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Ciccone-McKay’s Goal-Based Investing approach plans for short-, mid- and long-term goals

The world of investing can be overwhelmingly stressful and confusing, with the result that many people never feel adequately informed about it. Not surprising, then, that they put off planning for their future. They figure that things are comfortable now, so why worry beyond that?

But the future tends to arrive faster than we expect. By planning now, you will make your future as comfortable as your present. To help with that planning, we at Ciccone-McKay have created a specific investment approach that demystifies investing – that takes the confusion out and replaces it with clarity. Our straightforward approach, called Goal-Based Investing, allows us to work with every client to derive the plan tailored exactly to that client’s unique, individual wants and needs. The fundamental key to our approach is ensuring that our clients allot the necessary assets to each time period of their planning, with a specific and unique purpose for all of their funds.

Pssst!: It’s not how much you make, but how much you keep
People tend to adopt Mark Twain’s attitude to taxes: a negative one, i.e., it’s taxes and death that ominously await humankind.

But taxes can actually be a profitable, productive part of your overall wealth during your life! Here’s the key to what’s important: It’s not how much you make, but how much you keep.

The government taxes types of income –interest income, capital appreciation income, dividend income – differently. That’s the subject of a future article. For now, let’s concentrate on what’s immediately to your benefit: tax deferral.

To make strides in today’s society, we need to be able to rely on more than our salaries. To be sure, we can work for money during many hours of the week. But we also need to have money working for us – all hours of the week, 24/7, even while we are sleeping.

We need investments.

There are two types of income: temporary and permanent. Salary is our temporary income. Since we aren’t going to work forever, we need the second type: the permanent income generated from our investments.

It’s never too soon to start putting money into investments. To project what kind of yield you can expect, consider the Rule of 72. The Rule of 72 is a simplified formula for figuring out how long you will have to wait for an investment to double, given a fixed interest rate. Divide 72 by the annual rate of return, and you’ll get an estimate of how many years before your initial investment doubles.

Saving: Intentions are good but strategies are even better
You’ve set your financial goals –the way you want your future to look. You’re starting to put money aside for the future. Now comes the satisfying part. You receive your financial statements. From them, you see in them the savings you’re building, month to month, year to year.

Those statements are telling you that the future you want is ahead of you – it’s tangible.

Let’s look at how you are saving. There tend to be two types of savers. Which one do you think is more successful with achieving their financial goals?

• - Person A: spends their paycheque first and then saves whatever is left over at the end.
• - Person B saves a little bit first, then spends whatever is left.

If you guessed Person B, you’re right on the money. Taking the attitude of Person A, that it’s open season on every paycheque, won’t result in much savings.

But even if you guessed right with Person B, you’re probably ...

The vital role of insurance
Insurance gives you a safety net in case of emergency. Put bluntly, it can save your financial and personal future. For that reason, it’s not an understatement to refer to a good insurance plan as your own personal risk management.

Insurance tends to be the most misunderstood area of financial planning. Part of the reason is that many financial advisors don’t even talk about it! Many would rather only discuss money accounts with you: RRSPs, TFSAs, open accounts.

But advisors with your future and long-term stability and security in mind will also raise the topic of a financial safety net. Think about it. Everything in your financial plan depends on a safety net – on insurance that covers you in worst-case scenarios.

Here’s why we compare insurance to a safety net. Insurance can save you from a calamitous fall into financial and personal ruin! What if you suddenly face a devastating health situation? A good insurance plan covers that. It takes care of the big bills.

Another reason people commonly misunderstand insurance is that they simply don’t like thinking about it. Which is only human. Who wants to contemplate dire circumstances? Easier to take the attitude that bad things just happen to others.

Yet it’s only sensible – it’s only good planning –

With a Pre-Authorized Chequing plan you save first, spend second – and ensure a sound future

No one would argue that saving for retirement is a great idea. It’s something we all know we should do. But whether we put the idea into action is another issue. How many of us, when we come down to it, are good savers? Are you?

Turns out that, on average, we Canadians are pretty dismal at saving. According to Statistics Canada1, the current household saving rate is hovering around 4%, a percentage that has fallen drastically since the 1980s. Yet we’re in a time that has seen a rise both in the cost of living and in stock-market volatility. Now, more than ever, it’s vital to ensure you set up a savings plan to provide sufficient income for your retirement years.

So how can you, as a hard-working person, ensure that this happens?

Consider that the maximum contribution to a Registered Retirement Savings Plan (RRSP) is 18% of your T4 income in the previous year. And, that the maximum contribution in 2016 is $25,370.

That means, on average, there is a 14% gap between what we are saving and what we can be saving, solely in RRSPs. And that is excluding all other registered accounts entirely, such as a Tax-Free Savings Account (TFSA).

Maybe you’ve put off saving because it seems like a chore. Here’s a tip for you. Saving gets easier when you make it a habit!

Okay, you say, but how to establish this good habit of saving?

In the previous, introductory article to this series, Part 1, we defined just what financial planning is. Not unlike planning your dream house, you figure out where you want to be: that is, your values. And, what you want your life to look like: your goals. In this second article, we examine the importance of putting money aside for your dream future.

A rainy day fund: The day to start is now
In life you have to expect the unexpected. But you can prepare for it – by saving your money.

You’ve probably heard the expression “rainy day fund,” meaning money you put aside for something unexpected. It’s an old expression, but a tried-and-true one – proving that traditional wisdom is often the best wisdom.

Here’s a good way to start that fund. Stash away up to six months’ worth of fixed expenses. Put it in a redeemable, zero-risk interest account, such as a Manulife Bank high-interest account.

Managing and organizing your finances seems daunting, especially the idea of coming up with an actual financial plan. But never fear. In this six-part series we aim to defog the confusion.

Introduction: Just what is a financial plan?
From time to time, through friends or on TV, you’ve no doubt heard about the wisdom of organizing and managing your finances. Great idea, you think. Should do it.
Then you realize the next step is to carry the idea through into a plan. Wait. A plan? Whatever does that mean?

If you’re like a lot of people, you don’t know. It’s like facing a big fog of confusion, of the unknown.
So, you hold the idea in the back of your mind – and leave it for another day.

That’s okay in the short term. But it leaves the long term, your future, dangling.

Here’s the beauty –and yes, the challenge

Life insurance plays an increasingly important role in financial planning due to the growing wealth of Canadians. Many affluent individuals use life insurance to protect their wealth against taxes arising on death. Others use exempt life insurance to provide retirement and other executive benefits.  A valuable aspect of life insurance to fund the tax liability on company shares is the capital dividend account credits (CDA), it’s a notional account to flow tax-free receipts through to shareholders on a tax-free basis.

The Capital Dividend Account (CDA) is a powerful tax-planning tool for people who own shares in private businesses.

As a parent, are you worried about how you are going to put your children through post-secondary school?  As the cost of tuition rises and student debt increases every year in Canada it becomes more and more costly for individuals to attend post-secondary school.  There are, however, ways to help minimize the burden of student loans for your child. 

Registered Education Savings Plan (RESP)
The RESP is a sponsored plan from the federal government that allows you to save money tax free for your children.  Although not tax-deductible from your income like an RRSP, the RESP allows the contributions to grow tax free within the investment account.

When I was just a child, my dad gave me a gift that has served me well all my life.

He gave me the gift of asking questions.

Now, I know you’re thinking that every young child asks a million questions – and that’s true. But what my dad did was not to simply answer my questions, or tell me to go away and stop bothering him. What he did was to preface his answers with: “That’s a good question, Anthony.”

As a result, I’ve gone through my life being unafraid to ask questions. I don’t believe there are any stupid questions, if they are asked in earnest.

I can truthfully say that asking questions, and finding out and reflecting on the answers, has got me to where I am today.

Probating a will is time-consuming. Probate costs, along with estate fees, can significantly diminish the value of your estate – and decrease the amounts that your beneficiaries receive.

There is also a privacy issue. A probated will becomes part of the public court record. That means anyone who’s curious can read your will. They’ll see every every bequest you made. You might think that doesn’t matter. But it’s a serious loss of privacy. It’s been enough, in some instances, to tear families apart.

Consider the hypothetical case of Mary, a 79-year-old widow. Mary invested $200,000 in a portfolio of stocks and bonds. She intended to leave that money to her three adult grandchildren to help them buy their own homes. It’s now a year later. Mary has died – and market declines have dropped the value of her portfolio to just $150,000.

That’s bad enough. But there’s more. By the time Mary’s bequests are passed on, her estate will also be subject to the following fees:

Steered by the United States, 2013 was a great year for stocks. The US S&P 500 gained over 30% with gains of over 10% in every sector; more than 95% of the 500 companies listed on the S&P 500 posted gains for the year. The last five years have seen the S&P 500 double.

In Canada, weak commodity prices tempered gains posted by consumer staples and financial services. The materials sector was down more than 30%. Gold dropped 28%, precipitating losses near 50% for two of the largest gold companies in the world: Barrick Gold and Goldcorp. Despite a horrible year for commodities, the Canadian market nearly managed to produce a double-digit return proving that the economy is healthy. Our dollar dropped significantly against the greenback which amplified our portfolios' return on US equities.