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January/February 2013

Commentary - Hans H. Mathisen


My first commentary for 2013 will start in March. Until then, I hope you'll enjoy reading LIFE LETTER, and LIFE LETTER MATURE, and if you have any questions or comments, you can phone me or reach me by email at

LIFE LETTER for January looks at some financial resolutions that you can make at the beginning of the year to help you be a little better off at the end of 2013.

Maximize your returns through asset location - February's LIFE LETTER discusses how the value your portfolio should not only be based on the return, but also by the tax implications of the investments.

LIFE LETTER MATURE - January's LLM asks "Will the healthcare system look after you, if you should you experience a serious illness?". LIFE LETTER MATURE for February talks about the volatile economy and investor fatigue?

Hans Mathisen





Financial resolutions for 2013

Give your finances a boost this new year. Here is a list of financial resolutions to help you become better off at the end of the coming twelve months:

Eliminate personal debt - Brad and Angie had fallen into the very common habit of buying lots of "stuff" with their credit cards and were soon carrying a balance from month to month. At 19.9%, it is very expensive to live this kind of lifestyle. And any new purchases attract the same financing charge from date of purchase.

To start getting ahead, they quit using their credit cards and simply stopped making truly unnecessary purchases. Brad and Angie realize that they have to be less inclined to make "want" item purchases by convincing themselves that they are necessary.

Be prepared for annual bills - Jason was always scrambling at property tax time to pay the bill. This year, he took last year's amount, added ten percent and divided by twelve. He arranged to have this amount withdrawn automatically from his bank account each month and deposited into a separate savings plan. A few months after starting this plan, Jason barely noticed the withdrawals. When property tax bill arrives, he will have the full amount to pay it without scrambling for the funds. Plus, he earns interest on his property tax deposits.

Invest regularly - Curt and Courtney want to save regularly, but found that there was more month left at the end of their pay cheques. They decided to pay themselves first. Easily said, but how do you do it?

By committing to a set percentage of income each longer month is the best start. Curt and Courtney opened a joint investment fund account and arranged for 20% of Courtney's income to be withdrawn from their bank account each month for deposit to the investment account. They will adjust the amount withdrawn annually to reflect increases in income. Their goal is to have the investment fund account pay them income once the balance reaches $25,000 to help cover the cost of their annual summer vacation. Curt and Courtney will continue to make deposits to their plan from current income. This investment income will eventually cover more lifestyle expenses.

Invest tax refunds and windfalls - Kathie makes regular deposits to her RRSP and gets a nice refund every spring. In the past, she would go on a little spending spree and really had nothing to show for it at the end of the year. This year, Kathie will deposit her refund cheque in her RRSP. This will also increase her contribution amount and give her a larger refund next year.

Let's say that her refund is $2,500 each year. By putting her refunds into her RRSP each year and assuming 6% annual compound return, Kathie's RRSP will be about $91,964 bigger in twenty years.

Don't give up - New Years Resolutions don't always get followed. If you fall off track, get back on and try again. Don't be too hard on yourself if you stray from your plan. Richard Exely said, "Failing doesn’t make you a failure. Giving up, accepting your failure, refusing to try again does!" Try starting with one financial resolution and add more over time. You don't have to do it all at once.


Make financial resolutions, because it's the right thing to do. Call today!

Call Hans Mathisen today at (306)242-7042.
or email -

Copyright © 2013 Life Letter. All rights reserved

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Maximize your returns through asset location

Do you know the real rate of return on your investments? Generally, Canadians measure the success of their investments based only on the rate of return. While this provides a good snapshot of whether an investment is doing well or not, it is not the only criterion for a true picture of success. A good portfolio is based not only on the return, but also by the tax implications of the investments.

Investors can optimize their real rate of return by utilizing effective asset location strategies to reduce tax exposure. Carefully dividing your investments between registered and non-registered portfolios will help to maximize your overall return. Keep in mind, investment income inside your Retirement Savings Plans (RSP) is tax postponed and is not taxable at all in a Tax Free Savings Account (TFSA). Everything outside of these investments will have an income tax implication you need to be aware of.

Understanding how your investment income is taxed goes a long way in determining where to invest your money. Investment income falls into three main types. Each has different tax treatment when held outside your registered investments:

Interest income has the highest tax rate of the three regardless of your income. Whether you receive the interest or let it compound, it is fully taxable.

Dividend income is taxed more favourably than interest income. It is important to remember that there are exclusions like income from rent, royalties and foreign dividends.

Capital gains income is also taxed favourably as only 50 percent of the gain is included in income for tax purposes.

An Ontario resident, for example, whose income falls into the highest marginal income tax bracket would pay over 46 percent tax on interest income, over 26 percent on eligible dividends, and over 23 percent on capital gains if these investments are in a non-registered account. Tax rates vary by province.

If these three incomes are within a registered portfolio such as a Registered Retirement Savings Plan (RRSP) or a Registered Retirement Income Fund (RRIF), the taxes are postponed until you begin to make withdrawals and are then fully taxed at your marginal tax rate.

It would be great to have your entire portfolio in an RSP or TFSA, but each has certain contribution limits. If your portfolio includes fixed income securities, you could take maximum advantage of keeping these within an RSP or TFSA for tax shelter purposes. If you have reached the limits of your taxsheltered investments, any equity investments that produce tax-preferred income (capital gains and dividends) would be suitable to include in a nonregistered account.

Tax implications should not be your sole motivating factor when choosing your investments. Try to gear your investments so they are suitable for your specific situation and risk tolerance, then focus on the best tax efficiency.

Invest tax efficiently - because its the right thing to do.

Call Hans Mathisen today at (306)242-7042.
or email -

Copyright © 2013 Life Letter. All rights reserved

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