Crude Oil vs. TSX

While a recent spike in Crude Oil prices gives promise in the wake of a significant decline, it does not alleviate the turmoil amongst investors. In such a situation however, it is important to remain calm and to evaluate all of the surrounding factors within the market. It is the nature of the market to rise and fall, and as long as you remember the following, and manage your portfolio cautiously, there is no need to panic.

In light of recent drops, many people are under the impression it is an automatic statement of fact that Oil and the Stock Market move in lockstep. In the financial world we would call this a correlation of 1, meaning that both figures move in the same direction simultaneously. A Negative correlation would be -1, and would mean when stocks go up, commodity prices automatically move down. Interestingly, over time the TSX and Crude Oil have moved together, moved opposite of each other and had no relationship at all. (No relationship at all would be a correlation of 0). As shown in the charts below, the TSX on its own as well as Oil on its own, going back to 1977, have differed over time. This means that while there have been instances of reciprocity between Crude Oil and the TSX, such parallels are not always at play. In acknowledging this we must also acknowledge that there are many factors that can affect commodity prices, supply and demand being two of the most prominent. Eventually, over time, lower prices will likely self-correct and in turn we should not always forego volatile investments (the risk factor of the risk/reward mantra of investing). With this, we must maintain a neutral sentiment and watch closely for evolving industry trends, paying specific attention to all changes within the industry to ensure low impact on your portfolios.

 Summary: Should we be worried about the price of oil and the impact on our portfolio? 

While there are many factors to consider, some factors can be self-monitored to help ensure your collection of investments remain stable. At the current time, if you do the following, the answer is no, you should not hit the panic button. 

·        Follow a Pension Style of Investing (Investing over time)

·        Your personal situation has not recently changed

·        Maintain a well diversified portfolio

·        Try to avoid making emotional decisions

Want to chat further about this or your portfolio in particular, we are here and happy to discuss.

15 Money and Financial Planning Tips for 2015 - From Lise Andreana

I love the number 15 since my birthday falls on the 15th of the month and in 2015 I will reach a landmark birthday! Sssshhhhhh! From the perspective of time past, and with over 20 years of helping people to achieve their financial goals, it is easy to see those who have made their dreams a reality and those who have fallen short. The major difference between these two groups is habits. As 2015 kicks off, it is a good time to reflect on your financial goals and the habits you need to develop to achieve success. Here are 15 tips designed to improve your relationship with money in 2015.

1. Before taking on more debt or a large expense consider how secure your pay cheque is. Once a new cost like a bigger mortgage or a second car is taken on, it may be very hard AND expensive to scale back.

2. If you do not already have one, build up an emergency fund equal to at least three month's income. That way you will be prepared when the unexpected happens.

3. Avoid unnecessary fees and interest charges. Never carry credit card debt, the interest rate charges can exceed 20%. Those charges eat away at your ability to save for your important goals, like buying a home, saving for your children's education, and retirement. Pay your bills on time. Paying bills or credit cards even a few days late can affect your credit rating.

4. Does your employer offer a retirement savings matching plan? Many Canadians neglect to sign up for this free benefit. Take advantage of your employer's generosity, sign up and contribute to your employer's retirement matching plan. Typically these offer a $1.00 match for every $1.00 you contribute. Where else can you get a 100% return on your investment?

5. Top up your savings to RESPs, RRSPs and TFSA. Resolve to increase your contributions this year. By increasing your contributions by a mere 5% annually you can painlessly increase your overall savings.

6. Insure smart by insuring what is important. How important is it to protect that new printer you bought or next year's vacation? Compare that to the importance of protecting your family's income during sickness or your premature death. Check your employer's disability insurance program and top it up if necessary. Employer group life insurance plans are notoriously low. If you are raising a family, make sure your life insurance coverage exceeds 10 years income.

7. Raising a family on a budget? Buy low cost term insurance. Making big bucks? Are you in a high tax bracket? Check out cash value life insurance as a tax sheltered savings vehicle and estate preservation tool.

8. Check the amortization period of your mortgage. Does it coincide with your expected retirement date? If not, ask your mortgagor how to increase your payments so you can retire debt fee.

9. The beginning of a new year is the perfect time to rebalance your investment portfolio. Book an appointment with your financial advisor and ask them if your asset allocation has changed and how to best get back on track.

10. Check your retirement goal - are your savings on track? Here is a simple test. Take your current retirement savings and multiply by 4% - this is your safe withdrawal rate. For example, $100,000 in savings provides annual income of $4,000. Add to this what you expect to receive from CPP, OAS and other pension plans for an idea of your retirement income. How does this compare to your retirement income goal? Can you retire now, or should you keep working and saving?

11. Planning to retire early? Consider how your life expectancy will impact your retirement lifestyle. Retiring too early means forgoing additional years of savings and the longer your savings will need to last. An extra year or two of working and adding to savings can make all the difference between a frugal retirement and a comfortable one.

12. Take the time to review the beneficiaries listed on your RRSPs, TFSA, and life insurance policies. After all, your circumstances change over time, so might your wishes for your estate. Your financial advisor has many good ideas to help you plan your affairs in a tax efficient manner that meets with your wishes.

13. Resolve that this year is the year you get a will! Too many of us put off having our wills written. Dying without a will leaves your loved ones with an enormous burden and may even see your assets go to unintended beneficiaries.

14. Make your charitable donation as tax efficient as possible. Donate appreciated investments in kind where ever possible and avoid paying capital gains tax.

15. Plan to keep your financial house in order. Working with one of Continuum II's CFPs (Certified Financial Planner) will help ensure you set realistic goals and put a strategy in place to meet them on your timeline. The good financial habits you put in place this year will last you a lifetime.

Holiday Gift Giving Tips from Lise Andreana

This week I had the opportunity to participate in a radio interview for Marketplace Weekend at the University of Arizona PBS station. This proved to be a very interesting opportunity, not only to see the inner bowels of a radio station, but to hear from listeners about their gifting concerns. This was insightful as many of their concerns may be shared by you. 

1.       Q. Do you have any tips on how to balance your finances during the holidays?  

A.      The most important thing to know about gifting is: can you afford to do it? If your answer is yes, how much of your annual budget should you allocate to gifting? Considering the average family spends 60%-70% of their after tax income on the necessities of life, that leaves 30%-40% to spend at your discretion. Discretionary items include personal care, clothing, entertainment, holiday travel, gifts and charity. A realistic budget for gifts is 1%-3% of your after tax income. A similar amount can be used for charitable causes. If you have a lot of debt, or are not saving at least 10% of your income each year, it’s best to stick to the lower range.  

The best way to plan for gifts is to set up a Gift Savings Account in advance. This is a special bank account to which you contribute a preset monthly percentage of your income. You contribute an amount you can afford and you wish to devote to gifts. This way when the holiday season rolls around you are ready.

Should parents dip into their savings to help adult kids?

In this video, Lise Andreana and Rob Carrick of The Globe And Mail answer questions about parents using their savings to help their adult children.

Lise explains the financial drawbacks of moms and dads helping their kids with a house down payment, and with basic living costs.

The 'Sandwich Generation' faces a financial squeeze

See video of Lise Andreana speaking with Rob Carrick of The Globe And Mail about the financial squeeze facing the 'sandwich generation.'

As Lise and Rob explain, this is the generation of people who are helping their adult children become financially independent, while also helping their aging parents with their financial needs.

The Cost of Caring for Aging Parents

In this video, Lise Andreana talks to Rob Carrick of The Globe And Mail about the cost of caring for aging parents.

Lise explains that in Canada medical costs are likely not the primary expense. Rather, the focus is on the time and effort parents will need as they age, and the impact this has on their adult children’s earnings.

7 tips to help you maximize your child’s RESP

1.      Start contributions early

• You can open an RESP as soon as your child has a SIN number. This can be applied for just after birth and many of our clients start their child’s plan around 2 months of age. 

2.      Make contributions regularly 

• Prepare for your child’s education by contributing monthly to an RESP. A little goes a long way. Even if you start off small (around $25 a month) it adds up over time.
• Regular contributions help smooth market fluctuations.
• Anyone can contribute to an RESP – a child’s parents, grandparents, aunts and uncles, or close family friends who may be able to contribute if you can’t right now. 

3.      Take advantage of the considerable benefits

• The federal government adds to your contribution up to a maximum of $500 per year, per child.  This is the Canada Education Savings Grant (CESG) and it is payable up to the year your child turns 17. For a full explanation of eligibility requirements, see the Government of Canada's CanLearn website.
• As long as your contributions remain in the plan they continue to gain interest income and are not taxed.
• RESPs are taxed in the hands of the student who uses them, so the tax rate is typically low.
• Flexibility of withdrawals: it’s up to you to decide how much money you withdraw and when. Withdrawals can be used for everything from tuition and books to living expenses.
• Family Plans are a great way to pool education funds for families with more than one child.

 4.      Plan early 

• Your child may be in diapers or just starting school but planning early for their education is the best route.
• We recommend, as a start, to take the monthly $100 Child Care Tax Benefit (for children under the age of 6) from the government, and put it straight into their RESP.  When you do this right away, from birth, you can come close to funding a good portion of your child’s education, completely funded by the government. If you can’t afford to use the entire $100 for an RESP contribution, something is better than nothing. Even $25 a month is a good start.
• If your child is under 17 it’s not too late to open an RESP

 5.      Don’t worry – RESPs cover a widerange of post-secondary options

•  Traditional college or university
• Technical or vocational school
• Typically all you need is proof of enrollment in a qualifying program.

6.      Really don’t worry – there are four options available to you if your child does not pursue post-secondary education 

• Leave the money in the RESP for future use.
• Replace the beneficiary with another child.
• Transfer the money to your RRSP.
• Close the RESP and withdraw the money. Any grants will have to be returned to the government.

7.      Team work – Personal Saving and Government Contributions 

• Don’t leave money on the table. Some people have enough money set aside for their child’s education without having to contribute to an RESP. Make sure to examine all the benefits of an RESP: See tip # 3.

RESPs are highly underused in Canada. Be sure to start early to maximize the benefits of compounding growth, government grants and tax sheltered savings. If you have questions about how an RESP works, or how an RESP fits into your overall financial plan, contact us.