Investing in Canada Blog

Protect Your Credit Score Through Automation

admin — Fri, 03 Feb 2012 19:02:59 +0000

We all know that having a good credit score is crucial in securing a loan and receiving a good interest rate. Unfortunately often our credit score is hit and eroded due to little things like late payments on mortgage payments or credit card payments. Even missing out on a one cent credit card bill can erode your credit score. The best way to prevent this is to set up with your credit card company an automatic withdrawal from your bank account of either the minimum monthly payment or the total balance for the month. This way you are never late or miss your credit card payment and your credit score is not negatively affected. You just need to make sure that the account from which the funds are being withdrawn has enough in it to cover your payments. If there is uncertainty you can always set up overdraft protection on that bank account as a safeguard. Contact your credit card company to request this special application form to automate your month end credit card payment and protect your credit.

Technorati Tags: credit cards, credit score, protecting credit

A Financial Bunker For Scary Times

admin — Mon, 23 Jan 2012 06:17:59 +0000

When looking at investments, people all too often overlook permanent life insurance as a viable investment option. Not only has it provided consistent decent returns over the years but it also provides excellent tax sheltering if used correctly. The article below by John E. Giorouard explains how this Great Depression proof vehicle can provide the security and growth you need.

By: John E. Girouard

The back-to-basics allure of mutual whole life insurance is helping this once vestigial financial vehicle stage a comeback.

Suppose there was a financial instrument with a track record stretching back 1,400 years; that was so solid it could survive the Great Depression intact; that earned untaxed interest at a competitive rate; that could be borrowed against at will regardless of credit conditions; and that could be used by individuals as well as major corporations and banks as a safe harbor during economic turmoil?

You’d call it a financial bunker for scary times, and you’d be talking about mutual whole life insurance.

This is not the life insurance that only pays when you die. Mutual whole life is the kind of insurance our parents and grandparents owned in the good old days before the stock market began to boom in the 1980s and 1990s. Mutual whole life saw our elders through thick and thin, and after several decades of being muscled aside by the allure of the stock market, it’s making a big comeback.

Mutual whole life policies have been an essential part of my financial planning practice for many years. But I’m astonished at how few of the many investment advisers I meet understand how mutual whole life policies work, or don’t offer them to clients because they aren’t sexy or new.

Mutual whole life fell so far out of favor in the 1990s that insurer Swiss Re issued a report in 1999 headlined, “Are mutual insurers an endangered species?” Not anymore.

Mutual life insurance is making a comeback now that our speculative economy has blown up and financial disaster is driving people away from risk and back to basics. Forbes magazine reported in December (“Mutual Respect”) that two of the larger mutual insurance companies, Guardian Life and New York Life, reported double-digit growth in sales of individual life policies.

Mutual or “participating” whole life insurance is the closest thing to owning your own bank. As New York Life has said in its ads, “We’re Main Street. Not Wall Street.” The concept of mutual insurance is rather simple, especially compared with the complex annuity products that were so popular until recently. And the benefits include all those listed in my opening paragraph.

You Own The Bank: Mutual insurance companies are owned by the people who buy the policies. These companies are the modern equivalent of mutual “societies” among European trade guilds of the 1600s. Guild members pooled their money to help each other and their families in times of sickness or death. Because mutual companies have no shareholders, they serve one constituency–the policyholders. Mutuals have no need to report good earnings every three months to justify a stock price, so there is no pressure for them to take on extra risk to make a profit.

Your Premium Payments Belong To You: Unlike traditional term insurance, the premiums you pay for your mutual whole life policy belong to you in the form of the accumulated “cash value” of your policy. On top of that, the cash value of the accumulated premiums earns interest at a rate set once each year. In 2008, Guardian Life paid a record 7.3% dividend interest, and those earnings are untaxed! That’s spectacular compared with last year’s over 30% decline in the stock markets, bank CDs paying under 2% taxable, or money market rates under 1% taxable.

You Can Borrow Back Your Premium Payments: Because your premiums “belong” to you as a policyholder-owner of the company, you can borrow them back any time you want for any reason you need, regardless of your creditworthiness. The death benefit of the life insurance will be reduced by the amount you borrow, and you will lose the interest you would have earned. But you can choose to pay the interest as you would for any loan, except you are paying yourself instead of the stockholders of a bank. If you pay the loan back as well, the death benefit goes back up.

Mutuals Offer Ironclad Guarantees: Few people realize that the insurance industry, dominated by mutuals, was the one sector that made it through the Great Depression without a disaster and with policyholders financially intact. The cash value and the death benefit are guaranteed and tightly regulated by the states. That means your cash value is there regardless of market conditions, and when you die your heirs will receive the full face value of the policy. While stockholder-owned insurance companies saw their values fall sharply last year (remember when we taxpayers bailed out AIG (nyse: AIG – news – people )?), the top mutually-owned insurers saw their book values remain stable or rise.

Even Banks and Corporations Buy Mutual Policies: One of the lesser-known aspects of mutual insurance is that major corporations and banks buy policies on the lives of their employees and use the cash value to fund employee benefits and as a safe harbor for working capital. By some estimates Fortune 500 companies and large banks have policies covering some 5 million employees. Instead of doing what banks say–put your money in our CDs at low rates so we can turn around and lend your money out at a profit to us–do what banks do.

Mutual Insurance Is One Leg of The Money Stool: Investing should be approached as a three-legged stool. One leg is the money you need to live on in the near future (cash in the bank), one leg is the money you invest for long-term growth (equities) and one leg is the financial bunker you can retreat to when the rest of the world is falling apart and you can’t sleep. Mutual whole life got our grandparents through the Great Depression, and it’s going to get a lot of the people through our current calamity.

Technorati Tags: life insurance, permanent insurance, whole life insurance

Contribute to Your RRSP Without Having the Cash to Do So.

admin — Sat, 07 Jan 2012 23:44:59 +0000

Will you owe taxes for 2011? Do you wish you could make a larger contribution to your RRSP but don’t have the funds to do so? If you have RRSP contribution room, an RRSP loan may be a great solution. There are a number of insurance companies that will lend you money to invest into your RRSP and charge you a modest interest payment. The advantage to those that owe taxes is that the RRSP loan can greatly reduce if not eliminate that tax at the same time investing it into a more secure investment than a mutual fund allowing you to take advantage of tax deferred growth.

Investing a larger sum today versus smaller contributions over time can increase your plan’s growth potential through the power of compounding. The larger your initial investment and the longer it remains invested, the greater your investment could grow.

To find out whether an RRSP loan is right for you, click here.

Technorati Tags: RRSP, RRSP loan, Taxes

Where Everyone Can Save Up to $100 a Month

admin — Mon, 12 Dec 2011 18:03:59 +0000

Where can you cut costs without having to cut back on your lattes? One place that you can reduce your expenses by as much as $100 per month is your phone, cable and internet bill. Have you checked it lately? If you haven’t, chances are that promo rate you got with Telus or Shaw is now gone and you are paying the inflated rate. Here is a strategy that has worked for me and everyone I have shown for over 4 years now. The key thing to remember is this is a competitive market where one provider is trying to overtake the other in market share. So they want your business. Second, it costs more for Telus or Shaw to lose you as a customer than to only be making a dollar or two on you.

So here is the strategy:
Check to see what you are currently subscribing to and see whether or not you need everything you are paying for. Next, call the competitor and tell them you are not happy with the service of your current provider and that you would be willing to change over. Ask them what they can do for you. Tell them what you are currently subscribing to. They will then give you their promo package that is effective 6 month to a year. Thank them but do not take their deal. Now call your current provider and tell them that the competitor called and is offering you (list everything, they are offering except for how long they are offering it). They will usually “talk to their manager” or “see what they can do” and offer you something equivalent for being such a good customer (one that was willing to pay the inflated price for so long). This is usually a promotional price and effecting 6 month to a year. Insist on one year or you will move to the competitor. Finally ask them if that is the best they can do. Sometimes they can throw in an extra TV channel package or higher speed internet. It never hurts to ask. I have been on the promotional rate with my provider for 4 years now. So can you.

Technorati Tags: cutting costs, saving, savings

Bank of Canada May Slash Interest Rates Next Year

admin — Fri, 09 Dec 2011 18:24:59 +0000

The volatility hitting Europe and the risk of damage to the global economy means the Bank of Canada may move to cut its benchmark interest rate to ward off the risk of recession. Some economists are predicting a cut in the prime rate anywhere from 0.5% to 0.75%. Even if they are wrong the general consensus is that interest rates will remain low for an extended period of time. Read the full Financial Post article here.

Technorati Tags: canadian mortgage rates, interest rates

Pay Down Mortgage or Contribute to RRSP?

admin — Thu, 01 Dec 2011 20:13:59 +0000

Clients often ask me whether they should pay down their mortgage or contribute to their RRSP. Here are the things to consider:

If you pay off your mortgage first and then start contributing to your RRSPs, you are guaranteed a tax free return equivalent to your mortgage interest rate. The problem is in today’s interest rate environment the return is pretty low. By doing this you will also miss out on all the many years of compound growth you would receive if you had been contributing to your RRSPs. This option is probably best suited for those who are in a low tax bracket and can’t benefit from the tax refund that an RRSP contribution would provide.

If you are in a mid to high tax bracket, then you are probably best off maximizing your RRSP contribution and using the tax refund to accelerate your mortgage pay down. This way you get a tax free fixed income return via mortgage pay down and tax deferred compound growth via RRSP – the best of both worlds.

Submit comment below to post your thoughts or comments.

Technorati Tags: mortgage, RRSP

Oil Prices to Remain Firm

admin — Tue, 22 Nov 2011 19:46:59 +0000

Demand for energy and more notably oil is expected to continue to grow despite the specter of global recession and the restoration of oil flow out of Libya. Rising demand for fuel from China and other emerging economies, declining output from traditional suppliers including the North Sea and interruptions to production in key exporters such as Libya have kept the oil market tight.

Oil is an important ingredient in Canadian economic well being. With Canada having the largest source of politically stable oil second to Saudi Arabia it will continue to see countries such as the United States and China vying for this increasingly rare commodity. As demand pressures grow, prices will stay firm filling Canadian coffers with oil revenues. Read full article here: Globe & Mail

Technorati Tags: oil prices, oil sands

How to Save Thousands in Medical Costs for the Self-Employed

admin — Mon, 21 Nov 2011 20:02:59 +0000

If you are self-employed then you either have no medical coverage other than MSP and are paying for medical expenses in after-tax dollars or you are paying for private medical coverage, costly coverage for services you may or may not be using. There is a much better solution without restrictions, predictable costs and no unused funds that are lost.

The product is called Winflex. Winflex specializes in the delivery and administration of alternative health benefit solutions. Here is how it works.

Say over the course of the year, you see an eye doctor, you get prescription drugs and get a couple massages. The total cost for the year is $500. If you just tried to claim those receipts, under normal conditions, only about 3% would be tax-deductible. But by using Winflex, you would submit those receipts plus an extra 10% ($50) service fee to Winflex. They in turn would send you a fully tax-deductible receipt for $550. If your marginal tax rate is say 30%, you would get a $165 tax refund, making your actual cost of medical services only $385.

Every self-employed person or family should take advantage of this CRA approved self directed medical coverage.

Click here to find out more.

Technorati Tags: group medical plan, medical plan, MSP

Liquid Assets are Vital to Building a Strong Real Estate Portfolio

admin — Mon, 14 Nov 2011 21:59:59 +0000

Ever since the Sub-prime meltdown in the US, a number of the banks that have been excellent sources of mortgage funding for investors wanting to build their portfolios, have changed policy. Of the number of changes, including max 80% financing, max 5 rental properties, max mortgage liability per customer, higher debt coverage requirements, etc., one of the requirements that has pigeon-holed many clients has been more stringent requirements for liquid assets (assets that can be sold quickly should the need arise). Almost every major lender has increased this requirement and many property rich, cash poor clients are in a bind where they cannot borrow any additional funds for new purchases.

Here is an idea of what some lenders are looking for:

CIBC Firstline – $100k liquid assets (RRSP, stock, bonds, mutual funds, cash, etc) once you have 3 properties, and $10k more for every property after you own 5.

Scotiabank – $50,000 net worth per property. (May see new rules coming out for this soon)

TD – No hard rules but have shot down many deals for clients with weak liquidity.

National Bank – Same as TD

Insurers – CMHC and Genworth have been looking at this more than before, especially when looking at rentals. Remember, most non-bank lenders (Street Capital, Merix, First National, etc) insure all of their business to make it easier to securitize and sell bundles (called Mortgage-Backed Securities) which eliminates a large number of lenders.

That being said, it should also be clear that regardless of whether the lender requests it or not, you should maintain a good balance of cash and other liquid investments, especially as your portfolio grows for those unforeseen events such as furnace or water tank replacement, extended vacancies, etc.

Written by Kyle Green Mortgage Broker with Mortgage Alliance Meridian Mortgage Services Inc.

Cell: 604-551-8976 |kgreen@mortgagealliance.com | www.kylegreen.ca

Technorati Tags: liquid assets, real estate investing, seg funds

HOW Your Money Is Invested Is As Important As WHAT It’s Invested In

admin — Mon, 07 Nov 2011 18:21:59 +0000

How an investment is funded can be as strategic as the choice of investment itself. If you come into a lump sum of money such as a company bonus or inheritance and are looking at investing that money, the Smith Maneuver may be the strategy of choice. The Smith Maneuver was created by the late Fraser Smith and is a CRA approved method of converting non-deductible interest on your primary residence into deductible interest. Let’s assume you receive a bonus of say $10,000 and want to invest it. You basically have 3 options.

One is to buy an investment outright. This strategy however has no tax benefits.

Another, is to place that money into an RRSP investment, assuming you have the room to do so. This will provide you with a one time $10,000 tax deduction for that year. However, one hundred percent of the money you eventually pull out of an RRSP is taxable. That includes your initial investment and any growth.

Third, is using the Smith Maneuver. Assuming you have a mortgage on your primary residence, you take that $10,000 and pay down your mortgage (most mortgages allow you to pay down a certain percentage every year of the outstanding loan). Simultaneously you take out a line of credit loan of $10,000 and put that money into your investment. Since, in Canada, interest on a loan used for investment purposes is tax deductible you will benefit from a perpetual write off. In addition, the growth of your investments if chosen correctly will be classified as capital gains, and only 50% of the growth will be taxed.

If you would like to discuss if this strategy is right for you click here.

Technorati Tags: mortgage interest, Smith Maneuver, tax deduction, tax write off