Here are the various ways you can fund your RRSP account:

1: Pre-authorized debit (PAD): If we have your banking information on file, the funds can be taken directly from your chequing account. PADs take a few extra days to set up, but we can use this method right up until deadline day. As long as the request is submitted by the deadline, the investment companies will code the purchase as a first 60-day contribution, even if the funds come out of your account afterwards.

2: Cheque: You can mail or drop a cheque off to our office.

3: Bill payment (nominee accounts only): If you have a Nominee RRSP, you can fund your account via bill payment through your financial institution’s online banking platform. The payee is Fundex Investments and the account # will be your RRSP account number (it starts with an N and contains 9 digits).

Signing your contribution form is easier than ever. With our improved electronic consent (e-sign) procedure, you can now consent using your phone in as little as 30 seconds and without the need to print. Contact us anytime for more information.

This information is provided for general information purposes only. It does not constitute professional advice. Please contact a professional about your specific needs before taking any action.

The post Funding Your RRSP: What Are Your Options? appeared first on Smof Investment Manager, LLC.

Further downside risks include the U.S. elections, global trade tensions, aging demographics, and technological disruption. 

However, no two economic cycles follow the exact same path. For example, despite weaker corporate earnings, global equity markets showed renewed strength last year, and with several central banks cutting rates in recent months to encourage business activity, this may be a longer than usual “late-stage”.   

We compiled 20 charts that summarize the economic and financial picture for 2019 and 2020:

1: 2019 Equity returns were strong, more than recovering from the 2018 pullback 
After a turbulent finish in 2018, markets rebounded across the board in 2019 to end the decade on a strong note.  Here are the 1, 5, and 10 year returns for the major indexes:

2 & 3: TSX (Canadian Market) and S&P 500 (U.S. Market) sector returns
Last year, the top-performing Canadian sectors were Information Technology, Utilities, Industrials, Materials and Financials. Overall, returns for the 11 S&P/TSX sectors were strong, except for Health Care. This sector declined 10.9%, led by the “return to earth” performance of many of the previous year’s “high-flying” cannabis stocks.  One of the common themes across the best-performing sectors was the market favouring stocks that look like bonds (high-yielding sectors such as Utilities and Financials).   

For the S&P 500, the strongest returns in 2019 were in the Information Technology, Utilities, Industrials, Materials and Financials sectors. The wide gap (75% for the TSX and 40% for the S&P 500) between the best and worst performing sector makes a strong case for diversification.  

4: U.S. equity valuations to end 2019 were slightly above the historical average
The chart below tracks various valuations methods for the S&P 500. You can read more about the P/E ratio and expected market returns in Anthony’s article, New Decade, New Expecations.

5: Economic Report Card
From RBC Global Asset Management (RBC GAM), here is an overview of recent positive and negative developments as 2019 wound down, as well as some “interesting” items that may end up in positive or negative territory when the dust settles.

6 & 7:  Most countries are exhibiting late–stage market signals
Another chart from RBC GAM. A gauge of various economic metrics suggest the U.S. is most likely in a “late cycle” phase. 

Fidelity’s chart below presents a similar case. Most countries are firmly in-between the expansion and contraction phases. 

8 & 9: Global GDP growth slowed as expected in 2019
Last year, we speculated a reversion to about 2.0% in 2019 was a likely outcome. Actual Q3 year-over-year growth was 2.1%. Looking to 2020, the U.S. economy could see a bump if any of the economic headwinds (for instance, the U.S.-China trade dispute) were removed, with additional Quantitative Easing (QE) or with a continued “lower for longer” rate strategy at the Fed.

The Purchasing Manager’s Index (PMI – measure of manufacturing strength) data shows that only a handful of global economies continue to operate in expansion mode. 

10: U.S. unemployment hit lowest level since the late-60s
Unemployment hit a 50-year low in 2019. Persistent factors limiting labour force growth (baby boomers retiring, tight immigration policy, etc.) remain. Wage growth also ticked upward from 3.2% in November 2018 to 3.7% in November 2019. 

11: Inflation was stable 2019, but expect an uptick in 2020
U.S. inflation, measured by the personal consumption deflator, dropped from 2018 levels (1.9%) and sat at 1.6% as of November 2019. Rising wages and lowering unemployment have not impacted inflation as one might expect. The U.S. Federal Reserve (the Fed) will likely continue its “lower for longer” rate strategy to stimulate inflation up toward the Fed’s 2.0% target.

12: U.S. Central Bank changes course, lowering key rate 
After slowly raising rates the last few years, the Fed and other central banks around the world made an abrupt 180 in 2019 and cut their key rates. Global Central Bank activity could be described as “over-reactionary” in 2018, as tightening effects helped lead markets downward to end the year. 2019 saw a reverse, with nearly 40% of central banks easing throughout 2019. 

13: Volatility during U.S. election primaries is often followed by strong returns
Historically speaking, whether a Democrat or Republican is elected President has had little bearing on market results. However, investors who chose to ride out the volatility experienced during primary season tend to be rewarded in the following 12 months.

14: Brexit will hurt the United Kingdom’s GDP…
Note that this chart was as of October 31, 2019. As expected, Boris Johnson was elected Prime Minister of the United Kingdom. The most likeliest Brexit outcome is Johnson’s “Soft” Brexit*, which would still negatively impact the U.K.’s GDP. However, this outcome would still be superior to the “Middling” or the “Hard” Brexit scenarios.

*Editor’s Note: This week, parliament voted Boris Johnson’s “Withdrawal Agreement Act” into U.K. law. The U.K. is now set to leave the European Economic Union on January 31st.

15: …But international equities continue to offer long-term opportunities
Structural issues in Europe have resulted in lower valuations for European equities relative to the U.S. Historically, the U.S. and Europe have had alternating periods of outperformance.

16: Climate change’s first “corporate casualty”
2018 saw California wildfires run out of control, culminating with the so-called “Camp Fire” which caused ≈ $7 Billion in property damages, including the complete destruction of over 14,000 homes in November. Lawsuits ensued. The Pacific Gas & Electric Corporation (PG&E), under extreme financial duress due to the incoming lawsuits, filed for Chapter 11 Bankruptcy protection on January 29, 2019. PG&E is now widely cited as the first corporate casualty of climate change.

17: Broad diversification is a great risk-mitigator
2019 returns exceeded most analysts’ expectations and there is reason to be cautiously optimistic as we look ahead to 2020. With valuations for many assets near record highs, a well-diversified investment portfolio can help to maximize returns and mitigate risks as they occur.  

18: Intra-year declines happen every year, don’t panic!
History has shown that a large majority of calendar years see at least one market pullback of 5% or more. Last year was a perfect example of this, with the S&P 500 finishing up 29%, but declining 7% in May. It is generally a good idea to ride out the volatility, as markets always rebound over time.

19 & 20: Bull (rising) markets are longer and stronger and last longer than bear (declining) markets
Going back to the mid-1950s, the average bull market gain has seen the TSX gain 129% with an average length of 54 months, while the average bear market sees the TSX drop by 28% while lasting only 9 months. As we can see, bull markets last longer and more than make up for their preceding bears. 

Using data going back to The Great Depression, we see that the average S&P 500 bull market is also 54 months and the average total return is 164%, whereas the average bear market lasts 22 months but sees a 42% drop. Once again, the average bull market lasts longer and gains more than the preceding bear market lasts & drops.  

Sources: Capital Group, Fidelity, JP Morgan, RBC GAM, NEI Investments, Mackenzie, Forbes.com, CI Investments, Sky News 

This information is provided for general information purposes only. It does not constitute professional advice. Please contact a professional about your specific needs before taking any action.

The post 20 Charts for 2020 appeared first on Smof Investment Manager, LLC.

You may have read our Back to Basics article about RRSP and RESP.  

If you have a question about TFSAs that was not covered off in our FAQs section, don’t hesitate to contact us. 

Who Will Make Best Use of an TFSA? 

Generally speaking, you will benefit from a TFSA if you need a tax-sheltered way to save money for use in the short-term (think of down payment savings in addition to your RRSP Home Buyers Plan, or an emergency / vacation fund), if your working income is the same or lower than you anticipate your retirement income to be, or if your annual savings exceeds your annual RRSP space. 

What It Is and Is Not 

A Tax-Free Savings Account (TFSA) is a registered account structure. This means the Canada Revenue Agency keeps an annual track of contributions and withdrawals.  

A TFSA is not a basic savings account. You have many options within a TFSA structure. 

Similar to an RRSP, think of a TFSA as a shopping basket and the various investment options as different types of groceries. Within your basket, you can add multiple different groceries (investments) to your basket: stocks, bonds, mutual funds, ETFs, GICs, investment savings accounts, etc. Not all investments are TFSA-eligible, but investors can choose between many different options, or a blend thereof, within their specific appetite for risk. 

Dual Canadian/U.S. citizens – note that the IRS doesn’t recognize the TFSA as a tax-sheltered account structure. As such, we generally advise dual citizens against the use of a TFSA, as it adds an element of complexity and cost to U.S. tax returns. 

How Does a TFSA Work? 

• All adult-aged Canadian citizens and residents generate new TFSA contribution space each year.
• For 2020, $6,000 of contribution space was added for all Canadian adults.
  
• There is no tax savings on contributions. You contribute after-tax money.
  
• Like an RRSP, money invested in a TFSA grows tax-free.
  
• Unlike an RRSP or RRIF, money redeemed is not subject to any taxation.
  
• Funds redeemed are added back to your TFSA limit on January 1st of the next year.

Consider Jasmin, 36 years of age. She maximizes her TFSA space annually. She has contributed $69,500 to her TFSA and it has grown to $75,000. In late-November 2020, Jasmin wishes to redeem her entire TFSA to fund the down payment on a home purchase that closes in February of the following year.  

By redeeming the $75,000 in November, the entire $75,000 (not just the original $69,500 she contributed) will re-open on January 1, plus her new TFSA space for that following year. If she waits until mid-January, a bit closer to the home closing date, that $75,000 of space will be locked until the following January 1, and she’ll only be able to maximize the newly generated space. 

Frequently Asked Questions 

Question: I have contributed above my lifetime TFSA limit. What are the consequences and what do I do?
Answer: Unlike with the RRSP, there is no “buffer” over-contribution amount. If you over-contribute, you will have to pay a penalty of 1% per month on any excess. This 1% per month will add up fast, so if you even think you may have over-contributed, you’re better off investigating right away. 

Question: What is the current lifetime TFSA contribution maximum? 
Answer: If you are the age of majority in your province of residence since 2009, have been a Canadian resident the entire time, and have never contributed to a TFSA, your 2020 contribution limit is $69,500. We can help to determine your contribution limit if one or more of these stipulations does not apply to you (for instance: turned 18 in BC in 2014; already have a TFSA and have contributed; lived in Canada for some but not all years since 2009). 

Question: What happens to my TFSA space if I don’t use it? Do I lose this space?
Answer: No. Any contribution space that you do not use is carried forward indefinitely. 

Question: How much tax do I pay when I take money from my TFSA?
Answer: You don’t pay any tax on redemptions, or on any other aspect of the TFSA. 

Question: What about the growth in the TFSA. Surely I must have to pay some kind of tax?
Answer: No. This is truly about as straightforward as it gets. Growth is entirely tax-free. There are some exceptions to this rule but generally the exceptions apply to “professional investors”.  

Question: How many TFSAs can I have?
Answer: You can have as many accounts as you want, provided your aggregate contributions do not exceed your lifetime TFSA contribution limit. 

Question: How do I find my TFSA Contribution Limit?
Answer: You can get your “as of January 1st” TFSA space via the CRA website, but the CRA tabulates contributions for a given year once all financial institutions have uploaded contribution and withdrawal data. This means the CRA website can inaccurately reflect your true space in early months of a calendar year. 

This information is provided for general information purposes only. It does not constitute professional advice. Please contact a professional about your specific needs before taking any action.

The post Back To Basics: Tax-Free Savings Account (TFSA) appeared first on Smof Investment Manager, LLC.

Before we begin, we would like to extend our sincere wishes for a happy new year to you and your family. We would also like to thank to you for your continued trust in us and for the opportunity to assist you in working toward your financial goals. Should you have any questions about your investments or the market outlook for the coming year, please remember that we are just a phone call or e-mail away. 

The last 10 years saw unprecedented change in the wealth management industry. Investors and advisors had to quickly adapt to new products, more regulation, and improved technology. We wish to highlight four major themes in our industry that will contrast this decade with the last one. 

1. Returns will likely be lower, but still positive 

In 2010, Canadian and U.S. stock markets were just starting to rebound from the lows of the financial crisis. Today, these markets are at records highs and most market observers predict that returns for the next decade will not be as strong. Blackrock, one of the world’s largest assets managers, projects a return of 4% for a balanced portfolio in the 2020s, compared to 7% for the 2010s.   

This news should not come as a major surprise. Let’s look at the price/earnings (P/E) ratio, which is the most common metric for valuating stocks and markets. A P/E of 10 means the stock price is trading at 10 times the company’s annual earnings per share. The 25-year P/E average for the S&P 500 is about 16x earnings. In January 2010, the S&P 500 traded at 14x earnings and at the bottom of the financial crisis it traded at 9x. 

Today, it is currently trading at around 18x earnings.   

The chart below tracks the relationship between P/E ratios and historical 5-year rates of return. Simply put, the higher the valuation, the lower the projected 5 or even 10-year return. At current valuations,  history suggests a 5-year annualized return of 5.3% for the S&P 500. 

2. Investors will pay lower fees for their investments 

A positive theme for the next decade is that investors will pay less fees than ever before. 

The Management Expense Ratio (MER) is the total amount of fees investors pay to the fund manager (RBC, CI, BMO, Fidelity, etc.) and to the advisor. When I started working at Smof Investment in 2009, the MER for a growth-oriented portfolio was approximately 2.5% or more. With a 2.5% MER, a mutual fund whose basket of stocks returns 9% for the year results in an after-fee return of 6.5% to the investor. 

Thankfully, due to increased regulation and fiercer competition, fees have come down substantially. Today, MERs are commonly between 1.2% to 2.2% or 0.9% to 1.9% for higher net worth investors. Using the same example as above, a mutual fund whose basket of stocks returns 9% now results in a return of between 7% and 8% to the investor.  

3. A multi-factor strategy will be incorporated to portfolio construction

Today, most industries offer more diverse and customized product options than ever before. The investment industry is no different.  

An investment trend that has already started – but will likely grow in popularity in the next few years – is the multi-factor portfolio. In addition to well–known factors such market cap, value or dividend, there are now investment funds with volatility, quality and momentum factors built in.   

These additional factors will increase customization and risk-management in a portfolio and facilitate an advisor’s ability to tie investments to market cycles. 

For even further diversification and customization, portfolios will also be built with a mix of passive and active mandates. Passive investments aim to mimic the holdings and returns of a certain index (like the TSX or S&P 500) and are known for their low fees. Active funds are the mutual funds we are most familiar with. These are run by a portfolio manager and aim to meet or exceed the return of their respective benchmark index and whose holdings may look very different than the index. Incorporating both passive and active investments in a portfolio has the potential to increase diversification and lower risk. 

4. Technology will improve the user experience  

In the last several years, our dealership has launched the following initiatives:

• Nominee accounts that simplify administration for switches, transfers, redemptions and purchases 
• The ability to self-fund your account by making a bill payment in online banking 
• Improvements to the Wealthview online portal 
• Consenting electronically (digital signatures) to account changes 

These measures are aimed to simplify, automate, or accelerate a client’s ability to transact on their accounts. The next decade will build on these ideas and see more innovations aimed toward improving the client experience while streamlining administration.
 

Sources: Blackrock, J.P. Morgan, Fidelity 

This information is provided for general information purposes only. It does not constitute professional advice. Please contact a professional about your specific needs before taking any action.

The post New Decade, New Expectations appeared first on Smof Investment Manager, LLC.

Generally, each Friday we send out a weekly brief with market numbers and supporting economic data. We have concluded that a weekly reporting of the “economic noise” is not insightful for most investors.

Moving forward, we’ll simply report the weekly numbers and limit the economic updates to a quarterly basis. We will continue to send out blogs and newsletters on major events and will also incorporate planning related articles.

Here is a tentative list of articles we’ll be reporting on each year: 

• January E-Newsletter  
• Cash Monitor (recap of top rates for GICs and investment savings account) 
• Federal Budget 
• Provincial Budget 
• April 30th Tax Tips 
• Central Bank Rate Announcements 
• Q2 Recap / Mid-Year Update 
• RESP Funding Reminder 
• Election Results 
• September Q3 E-Newsletter  
• Retirement Article 
• Market Corrections (10% or more) 
• Year-End Tax Planning
  

If you have any questions or comments, please let us know. We welcome any feedback you may have.

This information is provided for general information purposes only. It does not constitute professional advice. Please contact a professional about your specific needs before taking any action.

The post New Blog Schedule appeared first on Smof Investment Manager, LLC.