All posts by citicinn

One Important Tax Credit

One of the lesser known tax credits is the disability tax credit(DTC). If a person has difficulty with at least one of the basic activities of daily living such as speaking, hearing, seeing, eating, walking, dressing, bladder functions, or mental functions to the point of it impacting their life significantly they may qualify for the DTC.

If a person needs life sustaining therapy they may also qualify. Examples might be diabetes with daily insulin injections, or continuous oxygen therapy. A medical professional must complete the assessment and complete the tax from T2201.

Two facts: Note I didn’t say taxpayer I said person. Children may also qualify for the DTC, which would enable the parent(s) to pay less tax. Also any medical professional may complete the form it doesn’t have to be a doctor. One example would be a speech pathologist.

A study done in 2018 by the Senate Committee on Social Affairs, Science and Technology found that less than 40% of the adults who qualify for the DTC actually claim it. And the report doesn’t even include children who could qualify. The credit is $8235 which means a taxpayer would save $1235 in taxes. That is a lot of money in unclaimed tax refunds. Plus there are other tax credits associated with the care of the disabled person that can also be claimed.

There are qualified professionals who can help an applicant navigate through the application process.

If a person qualifies for the DTC and he or she is under the age of 49 they could open a Registered Disability Savings Plan (RDSP). The RDSP can receive contributory grants of up to 300% and non contributory bonds if the beneficiary’s income is low or nil.

Both the DTC and the RDSP are underutilized due to lack of awareness. That is a shame because disabled people need access to money to be able to have the supports necessary for a good quality of life.

The last federal budget proposed more relaxed rules for withdrawals from the RDSP. However, that proposal never made it into law.

If a taxpayer has contributed to the Canada Pension Plan, is younger than 65 years old, has a severe and prolonged disability that is not expected to improve, and prevents them from working they may qualify for a Canada Pension Plan Disability Pension. Alberta also has the Assured Income for the Severely Handicapped(AISH) which can provide income support where a person cannot work or only work marginally.

With Canada’s population continuing to age, discussing the topic of disability is of utmost importance. I am sure that every reader knows someone in their life that would benefit from this information.
Canada Revenue Agency
Investment Executive Oct 2018

Financial Success Then and Now

I know it has been a good few weeks but thank you to those who replied to my question: Is financial planning easier or more difficult than 20 years ago?

No one said it was easier although we certainly have more tools to make it so.

Here in order of importance are the reasons why you said it was more difficult:
1. Advertising and media are relentless in their efforts to get us to open our wallets to buy the newest and latest. Somehow wants become needs.
2. The opportunities to spend money are endless and ever increasing. It requires almost no effort to spend thousands of dollars, all we need is a credit card and access to the internet. We don’t even have to leave home.
3. The attitude towards debt is too casual. There is less commitment than in the past to manage debt wisely. In many of the conference calls I participate in, Canadians’ indebtedness is cited as a risk to the economy. Canadian are more indebted than Americans were at the height of the financial crisis of 2008. There are many forms of credit which tempts people to apply. The most I have ever seen so far is 9 sources of credit for a couple.
4. There is too much information on financial topics in the media. Studies have proven that an excess of information can lead to decision paralysis and conversely overconfidence!
5. People today are far busier than in the past and as a result paying attention to their finances is a low priority.

Please remember that these 5 reasons are interrelated and affect each other. Other important factors you mentioned are the cost of living, job instability, and the high cost of post secondary education.

How can you overcome those challenges? Being aware, and giving your finances some of your time, and working with me will help you feel more confident. Also I recommend you keep track of your spending for a month or 2. Remember a part of all you earn is yours to keep.

We Are the Expendables

In today’s local economy there is a disturbing employment trend that I have a very good vantage point to observe, because my clients are from all walks of life. It is the difficulty of remaining employed, especially if a wage earner is in the private sector and middle aged or older. This trend has also affected my husband who wants to continue working but will likely be forced to retire.

I have written before that your single greatest asset is not your house, car, or bank account. It is your ability to earn an income. Your earning power will enable you to build your financial capital for your future years when your human capital’s importance will diminish.

If your human capital is not put to use, the rest of your financial goals will be put on hold. I have seen how middle aged wage earners have struggled to return to the workforce after layoffs or retrenchments. Corporations are always looking at their bottom line and wanting to hire cheaply or make their present workers do the jobs of 3 people.

If fortunately you are employed or self employed and you feel relatively secure, the best strategy is to realize that your circumstances could change, and you need to be prepared.

The 3 best factors in your preparation are:
1. Develop sensible spending habits. Remember a part of all you earn is yours to keep. Don’t make companies rich and yourself poor by spending all you earn.
2. Remain dedicated in building your own Easter I mean nest egg. A nest egg is money not a house. Your house won’t pay for groceries when you are unemployed. Don’t have the attitude that you can procrastinate on this. If your plan is to save later on, by then you may not be working.
3. Understand that being debt free will better carry you through a period of little or no income. Focus on paying down your debt, including your mortgage.

Young people please learn from us grey hairs and avoid the mistakes we made. Please share this post with someone that needs to see it!

Bull and Bear Markets



The principles of financial planning will apply differently to each investor’s situation.

Here is an example:
It is often quoted in mainstream media that a TFSA is better than an RRSP. However, that statement is far too general to have any meaning. Whether or not that statement is true will be different for every investor. That is why you partner with me. I will present relevant information and together we will implement it into a plan that will help you achieve your long term goals,

So let’s discuss the question that is on a many investors’ minds. Will there be a recession?

The short answer is yes. There are 2 reasons why there will be a recession(a bear market). The first is that the long upwards trend of the stock market(the bull) has been going on for a longer than average time. The market has always shown its cyclicality.

The second reason is that there is a lot more uncertainty in the stock market(I will not discuss the reasons why, that’s another blog post). Uncertainty contributes to the up and down movement of the stock market which is called volatility. Volatility will not in itself contribute to a recession.

A recession will occur when 2 events happen. First when there are far more stock sellers than people who want to buy stocks. Yes stock market movement is based on sentiment. Also when corporations and individuals find it difficult to borrow money (when credit is less accessible) then liquidity(money movement) will lessen economic activity. If wage earners are afraid of losing their jobs they will not go to the bank to get preapproved for a mortgage. When corporations can’t sell their bonds to raise capital for expansion economic activity is decreased.

Back to your own situation. Do you need to worry about a recession? The answer depends on where you are in your financial journey. How old are you? How much financial responsibility do you have? How much longer can or do you want to work? How much debt do you have? When do you need your money? Can you financially take advantage of a recession by adding to your portfolio? Yes Cindy always likes to ask questions, how annoying!

By the way investment professionals are well positioned to profit on your behalf when volatility or a recession occurs. In the first 2 and last 2 months of 2018, investment managers were happily buying. For them those months were like a Boxing Day sale.

The best investment professionals also stick to their discipline and build in defences so their portfolios can withstand a market downturn.

The stock market in the last 2 months of 2018 was volatile and ended the year with lower values. As a result your year end statement reflected that. However, in January those losses were erased. So worrying about a recession or volatility may be misplaced mental energy. I am always happy to answer your questions or discuss your concerns.

Prudence or Imprudence?

Last week the Bank of Canada raised their overnight interest rate to 1.75%, an increase of .25%. Several of the big banks immediately followed suit. Borrowing costs will likely increase, for example on variable rate mortgages and lines of credit.

What prompted me to write this blog post were the headlines that implied ‘the sky is falling!’ like Chicken Little said.

FYI: There are 2 sides to every story. Most of you reading this are not old enough to remember Canada Savings Bonds paying 9.75% interest for a year, at the same time that mortgage rates were double digits. In the 1980s a decent savings return was the norm, and at the same time borrowing costs were high. Back then pension plans and insurance companies found it much easier to meet their obligations to their plan holders because getting a good savings return was achievable with little effort. Still no one including the Bank of Canada wants to go back to that era. The Bank of Canada is striving for balance.

Fast forward to the present. In some jurisdictions in the recent past savers were paying a bank to deposit their money because interest rates were negative. A mortgage rate south of 5% is still a good deal. The ultra cheap rates of the past few years were ABNORMAL and more importantly UNSUSTAINABLE and quite possibly encouraged imprudent borrowing. If you want to help a friend or yourself, remember to calculate that housing costs should not be more than 40% of your monthly income. Currently the debt to income ratio for Canadians is for every $1 of income $1.69 is owed in debt.(Statistics Canada)

The Bank of Canada is looking to the future. It needs a tool to be able to wisely handle the next recession. The tool they will use will be to lower interest rates. And it knows that Canadians who are borrowers will fare better in the next recession if rates rise gradually. As I have said before, they are taking the punch bowl away and saying party’s over. Catch a cab and go home.

More careful lending and borrowing is needed. Financial planning involves reviewing all aspects of your financial situation including your borrowing and repayment habits. Our meetings will involve a game plan that included the ‘what ifs’ so you can take any financial event in stride.

Sugar Overload?

You may or may not have noticed that interest rates have been consistently in the news for quite a while. A client suggested I do a blog post on whether we should care about that topic.

The answer is if you are a borrower, or a saver/investor interest rates will impact you although it’s not an in your face effect. Rather it is a slow and subtle effect, something like how you get a cavity in your tooth.

Interest rates have been abnormally low since the financial crisis of 2008. In order to keep world economies afloat, central banks around the globe lowered interest rates so that people and companies would hopefully borrow money, which in turn would create economic activity. That tactic has worked well but if rates were to stay low they would have no tool in their tool box to use when the next recession/correction in the stock market comes. Hence rates have been rising.

Of course borrowers love low rates, especially borrowers who have variable rate mortgages and lines of credit. And used responsibly these 2 loans can help you achieve your financial goals more quickly. However, sometimes they can tempt people to take on too much debt which can be very dangerous when interest rates rise. And make no mistake, interest rates must rise or the next recession or correction will make the last one seem tame in comparison.

If you are a saver or investor or an insurance company or pension plan, low interest rates make you want to pull out your hair. Fixed income investments for example bonds, are negatively affected by low interest rates. If you are a retiree and want minimal risk in your retirement savings and your fixed income is eking out a barely positive rate of return that means your savings are not going to last as long. You might have to adjust your withdrawal rate, because you cannot control how long you will live.

Investors and companies who rely on fixed income investments must make more than inflation rate which has been difficult to do in the last decade.

Pension companies are mandated to have a conservative investment profile so their job is more difficult in a low rate environment. Insurance companies by law must keep a certain amount of reserves for claims and that reserve relies on mostly fixed income investments for their return.

Perhaps unfortunately because of the current low rate scenario the fixed income category has expanded and become a bit more creative. Fixed income investments usually rely on some form of borrowing which of course is affected by interest rates. Bonds are loans, Real Estate Investment Trusts(REIT), mortgage income corporations, for example all rely on favorable interest rates.

The cavity analogy is quite apt. It takes a long time of eating gummy bears, chocolate, milkshakes, pop, and cake to get a cavity. Borrowers have enjoyed a long run of cheap money. But like the vulnerable teeth eventually the party has to end. Let’s hope policy makers allow a graceful exit of the party of easy money.

In Defence of Small Potatoes

Here are some quick afterthoughts from the tax season. Being well organized will ensure the task of doing your return is painless and quick. Another plus of being organized is that you will be able to take advantage of all of the claims you are allowed.

Start gathering your documents at the beginning of the year, especially if you contribute to RRSPs or make charitable donations.

This is what I have noticed from taxpayers’ situations:
1. Medical expenses: Taxpayers often are not aware of all the expenses that qualify as a tax credit. Any expenses that you pay for you, your spouse, and dependents INCLUDING extended health care premiums will qualify. The amount has to exceed 3% of the claimant’s NET income. In the case of a couple the lower income spouse should claim.

2. Donation efficiency. You can carry forward donations for up to 5 years so don’t waste them. Donation amounts over $200 qualify for almost 2 times the credit as donations less than $200.

3. Keep track of capital gains and losses. A loss can be carried back 3 years to offset taxable gains or carried forward indefinitely for the same use. This applies to stocks you might be receiving through your work plan, if you cash them in.

4. Child care expenses and RRSP contributions can only be used as deductions against EARNED income. Be careful here, because earned income for both those deductions is defined differently.

5. If you collected EI or maternity leave benefits, a bonus or severance could result in you having to repay some of the benefits. You will also repay if you had EI benefits within the last 10 years.

6. If you contribute to a pension plan be aware that pension contributions will decrease your RRSP contribution room.

7. If you consistently get a large refund every year then you have basically lent some of your salary to the government for a year. Consider asking to have less tax deducted monthly, so you will have more money in your budget. Ask me for the form.

The auditor general has found that CRA gives wrong replies to taxpayer queries 30% of the time. Also to meet their call quota they will often not even answer calls.

CRA does not like late taxpayers and has become quite aggressive in pursuing taxpayers. Their tactics can be quite harsh and can include informing employers and garnishing wages. You may think that because you are a small potato that they will not bother with you but please don’t take that chance. I am always here to be your advocate and to guide you through the taxpaying process with ease.

Peer Pressure: Not Just For Teens

Sure go head and choose the trending colors on Pinterest or go to the latest blockbuster movie. Even check out the trendiest resto in town. But please don’t apply that popularity concept to your investments.

Further to my last blog post let’s take a deeper dive into the workings of the stock market.

This blog post was prompted by 2 client conversations. The theme of both those chats was the fear of missing out on recent stock market highs. They were asking me to make their portfolios more aggressive.

First of all: Neither you or I can repeatedly be successful in the stock market on our own. We don’t have the time, resources, professional staff, expertise, and inside connections to the knowledge needed. That is why we hire professionals. The media perpetuates the myth that an individual can be successful in the stock market. Maybe only once in awhile. Yes I am part of the financial world but I only get a glimpse of the inner workings.

Secondly don’t equate the stock market and the economy. The 2 are connected but separate. Just because the stock market is doing well doesn’t mean the economy is. Recall I said that part of stock market activity is based on sentiment and beliefs.

Unfortunately stock market cycles are very predictable because participants repeat their mistakes over and over. Last year’s winners are usually the current year’s losers. And I would rather explain to you why your 6-8 % return is sufficient rather than try to console you when your return is negative 20%. Remember the earlier you start investing the better advantage you can take of the ups and downs.

Which brings me to an article I read in one of my professional magazines. Research shows that eliminating the worst AND best days will give the investor a higher return than trying to hit a home run by investing in the hottest stocks.(1) This confirms what very qualified expert investment managers have been practicing for years. Consistency of returns and process is of paramount importance.

The current stock market is overvalued and overheated with speculation built in. Current monetary policy(some experts go so far as to say dishonest monetary policy) is built on a kick the can down the road mentality. Building a’ great’ stock market by mortgaging the future of the upcoming generation is a fragile policy at best.

Remember the higher the potential gain the greater the risk will be. The higher the potential gain the bigger the potential loss. My job is to find that happy medium and to monitor your accounts. Your job is to patiently stay the course and not participate in the herd mentality. As a team we will progress towards achieving your life goals

1. Stacking the Deck: How maintaining consistent risk levels avoid large declines. Advisor’s Edge February 2018

Painting the Tape

When you are as old as I am, the phrase been there done that takes on new meaning in all aspects of life.

The stock market and the activity of its participants follow patterns that hold true no matter the decade. It just blows my mind at the similarity of people’s behavior no matter what is the investing trend of the month, year or century.

The underlying principle is always the same: those particular stock market participants want to get rich quickly and with the least amount of effort. They feel if they don’t get in on the flavor of the month the will miss a golden opportunity.

The stock market’s movement up and down is based in large part on the beliefs and sentiments of the people buying and selling. Remember beliefs and sentiments are not quantifiable and measurable. When participants hear of a popular product they tend to believe that if many people are participating then it is a worthwhile venture. This is crazy because your friend or colleague most likely have zero professional qualifications to be making those suggestions. It both amuses and irritates me because I am highly regulated on what I can and cannot discuss, yet people will often believe the unqualified, unprofessional street and the media to their own detriment. This has held true since the Dutch tulip bulb craze back in the 1600s. Many of you readers may not old enough to remember more recent examples such as the dot com boom and bust or closer to home such examples as Bre X and Nortel. Somehow the similarities of these gone by the wayside stories are lost on the latest invention in fintech(financial technology) Bitcoin and its associated versions.

Bitcoin is a virtual currency that came about as a result of the financial crisis of 2008. The invention of Bitcoin was to create a currency that was not associated or sponsored by any central bank or government, and thus outside of regulation.(can you think of a segment of society that would like that?) Bitcoin has not caught on as a mode of payment, its attraction is more in speculating in it or mining which utilizes the technology associated to bitcoin, blockchain. Blockchain does have legitimate value.

Bitcoin has no inherent value, even though it has gone through very wild swings for the cost of one bitcoin. If you compare it to gold for example gold does have intrinsic value. The only value that bitcoin has is the value that market participants assign it. It doesn’t even physically exist, yet people are willing to pay thousands or tens of thousands for a bitcoin.

It always begins the same way. The interested participant(I can’t even say investor) knows someone who claims to have made a lot of money following bitcoin or fill in the blank of the latest fad. Somehow the fact that the interested participant knows the person touting the investment lends credibility. Does that make any logical sense at all?

Almost every wage earner has earmarked all of their net salary for many purposes from paying bills to ensuring a debt free secure financial future. If you are one of the fortunate few that could speculate you should google “painting the tape” before you want to consider any wildly popular so called financial product.

No it Isn’t Eeny Meey Miney Moe

One of the suggestions for a blog post was: How do I select the companies or investments for you my clients?

Here are the characteristics that must be present in order of importance:
First and foremost is that the company must walk the talk. In other words what is said will be done. IF a business partner is sincere and possesses integrity they will stand out in a crowded field. In my books talk is cheap.

An example of integrity is how the investment company will talk about the stock market. I prefer to work with companies that acknowledge that the present scenario has some pitfalls and fragility, and what their professionals are doing to protect investors’ capital. Over optimism is cheap too. I have been in the business long enough to read between the lines, and interpret industry speak.

Secondly the companies that offer access to the investment professionals that manage your money will be preferred over those that do not. Access can take place through in person presentations, interactive webcasts, or blogs with the ability to leave a question for the blogger. The general investing public does not have access to this information. The idea is to have the ability to ask questions which is important when I evaluate the next desirable traits:

Discipline and depth. The investment manager will stick to his or her process no matter the state of the market or the latest fad in investing.

Any investment I choose almost always will have a proven history. I try to stay away from new investments. I have been in my career long enough to see which professionals have lasted, and who has faded away.

Cost is a factor as well. You want value for you money.

And I know the future of human race is dependent on sustainable and responsible investing, which are the companies that are providing innovative solutions to the challenges of resource management, population growth, energy efficiency, and scarcity.