Posts Tagged ‘Investing’

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How to Maximize your Growth for Retirement in 15 years!

Sunday, December 19th, 2010

Real Life Case Study – Pre-Retiree

• Husband and wife, age 50 and 52, both are working with nice incomes in very busy careers
• Would like the option of retiring at 65 (i.e. they may not retire completely, but they would like the option to do so)
• With kids now out of the house, focus on saving is very important; admittedly they have not been good savers to now
• RRSP’s are $300,000 combined; Investment account is $160,000
• No company pension plans
• House is paid off

It was apparent very quickly that this couple needed a savings plan, not only to fund a retirement that would likely require an income of $120,000 a year (growing with inflation) without company pensions, but because they admitted to not being savers. In their own words, ‘if the money is in our bank account, we’ll spend it.’

“How we solved their problem”

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Set a One Year Plan for 2011

Tuesday, December 7th, 2010

Reassessing, Rebuild & Restructure were all the market buzz words of 2010.  They’re all different ways of saying the same thing. Despite the doom and gloom in the news, it’s important to remember that there were some bright spots 2010.

One of the questions I get asked the most this time of the year is, “how did you do?” After that I get asked, “how did you do it?” Today you need to have more financial flexibility and be willing to make changes to your portfolio as events happen. You need to set a realistic one year goal.  

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Who likes to Pay high Commission? That’s what we thought.

Tuesday, November 23rd, 2010

These days, more than ever you need to save as much money as you can for your own retirement. Having an investment account should not mean that you have to sacrifice results for high service fees but unfortunately in many cases that is still a concern today.

Asking you about paying financial commission’s today and the consensus would generally agree it does not work in the client’s best interest. You want to know what you’re going to pay for and the services that will be provided up-front. This fee based financial planning model is based on a percentage of assets under management or (AUM) which can range from .75% to 2.5 % depending on the size of your account and varies from advisor to advisor. One of the main benefits to come out of this route is the counselling fee charged on an annual basis or a flat rate can be largely a tax deductable for you at year end outside of a registered plan.

When you look at your financial statements

Mutual funds sell in different classes of the same fund which allows your account to be purchased in a number of different ways. All funds charge a MER (Management Expense Ratio) If today your investment in fund earns 10% and there is a MER of 2.5% then your actual return is 7.5%.  If the MER is 1.5% then your return would increase to 8.5%

Mutual funds are grouped into various classes such as Class A or FEL, B or DSC, Low Load, Series F and Corporate Class to name a few.     

You need to be aware of Class B or DSC which stands for Deferred Sales Charge. When your advisor purchases mutual funds with a DSC / B Class, you do not pay the advisor directly but the fund company will pay the advisor a commission, usually in the 5% range. On-top of the commission your advisor will also get a trailer fee, normally in the 0.5%. range. Since you did not pay the advisor directly out of your pocket you still end up paying in more than one way. The mutual fund company who paid the advisor will increase your MER on the fund about 0.5% and more importantly with this type of fund class can have you locked-in for a period of up to seven years!

If you sell prior to this, you will have to pay a penalty to the fund company allowing them to recoup the commission they paid to your advisor. Between the locked-in period and the higher MER this option is simply not in the client’s best interest and represents a healthy percentage of funds on the books today.

 The Class “F” Plan

The way to avoid this is to have a fee based advisor that charges you an annual fee for managing your money as a percentage. All you mutual fund investments should be in F class series of funds. These funds remove fees associated with paying commissions and trailer fees to your advisor so the MER is normally about 1% lower again saving you more money to help you reach you long-term plan.

This is just one small tip that will save you some money and you will have the benefit of knowing your financial advisor is on your team by providing you unbiased recommendations that are not commission driven.

Have a question?

Just fill out the form on my contact page  or e-mail me: kevin_mcammond@scotiamcleod.com

* This publication has been prepared by Kevin McAmmond, Wealth Advisor at ScotiaMcLeod, a division of Scotia Capital Inc.(SCI), a member of CIPF. This publication is intended as a general source of information and should not be considered as tax or pension advice.

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Raise your Expectations not your tax bill

Wednesday, November 17th, 2010

One key question that goes by the “weigh side” much too often is are the investments you hold, tax effective for you. It is very important to understand the implications going into the right investment instrument prior to the purchase and knowing up front the benefits or liabilities that may be involved when selling.

Corporate Class, is a special investment structure that allows multiple funds to be administered within a single tax-efficient “umbrella”. Here’s a look at four of the main tax advantages this creates and how you can benefit from them.

  1.  Tax effect gains on fixed income investments. Fixed income investments are a critical part of well diversified, balanced portfolios. There’s only one problem: they provide interest income that is taxed at nearly twice the rate of capital gains. By investing in a managed yield class, you can expect to gain the stability of fixed income returns with the tax efficiency of capital gains.
  2.   Minimize tax on income distributions. Return on capital (ROC) distribution series on a number of income-producing portfolios. Since ROC is the most tax efficient form of income distribution, this enhances your after tax income position. 
  3. Use current losses to offset future gains. Investors can take advantage of volatile capital market environments and use realized losses from the sale of trust funds today to offset any future gains on the sale of corporate class funds. 
  4. Rebalance your portfolio without tax. Working with your advisor, you can make changes to your portfolio without paying extra tax. Keep your assets properly balanced without incurring taxable capital gains when you sell shares of one corporate class fund to purchase shares of another corporate class fund within the same mutual fund corporation.   

 Example of Significant Savings

 (9% equity, 6% fixed, 5% interest,1.5% dividends, 2.5% turnover rate on equities, monthly rebalancing and 0.50 % management fee using Ontario’s  highest marginal tax rate)

 * John and Lisa are 20 years away from retirement. Their advisor recommends investing $500,000 in a “Corporate Class structure consisting of 80% equities and 20% fixed income. As retirement approaches, their advisor gradually shifts their portfolio mix to 35% equities and 65% fixed income. Thanks to the corporate class structure, John and Lisa will minimize the taxable distributions from their portfolio and capital gains taxes when the portfolio is rebalanced within the same mutual fund corporation. When they reach retirement, corporate class will have provided John and Lisa with $1,748,140 total, a accumulative increase in savings of $259,003 over $ 1,489,137 from a non-corporate class portfolio structure.

If you have investments outside your RRSP, “Corporate Class” offers an opportunity for superior growth and income potential, plus compelling strategies for tax and retirement planning and beyond such as creating a stream of income for your beneficiaries or a charitable cause that is important to you.

Have a question?

Just fill out the form on my contact page  or e-mail me: kevin_mcammond@scotiamcleod.com

* This publication has been prepared by Kevin McAmmond, Wealth Advisor at ScotiaMcLeod, a division of Scotia Capital Inc.(SCI), a member of CIPF. This publication is intended as a general source of information and should not be considered as tax or pension advice.

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Make the Most of your TFSA in 2011

Monday, November 8th, 2010

Most of us will admit that after two years with our TFSA (Tax Free Savings Account) program, you still have a relatively flat balance of a few hundred dollars above what you put into it for all your troubles.

What can I do to make more with my Tax Free Savings account in 2011?

Here is where a capital gains and simple dividend strategy would be an effective plan with TFSA going forward into 2011. Choose two or three quality stocks in companies that are industry leaders and have a well established history of surviving even the toughest of times.  Here in Canada the bank stocks would be a good place to start.  Quality companies that also pay a steady dividend inside of your TFSA.

How many of you have any dividend paying securities inside your TFSA today?

Invest the $5,000.00 maximum amount each year if possible. Remember, that if you need to with drawl any of the cash, you can at anytime without penalty and without tax. Profit ‘s earned with any stocks inside your TFSA are not subject to capital gains tax when you decide to sell.  Funds withdrawn from the account can be added onto your contribution room in the following year or carried forward.  

Believe it or not, TFSA’s can make you a millionaire! Not in one year, or five, or even ten. But if you stay with the plan, earning a return of 5% percent instead of less than 2%, make the maximum contribution at the start of the year you would have $1,004,042 over a 30 year period.  Not bad for what is today ”small potatoes”  

Most all plans (95%) are held today where they were opened initially and are simply limited to financial products such as money market, GIC  & internal mutual funds. This is limiting your TFSA’s real potential to grow and compound. If you move your TFSA account up one level sort of speak, you will have a full range of securities to choose from. It’s a case of location, location, location.  So promise yourself that you will make a New Year’s resolution to get these accounts out of first gear and move them into 3rd in 2011.

When you do the math  “I know you don’t want to do math” the difference between staying where you are today/doing nothing or moving it to full service firm can mean hundreds of thousands of dollars lost over a time frame of say age 40 & 65.    

Do you have any real life questions or concerns about your current financial portfolio, RRSP’s or TFSA’s. I encourage you to contact my office. We will share with you some effective ideas on how you can make more while saving money on fees and we are always available to help new people.  (905) 849-3425  or   kevin_mcammond@scotiamcleod.com

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