Quick Tips

RRSPs

Tips for investing in RRSPs

1. Invest in an RRSP early, and put time to work for you. Consider a 20-year-old who invests $2,500 each year for 15 years, until she turns 35, in an investment with a compound rate of return of 8%. If at the age of 35 she then keeps her money invested, but makes no further annual contributions she will have over $650,000 dollars saved by the time she retires at age 65. Compare that to an investor who starts investing later in life, at age 35, and contributes $2,500 each year for 30 years. By age 65, this investor will have accumulated just over $275,000 in retirement savings. So make sure you start saving for retirement early in life – but remember – it’s never too late to start.
   
   
2. Contribute early in the year to maximize growth. You can contribute to your RRSP from January 1 of any calendar year until 60 days into the following year. If you have the money, make your contribution for the year as early as possible instead of waiting until the 60th day of the following year. Your plan will benefit from up to 14 extra months of tax-deferred compounded growth for every contribution.
   
   
3. Pay yourself first. Before you pay your monthly bills and expenses, contribute regularly to your retirement through convenient, automatic withdrawals from your credit union account. With a Pre-Authorized Contribution or “PAC” Plan you can contribute as little as $50 either weekly, bi-weekly, monthly, quarterly or semi-annually – whichever is right for you. A PAC Plan lets you take advantage of dollar cost averaging to maximize your growth opportunities and reduce risk. Dollar cost averaging smoothes out the volatility of your fund holdings because you buy more units when prices are lower and fewer when prices are higher.
   
   
4. Maximize foreign content. Canada is a small player in world markets. In fact, 98% of the world’s investment opportunities lie outside our borders. A geographically diversified portfolio can boost your potential returns and reduce the risk in your portfolio.
   
   
5. Contribute the maximum you are permitted. This allows you to take full advantage of the tax deduction from contributions and ensures that you‘re putting enough aside for a comfortable retirement.

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The Key to Successful Investing

One of the most important keys to successful long-term investing is diversification. A diversified portfolio means allocating a suitable mix of liquid assets (such as short term GICs), income producing assets (such as long term GICs) and growth assets. Diversification is achieved by allocating a portion of the investments to a number of different asset classes. This process is referred to as asset allocation.

It is more important to select the correct asset allocation than selecting the individual investments in a portfolio. A study of pension money managers showed that 90% of a portfolio's return depends not on the specific investments selected but how the portfolio is divided among the three asset classes.

Once your financial goals and objectives are determined, your personal and financial circumstances, time horizon and risk tolerances are considered to establish a suitable asset allocation.

Your investment portfolio is based on three main elements: capital preservation, income and growth. A well-balanced portfolio should contain a portion of each of these elements. Capital preservation investments have little or nominal risk exposure. For example Term Deposits have no default risk because of deposit insurance. This type of investment is designed to preserve capital.

Income investments are designed to generate periodic cash flow for spending or reinvesting. While capital preservation and income are critical components, they are simply not enough to ensure investment success.

Growth investments can be subdivided into domestic and foreign and further subdivided into growth and aggressive growth. While there is some risk in these investments, there is greater potential for larger returns.

A well-diversified portfolio contains investments within all three asset categories. To determine your correct asset allocation or for more information please contact your Financial Services Advisor.

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Tax Tips

1. The higher earner should pay the bills and the lower earner do the investing - investment earnings will then be taxed at the lower earner's tax rate.
   
   
2. Invest the Child Tax Credit in the child's name which will result in the earnings being taxed to the child instead of the parents. Better yet - open an RESP.
   
   
3. Utilize spousal RRSPs to enable the higher income earner to get the tax deduction now and to enable income splitting during retirement.
   
   
4. Invest non-RRSP money into investments earning dividends or capital gains, such as equity mutual funds, instead of interest.
   
   
5. If both spouses are receiving CPP benefits, you can apply to have the benefits evenly split between the two of you.

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Ten facts about Registered Education Savings Plans

1. Earn an immediate 20% bonus on annual contributions up to $2,000 from the Canada Education Savings Grant program.
   
   
2. Collect unused Canada Education Savings Grant money from as far back as 1998 by making catch up payments.
   
   
3. Open an Individual RESP for anyone (including yourself or your spouse), or a Family RESP for several beneficiaries related to you by blood or adoption.
   
   
4. Contribute a maximum of $4,000 per beneficiary, each year.
   
   
5. Contribute a lifetime maximum of $42,000 per beneficiary (this does not include the government grant money).
   
   
6. Watch earnings and interest accumulate tax sheltered inside the plan.
   
   
7. Use RESP savings to pay for tuition, books and living expenses.
   
   
8. Enjoy tax breaks: accumulated earnings eventually are taxed at the child’s lower personal rate.
   
   
9. Change the beneficiary if the original beneficiary does not attend post-secondary school.
   
   
10. If the intended beneficiary does not attend post-secondary school, and there is no alternative beneficiary, simply withdraw your unused contributions. Transfer accumulated earnings directly to your or your spouse’s RRSP without triggering tax deductions. Return the grant portion to the government.

Some conditions apply. See your Credential Asset Management Mutual Funds Investment Specialist for details on how to set up a socially responsible RESP with The Ethical Funds CompanyTM.

Mutual funds are offered through Credential Asset Management Inc. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Unless otherwise stated, mutual fund securities and cash balances are not insured nor guaranteed, their values change frequently and past performance may not be repeated. TMThe Ethical Funds Company is a trademark owned by Ethical Funds Inc. and is used under licence.

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House Hunting Questions

1. How do I get started? What am I looking for in a home?
   
   
2. What is the neighbourhood (and your neighbours) like … are there certain features in the area that would affect the value of this property in the future?
   
   
3. What are the property taxes on the home?
   
   
4. What are the utility costs … especially hydro, if the home is electrically heated?
   
   
5. What home repairs have been made in the past two years?
   
   
6. How far do I have to travel for schools, public transit, and shopping?
   
   
7. What major repair expenses do I have to look forward to within the next two years?
   
   
8. What is the traffic flow in front of or near the property … any main roads, bus routes or railway tracks?
   
   
9. Are there any utility easements or encroachments over the property?
   
   
10. Is there a fairly recent survey that shows all the buildings and additions on the property?
    
    
11. Has the property had a Home Inspection done when the present owners bought that you could check to see what minor and major problems there were? Ask the vendor for a list of those problems that were fixed!
    
    
12. How much are the closing costs … and is there a better time in the month to close to minimize them?
    
    
13. What are the other comparable homes in the area selling for? You don't want to overpay or get carried away by snazzy finishing touches in a home that may be priced higher than other neighbourhood homes.
    
    
14. How flexible are the vendors on their asking price? At what price do we start when we go to put in an offer?
    
    
15. How is my financing approval determined? Is there any beneficial existing financing on the property that I can assume?
    
    
16. What does the yard look like when it isn't covered with snow? Are there any problems with drainage or runoff after a heavy rain, or in the spring?
    
    
17. Does the basement show any signs of moisture... can it be fixed simply by cleaning/repairing the eaves trough, or is it a more serious problem?
    
    
18. What can I have included in the sale? Are there any exclusions?
    
    
19. Why would I go elsewhere, when I can get all my financing needs at Northridge Savings?
    
    
20. Is this the right house for me?