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FP: How tax-efficient ETFs can help dividend and fixed-income investors

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My latest Financial Post column (on page FP8 of Friday’s paper) looks at how certain tax-efficient ETFs can provide investors with a measure of tax relief in their non-registered portfolios. You can find the full column online by clicking on the highlighted headline here: Friends with Benefits: How ETFS can help keep the taxman at bay.

By definition, investing in taxable (non-registered) accounts is inherently tax inefficient. Outside registered plans, fixed income is the most harshly taxed asset while deferred capital gains is most favorably taxed.

In between are dividends. As anyone who receives T-5 or T-3 slips at tax time knows, dividends create a yearly tax liability, although as Markham-based fee-for-service financial planner Ed Rempel observes, those with annual taxable income under $47,000 will pay little or not tax on Canadian dividends.

Foreign dividends are highly taxed like Canadian interest, but qualifying Canadian dividends generate the dividend tax credit. This eases the pain but retirees are often irked by the dividend “gross-up” rules, which can bump them into higher tax brackets and result in clawback of government benefits like Old Age Security. Continue Reading…

How to develop a Financial Independence mindset if your parents were reckless spenders

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By Alex Lawson

Special to the Financial Independence Hub

Our parents are our first teachers. We learn our values, our habits, life skills, relationship skills, and many other things from our parents, long before we venture out on our own.

One of the things that people pick up on is financial habits, good or bad. If your parents were reckless spenders, chances are you’re already headed down the same path. The good news is that it’s possible to change your mindset and learn to manage your finances so that you don’t make the same mistakes they did.

Separate yourself from them

The first thing you need to do is realize that you are your own person capable of making your own choices. Don’t tell yourself you’re irresponsible with money just because that’s how you grew up. Make the decision to be different and start telling yourself the opposite. Reinforce the idea that you can be financially responsible and independent regardless of how you grew up, and you’ll be able to start making better choices.

Decide on your goals

Many people that had financially irresponsible parents have never been taught to think about the future. Planning for retirement should begin as soon as you leave college. Do you think you’ll want to retire with enough money to live comfortably as you have been, or are you planning on securing complete financial independence by the time you’re 30? The process for saving and investing will be completely different based on your goals. Begin saving aggressively when you’re young so that your money will have more time to grow.

Make saving a priority

If your parents were reckless spenders, they probably didn’t teach you anything about saving. One of the biggest keys to financial independence is learning how to save properly, so that you can be prepared for both unexpected problems and for your future. Build savings into your budget before you even look at what type of housing you can afford. A good rule is to start saving 10% of every paycheck and live off what is left over until you reach the goal of three times your monthly income. Then, when your car breaks down or if you lose your job, you will have an emergency fund to rely on without having to go into debt. Continue Reading…

The 7 most common trading mistakes

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By Alana Downer

Special to the Financial Independence Hub

With the ever-increasing popularity in trading, be it stocks, Forex or cryptocurrency, more and more people are becoming involved. Some are getting rich while others find themselves learning the hard way. Of course, beginner mistakes are almost inevitable when a new trader enters the market, but with some research and careful planning, some mistakes can easily be avoided. Here are seven of the most common trading mistakes you should recognise and avoid in 2018.

1.) Catch a falling knife

As a new trader, a common mistake is thinking that a dip has run its course. A common mentality, especially in crypto trading is to “buy the dip,” however just because an asset is cheap, be it stock, a forex trade or cryptocurrency, doesn’t mean it can’t get cheaper. Many people buy in, anticipating a reversal, only to see the price drop further.

It’s much better to have a “price confirmation” approach, where you wait for the market to reverse before you enter. To do this effectively, you need something that can be objectively defined such as a price moving above an average or the completion of a head and shoulder pattern.

2.) Holding on to losing trades

Another popular crypto mentality is to “Hodl”, which is simply a misspelling of hold. This isn’t exclusive to crypto, however, and most new traders have likely lost money this way. A trade going against you, especially as a new trader, never feels good and instead of getting rid of it, as you may have planned, you hold on to it, hoping it will reverse.

One simple tactic to avoid hanging on to a losing trade is to ask yourself “would I enter this trade today, at this level?” If the answer is no, it’s probably best to get rid of it.

3.) Listening to hot tips or FUD

The internet, your friends and your family may be full of advice and “hot tips.” Trade recommendations for all markets can be found everywhere. The rumours might be right, or they might be horribly wrong but it’s important to remember they’re just rumours. Do your own research, and decide if it’s something you agree with. At the end of the day you’re trading with your own money, so your choices need to be your own.

Similarly, there can be a lot of fear, uncertainty and doubt (FUD) floating around in today’s climate of viral and fake news. Again, do your own research and learn as much as you can about any recommendations you are following.

4.) Taking uncomfortable risks Continue Reading…

Retirement Planning for Late Starters

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We’re always hearing dire warnings about how woefully unprepared boomers are for retirement. An Ipsos-Reid survey done for CGA-Canada reports that 25% of their respondents have never made a savings contribution and 29% said they had no money left over to save after paying expenses.

So, what if you’re now in your 50s, still have a mortgage, and have a measly retirement fund? You held off with your savings for whatever reason and chances are you’re now thinking more about retirement and how you want to spend your time.

Related: A simple way to boost your retirement savings

What do you do now?

If you’ve arrived late to the retirement savings game then you have your work cut out for you. This is a critical time for retirement planning.

For many Canadians, their 50s are the peak earning years and they could still have 10 – 15 years left in the workplace.

Typically there is a decline in spending as many larger financial commitments are hopefully behind you, or are winding down. There should be a big push to optimize this and work to accumulate your nest egg. You’ll have to set aside more of your earnings and consider some cost-cutting options.

For most people, learning to spend less is about breaking bad habits. This may be the last shot you have to impose some meaningful discipline on your finances. Stop throwing away money on stuff you don’t really want or need.

Pay down high interest credit-card debt as soon as possible. Pay off your mortgage. Take the money spent on mortgage payments and providing for your children and whisk it away into your savings. You probably have loads of unused RRSP contribution room, which can generate huge tax returns.

Make the most of new money. Consider putting any bonuses, tax refunds or other lump sum payments directly into savings.

You may have to reduce your style of living. Consider downsizing to a less expensive-to-operate home. Tell grown children still living at home to start fending for themselves.

Basically – spend less.

If you and your spouse can do that for 10 – 15 years while earning average salaries or better, it should provide enough for a typical middle-class retirement.

Where do I start?

Figure out where you stand financially.

Assume you don’t sell your house and you receive $25,000 to $30,000 a year per couple from CPP/OAS and you have no employer pension.

7 steps to Financial Independence

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By Laura Martins

Special to the Financial Independence Hub

Financial Independence (aka “Findependence”) is something that many of us are working towards, but which very few actually achieve. Having a high-paying job alone does not guarantee financial independence. While making more money does make Findependence easier to achieve, the important thing to focus on is what you do with your money, rather than how much you earn.

It’s also important to understand that financial independence will take time and planning. With the right goals and steps in place, Findependence can be achieved, but it’s important to be persistent and patient.

In most cases, financial independence doesn’t mean you won’t work ever again, but it brings freedom so you can enjoy your life and work on the things that matter to you. Here are seven key steps to develop financial independence.

1.) Get to know your money

Before you can begin to work on your financial independence, it’s imperative that you know exactly what your money is doing. You must know how much is coming in, and how much and where you are spending it.

Develop a habit of checking your bank account. Ignoring it is one of the fastest ways to lose track and lose money. It might seem obvious, but developing financial independence means spending less than you earn.

Spend a few weeks or months tracking your finances and create a budget. It’s important that it’s realistic so you can stick to it.

2.) Remove non-essentials

Once you understand your finances, it’s time to find the areas where you can save more. This is one of the hardest parts on the journey to financial independence, but also one of the most important steps.

Look at your spending and assess what you don’t need. In other words, you should try to minimize your non-essential expenses. That might mean cancelling your gym membership, reducing the amount of streaming services you pay for or making more meals at home. While these things might seem small, they will all add up, and after a few months it might make a noticeable difference to your bank account.

3.) Increase your income

Now that you understand your finances and have your spending under control, it’s time to start saving more. Continue Reading…