Keep in mind for whom you are investing

Deborah Leahy

July 2012

You may, on occasion, ask yourself why you are investing. Why go through the fluctuations of the financial markets, the worry over interest rate movements, the fears of today and the uncertainties of tomorrow?

To answer this question, you may need to ask yourself one more: For whom am I investing?

You’re investing for yourself. It sounds selfish, but it’s not. You may be investing in your registered retirement savings plan (RRSP) and other investment accounts so you can enjoy a comfortable retirement after working your entire adult life. But you’re also investing so you can become financially independent—free of worries that you’ll become a burden to your grown children or other family members.

And given the real possibility of spending two, or even three, decades in active retirement, it’s imperative that you put as much as you can possibly afford into investment vehicles that can help you pursue your financial independence.

You’re investing for your family. If you have children or grandchildren, you might want to help them pay for college or university. And, as you know, post-secondary education has gotten much more expensive in recent years, so you’ll need to save and invest from the time the children are very young, and you’ll need to choose the right investment accounts.

But you’ll also need to think about other family members, too. Have you built up enough in your retirement accounts so that the money would be sufficient to support your surviving spouse should anything happen to you?

Will you have enough financial resources to help support your elderly parents should they require assistance? And will you be able to leave the type of legacy you desire? As you can see, when you’re investing for your family, you’ve got a lot to consider.

You’re investing for your beliefs. Throughout your working years, you may try to give as much money as you can to charitable organizations whose work you support. Yet you may wish you could do even more. And eventually, you may be able to do more.

For example, if you sell an asset that has appreciated in value, there will be tax implications. But if you were to give securities that have appreciated in value to a charitable organization, you could avoid taxes on the appreciated amount, and you might even get an income-tax break for your contribution.

You might also want to include charitable organizations in your estate plans, after consulting with your attorney or other estate-tax adviser.

As you can see, you’ve got some “key constituencies” counting on you.

By keeping them in mind, you should have the motivation you need to overlook the day-to-day ups and downs of investing while you keep your focus on your important long-term goals.

Eco-friendly investing encompasses more than the greenback

Deborah Leahy

June 2012

If you’re concerned about social and ethical issues, why not speak out with your investment portfolio? Through socially responsible investing, your portfolio can reflect your values.

As an investor, you can support businesses that are doing their part to make the world a better place. Socially responsible investing—also known as ethical investing—is a good way to invest in companies with social, ethical or environmental policies you support.

You can invest in businesses that have good environmental track records or that make environmentally friendly products. You can choose companies that refuse to do business with oppressive governments and avoid those that do. You can steer clear of companies whose products pose health threats. Everybody has their own definition of “socially responsible,” and your take on the subject will guide your strategy.

You should think of socially responsible investments as one part of a portfolio that includes a balance of different investment types. Because the universe of socially responsible investing is still relatively small, focusing exclusively on these types of investments is too limiting for most investors. A narrowly focused portfolio can leave you vulnerable to the ups and downs of one investment group, while you miss out on investment opportunities elsewhere.

One of the challenges of socially responsible investing is that it can be hard to find acceptable investments on your own. Screening companies to determine whether they meet your criteria can be difficult and time-consuming. You may have to examine a corporation’s structure, its business practices, its history and where and with whom it conducts business.

A much easier route is through mutual funds. Canada has a growing selection of funds that seek out socially responsible, ethical and environmental investments. These funds do the screening for you, by picking investments that meet their criteria.

Plus, you’ll get the typical benefits of mutual funds: ease of investing, professional management and diversification through the selection of individual investments held by each fund.

When choosing a fund, be sure its objectives match yours. What’s deemed socially responsible can vary from fund to fund. For example, some funds might focus on companies with an innovative environmental approach. Others might avoid companies connected to such industries as tobacco or gambling.

As you would with any mutual fund investment, pay attention to the fund’s performance record, its management style, level of risk and other factors that will determine whether a fund has a place in your portfolio.

It’s a good idea to meet with an investment professional before making socially responsible investments. Your adviser can help determine which investments fit with your objectives.

Deborah Leahy is a financial adviser with Edward Jones, member CIPF.

This Mother’s Day, think of the children

Deborah Leahy

May 2012

If you’re a mom, you’ll probably receive nice cards and flowers on Mother’s Day. But of course, your greatest gifts are your children themselves. And since you want to see them happy and financially secure, perhaps you can use this Mother’s Day as an opportunity to consider ways to help them at various stages of their lives.

When your children are young

• Teach them to be savers. Encourage young children to put away part of their allowance, or any money they receive for household jobs, in a savings account. You could offer to match their contributions dollar for dollar.

• Help them become investors. Consider giving your children a few shares of stock in companies with which they are familiar.

By following the movements of their stocks with them, you can explain how the markets work and how increasing share ownership is one key to helping build wealth.

• Contribute to a college savings plan. One of the best things you can do to boost your children’s chances of success in life is to help them go to college. Your financial adviser can help you establish a registered education savings plan.

When your children enter the working world

• Encourage RRSP contributions. A registered retirement savings plan is a great retirement savings vehicle. Once your children have earned income, they can contribute to an RRSP.

• Make long-term-care arrangements. If you need long-term care, such as an extended nursing home stay, and you are inadequately prepared financially, the burden could fall on your children. Now is the time to consult with your adviser to prepare for possible long-term costs.

When your children reach middle age

• Communicate your financial situation and estate plans. Don’t leave adult children in the dark as to your financial information. Share everything you can about how much you own, where you keep your assets and how you plan to eventually distribute them. By clearly communicating your situation and wishes now, you can avoid major problems later.

• Create a power of attorney. You can appoint another person, such as an adult child, to conduct your business and financial affairs if you become physically or mentally incapacitated. Such a move can help reduce stress your children may be feeling, while allowing them to make moves that can help preserve your finances.

Mother’s Day celebrates the special bond mothers have with their children. By following the above suggestions, you can help strengthen that bond throughout your lifetime.

Deborah Leahy is a financial adviser with
Edward Jones, specializing in assisting seniors.
Edward Jones is a member of the CIPF.

Grants, bonds can beef up RDSPs

Deborah Leahy

April 2012

The registered disability savings plan (RDSP) was introduced in 2008 to help individuals with severe and prolonged disabilities save for their long-term financial security. However, many Canadians have not taken advantage of its benefits, which can help individuals provide a better future for themselves and their families.

A participant may hold only one RDSP account, which is limited to a lifetime total of $200,000 in non-government contributions. Contributions are not tax deductible, and the plan is not designed as a short-term savings vehicle or for regularly withdrawing money in the short term.

RDSP benefits include:

• Contributions accumulate tax-free until the money is withdrawn.

• Contributions do not effect federal benefits and have little, if any, effect on provincial benefits.

Grants and bonds available

If eligible, you can help build your RDSP with government grant and bond contributions.

Savings bonds: The government may pay into an RDSP a Canada disability savings bond of up to $1,000 annually, up to a maximum lifetime limit of $20,000, dependent only on family net income with no personal contributions required.

Savings grants: An RDSP beneficiary may receive a Canada disability savings grant of up to $3,500 per year, up to a maximum lifetime limit of $70,000. The amount is based on contributions and family net income.

Both bonds and grants are available until the year the participant reaches age 49.

Generally, bonds and grants must remain in the account for at least 10 years before a withdrawal may be made, and withdrawals must begin by the end of the year in which the participant reaches age 60. Additionally, for any account established on or after January 2011, the RDSP may carry forward unused grant and bond entitlements up to 10 years preceding its opening.

Rollover option

As of July 2011, a deceased individual’s registered retirement savings plan, registered retirement income fund or registered pension plan can be rolled on a tax-deferred basis into an RDSP for a financially dependent infirm child or grandchild. This option is often overlooked.

It’s important to be informed about the steps you can take today for your financial future, including knowing whether you or a family member qualify for the RDSP.

Deborah Leahy is a financial adviser with Edward Jones, specializing in assisting seniors.

Buy! Sell! and the gender gap

Deborah Leahy

March 2012

Several years ago, a book titled Men Are From Mars, Women Are From Venus was quite popular. It argues that men and women are vastly different, particularly in their emotional needs and in the way they communicate. While not everyone agrees with the notion that men and women might as well be from different planets, most of us concur that the genders frequently behave differently—and this divergence in behaviour may also show up in the way we invest.

Studies and anecdotal evidence suggest these differences in the way that men and women invest:

Men tend to buy and sell investments more frequently than women. This difference could result in an advantage for female investors, who might incur fewer commission charges, fees and other expenses, all of which can eat into investment returns.

Also, by holding investments longer, women may be able to take better advantage of market rallies. During the 2008-09 financial crisis, for example, men were more likely than women to sell shares at market lows, which led to bigger losses among male traders—and fewer gains when some of the stock values began to rise, according to a study by Vanguard, a mutual fund company.

Men tend to invest more aggressively. Perhaps not surprisingly, men seem to be more willing to take risks.

On the positive side, risk is associated with reward, so the more aggressive the investment, the greater the potential for growth.

On the negative side, taking too much risk pretty much speaks for itself. Ideally, all investors—men and women—should stick with investments that fit their individual risk tolerance.

Women are more likely to look at the “big picture.” Although male and female investors want information, women seem to take a more “holistic” approach—instead of focusing strictly on performance statistics, they tend to delve deeper into their investments’ background, competitive environment and other factors.

This quest for additional knowledge may help explain why all-female investment clubs have achieved greater returns than all-male clubs, according to a study by the National Association of Investors Corp., which represents thousands of investment clubs across the country.

Men might be more optimistic about financial markets. Some studies show that men are more optimistic about key economic indicators and future stock market performance.

Optimism can be a valuable asset when it comes to investing; if you have confidence in the future, you’re more likely to invest for it, and continue investing. On the other hand, false optimism may lead to over-confidence, which can have negative results.

Neither men nor women have a monopoly on positive investment behaviours; each can learn something from the other.

Ultimately, it’s your decision-making, not your X or Y chromosomes, that will determine your ability to make progress toward your long-term goals. Educate yourself about your choices, and get the help you need from a financial professional as you invest through the years.

Deborah Leahy is an investment adviser with Edward Jones, specializing in assisting seniors.

Time to put down your crystal ball

Deborah Leahy

February 2012

For investors, 2011 was a somewhat “choppy” year, with numerous ups and downs in the financial markets. Planning our financial fitness for 2012 involves looking at what we can expect from the markets in 2012.

As baseball Hall of Famer Yogi Berra once said: “It’s hard to make predictions—especially about the future.” These words are certainly applicable for anyone wanting an accurate forecast of the investment climate for 2012. Yet we do know some factors that might affect your portfolio in the months ahead.

Strong business fundamentals: In the past year, the European financial situation, the size of the U.S. deficit and the U.S. budget debates tended to overshadow some fairly good news. Canadian and U.S. businesses’ balance sheets were primarily strong, borrowing costs remained low, and corporate profits were good—over the long term, corporate profitability is a key driver of stock prices. Heading into 2012, these fundamentals continue to look positive, which may bode well for investors.

Europe’s debt crisis: Greece’s economic problems made news in 2011, but they weren’t the end of the story in Europe. Italy, Spain, Portugal and Ireland also faced major financial difficulties.

And without definite solutions, don’t be surprised to see intermittent, if short-lived, shocks to the markets.

U.S. election-year patterns: The U.S. stock market typically rises during the year a U.S. incumbent president faces re-election, which is the case in 2012. Coincidence? No one can say for sure whether the pattern will continue. This could affect Canadian markets, since other markets tend to follow those of the U.S.

Instead of trying to predict what will happen in 2012, consider the following tried and true investment strategies:

Diversify your holdings: Spreading your money among a wide range of investments can help reduce the effects of volatility in your portfolio. Keep in mind, diversification alone doesn’t guarantee a profit or protect against loss.

Don’t ignore your risk tolerance: Worrying excessively about market fluctuations might mean you have too much risk in your portfolio. If you do this, consider making changes.

Always look at the big picture: Financial markets fluctuate. But by staying focused on your long-term objectives and making decisions accordingly, you can help avoid overreacting to short-term events.

Just like other years, 2012 will undoubtedly have periods of turbulence. But by making the appropriate investment decisions, you can remain on track toward reaching your financial goals.

Deborah Leahy is a financial adviser with Edward Jones, and specializes in assisting seniors.

Have a tax-smart finish to 2011

December 2011

The year may be almost over, but there might still be time to find ways to save on your 2011 taxes—and adopt some tax-smart habits for the coming year and beyond.

Income splitting: If you are 65 or older, you might be able to allocate up to one-half of qualified pension income to your spouse or common-law partner. Pension income can come from pension plans, registered retirement income fund (RRIF) payments or certain annuities.

Accrued losses before year-end: If your investment objectives or the underlying fundamentals of an investment have changed, you might want to consider selling the investment, which can trigger a capital loss and offset any capital gains you may have had, thereby reducing your overall tax bill.

RRSP contribution: The deadline is not until early 2012, but consider making your 2011 registered retirement savings plan (RRSP) contribution now if you haven’t already done so. By acting sooner rather than later, you can give the investments in your RRSP more time to potentially grow through compounding.

RESP contribution: Remember that you must put money into a registered education savings plan before year-end to qualify for the 2011 Canada Education Savings Grant.

TFSA contribution: Don’t forget about the tax-free savings account. Canadians 18 and older can put $5,000 per year into a TFSA and benefit from tax-free growth on eligible investments held in the account.

Charitable contributions: To qualify for many credits and deductions, including charitable contributions, you must complete these transactions before December 31.

Speak with your financial adviser for more information on year-end strategies. Best wishes for a happy and healthy holiday season.

Leahy is a financial adviser with Edward Jones, specializing in assisting seniors.

Be fully informed when starting a relationship with an adviser

Deborah Leahy

November 2011

If you’re like most people, you have a variety of financial goals. You might be able to achieve all of them on your own—but you will probably find it a lot easier if you get a little help from a financial adviser.

But how do you choose the right one? For starters, ask your friends, relatives and co-workers to suggest someone. Then interview some of the people they recommend. What questions should you ask?

What are your qualifications? Make sure you are talking to someone who, at a minimum, has all the required licenses for selling securities.

What type of experience do you have? Find out how long someone has been an adviser, but don’t rule out a person with only a limited amount of experience—a new adviser is often enthusiastic.

An adviser’s longevity is less important than whether he or she has had experience working with someone like you—someone in your financial situation, with your goals and your investment preferences.

What is your investment philosophy? Try to learn if someone favours a specific style of investing or a particular class of investments. These styles or classes may be well suited to some investors but inappropriate for others. If you believe the person you’re talking to has a “one size fits all” mentality, look elsewhere.

How will you communicate with me? There’s no one “right” way of communicating with clients. You need to feel comfortable that someone will always be available to answer questions, review accounts, evaluate your situation and make appropriate recommendations. If you are interviewing someone who has a partner or an assistant, find out whom you are likely to be communicating with, should you decide to become a client.

What services do you provide? Find out how a prospective adviser can help you. Some people sell investments only, while others offer investments and insurance.

Keep in mind that you don’t need to be a “one-stop” shopper when it comes to obtaining a wide range of services. You might want to ask a prospective adviser if he or she has developed working relationships with legal and tax advisers. This “team” approach can be quite beneficial to you, especially when you get into the area of estate planning.

How are you paid? There are several ways: fees, commissions, salary or some combination of these methods. One way isn’t necessarily any better than another, but you should have a clear understanding of what type of compensation is used.

Your association with an adviser is one of the most important business relationships you’ll have, so make sure it’s a good one—right from the start.

Deborah Leahy is a financial adviser with Edward Jones, specializing in assisting seniors.

Seven simple points can help you avoid investment-portfolio pitfalls

Deborah Leahy

October 2011

When it comes to evaluating your portfolio’s performance, many people think “gains are good and losses are bad,” which is generally true, but you could find that making investment decisions on that basis may lead to some problems.

Here are seven of the most common mistakes you can try to avoid when analyzing your investments’ performance.

Evaluating performance over a short period of time: People tend to buy investments that have performed well and sell those that have performed poorly over the short term. This habit of “buying when you feel good and selling when you feel bad” can be the equivalent of buying when prices are high and selling when prices are low.

Blaming the manager/financial adviser for factors beyond his or her control: Has the value of your investment fallen because it’s a bad investment or because the overall stock or bond market fell? Market declines are an inevitable part of the investing process and not a reason to sell quality investments. Assuming poor management or bad advice is the reason for your investment’s decline can be a mistake.

Failing to consider the impact of money moving into and out of the account: A proper assessment of your portfolio’s performance will factor in the amount of money being invested and withdrawn. If you don’t do this, you could come to the wrong conclusions about an investment’s performance. Be sure to consider its cash flow.

Looking backward instead of forward: The legal disclaimer appearing on nearly all investment literature states that “past performance may not be an indication of future results.” This statement should be etched on the minds of every investor. When recent performance is strong, investors think it will last forever. However, after long periods of underperformance, people tend to abandon investments instead of holding for the long-term, only to miss out on potential opportunity.

Failing to account for income: The primary investment goal for most people is to have enough money to live comfortably in retirement. To meet that goal, you should own investments that generate enough income to cover bills and any extra activities you want to pursue. You’ll probably own fixed-income investments and equities, both of which can pay income. Equities tend to pay a lower rate of income but offer the potential to grow over time through dividend increases. Remember that dividends can be increased, decreased or eliminated at any point with or without notice. Investors who understand this should realize performance comes from not only growth, but also income.

Having unrealistic expectations: Wide price swings in the stock market can be difficult to stomach. Equities can be particularly uncomfortable to own when the news is bad and the market is down. However, owning quality equities can provide the potential for growth. The key is to make sure you have a long-term perspective. Failing to take risk into account: Some people buy riskier investments after the market has risen and safer investments after the market has dropped. This approach can significantly reduce long-term investment returns. Riskier investments will likely experience wider price swings. The opposite is true for more conservative investments.

With these seven points in mind, make sure you regularly review your portfolio with your financial adviser and talk about rebalancing as needed, which can reduce risk and help keep you on track to meeting your long-term goals.

Deborah Leahy is an investment adviser with Edward Jones, specializing in assisting seniors.

Instead of being taken for a trip, spend a little time planning for one

Deborah Leahy

July 2011

You may be looking forward to vacations, barbecues, and other events of the season. Your summer activities can actually provide you with some valuable lessons on managing your investment strategy.

Here are a few possibilities:

Plan your trip. If you’re taking a long road trip this summer, you’ll need to choose your vehicle, map out your route, determine how far you want to go each day and be certain of your destination. And, essentially, the same is true for your investment strategy. You need to choose the right investment vehicles, familiarize yourself with your ultimate goals (such as a comfortable retirement) and chart your progress along the way.

Try to avoid getting burned. If you’re going to spend a lot of time outdoors this summer, you may need to apply some sunscreen. But you don’t have to be exposed to the sun to get “burned”—it can happen in the investment world, too. However, you can help prevent this from happening by building a diversified portfolio. If most of your money is tied up in just one type of investment, and that asset class falls victim to a downturn, your portfolio could take big hit. But while some investments are moving down, others may be moving up, so it makes sense to spread your money among a range of vehicles appropriate for your risk tolerance, investment goals and time horizon.

Of course, diversification by itself cannot guarantee a profit or protect against loss, but it can help reduce the effects of volatility on your portfolio.

Keep yourself “hydrated.” When you’re outside on hot days, you can lose a lot of fluids, so you need to drink plenty of liquids. As an investor, you also need a reasonable amount of liquidity. In the severe market downturn of 2008 and early 2009, many investors found they had insufficient amounts of the type of liquid investments—cash and cash equivalents—that held up better than other, more aggressive vehicles. Furthermore, if you are relatively illiquid, you may have to dip into your longer-term investments to pay for short-term emergency needs. Try to always keep an adequate level of liquidity in your holdings.

Dress for the season. As you go about your summer activities, you won’t always wear the same clothes. On hot days, you might want to wear shorts, but on cool, rainy days, you might need heavier items or even a raincoat. And as you go through life, you may need to adjust your investment approach depending on your individual financial “season.”

For example, someone just starting her career might be able to afford to invest more aggressively, as she will have more opportunities to recover from the inevitable short-term downturns. As she closes in on retirement, though, she might need to take a more conservative approach so she can lower her investment risk. So there you have them—some ideas for “summertime investing.” Use them wisely, and they may be of value to you long after summer is over.

* * *

Deborah Leahy is an investment adviser with Edward Jones, specializing in assisting seniors.

The alphabet soup of converting your RRSP to an RRIF

Deborah Leahy

June 2011

A registered retirement savings plan is a great way to save and invest for retirement. But you can’t save forever.

At some point, you’ll use the funds you’ve accumulated in your RRSP for retirement income. You can wait, but not past a certain age. Government regulations require you to wind up your RRSP by the end of the year in which you turn 71.

When it’s time to draw on RRSP funds for income, there are three basic choices: You can convert your RRSP to a registered retirement income fund, or RRIF; buy an annuity; or take the entire amount in cash. You can also combine any of these options. In reality, the first two options are the most popular, because receiving funds in cash could result in a substantial income tax bill in a single year.

RRIFs are by far the most common choice.

They offer investment and income flexibility and let you keep the same investments you held in your RRSP. They’re also widely available from financial institutions and can be tailored to meet your needs. If you want maximum flexibility, you can open a self-directed plan.

A RRIF is similar to an RRSP, only you distribute money instead of contributing funds. Your investments grow, tax-deferred, as long as they remain in the plan. Amounts withdrawn for income are taxable.

You can withdraw as much as you want from an RRIF. However, a minimum annual withdrawal is required under government regulations. This is based on your age and the value of your RRIF.

If you turn 71 this year, you should have already started the process of winding up your RRSP.

Most financial institutions require at least a month’s notice to complete the necessary transactions. Failure to wind up your RRSP by December 31 could result in the entire amount being converted to cash and considered income in one year. It would then be taxed accordingly.

The main alternative to an RRIF is an annuity.

With an annuity, you create a simple income stream, without the chore of managing investments.

You can buy a life annuity, through which you provide a lump sum to an insurance company in exchange for a guaranteed income stream for life. Payments, usually made monthly, are a combination of investment returns and repayment of part of your principal amount.

Generally they’re fixed for the term of the annuity. Some type of annuities provide payments until age 90, or offer different features.

You don’t have to choose between an RRIF and an annuity.

You can combine the two so an annuity provides a predictable income stream in retirement and an RRIF gives you a chance to exercise greater control over part of your assets.

Speak to a financial adviser before you make a retirement decision. With professional help, you can select the right income option for your needs. Deborah Leahy is an investment adviser with Edward Jones, specializing in assisting seniors.

Beware: your pension might not be sufficient

Deborah Leahy

May, 2011

We all want financial security when we retire, and many Canadians are counting on employer pension plans to provide that security. But there’s a growing possibility that your pension won’t provide the income you need.

There is a trend toward defined contribution pension plans. These are registered pension plans that specify the employee and employer contributions, but not the amount the employee will receive at retirement. Payout amounts from these plans are based on the returns earned by their investments. If the investments perform well, you could have more income than you expect; if they underperform, you could be left short.

Defined benefit pension plans are different from defined contribution plans. In a defined benefit plan, the employee knows, in advance, how much will be paid out at retirement, and contributions are based on the employee’s salary and length of service. Defined benefit plans were once the norm in Canada. However, most new pension plans are of the defined contribution type, and many existing defined benefit plans are being converted.

Members of defined contribution plans can usually choose how to invest their contributions. Participants are provided with tax-sheltered options ranging from conservative to higher growth. Their contributions are pooled with those of other plan members and invested by professionals.

Companies prefer defined contribution plans because employers aren’t required to pay fixed benefits when investments perform poorly, as is the case with defined benefit plans. This shifts risk from the employer to the employee. For example, those who choose a growth option that invests largely in equities could suffer if the stock market has a few down years immediately before they retire.

Even defined benefit plans have risks. Many of these plans are underfunded and could fail to meet obligations to employees. This can be because of poor investment returns or the employer’s inability to make contributions.

How can you protect yourself from the possibility of less pension income than you’ll need? The best strategy is to have other sources of income.

Registered retirement savings plans (RRSPs): If you belong to a pension plan, your yearly RRSP contribution room will be reduced by a pension adjustment. However, you may still be able to build considerable RRSP wealth before retirement. That wealth can provide additional income.

Tax-free savings accounts (TFSAs): Consider taking advantage of TFSAs, which can provide you with tax-free income during retirement. Every Canadian age 18 or older can contribute up to $5,000 per year.

Non-registered investments: If you have used your available RRSP and TFSA contribution room, consider holding your investments in a taxable investment account. Although your investment income is taxable, capital gains and dividends from certain Canadian companies may provide you with some tax advantages. Remember, however, that dividends can be increased, decreased or eliminated at any point without notice.

Consult with your financial adviser to determine whether your pension will provide the retirement income you need.

Deborah Leahy is an investment adviser with Edward Jones, specializing in assisting seniors.

No time like spring to clean up the books

Deborah Leahy

April, 2011

For many people, a weekend of vigorous house cleaning is a rite of spring. Spring can also be an excellent time to clean up your financial situation—with RRSP season and the filing of personal income taxes now behind you.

How to tidy up your financial life

1. Organize your financial records. If you find you always file your taxes at the last minute, now is the perfect time to organize your financial records because you’ve probably got them close at hand. It’s not just a matter of having your brokerage and RRSP statements in neat piles. Once you’ve got these documents together, you might see opportunities for consolidation.

For example, you might have RRSPs with different financial institutions. By moving them all to one provider, you could save some fees, reduce your paperwork, and find it simpler to manage your investments.

2. Assess your portfolio’s diversification. Over time, you may have built a sizable investment portfolio. But if it lacks diversification, you may be hindering your progress toward your goals. While diversification does not guarantee a profit or protect against a loss, it may be the best approach. So look for opportunities to ensure ample diversity with different types of securities, taking into account your risk tolerance and time horizon.

3. Review your “systematic” investing for maximum saving. Years ago, you might have started systematically moving money from your savings account into an investment.

But perhaps the circumstances of your life changed and you needed money for other purposes so you reduced or stopped making those investments. Scrutinize your situation and see whether you can get back on track with your savings through automatic investments. A systematic investment plan does not insure a profit, and does not protect against loss in declining markets, but is a great way to maintain your investing discipline.

4. Check your beneficiaries. Beneficiary designations on financial documents are extremely important because they may supersede even the instructions in your will.

Over time, your family situation may have changed through death, divorce, remarriage or the birth of children, so you should periodically review all your beneficiary designations, as well as any estate planning documents that you have, such as your will and powers of attorney.

5. Examine your insurance coverage. When you have a young family, you need a certain amount of life insurance coverage to provide for some major obligations—such as your mortgage, education for your kids, or perhaps some retirement funds for your spouse.

But when your children have grown, your mortgage is paid and your spouse has decades’ worth of retirement savings, your insurance needs may change. At the same time, you may find other uses for insurance. Take some time and review your insurance coverage with your financial adviser.

6. Be a wise snowbird. For people returning to Canada after wintering south of the border, you may want to review what you want to do with your U.S. dollars. Instead of converting all of it back to Canadian currency, one convenient option to consider is purchasing U.S. dollar bonds, which can provide income in U.S. dollars.

You might also want to ensure that you have an optimal savings account set up. People who have investments in U.S. and Canadian dollars may find that having a savings account in both currencies is a wise choice to handle continuing accrual from such sources as stock dividends and bond interest. While away, their money is working hard for them. When they come back, they have easy access to the funds, with everything consolidated to keep things simple.

Deborah Leahy is an Investment Advisor with Edward Jones.