First-thing this year I emailed investment summaries so you already know the major growth of last year. Even more important is the 3-year growth since before covid. When early-pandemic markets dropped 30-50% our accounts were far safer due to our strategies to optimize growth at reduced risk while preserving income. This avoided triggering losses while we kept true to your investment goals and overall financial plan.
OPPORTUNITIES FOR 2022.
2022 raises many questions of how certain events will unfold. Will covid variants lead to a less lethal, more commonplace virus? As that happens, how quickly will our service industries (restaurants, entertainment, travel) rebound and regain full employment? When will we see inflation #s settling back at 2-3% as 12-month comparisons look back to 2021 instead of 2020? How soon will automotive and other industrial production (and total GDP #s) respond to easing transportation blockages and accelerating global trade? Looking forward we certainly see higher earnings from banks, commodities, manufacturers, real estate, etc., and major recovery in renewable/clean energies which oddly lost 40% last year, setting a terrific base for rewards in the green/clean theme.
Balancing questions and certainties, we are 100% confident 2022 brings healthy dividends and growth despite fluctuations along the way. It doesn’t so much matter whether there’s higher growth in first-half or second-half. Possibly, early months of 2022 offer time to consolidate the substantial growth of 2021, and if so then we expect a more vigorous second-half 2022. In any event next January we’ll have the whole picture of this promising “mid-cycle” year 2022. Meanwhile there are many positive signs ahead, and the good signs are steadily improving while poorer signs are temporary and fading.
Ways to accelerate wealth and enhance your results now for 2022:
- Paying into your RRSP ensures refund of taxes you paid in 2021.
- Investing tax refund or other spare cash to maximize your TFSA.
- Life insurance too offers powerful tax shelter – we can discuss.
- Critical illness insurance: quick tax-free $$ when you need it most.
- Is it time your house should be paying you an income? Ask me how.
- Bonus if you want to know: how can TFSA bonus your estate?
ESTATE PLANS – NEW IN ONTARIO WILLS.
We should all review our Wills every year or so because families change and Laws themselves change. January 1st introduced a new law which some people will want to discuss with their estate lawyer.
Used to be, when someone got married it would invalidate their existing Will. As a result, if they failed to write a new Will, they could die intestate and provincial laws would dictate the division of assets. This could be leave everyone unhappy, including ex-spouse, new-spouse, children, and any business relationships.
Since January 1st now in Ontario, marriage will no longer invalidate an existing Will but treats the ex-spouse as already having died. Assets then would be prioritized among the children, without prior or new spouse receiving any value whatsoever.
Humans are not simple creatures: assets and wishes are seldom simple when it comes to treatment at death. If there’s been more than one marriage, if children are involved, blended families or a business to carry on or wind down, if people sometimes don’t see eye-to-eye or other disagreements or grief could arise, it is essential to own a Will and set a date each year (eg. new year or first day of spring?) to read it through, and review it every few years with your estate lawyer.
- Current changes: see A legal change on Jan. 1 will affect couples who marry and their wills – The Globe and Mail
- What about common-law relationships which have little or no protection in Ontario Family Law?
- What of various other forms of co-habitation that are not specified under current laws?
- But … the new law helps protect offspring from a parent’s predatory marriage.
- Own a Will.
- Personally review it annually.
- Discuss changes (relationships, assets, squabbles) with an estate lawyer.
ESTATE PLANNING (SURVEY & STORIES).
Completing our focus on your responses to last year’s Client Survey we land on the theme of estate planning. Twin questions, #9 and #10, focused on your views of whether we should spend our last dollar the day we die, or preserve a surplus for family and/or charity. Tax-planning fits here too because if we’ve spent all our money there won’t be any tax – it’s the “burn everything” model of tax planning. Preserving value for family heirs, on the other hand, introduces the “choose two” model. This means you can choose to give to family, charity, government, but you cannot give only to family without giving also to charity or government. For those who feel they’ve paid enough taxes, designating charitable gifts results in a tax-refund to their estate. Or, life insurance can pay in place of their estate. Ultimately those are the choices.
Back to your survey responses:
- Only 7.8% said they are comfortable with the idea of “spending their children’s inheritance”.
- One in six (17%) say they haven’t considered this yet – especially single, or younger families.
- Roughly half assure us they’ll “spend to enjoy life fully and whatever is left will go to our heirs”.
- Most feel it would be sad to leave nothing, and 43% say their planning includes specific gifts.
Pondering a few stories could help put this into your own context. (Names below are fictitious.)
- Sue and Terry are 30s/40s with a young family. Mortgage and other loans, repairs and reno’s, food and clothing, taxes and holidays, are a short-list of what consumes their money each month. They could never do it on a survivor’s income. Here’s where life insurance (magic eases the tragic) compensates for what a younger family hasn’t yet been able to save. When I deliver to a bereaved family a cheque worth 12-times or 15-times the income of a deceased spouse/parent, that’s the power to keep going and keep a family safe for all the years ahead.
- Bill had a bumper sticker, “spending our children’s inheritance”. He felt that a lifetime of raising kids and paying taxes was all that he owed. Perhaps he didn’t even have a Will. It’s enough to say that not everyone wishes to leave a gift on their passing.
- Sue and Gord feel especially fortunate how life has rewarded them. Gifts to family and charity are important to them. As a bonus, their charitable gifts reduce taxes that would have depleted family gifts. Having faced some troubling bumps and potholes in earlier years they worry for their family, and aim to protect life’s pathway for next generations.
- Edna and Ross have a great life with financial independence and freedom to do as they choose. They now know, it’s unlikely they will ever spend the full value of their home, RRIFs and other savings. They are thinking that if they can stay in their home it will be tax-free to the children; RRIFs can be donated to specific charities and thus eliminate most of their tax on death; and any remaining assets will face modest tax and pass easily to their intended heirs.
- Or spend everything and replace it at death. Mary and Alex are spending and sharing on the assumption they’ll live to 88; if life is shorter they will leave an inheritance and if they live longer they still have some value from their home, and their life insurance, to avoid depending on family. Now about the life insurance: they’ve designed it to pay into a family trust which can continue paying the next generation for at least twenty years beyond their deaths … especially helpful since one son is disabled, and the trust can sustain an income for his support along with his siblings and the grandchildren.
Ponder that last story: did the life insurance actually cost something for Mary and Alex? Or wasn’t it actually just a different kind of asset, paying a higher value at a later time? Plus how life insurance pays out tax free, this brought remarkable advantages to Mary and Alex and for their future planning.
HOW CAN WE HELP?
Whatever needs or questions come to mind in this letter, reach me so we can discuss. And if family or friends have concerns in the above areas – investment, financial, estate planning – connect us so we can help.
Yours in Financial Security for LIFE!
Brian Weatherdon, MA, CFP, CLU, CPCA. 905-637-3500
627 Guelph Line, Burlington, Ont. L7R 3M7. 1-877-937-3500
Certified Financial Planner, Certified Retirement Coach
** This monthly letter touches on key strategies in Canadian and global investing and financial planning. This letter is not an offer to sell any kind of security, insurance, or program. Historical returns and risk measures are not a valid guide to future performance. Returns are from publicly available sources and research from a variety of firms including but not limited to Canada Life, CIBC, Dynamic, Mackenzie Financial, RBC / PH&N, and more. Opinions in this letter belong solely to the author and no other body is responsible for the content expressed here. We value opportunity to coordinate with your legal and accounting advisers to further your financial goals in home and business. We are grateful always to receive your comments and questions.