What’s going to happen when the money runs out?

Governments in the United States and Canada can’t keep on printing money forever. In both countries, because of pandemic stimulus, the budget deficit is on track to be the largest since World War II: $3-trillion in the US, and $343-billion north of the border.

Before long, the proverbial piper will have to be paid. Governments will have to recover this money through some form of tax increase, and the people they will come after are investors, whom they will effectively penalize for saving.

And so, we need to be prepared. Fortunately, our approach to preserving and growing wealth has always emphasized minimizing taxes, even though successive governments have done their best to remove tax planning tools from our arsenal (two examples are taking away much of the tax effectiveness of testamentary trusts, and starting to tax the passive income made by small business).

MORE IMPORTANT THAN EVER
So it is more important than ever to have a comprehensive, up-to-date financial plan that seizes opportunities to keep taxes at a minimum as we move forward. For example, it is more important than ever to maximize your RRSP and TFSA contributions. It is more important than ever to take advantage of income splitting. It is more important than ever to leverage prescribed-rate loans and the strategic use of trusts, life insurance, and credit strategies that maximize interest deductibility.

Here’s the great news: if you’re our client, the appropriate mix of these strategies has already been explored (if your circumstances have changed, please reach out to consult with us). But have they been undertaken for your friends and family? If not, we are always available for a complimentary consultation, to help the people you care about get some certainty around their present and future.

MORE GREAT NEWS
Our portfolios continue to outperform the market – and with less risk than the market. We continue to focus on our long-time strategy of owning high-quality, dividend-paying companies in predominantly regulated industries – companies with strong balance sheets and business models we understand.

In our present, low interest rate environment, those dividend-paying companies are especially important. Where clients have a longer-term time horizon, we view these stocks as safer to own than fixed-income products: we view them as having a more compelling risk-reward trade-off.

For example, in Canada and the United States, a 10-year bond pays approximately 0.5%. Compare that to Canadian banks, most of which are paying dividends north of 5-6%, with the opportunity for above average long-term share price growth. We have a number of companies in our portfolios paying similar dividends.

Another pillar of our approach is to constantly be examining the market for opportunities to add new holdings. Volatility in this sense is our friend: when prices go down, we can buy great companies at a discount. When the market goes back up, as it always does, our gain on such stocks will accordingly be greater.

Further on the issue of volatility, markets have been considerably quieter of late. However, we do expect volatility to re-emerge. We are already ready to capitalize, whether the cause is a second wave of COVID-19, or the US election, or trade tensions with China, or some as-yet-unknown factor – which, in this remarkable year of 2020, it not too far-fetched.

BEST WISHES
On behalf of Joy and our entire team here at RBC Dominion Securities, I hope you had a very happy August long weekend, and that you continue to enjoy this great summer weather.

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We don’t speak jargon. We’re all about uncomplicating your life, so we speak plain English. If there is someone you care about – someone who would appreciate this simple and straightforward approach – please feel free to share this message with them or put us in touch.

Want to discuss any aspect of this month’s blog, or any other issue on your mind? Have a story idea? I am always happy to receive your call or email.

Tyler Marche, MBA, CFP, FCSI
Your life, uncomplicated

tyler.marche@rbc.com
1-416-974-4810
www.tylermarche.com