Stock Markets and Stock Picks

Marks

Monthly charts of market ETFs: XIU, DIA, SPY, QQQ on freestockcharts.com

The Markets

I typically like to analyze the XIC ETF as it consists of more TSX stocks. The XIC is very much like the SPY ETF for the S&P 500 index. When I want to know how the tech-focussed stocks are doing, I check out the QQQ.

I admit, I rarely look at the XIU (the TSX’s top 60 large cap stocks) or the DIA (the U.S. ETF for the Dow Jones Industrial Average). It’s an old habit of mine as my trading background was more focussed on shorter timeframes and bigger price action. There is less price action in these indexes that cover the large-cap, blue chippy stocks. Molasses moves faster than some of these stocks’ prices — this is because there are so many more shares to go through at each price level before the price moves up or down. Less price action, though, doesn’t mean less money. It’s just more stable. I really should watch these ETFs more because this is where big money, like funds, tends to go. With investing, it’s often good to follow the big money.

I drew horizontal lines on the charts for the XIU, DIA, and QQQ to show where those stocks had reset. The XIU has been “resetting” for a long while now, pretty much since February. The DIA (often called “the Diamonds”) had a reset in April and the Qs had one in July. Look at the SPY’s trendline that goes straight up. When is the SPY going to take a breather? If we’re going by season, then perhaps in the fall?

Observing the timing of these corrections demonstrates well the cyclical nature of markets. To get a better idea of what drives these differences means to take a closer look at the sectors and specific stocks that dominate their respective markets.

I worry that if the SPY makes a correction, it will affect the Canadian market. If I didn’t concern myself with the U.S. market at all, I have to say that I like what the charts tell me for the Canadian market. It’s been rationally pulling back for over half a year now and moving sideways for three months. It could be gearing up for another bullish move up. Let’s hope that if and when the SPY comes down, investors move into the Canadian stocks and start a new investment cycle.


Stocks to Check Out

Here are some stocks with nice-looking monthly charts:

  • TCW.TO
  • CVE.TO
  • SJR.B.TO
  • HSE.TO
  • IPL.TO
  • POU.TO
  • MG.TO
  • THCX.V (I own shares of this one already.)

Now, keep in mind, most of these are oil stocks. If you’re considering trading any of these, keep a close eye on the sector. And as I always advise, do your own necessary research on the company, the sector, and the markets. Consider how your choices fit into your grand plan and decide on the appropriate time horizons and how much you can safely risk for your portfolio.

My Best Investment

Back to school

I always get nostalgic this time of year.

Once upon a time, in a faraway land, I was a fretting teenager about to finish high school. While all the other girls were obsessing over prom and what college they were going to, my own world was crashing around me. My boyfriend dumped me two weeks before prom, leaving me dateless. That was also the year my father became chronically ill and was ordered to go on medical leave. There would be no college fund to support me. I was admitted to the university I had set my sights on, but I had no idea how I was going to afford it.

Humiliated and defeated, I opted to lowball my expectations on everything. I wouldn’t go to prom and I wouldn’t go to university. I had some great excuses to stop caring, so I leaned into them. My friends became my fairy godmothers. One took it upon herself to find me a date. Through her grad date, she managed to set me up with a model/actor (or actor/model?). My other friend made me copy and study her year’s worth of notes for my Biology 12 exam, the most demanding subject I had to study for that year. Because of my friends’ clutch support, I was motivated to keep going.

With Starbucks’ chocolate covered coffee beans to keep me jacked, I crammed like a champ. I aced everything that counted and I finished with honours. My grad date, whom everyone ogled that night, turned out to be a seasoned partier. Instead of binge-drinking at a house party with the other grads after prom, my friends and I followed our dates to a rave in Vancouver’s Downtown Eastside where we danced until four in the morning. I took a cab home with my bestie as the sun was rising. I finished high school feeling like a rock star.

My next problem was going to be going to university. I got a job, but I couldn’t qualify for a student loan because the tax year prior to my dad’s medical leave stated he made a lot. The financial issue was moot as I didn’t even know what I was going to study even if I could afford school. With no money and no clear ambition, it made no sense for me to go to study at all.

I continued to work. Without any goals to anchor me, I spent my money faster than it came in. I was living the Gen X dream buying beer, candy, and cigarettes, watching movies all day, wondering about the future. I’ve told this story many times before and it’s because it was critical to everything I’ve ever done thereafter. My boss saw how much money I was quickly wasting after each payday. She gave me a talking to and told me how to start saving and investing. Her persuasive sisterly coercion got me going to the bank and getting started. Then after saving for a while, things changed. With money in the bank, I saw school as a possibility. Determined to go to law school, I reapplied to university.

I finished my bachelor’s in record time (thanks, Starbucks coffee beans!). By the end of it, though, I decided not to go to law school. With good financial habits and the benefit of going to university when it was still affordable, I graduated with no student debts. I traveled a lot and lived overseas for a few years but came back to Canada. Even though my studies in humanities was never directly applicable to any line of work I sought, having a degree gave me better job options.

After ten years of drifting, I was still by definition a slacker, but at least I had savings. I brainstormed many possibilities on where I was headed next. I found I was most curious about opening a business. This led to my part-time studies in business school and eventually, further studies and pursuits in investing and the stock market.

Today, I am once again a student. I am deeply curious about how the stock market works on the inside. I know what it is to be a trader/investor, but what happens behind the curtain is what I really want to know next. I am currently enrolled with the Canadian Securities Institute, working towards my Certificate in Equity Trading & Sales. I don’t know exactly where studying this will take me; whether I trade for others or still just myself, I will always be a trader, only a more educated one.

Whether you achieve your career peak and hit your financial goals, learning should never stop. You can take courses or just read books that will help you develop in parts of your life that you feel need focus. In the long run, being dedicated to your personal and professional development really is the best investment.

The Transparent RRSP: Post #13

No action was taken the week of March 20

This week felt like my own personal spring break. I’ve just been waiting for the market to pull back. When the market is uninspiring, I’m uninspired to do much in that department. When this happens, most stock charts look unpromising to me. Being patient can be boring; it is, however, a necessary virtue for a trader to have.

In my freed up time, I managed to catch up on some of my reading. JP and I typically have a number of books, magazines, and articles littered around our house. Depending on where I end up sitting, I pick up and read whatever happens to be right next to me. 

The last couple of weeks, I found myself focussing on three of the twenty or so items within my lazy reach. I’ve been reading Felix Martin’s Money: The Unauthorized Biography, Michael Lewis’ first hit book, Liar’s Poker, and Joseph Nocera’s, “The Ga-Ga Years,” an old article that was published in Esquire magazine in 1988. Interestingly, at one point this week, I found the subject matter of all three works intersecting at the topics of bonds, money market funds, and beating the market. To boot, they were all referencing the same point in financial history’s timeline: the years leading up to the stock market crash of 1987. I am not a fast reader, but by golly do I wish I could just read it all in one sitting right now. I just find people’s different experiences and ideas on money fascinating.

I have a very loosely formed concept of money that’s been evolving since I started working and saving it. While I can’t say that my understanding is advanced by any stretch, I can say that it’s deepening the more I learn about it and invest it. Money is one of those human inventions – a “social technology” as Martin calls it – that is fluid instead of concrete in its nature. Different forms of it, whether as a currency, a security, a financial product, or a means of exchange, can and will go up and down in value. As I spent more time watching the markets, it became increasingly apparent to me that these fluctuations are created by us. We get optimistic about the promise of growth or the next big opportunity. People pump money towards potential. As more people buy in, prices go up, cash runs low, and perceptions start shifting; as people start to cash out, fear of losing runs high. It’s amazing to think how the general agreement of our feelings about something has the power to change the market value of our investment accounts.

Beating the market is what every investor or fund manager wants to achieve. I’ve done it. I’ve also been horribly beaten by it. I learned that the best way to not get beaten by it is to sit patiently and wait out any fear or pessimism until optimism sets in again. Until then, I’ll just keep reading about the rise and fall of others instead of letting history repeat itself with me. 

 

 

My Book, One Year Later

 

Happy Anniversary!

It was just a year ago that I got my book from the distributor in the mail. There were a lot of things running through my mind as to what my next moves were going to be to promote Loonie to Toonie. When I first started writing my book, I was just more set on writing it really well and getting it done. I figured the rest would take care of itself once it was published.

So much has happened in the last year. After doing a lot of new things, I certainly learned a lot about myself. I figured out what I’m comfortable with and what I actually dread. I found myself leaning towards what I’m most passionate about, which is helping and educating people who are really excited about investing.

There are many components to writing and publishing a book. Would I do it again? Maybe. I dedicated a lot of hours figuring things out, so the next time around, it should be easier. I’ll share my journey and process, and hopefully, offer some insight to any budding authors out there.


The Writing Process: Ego vs. Audience

There is a huge amount of ego required to take on a huge project such as writing a book and seeing it to its completion. Your ego is what fuels your drive; this is not a bad thing – it’s actually necessary. Use it to feverishly brainstorm, explore your ideas, flesh out your concepts, and challenge what you’ve already come up with. At some point, your ego will have to step aside so that you can ask yourself objectively, “How can I write this better?”

To tighten up your work, you’ll have to consider your audience. Once you hook in your readers, what will it take for them to keep turning the pages? You need to find a way to consistently engage them. For me, this was a challenge because I prefer fiction. I’m a die-hard story-loving reader, and the last person you’d ever expect to be a stock trader. To write a book on finance was a complete departure from my personality. I realized that given my skills in stock picking and interest in writing, I had to somehow turn my non-fiction piece into my own art form.

I’d written long and short screenplays in the past, so I became more sensitive to voice, tone, and consistency. I absolutely love movies! However, because of my screenwriting experience, I can no longer watch them without breaking down theme, tone, voice, character, setting, pace, beats, cinematography, editing, soundtrack, etc. I tapped into this habit of analysis to get me out of my writing funk, which came and went after each writing attempt over the course of five years.

When I was beginning to write my book, all I could do was introduce each topic by talking about my own relationship with money and the experiences that turned things around for me. It was one self-centred page after the next. I feared that only some readers would appreciate my experiences while others would be thinking, “Okay, you too sucked at money management. Move on and tell me how I can make money.” There are a lot of great personal finance books out there, but many are inundated with anecdotes. If I wanted to write for the wider, more diverse audience of Canada, I needed to consider that not everyone will have the same cultural and generational references.

I felt I couldn’t do justice to the book I wanted to write, so I decided to quit. As a last-ditch effort, I re-wrote a stripped down version of my chapter on the economy. I liked its simplicity. Then I did the same thing for my section on money. I unexpectedly found the voice necessary to write for my intended audience: new investors who didn’t know where to start and didn’t have time to waste comparing financial lessons and life experiences.

The Writing Schedule

I was committed to writing and getting this book done ASAP. To free up my time, I re-focused my trade strategies on holding stocks for longer periods of time. This way, I wasn’t required to log on to the markets every day or watch them all day long.

I had my own office space for trading, but I felt I couldn’t write there. I created a special writing space in the corner of my bedroom. I arranged all my reference books so that they could be readily and easily accessed. I organized all my information and research into folders and I had a whole filing system going on. I became my own office assistant!

Given my drive to write and the number of hours I could dedicate outside my job of managing a neighbouring property, I figured I could write a chapter each week. I also had the huge hurdle of being self-conscious of writing something that the public will one day be reading. To get over it, I signed up for a free blog site on WordPress and I committed to blogging and publishing a chapter every Tuesday. I did this for a few months for the first half of the book. After that, I continued to write a chapter per week, only I didn’t blog them.

What I found good about blogging my work wasn’t just the regular schedule, but it also gave me a real sense of accountability for publishing information. The rush of putting out your work for your friends to see gave me a glimpse of what it would be like to have my blood, sweat, and tears made public and available to criticism. It exposed me to the vulnerability of being an author. It also made me realize the accountability that comes with misinformation. It would take me one to two days to blitz-write a chapter and the next five days fact-checking against the clock until blog day. I vigilantly challenged every sentence’s construction, every idea I thought was true, as well as the proper usage of financial terms (the semantics are often very different from regular English).

Getting Professional Assistance

I didn’t have the time nor the experience to figure out how to publish my book. I personally knew a lot of smart, creative people who wrote books, pitched publishers, and then…waited for their rejections. For me, my traditional publishing options were even fewer because I was writing non-fiction with a focus on personal finance. I’d be approaching publishers who already published books for celebrity financial planners and famous business tycoons. I also feared that a publisher wouldn’t dedicate much marketing efforts for an unknown author. I couldn’t risk any of those things. I knew what I wanted to be done for my book and I was the only person I could trust to do it. Plus, I wanted to keep all of my royalties. Self-publishing was the only way.

I looked around and found Tellwell Talent, based out of Victoria. Their website alone was so informative as it broke down the process of publishing on your own. On top of that, you got to keep all of your royalties. A lot of other self-publishing services take a cut of your royalties. You pay for Tellwell’s extensive services (ISBN, cover design, interior layout, editing, marketing and publicity consultation, distributing, etc.). Once you publish, you keep the money your book makes from sales after your distributor takes its cut for printing your book.

I was set up with a project manager (Hi, Erin!), who was the go-between me and the designer and editor. They were all so helpful and informative throughout the whole process. I’m sure I was no cakewalk to deal with either! While I was still writing my book, I worked with the designer for my cover until I was ready to give my draft for editing.

I often wondered if other authors felt the same way, but there were times when I felt utterly alone as I was writing. I had a lot of support from friends and my man, JP, along the way, but I felt alone in that no one really knew what I going through. Once I signed with Tellwell, I felt I had a team behind me and it made a world of a difference as I completed my book.

Getting Published – Finally!

Once I finished the book and signed off on everything, it was a matter of getting set up with the different distributors. I knew I wanted to have a print version of my book, as well as the eBook. You can have one or the other, but I wanted both. For the eBook, I published through Smashwords (who distributes your eBook title to a bunch of other eBook retailers), Amazon Kindle, and Kobo.

For my printed book, it would’ve been a bit more complicated if I distributed through both Amazon Publishing and IngramSpark. Amazon Publishing would have to give you a separate ISBN along with different loyalty agreements with you while taking a bigger POD (print-on-demand) cut. The main upside was that Amazon Publishing would’ve promoted my book through Amazon. I went with IngramSpark because with them, I was able to affordably print my book in the glossy cover with the weird dimensions that I wanted. (I’m not a Type A, but I really was when it came to my book’s format.)

Ingram could also distribute to most major retailers all over the world. This means if a retailer agrees to place your title in its bookstore, they could order easily through your book distributor. Most retailers have accounts with Ingram, so I felt like I picked the right one. With Ingram, I could still sell my book through Amazon as a retailer, just like anyone who has a product, so it made more sense for me to just have to market one book in print with one ISBN. Thankfully, Tellwell set it all up with the distributors and I (mostly) didn’t have to deal with the headache of all that.

The Most Difficult Part: Marketing My Book

I feel like this warrants a whole book to describe what I went through. This is where an author’s love for his/her book gets tested. I consulted extensively with Sandy, Tellwell’s ebullient marketing consultant. I couldn’t have had a nicer, more encouraging person shake me up with the biggest wake-up call ever. She didn’t just tell me what I had to do – she gave me a real sense of how competitive the book market actually is.

Under Sandy’s guidance, I created a very ambitious marketing plan; I learned later, it would’ve actually required two of me to execute everything. JP was so supportive of what I had to do and he was cool with letting me sidestep our life plans so that I could dedicate myself to getting my book out there.

Even though I’ve long since used up all of Tellwell’s publishing services that I paid for, we’re still in touch. We still email each other with questions or things we discovered that could help each other. I admire a business model that is always evolving. They’ve got a great blog going that informs new authors and features some of their own published authors (scroll down the blog and check me out!).

Your Author’s Platform

Not everyone will want to blog or maintain their own website. I found that if there’s one thing I love doing – out of all the things I’ve done to promote my book – it’s blogging. Blogging might not make sense for all authors or their books, but it’s probably the best way to engage with other readers and to work on your writing. I’ve been very lucky as I was approached by Investor’s Digest of Canada to publish columns for them. It’s a great process for me to be able to step away from blogging sometimes and write to a different audience of investors and industry professionals.

There is no shortage to the discussions surrounding personal finance and investing. I just love writing about money and exploring the different themes that are related to money. I realized that my commitment to the topic of finance goes beyond my book. If you’re a fiction author and into fiction, then you might want to blog about other books or movies in your genre.

If there was one thing I wish I’d done before writing my book, it would’ve been establishing my platform first on loonietotoonie.com. I couldn’t have foreseen the importance of this, but it would’ve been helpful to have been established this way first. I say this because as you pitch media, bookstores, and libraries, they need a place to check you out. If you already have a website with subscribers and your own following on social media, it’s easier for them to say yes to an interview or to carry your book.

Retailers

You should know where you want to see your book sold. “Everywhere” is the obvious answer. However, you’re not a publishing house with a long-standing reputation and established connections to the various retailers out there. Before you pitch anyone to carry your book, you should create your own Marketing and Publicity Plan for your book. Your strategy should outline what you’re going to do to generate buzz, win over readers, the selling points for you and your book, and your book’s information. You can find some good template examples of other authors’ marketing and publicity plans if you do a search on Google Images.

I used Word to create mine and I sent its PDF to a discount printer to print a bunch of glossy copies. I also designed a bookmark to print as well. If you have a good colour printer that will print well on glossy paper and cardboard, use that instead. Otherwise, print this stuff out in bulk.

One of the most recommended and realistic routes to getting your book in bookstores is to consign them. I didn’t do this because there are very few bookstores where I live in the countryside of Southern Ontario. It would be challenging for me to check in regularly to see how my sales are going or to supply new books. Most of my book sales are from online purchases and at Indigo bookstores in BC and Ontario.

If you want to know what is expected of you when you pitch a bookstore, visit Barnes and Nobles because they have excellent guidelines that will help you professionally approach your pitches. Some retailers are more explicit with what they expect of you than others. Once you have your Marketing and Publicity Plan, you can submit that or work off that to give bookstores what they’re looking for.

Libraries

I submitted my book to my library to carry as a title. After it was accepted, I asked the librarian on what I should do to get it out there. She recommended a few librarian distribution sites located in Ontario. I contacted these places and they agreed to list my book and its information.

I did for libraries what I did for bookstores. I made a list of 100 Canadian cities and contacted most of their major university and college bookstores (because my book is educational) and their city and regional libraries. Some libraries require very specific formats for title submissions, while others don’t. So check each library’s website to find their key contact people. Some libraries have title submission forms that you simply fill out online. For libraries without online forms, I did title submissions by email or letter mail (get stamp rolls from Costco to save on postage!) directed to their key contacts.

If you want to have a good idea of what kind of information you should provide when requesting a library to carry your book, then visit Toronto Public Library’s web page that explains their process well. If you do this, you’ll have ready at your fingertips what you’ll need for most other libraries’ title submission requirements.

TPL was actually one of the first libraries to accept my book and they bought 11 copies. They also contacted me and asked me to do a presentation as part of their Personal Finance Program Series this summer! I’m super excited. People are already signing up months in advance, so if you’re going to be in the Toronto area on June 20th, book your spot now!

Other Marketing Moves

There is no end to the different ways to get people to hear about you. I’ve done radio and podcast interviews, had book giveaway contests, applied for book awards, did book signings, created podcasts and videos. I also tried out many strategies on social media.

After a year of marketing, I’m still plugging away at all this. The difference is, I’m now able to focus my energies using strategies that I most enjoy doing. Some things (like book signings) just made me flat out uncomfortable. Other authors will have a different experience. You might surprise yourself, but you won’t know until you try out different things.


Going Forward

Towards the end of last year, I stopped seeing myself as an author and more of a financial educator. (I think I missed my calling as a teacher out of fear of ending up with a student like me.) This shift was very subconscious. My stocks were doing very well, a lot better than my book sales! Rather than worry about boosting sales to make a career as an author, I just started to focus on what I was able to get done with the time that I actually had. I was getting nowhere worrying about what little time I had to do every little thing.

The best way for me to approach this was to prioritize doing the most important things first. I found that regardless of the things I set out to do, I ended up only doing the things I really wanted to do, which is to write and invest. I’m now showing readers who are ready to make money a lot more advanced stuff with stocks. I’m revealing my very own strategies that have made me money. I think it’s just a matter of time before most investors turn to stocks and ETFs, so I’m more than happy to be positioned early on where I am with a number of teaching tools readily available to anyone who wants to learn.

I hope more than anything that I can help people reach their financial goals. I still think it’s important that new investors read my book so they’re not left behind, so I still do a lot of marketing to put my book out there. If you already have my book and want to know where my head is at any given time, just read my blog.

 

 

 

 

 

 

 

 

 

What is the RRSP?

I’m being transparent when I say that I’d been searching all week for good stocks that would make good candidates for the Transparent RRSP Challenge…and I found nothing that really made me want to take action. I have this is saying that has helped me throughout my trading career: When in doubt, stay out. 

It’s hard not to feel some regret if something that I checked out looked like a mediocre setup and ended up working out. I learned the hard way that if I always took action on so-so setups, I would lose more in the end. For your retirement account, you want to make decisions with a bit more care.

Waiting a while for the next good opportunity is totally fine and normal. You don’t always need to buy and sell stocks. In fact, doing that too much will really add up in commission fees. Until then, I will just keep looking for stocks, building a watch list of potential candidates, and watching the sectors and markets.


I actually know people considered middle-aged who haven’t yet opened their first RRSP account. This year’s March 1 deadline to claim a tax deduction won’t have any meaning to them. Not only could they be building their retirement fund, they could also be getting back a bigger tax return if they deducted their RRSP contribution amount from their income.

If you don’t have an RRSP anymore or haven’t opened one yet, please don’t be embarrassed. The only shame would be to never take advantage of these wonderful registered investment accounts as they have so many benefits that will save you money and help you keep more of your earnings.

Below is an excerpt from Loonie to Toonie about investment accounts, specifically the RRSP and TFSA. Please have a read or forward this to anyone you think would benefit from learning about registered accounts. All the terms in bold are defined in the Financial Terminology page.


INVESTMENT ACCOUNTS

When you first open a bank account, you’re usually given two choices of either a savings account or a chequing account for standard day-to-day banking transactions. Investing is a longer-term strategy which is not intended for regular banking activity, so you will need to have a separate investment account as a place for you to deposit your investment money, hold your gains, transact your investments, and track your portfolio’s performance. Investment accounts are either registered or non-registered. You may open these up at any financial institution.

Accounts that are linked to registered plans with the federal government come with tax advantages to encourage saving and investing. There is a limit to the amount you can invest towards registered plans, since beneficial taxation can only go so far. A non-registered account is not in a registered plan with the government and does not offer any tax advantage. You should be primarily investing in registered accounts, but once you’re at or near your registered plan limits, then it makes sense to invest the rest in a non-registered account which has no investment limit.

There are different types of registered accounts. Two types which every investor will use at some point because of their tax-reducing benefits are the Registered Retirement Savings Plan (RRSP) and the Tax-Free Savings Account (TFSA). Money you invest in a registered account is often referred to as your contribution. You may only hold qualified investments in registered accounts. Some examples of qualified investments are GICs, bonds, stocks, and mutual funds. There are no restrictions on the type of investments for non-registered accounts, but it’s best to hold tax-favoured securities such as stocks in these accounts.

REGISTERED RETIRED SAVINGS PLAN (RRSP)

The RRSP isn’t necessarily a specific ‘plan’, but it’s meant to be comprised of your investment portfolio which makes up your retirement fund. Investing in your RRSP has two key benefits which last for as long as the money stays in your RRSP account: 1) RRSP contributions may be deducted from your income to reduce taxation, and 2) gains from the investments in your RRSP are not taxed. When you take money out of your RRSP account at a later time, you will be taxed on the amount you’re withdrawing. This amount will be taxed as regular income, even if some of that money comes from capital gains. 

If you invested $2000 in mutual funds to go into your RRSP, you may reduce your taxable income by $2000 for the 2016 tax year by claiming a deduction for that amount. In 2045, that investment and its gains are worth $5,500. If you sell your mutual funds and withdraw that $5,500 in 2045, then $5,500 will be added to your income for that tax year. At that point, you’ll be taxed according to your tax bracket.

The above example is a tax-deferring benefit you should take advantage of during your active earning years. You defer paying taxes on some of your income and investment gains. It’s a better time to withdraw when you’re making less, such as during retirement. If you make any lump-sum withdrawal from your RRSP before retirement, your financial institution withholds a minimum percentage. This withheld amount is a portion of your income tax which goes to CRA. When you file your taxes, you pay the remaining difference based on your income tax rate for that year.

Contributing to Your RRSP

Every year you’re allowed to contribute up to a certain amount called your deduction limit or contribution room. If you look at your income tax’s Notice of Assessment for 2015, it will tell you what you can contribute up to in 2016 – this amount is also the most you can deduct from your income. Your deduction limit is calculated as a percentage of your net earned income in the previous year. You can contribute 18% of your earned income in 2015 up to a maximum amount of $25,370. This maximum amount changes annually. Also added is any RRSP contribution room carried forward from previous years. If you are enrolled in a retirement plan at work, whatever was contributed towards the plan that year is subtracted. This amount is known as the pension adjustment. After everything has been added and subtracted, you have your RRSP deduction limit for the following year.

You’re able to exceed your contribution room by $2000, but if you contribute more than that you will be taxed on that exceeding amount at one percent per month until it’s taken out. Once you take out the excess, it’s then taxed as income. It’s important to keep track of how much you’re contributing. If your numbers aren’t adding up with what you see on your Notice of Assessment, then contact CRA to clear things up. You may also make a contribution during a year when your income is lower and choose to hold off and claim your RRSP deduction during a different year when your earnings are higher, as long as you’re within your deduction limit.

You may open your RRSP account after you start working and filing your income taxes. You can only make contributions until the year you’re 71. After that, your RRSPs collapse and you either suffer from a tax attack on your entire retirement fund all at once or you may opt to transfer your RRSPs into other tax-deferring options involving smaller annual withdrawals or regular payments. We will explore this further when we discuss retirement.

Some Additional RRSP Features

There are additional RRSP features to help you pay for important things without permanently taking money out of your retirement fund. When you make a withdrawal from your RRSP, your contribution room won’t increase and allow repayment with the exception of the following circumstances. Under the Home Buyers’ Plan, you can use up to $25,000 of your RRSP savings to put towards your first home. You won’t have to pay taxes on this withdrawal, but you must pay back the funds over a 15-year period. Any amount not paid back after those 15 years is treated like a plan withdrawal. This amount is added to your income and you’ll be taxed accordingly. The Lifelong Learning Plan behaves similarly, but you’re allowed to use up to $20,000 towards higher education for you or your spouse and your repayment period is 10 years.

The Spousal RRSP allows a spouse to contribute to the other spouse’s RRSP and still get a tax deduction. If your spouse earns less than you and can’t contribute much to his or her plan, you may contribute to both of your RRSPs and deduct up to the full total of your contributions from your own income. However, your own contribution room doesn’t increase by contributing to your spouse’s RRSP, so be sure to not exceed your limit.

Withdrawals from your spouse’s RRSP will be taxed to your spouse at his or her lower tax rate. If your contributions remain in your spouse’s plan for less than three years, however, any withdrawals on your contributions will be taxed to you. This spousal plan is especially advantageous if you’re 71 and can no longer contribute to your RRSP, but you may still claim a deduction on your income by contributing to your spouse’s RRSP as long as he or she is younger than 71.

TAX-FREE SAVINGS ACCOUNT (TFSA)

There are two main benefits to the TFSA: 1) TFSA contributions don’t result in tax deductions from your income, but any gains from your investments will not be taxed – ever; and 2) withdrawals from your TFSA are not taxed as income – ever. The only time you will get taxed is if you exceed your contribution room. At that point, you’ll be hit with a penalty tax of one percent on the excess amount which will be applied monthly until you get rid of the excess. 

Contributing to Your TFSA

TFSA contribution limits are set at a certain dollar amount every year. You are able to start contributing once you turn 18, the age at which you’re allowed to open a TFSA. The contribution limit is not based on your earned income as it is with the RRSP. Since 2009, every Canadian citizen and resident age 18 and over has been granted an annual contribution limit. This dollar limit is decided by the federal government. So from 2009-2012, the contribution limit was $5000 per year. From 2013-2014, the contribution limit was $5,500 per year. For 2015, the contribution limit was $10,000. For 2016, the contribution limit is $5500. If you haven’t yet contributed to your TSFA, your contribution room to date is $46,500. If you turned 18 in 2015, then the most you can contribute so far is $15,500. 

Your contribution room accumulates and is carried forward, similar to RRSPs. Once you start contributing, you will be notified in your Notice of Assessment of how much contribution room you have available for the current year. The TFSA differs from the RRSP in that if you make a withdrawal from your TFSA one year, that amount will be re-added to your contribution room the following year and can be carried forward. Unlike the RRSP, you’re allowed to repay funds you’ve withdrawn from your TFSA without requiring special circumstances.

Another benefit is that you don’t ever have to collapse your TFSA the way you do the RRSP when you’re 71. Your TFSA and any contribution room will follow you to the end. Because of the ease of depositing and withdrawing from TFSAs, these are ideal for shorter-term goals, but they can be useful for longer-term goals too.  

Investing in TFSAs in conjunction with RRSPs will truly help maximize your money as an investor. You may hold multiple TFSA and RRSP accounts as long as you don’t exceed your respective contribution room limits.


If you found the above information useful, please read the rest of the book!

Book Giveaway!

giveaway

I’m giving away FIVE FREE PAPERBACK COPIES of my book, Loonie to Toonie ! I will hold a draw at the end of the month and the lucky winners will receive their very own signed copy!

To enter, CONTACT me and tell me about your biggest financial goal(s) and what you’d like to learn most about investing!

Honour of the Month

Thank you to Tellwell Publishing for naming me Author of the Month! 

 

It has been quite a journey. I just love that beyond writing a book that I can continue to share, motivate, and help educate others on achieving their financial goals through savvy money management, wise spending, and smart investing.

I’m looking forward to sharing more in the new year!

New to Investing? Everyone Was at Some Point

Everyone who invests had to start somewhere.

Folks who have invested for much longer than a new investor started at a time when investing looked a lot more different. I’ll tell you about my investment journey that began over 20 years ago. I’ll also give some tips intended to give you things to think about as you read on.

The ’90s vs. Now: GICs and Term Deposits

20+ years ago, I opened an RRSP and my first investments were term deposits and GICs. These did all right as I was only interested in saving part of my pay cheques and not spending the money. This was at a time when interest rates were better. They were paying me 4.5% to 5%. It made sense for me to start out this way.

Now, putting your money in these is mainly just to lock it up. Interest rates are very low and these only offer a better rate with longer investment terms. It’s safe from you when you have spending urges, but not safe from inflation. If the inflation rate is 1.13% and your investment is paying you at 1.20%, then you’re not getting much of a return. If inflation rises to 1.5% during the term of your investment, you’ll find out the meaning of “inflation risk” the hard way!


If you’re new and nervous about investing and like the guaranteed aspect of GICs, you could get a variable rate GIC if current interest rates are low. You could also get an escalating rate GIC, particularly if you wanted to keep the money invested for a while, like up to five years. If you’ve always wanted to get into the stock market but was nervous, you could get a market-linked GIC. If the market goes up, you can make more money too (although there’s usually up to a maximum amount that you can get). If the market goes down, you get your principal back and you don’t lose any money, just time.

Because the returns aren’t that great with these cash investments, investing in an RRSP at least allows you to claim your contribution and get back more on your tax return.


The Early 2000s vs. Me: Mutual Funds

As my savings grew, I moved onto mutual funds. I had:

  • a Canadian bond fund
  • a Canadian index fund
  • a monthly income fund
  • a Canadian blue chip equity fund
  • a balanced growth fund
  • and a dividend growth fund.

These did all right, but I felt my portfolio should be doing better. I was regularly putting money into my RRSP – these additions seemed to mask the actual mediocre performance of my mutual funds. Little did I realize it was the high MER fees that were negatively affecting my returns.

When I asked an advisor about rebalancing the funds so that they could perform better, he told me I shouldn’t because he’s seen people doing much worse than my portfolio. Wow! That didn’t help me or encourage me. He just said he wouldn’t change anything – besides, I’d lose money from all the load fees I’d have to pay if I did move things around.

I was so frustrated because my online account made ‘switching mutual funds’ look commission-free and as easy as clicking a button. I didn’t know the difference between one fund from another. That’s why I went to the bank to ask for help. Advisors are supposed to be more helpful and if not, at least informative, right? So, I went to another branch and saw another advisor who was even more useless and uninterested in my concerns. It was so different from my experience when I had a big chunk of savings that I didn’t know what to do with. I had received such great service then. After I made the investments, it seemed no one wanted to assist me. 

I was much more angry with myself because I didn’t even know how to have the conversation that I wanted to have when I met with these advisors. I lacked the knowledge and vocabulary to know how to drive the conversation to get what I really wanted. I couldn’t tell you what a bond was. I didn’t know what “equity” meant. Is it an advisor’s job to teach me? Or was it more advantageous for them if I knew nothing? I don’t mean to rag on mutual funds and advisors. It really was just a situation that I outgrew and became frustrated with. Sometimes growth just ain’t pretty.


I actually think mutual funds are great for new investors who don’t have much in savings yetIt’s great to be able to buy shares or units in a fund and co-own assets (wait–does that explain the essence of the term “mutual”?) that you wouldn’t be able to afford otherwise. As you grow your money, you’ll be able to afford to buy the actual assets directly. Until then, take advantage of automatic deposit options to enjoy the compounding effects of regular investing.

Mutual funds are so easy to get at your bank. The advisors can help you find the right balance of funds based on your risk tolerance. Just be sure to ask about the fees! Only opt to pay lower fees, but preferably go with the no-load fee options. If you’re deciding between two similar funds, choose the one with lower MER fees. I think mutual funds are best in the RRSP, not just because of the bigger tax return you could get for claiming contributions, but also because if some of your funds have US stocks, the dividends aren’t taxed in your RRSP.


The Late 2000s to Now: In Love with Stocks

I was frustrated enough to cash out my mutual funds and say sayonara to my bank. I parked my money in a discount brokerage and took the free stock trading program that came with opening an account. I took business and financial courses, including the Canadian Securities Course, to become more educated about money. I badly wanted to know what the financial industry knew and how the world of money worked.

The more I learned the more stoked I got about investing, particularly in stocks. While I’m still working on where I want to be financially, I now see my long-term financial goals happening a lot sooner thanks to stocks. And I’m still educating myself and trying to learn.


If you’re new or too busy to know what stocks to buy, get an index ETF for the Canadian and US markets. If you want a bit of diversification, get a sector or international ETF. If you want income, get a fixed-income or dividend ETF.

If you’re new but ready for more than just ETF investing, you can pick blue chip stocks that pay a nice dividend. As your financial knowledge increases, you can build a nice diverse portfolio with a suitable balance of cyclical and non-cyclical stocks.

If you have a US ETF or stock, invest it in an RRSP so the dividends aren’t subject to withholding tax. If your financial goal is more short-term and you’ll want the money in a few years, invest in the TFSA so you can withdraw the money without getting taxed. You can invest your money between both the RRSP and TFSA according to your different goals and needs. If you run out of contribution room, then hold your Canadian equities in a non-registered account to benefit from the favourable taxation on capital gains and dividends.


The 2010s: Educating Others

Once people knew that I was really getting into the markets, the inquiries starting pouring in. I didn’t feel that what I knew was applicable to my friends’ various situations, though. As much as I believe everyone should own even just some stocks, stocks aren’t ideal or applicable to everyone and for every situation.

I began to ask at my bank (not the one I ditched) questions on behalf of my friends. The advisors were so friendly and receptive. Sometimes they’d sit down with me if they felt the questions were more involved. Other times, we’d all be just talking about investment options. I was always impressed with what they knew, how willing they were to answer questions – even if I wasn’t going to invest my own money – and how much more focused they were on the client relationship aspect.

I’m not sure if the great random service I was getting at any given branch was the bank itself, if it was because I knew what I was talking about which led to better, more informed conversations, or simply because financial advisors now are supposed to be more focused on building relationships with clients for their VARIOUS needs, rather than just selling them investment products.

I actually wrote my book for my friends. I wanted the information to be easy enough to access and understand so that even if they had a general concept of how investments worked, they could seek and get incredible assistance from the pros. My book is meant to help liaise between the client and the financial industry and ultimately help investors navigate their available options.

I still get questions from my friends, mainly the ones who haven’t read my book yet! That’s okay. As my confidence over my own investments grows, so does their willingness to learn from me about how their money can make them money.