WHAT DO YOU HAVE TO DO TO BECOME WEALTHY?

We often find ourselves lured by the thought that there are shortcuts to living a wealthy lifestyle. We may dream about winning the lottery, investing in the next enormous stock tip, or having that one business idea that becomes the latest hit. If only you had jumped on that stock tip that was guaranteed to make you rich. We have all been given the stock tips that will make us rich – but the only people getting rich on the tips are the people who truly know what they are doing. If getting rich is so easy, why are only 4% of the Canadian population considered rich?

What can you do right to accumulate wealth in Canada?

Wealth is not built overnight and since only one percent of our population’s wealth has been inherited. Most wealthy Canadians have built their wealth one step at a time. One of the key habits of wealthy people is their ability to create a systematic disciplined savings plan. If you want to succeed then develop a plan that pays yourself first. Put a percentage of your paycheck into a savings portfolio before any other expenses or deductions are incurred. Just think if you could save 5% – 10% of your income before expenses how much money would you have saved in a year? Continue that over a few years with the added value of compounding interest you would have created a savings portfolio with incredible growth potential.

Keep debt in check

Ever wonder what a wealthy person looks like. The typical wealthy person might not be the one that drives the nice new Mercedes, lives in the biggest house, or wears the top designer clothes. Rather, the millionaire next door is the person that has lived in the same bungalow they have lived in for the past 20 – 30 years, they may drive a nice car but it is an older well-taken care car with lower mileage. They live within their means.

Know where your money is going

Most wealthy people not only live below their means but also are very conscious of where they spend their money. If you want to become wealthy, you should develop a habit of tracking where you are spending your money every month. Budgeting can be a very intimidating word but the fact remains, it is an essential habit for wealth accumulation.

Avoid debt

Wealthy Canadians make a very conscious effort to avoid, minimize and pay off debts. It is so easy in our society to access debt. But if don’t spend money you don’t have. You will be able to build wealth with the money you do have.

Maximize income

There is a correlation between wealth and income. While this makes sense, it may not always be easy to just go out and increase your income so you can increase your wealth. Building wealth will take some effort and your wealth will be directly correlated to your situation. Wealth has a different value for everyone, for instance, if you earn $50,000 a year and you managed to put $5,000 into your savings portfolio that would be incredible. Now, what if you could earn a 6% return on investment compounding interest per year on that investment (strictly stated for illustration purposes) – that would mean over the next 8 years you would have saved just over one year’s salary. Given the same time frame and math, the same can be said for someone earning double the amount and saving $10,000 a year. It’s all relative when it comes to maximizing your savings.

Own things that appreciate

A majority of wealthy people are on their way to owning their own home. Owning your residence creates a positive net worth on your balance sheet. This intern creates a positive asset that is used when discussing wealth. Besides, having equity in your home, your newly found saving plan is also considered an appreciating asset. The next time you put your money into something, ask yourself if it is an appreciating asset or a depreciating asset.

Get professional advice

Wealthy people typically work with professionals to help them accumulate, manage and protect their wealth. This might include accountants, lawyers, and financial advisors. Although they use professional advisors, they ultimately make the final decisions themselves. If you want to become wealthy, you must seek help but understand that you are always the one to decide on when to move forward on the recommendations given.

WHAT IS FINANCIAL SUCCESS?

We find ourselves in a position to reset some goals that may have slipped during a year of ups and downs. 2021, is a time to think about the things that went right last year and the opportunity to change the things that did not go so well. Some things that happened were out of our control but there are always some habits and activities that can help make a difference towards improvement. In some ways you have a chance to start over and do things differently. Think about how you can hone in on your own mental health, a healthy lifestyle, personal fitness, and your personal finances. While we are not personal trainers or health councillors, we can give you some tips to help you get financially fit. Please enjoy our thoughts below.

What financial success?

In personal finance, there are too many pieces of financial planning like net worth, investment assets, income, life insurance, estate planning, tax planning, income, budgeting, and banking that make it difficult to find an easy answer to financial success.

You can invoke change in your financial success but it requires a change in habits and lifestyle!

Have you heard of the acronym KISS (of course you have but we have modified it a little to suit our needs) see below… 

1. KNOWLEDGE – Seek out professionals that are specific to your needs that can help you with a starting point and help to design an end goal. You need a plan and someone to lead you down that path to the success you seek.
2. INTENT – There must be a need to change from your present plan if that plan is not working.
3. SIMPLIFY – If your plan is too complicated, you will never succeed in reaching your own financial success.
4. SUCCESS –It’s important to understand your plan and its goal. For example, if you want to reduce your debt, you have to come up with a realistic amount you can afford on a monthly basis and a realistic time frame for completion. If you try to do too much, it will not happen. We live in a busy world and the best way to make sure things get done is to plan for success and make that a priority. 

Make some financial changes this year

Here are some practical ideas for improving your finances and tips to help you find financial success.

1. CALCULATE YOUR NET WORTH

In order to asses your future progress of wealth accumulation, you will need to know your net worth. The calculation is this simple, take all the assets you own and subtract the debts you owe. If the answer is a negative one, then the first thing you will need to do is reevaluate your lifestyle.

As simple as this sounds very few people actually take the time to calculate their net worth. We should be aware of our net worth. We live in a society where we have become okay with increased indebtedness, material things and living for now have become more important than that of our own financial future. The lesson here is not that we have to do without and stop living in the moment but we must decide what is important as our future gets closer as every day passes. Your time is now, calculating your net worth will help make the changes necessary to create a positive financial future!

2. PAYING DOWN DEBTS

Now the holiday season is over, many of us may have accumulated a little holiday debt, and especially the high-interest credit card kind of debt. There are three rules for paying down your debt. First, pay off the highest interest debt first like credit cards. Second, continue to pay off the big-ticket items like Cars, Vacations, Lines of Credit, and Third think before you spend – Maybe this should be First! Do you really need what your buying? Debt will crush your net worth.

3. LIFE INSURANCE

One area of personal finance that is often overlooked is the area of life insurance. There are three basic reasons why you need life insurance. The first is to ensure your debts like mortgages, lines of credit, and cars will be paid off if you are gone. This way if something happens to you, your loved ones will not have the burden of debt payments. The another reason for insurance is for income replacement. If you were to unexpectedly die, would your family continue to need your income? If so, put life insurance in place to create future income. This is the area most overlooked for proper insurance coverage. Finally, insurance can be used to cover expenses like funeral costs, education, emergency fund, and taxes. Make sure you have the right amount of insurance coverage in place to protect your loved ones and their future.

4. FORCED SAVINGS PLAN

RRSPs are a great way to save for the future while also decreasing the amount of tax you will pay for your previous year’s income to the government. The unfortunate part of this equation is that 85% of those that file taxes have unused RRSP room. The reason for this is, we as a society are paying way too much to service our own debt. Just imagine if you could some how remove your debt with a solid plan, but continue to pay the same money out monthly that you are presently paying to service that debt into your future instead. would that change your financial landscape in the future? RRSPs are not the only place to save money besides the immediate tax deferred benefits, you can also look at TFSA’s – Tax Free Savings Account can be either a compliment or an alternative to your RRSP savings. Pay yourself first by maximizing your RRSPs/TFSA and your net worth will increase drastically.

5. ESTATE PLANNING

The most basic aspect of an estate plan is the Will the most underrated aspect of financial planning. The Will ensures that your assets will be distributed according to your wishes. Proper Will Planning will help you to minimize taxes and ensure that you maximize the assets that can be distributed to your benefactors. Make sure you have a Will and that your Will gets updated regularly.

It’s also a great idea to review your beneficiary designations on your RRSPs, TFSAs, and Life Insurance policies periodically to make sure they are up to date with your life circumstances. Avoid future Probate payment wherever you can.

6. LIVING BENEFITS

Living benefits insurance refers to insurance that protects against the risk that may occur while you are still living. Disability insurance protects you in case you get disabled and can no longer work. Another living benefit insurance is Critical Illness. Which was designed to help if diagnosed with cancer, heart attacks, strokes, and other major illnesses. Which in today’s society are on the rise and therefore the need for critical illness insurance increases. If you do not have critical illness insurance, be sure to look into some coverage. It may not be cheap but your chances of collecting are better than you dying first.

7. BANKING

High-interest banking. There are two key benefits to high-interest banking. First, you start earning a much higher interest rate than your conventional bank account. Secondly, most high-interest bank accounts have no fees. If you are not earning interest in your bank account and have monthly fees, be sure to learn about alternatives. We lose money willingly and unknowingly – losing money willingly is defined as credit debt, mortgages, lines of credit, we know this when we sign on. Losing money unknowingly is not educating yourself about things that could make you money. A penny earned is a penny saved – our parents loved that expression.

8. EMERGENCY FUND

We all know the importance of having an emergency fund.  If anything 2020 was a wake up call regardless of having savings on hand for that rainy day.  An emergency fund is liquidity, money that is easily accessible when needed.  There is lots of debate over how much you should keep in an emergency fund – truthfully no such amount could have been put away for 2020. But how much will depend on your ability to save for that unforeseen circumstance. Something saved is better than nothing!

9. FINDING BALANCE

It sounds so basic because it is. The formula is so simple – spend less than you make. With financial institutions so readily willing to give out credit cards and lines of credit, it is so easy for all of us to spend more than we earn. The problem is that spending eventually catches up with us to the point where we have too much debt. No matter who you are and how much debt you may or may not have, budgeting is an essential part of life. Take the time to track your expenses for at least three months and you’ll have a pretty good idea of where your money is being spent.

Coming up with a financial goal is one thing but sticking with it and making it happen is another. The results of financial goals depend on the habits and routines you use daily. We are all creatures of habit. In order for your financial goal to work, you need to become diciplined in your daily routine. These saving habits need to become second nature. The reason most financial goals do not work is simply that we fail to follow a plan. In order to follow your new plan, you need to understand the process. 

Where do you start?

Keep It Simple for Success – you need to set goals and stay focused on those goals! There’s something to be said about Keeping It Simple for Success!

1. Change your lifestyle – To be successful, you must make everlasting changes and the only way you can do that is to change your habits. If it takes 21 days to change a habit, then how long does it take to change a lifestyle. In my opinion it’s a want not a need for change to happen, you must want to change in order to create change.
2. Do more – The best ideas in the world are the ones that are put to work. You are better to do something and fail then to do nothing at all. You have to want to do more to create the change that is necessary for your financial future.
3.  Take ownership – It’s much easier to blame other people or circumstances, but if you hold yourself accountable, the future is yours and yours alone! Stop making excuses, stop whining, stop blaming. Focus on the things that help you stay accountable for your own financial future. 
4. Stick with the plan –The key is to have a plan in place. Once you have the plan, then you need to keep on track until it becomes a habit. Whatever that time frame is, the bottom line is changing your habits requires continuous effort, and significant discipline.
5. Find Support – Most things we accomplish in life, we accomplish with the help of others. If you want to get ahead financially, it often helps to have someone with knowledge in that field that supports you. Some say knowledge is power but at the end of the day, it’s up to you if you want less debt, more money, more wealth or whatever your financial goal you desire. Find an advisor that can help you put together the plan that best suits your needs.

What is a Tax-Free Saving Account (TFSA)?

The Tax-Free Savings Account (TFSA) was introduced in 2009. The account can let anyone above the age of 18 enjoy tax benefits that can help accumulate significant wealth without paying the Canada Revenue Agency (CRA) a single penny on the income gained in the account.

However, the CRA will keeps a close watch on these accounts to catch you if you make any mistakes. While the TFSA can let you enjoy tax-free wealth growth, it comes with certain rules and regulations you need to comply with to enjoy the tax-free status. Failing to comply will allow the CRA a chance to collect tax, which they will gladly do.

How can they do that you ask ?

• Over-contributing

Canadians that make the mistake of disregarding the maximum contribution limit in their TFSAs. The government introduced a limit to which you can contribute to your TFSA each year. The government increases the contribution limit annually, and with the 2020 update, the maximum contribution limit for your TFSA is now $69,500. That means if you have never invested in a TFSA since its inception, you can contribute $69,500 in cash or equivalent assets to the account in one lump sum.

Unfortunately, there are some Canadians that have made the mistake of contributing a lot more to their TFSAs than they should. The CRA charges you a penalty of 1% on the excess amount you hold in your TFSA each month. You can effectively lose the tax-free status of your account by making this mistake.

• Trading too much in the account

Another more common mistake you never want to make with your TFSA is using it as a day-trading account. Yes, you can use the TFSA to hold assets equivalent to $69,500. However, you can’t use the tax-free status of your TFSA to make trades for the short-term gains. If you plan on using the account for day trading, you can expect the CRA to take action as it was never intended as a tax-free way to trading stocks. If considerable money is made by day trading The CRA can consider any account used frequently in trading stocks to have taxable income, and will subsequently consider this a trading account and not a TFSA.

There is no definitive limit to how many trades you can make in your TFSA in a year, but you should not act as a day trader with the account. Ideally, you should use the account to buy and hold long-term investments. If you were to buy a stock which pays an annual divided and keep it in your portfolio for the long term then this is seen as a tax-free investment as you are allowed to investment in the stock market. 

What is the advantage of the TFSA?

Think about this you have $69,500 that you are able to investment in any funds or stock that you would like and under the Umbrella of a TFSA that can grow to a value much greater than your original investment. Let’s assume that this money grows by 6% on average during the next 15 years… plus with the additional moneys the government lets you deposit annually without penalty. You could have in excess of $382,251 of tax-free savings depending on the type of investment you choose. This is tax-free money and can be withdrawn without taxation which would make this another piece of the puzzle to consider in your retirement planning portfolio.

How did we get here?

Start with $69,500

Added.      $90,000 = $6,000/year for 15 years

Total Inv.  $159,500 x 6% (on average over 15 years) 

Total Value $382,251

The numbers are based on a continued estimate of what the government will do moving forward, the government has the ability to raise or lower the TFSA deposits allowed moving forward so we have estimated the present-day value moving forward for 15 years. If we take into account the compounding interested on money invested through deposits over 15 years our simple calculations @ 6% on a yearly average for a moderate investment you could grow this account to $382,251 of Tax-free Savings. 

Note:

We made this very general in the nature of simple math so we could show the effects of compounding interest. There will be years above and below 6% growth on your investment but we chose to look at an average rate of return throughout the 15 years of investment for the simplicity of explanation.

Get started on your Estate Planning

 

By Henley Financial and Wealth Management

As we journey through the various stages of life, we spend considerable time building relationships and accumulating assets. Passing on a legacy to family and friends and avoiding unnecessary taxes and administrative delays takes good planning. Your estate plan is as individual as you are, and taking the time to complete your arrangements now will give you control over how you provide for those closest to you.

We would like to send you a free booklet on Estate Planning including a step by step checklist.  Please contact us at info@henleyfinancial.ca for your copy.

Estate planning

Estate planning is about life – in the present and in the future. Most importantly, estate planning is about the life of your family and loved ones – and the peace of mind you get from helping to preserve their financial security. By its very nature, estate planning is a difficult subject to discuss – even more so to plan for because it forces us to come to terms with our own mortality. Yet it’s something you need to talk about openly with your loved ones today because you can’t do so after you’re gone – or after they’re gone.

Each person will approach estate planning differently, with personal motivations and expectations. No estate plan will be exactly like another. Estate planning should be reflection of your personal priorities and choices.

Estate planning is generally guided by three rational motivations

1. Provide adequately for family members and/or other loved ones
2. Ensure that your estate is distributed in the timeliest manner possible after your death
3. Minimize taxes – during your lifetime and, equally important, for the beneficiaries of your estate

…and three emotional motivations

1. Gain comfort from knowing your loved ones are well looked after
2. Feel secure knowing that settling your affairs will not add more stress to those grieving for you
3. Rest assured that your estate will be distributed the way you wish

Why you need an estate plan and the Benefits of estate planning

• Distributes your assets as you intended; provides funds to cover funeral expenses, as well as immediate and/or long-term family living costs
• Keeps more of your money in the hands of your heirs
• Minimizes income tax and probate fees (no probate fees in Quebec); designates charitable gifts; declares your personal care preferences, including terminal medical treatment and organ donation intentions
• Provides for the tax advantages of income splitting
• Ensures business continuity for business owners
• Identifies the people chosen to carry out your last wishes and care for your children

Taking action now 

Too often, advisors and estate planning professionals hear, “I wish I’d known about this sooner” from distressed family members. Whatever your status – male, female, married, widowed, divorced, single, young, old, middle class or wealthy – everyone can benefit from estate planning. Unfortunately, too few people follow this advice. Planning your estate and communicating your wishes as appropriate can protect your estate and, as importantly, allow your heirs the opportunity to prepare themselves for their changed circumstances. The “do nothing” option is not in the best interests of your family, your business or other relationships. As the world we live in becomes increasingly characterized by legal action and government intervention, estate planning is something everyone should do.

Creating your estate plan – step by step 

Step 1: Consult and retain appropriate professionals. The complexity of your situation will determine the assistance you will require from professionals to create your estate plan. Your team should include an advisor, lawyer and tax planner

Step 2: Draw up a household balance sheet. A household balance sheet is a summary of your financial situation that ultimately determines your overall net worth. Your net worth is the value of your assets (what you own) minus your liabilities (what you owe). If you don’t already have one, work with your advisor to develop your household balance sheet.

Step 3: Understand your life insurance needs. It’s important to work with your advisor or insurance expert to match your long-term financial objectives with your insurance needs.

Step 4: Draw up your Will.

Contact us at Henley Financial and Wealth Management  if you would like us to provide you with a Will Kit.

Step 5: Establish power of attorney for property. At some point in the future you may be unable to make your own financial or personal care decisions. But you can prearrange for someone to make these decisions according to your wishes by having a lawyer draft a separate power of attorney for property and personal care.

Step 6: Establish power of personal care. Medical and lifestyle decisions must often be made quickly when someone is seriously ill; hence, one or more family members are often granted this power of attorney to make decisions for you.

Step 7: Minimize taxes and administration fees. Your estate may encounter certain obligations for income tax and probate taxes on your death, which may reduce the proceeds intended for the beneficiaries of your estate. If any part of your estate must go through probate to validate the Will before transferring ownership of assets, the entire estate value may be subject to probate taxes.

Step 8: Keep track of accounts and important information. One of the most difficult roles for an executor and family members is gathering the information required to settle the estate. Eliminate this concern by centralizing all household information from birth certificates, passports and other legal documents, to bank accounts and insurance policy numbers, to phone company and hydro account details. Once you have documented your important information, store a copy in a safe place and let someone close to you know where it is.

Step 9: Let someone know.  After you have gone through all the steps of developing an estate plan, the final piece of the puzzle is communication. It’s really important to communicate your plans to a family member or close friend whom you can trust, and who is capable of working with your advisor to execute your estate plan. There’s nothing more disturbing than for someone to have to deal with incomplete information or requests. As such, not only is it important to share your plans with someone, but it can also be very helpful to document your plans to help eliminate any potential misunderstandings. As difficult as it may be, making sure that those affected by your plans know what is expected of them and where critical information is kept is essential to the smooth execution of your estate plan.

Step 10: Review and update regularly. Review and, if necessary, update all information at least once a year. By updating your estate plan, you’ll get a snap shot of where you are on an annual basis.

 

 

 

 

 

 

 

 

 

What is Wealth Management?

Wealth management can be more than just investment advice, as it can encompass all parts of a person’s financial life. The idea is that rather than trying to integrate pieces of advice and various products from different managers the client benefits from a holistic approach in which a single manager coordinates all the services needed to manage their money and plan for their own or their family’s current and future financial needs.

The concept of a wealth manager is based on the theory that he or she can provide services in any aspect of the financial field, while many mangers choose to specialize in particular areas. This would be based on the expertise of the wealth manager in question, or the primary focus of the business within which the wealth manager operates.

A wealth management advisor will coordinate input from outside financial experts such as the client’s own lawyers and, accountants, to create the best strategy to benefit the client. Some wealth managers also provide banking services or advice on philanthropic activities.

So, in short wealth management is an investment advisory service that combines other financial services to address the needs of a person’s financial life. Clients benefit from a holistic approach in which a single manager coordinates all the services needed to manage their money and plan for their own or their family’s current and future needs. This service is usually appropriate for individuals with an array of diverse needs.

Wealth managers may work as part of a small-scale business or as part of a larger firm, one generally associated with the finance industry. Depending on the business, wealth managers may function under different titles, like financial adviser. A client may receive services from a single designated wealth manager or may have access to members of a specified wealth management team.

The wealth manager starts by developing a plan that will maintain and increase a client’s wealth based on that individual’s financial situation, goals and comfort level of risk. After the plan is developed, the manager meets regularly with clients to update goals, review and rebalance the financial portfolio, and investigate whether additional services are needed, with the ultimate goal being to remain in the client’s service throughout their lifetime.

This brings us to financial security planning within Wealth Management

A sound financial security plan should protect you against uncontrollable events such as disabilities or death, while helping you plan for controllable events such as buying a new home and retiring comfortably. To do this, Henley Financial & Wealth Management planning process is based on four areas of financial security planning:

• Financial security at death
• Retirement
• Liquidity
• Disability and critical illness

Financial security at death

 All financial security plans start here because death is inevitable and an uncontrollable event. As part of the financial security planning process, we’ll discuss:

• How much income will your family need if you die?
• How will inflation affect this income?
• How to preserve your estate for your family when you die

Retirement

 When we discuss retirement planning, we consider:

• What kind of lifestyle do you see for yourself in retirement?
• How much money will you need to retire comfortably?
• What impact will inflation have on your income?
• Would you like to have the freedom to slow down or retire early?

Time and planning are two factors that influence whether or not you accomplish your retirement goals. Therefore, you must work towards your retirement goals over time.

Liquidity

Liquidity is your ability to access cash or assets that are easily convertible to cash. Liquidity can be a short-term savings option that can regenerate over time and need your constant hard work.

Disability and critical illness

Mitigating your risk against uncontrollable events such as disability or critical illness is key to your financial security. When building your financial security plan, we’ll consider:

• Will your income be reduced in the event of disability or critical illness?
• If your income is reduced, will it be difficult for you to maintain your lifestyle and retirement savings?
• How much disability or critical illness insurance coverage is enough?
• What impact will inflation have on your income if you’re unable to work for a long time?
• Do you know if your group benefits provide a provision to allow you to continue your retirement savings if you become disabled or suffer a critical condition or illness?

 

 

Why should I buy life insurance?

If this is a question you have been asking consider the following:

Life insurance can offer peace of mind, creating a payout that would cover your debts and or your family members financially in the event of you should die.

Would my death create a financial crisis for anyone?

Life insurance is an important consideration for anyone concerned about how their death might financially impact loved ones. Once you have a significant other, you should have life insurance coverage in place. If you have significant financial obligations such as a mortgage, car loan, and credit debt. Your surviving dependant can use life insurance to ensure that the debt is covered.

Parents benefit greatly from having life insurance so that if they die while their children are still dependents, the children are left with funds to live off, pay off debts, and post-secondary education financial needs. Life insurance can be used to ensure that all debt is covered and a post-secondary education can still be obtained without financial burden placed on your children.

The amount of coverage that is needed is determined by using either a Present Needs, or Future Needs process.

What does Present Needs mean?

The present needs process is a way of determining the appropriate amount of life insurance coverage an individual should purchase. This approach is based on the creation of a budget of expenses that will be incurred upon death, including funeral expenses, estate settlement costs, and replacement of a portion of future income to sustain the spouse or dependants.

What does Future Needs mean?

The future needs process contrasts with the present needs as the future needs process calculates the amount of life insurance a family will need. Based on the financial loss the family would incur if the insured person were to pass away today. The future needs usually take into account factors such as the insured individual’s age, gender, planned retirement age, occupation, annual wage, and employment benefits, as well as the personal and financial information of the spouse and any dependent children.

When calculating any expenses, it is best to overestimate all needs a little. For instance, consider any outstanding debts and obligations that should be covered, such as a mortgage or car payments. Also recognize that the need for income replacement may gradually decline as children living at home move away.

What is Term Insurance?

Term insurance is pure insurance protection that pays a predetermined sum if the insured dies during a specified period of time. On the death of the insured person, term insurance pays the face value of the policy to the named beneficiary. All premiums paid are used to cover the cost of insurance protection.

The term may be 10, or 20 years. But unless it’s renewed, the insurance coverage ends when the term of the policy expires. Since this is temporary insurance coverage, it is the least expensive type to acquire.

Here are the main characteristics of term insurance:

• Temporary insurance protection
• Low cost
• No cash value
• Usually renewable
• Sometimes convertible to permanent life insurance

 

Term insurance pays a set amount if the insured passes away during a specific time period, and is considered to be “temporary” insurance, while permanent life insurance guarantees insurance for life, provided the premiums continue to be paid on time.

What is Permanent Life Insurance?

Permanent life insurance provides life time insurance protection (does not expire). Most permanent policies offer a savings or investment component combined with the insurance coverage. This component, in turn, causes premiums to be higher than those of term insurance. This savings portion of the policy allows the policy owner to build cash value within the policy which can be borrowed or distributed at some time in the future.

Here are the main characteristics of permanent life insurance:

• Permanent insurance protection
• More expensive to own
• Builds cash value
• Loans are permitted against the policy
• Favorable tax treatment of policy earnings
• Level premiums

The two most common are whole life and universal life. Whole life insurance provides lifetime protection—for which you pay a predetermined premium. Cash values usually have a minimum guaranteed rate of interest, the death benefit continues to grow allowing the cash value within the policy to grow tax exempt in the future.

Universal life insurance separates the investment and the death benefit portions. The investment choices available usually include some type of equity investments, which may make your cash value accumulate quicker but at the same time you are now more vulnerable against the markets in which you invest (because as the market fluctuate the value of cash fluctuates which is volatile risk). Over time, you can usually change your premiums and death benefits to suit your current budget.

Age, health, and whether or not the person seeking life insurance smokes all factor into the price of a policy.

 

 

 

 

 

Market volatility does not mean the sky is falling

SAM SIVARAJAN, March 31, 2020

I found this article below in the Globe and Mail and it is a common sense piece, which states what we in the financial industry have all been saying from the beginning. This, is an unprecedented time and a time that will be remembered in the history books. What we need to understand is our economy was strong going into the pandemic, which will certainly help coming out of it…Jobs lost will be recovered and yes some small businesses will unfortunately close. That will bring new opportunity for future business owners who will grow from this time in history. These new business owners will carry the torch forward, and the business owners who survive this will definitely have a new business model in place moving forward. Life as we know it will return to some normalcy.  Winston L. Cook

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Rudyard Kipling’s famous poem “If” starts with “If you can keep your head when all about you are losing theirs…” That is good advice for all of us, but especially investors.

The Covid19 pandemic has mixed health concerns with financial concerns. Unprecedented market drops, continued volatility, stimulus packages, layoffs and the fear of recession or depression is weighing on most people’s minds. The human and health toll is substantial and not one that anyone can, or should, dismiss lightly.

From an investment perspective, redemption activity is picking up pace and will likely continue. Globally, equity funds saw record outflows of $43 billion in the first 2 weeks of March 2020, according to the Financial Times. Flight from equities is typical in these situations. However, investors fleeing investment-grade corporate debt and sovereign bond funds underscores the fear-inducing sell-off in the market. According to market data provided by EPFR Global, mutual funds and ETFs that invest in bonds had $109 billion in outflows for the week ending Wednesday, March 18th. This rush towards cash has exacerbated already volatile markets – and there is no indication that this will change any time soon.

 

When Q1 statements arrive at investor homes in a few weeks, there will be a rush by many to redeem some or all of their investments. Before investors decide to do so, they should keep a few things in mind:

1. The sky is not falling: investment legend Peter Lynch once observed that most investors sit in excess cash or redeem investments because they fear a doomsday scenario. Lynch argued that the end of the world has been predicted for thousands of years and that the sun has still risen every morning. He also argued that in a doomsday scenario, people will be focused on food and shelter. So, whether you hold stocks or cash is not likely to matter. His advice? Act like the sun will rise tomorrow and invest accordingly.
2. People will still buy stuff: when we get to the other side of the Covid19 crisis – and we will – people will still need food, clothing, shelter, services, etc. As Warren Buffett said in 2012, “Our country’s businesses will continue to efficiently deliver goods and services wanted by our citizens.” He also said “In the future, the U.S. population will move more goods, consume more food, and require more living space than it does now. People will forever exchange what they produce for what others produce.” So, businesses will continue to exist, continue to produce, continue to employ, and continue to reward investors.
3. Market corrections are natural: in Europe and North America, prescribed burning has been used for over a hundred years to rid a forest of dead leaves, tree limbs, and other debris. This can help prevent a much more destructive wildfire. It also enables the hardier trees to receive more nutrients, water, and sunlight so that they may thrive. Joseph Schumpeter, the Austrian economist, coined the term “creative destruction” whereby more nimble, innovative practices displace more complacent ones. After the longest bull market in history, there was bound to be a market correction – of course, it is deeper and faster than anyone anticipated. A dispassionate investor would view the current economic turmoil as shaking out some of the less nimble public companies, reducing over-valuations and directing capital and resources to the best-positioned businesses.
4. Don’t try and time the market: even the most successful professional investors don’t believe in their ability to time the market. Peter Lynch said “When stocks are attractive, you buy them. Sure, they can go lower. I’ve bought stocks at $12 that went to $2, but then they later went to $30. You just don’t know when you can find the bottom.”
5. Don’t forget your long-term goals: most stock market investors originally invested with a time horizon of 5, 10 or more years. Most would have known that stock markets can and will correct, and sometimes violently, and so they should have invested only those monies that they did not need in the short-term. When the rebound comes, it will come quickly and those who are out of the market, and miss it, will have to dramatically revise their long-term goals.

Yes, the Covid19 crisis is a new crisis – but Canadians, the Canadian economy and Canadian portfolios have experienced and survived world wars, depressions, and pandemics before. There is little reason to believe that this time will be any different. Investors would do well to keep that in mind.

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.

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 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%