Hub Blogs

Hub Blogs contains fresh contributions written by Financial Independence Hub staff or contributors that have not appeared elsewhere first, or have been modified or customized for the Hub by the original blogger. In contrast, Top Blogs shows links to the best external financial blogs around the world.

Don’t let Taxman’s crackdown stop you from maxing out your TFSA

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My latest post at MoneySense.ca is headlined “CRA TFSA crackdown no cause for alarm.” Click through for the full piece. While you’re at it check out this post from the Hub recapping Tuesday’s one-hour live web chat with myself and Financial Post columnist Garry Marr, who has been breaking the stories about the CRA’s crackdown on excessively traded humungous TFSAs. The crackdown drew plenty of comments and suggestions.

For one-stop shopping purposes and convenience, I reproduce below the original text for my MoneySense blog on how investors should react to this crackdown.

Only minority targeted in CRA crackdown; keep maxing out your TFSA early in January

By Jonathan Chevreau

Woman frightened by taxesTax Free Savings Accounts (TFSAs) have come in for a drubbing lately, based on various media reports of a CRA “crackdown” on frequent traders who have racked up excessive gains.

On social media there seem to be a lot of ordinary investors taken aback by this, even though as I have said on Twitter, 99.99% of the almost 10 million Canadians who have a TFSA hardly need to worry about this obscure attack on a few sophisticated frequent traders of speculative stocks in their accounts.

Anyone who holds index funds, ETFs, blue-chip stocks or fixed income and is holding for the proverbial long term should stick with their plans for using their TFSA, including making a full maximum contribution early in January. Frequent online traders making dozens of trades a day are the target, especially if their trading patterns causes the CRA to view them as running businesses inside their TFSAs: if you or I traded that often we’d be losing a lot in trading commissions, even at the $5 or $10 a pop that most online brokerages charge.

As I have also pointed out, TFSAs are the mirror image of the RRSP, which has been around more than half a century. Even if there is a way to define what an “excessive” gain is, does this mean Ottawa would go back through half a century’s worth of deferred RRSP gains? It seems hardly likely.

TFSA remains best game in a highly taxed town

This is really a tempest in a teapot and I’d hate to think anyone scared off by this would fail to top up their TFSA early in January. As I’ve also said more than once, the TFSA is just about the best game in an otherwise highly taxed town. And as I said in this blog a few weeks ago, the uncovering of an end run that lets the wealthy contort their finances so as to collect for three years the Guaranteed Income Supplement (intended for the elderly poor) suggests that either GIS or TFSA rules or both may get tinkered with sometime in the next few years. So it’s best to fill up TFSAs while you can, just in case Ottawa starts to curtail their use for whatever reason. And that includes maximizing your children’s TFSAs if you’re able.

To be safe, check the CRA’s 8-point audit list

The Canada Revenue Agency has rolled out an 8-point list for a TFSA “audit” but a quick scan of the items should reassure ordinary investors that there’s little cause for alarm. I can see how some knowledgeable do-it-yourself investors who love to research stocks and spend time at their trading terminals might feel a bit uncomfortable but it’s pretty clear the CRA is more worried about those who make many (10 or 15 a day) trades and who quickly liquidate their positions. Also on the list are speculative non-dividend paying stocks, people who use margin or debt to leverage their positions, and those who advertise their willingness to purchase certain securities: again, well outside the realm of the ordinary investor trying to create a little tax-free dividend or interest income.
For most TFSA holders, danger is lack of capital gains not excessive ones

 

The irony about all this attention to a handful of professional speculators gaming the system for spectacular capital gains is that far too many TFSA users are doing the precise opposite. If all you do is go with a default GIC or low interest-bearing investment in your TFSA, then you’re not doing this vehicle justice. Chris Cottier, a Vancouver-based investment adviser with Richardson GMP, says any young investor with large debts – especially high-interest credit-card debt – should forget about TFSAs until they’ve eliminated that debt.

Very few investments can create gains greater than those accruing to those who pay off credit-card debt that approaches 20% per year.
But when are debt-free (except the mortgage), you’ll be better off holding equities in your TFSA than fixed-income investments sporting today’s minuscule interest rates.

MoneySense has long espoused a passive “Couch Potato” approach to investing in broadly diversified portfolios spread over geographies and multiple asset classes. That approach is particularly apt for TFSAs and is clearly the polar opposite of the type of investor the CRA is looking for.

So when January rolls around, do not hesitate to max out your TFSA contribution for the year 2015 and if it’s a quality ETF from a well-established manufacturer, I wouldn’t waste a minute’s thought on the CRA.

Jonathan Chevreau is Chief Findependence Officer for FinancialIndependenceHub.com.

ING vs. Tangerine: two years since the Buyout

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Danielle Kubes, Pretty Little Poor Girl

By Danielle Kubes,

Special to the Financial Independence Hub

I haven’t noticed many changes since Scotiabank bought out ING Direct in 2012, except for two:

  1. They changed the name to Tangerine

Why did they do this? Is it a fruit? Is it a colour? WHY? People like my parents already think ING is a fake bank that will steal all my money: calling it something as light and fluffy as Tangerine does not help my case that it is a real bank with real interest rates, and that banks with tellers and real estate are as 20th century as AOL.

I will forgive them, however, because CEO  Peter Aceto told Canadian Business that they weren’t allowed to use the name ING anymore. Here’s the rationale behind that decision:

“Simplicity” and “innovation” were two things the bank wanted to come across in its new name—the idea was to hearken back to its earlier days (being an alternative, simplified place to do your banking), but push the brand forward at the same time. The name Orange was considered on the shortlist, but was considered to be “too safe or obvious of a choice.” Tangerine makes reference to ING Direct’s orange history, (Ed Note [DK]: by orange history, do they mean just using the colour orange? How does a bank have colour history?) while also being significantly different.

Aceto says part of the branding discussion also took into account the more “fun” aspects of the name.

“We understood the risk that a name like that could be interpreted as being silly, or not serious,” he says. “Banking is important, it’s serious. We’re asking you to give us your life savings, or to help you buy a home or invest.”

That’s why there won’t be any references to fruit in any of Tangerine’s advertising materials or promotional campaigns. The fun name “does a lot of work for us” in sparking interest in Tangerine, Aceto says, but service at the customer level needs to be thoughtful and earnest in order to build a client base.

“I want people to think, oh, they’re different. They’re not like everyone else.”

 

  1. tangerine-ing-direct-debit-interactThey changed the debit card by making it flimsier and WRONG

Writing the bank name horizontally across a debit card made sense when we signed for things.

Now we use a chip and PIN# method of payment. The chip is always entered vertically.

So why, on all debit cards, is the bank name still horizontal?

ING was the only card to write its name vertically, which was logical and made them seem the most current.

With the buyout, it has gone backwards and written its company name horizontally.

Also, while you can’t see this in a picture, the new card is very flimsy and bendy. It’s not really a problem but coupled with Tangerine it just kind of makes the bank seem flimsy.

Now, these are all  personal pet peeves that have no affect on how they do business; banking  with them hasn’t changed. They don’t have the best interest rates anymore; that award would go to credit unions in Western Canada, but they are still way better than the Big Five banks and they also have lower fees (no fees!) than the credit unions.

All in all, it’s still my favourite Canadian bank with which to do my daily banking, but it’s no longer my favourite choice with which to invest in GICs, which will be the subject of another  post.

Here’s how this article originally appeared at Danielle’s Pretty Little Poor Girl blog. And you should click on the link because apart from Danielle’s awesome slogan, she includes an extra paragraph at the bottom of her original post that further teases the good folks at Tangerine: JC.

Reimagining Retirement

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reimagine-your-retirementBy Jonathan Chevreau

If you’ve been reading this web site since its launch five weeks ago, you’ll know that Findependence, or Financial Independence, is quite a bit different than the traditional “full-stop” retirement depicted in many advertisements from the financial industry.

I like the perspective of the author of the book pictured to the right, who “reimagines” retirement to be a sort of spiritual/vocational half-way house between the decades of full-time work and career and the “eternity” that awaits us all at the end of life’s journey.

Joyce Li is a project manager and motivational speaker, originally from Hong Kong, now living with her family in Brampton, Ont.

Reimagine Your Retirement is published by Word Alive Press, and is what you might expect from a publisher focused on spiritual writing. Continue Reading…

A Millennial’s Take on Defined Benefit pensions

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Sean Cooper

By Sean Cooper,

Special to the Financial Independence Hub

Many consider defined benefit pension plans the gold standard of retirement plans. Through the ups and downs of the markets, defined benefit (DB) pension plans remain the one thing that employees can count on in their golden years. DB plans offer employees some much-needed stability in retirement. For those without the luxury of an employer-provided pension plan, the alternative is RRSPs. With RRSPs, you contribute throughout your career and hope that your investments perform well enough so you can enjoy a comfortable lifestyle in retirement.

Defined Benefit Plans Disappearing

While workplace DB plans used to be widespread in the private sector, they’ve been disappearing at an alarming rate over the last couple of decades. Now only a third of employees have any kind of pension plan at work, let alone a DB pension plan. The dot com bubble in 2001 and the financial crisis in 2007 only sped up the pace at which employers are looking to “de-risk.” De-risking comes in many forms, but the most prevalent is switching from a DB plan to a defined contribution (DC) plan or group RRSP.

Defined Benefits vs. Defined Contribution

With a DB plan the employer bears most of the investment risk. If investments underperform, it’s up to the employer to make up any shortfall. However, with a DC plan or group RRSP, employees bear the brunt of the risk. If their investments don’t pan out, they’ll have to make tough decisions like scaling back their lifestyle in retirement or working longer (if they’re physically able to).

Having worked as a pension analyst at a global pension and benefits consulting firm for nearly five years, I have a unique perspective on what’s been unfolding in the realm of pensions. I’ve watched as pension plans on which I work have closed DB pension plans to new entrants, forcing new hires to enroll in DC plans. Although I still have a DB plan at work, even my own plan has been scaled back in recent years.

How do DB Plans Fit into My Findependence?

That brings me to the main point of this article: are DB plans part of my own Findependent plans, or I am so much into self-employment and Internet businesses that I feel they’re okay for really conservative members of my generation, but perhaps not for myself? Despite working as a financial journalist to supplement my income, I still see DB plans as an integral part of my Findependent plans.

Even though I don’t plan to retire until at least age 55, it’s still nice to know I have a guaranteed DB plan waiting for me when I do decide to call it a career. A DB plan will provide a large chunk of my money in retirement. Because of that, I’ve been able to invest more heavily in equities in my RRSPs.

I’m a big fan of the Canadian Couch Potato investment philosophy. I chose the TD e-Series funds because of their great track record and low fees. I’m invested heavily in equities – I have 30%  invested evenly in Canadian, U.S. and International equities, with only 10% in bonds. I wouldn’t have been able to take this position without a rock-solid DB plan waiting for me.

What About Everyone Else?

If you’re a younger worker in an industry where you plan to change jobs every few years, a DB plan probably doesn’t make much sense. But if you’re someone like me who’s willing to spend their entire career at a company once they find a job they love, a DB plan can be a great way to build up your retirement income as a reward for your years of service.

Some people refer to DB pension plans as pyramid schemes without getting the facts straight. For the most part your company pension plan is safe. Workers in Ontario have added protection – up to $1,000 of your monthly protection is guaranteed by the government.

Would I ever consider trading in my DB plan? Not a chance. I see my DB plan as an important part of my journey towards Findependence. I know I can count on it when it matters most.

Sean Cooper is a Personal Finance Expert and Financial Journalist. He is a first-time homebuyer and landlord who aspires to reach findependence by age 31. Follow him on Twitter @SeanCooperWrite and read his blogs and request his writing services on his website: http://www.seancooperwriter.com/

 

Six spending personalities that can wreak havoc on your finances

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What is your spending personality
Image Credit: Shutterstock

By Avraham Byers,

Special to the Financial Independence Hub

Overspending is a common problem for many people; it creates debt, anxiety and relationship problems, even among high income earners. All too often, people’s spending habits seem to rise to meet – and exceed – their incomes.

So why does this happen? What compels people to overspend when they already have the items they truly need? The answer lies deep within each person’s spending personality. Recently, I read Dr. April Benson’s book I Shop Therefore I Am, and was fascinated by what shoppingbookthe contributing authors uncover about the emotional and psychological factors influencing our buying habits.

I thought it would interesting, and beneficial, to touch on the six key spending personalities they explore: image spenders, bargain hunters, collectors, compulsive shoppers, co-dependent spenders (a.k.a. gift-givers) and bulimic spenders. Continue Reading…