Golden Girl Finance
Lynne Triffon
Posts (9)

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Q&A: Are income funds better for preservation of capital?

December 7th, 2012 by

Q: My financial advisor has most of my money in equity mutual funds and I'm losing money. I suggested he put my money in index funds so I won't lose as much. He disagrees with me. What should I do?

Asked by Anonymous, London, ON


There are a couple of issues here.

First of all, your financial advisor should have spent some time with you to determine your needs, goals and personal risk tolerance and then recommended an appropriate asset allocation based on these factors.  In simple terms, asset allocation is determining what percentage of your funds should be in equities vs. fixed income investments.  The more equities you have, the higher the potential return, but the more volatility. 

Once an appropriate asset allocation is determined, the next step is selecting the investments.  Just like mutual funds, index funds can be investments in all different asset classes: not just equities. 

Index funds are considered “passive investments”.  They are constructed to invest in the broad market.  For example, a Canadian equity index fund based on the S&P/TSX 60 is composed of the 60 largest companies listed on the Toronto Stock Exchange, held in proportion to the relative size of each company. 

Many mutual funds are actively managed, meaning that the managers select each stock based on their own analysis.  This can mean excluding many stocks and holding more of one stock over another, with no relation to the size of the company.

Proponents of active management feel that good active managers can add value through increased returns and by reducing risk.  Proponents of index funds point out that that a great many active managers fail to do this.  In addition, the costs of index funds are much lower than actively managed mutual funds.

A good financial advisor will take the time to educate their clients as part of the investment process.  It may be that your advisor has tried to do this, but perhaps his/her communication style doesn’t work for you.

It also sounds as though you are uncomfortable with the current equity exposure of your portfolio.  It may be that your advisor did not do a good job in determining an appropriate asset mix with you or it may be that your risk tolerance has changed.

It may be that you need to find another advisor.  A good advisor will:

  1. Take the time to review your current financial position, goals and risk tolerance.
  2. Set a target asset allocation with you, ensuring you understand the potential risks, as well as returns.
  3. Communicate with you in clear and understandable language and address any questions you raise.
  4. Meet with you at least once a year.

If your financial advisor hasn’t followed these four key points, I highly recommend that you find one who will.



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Q&A: If I retire in the U.S., do I need to give up what I contributed to my RRSP?

November 28th, 2011 by

I have a question with regards to RRSPs and 401(k)s. I am a Canadian, having worked in Canada and having contributed to an RRSP and TFSA for a while. I am contemplating going to work in the US. Most of the companies that I am looking at have employer co-contribution to 401(k) plans. I am wondering the following...if I set up a 401(k) account down there, how will that affect what I can contribute to my RRSP? Also, I heard that when you are retiring, you can only choose to take payout from either your RRSP or your 401(k), but not both; does that mean that if I were to retire in the US, I would need to give up what I have contributed to my RRSP?

Asked by Newbie, Toronto, ON


Cross-border tax planning is complex and there is a lot of misinformation out there. You should make sure to consult with a cross-border tax specialist before you make your move to the US. While you have asked specific questions about RRSPs and 401(k)s, there are other tax issues, such as departure tax from Canada and annual reporting requirements and elections to be made on your US tax return with respect to your RRSPs.

The first step is to determine whether you will be considered to be a Canadian resident for tax purposes, or a US tax resident (or both, in which case there are tie-breaker rules). There are a number of steps to take to ensure that you are considered to be a non-resident of Canada for tax purposes. There are also steps to take before you exit Canada that will reduce the tax you pay in the US on existing investments in Canada, including RRSPs.

Now onto your specific questions...

Assuming you become a non-resident of Canada, you will no longer be filing Canadian tax returns and therefore, will not be earning new entitlement to RRSP contribution room.

I can assure you that if you have both RRSPs and 401(k)s at retirement, you will be able to draw on both - nothing is forfeited The tax consequences on withdrawal will depend on where you are considered to be a tax resident when you take the money out and what elections you made each year. Canada will tax the RRSP income, regardless of where you are living at retirement. Similarly, the US will tax the 401(k) income, regardless of where you live. Both could thus be subject to tax, potentially in both jurisdictions, depending on where you are living at the time of withdrawal; however, if you do pay tax in both countries, you will have an offsetting foreign tax credit to minimize double taxation.

I strongly recommend that you seek advice from a cross-border tax specialist before you sign any contract of employment with a US firm.

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Q&A: Discussing inheritance with an elderly parent

March 28th, 2011 by

I am taking care of an elderly parent (24-hour care) who pays for all our expenses. I am considering placing them in a home in the next few years, as it is becoming too physically challenging for me as they become less independent. Friends are warning me that the issue over inheritance should be taken care of before my parent enters a home. In your opinion, what is the best way to handle it? Someone mentioned a trust account? Thank you in advance for any guidance you can provide.

Asked by Anonymous, Hamilton, ON


First off, let me commend you for your strength in taking care of your parent. As many of us enter the 'Sandwich Generation' of caring for both children and parents, the mental, emotional and physical toll is significant and comes at a great economic burden to the caregiver. You are to be commended.

I'm not sure I fully understand your question, but it sounds to me that because you are caring for your parent 24-7, you are unable to work and thus your parent is covering the expenses; you are thus economically impacted by the fact that you are the caregiver.

Without knowing more details, I am wondering if you are concerned about needing continuing financial support from your parent once he or she is in a full-time care facility or whether you are concerned that you will not get a future inheritance if the funds are eaten up by nursing home fees? Here are some thoughts...

Assuming you are talking about a government funded nursing home, there are government subsidies available if the senior has insufficient funds. The subsidy is based on an income assessment. The income from any investments would be considered in the determination of any subsidy. These programs vary from province to province, but generally apply only to basic living accommodation and not to private or semi-private rooms. If your parent is a veteran, there are special programs available through the Department of Veteran Affairs, including programs that may provide you with assistance in keeping them at home, and relieving you of full-time caregiver responsibilities.

Provided your parent is still of sound mind, he or she can gift funds to you and/or your siblings. This would increase the potential amount of government subsidy available; however, as a result, your parent may be compromising their standard of living throughout the remainder of his or her life.

Some children opt to keep the funds in a separate account and use the funds to provide for extras for their parents, such as a "companion", hairdressing etc. This becomes complicated if there is more than one child, as the gift is a legal transfer of funds and there is no way to ensure that each child supports their parent equally.

Additionally, any gifts to you or your siblings would result in a number of risks, such as a division of assets in a marriage breakdown or creditors. While the funds could be transferred to a trust, there are costs, tax issues and other complexities that need to be considered.

I would recommend that your parent obtain independent legal advice from an estate planning lawyer. The lawyer would also be able to assess for legal capacity to make such decisions and if so, ensure that Wills and Power of Attorney for Property and Healthcare are in place and in keeping with your parent's current wishes.

If your parent does not have the mental capacity to make these decisions - and even if you have a Power of Attorney for Property - you may be limited in how you are able to deal with your parent's funds, thanks to laws to protect the elderly and make sure their interests are represented.

Sorry, not an easy answer and it depends on where you're coming from and should you still need or desire financial support from your parent after he or she is in a care home, while ensuring the best quality of life for them in their final years.

I would suggest you seek out the best professional advice for your parent and help them through the process. What a meaningful way to give back to your loved one, as you have been doing.

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Q&A: Retiring soon - should I borrow money to top up my retirement savings?

March 1st, 2011 by

I am 53 years old and planning on retiring in 4 years. My question is whether I should borrow money to top off my RSP contribution?

Asked by Anonymous, New Westminster, BC


If you anticipate that you will be in a lower tax bracket during your retirement years, this strategy could make sense. The other issue is the interest rate on the loan vs. your anticipated rate of return and obviously, your ability to make the loan payments. Keep in mind that the interest you pay will not be tax deductible. One rule of thumb is to borrow only what you can pay off in one year's time.

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Q&A: Where can I safely invest registered money & get a 5% return?

March 1st, 2011 by

Where can I safely invest registered money in order to get a 5% return?

Asked by Anonymous, Hawkesbury, ON


We need to determine what you mean by "safely". If you want a 100% guaranteed return, in today's interest rate environment, a 5% rate of return is not achievable.

The more important percentage to look for is the "real rate of return" - that is the difference between your rate of return and inflation. Inflation is a risk that many investors don't consider. If you need $30,000 to live comfortably in your first year of retirement, twenty years later you will need $43,700 to support the same life style, if inflation averages just 2%.

Other considerations are your time horizon and your risk tolerance.

Many investors mistakenly believe that their investment time horizon is the number of years from today until retirement. With registered funds, your time horizon is throughout your life expectancy - at least until your mid-eighties and perhaps beyond.

Determining your risk tolerance is a little more difficult, but it essentially involves determining how much volatility you can handle without losing sleep at night (or worse selling investments in a down market).

A well-diversified, balanced portfolio should offer you a real rate of return of at least 3% over time (more like 4-5% if history can be relied upon). A balanced portfolio has 50-60% in equities (shares of companies), which means that your portfolio will go up and down with the stock markets to some degree; however, the fixed income portion of the portfolio will help temper the losses. As an example, in 2008, a 60% equity and 40% fixed income portfolio lost about 14%, while 100% equity portfolios lost about 28%.