time to purchase a new home, make more withdrawals if necessary and delay the start of required repayments.
Considering taxes when realizing gains or losses on your investments
If you have or will realize capital gains in 2023, consider triggering capital losses prior to the end of the year. Losses can offset gains, reducing any taxes that could otherwise be associated with those gains. If your 2023 capital losses exceed your capital gains, they can be applied against gains in any of the previous three years to help you recover taxes paid on those gains. Speak to your financial advisor prior to repurchasing any investment you sold at a loss, as doing so too quickly puts the loss at risk of being denied.
Key Strategies to Enhance Charitable Giving
December is synonymous with the season of giving, but many Canadians miss out on giving in the most tax-efficient way. Whether it’s a continuation of donations made throughout the year or an initial donation, there are several strategies to consider when donating prior to year-end.
Maximize the value of donation tax credits
The first $200 of donations you claim on your tax return receive a lower donation tax credit rate than donations claimed above $200 (except in Alberta). To limit donations subject to the lower $200 credit rate outside Alberta, consider bringing forward donations planned early in the new year and make them prior to December 31st. Not only will the charity get the funds sooner, but you’ll get the tax benefit a full year earlier. Continue Reading…
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