"Weathering the storm"/ "Tax-loss selling"

Nov. 14, 2020 "Weathering the storm": Today I found this article by Lana Sanichar in the Costco Connection magazine:

COVID-19 has greatly affected the ability of many Canadians to earn an income. Here are some ideas to help you get through this crisis (and the next), financially.

Create a nest egg. Aim for one that will get you through at least six months in order to give you time to breathe and consider your options. 

What does creating a nest egg mean for you? 

It means saving at least 15% of your annual income and investing it appropriately in a retirement savings account for future use.

Invest in dividend reinvestment plan (DRIP) and systematic investment plan (SIP) stocks. According to the financial education website Investopedia, a SIP allows investors to make regular and equal monthly payments into a mutual fund, trading or retirement account. Some equities pay dividends, a distribution of a portion of a company’s earnings that may be paid out as cash.

With a DRIP, the investor does not receive the cash directly. Instead, the cash is invested directly back into the underlying company in terms of more partial or full shares. 

The benefits of both investing vehicles is that an investor can begin with a minimal amount of money and, over time, the compounding effect grows one’s wealth handsomely. Additionally, it removes the guesswork from attempting to time the markets.

Don’t put all of your eggs in a single basket. 

Portfolio diversification is an investment strategy that aims to reduce the overall risk of the portfolio according to your ability to accept risk, your time horizon and how much money you will need. 

It is the act of spreading investments around so that exposure to any one asset class is limited, thereby reducing total volatility, as it is highly unlikely that all asset classes will do well—or poorly—at the same time.

Those that increase in value will usually offset those that do not, and since different asset classes rise and fall at different times, the goal of diversifying is to smooth out the returns of the portfolio as a whole.

Diversify your income. Some call it a side hustle; others call it a side gig. 

Having multiple income streams is not uncommon, and even the smallest amounts of money can boost your income. Identify what you enjoy doing as a hobby and decide if you can earn money while doing it.

Through an exclusive arrangement, Canadian MoneySaver’s experts partner with the Costco Connection to share advice about relevant financial topics.

Email topic suggestions to moneyinfo@canadianmoneysaver.ca.

https://www.costcoconnection.ca/connectioncaeng/202011/MobilePagedArticle.action?articleId=1631753#articleId1631753

Dec. 1, 2020  "Tax-loss selling": Today I found this article by Lana Sanichar in the Costco Connection:

IN SECTION: FINANCIAL CONNECTION

This end-of-year strategy can help to minimize capital gain taxes

by LANA SANICHAR

According to the website CanadaHelps.org, when you make a donation of securities or mutual funds, capital gains tax does not apply.

December is the time of year when family, friends and seasonal festivities are front of mind. But if you’re an investor, you’re likely also thinking about tax-loss selling.

Here’s what you need to know.

The basics

According to the website Investopedia, tax-loss selling, also called tax selling, "refers to a type of sale in which an investor sells an asset with a capital loss to lower or eliminate the capital gain realized by other investments, for income tax purposes. Tax selling allows the investor to avoid paying capital gains tax on recently sold or appreciated assets."

It’s often used as a strategy to reduce your tax bill—as far back as three years—and as an opportunity to rid yourself of qualifying investments that are unlikely to recover.

 It can include investments such as stocks, mutual funds and property. 

Note: To realize the loss for the current year, the trade has to settle before or on December 31.

What to watch out for

Superficial loss. You cannot claim capital losses in the event of a superficial loss. According to the Canada Revenue Agency, a superficial loss is when you or someone affiliated with you (spouse or common-law partner, or a corporation controlled by you) purchases an identical investment during the period starting 30 calendar days before the sale and ending 30 calendar days after the sale.

Tax-advantaged accounts. Tax-loss selling applies only to investments outside a Registered Retirement Savings Plan (RRSP) or Tax-Free Savings Account (TFSA). If you transfer shares in kind that have dropped in value to an RRSP or TFSA, you will not be able to claim the loss. If the same shares have appreciated, you will have to report the gain.

Everyone wants to reduce their taxes and maximize their hard-earned money, but tax-loss selling can be complicated. It is best to contact a professional if you’re unsure of the rules and strategies surrounding this money-managing technique.

Opportunity cost

Ryan Modesto of 5i Research Inc., a provider of investment research, says to beware of opportunity cost. 

If you sell a stock that you like (for tax reasons) but then it jumps, say, 10% within the 30-day window, the savings from the sale will likely pale in comparison to the forgone gains.

 He adds that getting back into what is probably a "good" stock at a higher price can be difficult not only financially, but also psychologically.—LS

Lana Sanichar is president and editor-in-chief of Canadian MoneySaver magazine.

Through an exclusive arrangement, Canadian MoneySaver’s experts partner with the Costco Connection to share advice about relevant financial topics.

Email topic suggestions to moneyinfo@canadianmoneysaver.ca.

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