News & Views Articles
Market Volatility
The 2007 Federal Budget and Your Financial Plan
Financial Items Every Canadian Should Have Checklist
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Market Volatility
This fall, the markets have experienced large drops in price with some small rebounds. The volatility in the market has been caused by a number of things but primarily the cause is due to the U.S. sub-prime lending industry meltdown. Sub-prime lending is a general term that refers to the practice of making loans to borrowers who do not qualify for the best market interest rates because of their deficient credit history. Sub-prime lending is risky for both lenders and borrowers due to the combination of high interest rates, poor credit history, and murky financial situations often associated with sub-prime applicants. A steep rise in the rate of sub-prime mortgage foreclosures has caused more than two dozen sub-prime mortgage lenders to fail or file for bankruptcy along with a downturn in the housing sector in the US and the US economy in general.
That being said, there are great opportunities in the marketplace when this occurs to buy. It is also a time to not panic and hold tight in the market place. It is important to remember that the majority of folks are invested for the long-term and that this market drop is just a bump in the road. If you were to look at the markets over the past 10 years, you will see a general trend up in the markets.
Review your portfolio to ensure that your money is spread across different types of assets. This is the best way to reduce investment risk. If market volatility makes you nervous, it probably means you're not diversified enough or that your investments are mismatched with your tolerance for risk.
The 2007 Federal Budget and Your Financial Plan
The 2007 budget has many items that could affect your financial plan and present additional savings and investment opportunities. Below is a quick overview of the changes that may affect your financial plan.
New Child Tax Credit: A new $2,000 child tax credit will provide up to $310 of tax relief per child under 18.
Spousal and Other Amounts: The government increases the spousal and dependent amounts to match the basic personal amount for families with only one income. This will provide up to $209 of tax relief for a supporting spouse or single taxpayer that is supporting a child or relative.
Registered Education Savings Plan (RESP): The lifetime RESP contribution grows to $50,000 from $42,000, and the annual contribution amount of $4,000 has been eliminated. The government will increase the amount of annual contributions eligible for the 20% Canada Education Savings Grant to $2,500 from $2,000. RESP eligibility requirement has also been relaxed to allow qualification for part time studies.
Age Limit for Maturing Retirement Plans: Seniors will now have until age 71 instead of age 69 to convert their Registered Retirement Savings Plans to a Retirement Income Option.
Registered Disability Savings Plan (RDSP): The RDSP, expected to debut in 2008, will help secure the financial future of children who have severe disabilities. Parents or guardians of such children can contribute to an RDSP and receive matching contributions from a Canada Disability Savings Grant of 100%, 200%, or 300%, depending on family income. The RDSP is based on the existing RESP model.
Lifetime Capital Gains Exemption: The lifetime capital gains exemption for small businesses, farmers, and fishers is increased to $750,000 from $500,000.
0% Capital Gains on Donations: Those who wish to donate publicly traded securities to a private foundation will no longer have to pay capital gains tax.
If you would like further information on these topics or to review your financial plan, please contact one of our Wealth Management Representatives.
*** All of the above issues have received Royal Assent but may not necessarily be implemented
Financial Items Every Canadian Should Have
- A Written Financial Plan
- This will provide a road map to ensure that you are on track to achieving your goals
- A Will and Estate Plan
- A will is designed to allocate your estate upon your death
- Living Will
- A living will ensures that your health and personal care wishes are followed, even when you are unable to express them verbally
- Power of Attorney
- Allows someone you designate to act on your behalf to handle your financial affairs
- Pay Yourself First
- Set up a Pre-Authorized Contribution (PAC) on a regular basis into one of our investment products. Registered or Non-Registered available
- Registered Retirement Savings Plan
- Benefits of an RRSP – immediate tax reduction and tax deferred growth
- Registered Education Savings Plan
- Tax deferred method to save for child’s education. Government grant of 20% on first $2500 contributed per year.
- Emergency Savings
- Prudent rule of thumb is 3 months worth of income set aside in case of emergency
- Make more frequent mortgage payments
- Weekly payments pay the same amount over a whole year as monthly but repay the principal earlier, resulting in lower interest costs.
- Insurance – Health, Life, Disability and Credit
- Insurance is very important in the overall financial health of any family
- Credit – Get it while you don’t need it
- It is often easier to get credit while you are employed. However it is usually when you lose your job or an emergency happens that you really need credit and the financial institution may not want to lend you any. A personal line of credit is one option.
If you would like further information regarding any of the above items, please click here to contact us.
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