Insights: RRSP season, the value of bonds + The Roaring Game
Good reads:
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·????????Weekly Investment Strategy
·????????Choosing between RRSPs and TFSAs
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Best quote of the week:
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Money is like manure. You have to spread it around or it smells. – J. Paul Getty
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In the media:
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RRSP season is here (reminder: deadline is Mar 1!)
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So on that topic, I recently chatted with Jenna Dagenhart and Asset TV Canada about RRSPs vs TFSAs + when, how much, and how often to save for retirement.
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Watch the full interview here:
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Best soundbite of the week:
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We are nearing the end of RRSP season, which means many investors are scrambling to get their contributions in before the deadline (March 1).
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In an ideal world, investors would maximize their contributions to both RRSPs and TFSAs every year.?However, this isn’t always realistic, so one of the most common questions that arises is “which one should I contribute to?”
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A number of years ago I wrote an article for the Financial Post on this exact topic. Here is an excerpt with some things to consider if you are choosing between the two:
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TFSAs make a lot of sense for many young people beginning to save for retirement, as they are still in lower income tax brackets and won’t benefit much from the tax deductibility of RRSPs. It may be better to accumulate RRSP headroom until their marginal tax rate is higher. The funds in TFSAs are also accessed more easily, providing a source of emergency funds. The emphasis is on emergency because the convenience of TFSA withdrawals is a downside for those tempted to withdraw on whimsy rather than absolute necessity.
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For investors in higher income tax brackets, RRSPs make sense because their tax deduction is likely at a higher marginal rate than it will be when withdrawals are taxed in retirement. And, RRSP contributions may be used to drop their current taxable income to a lower bracket. Higher income earners are also less likely to have to choose between the TFSA and the RRSP, and may wish to contribute to both and link the benefits.
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Assuming the RRSP contribution is fully deductible, a BC investor with an annual income of $100,000 who contributes $29,210 to an RRSP would get a tax savings of approximately $8,645. The refund could be placed into a TFSA, up to allowable limits, to be invested and grow without fear of taxation either now or in retirement, multiplying the positive impact of the original RRSP contribution.
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If you want to estimate the tax savings your RRSP contribution generates, here is a handy calculator: https://www.eytaxcalculators.com/en/2022-rrsp-savings-calculator.html
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Best visual of the week:
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Last year was a difficult one for both equity and bond markets. While equity investors are accustomed to seeing more fluctuations, bond investors aren’t used to seeing the kind of swing they did last year.
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That’s not to say that bonds don’t ever go through short-term declines. While they’ve historically been more stable and have helped provide a buffer to portfolios, they do experience fluctuations.
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Here is a great chart from RBC that shows that bond drawdowns are more common than you think. The dark blue bars represent the calendar year returns for the Canadian bond market and the turquoise diamonds show the maximum drawdown experienced that particular year.
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What’s important to note with this is that while 2022 stands out as an exception to the norm for bonds, it is not a new normal.?Bonds definitely still offer a lot of value for investors and play an important role in a well-constructed portfolio.
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Reminder: RRSP and TFSA contributions
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Tax-Free Savings Accounts
·????????Annual contribution limit for 2023 is $6,500, and the cumulative total is $88,000.
·????????Investment income generated within a TFSA is not taxable.
·????????No deadline for contributions.
Registered Retirement Savings Plans
·????????Check your Notice of Assessment from CRA to find out your contribution limit.
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·????????Contribution limit is equal to 18% of earned income in the previous year minus an individual’s pension adjustment, up to an annual limit.
·????????Maximum contribution for 2022 is $29,210, assuming no prior year carry-forward room exists.
·????????Deadline for contributions is March 1, 2023.
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In the Okanagan? This event is for you!
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I’d love to hear from you
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Do you have a question about the markets? Or perhaps you’d like to learn more about a particular financial planning topic? Maybe you’ve got a question about your own personal situation?
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Send me your question, and I’ll include it as a topic in an upcoming newsletter: [email protected].
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In case you missed it:
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I recently chatted with host Paul Bagnell and BNN Bloomberg about agriculture, US health care, and the viability of an increase in IPOs happening in the second-half of the year. Watch the full interview here:
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Beyond the markets:
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Curling is arguably one of Canada’s favourite winter sports. Not necessarily mine, but I get it. It’s a fun event you can do with friends and family, and incorporate a little competitive spirit.?Here are some fun facts about it:
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·????????The Guinness World Record for longest marathon curling match goes to a game played in Coldwater, Ontario, in 2017. It was 105 hours, 6 minutes and 51 seconds — that's over four days!
·????????1998 was the year that curling was made an official sport at the Olympic Games. They were held in Nagano, Japan. The winners were the Swiss men's team and the Canadian women's team.
·????????It's believed that curling was founded in Scotland in 1541.
·????????Curling stones are made from a rare granite that is polished and shaped. The granite used to make most curling stones comes from just two quarries in the world: the Scottish island of Ailsa Craig and the Trefor Granite Quarry in Wales.
·????????Curling earned the nickname “The Roaring Game” because of the rumbling sound a curling stone makes when it’s delivered and how it glides across rough ice. It’s also a reference to the sound of brooms frantically sweeping away and melting ice to guide the stone to the button of the house.
·????????After winning the World Junior Championships in 1976 and 1978, Calgary’s Paul Gowsell was dubbed the "rebel of the curling world" for his long hair and penchant for wearing plaid pants during games. During a tournament at the Regina Curling Club in 1980, he ordered a pizza in the middle of play and proceeded to eat slices on the ice with his teammates while his opponents were curling. That incident earned Gowsell yet another moniker: “Pizza Paul.”
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Sources: CBC, Mental Floss
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Thanks for reading, and I wish everyone a great weekend!?
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Cheers,
Kim
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Kim Inglis, BCom, CIM, PFP, FCSI, CAFA
Portfolio Manager
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T: 416.777.6417 (Toronto)
T: 604.654.1160 (Vancouver)
T: 250.979.1803 (Kelowna)
TF: 1.877.363.1024
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