First Quarter Market Update - 2012

Global equity markets had a promising start to 2012, as the uncertainty of last year was replaced by a more optimistic outlook.

U.S. stocks were particularly buoyant in the first quarter, with the S&P 500 Index making broad-based gains of 12.6% (10.6% in Canadian dollars). The U.S. financial sector rose more than 22%, as several banks passed stress tests and raised dividends. The information technology sector was also strongly positive, with robust results reported by several large technology firms and cash-rich Apple Inc. announcing its first dividend since 1995.

Other global equity markets also performed well over the three-month period. Japan’s Nikkei Index soared 19.3%, Hong Kong’s Hang Seng Index was up 11.5%, Germany’s DAX Index added 17.3%, and the MSCI World Index rose 10.6% (all in local currency terms). Moves on the Canadian market were muted somewhat by evidence of slower economic activity in China, the world’s largest buyer of raw materials. Nonetheless, the S&P/TSX Composite Index finished the period with an increase of 4.4%, based on strong results in the financial and consumer discretionary sectors.

The global economic recovery continued in the first quarter, and investors were especially encouraged by indications that the U.S. economy is strengthening, with improvements seen in employment, retail sales, manufacturing and even housing. At the same time, the ongoing sovereign debt crisis in Europe abated somewhat, though investors have recently begun to focus on problems in Spain. In the first quarter, Greece reorganized a large part of its debt and the European Central Bank extended long-term credit to stabilize the region’s banking system.

The result was much calmer market activity than in previous quarters, as much of the investor anxiety that accompanied these concerns subsided. The VIX index, a measure of equity volatility, reached a five-year low during the period. In addition, U.S. and Canadian government bond yields rose and prices fell during the quarter, a reversal of the “flight to safety” that occurred last year. Overall, the bond market registered a slight decline during the quarter.

Looking ahead, there continue to be many economic and structural challenges that concern investors. However, there are also many positive factors that are supporting the markets, including low interest rates, low inflation, economic growth and high levels of corporate profitability.

The past four months show how share prices can make quick, strong gains, even as the headlines remain negative. That’s why it makes sense to remain invested in a diversified portfolio that’s tailored to your individual investment objectives.

If you have questions about the current market environment or your portfolio, please do not hesitate to give me a call.

Thank you for your business and have a great weekend.

Tracey

The information in this letter is derived from various sources, including CI Investments, Signature Global Advisors, Harbour Advisors, Globe and Mail, National Post, Financial Times, Bank of Montreal Economics, MSCI, and TD Newcrest. This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources; however, no warranty can be made as to its accuracy or completeness.

The BEST and WORST Jobs

A study by CareerCast has revealed the best and worst jobs of 2011.  The study analyzed 200 jobs based on work environment, physical demands, and current outlook; as well as income and stress levels.  These five categories are considered ‘the core criteria inherent to every job’ but were not equally weighted in the analysis.  Income and job security each weigh in as one third, while the other three are combined as the final third to complete the score.  Therefore, if a position offers good pay and long term security, the other three factors will be considered, as most employees work mainly for income and security.

Since most people end up in a job that was suggested by a parent or teacher, or because an opportunity became available at the right moment, the analysts hope that the survey will help job hunters get a clearer picture of the jobs available on the market today. 

In general, the list shows that jobs based on technical and digital skills are valuable.  Positions based on planning or rehabilitation for the aging population, as well as careers that help drive employment are also popular.

On the opposite side of the scale, jobs that are too physically demanding or involve hard physical labor are less desirable, along with low paying media jobs that are becoming more and more scarce.

Top Ten BEST Jobs                                                                

1.       Software Engineer                                                         

2.       Actuary               

3.       Human resources manager

4.       Dental hygienist              

5.       Financial planner

6.       Audiologist        

7.       Occupational therapist 

8.       Online advertising manager

9.       Computer systems analyst

10.   Applied mathematician

Top Ten WORST Jobs

1.       Lumberjack

2.       Dairy farmer

3.       Enlisted soldier

4.       Oil rig worker

5.       Newspaper reporter

6.       Waitress/waiter

7.       Meter reader

8.       Dishwasher

9.       Butcher

10.   Broadcaster

Like any parent who is saving those RESP dollars, when it comes time to invest in our kid’s education we want to make sure they find a high quality job that matches their skill set.  Hopefully by sharing this list you will have a little more ammunition when trying to direct your child’s career path.

Good luck, and have a great weekend,

Tracey

Source:  advisor.ca

Withdrawing Money from Your RRSP

You can withdraw money from your RRSP at any time.  However the amount you withdraw will be included as part of your taxable income for that year and taxed at your marginal rate.  Amounts withdrawn cannot be recontributed into your RSP.  Upon the withdrawal the Trustee who holds the account is obligated to withhold tax, similar to income tax on your pay cheque.   For RIFFs; tax is only withheld on amounts in excess of the minimum annual payment. 

The taxes withheld on withdrawals are as follows:

Withdrawal                        All provinces                     Quebec

                                                (Except Quebec)                             

$5000 or less                      10%                                        21%

$5000 to $15000                20%                                        26%

$15000 or more                 30%                                        30%

Withdrawing Money without Paying Taxes

Home Buyer’s Plan

Under the Home Buyer’s Plan you are allowed to borrow up to $25000 from your RRSP, tax free, to purchase or build a qualifying home.  This plan is restricted to first-time home buyers who have not owned a home in the year of the purchase, or the preceding four years.  After the withdrawal, the government usually gives you a two year window, after which you must start re-paying your RRSP 1/15^th of the withdrawal for the next fifteen years.  So if you withdrew the full $25000, your mandatory repayment/contribution for that year would be $1666 ($25000 /15=$1666) If you are unable to make this repayment in a given year; the government will simply add the amount to your taxable income and you will have to pay tax on the $1666 for that year.

Lifelong Learning Plan

The Lifelong Learning Plan allows you to borrow up to $10,000 per year, tax free, from your RRSP to a maximum of $20,000 to help finance a full-time training or education program.  The student can be you or your spouse/common law partner and must be enrolled as a full-time student in a qualifying educational program.  Similar to the Home Buyers Plan, amounts withdrawn must be repaid to your RRSP within a 10 year period to avoid penalty.

Tax Deferral for Transfers and Rollovers

Taxes may be deferred for transfers and rollovers in the following situations:

·         Lump-sum distributions of shares from a Deferred Pension Plan

·         Retiring allowances; $2000 per year of service prior to 1996 plus $1500 per year of service prior to 1989 in which there was no vesting of employer contributions or an RPP or DPSP

·         Between spousal RRSPs due to legal separation or divorce

·         Lump-sum distributions from a US IRA, or a lump-sum payment from foreign pension plan if the payments are subject to tax in Canada and are not treaty protected

·         In the event of death, at which the taxpayer’s estate is taxed on the entire amount of the RRSP or RRIF, unless;

-          The funds are transferred to the surviving spouse’s RRSP or RRIF

-          The surviving spouse uses the funds to acquire an annuity

-          There is no spouse, in which case the funds can be transferred to a child or grandchild under the age of 18 and taxed in their hands or used to buy a term annuity

Obviously withdrawing money from your RRSP should be your last resort when needing some extra cash.  A withdrawal affects your long term retirement goals; forcing you to work longer, invest more or take on additional risk in your portfolio to make up the difference.

Make sure you understand all of the consequences when withdrawing funds from your RRSP; before you sign the order.  If you are unsure on how a withdrawal will affect you, please give me a call so we can discuss your options.

Have a great day,

Tracey

Source: Dynamic Funds

Budget 2012 Highlights

The March 2012 provincial and federal budgets introduced various tax measures and credits aimed at seniors, families, registered plans and small businesses.  Rather than trying to summarize every change I will focus on some aspects t that I think will be of interest to you as investors.

Old Age Security  The proposed changes to the OAS System will be phased in gradually starting in 2023.   The government feels that an 11 year notification period, followed by a six year phase in period will provide enough time for individuals to make adjustment to their retirement savings plans. Therefore, if you are currently age 54 or older (born on or before March 31, 1958) these changes will not affect to you.   If you were born on or after February 1, 1962, you will not be eligible to receive your OAS/GIS benefits until age 67.  Canadian born between April 1, 1958 – January 31, 1962 will have an age of eligibility between 65 and 67 depending on the month you were born.  (If you would like to see the exact chart let me know and I will email you a copy).  Furthermore, starting July 1, 2013; you will be allowed to defer taking your OAS for up to 5 years; and receive a higher pension as a result.

Travellers’ Exemptions  For those of us that like to shop south of the boarder; the amount we are allowed to bring back without having to pay duty or taxes (Including GST/HST) has gone up.  The 2012 budget proposes the exemption for returning Canadians who are out of the country for 24 hours will increase from $50 to $200.  If you are gone for more than 48 hours the exemption will now be $800, replacing the 48 hour and 7-day exemption amounts.

Elimination of the Penny  The government has finally announced that it will eliminate the penny from Canada’s coinage system starting this fall.  The penny will however retain its value indefinitely and can continue to be used in cash transactions.  When pennies are not available, cash transactions will be rounded to the nearest five cent increment.  For non-cash transactions such as debit cards, credit cards or cheques payment will continue to be settled to the cent.

Registered Disability Savings Plans  The government introduced RDSP in 2007 as a way to help families ensure the long-term financial security of children with severe disabilities.  Similar to the RESP, the government will contribute grants into such programs upon being established.   The 2012 budget proposes to relax the rules for these plans making them more flexible for the beneficiaries and their families.   If you have considered opening an RDSP in the past but found them too restrictive, it might be time to have another look.

Employee Profit Sharing Plans  Employee Profit Sharing Plans (EPSPs) are arrangements that allow employers to share company profits with their employees.  The contributions are tax deductable to the employer and taxable to the employee.  The government noticed a significant increase in the number of EPSPs between 2005-2009; among small Canadian controlled private corporations.  What was happening was small business owners were reducing their tax liability by splitting income with family members via EPSPs, deferring paying taxes until the following year and avoiding paying Employment Insurance (EI) premiums or making Canada Pension Plan (CPP) contributions. 

The 2012 budget proposes a specific measure to discourage excessive employer contributions.  The government has introduced a special tax that will be payable on any ‘excess EPSPs amounts’ where the employee does not deal at arm’s length (is a family member).  The excess EPSPs amount will be considered any amount of an EPSP made to an employee; that exceeds 20% of the employee’s income.

Ontario Budget Highlights

Freezing Corporate Income Tax Rates  Originally corporate tax rates were to be reduced in 2013 to 10%, the Ontario government has announced they will defer this reduction until the budget has been balanced.  The current rate is 11.5%.

Financial Hardship  Ontarians will no longer have to apply to the regulatory body for approval to redeem money from their locked in plans.  Simplifying the process; individual wishing to redeem funds from their locked in plans will now be able to apply directly to their financial institutions to make the withdrawal.

Healthy Home Renovation Tax Credit  The government proposes a new tax credit designed to help seniors make needed renovations so that they can stay in their homes longer. 

There is a lot more to both budgets but for the most part it seems to be fine tuning of existing policies, I have tried to put together highlights that I thought you would fine most interesting.

Have a great long weekend,

Happy Easter

Tracey

Sources:  Renaissance Investments, Invesco, Mackenzie Financial