Tax Free Savings Account

From The Hoss's Mouth

The Tax Man Gets Every Penny

Hoss Cents Free Financial Money Magazine applauds the Canadian Government for the introduction of the Tax Free Savings Account (TFSA). Effective in 2009, Canadians 18 years or older will be able to contribute up to $5000 per year to a TFSA. These accounts can be in the form of mutual funds, stocks, bonds and GICs.

Given the state of today's economic crisis, the Tax Free Savings Account will provide a much needed incentive for investors to continue to invest their savings and not run for the hills with their money.

Take a look at these highlights.

• All income earned in a TFSA, including capital gains will not be taxed even when withdrawn.

• Unused contribution room can be carried forward to future years

• Any funds withdrawn can be put back in at a later date without reducing your contribution room

• Federal income-tested benefits and credits will not be effected by a TFSA

• You can contribute to a spouse's TFSA.

• Assets can be transferred to a spouse upon death
  

The Hoss and Mrs. Hoss will have to replace the roof put on our house within the next few years. Over the next two years we can redirect $20000 of our current investments into TFSA ($5000 each per year).

This will be more than enough to pay for our roof. We can then withdraw the money from our TFSA (with no penalty) pay for the roof and then again redirect some of our current investments to top of our TFSA to $20000.

The Government of Canada has provided a tax free savings account calculator at
Tax Free Savings Account Calculator

You can use this tool to calculate your estimated tax savings. For example the Hoss and Mrs Hoss, each making a maximum $5000 per year contribution over the next 10 years with an estimated return of 5% will save a total of $6802.

This makes the Tax Free Savings Account a valuable savings tool for all Canadians and may help ease some of the concerns caused by the current economic crisis.


Stay on track,

The Hoss

Next Hoss Cents Free Financial Money Magazine Post: Michael Moore On The Auto Industry

Previous Post:Auto Industry Crisis

Equity Mutual Funds

From The Hoss's Mouth

Equity mutual funds are spotlighted in today's Hoss Cents Free Financial Money Magazine. What is an equity mutual fund? You will no doubt remember from the Hoss's money magazine previous post, types of investments, that equities are stocks. Equity mutual funds are simply funds that invest in stocks.

In horse racing a trainer has a choice of entering his horse in sprints, middle distance or long races. He can also choose to run on a grass or dirt track or a grass track one time and a dirt track the next. Similarly, equities have various capitalization (cap)sizes from which to choose and different investment styles to utilize when purchasing equities for a mutual fund.

S/he can choose a value, growth or blend investment style when purchasing stocks for the mutual fund he manages and he can pick between companies that have a small, medium or large cap.

Value Investing: An investment style that utilizes detailed research (called bottom-up) to identify companies that for whatever reason are currently (in the opinion of the fund manager and staff) undervalued. The late John Templeton was a value investor. At the time of this posting there are at great number of stocks undervalued.

Growth Investing: Here the mutual fund manager also utilizes the bottom-up approach to obtain an in depth analysis of individual companies. But rather than pick companies that appear undervalue S/he chooses companies that are in currently in favour and growing rapidly. These stocks come at a high price because of their growth and success and potential for continued positive returns.

Blend Funds: A wide open style of investing. The fund manager could invest in conservative, high risk or specific sector stocks. S/he will usually purchase a large number of stocks in sectors of the economy they expect will increase in value.

The Hoss hopes you find some value (pun intended) in today's post. Remember whatever mutual fund(s) you purchase whether it is an equity mutual fund or otherwise make sure the mutual funds investment style compliments your investment goals and risk assessment.

Stay on track,

The Hoss

Next Hoss Cents Free Financial Money Magazine Post: Green Mutual Fund Investing

Previous Post: Alternative Energy Mutual Funds

Working with Your Financial Adviser

From The Hoss's Mouth

Working with Your Financial Adviser

You have done all the necessary leg work, conducted the interviews and have selected a financial adviser. The race for financial freedom is on track but far from over. In fact, you have just entered the starting gate. You and your financial adviser must communicate on a frequent basis. Just like the ongoing communication between jockey and horse, you must let each other know if the pace is just right, or you need to proceed a little slower or a little faster.

Before leaving the starting gate, ensure your financial adviser has a complete and thorough understanding of your financial goals, your current financial situation and your tolerance for risk. This will enable him/her to assist you in producing a strategy for your financial future. Your financial adviser should be providing you with specific and clear recommendations, detail the reasons for the recommendations, and identify the strong and weak points and risks involved.

A word of caution: Do not expect your financial adviser to perform miracles. A quarter horse cannot win a route race, nor can a financial adviser foresee how the markets will perform or always select profitable investments. In other words, do not weigh your financial adviser down with unrealistic expectations.

Remember, this is your money being invested. It is imperative that you stay informed. You and your financial adviser should have a clear understanding of how often you should receive progress reports and statements, and develop a schedule for regular meetings to review your plan. He/she should also know how quickly you expect e-mails and phone calls to be answered. Review all statements when you get them. Make sure the information contained therein is consistent with your agreed upon goals and strategies. If they are not, contact your financial adviser and arrange for a meeting.

It would be to your benefit to stay informed on financial matters by reading newspapers, books
magazines, or blogs such as this one. If you have time, enroll in a few courses. If you see something of interest, contact your financial adviser for his/her opinion.

Last but not least, keep your financial adviser updated with any change(s) in your personal or financial situation. A work promotion, a new child, and a change in marital status are a few examples that could impact your financial situation.

That's enough for today. Time to trot back to the barn.

Stay on track,

The Hoss

Previous Post: Choosing A Financial Adviser

Next Hoss Cents Money Magazine Post: Types of Investments

Financial Priorities

Establish Financial Priorities

From The Hoss's Mouth

The Hoss says; establish financial priorities for you and your family. This is an absolute must for financial success.

Any financial money magazine you read or any financial adviser you talk to will almost certainly relay the same information: The first step in any successful financial plan is to establish your financial priorities, or in other words, figure out what you are saving for. The Hoss says, be sure to include your spouse and other family members at this stage. It is much easier to obtain your goals when the whole family has input and is committed to achieving the agreed upon targets.

OK, don't worry. I know this is easier said than done, but The Hoss will provide you with suggestions to help you achieve this lofty goal.

First, make a list of everything you and your family members need or want to make them feel happy and secure. Let The Hoss help you get started with some goals common to all family members:

• get out of debt

• college education for the kids

• buy a house

• retirement fund

• planning a vacation

• save a little each month

• purchase household appliances

• buy a car

• start a business

• rainy day fund

Hoss Cents Free Financial Money Magazine Success Tip.

List your financial goals in order of priority

The Hoss says, now that you and your family have identified your financial goals list them in order of priority and break them down into three categories: Short-term, Intermediate-term and Long-term. Financial advisers differ on the recommend time frame for these goals. Look at all the circumstances and decide what makes the most sense for your family's situation. The Hoss provides examples below, but be flexible and adjust accordingly.

Short term goals - A year or less.

Intermediate-term goals - One to five years.

Long-term goals - Five years or more.

Hoss Cents Free Financial Money Magazine Success Tip.

Write your goals down.

The Hoss suggest using the KISS principle (Keep It Simple Silly). No, The Hoss is not calling you silly, but he is suggesting you keep your goals simple and realistic. If your goals are too complicated or unrealistic, you may be tempted to abandon them. Writing your goals down will help you and your family stay on course. Do not overlook this tip. It is extremely important for you to have a document to refer to in order to measure your success. Remember; do not be too rigid, as unforeseen circumstances may cause you to adjust your goals. This is a reality of life.

OK, that's enough for this post. What you have achieved here is in reality the first step in budget planning. Next edition of the Hoss Cents Free Money Magazine will deal with the remaining steps in building a budget to achieve your financial goals and priorities.

Stay on track,
The Hoss

Next Hoss Cents Free Financial Money Magazine Post: Creating a Budget
Previous Post: Good Debt Bad Debt