Year-end Tips, New Year’s Outlook

By Bruce Loeppky
Bruce Loeppky
Bruce Loeppky
December 17, 2013 Updated: December 17, 2013

International stock markets outpaced Canada’s through 2013, while interest rates remained low. This has presented some unique challenges for Canadian investors, particularly retirees. 

But with a little patience, perseverance, and planning, we can still meet our financial goals. So here’s a review of 2013 and some planning tips to help you get a head start in 2014.

When to Use Tactical Investment Strategies

The U.S., global, and European markets have all had a very good year, so be cautious about putting in new, large lump sums into those areas. That strategy usually doesn’t end well. 

Canada’s market has lagged, owing to our weak metals/resource sectors. For those who made big money in precious metals over the past 10 years, congratulations! Latecomers to the party were hammered by 50 percent declines this year. 

This continues to be a sector best played by getting in and out at opportune times. Buy after a big correction and sell after big gains, so you’re playing with “house money.” But use this strategy only for small and volatile sectors.

Interest rates continue to be very low, which makes it more difficult to earn decent returns in fixed income, but we need to have money here for volatility and safety reasons. Retirees will need to have a significant portion of their assets in equities, because of the current low interest rate environment. 

Safe investments (bonds, Guaranteed Income Certificates, mortgage funds, Canada Savings Bonds) are in a low return window, and that shows no likelihood of changing anytime soon.

Construct a balanced portfolio of equity investments combined with a mixed bag of fixed income for the majority of your portfolio. Add a few others (infrastructure, real estate, precious metals, or alternative investments) to try and bump returns and increase diversification.

Tax Planning/Government Grants

RRSPs: Look at your Registered Retirement Savings Plan (RRSP) to see if you can add anything before the deadline of March 3, 2014, to save on 2013 taxes. 

TFSAs: Check your Tax-Free Savings Account (TFSA) limits to see if you can add anything to this great tax-free plan that can be used to supplement retirement income and fund big-ticket purchases not in your day-to-day budget, and holidays. Younger investors are using the TFSA to help buy a home, so they don’t have to redeem their RRSPs and slow down compounding in those plans.

RESPs: Have you maximized (or put what you can afford) into Registered Education Savings Plans (RESPs), so that your children can pursue their post-secondary educational dreams without incurring huge debt?

Hunt for Tax Breaks

Always be searching for ways to save tax and get all the free government monies that you are entitled to. It’s no secret Canada is a highly taxed nation, so why not do whatever is prudent to reduce your tax burden with some planning?

If you have some investments that have lost money in a non-registered account, you may be able to redeem that asset, crystalize the capital loss, and buy another investment or pay down debt as you see fit. That capital loss can be used into the future to offset a capital gain.

Fund Fee Breaks for High Net Worth Investors

Many mutual fund companies have reduced fees if you invest $100,000 or more. That threshold was $250,000 minimum previously. Check with your financial adviser to see if you can get into a series with lower management expense ratios if your assets are significant. 

As your assets grow, you can save substantial amounts of money by investing in these High Net Worth (HNW) series. Studies show there are more and more Canadians whose assets fall within those parameters.

I hope your portfolio has seen a healthy increase this year. After a decade of moderate returns, it’s nice to get a good year from most parts of the world. Unfortunately, Canada is one of the areas that is currently underperforming, but that won’t last forever. Nothing does.

Have a great holiday season and a prosperous New Year! 

Courtesy Fundata Canada Inc. Bruce Loeppky is a financial advisor based in Surrey, B.C. This article is not intended as personalized investment advice. Investment vehicles mentioned are not guaranteed and may involve risk of loss.