18 | Tuesday, August 20, 2013

your finance

Production halted in South Africa

South Africas auto manufacturing industry came to a near standstill on Monday when about 30,000 workers downed tools, adding to the labour woes of the continents largest economy which has been hit by violent unrest at its mines.

Too often, having no investment plan is the fallback position. Investors without plans tend to be more vulnerable, which could end up being costly.
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Forward thinking
Any investment plan is better than no plan
Barbara Stewart Special to QMI Agency

commissioned an Angus Reid survey a couple of years ago and only 15% of Canadian women said they had an investment plan in place. It seems it is one of those things that we think we should do, but we never get around to it. What comes to mind when we think of an investment plan? I have seen some pretty extensive ones that cost in the neighbourhood of $5, 000 to 10,000. They contain many colourful graphs and pages of detailed assumptions used for inputs such as inflation rate, spending rate, etc. Some of the best plans included a Monte Carlo simulation, a computer- generated analysis of a range of investment return possibilities based on a sample of more than 2,000 possible market outcomes.

Ready to get started putting this together on a Sunday afternoon? It is easy to see why no plan is too often the fallback position. But what happens if you dont have an investment plan? I have observed that investors without plans tend to be more vulnerable either to various scams or to their own emotions. They end up trading more frequently based on gut feel because they dont have a solid investment rationale for their decisions. This behaviour gets costly and it certainly isnt a great way to feel secure about your future. How about committing to a one-page document that summarizes your personal investment objectives? Here are the key components to a focused investment policy: Return requirements What is your objective for an annual average rate of return? Do you have to take money out of your portfolio for living expenses? If so, how much? Risk tolerance How would you describe your ability to take investment risks? How have you reacted in the past to market volatility? Time horizon Do you have more than 10 years to invest? Are there any events in the future that will force

you to change your investment strategy? Tax considerations Is your portfolio made up of any registered funds (for example, RSP or RIF)? Do you have any significant embedded capital gains in any of your holdings? Liquidity needs Will you need to take out a lumpsum amount of cash in the next year or so? Maybe to buy a car or do some home renovations? Legal implications Are there any restrictions on how your funds can be invested? Is your account related to a trust or an estate? Unique preferences Would you prefer to avoid particular investment sectors for environmental or any other reasons? Answering these questions at even a very basic level will provide a solid starting point for an investment plan. From there, you will be in a position to determine which assets to put in your investment portfolio and why. Whether you are investing for yourself or using an adviser, your one-page policy will help you to focus on making investments that fit your personal objectives.
Barbara Stewart, CFA, is with Cumberland Private Wealth Management Inc. Visit her website at barbarastewart.ca

Money-saving strategies for single-income families

Linda White Special to QMI Agency

Either by choice or necessity, an increasing number of Canadian families is getting by on just one salary. For some, that may be the result of a difficult job market; others are single parents and some families choose to have one parent stay home to care for children. Whatever the reason, surviving on one salary can be challenging. But by taking advantage of income tax and estate planning strategies, its possible to keep more of those hard-earned dollars in your pocket, says Myron

Knodel, director of tax and estate planning at Investors Group.

Are you selfemployed?

In a two-parent family, the sole income earner can look for opportunities to pay the non-working spouse a reasonable salary. Thats possible if youre selfemployed and your spouse directly assists you in the business, such as keeping records and looking after correspondence. A good example is a commissioned salesperson who has a lot of paperwork and scheduling, Knodel says.

Their spouse can fulfill those duties from their home. The downside is you now have to contribute to the Canada Pension Plan. That could be an additional cost but the upside is your spouse now has a salary for that year, which will add to their pension benefits under the CPP when they eventually retire, he says.

Childrens education, tax deductions, credits

Take maximum advantage of the Registered Education Savings Plan and receive a 20% Canada Education

Savings Grant. Contributing the annual maximum of $2,500 per child will generate a $500 grant and if your family income is low, you may also be eligible for additional grants and a learning bond. No matter your family situation, be sure to take advantage of deductions and credits for things such as child care expenses and fitness costs. The Universal Child Care Benefit program issues a taxable $100 monthly payment to families for each child under the age of six. In a two-income family, its automatically taxable

in the hands of the lowerincome spouse but in a single-income family you can have that benefit taxed in the hands of the child, which can provide tax savings, Knodel says.

Estate planning

Consider the creation or updating of a testamentary trust to ensure you have control over how your estate is passed on to your children. Likewise, there are benefits to having any inheritance you expect to receive left within a testamentary trust to you and your children because the income earned by the trust can be allocated

and taxed in the hands of the kids, Knodel explains. Contributing to a Registered Retirement Savings Plan requires a plan to pass on this major asset in the event of death and there can be substantial benefits to having a minor dependent child designated as beneficiary. As part of any estate plan, life and disability insurance needs to be considered, even where you have a spouse not working outside the home because their absence could result in additional costs to you and your family in the event of their death or disability, Knodel says.