Equities to Outshine in 2014

Stock markets rallied throughout 2013, fuelling investors to flow massive amounts of money back into equities. And with 2014 expected to be a better year for the global economy, safe-havens’ like gold and bonds are starting to lose their shine. 

“Gold was nothing but a comfort food over the past few years and the fact that the global economy is starting to improve is the main reason gold isn’t doing so well now,” says Benjamin Tal, deputy chief economist of CIBC World Markets.  He adds, “That will continue to be the case if you take a two or three year perspective.”

His outlook for bonds isn’t much better.  “The stock market will outperform the bond market by a wide margin in 2014,” says Tal.  “At this stage of the cycle, with interest rates starting to rise, the long-term rally in the bond market is over.”

“Interest rates will eventually start rising and dividend-paying stocks will be less attractive than high-beta stocks,” he added.  “I won’t reduce my position in dividend-paying stocks but I won’t add to it.  I will add to my position in cyclical stocks.”    Cyclical stocks are those that rise and fall with the business cycle; some examples include car manufacturers, airlines, furniture retailers, clothing stores, hotels and restaurants.

Out Look for TSX

During the past year, the TSX grew by about 2%, quite a bit less than the robust 20% advance enjoyed south of the boarder in the U.S. during the same time period.  Tal predicts this gap will close in 2014.

“Historically speaking, every year that the TSX lagged the S&P 500 by a significant margin, the following year the TSX, on average, advanced by 16%,” he says.  “The U.S. economy will surprise on the upside, especially in the second half of 2014.  We will probably see more demand for (Canadian) exports such as energy and commodities.”

Tal adds he is bullish on cyclical sectors – “the high-beta segment of the market-as those stocks are more sensitive to the global cycle.  Energy and utilities will do fine and commodities in general will do okay and given that we’ve seen some improvements in the commodity prices.”

As for financials (bank stocks), the probability of long-term interest rates rising in the second half of 2014 gives us reason to be optimistic.

“The long-term interest rates will be rising while the short-term rates will more or less stay where they are, which is always a positive for Canadian banks,” says Tal.  “Add to it the fact that credit, although weak, is not getting weaker.  It means we won’t see the negatives we’ve seen relative to credit impacting the Canadian banks as they have over the past two years.” 

The past year has shown us once again that it is not easy to predict what will happen in the markets.  Even though we have had a positive year; I continue to believe that a well-diversified portfolio that includes both equity and fixed income funds makes sense for most investors. However, it seems for the year ahead; Equities still remain the best way to benefit from long-term economic growth and to stay ahead of inflation.

Should you have any questions about your investment portfolio or the markets in general, please don’t hesitate to give me a call.

Happy New Year!

Tracey

 

 

 

 

 

 

 

 

 

 

 

 

Source:  Original article published on Advisor.ca by Vikram Barhat, 12-17-13

 

 

Santa Gets a Raise

Santa brings joy to thousands of children around the world each year, for that; he would earn $137,795 according to a survey by Insure.com.  This is a 2% increase over last year, when Santa’s salary was just $134,944.

To calculate Santa’s income, Insure.com estimated the number of hours he might spend doing each important task; things like managing the workshop, determining who’s naughty or nice and delivering presents.   Then they used data from the U.S. Bureau of Labor Statistics and found the closest matching occupations and hourly wages.

But not everyone believes that Santa should make that much, when asked how much Santa should be paid for his efforts respondents replied:

37% say Santa shouldn’t get paid at all – his work should be charitable. 

27% believe he should be paid $1 for every child under the age of 15 around the world; this would amount to approximately 1.8 billion a year.

15% agree with the findings and think he should be paid between $100,000 - $200,000

12% say less than $100,000

9% said he should make more than $200,000

Replacing Santa?

When asked who they would pick to fill in for Santa; 27% of the respondents chose Tim Allen based on his role in The Santa Clause. 

15% chose John Goodman for his role in The Year Without a Santa Claus

14% chose Bill Gates of Microsoft because he has a lot of money to spend on presents

13% say Tom Hanks for his role in Polar Express

7% pick Warren Buffett chairman of Berkshire Hathaway because he also has lots of money to spend on presents

6% suggested animal expert Jack Hanna because he wouldn’t forget to feed the reindeer

5% suggest Donald Trump because he would keep the elves in line, and

4% choose illusionist David Copperfield because he would make it magical.

I would like to extend my best wishes to you and your family this Holiday Season.  I hope the New Year brings you success, health and happiness.

Merry Christmas,

Tracey

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Source:  Original article posted on Advisor.ca 16-12-13 by staff.

 

 

Naughty Habits of Holiday Shoppers

With less than two weeks to go until Christmas the malls are filled with shoppers scrambling to find the perfect last minute gifts.  If this includes you; take note of the following mistakes people make when shopping for Christmas presents, otherwise you could end up with an unexpected surprise in the New Year – a huge credit card bill.

No Budget.  Without a plan or budget, most people will over spend.  So before you go, prepare a budget; this will force you to think twice before buying. 

 

Make a List.  Sticking to a list will help you avoid impulse purchases.

Compare Pricing On-Line.  Knowing which store has the best price will not only save you time at the mall but it will help you avoid paying too much.

Set Boundaries.  Whether you have a lot of people on your list to buy for; or you’re on a limited budget, talk to your family and friends about setting limits to control expenses.

Keep Track of what you spend.  Do you know what you have spent so far?  If not, view your up-to-date statements on-line and make a list of your purchases, if you have paid cash for some things make sure you add those expenditures to your list as well.  Be detailed, and don’t forget to include the cost of hosting a holiday dinner, cocktails with co-workers, wrapping paper, gift bags and treats.

Remember, some of the best gifts are not costly.  Spending time together and enjoying affordable activities like skating, sledding, holiday festivals or simply going for a walk to view the neighborhood light displays create wonderful memories.

Furthermore, avoiding a huge credit card bill in January could be the best Christmas gift you ever give yourself!

Merry Christmas, and happy shopping!

Tracey

 

Source:  Original article posted on Advisor.ca  by staff, 12-11-13

 

 

 

2013 Year End Tax Tips

Now that 2013 is drawing to a close, like me you are probably looking forward to enjoying the upcoming festive season.  Here are a few things that you may want to consider to insure that your financial affairs are properly structured as we enter into 2014.

Consider taking dividends in 2013, where possible

Starting in 2014, the federal government will be changing the personal tax calculation for non-eligible dividends paid by Canadian Corporations; the result of these changes will be an increased tax rate for these types of dividends. In Ontario, the combined Federal/Provincial Top Marginal Tax Rates on Non-eligible Dividends will go up from 36.5% (in 2013) to 40.1% (in 2014), or an increase of 3.6%.

Charitable Donations

This year saw the introduction of the new Federal First-Time Donor’s Super Credit (FDSC), which was announced in the March federal budget.  You can claim this credit if neither you nor your spouse or common law partner has claimed the charitable donations tax credit in the last five years (2008-2012).  The FDSC provides an additional 25% tax credit on total monetary donations up to $1000 that have been made any time after March 20, 2013.  Remember, to be eligible for the 2013 Charitable Donation tax credit, the donation needs to be made by December 31, 2013. 

When donating publicly traded securities, it is advised to donate those with implied capital gains since the donation will be for the Fair Market Value of the securities and the capital gain will be exempt from tax.  It is important to make the donation ‘in-kind’ because if the securities are sold and the cash is donated, then 50% of the capital gain realized will be taxed.

Tax Selling for Non-Registered Accounts

A popular strategy at this time of year is to sell investments that have dropped in value and trigger capital losses.  Capital losses can be used to offset capital gains.  Any capital gains realized this year can be reduced or eliminated, thereby reducing payable taxes.  If the capital losses triggered exceed this year’s capital gains, the excess amount can be taken back three years and used to reduce any capital gains realized in those years.  As an alternative, the capital losses can be carried forward to reduce capital gains in the future.

Deferring a Bonus

If you are expecting a year-end bonus, your employer may agree to postpone the actual payment of the bonus to 2014.  This means that the bonus income will be taxed in the 2014 tax year.  However, by lowering the income in 2013, the amount of RRSP/DPSP/Registered Pension contribution room may also be lowered for 2014.

RRSPs for those Turning 71

A taxpayer cannot hold an RRSP beyond the end of the year in which they turn 71.  Therefore if you have turned or are turning 71 before the end of the year, you must do something with your RRSPs by December 31.  The two most common options are to establish a Registered Retirement Income Fund (RRIF) or to purchase an annuity. 

Home Buyers’ Plan

If you are planning to make a withdrawal from your RRSP under the Home Buyers Plan, you should consider delaying the withdrawal until 2014 if practicable.  By doing this, you will be able to defer the initial repayment of the withdrawal by one year, until 2017.

RESP Contributions

To receive the Canada Education Savings Grant (CESG) for 2013, contributions must be made to the plan by December 31, 2013.

Tax-Free Savings Accounts (TFSAs)

One of the advantages of the TFSA is that when withdrawals are made from the account, the ongoing contribution room will be increased by the amount of the withdrawal.  It is very important to note, however, that the increased contribution room does not come into effect until January 1 of the following year.  If you have therefore made withdrawals in 2013 and want to take advantage of the increased contribution room, you should wait until 2014 or you may face over-contribution penalties.

Transfers to RRSPs

A transfer of an investment to an RRSP is a deemed disposition or ‘sale’ of that investment for tax purposes.  If the deemed disposition results in a capital loss, that loss will be disallowed and cannot be used to offset capital gains. 

As an alternative, you could sell the investment, claim the capital loss, contribute the cash to your RRSP, and then purchase the investment within the plan.  The purchase however should be deferred at least 30 days to avoid a Superficial Loss.  The Superficial Loss rule prevents the taxpayer to use the capital loss if he (or his spouse) buys back the same investment within a 30 day time period.

These tips highlight just a few of the ways you can act now to benefit from tax savings when you file your return.  However, keep in mind tax planning should be a year round affair.  Please don’t hesitate to contact me if you have any questions on these tax saving strategies.

Have a Great Weekend!

Tracey

 

Source:  Dynamic Funds, Jamie Golombek, Managing Director, Tax & Estate Planning CIBC, Renaissance Investments