The uncertainty of self isolation… leads to dealing with uncertainty!

The uncertainty of self isolation… leads to dealing with uncertainty!

The most unsettling thing about this time in our lives is not the prospect of self-isolation or social distancing. We seem to be fine with doing what we have to do to win this race for humanity. I’m sure people are happy to wash their hands a skill that was honed in youth ingrained by our parents who knew there would be a time in life we would need this basic skill set in life to survive.

What’s unsettling about this whole crisis, is not knowing when this will end or the uncertainty of time. It would seem many are fine with an infinite time line because that’s how it has to be.

Normally we would just to trust in the experts. Although in this case every day you can read an expert’s article that is opposite of what was published yesterday because this is an unknown.

We have absolutely no way of telling which experts are right. Many have provided different information because there are so many theories or timelines regarding this virus. Because of this our testing protocol may be different by region, province and even countries. The reporting remains a mystery as to or even if it has been reported correctly. We can have no opinion on this because this has been decided for us. There are conflicting numbers, results and treatments. There is also a lack of trust in some that are giving the orders. That in itself, for us, is deeply unnerving. We have always had an opinion regarding politics, sports, music, restaurants, and just about everything in life as this is our freedom. How do we know who’s right and who’s wrong, that’s the part that feels not just weird, but unsettling? The freedom to think for ourselves seems to have been put on hold at least for now. This comfort has abruptly been taken away as we struggle to find factual ways to inform ourselves.

That aside only thing I am sure about: Is that many can work from home and they will be fine, this will become the new normal.  The front-line workers who are there to provide for those in need will be exhausted when this is over.  Unfortunately, they will have to carry on providing this essential service to many that are and have been sick but not from Covid-19. There will be no break for them this will not end with a month or two of self-isolation or so we hope.  Deemed essential businesses will continue to forge ahead… But those owners and employees who cannot work because of circumstances beyond their control are the ones we should worry about.  There is no prospect or timeline to return to work. How will they survive this economic downturn and be able to carry on business as usual? It’s easy to say stay home flatten the curve, but even if these businesses made rent or the mortgage payment this month. What happens next month or the month after?  We as a society cannot flood the market after business returns to normal as most will have their own financial issues to sort through. With no timeline in site the future of these businesses looks dim and jobs will be lost creating a secondary strain moving forward. Unfortunately, for every action taken there will be a consequence and that is the unsettling part.

Keep calm, but don’t carry on

The Spanish flu of 1918-20 – which infected a third of the global population, and, if estimates are correct, killed more people than the two world wars combined. It was of course a different disease, and a different time. But there are many lessons to draw from what happened. For example: “Keep calm and carry on” isn’t always good advice. Hence the reason we have stopped life as we know it. Now we understand panic is dangerous and on the other hand, complacency is also dangerous.

The fear for us right now is not knowing when the end is in sight. We realize there will be an end because we are taking the right steps to ensure the outcome trying to save lives and stop this virus in its tracks.  The uncertainty is more of a time line… Will it be 20 more days, 30 days, 60 days or 90 days? Because all of these time lines have different consequences to each and every individual moving forward regardless of his and her circumstances.  What would your economic situation look like if this continued till June? Some have the means to survive till then others do not.

What choices do we have? We have lost that freedom for now, at least some of us have because we abide by the rules. We know that this will end, but will we change moving forward or chase the dream again… Only time will tell.

I guess the one good thing to come out of this is the return of the family unit as the core of our existence. We have returned again to our roots ingrained by our parents – family first! Something we may as a society been too busy for in the past or took for granted.  Let’s hope that we don’t turn our backs on the family unit again. On the other hand, some children have been expelled from homeschooling already so yes, an adjustment period is required. The future is in our hands (literally… wash our hands!) we have a choice it would be unsettling to know that we have come this far to not win!

I guess the ending is simple we must stay the course even though we have no defined time line in sight. As unsettling as this may be to some, we must Stay Calm Relax and this too shall pass.

Writing this just seemed to make things more acceptable because like many I’m sure, I have not trained for a race of this distance. The finish line seems too far to complete but I shall not let the team down and will find a way to finish.

 

How to look through the panic of our markets.

How to look through the panic of our markets.

By Winston L. Cook, President Henley Financial and Wealth Management

March 23, 2020

As you know, stock markets around the world have experienced unprecedented volatility, primarily because of the COVID-19 pandemic, PANIC, and what we may learn in the future “market manipulation”. In these crazy times, we thought it might be helpful to offer some information and insights in an effort to address the implications it has on your investments.

Over the past couple of weeks, the value of most investments has fallen considerably. There are lots of opinions out there on why this is happening but it’s not something anyone could control or predict accurately. When it comes to investing, it’s really important to make sure our decisions are logical more than emotional so rather than trying to figure out what’s driving other people’s decisions, it’s much simpler to focus on asking what makes the best sense for you. From our perspective, there are 3 general courses of action to consider:

It’s not easy to watch your investments drop in value. For some people their instinct will be to run to safety but be careful before you move forward with this course of action for the following reasons:

  1. A lot of the damage is done already. If you trust the logic that successful investing is all about “BUY LOW, SELL HIGH” then selling low after a big drop of 20%, 30%, or more doesn’t make logical sense.
  2. You could miss out when the market starts to go back up. If you move all of your money into a ‘safer’ place, you will miss the opportunity to recover in a low-interest environment. In the past, we have seen lots of people miss the opportunity with no chance to participate in the recovery.
  3. Successful market timing is really difficult. We’ve always said the decision to sell at the top is extremely difficult to time. The decision to buy back in at the bottom is also extremely difficult to time. The ability to time both the sell decision and the buy decision properly is near impossible. You may instinctively want to move to safety for a period of time but the next challenge is to decide when to get back in.

Remember that you only make or lose money at the point where you sell your investments. If the market drop is causing you stress and stopping you from sleeping at night then it might make sense to cut your losses and either shift to something less aggressive or get out of the markets altogether. However, before you make the decision to sell, you might want to consider the next strategy.

Could this be the buying opportunity of a lifetime?

Although this strategy is not for the faint of heart, some will look at the downturn in the markets as an opportunity to buy. We want to be clear that we’re not trying to downplay the significance of the COVID-19 virus or minimize the experience that people are currently dealing with but, when you look back at other major downturns in the stock markets (in 2008 for example) you can see how events like these could create opportunity from an investment perspective.

For those of you who’ve been in one of our information sessions, you’ll have heard us say that times like these are when investments go on sale. If big-screen TVs go on sale 20% to 50% off, people line up for hours to get a chance at getting those deals.

In hindsight, many of us would agree that buying more investments in 2008 after the world financial crisis caused markets to go down 50% would have been a great thing. Similarly, buying more investments back in 2001 after the tech bust would have paid off down the road. While our industry likes to remind us that “past performance is never an indicator of future performance”, years from now, we suspect many of us will look back and see that this recent downturn in 2020 was the best investment opportunity in our present day lifetime.

If you have a group rrsp or pension plan through work, the good news is contributions continue to happen every month. This is known as Dollar Cost Averaging and, over time, it tends to create higher investment returns than if you were to make just one contribution per year. This is because making multiple investment purchases over the year helps you buy more when the markets are low. Right now, with every new contribution you make, you’re essentially getting a far better bang for your buck than you were in February simply because lower investment values mean you can buy more investment units with each contribution.

Here are a few market statistics to think about:

      • Markets typically rebound within 12 months after big drops.
      • Markets have gone down 20 of the past 80 years. In 18 of those 20 years, the markets rebounded with positive returns in the following calendar year.
      • The average return that followed a negative year was 14.6%, We know it can be tough to invest more (or more aggressively) when the markets are falling so, if you’re not so panicked that you need to sell but still nervous of investing more, there’s one more strategy to consider.

Stay the course…

Most of the financial industry will preach the buy and hold strategy. There are many reasons why but most people will believe that markets will eventually recover. The key word here is ‘eventually’. Often the reason that people are fearful is that we just don’t know how long the recovery will take. While it’s easy to let doom and gloom take over our decision-making process, it’s important to take a logical rather than an emotional approach to decision making.  So, let’s look at some additional realities of the stock market:

      • Markets go up more often than they go down. Over the past 90 years, markets have gone up 74% of the time and down 26% of the time.
      • Markets have lost more than 20% only 4.5% of the time.
      • Markets rarely experience back to back negative years. It’s only happened twice in the past 75 years the bottom line is that markets go up and down. As much as we hope markets will stay positive all the time, the risk of a correction is always there.

Every correction or bear market is a test of patience.  It’s not easy but a necessary reality of the markets.  From the beginning of time the stock markets have steadily increased and will continue to do so in the future, there will always be a down turn, correction or crisis to recover from along the way. What you must understand is that this unprecedented sell off has been created more by panic and fear than smart economic metrics.

We realize that the position of many is not being able to invest more at this time and that is understandable given the circumstance surrounding our present situation. Having faith in the future of our world, it’s population and our inevitable economic return is what we all want. We will survive this and we will return stronger than ever as a population because it’s human nature to survive and conquer the elements placed before us.

Please be well and stay the course we will get through this together.

I’m going to see other Banks

I’m going to see other Banks

At Henley Financial and Wealth Management we are here to help you save money wherever we can, we want to help you save money being spent unknowingly and unwillingly.

So, let’s start with something we know that everyone has… a bank account.

Why do you pay a monthly fee just to keep your money in a bank account?  Canada’s big 5 banks have been raking in the profits from monthly chequing account fees and additional transaction charges. We’ll even go out on a limb and say you do most if not all of your transactions online.

We have all fallen into this category once we got out of school and were no longer eligible for a free student chequing account. We use debit cards for everything, so our banks recommended that we sign-up for the “unlimited” chequing account for $14.95 per month. Again, we ask why do you pay to keep your money at the bank when you do all the work? You put your pay check in the bank and take it out of the bank without any assistance from them and you pay for that service – but there is no service.  Spending money Unwillingly because this is not an option. We will come back to that “option” part later.

Since most of us lived paycheque-to-paycheque in the first few years out of school we didn’t even realize how much money we were wasting on fees. You can have those monthly fees waived by always carrying a minimum balance, but how many people could do that on a fixed start up budget.

You probably pay up to $179 a year for the privilege of using your own money in your chequing account at your bank.  So, think of that as a household, your Husband/Wife, and children also have accounts so as a family (of four) you are paying over $717 a year in bank fees! That is the Unknowingly because you never stopped to do the math. Now it does not seem like much but remember you are doing all the work and it’s your money that was put in their hands.

So now that you know and are willing to save the money, would you stop paying the bank fees and switch to no fee bank account?

Here is the “Option” part we spoke of earlier, Manulife Bank has an advantage checking a online account (personal or business) that pays you an interest percentage to keep your money with them. Now that’s a service that makes sense to us, you get paid to keep your money in your own account with no penalty for using your own money. A bank with several unique features such as listed below:

  • no fee daily chequing
  • pays interest
  • 24/7 live support
  • free email money transfers
  • free ABM access through the banking network
  • mobile banking

Now that free chequing accounts are becoming more popular in Canada, there are many more non brick and mortar banks with high interest savings accounts than Manulife. We like Manulife because of their willingness to help with other financial needs we all need as adults, such as Mortgages, Credit cards, lines of credit, with the emphasis on keeping the money in your hands. No more Fees Lost Unknowingly or Unknowingly!!!!

Contact Us at Henley Financial and Wealth Management and we will help you set up a No Fee, High Interest Paying, Account with Manulife Bank.

How do you reduce your personal Income Tax Rate when filing your tax return?

How do you reduce your personal Income Tax Rate when filing your tax return?

Henley Financial & Wealth Management posted on our blog information regarding 2020 new Tax Rates and New Limits. But what does one do with that information?  As Canadian taxpayers you have until April 30th 2020, to file your personal 2019 tax return. However, as the calendar turns over on to a new year many of our clients want to know how best to maximize their tax refund or minimize what they owe the government.

So, we thought we would share the two main ways to reduce taxes owing. It is always important to seek professional advice from your accountant regarding personal taxes. We are not the tax experts we are just simply stating the rules around taxes as they exist today.

What are tax deductions or a tax credit? Which on there own are the answers to reducing one’s taxable position for the average person in Canada.

Tax Deductions:

A tax deduction reduces your taxable income. The value of a deduction depends on your marginal tax rate. So, if your income is more than $210,371, you’d be taxed at the federal rate of 33 percent and a $1,000 tax deduction would save you $330 in federal tax. On the other hand, if you earn less than $47,630, you’d be taxed at the federal rate of only 15 percent and a $1,000 tax deduction would only save you $150 in federal tax.

Two of the most valuable tax deductions are:

RRSP contributions

Your RRSP contribution is an example of a tax deduction, and is likely the best tax saving strategy available to the majority of Canadian taxpayers. The contribution reduces your net income, which in turn reduces your taxes owing. An added bonus for families who contribute to RRSPs is that the resulting lower net income will likely increase their Canada Child Benefit.

You have until 60 days of the current year to make a contribution to your RRSP and apply the deduction towards last year’s taxes. One tip for those who know in advance how much they’ll be contributing to their RRSP is to fill out the form T1213 – Request to Reduce Tax Deductions at Source.

You can contribute 18 percent of your income, up to a limit of $26,500 (2019). Watch out for RRSP over contributions – there’s a built-in safeguard where you can over contribute by $2,000. Excess contributions are taxed at 1 percent per month.

Child-care expenses

Day care is likely one of the largest expenses for young families today. Child-care expenses can be used as an eligible tax deduction on your tax return.

Typically, child-care expenses must be claimed by the lower income spouse. One exception is if the lower income spouse is enrolled in school and cannot provide child-care, the higher income spouse can claim the child-care costs.

 

The basic limit for child-care expenses are $8,000 for children born in 2012 or later, $11,000 for children born in 2018 or earlier, and $5,000 for children born between 2002 and 2011.

Note that most overnight camps and summer day camps are also eligible for the child-care deduction.

Tax Deductions checklist:

  • RRSP contributions
  • Union or professional dues
  • Child-care expenses
  • Moving expenses
  • Support payments
  • Employment expenses (w/ T2200)
  • Carrying charges or interest expense to earn business or investment income

Tax Credits:

There are two types of tax credits – refundable and non-refundable. A non-refundable tax credit is applied directly against your tax payable. So, if you have tax owing of $500 and get a tax credit of $100, you now owe just $400. If you don’t owe any tax, non-refundable credits are of no benefit.

For refundable tax credits such as the GST/HST credit, you will receive the credit even if you have no tax owing.

Three of the most valuable tax credits are:

Basic Personal Amount

The best example of a non-refundable tax credit is the basic personal amount, which every Canadian resident is entitled to claim on his or her tax return. The basic personal amount for 2019 is $12,069.

Instead of paying taxes on your entire income, you only pay taxes on the remaining income once the basic personal amount has been applied.

Spousal Amount

You can claim all or a portion of the spousal amount ($12,069) if you support your spouse or common-law partner, as long as his or her net income is less than $12,069. The amount is reduced by any net income earned by the spouse, and it can only be claimed by one person for their spouse or common-law partner.

Age Amount

The Age Amount tax credit is available to Canadians aged 65 or older (at the end of the tax year). The federal age amount for 2019 is $7,494. This amount is reduced by 15 percent of income exceeding a threshold amount of $37,790, and is eliminated when income exceeds $87,750.

The Age Amount tax credit is calculated using the lowest tax rate (15 percent federally), so the maximum federal tax credit is $1,124 for 2019 ($7,494 x 0.15).

Note that the age amount can be transferred to the spouse if the individual claiming this credit cannot utilize the entire amount before reducing his or her taxes to zero.

Tax Credits checklist:

  • Volunteer firefighter or Search & Rescue details
  • Adoption expenses
  • Interest paid on student loans
  • Tuition and education amounts
  • (T2202, TL11A), and exam fees
  • Medical expenses (including details of insurance reimbursements)
  • Donations or political contributions

The Verdict on Tax Deductions and Tax Credits:

Tax deductions are straightforward – if you earned $60,000 and made a $5,000 RRSP contribution your taxable income will be reduced to $55,000. Deductions typically result in bigger tax savings than credits as long as your marginal tax rate is higher than 15 percent.

A non-refundable tax credit, on the other hand, must be applied to any taxes owing and is first multiplied by 15 percent. That means a $5,000 non-refundable tax credit would only result in about $750 in tax savings.

 

The most overlooked tax credits and tax deductions (the ones most likely to go unclaimed) are medical expenses, union dues, moving expenses, student loan interest, childcare expenses, and employment expenses.

That’s why it’s important that Canadian tax filers make a checklist of every tax deduction and tax credit available to them at tax-time and take advantage of all that apply to their situation.

 

A New Year means New Limits and Tax Rates

A New Year means New Limits and Tax Rates

A new year means new limits and data. Here’s a list of new financial planning data for 2020 (In case you want to compare this to past years, I’ve included old data as well).

Pension and RRSP contribution limits

  • The new limit for RRSPs for 2020 is 18% of the previous year’s earned income or $27,230 whichever is lower less the Pension Adjustment (PA).
  • The limit for Deferred Profit Sharing Plans is $13,915
  • The limit for Defined Contribution Pensions is $27,830

Remember that contributions made in January and February of 2020 can be used as a tax deduction for the 2019 tax year.

Tax Year Income from RRSP Maximum Limit
2020 2019 $27,230
2019 2018 $26,500
2018 2017 $26,230
2017 2016 $26,010
2016 2015 $25,370
2015 2014 $24,930
2014 2013 $24,270
2013 2012 $23,820
2012 2011 $22,970
2011 2010 $22,450
2010 2009 $22,000
2009 2008 $21,000

TFSA limits

  • The annual TFSA limit for 2020 is the same at $6,000.
  • The cumulative limit since 2009 is $69,500 (assuming you were over the age of 18 in 2009)

TFSA Limits for past years

Year Annual Limit Cumulative Limit
2020 $6000 $69,500
2019 $6,000 $63,500
2018 $5,500 $57,500
2017 $5,500 $52,000
2016 $5,500 $46,500
2015 $10,000 $41,000
2014 $5,500 $31,000
2013 $5,500 $25,500
2012 $5,000 $20,000
2011 $5,000 $15,000
2010 $5,000 $10,000
2009 $5,000 $5,000

 

Canada Pension Plan (CPP)

Here’s some of the key planning data around CPP.

  • Contribution amounts for 2020
    • Employee contribution = 5.25%
    • Employer contribution = 5.25%
    • Self employment = 10.1%
    • Maximum contributory earnings = $55,200
  • CPP Benefits
    • Yearly Maximum Pensionable Earning (YMPE) – $58,700
    • Maximum CPP Retirement Benefit – $1175.83 per month
    • Maximum CPP Disability benefit – $1387.66 per month
    • Maximum CPP Survivors Benefit
      • Under age 65 – $638.28
      • Over age 65 – $705.50

Reduction of CPP for early benefit – 0.6% for every month prior to age 65. At age 60, the reduction is 36%.

CPP rates for past years:

Year Monthly Annual
2020 $1175.83 $14,109.96
2019 $1154.58 $13,854.96
2018 $1134.17 $13,610.04
2017 $1114.17 $13,370.04
2016 $1092.50 $13,110.00
2015 $1065.00 $12,780.00
2014 $1038.33 $12,459.96
2013 $1012.50 $12,150.00
2012 $986.67 $11,840.04
2011 $960.00 $11,520.00
2010 $934.17 $11,210.04
2009 $908.75 $10,905.00

 

Old Age Security (OAS)

  • Maximum OAS – $613.53 per month
  • The OAS Clawback (recovery) starts at $79,054 of income. At $128,137 of income OAS will be fully clawed back.

OAS rates for past years:

Year Maximum Monthly Benefit Maximum Annual Benefit
2020 $613.53 $7,362.36
2019 $601.45 $7,217.40
2018 $586.66 $7,039.92
2017 $578.53 $6,942.36
2016 $570.52 $6,846.24
2015 $563.74 $6,764.88
2014 $551.54 $6,618.48
2013 $546.07 $6,552.84
2012 $540.12 $6,481.44
2011 $524.23 $6,290.76

New federal tax brackets

From 2019, the tax rates have changed.

Lower Income limit Upper Income limit Marginal Rate Rate
$0.00 $12,298.00 0.00%
$12,298.00 $48,535.00 15.00%
$48,535.00 $97,069.00 20.50%
$97,069.00 $150,473.00 26.00%
$150,473.00 $214,368.00 29.00%
$214,368.00 33.00%

 

What is the Best Way to Insure Your Mortgage?

What is the Best Way to Insure Your Mortgage?

 

If you have a mortgage it makes good sense to insure it. Owning a debt free home is an objective of any sound financial plan. In addition, making sure your mortgage is paid off in the event of your death will benefit your family greatly.

The question is should you purchase this coverage through your lending institution or from a life insurance company?

It might be convenient when completing the paper work for your new mortgage to just sign one more form, be aware that it might be a costly decision.

 

8 reasons to purchase your mortgage coverage from a life insurance advisor

1) Cost

Term life insurance available from a competitive life insurance company is usually cheaper than mortgage life insurance provided through the lender. This is especially true if you qualify for non-smoker rates.

2) Availability

If you have some health issues, the lenders mortgage insurance may not be available to you. This may not be the case with term life insurance where competitive underwriting and substandard insurance are more readily attainable.

3) Declining coverage

Be aware that the death benefit of creditor/mortgage insurance declines as the mortgage is paid down. Meanwhile, the premium paid or cost of the coverage remains the same.

With term life insurance the death benefit does not decline. You decide how much coverage you want to have. This gives you the flexibility to reduce the amount of coverage and premium when the time is right for you. Or keep it should another need arise or in the event you become uninsurable in the future.

4) Portability

Term Life insurance is not tied to the mortgage giving you flexibility to shift it from one property to the next without having to requalify and possibly pay higher rates.

5) Flexibility

Unlike creditor/mortgage insurance, term life insurance can be for a higher amount than just the mortgage balance so you can protect family income needs and other obligations but pay only one cost-effective premium.

When you pay off your mortgage you will no longer be protected by creditor/mortgage insurance but term life insurance may continue. Also, unlike mortgage insurance, you are able to convert your term life insurance into permanent coverage without a medical.

6) The beneficiary controls the death benefit

With creditor/mortgage insurance there is no choice in what happens to the money when you die. The proceeds simply retire the balance owing on your mortgage and the policy cancels.

With term life insurance your beneficiary decides how to use the insurance proceeds. For example, if the mortgage carries a very low interest rate compared to available fixed income yields, it might be preferable to invest the insurance proceeds rather than to immediately pay off the mortgage.

7) Can your claim be denied?

Often creditor/mortgage insurance coverage is reviewed when a death claim is submitted. Creditor/mortgage insurance allows for the denial of the claim in certain situations even after the coverage has been in effect beyond that 2 year period.

Term life insurance is incontestable after two years except in the event of fraud.

8) Advice

Your bank or mortgage broker can advise you on the best arrangement to fund your mortgage but advice on the most appropriate way to arrange your life insurance is best obtained from a qualified insurance advisor who can implement your life insurance coverage according to your overall requirements.

Your mortgage will probably represent the single largest debt (and asset) you will acquire. Making sure your mortgage doesn’t outlive you is the most prudent thing you can do for your family.

Contact me @ Henley Financial and Wealth Management  if you think it is time to review your current insurance protection.