Well here we are in the midst of fall. It has been such a beautiful spring and summer that I am reluctant to put my sandals in the back of the closet until next year.
What has transpired in the financial realm that is of relevance? Let’s do a recap of the past few months.
First off I hope that all of you have done your 2005 tax return, especially if you owe money. Remember that the penalties for overdue taxes are an immediate 5% on the unpaid balance and daily interest thereafter.
Putting that task in the procrastination pile will not make the problem go away! Most of you know you can ask for my help, moral support or otherwise.
If you expect a refund and you have not done your tax return then the government must be one of your best friends. Best friends lend money and don’t ask when they will get it back. Sure they’ll pay you a piddly amount of interest but wouldn’t YOU rather pay off debts or invest that money? Do you sleep better at night knowing that you are one of the reasons they have a surplus?
If you don’t know whether you will get a refund or have to pay that is absolutely no reason to turtle. Ostriches who put their heads in the sand do are not often pleasantly surprised.
Ok enough of the animal clichés.
The first Conservative budget contained some measures that will affect certain taxpayers. Firstly, consumers will pay 1% less GST down from 7 to 6%. However, tax on the first income bracket was increased to offset the lost revenue from the GST. The upper end of this tax bracket was increased slightly and will be indexed yearly.
The other items of interest are mostly tax credits that will positively affect pensioners, students, children, and employees that incur out of pocket employment expenses to name a few. If you think you are one of those people who needs to know more please get in touch with me.
The most important budget provision was the official removal of the foreign content limit for RRSPs. Previously 30% of book value was the maximum an investor was allowed.
Canada’s domestic market is dominated by three sectors of the economy. In other words, 76% of Canada’s financial market is made up of energy, financial, and materials companies. In contrast, in the world market those three comprise only 41%.(1) An RRSP that has mostly Canadian funds will miss out on companies in health care, information technology, or consumer discretionary, for example. Dividing a portfolio among the different countries and sectors of the world market provides more of the advantages of the upside and less of the volatility on the downside.
What are the ideal percentages of Canadian versus foreign funds in an RRSP portfolio? There is no quick answer to that question. Every investor’s circumstances are different. The answer depends on your time horizon for investing, and your risk tolerance among other factors. The first is easy to determine, and here is a quick way to figure out your volatility index.
hink in percentage terms what would be the highest rate of return you would like for your portfolio. Then put a negative sign in front of that number you just thought of. Is the negative of that percentage just as acceptable? This exercise will give you an idea of how well you would tolerate the ups and down movement of the market.
Alberta’s economy is another news item. Job opportunities have attracted many newcomers to Calgary. Despite (or maybe because of) this influx of people the economy has exceeded its maximum efficiency. In most sectors of the economy production has been adversely affected by a lack of supply or increased labor costs. In fact there is a shortage of workers. Companies are unable to fully capitalize on the demand for their goods and services. The other day I went downtown to have lunch with a potential client. To our dismay the café we had planned to go to was locked down. A passerby mentioned that they were not able to get anyone to work for them. It’s difficult to make money when you can’t be open for business.
Sure your house has doubled in value in the last few years but does it really matter if you aren’t going to move and no one can afford to buy it? How many Calgarians and Albertans are getting an extra concrete benefit from our booming economy? Surely some people are working all the overtime they want to, are able to call any salary they want. There must be some business owner out there who is able to keep up with the demand for their product, or a homeowner that has sold a house at a profit and not had to sink it right back into another expensive house. Are they the majority? Or are most of us trying to keep ahead of the I bug. You know that sneaky little pest called inflation?
How about you dear reader? Is the gangbuster economy an advantage or an annoyance to you? Would you like the opportunity to sound off on the beefs and benefits of today’s Alberta? Send me your thoughts and in the next newsletter I’ll publish a list. The list could start with this beef: Mayor Bronconnier gushing over Calgary becoming a city of 1 million, but ignoring the problems that come with unprecedented growth.
If more than 50% of readers respond there will be a draw for 1 dozen hot cinnamon buns homemade or store custom baked and delivered to your home or workplace.
Observant readers might notice a change in format and that this newsletter is quite a few months late. I want to avoid copyright and compliance challenges so I have had to tweak the newsletter slightly. Questions and comments are always welcome.