I plan to live off my dividends…and you can too.

Recently, I discussed the logic behind the Dri Dividend Growth Strategy. If you are still not sure how we buy and sell stocks, click here for a quick tutorial.

This week, I want to explain how it’s possible to live off dividend income and how much is needed to accomplish this goal.

First, a bit of background…

It’s generally recommended in financial planning that retirees save a pool of money/assets sufficient to fund annual withdrawals until their expected age of death (say, 90 years old).

The theory is based on the famous saying, “I want my last cheque to bounce.” Which really means that a retiree spends their last dollar more or less on their deathbed.

Sounds like a great plan. ​However, it’s seldom that easy.

My experience shows that most people die with money in the bank. I believe this happens because no one knows exactly when they will die nor do they know how much money will be required to fund their later years especially if a severe and prolonged illness arrives. Hence, they reduce spending and conserve savings).

For example –

If Mr. Anxious plans to retire at age 65 and has an annual lifestyle expenditure of $100,000, he will need to save approximately $2M to fund his retirement.

Here are some ​assumptions​: average rate of return is 4%, inflation is 2%, expected death is at 90, and monthly withdrawals are approximately $8,500 before tax.

In short, he can withdraw approximately $8,500 monthly, increase withdrawals annually by 2%, and run out of money at 90.

Obviously, there are problems with this method:

1. ​How does anyone know how long they will live?​ What happens if they live to 100? Will they need to find a job at age 90?
2. ​No one can accurately estimate their lifestyle expenditure 25 years into the future. ​What happens if inflation is higher than 2%? Or if they need special medical care which comes with much higher daily costs?
3. ​How can anyone predict the long-term average of their investment portfolio? ​What happens if the average rate of return is lower than the projected 4%? Or the actual returns are low in the first years of retirement and higher in the later years?

Personally, I find this approach plagued with problems, rendering the projections almost useless. Hence, we must develop a better method to estimate the amount of money needed at retirement, and the approach must be adaptable enough to handle anything that happens in the future.

Here’s my alternative solution. I call it the Dri solution!

Forget the retirement calculator. Instead, take out a sharp pencil and clean sheet of paper. I’ll show you how anyone can quickly and simply calculate how much is needed to fund a retirement lifestyle.

For this illustration, I’ll use the XIU.T (iShares S&P/TSX 60 Index Exchange Traded Fund) to prove that anyone can structure a plan to live completely or partially off dividend income.

I selected XIU.T because the ETF is very liquid (i.e. it can be bought/sold very quickly without affecting the price), represents the 60 largest Canadian companies, most of those companies pay a dividend, and it’s rebalanced regularly by iShares.

At the time of writing (February 24^th, 2021) , the yield paid by the 60 largest Canadian companies, as represented by the ETF XIU is approximately 2.8%, to simplify the math, I will round up the dividend yield to 3% and assume I can earn a 3% dividend on my stock portfolio for the foreseeable future ( lets ignore capital gains for the moment)

My financial independence approach involves investing my savings in dividend-paying stocks until the dividend income from the investment portfolio equals my lifestyle expenditure. Once this milestone is achieved, I consider myself financially independent for life.

Getting back to Mr. Anxious, remember he needs $100,000 annually to fund his lifestyle. Assuming he invests his savings in the XIU.T, and that he doesn’t want to encroach on the capital during his retirement, he will need to set aside approximately $3.4M of savings in XIU.T to achieve his income requirement.

Here’s the math: $100,000/3%= $3,333,333

Let me rephrase this point: If Mr. Anxious invests $3.4M in XIU.T, his investment portfolio will earn approximately $100,000 of annual dividend income (before tax) without touching the capital (as of February 24, 2021).

But wait, not so fast Richard! What about…

1. Inflation

Many readers wonder if the dividend stream will keep up with inflation.

For example, to cover an inflation rate of 2%, Mr. Anxious needs $100,000 in 2021, $102,000 in 2022, $104,040 in 2023, $106,120 in 2024, and so on until his death.

From its inception on September, 28th 1999 to March 30, 2021, the cumulative distribution paid by XIU.T was $11.75 on an initial price of $10.00 per unit. The simple math represents an annual distribution of approximately 5.6% against an annual inflation rate of approximately 2.1%(https://www.statista.com/statistics/271247/inflation-rate-in-canada/ )

In short, distributions outpaced the inflation rate ( from inception to end March 2021).

2. Taxes

In Ontario, the 2021 combined federal and provincial ​tax rate​ on taxable income between $98,040 and $150,000 is 43.41% for interest income, 21.70% for capital gains, and 25.39% for eligible dividends.

So $100,000 of dividend income produces an after-tax cash flow of $74,610. However, if the same $100,000 was invested in a GIC, the after-tax cash flow would drop to $56,590 (because it’s considered interest income).

In short, if Mr. Anxious planned to fund his retirement with dividend-paying stocks, he would need to save approximately $3.4M. Alternatively, if he planned to use GICs to fund his retirement, he would need an additional 24% (approximately $4.13M) of savings to have the same after-tax cash flow…

3. The initial capital

Remember that the Dri retirement method recommends living off the stream of dividend income and not spending the initial capital invested (in our example, close to $3.4M).

You might be wondering: What happens to the initial capital over the retirement period?

Of course, no one has a crystal ball. But if Mr. Anxious invested $3.4M in XIU.T in September/1999, his capital would have increased to approximately $9,600,000 by the end of March 2021 ( not including dividend reinvestments).

In summary, since September 1999, that $3.4M in XIU.T would have produced a steady flow of distributions that increase most years and covered inflationary increases AND the initial capital continued to grow at the average rate of approximately 4.20% compounded annually.

Don’t forget, Mr. Anxious only spent the distributions.

It’s a win-win solution: a rising annual cash flow and increasing capital value.

4. Higher savings

The Dri retirement plan requires a lump sum at retirement of approximately $3.4M. But if we plan to draw down our capital during retirement (assume a 25-year retirement, inflation of 2.25% and an investment return of 5% average), the required savings would drop to approximately ​$2.2M​.

In short, the Dri solution requires an additional savings of approximately $1.1M but provides protection from life events such as living beyond 90 years old, increased inflation, and higher living expenses.

I am not trying to under-emphasize the implications of saving an additional $1.1M during your working career, because we all know it’s not a simple achievement…

Instead, I’m suggesting that investors live off the dividend income that their retirement pool generates and not touch the capital forever (or at least until their late 70s). So, if Mr. Anxious saved $2.2M, he should adjust his living expense to match up with his dividend income.

If we make the same 3% dividend assumption (as used above), the investment pool generates $66,000 (pre-tax) without drawing down capital. By spending only the dividend income stream, Mr. Anxious reduces the risk of outliving his money or experiencing a large inflation erosion.

Other considerations:

Lets not forget that accumulating $2,000,000 or $3,300,000 requires deliberate savings over a long time frame and a successful investment strategy.  I believe all Canadians can save and invest on their own but using an advisor has been documented to improve long term returns.

In a recent study by Morningstar, (entitled Alpha, Beta and Now), they estimate that investment returns improve by 1.82% for those who use professional advice to make their financial decisions. A similar report by Vanguard (entitled Advisor Alpha) estimated the advantage at 3%.

Lastly, investors must also “Know Thyself” which for investing means: if you panic when the market go down or become greedy when the markets go up, maybe a 100% dividend portfolio may not be appropriate.

So in short, carefully analyze thyself and select an appropriate asset allocation.

---

In summary, financial independence is achieved when dividend income equals lifestyle expenditures.

That’s how Mr. Anxious becomes Johnny Calm.

If you are struggling with your financial independence goal, ​call me ​and we can work on a plan.

---

Never Retire Profile

Catherine O’Hara

One of Canada’s most beloved comedians and actors, Catherine O’Hara is perhaps best known for her sketch comedy work and hilarious celebrity impressions as a member of Second City. Or perhaps for her roles in Home Alone, several Tim Burton movies, mockumentaries like Best in Show, her portrayal of Aunt Ann in Temple Grandin, or her recent stint as Moira Rose on the sitcom Schitt’s Creek (alongside Second City pal Eugene Levy). With a career extending back to 1974, O’Hara’s recent performance as Moira has earned her five Canadian Screen Awards for Best Lead Actress in a Comedy Series, a Primetime Emmy Award, and a Golden Globe Award, among many others. O’Hara is also a singer-songwriter, as is her sister Mary Margaret O’Hara, and continues to write, act and sing today. With more projects currently in the works, the 67-year-old Canadian icon exemplifies the Never Retire philosophy.

---

The process of finding a wealth advisor can be overwhelming. It is our job to make that process simpler and easier. Dri Financial Group’s proprietary ​Wealth Navigator Process​ is designed with you in mind. It’s structured framework helps you make an informed decision and feel confident in our team and management practices before we get started.

We offer you a range of services from creating bespoke financial plans and providing investment advice to helping you take advantage of our investment models. If you would like more information on the ​Wealth Navigator Process​ ​or our team, call me any time at 416.355.6370 or email me at​ ​richard.dri@scotiawealth.com​.
—
Beyond helping you manage your finances, we take pride in motivating, educating and helping you expand your financial literacy. We are here to answer any questions you have and to help you feel in control of your financial destiny.

If you are ready to dive deeper into your financial literacy journey, we have a wide range of free tools and educational resources available.

• Subscribe to our ​Never Retire Newsletter
• Contact us to ​order a complimentary e-book
• Check-out our latest ​Wealth Navigator P​odcast
• Follow me on ​LinkedIn

source https://richarddri.ca/how-to-live-off-your-dividends/

Construction lawyer, Josh Strub, joins me on today’s episode for a discussion about construction law and so much more. A skilled lawyer with both private practice and in-house experience, Josh is currently a partner at Margie Strub Construction Law and an adjunct professor at Western University. His degrees in both law and civil engineering, along with his varied experience, render Josh an expert in the construction law field, and he shares a vast amount of his knowledge, wisdom, and advice during our conversation here today.

Josh begins by discussing why and when companies would need a construction lawyer, some often overlooked factors to consider when buying land for construction, and details about his firm, including some of its current challenges. He also delves into the unique value proposition his firm offers, what he does with his money, his real estate investment categories, and his advice for new or younger lawyers. Our conversation draws to a close with Josh sharing his indicators of success for his firm over the next 5 years.

Construction Law and Real Estate Investing with Josh Strub

Download the full transcript here

Highlights:

• Everybody that’s entering into a construction project should make sure that they have appropriate legal, or at least contractual, advice at the outset before they sign on the dotted line.
• Because they are a small and lean firm, Margie Strub is a lot more flexible than other firms and can make sure that they can keep clients’ interests as the absolute top goal in everything that they do.
• Josh and his wife’s approach to their finances is to basically avoid discretionary spending wherever possible and save or invest all excess cash.
• Josh’s advice to new or younger lawyers is to keep an open mind, take on risks and challenges and meet them head on, and, when they need help, to never be afraid to ask for it.
• When aiming for success, take care of your clients first, your employees second, and then your own wellbeing.

Quotes:

“I know that this is a little bit self-beneficial, but I would say hire a construction lawyer as early as possible.”

“You never need a construction lawyer to do anything. It’s a question of risk.”

“And so together by combining those skill sets and levels of experience, plus our strong ability to work together as a team…I believe that we can offer our clients superior value to frankly anyone that I’m aware of in the space.”

“They should always lean on their network and continue to try and grow their network, which growth will help them again grow their knowledge experience, but also of course grow their network for future referral opportunities, which is, of course, important.”

“You will be successful if the clients are happy and the staff and the team is happy, so they’re definitely connected.”

Follow us on social:

Facebook

Twitter

LinkedIn

Listen to more podcasts by Richard Dri:

Making the Legal Profession Faster, Better, and Cheaper with Aeron Baer

Building Franchising Success with John Evans

Building Community Through Canadian Clothing with Local Laundry’s Connor Curran

source https://richarddri.ca/construction-law-and-real-estate-investing-with-josh-strub/

Poet T.S. Eliot is famous for having written, “April is the cruellest month.” But he’s also famous for being a bit of a curmudgeon.

Unlike T.S., most of us welcome the longer days, warmer temperatures, greening grasses, rising tulips and blossoming trees.

This is my favourite season.

I long for the rebirth and optimism (“stirring dull roots with spring rain”) that nature provides during the months of April and May.

And maybe this is odd (though definitely not curmudgeonly), but I actually look forward to completing my tax returns in April while watching the robins and cardinals search for food in the backyard trees.

This year, I want to spread my spring happiness around by providing you with a four-part series on tax deductions that all DIY tax preparers can utilize. I also recommend reading my in-depth review of tax strategies for business owners.

As always, this blog deals with general tax planning topics and shouldn’t be considered as tax advice. Before implementing anything written here, I urge you to consult a professional advisor to ensure it’s right for your circumstances.

---

2020 tax year: The home office edition

I have been working mostly from home since the emergency order in March 2020. If you are in the same situation, you should know that CRA issued new guidelines around claiming home office deductions.

Certain home office expenses are generally deductible by employees or self-employed individuals who perform at least 50% of employment or self-employment services at home.

For the 2020 tax year, eligible individuals can choose between claiming the expenses under the new temporary flat rate or use a more detailed method.

Below are the two options.

Option 1: The flat rate method

The government will allow anyone who worked from home in 2020 to claim $2 each day they were at home, up to a maximum of $400, without a tax slip issued by their employer.

To select this simplified method, you can fill out Form T777S, Statement of Employment Expenses for Working at Home Due to COVID-19, when filling your tax return and receive up to $400 without supporting documents.

Here’s the fine print.

In order to claim the expense using the flat rate method, you must meet the following eligibility criteria:

• Worked from home in 2020 due to the COVID-19 pandemic or required by employer to work from home;
• Worked more than 50% of the time from home for at least four consecutive weeks in 2020;
• Not claiming any other employment expenses; AND
• Employer did not reimburse all the home office expenses.

Option 2: The detailed method

I like the simplicity of the flat rate method. But in my case, it underestimates my actual cost of working from home.

The detailed method requires that you calculate your actual expenses incurred and the employment use of the workspace, including factors such as the size of the home and workspace. Supporting documents must be kept under this method.

For example –

Let’s assume my electricity, heat and water cost $6,500 in 2020, my office space is 200 square feet, and my total living space in my home is 2,000 square feet.

I can deduct a portion of this expense based on this calculation:

200/2000 * $6,500 = $650

Here are some of the eligible expenses for salaried and commission employees:

• Salaried employees: electricity, heat and water; utilities portion of condo fees; maintenance and minor repairs costs; rent for house or apartment.
• Commission employees: everything as for salaried employees above; home insurance; property taxes; lease of cell phone, computer, laptop, tablet, fax machine etc. that relate to earning commission income.

Be careful here.

Non-eligible expenses include mortgage interest, principal mortgage payments, home internet connection fees, furniture, and certain capital expenses. Also, home office expenses claimed cannot exceed the net employment income, but the excess can be carried forward to future years against employment income from the same employer.

Below is the fine print on option 2.

All eligibility criteria must be met in order to claim actual expenses:

• Worked from home in 2020 due to the COVID-19 pandemic or required by employer to work from home (same as the flat method);
• Worked more than 50% of the time from home for at least four consecutive weeks in 2020 (same as the flat method);
• Have a completed and signed Form T2200S, Declaration of Conditions of Employment for Working at Home Due to COVID-19, or Form T2200, Declaration of Conditions of Employment, from an employer (different form from the flat method); AND
• The expenses are used directly for work during the period (same as the flat method).

To help you in choosing between the detailed method or the flat rate method, the CRA has created a calculator available on their website to determine the best approach for calculating your home office expenses deductible for 2020.

Please refer to the CRA website for more information on home office expenses.

I found the CRA tax calculator fast and easy to use, but it does assume you have your eligible expenses
itemized and documentation is available.

In my personal situation, the calculator indicated I could deduct $1,850 for my home office. If I assume a 50% marginal tax rate, the deduction saves me about $925.

---

So there’s nothing wrong with April in my books. For me, and maybe for you, it’s the kindest month when it rains down tax deductions!

If you are unsure whether you can deduct your home office expenses, please call our office. We’ll walk you through the calculations and help you determine which approach provides the biggest tax deduction.

---

Never Retire Profile

The Academy Awards

The nominations for the 2021 Academy Awards were just announced, with the reminder that this recognition of artistic and technical excellence in the film industry is now 93 years old. The first award “show” was a private party hosted by Douglas Fairbanks in 1929, with the ceremony itself lasting about 15 minutes. At four hours and 23 minutes, the longest show was in 2002—pretty spritely (or just long-winded) for a 74 year old! Traditionally, only movies shown in theatres can receive a nomination, but in this COVID year where so much has changed, the ceremony will be virtual and films released only through streaming services are also eligible. With this pandemic disruption and viewership of the show declining over the years, who knows where the Oscars are headed. But they will definitely not retire!

---

The process of finding a wealth advisor can be overwhelming. It is our job to make that process simpler and easier. Dri Financial Group’s proprietary ​Wealth Navigator Process​ is designed with you in mind. It’s structured framework helps you make an informed decision and feel confident in our team and management practices before we get started.

We offer you a range of services from creating bespoke financial plans and providing investment advice to helping you take advantage of our investment models. If you would like more information on the ​Wealth Navigator Process​ ​or our team, call me any time at 416.355.6370 or email me at​ ​richard.dri@scotiawealth.com​.

---

Beyond helping you manage your finances, we take pride in motivating, educating and helping you expand your financial literacy. We are here to answer any questions you have and to help you feel in control of your financial destiny.

If you are ready to dive deeper into your financial literacy journey, we have a wide range of free tools and educational resources available.

• Subscribe to our ​Never Retire Newsletter
• Contact us to ​order a complimentary e-book
• Check-out our latest ​Wealth Navigator P​odcast
• Follow me on ​LinkedIn

source https://richarddri.ca/how-to-write-off-your-home-office-expenses/

The U.S. Federal Reserve drove the narrative this week as it confirmed a brighter economic outlook at its policy meeting Wednesday, while stressing it’s too early to loosen monetary policies. The balancing act comes amid heightened expectations that scores of U.S. stimulus, improving economic data and mass vaccinations will increase inflation and result in a jump-forward in interest rates. Rising growth expectations are evidenced in 10-year Treasury yields which ticked higher following the Fed’s two-day policy meeting. Higher interest rates on safe-bonds make stocks less attractive, particularly high-growth technology names. Over the past six weeks, the 10-year U.S. treasury yield has risen from 1.07% to over 1.7% on Thursday, despite the Fed forecasting no interest rate hikes until 2023. Turning to U.S. economic data, the number of people filing for unemployment benefits rose to 770,000 the week ended March 13, up from 725,000. While jobless claims have fallen from their peak last year, they remain at historically high levels; a key reason the Fed says it will support financial markets until the economy fully recovers. Retail sales – the other notable print south of the border – fell 3% in February compared to January. February is typically a slow month for sales as stores gear up for spring while bad weather may also have weighed on sales. Turning to China, economic activity surged in the first two months of the year compared to the same coronavirus-battered period last year. Data released on Monday showed industrial production, consumption, investment and home sales jumping by more than 30% yoy. Beijing has set a modest growth target of 6% for 2021. In the U.K., the Bank of England met on Thursday, with bankers making no change to its huge, crisis-fighting stimulus program. The bank stood pat despite optimism that tough pandemic restrictions could be lifted sooner than thought as Britain expects to vaccinate half of all adults in a few days.

Read more

source https://richarddri.ca/u-s-fed-maintains-it-outlook/

This week, I am joined by Aaron Baer, partner of the law firm of Aird and Berlis LLL, for a conversation about ways to make the legal profession faster, better, and cheaper. Aaron practices corporate and commercial law with an emphasis on mergers and acquisitions, corporate restructurings and regulatory matters for private and public companies. He has a keen interest in legal technology and has played a leading role in his firm’s adoption of artificial intelligence, legal project management and data analytics, and, in 2018, he was seconded to Diligen, a leading AI contract review company based in Toronto.

Today, Aaron discusses the ways in which technology can help lawyers and their clients, his recommendations for practice management tools, his contact management tool, and those law firm processes which he feels could be improved.   Our conversation concludes with the importance of running a financial independence projection, and the instructive power of talking about personal finance. Confident, articulate, and always striving to generate improvements, Aaron is filled with valuable information and ideas, and he shares so many of them here today.

Making the Legal Profession Faster, Better, and Cheaper with Aaron Baer

Download the full transcript here

Highlights:

• The three areas to address in improving the legal profession are technology, process, and people.
• The most important part of the improvement puzzle is culture and people.
• The legal profession has been very slow to adopt technology in its practice.
• For Aaron, financial independence comes down to whether he needs to keep working and whether he has the flexibility to do what he wants to do, such as working less, switching roles, etc.
• Destigmatizing some of the talk about money is so important.

Quotes:

“If you can find the right tool for the right problem, it’s really amazing how much value you can add and how much happier the client will be, and how much happier I get to be, which is fantastic.”

“But I think first is the process and secondly is saying, ‘Is there a technological solution within my price range that can help me accomplish my goal?’”

“Are we just going back to doing things the way we always did? That’s not in their best interest long term, but it’s definitely not in the client’s best interest.”

“So for me, it’s that ability to choose my own adventure at some point.”

“We’ve got to work on a growth mindset towards money, because this stuff is not intuitive.”

 

Follow us on social:

Facebook

Twitter

LinkedIn

Listen to more podcasts by Richard Dri:

Building Franchising Success with John Evans

Building Community Through Canadian Clothing with Local Laundry’s Connor Curran

Simplifying Canada’s Tax Code with The Grumpy Accountant, Neal Winokur

 

source https://richarddri.ca/making-the-legal-profession-faster-better-and-cheaper-with-aaron-baer/

John Evans, Founder and CEO of Everline Coatings and Services, is my very special guest on the podcast today. After working and learning about franchising at College Pro Painters, John left and went on to start Everline, a company that provides high quality and efficient line painting services for parking lots, roadways, parkades, and warehouses. There are currently 18 Everline franchises across Canada, and they are looking to extend into the United States with the possibility of another 350 there. A prime example of an entrepreneur with an eye for discovering a need and filling it, John has a great deal of knowledge and advice to share here today.

John’s career low point and how he moved out of it, his investments outside of the company, the ways he protects his money, and the people who have influenced him the most are also discussed.   John’s career has been one filled with lessons learned that have generated great success, making today’s interview one of incredible value to us all.

Building Franchising Success with John Evans

Download the full transcript here

Highlights:

• John noticed that in Calgary there was no well branded, professionalized line painting company, so he positioned himself as the more polished approach.
• John’s success on Dragons’ Den came from knowing his numbers, having strong financial acumen, and being able to answer their questions right off the bat.
• He has used a number of different strategies to raise capital.
• From John’s experience, valuing a franchisor really comes down to valuing their cash flow.
• It’s important to have life and disability insurance as well as a will and powers of attorney.

Quotes:

“My bottom line was negative 25,000. I hired my friends. I underpaid jobs. I mismanaged them. I did it all. I went through the hard knocks all at once.”

“The first year did 160,000 revenue, then 320, then we doubled and doubled and doubled.”

“To me, that was very important that if I’m going to be selling a franchise virtually at full price right off the gate that it had to be very sound and solid.”

“For me it’s all about building up that share value. And that is where the true wealth is going to come from.”

“I have the responsibility of leading a group of 18 franchises who trust me with their life savings and their investment processes and things like that.”

Follow us on social:

Facebook
Twitter
LinkedIn

Listen to more podcasts by Richard Dri:

Building Community Through Canadian Clothing with Local Laundry’s Connor Curran

Simplifying Canada’s Tax Code with The Grumpy Accountant, Neal Winokur

Connecting Local Producers to Consumers with truLOCAL’s Marc Lafleur

source https://richarddri.ca/building-franchising-success-with-john-evans/

Technology stocks continued their recent decline Monday, pulling the Nasdaq index into correction territory, as U.S. government bond yields continued climbing, making high-growth technology names a bit less attractive. On Monday, the yield on the 10-year U.S. Treasury ticked up to nearly 1.6%, its highest level since last February. Meanwhile, a rotation toward cyclical names continued, driven by the expectation that the $1.9-trillion stimulus package will be signed into law this week by U.S. President Biden. By Monday’s close, the Nasdaq dropped 311, the Dow climbed 306, and the S&P was down 20 points. In Canada, the TSX was up 77 points, buoyed by the Financials and Real Estate sectors.

North American markets rallied on Tuesday, with the Nasdaq recovering roughly 4% — its biggest single-day rise since early November — as U.S. bond yields retreated and investors looked for bargains in the technology sector. The TSX closed at a record high, gaining 141 points to end the day at 18,599. Meanwhile, the Dow hit a record intraday high but lost some ground later in the session, finishing up just 30 points.

The Dow, however, notched a fresh record Wednesday, climbing 462 points, after U.S. inflation data showed a negligible increase in consumer prices for February, easing investors’ inflation worries. The Nasdaq and S&P finished fairly flat, while the TSX added 91 points. As expected, the Bank of Canada on Wednesday held its overnight rate steady at 0.25%, noting once again its intention to keep rates low until 2023.

Technology shares, especially FAANG stocks, were once again in favour Thursday as fears of rising rates diminished somewhat, leading to an increased sense of calm in the bond market. The Nasdaq surged nearly 330 points, while the Dow and S&P added 189 and 41, respectively. It was a broad-based rally on Thursday with all 11 S&P sectors trading higher. In Canada, the TSX staged a rally of its own, jumping nearly 155 points to a new record close at 18,845.

Read more

source https://richarddri.ca/a-volatile-week-for-technology-stocks-as-signs-of-recovery-build/

The ​Tax-Free Savings Account (TFSA)​ ​has been in existence for more than a decade, but for many Canadians it remains an underutilized wealth accumulation tool.

In a TFSA, you have the flexibility to invest in similar securities as you would in your Registered ​Retirement Savings Plan (RRSP)​ or non-registered investment account.

Canadians can grow their investments and savings much faster because income and growth from a TFSA are completely tax-free (since contributions are made using after-tax dollars).

Furthermore, amounts withdrawn from a TFSA will be added back as available contribution room starting the year following the withdrawal.

For example –

A $2,000 withdrawal this year can be replaced next year without affecting next year’s $6,000 contribution room. Therefore, you can contribute $8,000 next year without causing an over-contribution (assuming no unused room). For seniors, withdrawals from a TFSA will not affect eligibility for federal income-tested benefits such as Old Age Security (OAS).

Saving for retirement: RRSP or TFSA?

Deciding between an RRSP and TFSA will depend on your savings needs, as well as your current and future financial situation.

Generally, if you expect to be in a lower tax bracket during retirement, then RRSP contributions provide a benefit in deferring tax until those years. Any withdrawals from RRIFs and annuities are considered taxable income since they were funded with pre-tax dollars.

If you expect to be in a higher tax bracket in retirement, TFSA contributions may be more attractive given that all withdrawals will be tax-free.

An RRSP must be converted to a Registered Retirement Income Fund (RRIF) or an annuity, or withdrawn by the end of the year you turn age 71.

TFSAs have no such requirement, and can continue to accept contributions indefinitely to shelter income. TFSAs can benefit pensioners looking to manage their tax burden, especially if they are earning taxable income from part-time or consulting work.

TFSA contribution limits are the same for everyone, regardless of how much you earn or contribute to your pension. If you are already contributing to your RRSP, it might be a good option to put the refund generated into your TFSA.

Ultimately, there may be no need to choose one over the other.

A TFSA can effectively complement your RRSP as a strategy for retirement savings, as well as for other objectives described below. Using TFSAs and RRSPs together can bring you closer to your goals as part of your overall financial plan.

TFSAs are not just for retirement

Short- and medium-term goals

TFSAs are useful in providing for an emergency, major purchase or vacation, since there are no restrictions on withdrawing the funds** and the withdrawals are tax-free. By contrast, withholding tax will apply on RRSP withdrawals. Therefore, to cover the tax liability, you must withdraw more from your RRSP than you actually need, or make up the shortfall with other funds. In most cases, TFSAs offer the flexibility and tax efficiency to accommodate short-term income needs.

Taking Advantage of TFSAs

Income-splitting opportunity

TFSAs represent an effective way to split income among family members, such as your spouse and adult children. You may provide a gift to help them make a contribution to their TFSA. They are responsible for their own account and contribution room. Income tax attribution does not apply on TFSA earnings as they are tax-free.

Education savings

Normally, a Registered Education Savings Plan (RESP) is the standard vehicle to save for a child’s education. It offers Canada Education Savings Grants (CESGs) of up to $7,200 over a lifetime while contributions are made before age 18. RESP savings can grow tax deferred until a child beneficiary receives payments made from the RESP. One potential drawback is the loss of certain RESP benefits if your child does not pursue a post-secondary education. On the other hand, the use of TFSA savings allows for flexibility in this case and may be considered a desirable complement to RESPs in saving for a child’s education.

Investment transfer

You may want to consider transferring investments held in a non-registered (taxable) account to your TFSA, known as an ‘inkind’ contribution. If the investments have appreciated in value, this transfer would trigger a taxable capital gain. However, be aware that you will not be allowed to claim a capital loss for tax purposes if your investments have depreciated in value. Consult with your tax advisor for more information.

Estate planning

TFSAs can help minimize taxes upon your death and maximize the value of your estate, which is especially important for highnet-worth individuals. If you name your spouse as successor

holder, he or she will inherit and maintain the account’s tax-free status without affecting his or her own contribution room. Naming children as beneficiaries allows them to inherit the account directly, avoiding probate fees. Note the tax-free status is lost on death when the account passes to a beneficiary. Your children could use inherited TFSA funds to contribute to their own TFSA as a tax-free method of inter-generational wealth transfer.

The following table summarizes several features of a TFSA:

TFSAs can be attractive investment and savings vehicles for Canadians 18 years or older.

Take the time now to consider using a TFSA as part of your overall savings and investment strategy. Contact your Scotia Wealth Management relationship manager today to explore these opportunities.

---

The process of finding a wealth advisor can be overwhelming. It is our job to make that process simpler and easier. Dri Financial Group’s proprietary ​Wealth Navigator Process​ is designed with you in mind. It’s structured framework helps you make an informed decision and feel confident in our team and management practices before we get started.

We offer you a range of services from creating bespoke financial plans and providing investment advice to helping you take advantage of our investment models. If you would like more information on the ​Wealth Navigator Process​ ​or our team, call me any time at 416.355.6370 or email me at​ ​richard.dri@scotiawealth.com​.
—
Beyond helping you manage your finances, we take pride in motivating, educating and helping you expand your financial literacy. We are here to answer any questions you have and to help you feel in control of your financial destiny.

If you are ready to dive deeper into your financial literacy journey, we have a wide range of free tools and educational resources available.

• Subscribe to our ​Never Retire Newsletter
• Contact us to ​order a complimentary e-book
• Check-out our latest ​Wealth Navigator P​odcast
• Follow me on ​LinkedIn

source https://richarddri.ca/taking-advantage-of-tfsas/

Founder and CEO of Local Laundry, Connor Curran, joins me for a truly fascinating conversation here today. Somewhat of an anomaly in business today, Connor has made the commitment to not only manufacture and sell clothing in Canada, but to build community and profits along the way. Brimming with Canadian pride and financial wisdom, Connor Curran and his organization are on a trajectory toward even greater success in the worlds of both business and philanthropy.

During our conversation, Connor also sheds light on his and his wife’s money saving habits and investment strategy, the ways in which he protects his income, his perspective on financial independence, and where he sees himself in 5 years. Finishing up with some valuable words of advice for entrepreneurs, Connor brings this remarkable interview to a close.

Building Community Through Canadian Clothing with Local Laundry’s Connor Curran

Download the full transcript here

Highlights:

• Local Laundry manufactures and sells clothing in Canada because it is both the right thing to do, and it sets them apart from competitors.
• One of their big pivots during the pandemic was really focusing online, which they always had done, but more importantly, focusing on custom garments for organizations and businesses.
• The idea for Local Laundry came to Connor while he was doing his master’s in Sweden.
• Connor’s advice to people who are not sure if they should start a business is to stop talking about it and just go do it.
• Connor’s advice to entrepreneurs is to only compare themselves to who they were and where they were yesterday.

Quotes:

“If you have the choice, once a year support made in Canada, whether it’s clothing, beer, furniture, art, you name it, music.”

“We really want to be seen as an organization that builds community, that brings people together, that share stories, that leaves this place, the community, a little bit better than the way we found it.”

“Action cures all.”

“I wish I could go back and go Canadian-made right from the very get-go.”

“You’re doing things that most people right now think cannot be done. I, for one, think it’s time that we start believing that we can manufacture whatever we used to. We can manufacture it right back here in Canada.”

Follow us on social:

Facebook
Twitter
LinkedIn

Listen to more podcasts by Richard Dri:

Simplifying Canada’s Tax Code with The Grumpy Accountant, Neal Winokur

Connecting Local Producers to Consumers with truLOCAL’s Marc Lafleur

Serial Entrepreneurism and Financial Feminism with Kelley Kuipers

source https://richarddri.ca/building-community-through-canadian-clothing-with-local-laundrys-connor-curran/

It was a strong start to the week as the S&P 500 surged Monday in its strongest single-day rally since June. All 11 S&P 500 sectors rallied, led by financials and tech. By Monday’s close, the S&P was up 91 points, the Dow jumped 603 and the Nasdaq added nearly 400. In Canada, the TSX also registered strong, broad-based gains, adding 240 points. U.S. stocks fell Tuesday, as investors once again retreated from high-flying technology names as concerns over rising bond yields and inflation re-emerged, even though bond yields retreated slightly on Tuesday. The Nasdaq shed 230 points, while the Dow and S&P registered smaller losses. In Canada, the TSX bucked the trend, adding 122 points, supported by rising gold prices.

It was another rough day for the Nasdaq Wednesday as investors sold off technology names in favour of cyclicals. The technology-heavy Nasdaq plunged 361 points; the TSX dropped 101, also on technology weakness; while the S&P fell 121. The fear among many investors is that rising interest rates and the spectre of stimulus-induced inflation could disproportionately hurt the future earnings and valuations of high-growth technology names.
The technology selloff intensified Thursday and Treasury yields rose above 1.54%, despite Fed Chair Powell’s pledge to keep interest rates low. The Nasdaq lost 274 points — nearly finishing in correction territory – while the Dow and S&P surrendered 346 and 51, respectively. Meanwhile, the TSX closed down 195 points, although rising crude prices helped temper Thursday’s overall losses.

Read more

source https://richarddri.ca/tech-stocks-volatile-as-concerns-persist-over-rising-yields-inflation/