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  • Tag: Interest Rates

    A window of tax saving opportunity is closing.

    We have written before about the “unprecedented window of opportunity” for wealthy families to save tax as a result of CRA’s historically low 1% rate on prescribed rate loans.  See our blog post A window of tax saving opportunity…for how long? The prescribed rate dictates the minimum interest that must be charged on income-splitting loans to spouses and family trusts. A popular, low-risk form of tax planning with many of our clients.

    Truth be told, when we wrote that blog piece back in 2010 we didn’t expect the 1% rate would still be in effect in 2013. And from what we hear, it won’t be much longer. [read more >>]

    Floating Rate Notes – a timely idea for fixed income investors

    Our first order of business is always to protect capital. (If you’re a client or a reader of this blog you likely know that’s been a constant theme in everything we do.)

    In anticipation of a potential rise in interest rates, one of the risks investors should be concerned about is a decline in bond values – what many investors typically think of as “the safe stuff.” If that sounds like a dichotomy it really isn’t. Generally speaking, when interest rates go up, the value of a bond declines. The longer the maturity of the bond the more it falls. (Read our earlier posts Convexity and bonds and Is it time for bond holders to rethink their strategy?)

    To protect our clients’ fixed income investments against rising interest rates — which are inevitable at some point — we’ve been shortening the duration of our bond holdings (now 3 years on average). In addition to that strategy there’s another idea we’ve implemented in recent weeks: Floating Rate Notes (FRNs). [read more >>]

    Is it time for bondholders to rethink their strategy?

    At this time last year, two key issues were front and centre for us.  We were concerned about more fallout from the economic uncertainty in Europe and the U.S.  There did not seem to be any clear plan in place to resolve the debt and deficit issues. We were also concerned that interest rates would finally hit bottom and start to climb.  Both issues caused us to be cautious with our clients’ capital in 2012.

    The threat of rising rates has been hanging over the heads of all investors for some time now.  Quite surprisingly, rates did not rise in 2012. In fact, they fell – about 0.60% in Canada. Why? Because more stimulus like the Federal Reserve’s bond buying programs was needed to re-ignite the economy.

    In anticipation of rising rates last year, we accelerated our plan to diversify our sources of yield for our clients.  We added more income-producing real estate, residential and commercial mortgages, corporate bonds and dividend-paying stocks.  With rates falling, these investments performed well in 2012. [read more >>]

    We’ve failed our kids; shame on us.

    i-f9782bd5619bb998b627da19be7e186f-cute coach purse.bmp

    The holidays were a wonderful time to spend with family and catch up on the latest news from my adult children. Unfortunately, part of this news included hearing disturbing stories of young adults either in entry level jobs or even unemployed buying things they cannot afford. One unemployed grad student has blown through a $20,000 student loan in four months. This equates to a $90,000 pre-tax income earner just living within his/her means. With due respect to high end brands, the prodigious spending of many young adults lead me to conclude many just don’t understand the value of a dollar.

    [read more >>]

    Are your fixed income investments safe? Are you sure?

    The devastating market correction of 2008/2009 and the accompanying global economic recession have left many investors feeling skittish about stocks.

    While some have stood by with a ‘buy and hold’ approach, many abandoned equities and flocked to fixed income investments, such as money market instruments and bonds.

    i-187f57ae142157bf64881024783b4589-iStock_000002481097Medium-no grey(1).jpgAccording to a report by Barron’s, in the United States, since the start of 2010, more than US$274 billion has flowed into bond funds, while net $35 billion has been redeemed from equity funds.

    It’s a natural human tendency to react to short term market fluctuations. But could investors be taking on new risks they are unaware of?

    [read more >>]

    A window of tax savings opportunity — for how long?

    CRA announced this week that it will maintain its 1% prescribed rate through to June 30th.

    While that news didn’t make headlines, from a tax point of view it should have.

    After RRSPs and tax deductibility of interest, I think a prescribed rate income splitting loan is the most effective way for wealthy high income earners to reduce their tax bill.

    And a 1% interest rate offers an unprecedented window of opportunity.

    [read more >>]

    Interest rates – confused?

    You are to be forgiven if you are having a hard time trying to sort out all the conflicting news about interest rates and inflation. You’re not alone. Even the experts frequently disagree.

    This is an important issue for entrepreneurs and investors as many of us borrow money – either personally or corporately (likely both!).

    [read more >>]