STAND UP AND PROTECT YOUR MONEY

mark-article1Mark Zlotnik wrote an article about strategies to guarantee your income for life. The article was recently published in the Business in Vancouver newspaper. Here is the text from that article:

A person stands tallest when they have financial stability. Having money set aside, a plan for the future and income to make dreams come true, are goals I’ve taught my kids to strive for. Achieving them prevents a slouch from creeping into our stance.

Right now however, securing this confidence is a tough task. The world wide financial crisis has left many of us crouching, hoping to avoid getting caught in the crossfire. But hiding behind a tree, or lying low, can’t go on forever. Sooner or later, if one wants to achieve that sought after stability, we have to stand up, pick a path and take it.
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ARE WE SET TO ROCK?

As investors, we all know that the ideal strategy is to sell out of the market before it goes down, then reinvest just as it begins to go up. However, as good as this sounds, in reality this strategy is impossible to execute. How do we know when to sell, and when to buy? There’s an old Wall Street saying that nobody rings a bell at the top of the market, or at the bottom.

09-spring-p1-chart

After a sharp decline in the market, we naturally want to sell to avoid the potential for further drops in our portfolios. Not only does that lock in our losses, but it also raises the question about when do we reinvest again? Historically, there have been no indicators that have consistently predicted the direction of the market. Even the economy is not a reliable predictor as it often rebounds months before an economic recovery is evident.
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STOP LOSS

You’ve worked hard and spent time planning for an enjoyable retirement. But what will happen to your great plans if you have a heart attack or stroke, or are diagnosed with cancer today or in a few years from now? How will your lifestyle be affected? What will happen to your savings? What will happen to your family and your future?

09-spring-p2-chartWe all like to think it won’t happen to us, but cancer, heart attack and stroke are more common that we think.

While our chances for recovery are quite good, the costs associated with recovering can be quite high. Things like out of pocket medical and other expenses, or alternative treatments, can cost tens or even hundreds of thousands of dollars.
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WHY DID I GET A T3 TAX SLIP FOR INCOME I DIDN’T RECEIVE?

09-spring-p3-calculatorIf you are like most investors, this can be confusing.

Whether you receive a cash distribution from your mutual fund, or leave it invested within your mutual fund, the investments held within in your fund’s portfolio may have still generated taxable income during the year.

Depending on how your mutual fund is invested, the income generated can be:

Capital gains, from when the portfolio manager makes changes within your fund’s portfolio, and sells securities that result in a profit. Only 50% of the capital gain is included in income. Capital losses are not reported, but do offset capital gains within the fund.

Dividends, from companies that distribute part of their earnings, results in a taxable amount that is first ‘grossed up” to produce a taxable income total, then the tax is reduced by a dividend tax credit. (This rather complicated calculation is designed to reflect that the corporation has already paid tax on its profits.)
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REGISTERED RETIREMENT INCOME FUND (RRIF) WITHHOLDING TAX

Ever wonder why the income you receive from your RRIF can change, even when the amount you withdraw each year remains the same?

While there is no minimum age for a RRIF, you must convert your Registered Retirement Savings Plan (RRSP) to a RRIF by the end of the year in which you reach age 71. Once you convert your plan, Canada Revenue Agency then mandates a minimum annual payment that you must take from your plan each year.

That minimum payment is a percentage based on your age and the value of your investments on January 1 of each year.
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