November/December - 2008
Because this communication is to thank you and to wish you a MERRY CHRISTMAS AND A HAPPY NEW YEAR, I'm enclosing the current issues of LIFE LETTER and LIFE LETTER MATURE without my regular commentary.
LIFE LETTER MATURE
THE STOCK MARKETS - We already know that all
the major indexes have taken a severe beating, and it is little comfort to report that, as of
November 30, 2008, the S&P TSX Index has declined less than any of the other major indexes I
If you're not on the internet, please call me and I'll personally get the Annual Review Check List to you.
Please, allow me to say it once more: MERRY
CHRISTMAS AND A HAPPY
NEW YEAR TO YOU AND YOUR LOVED ONES.
Cooler heads will prevail
The newspaper headlines read: "Roller coaster stock
markets have investors feeling queasy" (The Globe and
Mail); "The stock market crash: History repeating itself?" (The Calgary Herald); "Uncertainty continues to pummel
stock markets" (Sudbury Star); "The next market boom
may be a lifetime away" (Financial Times). Interestingly
enough, these headlines are from November 2002. One
year later, the S&P/TSX Equity Index was up 20.8%; and
It's important at times like this not to fall for the
sensational headlines. Consider that the September 30,
2008 edition of the Edmonton Journal had a front page
story, above the fold, titled "Biggest market drop since
1987". The article was accompanied by a picture of a
securities trader with a facial expression that could only
come from getting his kneecaps broken and learning that
The October 1, 2008 issue of the same paper buried the fact, deep in its Business section, that the same market had experienced, the previous day, one of its largest single day gains in years. Trading on human fear must be a great way to sell newspapers.
A large part of the current market slide may be attributed to many investors over-reacting to the news and headlines by panic selling. When investment fund managers receive an order to sell, they may be forced to liquidate securities to meet the request if they do not hold enough cash. Enough orders can force them to sell at prices far below true value. This then feeds the market slides and may cause more panic selling. And so on and so on.
Imagine for just a moment that when you woke up this
morning and stepped outside, you had not read or heard
any financial news for the last few months. Does it look
like things have really changed? Parents are still driving
their children to school before they head off to whatever it
Warren Buffet, one of the world's richest men, acquired his
wealth by investing. He didn't become wealthy by
accident. Buffet says, "A simple rule dictates my buying:
Be fearful when others are greedy, and be greedy when
others are fearful." He also says, "I haven't the faintest idea
While it may be tempting to get out of investment funds now because of recent market drops, how will you know when it's time to get back in? Don't forget that securities being sold at low prices are being bought by someone. It's always a good time to invest; right now just may be the greatest time to do so.
Copyright © 2008 Life Letter. All rights reserved
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More overlooked RRSP Tricks
More than 65 of Canadians have made deposits to Registered Retirement Savings Plans (RRSPs). Many do so just for the tax savings, but here are some often overlooked tricks you should be aware of:
RRSP loan at the dip - Those who use investment funds for their RRSPs should be well aware of the strategy of "buying low and selling high." As unnerving as it may feel, one of the best times to make a lump sum deposit is after there has been a substantial stock market correction. If you don't have the cash on hand, an RRSP loan, paid back monthly, is an attractive way to come up with a larger deposit.
Use refunds wisely - Many RRSP contributors receive tax refunds each year. All too often, the refund gets blown on consumer items. Why not endorse the cheque directly over to your RRSP carrier and get a head start on next year's contribution? How about a deposit to an RESP for your child or grandchild that would be eligible for the 20 Canadian Education Savings Grant (CESG)? Have you thought about using it to pay down credit card or other high interest consumer debt?
Don't wait for your RRSP tax break - If you are making regular deposits to your RRSP (e.g. monthly PAC deposits), you can complete and file a TD1 or T1213 to reduce the taxes withheld from your paycheque. This allows your employer to deduct your RRSP contribution amount from your income before income taxes are calculated, giving you an instant tax deduction. Why let the government use your money interest free?
Delay the deduction - A few weeks after you file your tax return, you receive an Income Tax Assessment from Canada Revenue Agency (CRA). It summarizes your income and deductions, and also tallies your RRSP contribution room. If you come into a windfall, you can deposit up to your contribution room from it into an RRSP. You are not required to take the full deduction on your next tax return. It can make a difference to wait until a later year when you reach a higher tax bracket so you can benefit from a larger tax savings. In the mean time, your RRSP deposit can grow tax deferred.
Name a beneficiary - If you don't name a person (or persons) as a beneficiary for your RRSP account, the funds will be paid into your estate on death. A spouse may lose the opportunity to elect a tax-free rollover into their RRSP or RRIF. Also, the funds then become subject to the costs and delays of having them settled through your estate. It makes sense to review your designations regularly and make changes when necessary.
Use up a deceased's Contribution Room - Jessica, as a new
widow, completed and filed a terminal tax return for her
husband, Andrew. She received his life insurance proceeds
and he had lots of unused RRSP contribution room.
Andrew had earned about $60,000 in salary in the year of
Copyright © 2003 Life Letter. All rights reserved
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Mutual confidence is the power that binds together all harmonious human relationships.