Perspectives – Dec 20th, 2012

December 19, 2012

Although the year is not quite done it looks like the TSX will end up around 5%(with dividends), the S&P500 about 15% and international markets averaging around 10%. 

Looking back a year ago the headlines were all about the Eurozone financial crisis, the US deficit and slowing of China.  Although this news created a significant amount of volatility, equity markets continued to climb their “wall of worry” and will likely close positive for the year.  Those that took advantage of the low equity prices over the last 4 years and continued to invest have benefited the most.  Once again, the fears generated by the headlines were an opportunity – not an indication of something to avoid.


What this article means to your “mind share” – Investment managers less worried about the big risks; (US deficit, Eurozone financial crisis, China) which means the media will be looking for another “impending crisis” in the coming months to latch onto to keep you interested.

What is the US Fiscal Cliff and should it matter? Dec 20th, 2012

The phrase “fiscal cliff” refers to US federal spending cuts and federal tax increases that will automatically take effect on January 1, 2013. If the US Congress takes no action, the higher federal tax rates are projected to increase tax revenue in 2013 and beyond, while federal spending is mandated to fall for the next several years.   Recently there seems to be some reconciliation on this and although we may not see a resolution before Jan 1st – one can be back dated!

What this means to your portfolio – In the short term we may continue to see some volatility until this is resolved – in the long term – nothing – because it will be worked out.

In order to sidestep the cliff, President Obama and Congressional leaders will have to compromise on a wide range of issues. These include reductions in defense and non-defense spending, deciding whether to extend the Bush tax cuts, whether to raise the payroll tax, and how to deal with extended unemployment benefits and reimbursement cuts to Medicare doctors.

Some analysts suggest the increased taxes will slow spending and potentially cause a recession – others suggest it will help decrease the US Federal deficit and strengthen the economy long term.

With the world watching, the White House and Congress are expected to act quickly to resolve the uncertainty about the country’s fiscal future. If Congress and the White House agree on a deal in early 2013, lawmakers could retroactively restore the prior tax rates and approve additional federal spending

What should you do?

As seasoned investors know, financial markets can rise and fall with the latest cover story, whether from Washington or abroad.  The current story, “the Fiscal Cliff” is last years’ US deficit and Eurozone financial crisis, the slowing of China, previous years real estate meltdown and other wars and bubbles. The best approach may be to keep your eyes fixed on your destination and not get sidetracked on day-to-day market fluctuations.

Your investments should reflect your financial goals, time horizon, and risk tolerance. And remember: when uncertainty grips the markets, it may be a great time to take advantage of new opportunities, rather than overreact to short-term events.  If you are concerned, please give me a call and let’s take a look at your portfolio to determine whether any changes might be in order.

TFSA Contribution Increasing Jan 1, 2013

As of Jan 1st you can contribute another $5,500 to your TFSA (Tax Free Savings Account) and re-contribute any amounts you withdrew in 2012.

What this means to you – if you have cash you want to shelter in a tax free investment, please drop us a note.

Since the Harper Government made TFSAs available in 2009, Canadians have been able to earn tax-free investment income on contributions of up to $5,000 per year.

The government has announced its raising the annual contribution limit to $5,500 as of Jan 1st , 2013.

Ever since, TFSAs have become increasingly popular, with approximately 8.2 million Canadians having opened an account. Also, roughly 2.5 million Canadians contributed the maximum amount in 2011.

Key features of the TFSA include:

  • A TFSA is available to all Canadians, 18 years and older;
  • Any interest, dividends and capital gains earned in a TFSA are not subject to tax;
  • A TFSA allows you to invest in a number of types of investments, be it a high-interest savings account, mutual funds, guaranteed investment certificates, listed securities, or other types of qualified investment products;
  • Unused TFSA contribution room is carried forward and accumulates for future years;
  • Funds available in your TFSA can be withdrawn tax-free at any time for any purpose. You can re-contribute withdrawn amounts in the same year only if you have unused TFSA contribution room. Otherwise, you have to wait until the following year;
  • Income earned in a TFSA and withdrawals do not affect your eligibility for federal income-tested benefits and credits; and
  • Contributions to a spouse’s or common-law partner’s TFSA are allowed.

When the TFSA was introduced, the Harper Government announced the $5,000 annual contribution limit would be indexed to inflation in $500 increments. 2013 will be the year in which the first $500 increment takes effect.