Posts Tagged ‘Losers’
The DOs and DON’Ts of Tax Planning for 2011
Thursday, January 27th, 2011
Prepared by NexGen Financial
The DOs and DON’Ts
The ongoing convergence of investment and tax planning presents a need for increased knowledge and consultation with investment and tax professionals. The short lists within this booklet are starting points to help you start the New Year on a positive note. Use these tips to explore options and to ask the right questions when working with your clients, centres of influence, and other financial professionals.
THE DO’s
1. Maximize your Contributions to RRSPs and TFSAs:
Every dollar you contribute to your RRSP up to your maximum provides you with a tax deduction. Take advantage of the RRSP program as much as possible and if you still have investable dollars leftover after that, contribute to your TFSA for a flexible way to tax-free growth. Other opportunities exist for incorporated business owners
- Maximum RRSP Contribution:Up to $22,000 – dependant on 2009 earned income
- Maximum TFSA Contribution:Up to $5,000 each year – must be over 19 years old and file a tax return
2. Harvest Capital Losses:
Review your non-registered portfolios with your financial advisor before year end to determine if any realized capital gains in your portfolios might be offset by securities that are in a capital loss position. A capital loss amount can effectively eliminate the potential tax burden on a capital gain. Beware that tax rules, known as superficial loss rules, prohibit the repurchase of these “losers” for 30 days after the sale. See NexGen’s Tax Case “Harvesting Capital Losses”.
3. Maximize your Benefit on Donations:
Canadians continue to support their favourite charities with wide-spread donations and you can too, but remember there is a tax-smart way to do it. Keep these guidelines in mind when donating:
- Maximum donation tax credits are achieved on annual contributions in excess of $200 (approximately 40% versus 23% on the first $200). Consider making bi-annual donations to maximize the amounts you contribute in excess of $200.
- “In-kind” donations of marketable securities have a unique tax benefit. The tax rules regarding this type of donation result in a more tax efficient way to donate by eliminating the capital gain accrued on the security over the time you held it. Your favourite charity will be just as appreciative as if they received cash and both your accountant and your financial advisor will be impressed with your idea.
See NexGen’s Tax Case “Creating In-Kind Donations”.
4. Take Advantage of Tax Efficient Income:
If you require regular investment income in 2011, arrange your portfolios to deliver tax advantaged income types like Canadian eligible dividends, capital gains and/or return of capital rather than high tax rate interest or foreign dividends. Depending on your personal situation some or all of these “tax preferred incomes” will deliver the same cash flow but with the lowest income tax bill attached.
5. Spousal Loan Strategies:
Take advantage of spousal and trust loans to income split with family members. The current CRA prescribed interest rates are very low, making these deals very attractive to the taxpayers in higher tax brackets. The Tax Act contains attribution rules that ordinarily stop income splitting between spouses and their children; however, creating a formal loan strategy overcomes these obstacles to successful income splitting. Be careful to fully comply with all of the loan requirements to ensure that this strategy remains successful over many years. See NexGen Spousal Loan Tax Case for further information.
6. Business Owners – Make Tax Efficient Plans for 2011:
Corporate owners should meet now with their accountants to plan for 2011 withdrawals from your Canadian Controlled Private Corporations. Ask your accountant whether you might be better off taking dividends rather than a salary next year. See our brochure titled “Stop throwing your money away” or our education document “Corporate Tax Deferral and Income Program”.
- Invest your business income tax efficiently
- Pay yourself and your shareholders tax efficiently
- Develop a Corporate “Tax Deferral & Income Program”
THE DON’Ts
1. Never Pay Tax on Income You Do Not Need:
This Cardinal Rule of financial planning if followed allows you to pay tax only when you received taxable income that you need to spend.
Here are two ways to live by the cardinal rule:
- Defer, defer, defer: Investment strategies and tools exist that can minimize unnecessary distributions and maximize the compounding of investment growth to avoid taxable income. See NexGen’s Compound Growth Class solution.
- Take the income that is already yours: Certain tax conscious investments pay income in the form of “return of capital” which in essence is paying your own money back to you without causing current tax burdens. This strategy impacts your capital gain on the investment later, but years of tax deferral can typically be achieved in the meantime. See NexGen’s Return of Capital Class.
2. Avoid High Tax Rate Income:
Fixed Income investments like bonds generate highly taxed interest income. Foreign equity securities can produce highly taxed foreign dividends. If possible avoid these income types in any of your non-registered investment accounts. This type of investment income is fully taxed at your incremental tax rate. Strategies exist to select the investment that can match your risk needs while allowing you to select your tax treatments. For example, you can gain exposure to fixed income without the interest income or invest in foreign securities without the foreign dividends. See information about NexGen’s Tax Managed Funds and Tax Classes.
3. Business Owners – Create a Tax Efficient Corporate Plan:
Many accountants are advising their clients to consider retaining the income within their corporation that they might otherwise use for RRSP contributions. The deferral & exit strategies if structured properly can have long term benefits from an after-tax perspective. Don’t miss out on this great planning opportunity! See NexGen’s brochure entitled “Corporate Tax Deferral and Income Program” on the subject.
4. No More OAS Claw Back:
Seniors eligible for Old Age Security (OAS) need not have those payments reduced unnecessarily. With a small amount of tax planning, most income needs can be met and full OAS amounts can be received. See NexGen’s “No More OAS Claw Back” document for an example.
5. For Tax and Investing Planning, DIY can be a bad thing:
Tax laws are complex and ever changing. Hire an accountant to prepare your personal tax return so that you don’t miss any of the tax deductions and credits owed to you. Also, consult your financial advisor on investment matters and don’t be afraid to ask both parties to communicate with each other.
THE DON’Ts
1. Never Pay Tax on Income You Do Not Need:
This Cardinal Rule of financial planning if followed allows you to pay tax only when you received taxable income that you need to spend.
Here are two ways to live by the cardinal rule:
- Defer, defer, defer:Compound Growth ClassInvestment strategies and tools exist that can minimize unnecessary distributions and maximize the compounding of investment growth to avoid taxable income. See NexGen’s solution.
- Take the income that is already yours:Return of Capital Class.Certain tax conscious investments pay income in the form of “return of capital” which in essence is paying your own money back to you without causing current tax burdens. This strategy impacts your capital gain on the investment later, but years of tax deferral can typically be achieved in the meantime. See NexGen’s
2. Avoid High Tax Rate Income:
Fixed Income investments like bonds generate highly taxed interest income. Foreign equity securities can produce highly taxed foreign dividends. If possible avoid these income types in any of your non-registered investment accounts. This type of investment income is fully taxed at your incremental tax rate. Strategies exist to select the investment that can match your risk needs while allowing you to select your tax treatments. For example, you can gain exposure to fixed income without the interest income or invest in foreign securities without the foreign dividends. See information about NexGen’s Tax Managed Funds and Tax Classes.
3. Business Owners – Create a Tax Efficient Corporate Plan:
Many accountants are advising their clients to consider retaining the income within their corporation that they might otherwise use for RRSP contributions. The deferral & exit strategies if structured properly can have long term benefits from an after-tax perspective. Don’t miss out on this great planning opportunity! See NexGen’s brochure entitled “Corporate Tax Deferral and Income Program” on the subject.
4. No More OAS Claw Back:
Seniors eligible for Old Age Security (OAS) need not have those payments reduced unnecessarily. With a small amount of tax planning, most income needs can be met and full OAS amounts can be received. See NexGen’s “No More OAS Claw Back” document for an example.
5. For Tax and Investing Planning, DIY can be a bad thing:
Tax laws are complex and ever changing. Hire an accountant to prepare your personal tax return so that you don’t miss any of the tax deductions and credits owed to you. Also, consult your financial advisor on investment matters and don’t be afraid to ask both parties to communicate with each other.
Tags: 19 Years, Canadian Market, Canadians, Capital Gain, Capital Gains, Capital Losses, Convergence, Dependant, Donation Tax, Financial Professionals, Losers, Maximum Rrsp Contribution, Nexgen Financial, Portfolios, Tax Burden, Tax Case, Tax Credits, Tax Deduction, Tax Planning, Tax Professionals, Tax Return
Posted in Credit Markets, Markets | Comments Off
“Bonds are for Losers” Revisited
Friday, May 7th, 2010
This note is a guest contribution from Invictus, via The Big Picture.
When Dave Rosenberg and Jim Grant squared off for a debate — dubbed “Bonds are for Losers” — in late March, the 10-year was sitting at about 3.90 and the 30-year at about 4.75. The room was overwhelmingly on Grant’s side (yields have nowhere to go but up), although Rosie did sway some opinions during the debate.
Fast forward to today (or at least yesterday’s close): 10-year at a 3.40, 30-year at a 4.17.
Rosie ahead on points.
As a client of mine recently put it regarding flight to safety: The U.S. is the best looking horse…at the glue factory.
Source: “Bonds are for Losers” Revisited, May 7, 2010, The Big Picture
http://www.ritholtz.com/blog/2010/05/bonds-are-for-losers-revisited/
Tags: Big Picture, Bonds, Com Blog, Dave Rosenberg, Debate, Factory Source, Glue Factory, Invictus, Losers, Rosie
Posted in Bonds, Markets | Comments Off
Beating the Market
Thursday, July 30th, 2009
By Michael Nairne, Tacita Capital
For many investors, beating the market is the holy grail of investing. In fact, google the phrase “beating the market” and you get 14 million hits, more than seven times “passive investing”. Yet, beating the market over the long-term is extremely difficult. By definition, the market includes all stock owners and hence, investors as a group earn the market return – for every winner there must be a loser. In confirmation, a litany of studies has found that fund managers in aggregate achieve market-like returns less fees and costs.
However, the potential to beat the market does exist. Over the past several decades, the painstaking examination of historic stock performance in numerous countries has pointed the way to outpacing the market. The findings indicate that value stocks – those low-priced in relation to earnings, dividends and book value – have higher expected returns than growth stocks – those high-priced in relation to earnings, dividends and book value. Over the long-run, value investors are the winners; they earn a premium to growth investors who are the losers.
This premium is evidenced in the following graph which illustrates the growth of $1.00 U.S. invested in large value stocks (in red) compared to large growth stocks (in green) 
and to the S&P 500 (in blue) from August 1927 to May 2009. The investment in value stocks grew to $4,454 – more than four times the $868 of the growth stocks and nearly three times the $1,578 of the S&P 500 which, although growth-tilted, contains both value and growth stocks.
The historic outperformance of value stocks is not restricted to the U.S. market. In a study on the United Kingdom stock market from 1900-2000, Dimson, Marsh and Staunton (DMS) found that value stocks achieved an annual return of 11.5 percent, a 2.9 percent premium to the 8.6 percent return of growth stocks and a 1.4 percent premium to the market overall. They conclude that “over the long term, the historical record of value investing has been positive … we now know that value stocks did better than growth stocks in the earlier as well as later parts of the twentieth century.”
In fact, in a sweeping review of the research on the value premium in international markets, DMS found that value stocks outperformed growth stocks in thirteen out of fourteen countries including Canada. Italy was the only exception. The value premium is therefore a global phenomenon.
But this begs the question … why? Without a meaningful explanation, it is possible (although not probable given the length and breadth of its occurrence) that the value premium is a statistical fluke or worse, an historic anomaly now widely known, avidly pursued by knowledgeable investors and hence as prices are bid up, no longer available to future investors.
Economic theory offers us two explanations for the value premium. First, behavioural finance experts argue that cognitive biases hardwired into the human psyche often lead to the systematic mispricing of value stocks. David Dreman, a leading apostle of this view, believes that investors routinely overreact to recent news concerning a given stock. If it is good news, they tend to project a continuance of this favourable trend and bid up the price of the stock. When bad news confronts investors, an opposite reaction is triggered. Believing a negative trend to be firmly in place, investors either hold or sell and the stock price subsequently languishes. Yet, inevitably, some negative event occurs to cause the higher-priced growth stocks to tumble while conversely, enough positive surprises occur to send the value stocks spiralling upwards.
Investors appear to naively extrapolate recent earnings trends and only adjust their expectations slowly as recurrent surprises occur. One study by Fuller, Huberts and Levinson
found that while high-priced glamour stocks initially have much stronger earnings growth rates than low-priced value stocks, after five years or so this difference becomes negligible. As the market slowly adopts scaled-down earnings expectations as the new norm, value stocks enjoy superior returns as their price moves up at a relatively faster pace than that of the slackening growth stocks.
Another behavioral view holds that investors often confuse the characteristics of a good company (e.g. powerful brand, positive image, superior growth) with the elements of a good stock (i.e. a price that is low in relation to discounted future cash flows). One study found that the stocks of companies considered “excellent” according to the standards outlined in the best-seller In Search of Excellence materially underperformed the stocks of “unexcellent” companies!
The second explanation for the value premium comes from the efficient market school of thought. Under the efficient market hypothesis, the prices of stocks reflect all available information and hence, higher expected returns must rationally reflect higher risk. Originally, efficient market supporters did not believe there was sufficient evidence of a value premium. Then, in a 1992 landmark study covering the period 1963-1990, Professors Eugene Fama and Ken French found that value stocks outperformed growth stocks by a statistically significant margin. In 2000, a second study covering 1929-1963 contributed strong out-of-sample confirmation of the existence of a value premium.
According to Fama & French, however, value stocks are generally shares of companies that are in comparatively worse financial shape than companies whose shares are growth stocks. Investors demand a higher return for their investment in value stocks because of the greater risk the company will deteriorate financially or even go bankrupt. This is no different from bankers or bondholders who charge a higher rate of interest to companies in poor financial shape. The poor performance of value stocks during the Great Depression may be indicative of this risk.
Both the behavioral and efficient market explanations for the value premium are compelling. In academia, a vociferous debate exists as to which is the foremost cause of the value premium. From an investor’s perspective, however, the critical aspect of both explanations is that each supports an enduring value premium that is unlikely to disappear. However, the exploitation of the value premium rests on one key characteristic – patience – since the premium is highly volatile and can disappear or even go negative for years.
This volatility is evidenced in the following graph which depicts the 36-month rolling average annual return of the Fama-French Large Value Premium (i.e. the return of large value stocks minus large growth stocks) for the U.S. market for the period August 1929 to May 2009. Although value stocks outperformed growth stocks by an average annualized 3.24 percent, there are intermittent periods where growth stocks outperformed, sometimes by a significant margin, and some of these periods can persist for a number of years, such as occurred through much of the 1930′s and 1990′s.
To the thoughtful investor, the volatility of the value premium is reassuring. A premium which showed up with any regularity would disappear almost immediately since it would be arbitraged away by traders. Instead, the value premium is available to patient, long-term investors who are interested in beating the market. Impatient investors will need to look elsewhere.
July 23, 2009
Tacita Capital Inc. (“Tacita”) is a private, independent family office and investment counselling firm that specializes in providing integrated wealth advisory and portfolio management services to families of affluence. We understand the challenges of affluence and apply the leading research and best practices of top financial academics and industry practitioners in assisting our clients reach their goals.
Tacita research has been prepared without regard to the individual financial circumstances and objectives of persons who receive it and is not intended to replace individually tailored investment advice. The asset classes/securities/instruments/strategies discussed may not be suitable for all investors and certain investors may not be eligible to purchase or participate in some or all of them. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Tacita recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial advisor.
Tacita research is prepared for informational purposes. Neither the information nor any opinion expressed constitutes a solicitation by Tacita for the purchase or sale of any securities or financial products. This research is not intended to provide tax, legal, or accounting advice and readers are advised to seek out qualified professionals that provide advice on these issues for their individual circumstances.
Tacita research is based on public information. Tacita makes every effort to use reliable, comprehensive information, but we make no representation that it is accurate or complete. We have no obligation to inform any parties when opinions, estimates or information in Tacita research changes.
All investments involve risk including loss of principal. The value of and income from investments may vary because of changes in interest rates or foreign exchange rates, securities prices or market indexes, operational or financial conditions of companies or other factors. There may be time limitations on the exercise of options or other rights in securities transactions. Past performance is not necessarily a guide to future performance. Estimates of future performance are based on assumptions that may not be realized. Management fees and expenses are associated with investing.
Tags: Aggregate, Canadian Market, Dividends, Dms, Fund Managers, Google, Growth Investors, Growth Stocks, Holy Grail, Investment Stocks, Litany, Loser, Losers, Marsh, Outperformance, S Market, Seven Times, Stock Market, Stock Owners, Stock Performance, Tacita, Value Investors, Value Stocks
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James Montier: Listen to those who don’t agree with you
Wednesday, February 11th, 2009
James Montier, Global Strategist with SocGen in London, is renown for his expertise in the field of behavioural finance. In fact, he has written the books, Behavioural Finance: A User’s Guide
Leaving the trees could have been our first mistake. Our minds are suited for solving problems related to our survival, rather than being optimized for investment decisions. We all make mistakes when we make decisions. The list below gives a top ten list for avoiding the most common investment mental pitfalls.
- You know less than you think you do.
- Be less certain in your views, aim for timid forecasts and bold choices.
- Don’’t get hung up on one technique, tool, approach or view – flexibility and pragmatism are the order of the day.
- Listen to those who don’’t agree with you.
- You didn’’t know it all along, you just think you did.
- Forget relative valuation, forget market price, work out what the stock is worth (use reverse DCFs).
- Don’’t take information at face value, think carefully about how it was presented to you.
- Don’’t confuse good firms with good investments, or good earnings growth with good returns.
- Vivid, easy to recall events are less likely than you think they are, subtle causes are underestimated.
- Sell your losers and ride your winners.
Download the whole report here.
Tags: Dresdner Kleinwort Wasserstein, Earnings Growth, Face Value, Finance Series, First Mistake, Flexibility, Global Strategist, Investment Decisions, James Montier, Losers, Monkey, Pitfalls, Practitioners Guide, Pragmatism, Relative Valuation, Renown, Shelf Life, SocGen, Solving Problems, Subtle Causes, Timeless Piece, Top Ten List, Wiley Finance
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World Markets Performance (January 7, 2009)
Friday, January 9th, 2009
Below are charts from the Economist detailing the overall comparative performance of world markets in World equity markets for all of 2008, followed by YTD, the first week of 2009. Overall, the first week of the new year to January 7, was a decent week.
Saudi Arabia turned in the biggest gain on the week with a gain of 10.8%, most likely on hopes that oil prices would recover. Since then, that has not materialized. Denmark turned in a respectable 9.4%, South Korea gained 9.2%, and Brazil was up 8.7%.
Canada turned in a modest gain of 1.5%, while US results were mixed, with the Nasdaq up 1.4%, the S&P 500 up 0.4%, and the Dow a slight loser with a tiny loss of -0.1%.
The week’s losers turned out to be Mexico with a loss of -1.2% and the World Bond Index, losing -2.0%.
Tags: Brazil, Canadian Market, Comparative Performance, Denmark, Dow, Dow 30, Economist, Loser, Losers, Mexico, Nasdaq, Nasdaq 100, New Year, Oil Prices, S&P 500, Saudi Arabia, South Korea, United States, World Bond, World Bond Index, World Equity Markets, World Markets
Posted in Bonds, Canadian Market, Energy & Natural Resources, Markets, Oil and Gas | Comments Off
World Markets Snapshot (12/10/2008)
Saturday, December 13th, 2008
Below is the World Markets Snapshot published by The Economist, Year-to-Date to December 10, 2008. Among the notable double-digit performers in the one-week column, as markets have recently rallied, are Hong Kong (+14.6%), India (+10.4%), Singapore (+11.0%), Brazil (+10.5%) and South Korea (+12.0%). Also notable are South Africa (+14.7%) and Israel (+11.2%). Out of all the markets surveyed below, Greece and Venezuela were the only losers, and in the credit market segment, CDS rates rose, though marginally.
Canada’s TSX 60 rose 4.1% over the week, the Dow was up 2% and the S&P500 rose 3.3%.
Tags: Br, Brazil, Canadian Market, CDS, Credit, Credit Market, dig, Dow, Dow 30, Eco, Economist, Emerging Markets, Greece, Hong Kong, Img, India, Israel, Losers, Market Segment, Markets, P500, pence, Rose, S&P500, Singapore, Snap, Snapshot, South Africa, South Korea, Tsx, TSX 60, Venezuela, World Markets
Posted in Credit Markets, Emerging Markets, India, Markets | Comments Off
