Entries from May 2009 ↓

Did you ever consider an investment loan as an option for long term investing? This type of strategy is one of the overlooked wonders of giving your portfolio that extra boost. I will give an example of how it can work for you.

By taking on an investment loan you can accelerate your portfolio gains many fold rather than doing this over a very long period of time. Investment loams are not for everyone but should be considered as an alternative.

Most investors today wait until tax return time to come up with a one lump sum RSP contribution to offset the tax payable from the previous calendar year. One of my strategies is as follows.

If you have dividend paying stocks in your non-registered portfolio, transfer the received dividends into your RSP account. By doing so these RSP contributions are tax deductible and also will make the burden of coming up with funds at tax time less stressful. Just think, you may have created a tax refund by doing so.

Smart investing is critical to deferring taxes. This strategy is one I utilize every time I receive a dividend payment.

It is very important that the self directed investor understands the difference between dividends and interest.

-Dividends- Dividends are generally paid to shareholders of a publicly traded company.

-Interest- Earning interest would be from loaning your money. If you put your money in the bank or buy bonds you are actually loaning your money.

The single most important reason for knowing the difference is tax. Dividends are taxed at a different rate than interest earned. It is suggested to seek professional accounting advice on how these tax rates affect you.

The dividend re-investment plan is another useful tool that can generate a higher number of share holdings and incrementally increase your dividend payments. I will explain the basics of the dividend re-investment plan and its benefits.

Lets say you own 1000 shares of XYZ company and the shares presently trade at $10.00 per share. The XYZ stock pays a dividend of $0.10 per share on the 15th day every month and for easy explanation purposes the stock trades at exactly $10.00 per share for the next 4 months. You have chosen to use the dividend re-investment plan.

-Month One- You receive a dividend payout of $100.00 and it is re-invested into shares at $10.00 each. Now you hold 1010 shares.

-Month Two- You receive a dividend payout of $101.00 and it is re-invested into shares at $10.00 each. Now you hold 1020 shares and also keep the extra $1.00 in cash.

-Month Three- You receive a dividend payout of $102.00 and it is re-invested into shares at $10.00 each. Now you hold 1030 shares and also keep the extra $2.00 in cash.

-Month Four- You receive a dividend payout of $103.00 and it is re-invested into shares at $10.00 each. Now you hold 1040 shares and also keep the extra $3.00 in cash.

From this, it is clear that you are increasing your holdings of shares and dividends on a monthly basis.

I prefer to use this strategy in my RSP account and save taxes by doing so. One of the benefits by using this strategy is saving brokerage fees when purchasing the shares every month. Re-investment of dividend plans are exempt from brokerage fees. You also increase your position in the XYZ company monthly and have the possibility of the stock value increasing.     

It is clear to see how dividend re-investment plans can work for you.

Just listen to a cricket and count the number of chirps for 14 seconds. Add 40 and that will give you the current temperature. Go figure!!!!!!

By Charles H.  Mutrie

A successful self directed investor which has made gains during the year should strategically plan a safeguard against paying capital gains taxes. Understanding the mechanics of the capital gains tax itself is very important. Following is the way capital gains tax is calculated and what my policy is to keep the share that the tax man is supposed to get.

Capital gains is the difference between the book value and the market value at the time you have disposed of an asset. For example, if you paid $10.00 per share and you purchased 1000 shares the book value would be $10,000.00. If the share value increases to $15.00 per share and you sell your 1000 share position, the (market value) or sale price is $15,000.00. Using these values, your capital gain would be the increase in value between the $10,000.00 purchase price and the sale price of $15,000.00 which is $5,000.00.

The capital gain tax applies in the following manner, the first half of the gain ($2,500.00) is free of taxation and the capital gain tax is payable on the ($2,500.00) remaining half. The actual amount payable is figured according to your present income bracket for that calendar year.

Now this is how I save paying tax on the remaining $2,500.00. I immediately transfer the funds into my retirement savings plan (RSP) and defer the tax until retirement. Now I not only get to keep the full $5,000.00 but I have generated a tax deferral at tax time. I may have even generated a tax refund when filing my income tax return. Depending on how much time the funds remain in my RSP it may multiply over and over again.

There are many ways to defer paying capital gains taxes but this is just one of my strategies. Plan ahead and generate a larger RSP portfolio and pay less tax.

By Charles H. Mutrie

Did you ever wonder how you could remove funds from your Registered Retirement Plan (RSP) without having to pay tax? Following is a strategy that can be used to remove RSP funds and use them for further investing and defer the tax.

Lets say that you were to take an investment loan and you make monthly interest only payments. You could remove the required amount of funds from your RSP to make the loan payment and the interest paid toward the loan would offset the taxes payable dollar for dollar. This strategy could be used if you are getting closer to retirement years and it would help to meltdown your RSP holdings. In your younger years if you have a large RSP portfolio you could use the same strategy to significantly increase your non-registered holdings. This non-registered holding has a greater opportunity to compound as you have increased your portfolio by the principal amount of your investment loan.

Investment loans are an opportunity to significantly increase your portfolio over time but are not for everyone. It is advised to seek professional advice from your tax consultant prior to using this strategy to properly relate it to your tax situation.

Over time, one of the most important investment goals is to eventually turn registered funds into non-registered funds. This is just one of my strategies, I hope it may be a useful tool for you.

By Charles H. Mutrie

Today will be a short reminder about stop losses and profit taking.

I remember one day not too long ago I was up in a position by $4,000. It was a small original investment and it amounted to a 40% gain in a very short period of time. Needless to say the next day when the market opened, my position was down to my original investment. I hesitated with hopes of a larger gain and I missed an opportunity.

If I had done a bit of profit taking, I would have a larger portfolio today. The same works in reverse, set a limit for your losses. My rule is if my original investment position goes down by 15% I take half of it back out. If the balance continues to be a loosing position by another 15%, I cash out. These are my tolerance levels and I will ALWAYS follow it no matter what the circumstance. I will feel better about loosing a bit but not all.

It is very important today to preserve your capital. Make sure you set your stop losses prior to investing and then it will never be too late.

Always remember to take profits and stop your losses.

By Charles H. Mutrie

Every portfolio should have a portion specifically dedicated to fixed income. Consider laddering this portion of your funds into Guaranteed Investment Certificates (GIC’s). Following I will explain this strategy.

Lets say you have $10,000.00 to invest in the GIC. If you were to invest all the funds into one GIC you would have your funds locked in for a fixed 5 year term in order to get the best rate of return offered.

The laddering strategy is to divide the $10,000.00 into 5 portions of $2,000.00 each. Invest each of the $2,000.00 portions in a series of staggered GIC”S, 1 year, 2 year, 3 year, 4 year and 5 year terms. You would then have a GIC maturing every year and could re-consider where to invest the funds. If GIC”S are offering a high yield you may wish to re-invest it and you always have a maturing GIC available to be renewed at a 5 year term. The longer term generally offers a higher rate of return but if necessary you may consider an alternative depending on the marketplace.

Laddering is a systematic strategy to keep your funds available on the short term but investing for the long term.

Your questions are always welcome. Please go to http://www.AskChuckMutrie.com where you can submite your questions.

By Charles H. Mutrie

When you signed your new mortgage or renewed your existing mortgage, were you told mortgage insurance was optional? Is mortgage insurance a good investment or not? Well, here is the alternative you may inquire about before accepting the mortgage insurance at the bank.

As you pay your mortgage, the amount of outstanding principal declines with every payment you make. Take a closer look at the fixed payment you make for the mortgage insurance, you will find the payment does not decrease in conjunction with the outstanding mortgage balance. Upon a death the mortgage insurance pays only the amount of outstanding principal of the mortgage.

Consider taking a life insurance policy for an amount equal to the principal amount of your mortgage. Compare the payment of the life insurance policy to the payment of the mortgage insurance and see what the cost difference is. The life insurance will more than likely be the cheaper of the two. Upon a death the life insurance will pay the original amount on the insurance policy and there will be an excess because you have paid off a portion of the outstanding principal.

Don’t always feel obligated to accept the banks terms for mortgage insurance, explore your options and you could save in the long run.