Tuesday, December 23, 2014

Diversity in your investment portfolio

I will periodically be posting information that I think is of interest and that I have received.
Canadians who diversified their equity exposure and invested in US Equities in 2014 made a wise decision.  The S&P 500 is up 12% YTD while the S&P TSX has done roughly 6% (price only).  With 2015 around the corner this trend looks likely to continue.  The Canadian consumer remains highly leveraged, our housing market is overvalued and a slumping oil price means eastern provinces will be under pressure to pick up the slack from those in the west.  By contrast, the US housing market looks stable, unemployment levels continue to fall and as this week’s Muse explains, American consumers are in a better position to spend in 2015 than they have been for years.

Key Takeaways

Widespread spending

  • ‘I don’t think there’s a single headwind for consumers, it’s all tailwinds blowing at different strengths’ said Mark Zandi, chief economist for Moody’s Analytics Inc.
  • According to a Bloomberg survey, spending is anticipated to increase by 2.7% in 2015, compared to the 2.2% growth seen in the first three quarters of 2014
  • ‘We don’t have all our eggs in one basket anymore where we’re just relying on the wealthy to drive spending’ said Ellen Zentner, a senior economist at Morgan Stanley

Broad-based Hiring
  • The breadth of industries hiring last month was the most extensive since 1998, a strong sign that the expansion is having widespread benefits on the economy
  • Weekly earnings adjusted for inflation climbed 0.9% on average last month, the biggest increase in six years
  • Consumers’ incomes are forecast to grow 1.8% over the next 12 months, the most since 2008 according to a Thomson Reuters/U of Michigan consumer sentiment surve

Middle Class
  • Research by Goldman Sachs economists shows that middle-income households spend the most on gasoline as a share of total household purchases
  • Furniture stores, vehicle dealers, clothing outlets, restaurants and hotels are among the retailers that benefit the most from wage growth and accessible credit, according to Morgan Stanley
  • ‘You’ve got your debt down to levels that are reasonable, your labor market conditions are making some really significant gains, so people are feeling much more comfortable and they’re willing to spend’ said Michael Carey, chief economist at Credit Agricole CIB.  Carey forecast a 2.9% increase in spending for 2015

While there are clearly many signs that the American consumer will help to propel the US economy in 2015, especially given the current exchange rate, prudent investors will be careful not to overexpose their portfolios to US stocks.  The unpredictable nature of the markets should be enough to remind investors to focus on their long-term goals and seek a reasonable growth rate. 

Happy Holidays,
Information provided by Great West Life


Wednesday, December 3, 2014

2014 Year end tax tips

It’s that time of year again – Year End Tax Planning.  Each year, Jamie Golombek of Renaisance Investments puts together a list of tips. To see his full list click here  My abbreviated version follows.

1.     Are you between 60 and 64 and considering taking CPP early?  You may want to apply before Dec. 31, 2014 as the “downward monthly pension adjustment” increases from 0.56% in 2014 to 0.58% in 2015.

2.     Did you turn 71 in 2014?  You must convert your RRSPs to a RRIF or registered annuity before the end of the year.  If your spouse or partner is younger than 71, you can continue contributing to a spousal RRSP.

3.     Review which investments you hold in your RRSP, TFSA and non-registered accounts.

a.      Non Registered Accounts – Canadian dividends are taxed more favourably than interest income.

b.     RRSP – 2014 maximums (assuming that you have used all of your previous contributions) is limited to 18% of your income to a maximum of $24,270 less any pension adjustments.

c.      TFSA – You can contribute up to $31,000 in 2014 (if you have not contributed before).  If you have withdrawn funds from your TFSAs, make sure to check when you did it, as re-contribution room is not available until the following calendar year.

4.     Registered Education Savings Plans (RESP) and Registered Disability Savings Plans (RDSP) – the government has matching grants for both of these programs.  The RESP is designed to save tax efficiently towards children’s post secondary education. The RDSP is designed for people who qualify for a Disability Tax Credit and are under 49 years of age.  Contact me for information on both of these programs.

5.     Charitable Donations, Investment Expenses, Childcare Expense, some Business Expenses should be done before the end of the year to use the expenses on your 2014 taxes.  You have until March 2, 2015 to make your 2014 tax year RRSP deduction.

6.     As of 2014 Safety Deposit Box fees  are no longer deductible

There are many additional tax planning activities that you may be able to use to decrease your taxes.  Speak to your accountant or give me a call.