Turning lemons into lemonade

October 30, 2023 | Portfolio Advisor – Fall 2023


Five ideas to help you survive and thrive through market downturns

Turning lemons into lemonade

“Life is 10% what happens to you, and 90% how you react to it.” 

- Charles R. Swindoll

Investors today can hardly be blamed for feeling disappointed about the performance of equity and bond markets, especially in Canada. The S&P/TSX Composite Index is essentially flat year-over-year (price return as of October 31, 2023). But while you can’t control the markets, you can control how you react to them. What’s more, you can also consider strategies to improve your financial situation – even when markets are volatile. Here are five ideas that can help:

1. Don’t panic – time and history are on your side

Unfortunately, there are times when markets do not deliver the returns we’d like. But looking at the history of markets, periods like the ones we face today are not unusual – nor are they something to fear or change our course over. In fact, downturns for investment markets are historically excellent opportunities to take advantage of lower asset prices, while waiting for more normal conditions to return to benefit from their rebound. While there are always reasons not to invest, looking at the following chart shows why crises can really be opportunities in disguise:

2. Tax planning: Convert capital losses into tax advantages

By selling investments that have gone down in value, you can turn “lemons” into “lemonade” – at least from a tax perspective. Here’s how. First, consider whether you have any investments in your non-registered account that are worth less than what you paid for them. Do they still meet your investment goals? If not, it can make sense to consider selling them, in order realize the capital loss. That’s because you can apply the capital loss against any taxable capital gains realized in the current year (or any of the previous three years). This can reduce your taxable capital gains. We can help you identify which investments to consider selling. You should also speak to a qualified tax advisor to ensure this strategy makes sense for you, given your individual situation.

3. Charitable giving: Giving is its own reward, but giving “in kind” is smart planning

Do you have securities like stocks that have appreciated in value? Are you considering selling them and donating the proceeds to charity? To maximize your gift, consider donating them in-kind instead. If you give actual securities in-kind (i.e., transfer directly to the charity), the donation is assessed at the fair market value of those in-kind assets – AND you do not pay the usual capital gains tax. If you sell those assets and donate the proceeds in cash, you will have to pay taxes on the capital gains AND you will consequently reduce the net donation proportionally.

4. Business management: When markets are cold, consider an estate freeze

If the value of your business shares has recently declined, consider an estate freeze or refreeze –particularly if your company is expected to grow in value once market conditions rebound. An estate freeze may help limit the value of the company that will be taxed in your hands upon death, and also shift future growth to your successors or other family members.

5. Financial planning: Review your plan and your immediate cash-flow needs

A written financial plan or retirement projection can help to put market volatility into perspective. It’s important to know the options available if your plan is off track. If you are concerned you may not meet your long-term objectives, consider any actions you can take in order to meet your goals. For example, if you are approaching retirement, can you continue working an additional few years? Can you reduce your retirement expenses? Can you save more now?

We can help

Volatile markets are tough on investors, often straining their patience, and tempting them to veer off plan and make poor long-term decisions based on emotions rather than reason. We can help figure out how to turn the lemons the market is handing you today into the advice and options that can pay off for years to come.

This information is not intended as nor does it constitute tax or legal advice. Readers should consult their own lawyer, accountant or other professional advisor when planning to implement a strategy. This information is not investment advice and should be used only in conjunction with a discussion with your RBC Dominion Securities Inc. Investment Advisor. This will ensure that your own circumstances have been considered properly and that action is taken on the latest available information. The information contained herein has been obtained from sources believed to be reliable at the time obtained but neither RBC Dominion Securities Inc. nor its employees, agents, or information suppliers can guarantee its accuracy or completeness. This report is not and under no circumstances is to be construed as an offer to sell or the solicitation of an offer to buy any securities. This report is furnished on the basis and understanding that neither RBC Dominion Securities Inc. nor its employees, agents, or information suppliers is to be under any responsibility or liability whatsoever in respect thereof. The inventories of RBC Dominion Securities Inc. may from time to time include securities mentioned herein. RBC Dominion Securities Inc.* and Royal Bank of Canada are separate corporate entities which are affiliated. *Member-Canadian Investor Protection Fund. RBC Dominion Securities Inc. is a member company of RBC Wealth Management, a business segment of Royal Bank of Canada. ® / TM Trademark(s) of Royal Bank of Canada. Used under license.


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