Greetings.
Stock markets are up over 5% today, 20% in the last couple of weeks. What does it mean? Let me write about what we do know, and what we don't know.
We do know--
--That investors--both individual and institutional--have cash they want to grow by investing in the stock market. A 5% gain on the markets today proves that investors will put money back into the market when they find a trigger that creates optimism. This need to grow money will be one factor that will bring the recovery in stock markets.
We don't know--
--Whether the last couple of weeks are the beginning of the recovery. They might be, but we don't know. Just as the end of bull [good] markets cannot be spotted in advance, the end of bear [bad] markets is not seen in advance. It's only in the rear-view mirror that we will know that the bear market hit its bottom on such-and-such a date.
We do know--
--That investors who wait for a sign that the bear market is over will miss the start of the recovery. There are two reasons for this: [1] The end of a bear market is not announced in advanced. [2] Growth in the stock market happens on just a few days when the market makes a powerful push upwards. Let me elaborate on this second point because it is very significant to understanding how stock markets really work. Consider this--
--Take the example of the US stock market [S&P 500] between 1993-2007 [that's 15 years or 5475 days]. An investor who stayed invested in that market for those 5475 days grew his money at 10.5% per year. But the remarkable thing is this: if the investor missed the best 30 days during those 15 years, he would have grown his money at only 2.2% per year. And if he missed the best 60 days, his return was negative!
By far, most days on the stock market are inconsequential. The growth in the market is delivered only on those rare days. If you miss those days, you miss the growth. So for money you've already invested, patience and staying invested are essential. If you have cash on the sidelines that you want to grow? Take advantage of this bear market by investing before it's over, not after.
Cheers!
Tom
Monday, March 23, 2009
Wednesday, February 18, 2009
March 2, 2009 is the RRSP Deadline
Only 15 days to the RRSP deadline for contributions to your RRSP that you can deduct from your 2008 income.
Time is running short. If you need to consider topping up your RRSP, please call me for an appointment soon. The last week in February is very busy and I would hate to be unable to accommodate your meeting request. When you come, we can discuss investment options from the safe option to the growth option and everything between.
RRSP investing for 2009
You can also consider taking advantage of the bear market by setting up a monthly, automated investment for dollar-cost-averaging [DCA] for your 2009 RRSP contribution. This would see you buy into growth investments bit by bit without the worry of trying to pick the bottom of the market.
A new idea for this year
Given the merits of DCA, some fund companies have developed an interesting option, the "DCA fund." You can contribute to this fund now before the March 2nd deadline and collect your RRSP contribution receipt for 2008. As a DCA fund, you are buying a safe, interest-earning investment that then moves your money into balanced or growth investments bit by bit over the year ahead. This works well for clients who need to make their RRSP contribution before the deadline but don't want to invest all at once into growth investments.
These are just some of the ideas I have.
I can be reached at 403-229-0128 or by replying to this email.
Cheers!
Tom
Time is running short. If you need to consider topping up your RRSP, please call me for an appointment soon. The last week in February is very busy and I would hate to be unable to accommodate your meeting request. When you come, we can discuss investment options from the safe option to the growth option and everything between.
RRSP investing for 2009
You can also consider taking advantage of the bear market by setting up a monthly, automated investment for dollar-cost-averaging [DCA] for your 2009 RRSP contribution. This would see you buy into growth investments bit by bit without the worry of trying to pick the bottom of the market.
A new idea for this year
Given the merits of DCA, some fund companies have developed an interesting option, the "DCA fund." You can contribute to this fund now before the March 2nd deadline and collect your RRSP contribution receipt for 2008. As a DCA fund, you are buying a safe, interest-earning investment that then moves your money into balanced or growth investments bit by bit over the year ahead. This works well for clients who need to make their RRSP contribution before the deadline but don't want to invest all at once into growth investments.
These are just some of the ideas I have.
I can be reached at 403-229-0128 or by replying to this email.
Cheers!
Tom
March 2, 2009 is the RRSP Deadline
Only 15 days to the RRSP deadline for contributions to your RRSP that you can deduct from your 2008 income.
Time is running short. If you need to consider topping up your RRSP, please call me for an appointment soon. The last week in February is very busy and I would hate to be unable to accommodate your meeting request. When you come, we can discuss investment options from the safe option to the growth option and everything between.
RRSP investing for 2009
You can also consider taking advantage of the bear market by setting up a monthly, automated investment for dollar-cost-averaging [DCA] for your 2009 RRSP contribution. This would see you buy into growth investments bit by bit without the worry of trying to pick the bottom of the market.
A new idea for this year
Given the merits of DCA, some fund companies have developed an interesting option, the "DCA fund." You can contribute to this fund now before the March 2nd deadline and collect your RRSP contribution receipt for 2008. As a DCA fund, you are buying a safe, interest-earning investment that then moves your money into balanced or growth investments bit by bit over the year ahead. This works well for clients who need to make their RRSP contribution before the deadline but don't want to invest all at once into growth investments.
These are just some of the ideas I have.
I can be reached at 403-229-0128 or by replying to this email.
Cheers!
Tom
Time is running short. If you need to consider topping up your RRSP, please call me for an appointment soon. The last week in February is very busy and I would hate to be unable to accommodate your meeting request. When you come, we can discuss investment options from the safe option to the growth option and everything between.
RRSP investing for 2009
You can also consider taking advantage of the bear market by setting up a monthly, automated investment for dollar-cost-averaging [DCA] for your 2009 RRSP contribution. This would see you buy into growth investments bit by bit without the worry of trying to pick the bottom of the market.
A new idea for this year
Given the merits of DCA, some fund companies have developed an interesting option, the "DCA fund." You can contribute to this fund now before the March 2nd deadline and collect your RRSP contribution receipt for 2008. As a DCA fund, you are buying a safe, interest-earning investment that then moves your money into balanced or growth investments bit by bit over the year ahead. This works well for clients who need to make their RRSP contribution before the deadline but don't want to invest all at once into growth investments.
These are just some of the ideas I have.
I can be reached at 403-229-0128 or by replying to this email.
Cheers!
Tom
Tuesday, February 10, 2009
MAKING SENSE OF THE MARKETS
...................................................................................................................
The media currently love to talk about how we might be headed into another depression, it's a terrible time to invest, and that current events are going to unfold as they did in the 1930s. I wanted to address this briefly.
What we've heard?
The "dirty thirties" were a terrible time to be invested in the stock market because there was a depression going on. Let's examine this claim
The background and the facts--
The Depression was triggered in part by the collapse of the stock market from 1929 - 1931. The performance of the New York stock market at that time--as measured by the S&P 500-- looked like this:
1929....-10%.....[this has been rounded so read it as a drop of less than 10%: i.e. 0 to -10%]
1930....-30........[-20% to -30%]
1931....-50
Needless to say, this drop was a severe blow to investors and gives one pause to think of how it could have happened. It makes for a fascinating story but let me give you a brief summary: there were two major things at play.
1. The stock market in the 1920s was influenced, literally, by a handful of wealthy families. As a group, they met over cigars to engage in stock market manipulation on a grand scale and, sadly, no one stopped them. They helped push stock market prices to irrational levels to feed their greed.
2. The small investors in the stock market routinely invested--it's hard to believe now--ten dollars where nine of those were borrowed!
So you can see that the stock market then was a house of cards. And when the cards fell, not only were investors faced with large losses, the small investors were left with large debt.
What is interesting, for the purpose of this newsletter, is the part you don't hear about now, namely, what happened to the stock market in the aftermath? Here are the numbers--
1932....+20%
1933....+60
1934....-10
1935....+50
1936....+40
1937....-40
1938....+40
1939....-10
sum...+150%
Conclusion--even the worst bear market was followed by a strong bull market. And there is an historic correlation: the worse the bear market, the stronger the bull market that follows.
My recommendations--
1. Bear markets are to be tolerated. Be patient, hold on to your stocks, the bull market is coming.
2. Investors who have the courage to buy in a bear market, when no one wants to buy, have been very well rewarded.
To repeat what I've said in previous newsletters, I don't know when the next bull market will begin. But for people who are invested--or who now buy more--and then are patient, the timing won't matter. And waiting for the end of the bear market before investing is like waiting for the wind to change direction.
Cheers!
Tom
Tom Buck M. Ed CFP
Assante Financial
403-229-0128
PS--one of the most interesting documentaries I have every watched is shown periodically on PBS as part of the series, "American Experience." The show is titled The Crash of 1929. It can be watched online at--
http://www.pbs.org/wgbh/amex/crash/program/index.html
The media currently love to talk about how we might be headed into another depression, it's a terrible time to invest, and that current events are going to unfold as they did in the 1930s. I wanted to address this briefly.
What we've heard?
The "dirty thirties" were a terrible time to be invested in the stock market because there was a depression going on. Let's examine this claim
The background and the facts--
The Depression was triggered in part by the collapse of the stock market from 1929 - 1931. The performance of the New York stock market at that time--as measured by the S&P 500-- looked like this:
1929....-10%.....[this has been rounded so read it as a drop of less than 10%: i.e. 0 to -10%]
1930....-30........[-20% to -30%]
1931....-50
Needless to say, this drop was a severe blow to investors and gives one pause to think of how it could have happened. It makes for a fascinating story but let me give you a brief summary: there were two major things at play.
1. The stock market in the 1920s was influenced, literally, by a handful of wealthy families. As a group, they met over cigars to engage in stock market manipulation on a grand scale and, sadly, no one stopped them. They helped push stock market prices to irrational levels to feed their greed.
2. The small investors in the stock market routinely invested--it's hard to believe now--ten dollars where nine of those were borrowed!
So you can see that the stock market then was a house of cards. And when the cards fell, not only were investors faced with large losses, the small investors were left with large debt.
What is interesting, for the purpose of this newsletter, is the part you don't hear about now, namely, what happened to the stock market in the aftermath? Here are the numbers--
1932....+20%
1933....+60
1934....-10
1935....+50
1936....+40
1937....-40
1938....+40
1939....-10
sum...+150%
Conclusion--even the worst bear market was followed by a strong bull market. And there is an historic correlation: the worse the bear market, the stronger the bull market that follows.
My recommendations--
1. Bear markets are to be tolerated. Be patient, hold on to your stocks, the bull market is coming.
2. Investors who have the courage to buy in a bear market, when no one wants to buy, have been very well rewarded.
To repeat what I've said in previous newsletters, I don't know when the next bull market will begin. But for people who are invested--or who now buy more--and then are patient, the timing won't matter. And waiting for the end of the bear market before investing is like waiting for the wind to change direction.
Cheers!
Tom
Tom Buck M. Ed CFP
Assante Financial
403-229-0128
PS--one of the most interesting documentaries I have every watched is shown periodically on PBS as part of the series, "American Experience." The show is titled The Crash of 1929. It can be watched online at--
http://www.pbs.org/wgbh/amex/crash/program/index.html
Sunday, February 1, 2009
2008 Year-end Statements
Greetings!
Year-end 2008 Statements will be arriving any day
The turbulent markets since September 2008 have caught the attention of all of us. Bear markets come along on average once in every four years. This one has been harsh and is reminiscent of what investors experienced in 2001, the mid-1980s and the mid-1970s. We should expect, then, that a snap-shot of your portfolio on December 31, 2008 may well be alarming.
As I have done in my regular newsletters to you, allow me to provide context and be encouraging-
--Bear markets are part of investing for growth and are always followed by recovery. Recovery often occurs suddenly.
--Only a portion of your portfolio is exposed to the volatility of growth investments.
--For growth, you own good businesses [i.e. TD Bank, not General Motors] which will benefit from the recovery. It is just a question of when the recovery will come, not if.
--My client portfolios have not been hurt nearly as much as the stock markets.
--Stock markets recover before the economy does.
--Your exposure to growth investments is, by design, meant to be long term. Further, your time horizon is old age--not retirement--so as to protect your money from the erosion of inflation throughout your remaining years. So you have time to wait for the recovery and, with patience, you will realize the growth that you need.
--As a measure of my confidence in the recovery, I have invested $80k of my own money since the bear market began [trying to behave like a Warren Buffett]. Should you have cash to invest for the long term, I encourage you to consider doing the same. We can talk about it.
A number of clients have come in for a review [and to discuss an appropriate Tax-Free Savings Account for them]. This has allowed a discussion to take place and for information to be shared that clients are not getting from the media. Clients have appreciated the information and been encouraged by it.
I welcome a visit from any of you. If we have not done a review for a year, then we are due to meet.
Finally, I have attached some interesting reading on market volatility and the behaviour of successful investors. I highly recommend that you read it, and would appreciate your feedback. You can find it on the net at--
http://www.nezperce.org/content/081024%20Davis%20Funds%20Wisdom%20ofGreat%20Investors.pdf
Thank-you for your patience.
Tom
PS--what statements are coming? You will receive statements from fund companies, from MRS and B2B Trust for any self-directed accounts and Assante will be sending a comprehensive statement [showing the mutual funds you own but not term deposits].
Year-end 2008 Statements will be arriving any day
The turbulent markets since September 2008 have caught the attention of all of us. Bear markets come along on average once in every four years. This one has been harsh and is reminiscent of what investors experienced in 2001, the mid-1980s and the mid-1970s. We should expect, then, that a snap-shot of your portfolio on December 31, 2008 may well be alarming.
As I have done in my regular newsletters to you, allow me to provide context and be encouraging-
--Bear markets are part of investing for growth and are always followed by recovery. Recovery often occurs suddenly.
--Only a portion of your portfolio is exposed to the volatility of growth investments.
--For growth, you own good businesses [i.e. TD Bank, not General Motors] which will benefit from the recovery. It is just a question of when the recovery will come, not if.
--My client portfolios have not been hurt nearly as much as the stock markets.
--Stock markets recover before the economy does.
--Your exposure to growth investments is, by design, meant to be long term. Further, your time horizon is old age--not retirement--so as to protect your money from the erosion of inflation throughout your remaining years. So you have time to wait for the recovery and, with patience, you will realize the growth that you need.
--As a measure of my confidence in the recovery, I have invested $80k of my own money since the bear market began [trying to behave like a Warren Buffett]. Should you have cash to invest for the long term, I encourage you to consider doing the same. We can talk about it.
A number of clients have come in for a review [and to discuss an appropriate Tax-Free Savings Account for them]. This has allowed a discussion to take place and for information to be shared that clients are not getting from the media. Clients have appreciated the information and been encouraged by it.
I welcome a visit from any of you. If we have not done a review for a year, then we are due to meet.
Finally, I have attached some interesting reading on market volatility and the behaviour of successful investors. I highly recommend that you read it, and would appreciate your feedback. You can find it on the net at--
http://www.nezperce.org/content/081024%20Davis%20Funds%20Wisdom%20ofGreat%20Investors.pdf
Thank-you for your patience.
Tom
PS--what statements are coming? You will receive statements from fund companies, from MRS and B2B Trust for any self-directed accounts and Assante will be sending a comprehensive statement [showing the mutual funds you own but not term deposits].
TFSA, the Tax-Free Savings Account--Part II
Hello again!
This letter is Part II of my information on the new TFSA, the Tax-Free Savings Account.
"With its ability to immediately shelter investment-related income from taxation, the TFSA should become an indispensable wealth planning tool for all Canadian investors," ---says Doug Carroll, Vice President, Tax & Estate Planning at Invesco Trimark.
I sent out Part I before Christmas and again a few days ago. Part II today is meant to sharpen your thinking on the TFSA and how it can be an opportunity for you. We are all used to paying tax on investment growth. We put money in a savings account and we have to declare the interest and pay tax. Or if we buy a mutual fund or stocks and bonds outside an RRSP or RESP, we will again receive investment growth that we have to pay tax on. The TFSA eliminates, forever, any tax on investment growth and thats what makes it exciting.
So you ask--"If I'm going to take advantage of a TFSA, what do I need to have to get going?" The answer is--
--money to invest. You can put in up to $5000 into a TFSA in 2009 either with a lump-sum or set up a monthly automatic PAC plan with as little as $50 per month. If you don't have any money but you do already have OPEN investments [i.e. investments outside an RRSP or RESP], you can transfer $5000 from your OPEN investment into a TFSA.
"So I have some money but should I be putting it in my RRSP or RESP [an educational savings plan for your kids]?
Yes, most people should contribute to their RRSP and RESP first, before setting up a TFSA. [If you're not sure you are "most people," then just ask me.]
"OK, so I have some money to put in a TFSA, so what should I invest in?
A TFSA can hold the same investments as an RRSP or RESP. So the question of what to invest in is the same as always and depends on--
--how long you are going to invest for.
--whether you want conservative investment returns, OR long-term growth.
Other things to consider--
--when you take money out of a TFSA, you can put in back into the TFSA but not until the following year. Therefore, a TFSA does not work as a short-term savings account where you are putting money in and out of the account regularly.
--the TFSA has one advantage: sheltering investment growth from tax. It follows, then, that the more growth you have in your TFSA, the greater the tax you save. Consider two investors each 50 years old. They each plan to put $400 per month into a TFSA for 15 years. The first investor puts his money into a conservative investment earning 4% [interest]. After 15 years, he will have $98,000 and will have saved $10,400 in taxes.* The second investor goes for growth at 8% per year [capital gains]. After 15 years, he will have $138,000 and will have saved $13,200 in taxes.**
Having said this, the foremost consideration for any investor is when he needs his money back from the TFSA: if he wants his money back in 3 years or less, the conservative investment approach is required.
*as compared to making the same investment outside a TFSA.
**remember that capital gains are taxed at a lower rate than interest income.
Bye for now,
Tom
Tom Buck, M. Ed. CFP
Certified Financial Planner
Assante Financial Management Ltd
#600, 1414-8th Street SWCalgary, AB T2R 1J6
TEL 403.229.0128
FAX 1.866.386.9776
This letter is Part II of my information on the new TFSA, the Tax-Free Savings Account.
"With its ability to immediately shelter investment-related income from taxation, the TFSA should become an indispensable wealth planning tool for all Canadian investors," ---says Doug Carroll, Vice President, Tax & Estate Planning at Invesco Trimark.
I sent out Part I before Christmas and again a few days ago. Part II today is meant to sharpen your thinking on the TFSA and how it can be an opportunity for you. We are all used to paying tax on investment growth. We put money in a savings account and we have to declare the interest and pay tax. Or if we buy a mutual fund or stocks and bonds outside an RRSP or RESP, we will again receive investment growth that we have to pay tax on. The TFSA eliminates, forever, any tax on investment growth and thats what makes it exciting.
So you ask--"If I'm going to take advantage of a TFSA, what do I need to have to get going?" The answer is--
--money to invest. You can put in up to $5000 into a TFSA in 2009 either with a lump-sum or set up a monthly automatic PAC plan with as little as $50 per month. If you don't have any money but you do already have OPEN investments [i.e. investments outside an RRSP or RESP], you can transfer $5000 from your OPEN investment into a TFSA.
"So I have some money but should I be putting it in my RRSP or RESP [an educational savings plan for your kids]?
Yes, most people should contribute to their RRSP and RESP first, before setting up a TFSA. [If you're not sure you are "most people," then just ask me.]
"OK, so I have some money to put in a TFSA, so what should I invest in?
A TFSA can hold the same investments as an RRSP or RESP. So the question of what to invest in is the same as always and depends on--
--how long you are going to invest for.
--whether you want conservative investment returns, OR long-term growth.
Other things to consider--
--when you take money out of a TFSA, you can put in back into the TFSA but not until the following year. Therefore, a TFSA does not work as a short-term savings account where you are putting money in and out of the account regularly.
--the TFSA has one advantage: sheltering investment growth from tax. It follows, then, that the more growth you have in your TFSA, the greater the tax you save. Consider two investors each 50 years old. They each plan to put $400 per month into a TFSA for 15 years. The first investor puts his money into a conservative investment earning 4% [interest]. After 15 years, he will have $98,000 and will have saved $10,400 in taxes.* The second investor goes for growth at 8% per year [capital gains]. After 15 years, he will have $138,000 and will have saved $13,200 in taxes.**
Having said this, the foremost consideration for any investor is when he needs his money back from the TFSA: if he wants his money back in 3 years or less, the conservative investment approach is required.
*as compared to making the same investment outside a TFSA.
**remember that capital gains are taxed at a lower rate than interest income.
Bye for now,
Tom
Tom Buck, M. Ed. CFP
Certified Financial Planner
Assante Financial Management Ltd
#600, 1414-8th Street SWCalgary, AB T2R 1J6
TEL 403.229.0128
FAX 1.866.386.9776
Friday, November 21, 2008
INTRODUCTION TO THE TFSA: Tax-free Savings Accounts
Tax-free Savings Accounts—How about some good news!
Greetings!
Two of the most “delicious words” in financial planning are “tax-free.” As of January 2, 2009, Canadians will have access to a TFSA [tax-free savings account]. The TFSA is the most exciting tax-saving opportunity for Canadians since the introduction of the RRSP. And, when properly used, there is simply no down-side to the TFSA.
"With its ability to immediately shelter investment-related income from taxation, the TFSA should become an indispensable wealth planning tool for all Canadian investors," says Doug Carroll, Vice President, Tax & Estate Planning at Invesco Trimark.
Allow me to cover the basic features of the TFSA below. With later newsletters, I will get into further details and planning opportunities.
Features of the TFSA—
-The account can be set up for any Canadian resident age 18 or over regardless of his or her income.
-The TFSA contribution is done with after-tax dollars [unlike an RRSP], but look—
-The investment income earned in the TFSA is tax-free and—
-Withdrawals from the TFSA are tax-free.
-You’ll be able to contribute up to $5,000 each year beginning in 2009 [the $5,000 contribution room will be indexed, or increased, each subsequent year].
-You can withdraw money at any time, tax-free, and then choose to “re-pay” your TFSA at any time in the future.*
Furthermore—the TFSA does not “replace” the RRSP or RESP, it supplements it; a spouse or parent can fund the contribution for the TFSA of a spouse or child; unused contribution room for a TFSA is carried forward to future years.
Here are just a few ways that tax-payers can make use of the TFSA—
-Save for a specific purpose like a renovation or recreation property, again with no tax on the investment income.
-Supplement retirement savings. In retirement, this will augment the tax-efficiency of producing retirement income.
See more examples at the very bottom under “Scenarios.”
In brief, what does the TFSA mean for investors? Beginning in 2009, any non-registered investments should be made in a TFSA within the limits allowed. And, once you’ve maximized your RRSP—or if you are in a low tax bracket—the TFSA becomes an efficient way to save additional monies for retirement or a child’s education without having to worry about tax on investment growth. The longer the time horizon for building up your TFSA, the more you will benefit from the tax-free compounding of investment growth. Finally, unlike an RRSP, when you withdraw monies from your TFSA there will be no tax.
I will be offering TFSA accounts in the new year that are free of administration and withdrawal fees. In the meantime, if you have any questions about TFSA accounts, see the supplementary reading provided below and then send me any unanswered questions.
Cheers!
Tom
Next newsletter: the RRSP versus the TFSA
Notes--
*For example, say you contributed to your TFSA and, after several years, it is worth $30,000. You can withdraw any or all of that money tax free and not lose the contribution room. So, if you withdrew $30,000 from your TFSA, you can put the $30,000 back at any time in the future. On top of this, you will receive your additional $5,000 [indexed] contribution room each year.
Supplementary reading—
Click on or enter the following links into the address bar of your browser—
1. Investor Q&A on the TFSA
http://www.advisormailout.com/Advisor/Home/1153/1685/images/TFSA%20Investor%20Q&A%20Final.pdf
2. Scenarios--how to take advantage of the TFSA
http://www.advisormailout.com/Advisor/Home/1153/1685/images/Scenarios.pdf
Greetings!
Two of the most “delicious words” in financial planning are “tax-free.” As of January 2, 2009, Canadians will have access to a TFSA [tax-free savings account]. The TFSA is the most exciting tax-saving opportunity for Canadians since the introduction of the RRSP. And, when properly used, there is simply no down-side to the TFSA.
"With its ability to immediately shelter investment-related income from taxation, the TFSA should become an indispensable wealth planning tool for all Canadian investors," says Doug Carroll, Vice President, Tax & Estate Planning at Invesco Trimark.
Allow me to cover the basic features of the TFSA below. With later newsletters, I will get into further details and planning opportunities.
Features of the TFSA—
-The account can be set up for any Canadian resident age 18 or over regardless of his or her income.
-The TFSA contribution is done with after-tax dollars [unlike an RRSP], but look—
-The investment income earned in the TFSA is tax-free and—
-Withdrawals from the TFSA are tax-free.
-You’ll be able to contribute up to $5,000 each year beginning in 2009 [the $5,000 contribution room will be indexed, or increased, each subsequent year].
-You can withdraw money at any time, tax-free, and then choose to “re-pay” your TFSA at any time in the future.*
Furthermore—the TFSA does not “replace” the RRSP or RESP, it supplements it; a spouse or parent can fund the contribution for the TFSA of a spouse or child; unused contribution room for a TFSA is carried forward to future years.
Here are just a few ways that tax-payers can make use of the TFSA—
-Save for a specific purpose like a renovation or recreation property, again with no tax on the investment income.
-Supplement retirement savings. In retirement, this will augment the tax-efficiency of producing retirement income.
See more examples at the very bottom under “Scenarios.”
In brief, what does the TFSA mean for investors? Beginning in 2009, any non-registered investments should be made in a TFSA within the limits allowed. And, once you’ve maximized your RRSP—or if you are in a low tax bracket—the TFSA becomes an efficient way to save additional monies for retirement or a child’s education without having to worry about tax on investment growth. The longer the time horizon for building up your TFSA, the more you will benefit from the tax-free compounding of investment growth. Finally, unlike an RRSP, when you withdraw monies from your TFSA there will be no tax.
I will be offering TFSA accounts in the new year that are free of administration and withdrawal fees. In the meantime, if you have any questions about TFSA accounts, see the supplementary reading provided below and then send me any unanswered questions.
Cheers!
Tom
Next newsletter: the RRSP versus the TFSA
Notes--
*For example, say you contributed to your TFSA and, after several years, it is worth $30,000. You can withdraw any or all of that money tax free and not lose the contribution room. So, if you withdrew $30,000 from your TFSA, you can put the $30,000 back at any time in the future. On top of this, you will receive your additional $5,000 [indexed] contribution room each year.
Supplementary reading—
Click on or enter the following links into the address bar of your browser—
1. Investor Q&A on the TFSA
http://www.advisormailout.com/Advisor/Home/1153/1685/images/TFSA%20Investor%20Q&A%20Final.pdf
2. Scenarios--how to take advantage of the TFSA
http://www.advisormailout.com/Advisor/Home/1153/1685/images/Scenarios.pdf
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