From children’s sports activities and home renos to simply driving around, life is about to get more expensive in Ontario.

BY TINA TEHRANCHIAN

On July 1, the Ontario government will introduce the new Harmonized Sales Tax (HST). This means that certain purchases that were only subject to the 5% Goods and Services Tax (GST) before this date, will soon be subject to the 13% HST instead.

While the effect will be minor on certain items, it can make a huge difference on bigger ticket items and you should prepare yourself and take advantage of the window of opportunity that exists before July 1.

You can visit the website of the Ontario Ministry of Revenue for a detailed list of the products and services that will be subject to or exempt from the HST at www.rev.gov.on.ca/en/taxchange/taxable.html.

The following are the major changes that you will experience as a consumer and some financial planning tips for dealing with the upcoming changes and minimizing their impact.

Food and Beverages

Food and beverages are a major expenditure for most families. The good news is that no HST will be charged on basic groceries. Qualifying prepared food and beverages sold for $4 or less will also be only subject to the GST.

The bad news is that alcohol beverages – currently subject to a 10-12% Retail Sales Tax rather than the 8% Provincial Sales Tax – will not go down in price despite being subject to the HST after July 1. This is because the Liquor Control Board of Ontario (LCBO)’s policy of “social responsibility” dissuades a price reduction to keep alcohol abuse and drinkdriving in check.

Home Services

The services in this category that will be subject to HST include electricity and heating, Internet access services, home service calls by electricians, plumbers, carpenters, as well as landscaping, lawn-care and private snow removal services.

While you cannot do much about your ongoing electricity and heating bills, you’d better fix your leaky faucet, repair your furnace or electrical wiring and put your lawn maintenance and snow removal contracts in place before July 1 to save the additional 8% you would need to pay on these services.

Accommodation & Travel

Currently, hotel rooms, taxis, camping sites, as well as domestic air, rail and bus travel originating in Ontario are only subject to GST. After July 1, all of these services will be subject to HST. Travelling after June – unless you purchased your tickets a long time ago – will cost more.

Home Renovations

This can be a major expense item and unfortunately while it is currently only subject to GST, all home renovation expenses will attract HST after July 1. Therefore, you may want to hurry up and act on your renovation projects or they will cost you 8% more than you planned for.

Vehicles and Travel

The one major item that will impact all drivers is that gasoline and diesel fuels – now only subject to the GST – will be subject to the HST after July 1. Therefore if you are contemplating the purchase of a new car, fuel efficiency should be even more important than before.

While most expense items having to do with cars such as vehicle parts, lease of a vehicle, auto insurance, oil change, tires, and purchase of vehicles from a dealer will experience no change in the way they are taxed, the private resale of vehicles while not subject to HST, will be subject to the Retail Sales Tax (RST) at the rate of 13%, instead of the current 8% to help level the playing field between sales by dealerships and private sales. Therefore, if you are thinking of selling your car, you should try and do it before July 1.

Home Purchases

Perhaps the biggest impact of the HST as far as one time transactions are concerned will be felt by purchasers of new homes that are priced over $400,000.

While resale homes will not be subject to GST or the new HST and new homes priced under $400,000 will only attract GST, new homes that are valued over $400,000 will be subject to the HST after July 1.

There is some relief for buyers of new homes in the form of the new housing rebate which will be 75 per cent of the Ontario component of the HST, up to a maximum of $24,000. The rebate is designed to ensure that buyers of homes priced up to $400,000, will on average, pay no more tax than under the RST system. However, you should note that the applicable RST on building supplies is embedded in the price of the home.

Also, new homes purchased as primary residences and valued at $400,000 or more, will be eligible for the maximum new housing rebate of $24,000. Still, the impact of the HST on the purchase of a new home valued at over $400,000 can be substantial and warrants planning to take advantage of the window of opportunity that exists before July 1.

Of note for those thinking of selling or buying a home is the fact that real estate agent fees and legal fees will also be subject to the HST after July 1. This is yet another incentive to make sure the closing of your real estate deal is planned for before the introduction of the HST.

Health Products and Services

The major change in this category is that massage therapy services and vitamins that are only subject to GST now, will be subject to the HST starting 62 whatever magazine | summer 2010 business & finance on July 1. Therefore, you may want to stock up on your vitamin supply (keeping in mind the expiry dates of course) and enjoy your last sessions of pre-HST massage therapy.

Children’s Expenses

Parents should note that after July 1, ballet, karate, trampoline, hockey and soccer lessons, as well as hockey rink and hall rental fees will be subject to the HST.

Therefore, it is advisable to pay for your children’s classes on an annual basis in advance of July 1 to save on the additional 8% payable after that date.

Memberships, Entertainment and Sports Equipment

If you are a golfer, the bad news is that green fees for golf will be subject to HST after July 1. Your gym and athletic membership fees that are only subject to GST now, will also be subject to HST come July 1.

Tobacco Products

If you are a smoker, your habit is about to become 8% more expensive as cigarettes and other tobacco purchases will be subject to HST.

If you are thinking about quitting, you should purchase your supply of nicotine replacement products before the end of June too, as those will become subject to the HST as well.

Professional and Personal Services

Being fit and looking good are going to be more costly after July 1 as the services of fitness trainers as well as hair stylists/barbers, aestheticians (manicure, pedicure, facials), will be subject to the HST rather than just the GST.

Last but not least, funeral services that are now only subject to the GST, will become subject to HST after July 1. Therefore, if the idea of a pre-planned funeral service is appealing to you then you should act on it before July 1.

• Tina Tehranchian is a branch manager and financial advisor with Assante Capital Management Ltd. in Richmond Hill and can be reached at 905-707-5220 or through her website at www.tinatehranchian.com. The views and opinions expressed by the author are not necessarily those of Assante Capital Management Ltd.

Originally published in “Whatever Magazine”  (http://www.whatevermagazine.ca) and reproduced with their permission.

Tax preparation, therefore, is really the act of summarizing the historical events of the past year. Typically tax season is a time to review the past but it is a difficult time to do any strategic planning because the past is the past. Real tax planning is about looking into the future and try to develop both long-term and short-term strategies to minimize the tax bill. Now is the time to look ahead to 2010 to develop good tax strategies and habits for the future.

Tax Planning vs Tax Preparation

There is a big difference between tax preparation and tax planning. Imagine this scenario: You come to a fork in the road. Let’s say one path sign says Tax Preparation and the other sign says Tax Planning. Which path do you think would get you to financial freedom faster?

Tax planning will get you there faster because it gives you the ability to implement strategies in the future to reduce the amount of tax you pay and increase your net income. Unfortunately, this is the path least travelled. Instead, most people travel in life on the path of tax preparation by filing our returns each and every year and getting to our destination whenever we get there. Tax preparation is simply the act of filing a return, and the strategies needed to reduce tax are those that needed to be done far in advance. I can’t tell you the number of times, I have sat down with people who had no clue of the tax systems and the tax strategies available to them. Tax preparation is something we all do because we have to. Tax planning, however, is something we should do to help us get to our destination of financial freedom faster.

Getting Tax Planning Advice

Many Canadians, in recognition of their limited understanding of the tax system, will utilize the services of professionals. I am a strong advocate of getting help and advice. Never assume, however, that tax planning will be given without asking.

For example, don’t assume your tax preparer will automatically provide tax advice. Sometimes tax preparers aren’t qualified to give planning advice. Even Chartered Accountants, who really understand tax planning, may not have time during the tax season to do effective planning with their clients because they may be so busy preparing returns and meeting the tax filing deadlines. Also, don’t assume that the fee paid for tax preparation includes tax planning. Remember, the fee was probably for the time used to prepare the return. If you have someone who prepares your taxes for you, I would ask them if they do any tax planning and whether you can set up a separate meeting to plan for the future. You might have to pay for their time but it may be worth paying for.

Your financial advisor may or may not provide tax planning advice. Unfortunately, many financial advisors focus primarily on the investment portfolio and products because of the compensation arrangements in the financial services industry. That being said, there are also financial advisors in your community who will help with tax planning, but you have to ask for assistance in that area. If the relationship with your advisor has been primarily focused on investment, it may be worthwhile to ask if your advisor does tax planning or financial planning. If this is not his/her area of interest or expertise, then request referral to a qualified professional.

Know you tax rates

One of the basic fundamental things you need to know about taxes is your marginal tax rate. Thanks to Ernst and Young, I’ve compiled a one page summary of all of the tax brackets for all provinces in Canada. Tax Rate Card 2010 http://www.jimyih.com/images/stories/pdf/tax%20rate%20card%202010.pdf

Three tax planning strategies - Deduct, Defer and Divide

The three ‘D’s’ to investing are deduct, defer and divide. You must be able to understand all of these important functions in order to do effective tax planning.

Three D’s of Tax Planning

http://www.wealthwebgurus.com/article/420/three-d-s-of-tax-planning.aspx

Jim Yih is a Financial expert and educator specializing in financial education in the workplace. As a professional speaker, he provides inspiring keynotes. For more information on Jim and his services, visit his websites www.WealthWebGurus.com and www.RetireHappy.ca.

So, are MERs really too high? Does a higher MER mean better returns or lower returns? The debate may forever continue as some advocates of low fee mutual funds and Exchange Traded Funds (ETFs) suggest that investors should first minimize fees as much as possible because they have the biggest impact on long term performance.

Others might reason that they would be willing to pay higher fees for higher returns. So how often will higher fees give higher returns?

Research background

I’ve done some ongoing research on mutual fund fees and the impact they have on performance for quite some time now. My first book, Mutual Fundamentals started my curiosity on the topic of fees and since that time, I’ve looked at the relationship between fees and performance 3 other times. The last time was in 2006. Most recently, I looked at it again given the tough markets from 2000 to 2010.

Once again, I studied rates of return over 1 year, 5 year and 10-year periods to see how fees impacted returns over different time frames. I also looked at four different categories of funds: Bond Funds, Balanced Funds, Canadian Equity Funds and Global Equity Funds.

My findings were fairly consistent with my past research, which further solidifies my belief that fees do matter. My findings are summarized below:

- Over 1-year time frames, fees matter less because there is randomness and unpredictability in the markets over short time periods. There is very little correlation between fees and performance in the short term. For example, in the Canadian Equity Category, one year returns for the funds we looked at ranged from a low of 7.9% to a high of 124.8%. Fourty nine percent (49%) of the above average funds had high MERs and 51% had low MERs.

- Fees matter more over longer time frames. When you look at 5 and 10 year returns, there is a greater chance that the above average funds had lower MERs. For example, over 10-year periods, 72.5% of the best funds were lower MER funds and 27.5% were higher MER funds. For 5-year periods, 61% of the best funds were low MER funds and 39% had high MERs. It appears the longer the time frame, the higher the correlation between low fees and better returns.

- Low MER funds do not guarantee better returns. When I looked at low MER funds, 33% of low MER funds still had below average performance over 10 year periods. The relentless pursuit of the lowest-cost equity mutual funds is not a guaranteed strategy for success. Some low-fee funds have below-average returns over the past five years and some higher-fee funds have done considerably better than the average. What I found interesting was that 41% of those funds underperforming funds were index funds. In other words, don’t buy an index mutual fund and pay an MER because you will never beat the average. Here’s where a low cost ETF might be a better strategy.

- Fees matter more with fixed income funds than equity funds especially over the longer term. Over 10 year periods, 97.5% of all the top performing Canadian Fixed Income Funds had below average MERs. When I looked at 1-year returns, only 67% of top performing Cdn Fixed Income Funds had lower MERs. Although lower MERs in fixed income funds have a higher probability of outperforming over all time frames, there is still less correlation in the short term.

The bottom line

When choosing mutual funds, fees do matter but more over the long term than the short term. If you are the type that trades mutual funds regularly, fees should matter a lot less. At the end of the day, value equals benefit less cost. Look for funds that provide good value which means you will need to look at fees but don’t necessarily chase the lowest fee. Proper analysis of mutual funds requires a multidimensional approach where you look at many different criteria and not just fees or performance.

Other relevant articles

Mutual Fund Fee Debate: The Industry Response - http://www.canadiancapitalist.com/mutual-fund-fee-debate-the-industry-response/

Rethinking Mutual Funds & Biting The Bullet With MERs

http://www.endingtheratrace.com/2010/03/rethinking-mutual-funds-biting-the-bullet-with-mers/

F-Class Mutual Funds – Are they really lower fees?

http://www.wealthwebgurus.com/article/513/the-abc-xyz-mer-and-f-s-of-mutual-funds.aspx

Mutual Fund Fees do matter (My previous research)

http://www.wealthwebgurus.com/article/609/management-expense-ratios-do-matter.aspx

Jim Yih is a Financial expert and educator specializing in financial education in the workplace. As a professional speaker, he provides inspiring keynotes. For more information on Jim and his services, visit his websites www.WealthWebGurus.com and www.RetireHappy.ca.

1. Simple not easy – discipline, work, effort is the key. Like many people, I could stand to lose some weight. I often talk to my wife about how I need to lose weight and the funny thing is she says the same thing to me every time. “Jim, to lose weight, you need to do 2 simple things – eat less and exercise more.” These are two simple things I already know but as anyone can attest to, they are not easy to do. In the financial world, getting ahead is simply a matter of spending less and saving more. Again, two simple things that are not easy to do.

2. It’s all about developing healthy habits and changing bad habits. To a certain extent, we are all creatures of habits. How many of you go to work the same way every single day? How many of you have 250 TV channels and watch the same 10 most of the time? How many of you have a wardrobe of clothes and you wear the same 20% most of the time? How many of you eat at the same restaurants most of the time? And order the same items off the menu most of the time? We all have habits, both good and bad. When it comes to health, it’s all about developing good habits in nutrition and activity and avoiding bad habits like smoking. When it comes to money, its about developing good habits on controlling and managing debt, understanding your spending, and developing a regular savings plan.

3. Cashflow and calories - Tracking makes a difference. My greatest success in losing weight comes when I write down the calories of everything I eat so I can watch the total calories I take in each day. My wife says to me it’s no different than understanding what goes in and out of the bank account. “Jim, to be successful financially, you teach people to make sure they have more money coming into the bank account than going out.” She’s right; success comes in our ability to track and understand our cashflow (money in and out) just like tracking out calories.

4. Dieting and Budgeting are both bad words. When I teach people about spending, I suggest the starting point is to simply know how much they spend on a month to month basis. In fact, I don’t think you need to budget or know all the details of where you spend the money. I truly think budgeting is a bad word, just like dieting is a bad word because they both imply restriction of behavior. The bottom line is you do not have to budget unless you have a spending problem, just like you do not have to diet unless you have an eating problem. The first step is to figure out you have a problem.

5. Financial education is like vegetables and exercise. According to 2 cents from BalanceJunkie.com, “For a lot of us, financial education and planning is sort of like icky vegetables and daily exercise. We know we should do it. We know it’s healthy for us and for our families. But we’re tired, time-crunched, and tied up in old habits. Besides, is one greasier burger and fries going to kill us? Will taking a walk or hitting the bike really do all that much to help? Once I create a budget, I’ll discover what I already know: I need more money.”

Financial education is one of those things we know we should improve on but it’s not fun. It’s not natural. And for many, it’s not enjoyable despite the fact that we know it is good for you. But sometimes, that’s just life!

6. Success comes in finding balance and moderation. I’ve read many studies that suggest a glass of wine a day is not bad for you. There are lots of diets that allow you a day in the week to enjoy your guilty pleasures like desserts or potato chips. The key to success, of course, if not to overindulge too often. In the finance world, debt is the biggest source of overindulgence as debt allows us to have more fun and live beyond our means. We’ve moved from a society of delayed gratification to delayed consequence because of access to debt.

7. Investing is like making fruit salad. May experts will tell you that the secret to investing is to have a plan. For me a plan is having a properly mixed portfolio of investments. I equate it to making fruit salad. The first thing you need to do when making fruit salad is to figure out what kind of fruit you want in your salad. I like apples, oranges, grapes and strawberries. My wife prefers mangos, melons and pears. As a result, we have very different fruit salads just like we have different investing styles and preferences. If I then want apple in my fruit salad, then I have to go and find 3 or 4 apples for my fruit salad. There’s no point buying Mangos if I don’t want then in my fruit salad. For a complete description, check out this article http://www.wealthwebgurus.com/article/348/three-essential-steps-to-building-a.aspx

So there you have some of my parallels between health and money. Sometimes taking financial concepts and relating them to other areas of our lives helps us to appreciate learning better. Chances are, everything I talked about you know already. If that’s the case, why is it that so many people are living paycheque to paycheque and victims of financial stress. Sometimes we need to be reminded of the most basic concepts.

Jim Yih is a fee only financial expert, best selling author and professional speaker. He puts Financial Education programs into the workplace as a complement to other employee benefit programs. To learn more about Jim visit his website http://www.RetireHappy.ca.

Did you know . . .

o 55% of people are stressed about money?

o 42% of Canadians lack basic financial literacy

o 70% of people live paycheque to paycheque

o debt is rising faster that income and assets

o Canadians are on average spending 25% more than their incomes?

o 2009 had the highest number of personal bankruptcies in history (up 28.4%)

These statistics create serious concerns. So much so that the Canadian Government has created a task force on Financial Literacy. Canada is simply following what has already happened in other countries like the Australia, US and UK. Financial problems are the leading causes of stress. Hopefully, this National Task Force is the first step in addressing these critical issues.

Financial Stress in the workplace

Money problems have become the biggest contributor to personal stress and it has started to affect productivity in the workplace. Consider some more statistics:

o Money is the number one cause of stress for employees

o 40% of people say that money stress is affecting their productivity at work

o Employers who implement some form of financial education in the workplace get a 3:1 return on their investment

o Financial stress is impacting employers bottom line

People who are financially stressed can’t keep it away from the workplace, which leads to more lateness, absenteeism, stress leaves, higher claims on benefit plans, employee turnover, decreased morale and avoidable mistakes. Using company time (as much as 5 hours a week) to deal with personal financial issues is a big problem affecting workplace productivity. These problems are overwhelmingly brought about by financial illiteracy.

Employers need to rethink corporate benefit plans and incorporate Financial Education as an essential part of those benefit plans. Traditionally, from a financial perspective, benefit plans focus on product and plan education. Innovative companies are now incorporating health and financial wellness into their benefit programs, but generally, there is still a void in Financial Education.

There is a tremendous amount of research confirming that when you improve the financial literacy for the employee, it brings tangible benefits to both the employers and employees. Financial Education should be at the core of any financial benefit plan. Aligning the employer, employee, and the benefit plan is essential for the financial and professional success of your organization.

There is a massive appetite for Financial Education especially given the demographics. Employees will appreciate employers who help them take control of their money not only through traditional benefit plans but also through financial knowledge and education.

Jim Yih is a fee only financial expert, best selling author and professional speaker. He puts Financial Education programs into the workplace as a complement to other employee benefit programs. To learn more about Jim visit his website http://www.RetireHappy.ca.

Seven causes of financial stress

1. High debt levels.

Debt levels are rising faster than both incomes and assets. Never has it been easier to access debt in all forms – lines of credit, mortgages, credit cards. You can now buy pretty much anything without having cash. Debt has created a lot of the economic problems we face today and was the biggest factor in the world financial crisis in 2007.

The debt problem has been fueled by consumerism and consumption. In 2005, a national Symposium in Financial Capability suggested that Canadians spend 25% more than their income. We no longer practice delayed gratification. Instead we practice delayed consequence. We have become our worst enemies because we’ve been programmed to spend even if it means spending money we don’t have.

2. Low savings rates

Savings rates have been steadily declining since a peak in the early 80’s when it was almost 18%. Today savings is pretty much non-existent hovering around 2% to 5%. This is less than half of what we need to save to be financially secure in the future. This is a real serious problem because our financial future both on a macro level and a micro level is largely dependent on how much we save today. Unfortunately the real consequence of a low savings rate has yet to be seen.

3. Stock markets have destroyed wealth

For most of the 1990’s wealth was created by the stock market as we experienced one of the strongest and longest financial booms in history. Unfortunately, stock markets do not move in a straight line and they experience cycles just like anything else. For most investors, the decade from 2000 to 2010 was not very prosperous. In fact, for many, the stock market has destroyed wealth as opposed to create it due to two major bear markets in the last 10 years..

4. Real estate won’t be our financial saviour

Not only has the stock markets contributed to the ups and downs of financial stability but so has real estate. Anyone who owned real estate in the financial boom loved their investment. It was a period of time I call ’stupid money’. Stupid money exists when money can be made without any effort. You can sit and do nothing and make money. Real Estate booms create stupid money. The problem with every real estate boom is some people become over leveraged and over extended. When the boom stops, slows down or experiences a correction, that’s when problems hit. Because real estate is largely leveraged (which means you don’t pay cash but you borrow lots of money to buy real estate), period after booms can create massive problems like the financial crisis in the late 2000’s.

5. Demographics means more fear

The baby boomers have been a huge demographic force that have shaped social and economic patterns since the day they were born. These baby boomers are now getting serious about retirement as it is happening in the next 5 to 15 years. This is serious stuff because the closer you get to retirement, money and finances become really relevant and as a result really stressful.

Retirement is supposed to be the best years of our lives but instead, it is stressing people out because of lack of planning, fewer pension plans, low savings rates, high debt levels and fear about the foundation of government benefits.

6. Financial market place is increasingly complex

There is more information, products, choice and confusion in the financial industry. Go to the bookstore and you will find hundreds of books on money. Go to Amazon.com and search on money and you will find over 70,000 titles. Google the phrase ‘personal finance’ and you will find 78,400,000 results in 0.1 seconds. Go to YouTube and type in retirement and you will find 7,500 videos including my own. There is a ridiculous amount of information on the topic.

Here’s the problem more information is not always a good thing. The challenge we all face with too much information is that there is so much conflicting information out there. Part of that confusion stems from the fact there is more opinions and less fact. Anyone can now wallpost, twitter or blog about anything.

To compound the problem, we also have more financial products than ever and more choice has paralyzed us from making important decisions about money. Too many people have placed too much control and trust in the hands of financial advisors and stockbrokers and product sellers.

Money fraud is big business and too many people are losing too much of their hard earned dollars to ponzi schemes, pyramid programs and shysters. Not only is it hard to know what information to trust but it has also become difficult to know whom to trust.

7. No formal education on money

Who’s teaching you about money? Herein lies the root of the problem. There is little formal financial education in the school system. There is very little offered in the workplace. So many people have to learn from friends or family but that creates it’s own set of problems because many of them don’t have the knowledge, ability or resources to teach others about money. Research has found that 42% of adult Canadians lack the basic literacy and life skills to cope with the demands of our knowledge society and economy.

There is a cure for financial stress

Financial stress is all too common in our society and we need to do something about it. The starting point is a little knowledge but true success comes from action. It comes from taking control of your financial affairs and developing good financial habits.

Jim Yih is a fee only financial expert, best selling author and professional speaker. He puts Financial Education programs into the workplace as a complement to other employee benefit programs. To learn more about Jim visit his website www.RetireHappy.ca.

Many investors are looking for a better yield that they can get right now with a GIC, and are considering purchasing preferred shares for the first time. If this is you, please read this article before you buy preferred shares!

Individual Canadian companies issue preferred shares to investors. They are similar to bonds in that they are issued with a par price (usually $25) and pay an agreed upon dividend for each share. However, unlike bonds, the shares trade on the TSX like regular common shares and the payments are treated as dividends instead of interest income.

Here are some basic types of preferred shares:

Retractable – these preferred shares have a term to them with a fixed maturity date that allows the holder to force the issuer to redeem the shares at par value on a specific date.

Perpetual Preferred Shares – these preferred shares have no maturity date. They pay a fixed dividend indefinitely or until the company calls them.

Rate Reset Preferred Shares – these shares pay a fixed dividend until a reset date, which is usually also the call date. On that date and every reset after, if the issuer does not call the shares, the holder has two options:

1. Lock in a fixed dividend until the next reset date. This is already set as a spread over an equivalent term Government of Canada bond
2. Exchange for a floating rate preferred share. This rate is based on a 3 month Government of Canada Treasury Bills plus the same spread as in option 1.

Fixed Floating Rate Preferred Shares – these shares pay a fixed dividend rate until the reset date, which is typically also the call date. On that date and all reset dates after the investor has 2 options.

1. Lock in a fixed dividend rate until the next reset date
2. Exchange for a floating rate

Floating Rate Preferred Shares – these pay a floating dividend rate based on a reference rate such a prime, although some have a ‘floor’ or minimum dividend. Some floaters have a ratcheting system that adjusts the dividend whether or not the share trades within a specific price band.

Split and Structured Preferred Shares – these are synthetic preferred shares based on an underlying portfolio of common shares or a portfolio created from more diverse or complex financial instruments, including derivatives.

There are many types of preferred shares as I have outlined above. It is important to know what you are buying and understand why you are buying it. Look at the type of preferred share you are purchasing as well as the rating it has. More on the rating system of preferred shares here:

If you are a conservative investor stick to rate reset or retractable preferred shares. If you believe interest rates will raise you may want to look at floating rate preferred shares.

Understand before you invest! Download our FREE Preferred Share Guide for more information.

There are two companies that rate preferred shares in Canada. Standard & Poors (S&P) and the Dominion Bond Rating Service (DBRS).

Preferred shares are rated on their credit quality to show the likelihood that the company will pay the dividends as promised. The rating system is:

P-1 is the rating for superior companies like Royal Bank of Canada.
P-2 is a satisfactory rating example companies are TransCanada Pipelines or National Bank.
P-3 is an adequate rating for companies such as Dundee Corporation or Brookfield Properties Corp
P-4 is speculative
P-5 is highly speculative
C or D is very speculatively rated or in arrears

The system allows for a High and Low rating to the scale. So a P-3 High is better than a P-3 rating and obviously a P-3 Low rating is worse than a P-3 rating.

I recommend that you stay P-3 and above. Stick to P-1 and P-2 if you are quite conservative.

Understand the rating system before you buy!

For more information download my My FREE preferred share guide

Christian Farstad CFA, CFP, FCSI

In essence, our intent and the structure for realizing it does create our outcomes. Our personal and professional realities first begin with well defined intentions of what we want to experience in our lives. It has been said that if you don’t know what you want, there are plenty of other people who are willing and able to step in and gladly decide for you.

One perfect example of the power of knowing the end in mind is the history behind the creation of the RRSP. In 1957, Canadian Finance Minister Walter Harris introduced the RRSP into legislation as the solution to issues raised by the Canadian Medical Associations, who pleaded for a tax deferral plan for self-employed taxpayers that wanted to save for their retirement. Canadians know the rest of this story. Today close to $1 trillion are held in Canadians’ RRSPs.

Another example with a similarly result is the story behind the American 401k Plan. Ted Benna, a Pennsylvania benefits consultant in 1980 asked the simple question of how could American executives save more tax efficiently for retirement? By knowing what he wanted to find, Benna used his question as his cipher for reading the American tax code. The result was him finding hidden within the code an obscure provision, 401(k). By knowing what he wanted, Benna turned the 401(k) tax provision into an all American solution.  Today’s 401k plans have grown into the USA’s most popular employer-sponsored tax deferred retirement benefit plan.

We can all benefit by learning the approach that both Harris and Benna mastered for reaching their goals. Both the RRSP and the 401k plan would have never materialized if these two individuals had not know what they wanted to create. By beginning with the end in mind, we are able to articulate and then coordinate where we are  and what we have to begin with to determine the best route to reach our desired outcomes. The focus of this month’s column is defining the process that both Harris and Benna applied to arrive at their solutions which can help us become more effective in defining and reaching our best results as tax and financial professionals.

I have always been fascinated  with how in the early 1960s the United States mobilized its resources to land a man on the moon and return him safely to Earth within that decade. At the moment President Kennedy announced his dream for his nation to achieve that feat there were well over a million calculations that had yet to be made to turn this vision into a reality. Edward Lindaman, the director in charge of planning the Apollo space program at NASA discovered that when people create plans by working backward from their desired future outcome, the result was they took less time to plan. Using this method of planning increased enthusiasm for the plan and developed a more realistic simulation of the challenges that would be faced. This planning technique is credited with the discipline of Project Management.

Project Management is a formalised and structured method of managing change. Project Management focuses on defined future outcomes that all parties involve aim to achieved by allocating resources effectively. These insights can be incorporated into the planning processes we apply when working with clients and ourselves to achieve success and to avoid failure.

First begin with the question of what your goal is and the intent behind it. A question is infinitely more powerful than its answer because it presupposes that there is an answer within the framing of the question. Your success and intelligence are founded on your  ability and willingness to frame the right question and to have the fortitude to go down the rabbit hole to wherever it takes you.

Below is a process that has been successfully applied by Project Management professionals since WWII. Next time you sit down to plan try this process on for size.

Step One: Begin with the end in mind. Clarify your intention for doing what you do. To be successful at this step you  need to identify goals and objectives, as well as clarify financial, personal values and attitudes. These considerations are important in determining the best planning strategy.

Step Two: Clarify the present situation by collecting and assessing all relevant personal and financial data such as lists of assets and liabilities. In Step Two of this process, one becomes grounded in knowing what he or she has to work with. This creates tension between what one has now and what he or she wants to manifest in their lives in the future. It is this discrepancy that propels you towards what you want to create in both your personal and business life.

Step Three: Work backwards from your desired goal towards your current circumstance to identify what needs to be done to realise your end goal. Problem areas during this step will become clearer. These possible problem areas must be identified before solutions can be found and acted upon so you will reach your desired outcome.

Step Four: Put your intent down in writing and then the path you plan to take, to reach your goal. The length will vary with the complexity of an individual goal. The person who is successful at this process knows if the plan is not written down in a tangible formal document, the plan is not real for in your mind.

Step Five: Take action now. A plan is only helpful when it is put into play. Implementing the right strategy will help you reach your desired goals and objectives. As a Trusted Advisor you will assist clients in the actual execution of their plans, and in coordinating their implementation with other knowledgeable professionals, if necessary.

Step Six: Consistently go back and review your goals and plans. Understand that this process only ends when you are no longer walking this earth. Life is a journey so make the commitment to frequently review your intent and your corresponding plan. The one congruent unifier about life is change. Your situations should be reviewed and reassessed at least once a year to account for changes in life to accommodate what you have learned and current conditions.

When one adopts this process of seeing the end in mind, they are trusting in their own intuitive assessment of reality. They have the same knowing so eloquently put by Napoleon Hill in his landmark book Think and Grow Rich, first published in 1937: “thoughts become things.” They are not seeking social approval, personal advantage or a sense of absolute truth. They are seeking to find opportunities to contribute. The secrete is the more time you spend with this process, the more energy and vitality your end product will have on your own life, those around you, your environment and most importantly on your legacy.

And How to Avoid Them

For investors over age 55 who are planning to retire or have already retired and who want to avoid costly mistakes

TOPIC

1. A Retiree’s Biggest Mistake and How to Avoid It
2. Is Your Retirement Plan Protected from Market Meltdowns?
3. Two Ways to Potentially Get An Immediate Increase in Your Income
4. Common and Costly Errors to Avoid in Selecting Mutual Funds
5. RRIF Owner Mistakes to Avoid
6. How to Reduce Taxes during Retirement & for your Estate

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