BUELLER?
In the words of Ferris Bueller, “Life moves pretty fast. If you don’t stop and look around once in a while, you could miss it.”
The markets move pretty fast, too, and you could miss out – if you don’t stay invested. At this early point in the year, the S&P 500 is up almost 5%. The NASDAQ is up almost 12%. If you had gone to cash last year (an idea that I often get asked about and discuss), you would have missed out.
The market can’t be timed. And that’s why it’s so important for us to stop ourselves – from making what are called behavioural investment mistakes.
Principal Ed Rooney, Ferris’s nemesis in the movie, said, “What is so dangerous about a character like Ferris Bueller is that he gives good kids bad ideas.”
Not in this case. If you are investing for the long term, stay invested.
DIVIDENDS VS SALARY
Are you a self-employed business owner? Then you know that you have the option to pay yourself via salary or dividends. It is not necessarily a straightforward decision, so it is something I would like to provide advice on, alongside your accountant. Please contact me at your convenience.
Here are just a few of the many considerations (the bottom line is that you are looking for the most tax-efficient manner of paying yourself, and you should take guidance from a tax specialist):
Salary:
- May be tax-deductible, lowering your corporation’s taxable income
- Will attract payroll tax, and may attract other payroll expenses including worker’s compensation
- Is subject to your personal marginal tax rate in the year it is received
- CPP contributions must be made by the corporation, which will entitle you to CPP benefits in retirement
Dividends:
- Are not tax-deductible from the corporation
- Have already been subject to tax, since they are paid out of the corporation’s after-tax retained earnings
- If your compensation is received primarily or entirely by dividends, you may be required to make quarterly personal tax installments
Other considerations:
- RRSP contribution room is calculated based on “earned income,” which includes salary but not dividend income. If your only source of income is dividends, you won’t be able to accumulate RRSP contribution room
Again, this is far from a complete list. Please reach out if you would like to have a more detailed discussion, either one-on-one or with your accountant.
ACCOUNTANTS NEED TO EAT, TOO
Speaking of accountants, I have been speaking with accountants. On the topic of preparing a comprehensive financial plan, at Lunch and Learn events I have been holding with accountants and their teams.
Even at this busy time of year (tax season), people, including accountants, need to eat. I bring in lunch, put a financial plan on the screen and walk through it in detail, and promise I will take no longer than 45-60 minutes of their time.
The response has been fantastic. My message is resonating, and audiences are learning. I love this part of my job – teaching and being challenged with questions.
And I am offering to prepare a financial plan for any of these accountants’ clients – a plan that would cost thousands on the open market, but which I strive to do for all my clients, at no cost to them. The plan will cover retirement planning, insurance and estate planning, income planning, net worth projections – everything. It will address any and all questions including when to take CPP, whether someone has enough to retire or how much they need, will they outlive their money and when they should withdraw their RRSP money. Again, it will cover everything.
Would your accountant be interested in a Lunch and Learn? Just let me know.
LAST CALL FOR RRSPs
I mentioned that it is a busy time of year: tax season. Recall that the very last day to make an RRSP contribution is March 1st, so if you still want to check that off your list, please call Colleen.
CHINESE CHANGES
Covid restrictions are finally being lifted in China, which should be a major boost to their productive capacity and hence their economy. It will be interesting to see how inflation is affected.
On the one hand, being out of lockdown, Chinese citizens are sure to start spending more money, which could boost inflation. On the other hand, with more Chinese workers back on the job, global supply chains may unclog to a significant degree, making goods more readily available for sale and thus pushing prices down.
Given the enormous size of the Chinese economy, this is something we will keep an eye on. While the US economy is still the world’s largest at $23 trillion in 2021 GDP, China’s economy is still humongous, at $18 trillion for the same year.
INFLATION
While I think the Bank of Canada may have initially raised interest rates too high too fast, at this point we can say that higher rates are indeed working to control inflation.
In the week of February 20th, Statistics Canada reported January inflation to be 5.9%, down from in 6.3% in December. This doesn’t necessarily mean that prices will start to come down quite yet (it means that prices are still rising at 5.9%), but I do believe that any price increases will be slower.
Hopefully, this will give wage growth a chance to do some catching up. In January, average hourly wages were up 4.5% compared to a year ago. The gap you see between 4.5% and 5.9% represents purchasing power lost.
THE FAMILY FILES
Jake is showing some serious entrepreneurial grit by starting up a snow shovelling business. He has been out knocking on doors in our neighbourhood. It has been a great way to get to know folks in our community and really help out. Jake feels good helping people, his customers are happy, and we are proud of him.
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The greatest compliment we can receive is a referral to someone you care about who would appreciate the same value we take pride in giving you. If you have someone in mind, feel free to contact me at any time. Thank you very sincerely.
Jason de Weerd, CFP, CIM
Investment Advisor & Financial Planner
RBC Wealth Management
RBC Dominion Securities Inc.
1-403-213-6731
jason.deweerd@rbc.com
www.jasondeweerd.ca