Making Friends with the Bear

Bear fight

Like everyone else who has non-fixed income investments, I have felt the pain this year like you. When you put your money at risk you should in fact be aware of “the risk” and have the stomach to ride it out. No one, and I mean no one gets a free ride. If you go to sleep in a deep sweat at night worried about losing 15% of your investment, then you should not be in the market. Every investor should know that a balanced fund should always include cash and fixed income portions to counter balance the risk of equities. Mutual Funds (not my choice) do this automatically as they spread both the gains and losses over a wide swath of instruments.

If you’ve ever looked at my “Rick’s Picks” you won’t see very much change, even during this volatile period. It’s important to keep your head above the noise and realize that external forces are driving this Bear Market not fundamentals. Some of the 2015 forces included:

  • Oil prices (even the Saudi’s can’t keep this up forever)
  • Demand from China (Market is maturing)
  • Low Growth (Mature markets and economies here to stay)
  • Interest Rates (artificially low)

So instead of fighting the Bear, learn from it, make friends with it, and use it to your advantage. How you say?

  1. Watch your portfolio and the 52 week low points as they come up and buy into your gems on the cheap.
  2. The stocks on your wish list that were out of reach are probably cheap now-Load up
  3.  Take advantage of DRIP plans to lower your acquisition costs and “buy low” automatically

Bottom line, keep your head on your shoulders, don’t follow the crowd, and continue to do your research based on the fundamentals.

 

Till next time…

Rick

 

Thank Goodness I’m Canadian…when it comes to taxes

Canam

With tax season winding down for 2015, it’s time for a little reflection. This year I had an increase in the number of new clients that required both Canadian and American returns prepared. If you reference my site, you’ll notice I don’t actively post prices for my U.S returns. This is because many times I need to explain that because of the various individual circumstances it may be impossible to quote how much work is needed. Many states require filing of annual state taxes as well as federal. Also there is a variety of avenues to take to obtain the taxable income. There is a choice of AMT (alternative minimum tax) or Tax based on where you fall in the IRS Tax Tables. There is also a choice between itemized deductions and taking the standard deduction. And finally, lets not even talk about how many different forms and ways there are to calculate depreciation that are available.

The bottom line is that the U.S system has more tax advantages on many deductible items that cannot be claimed in Canada. This has the impact of lowering the individual tax rate. The trick is spending time and money to research, apply and weigh your outcomes. On a pro rata basis fewer U.S citizens prepare their own taxes than do Canadians. This is because of the complexity involved.  This is also why Warren Buffet and other High Income earners wind up paying lower taxes on a % basis than someone earning 40k.

Taking a balanced approach, I am biased towards our tax system. Our simple and straightforward Tax Code along with our tax credit system provides a more even approach to taxation and shares the public burden more broadly. This means a slightly higher personal income tax but lower aggravation when it comes to tax time. Our Corporate rates are now lower than many combined Federal/State rates in the US, and with the advent of a higher TFSA limit, we are closing the gap on personal rates.

Rick Barbosa

Unfortunately, the trend is not our friend-The awful truth

Many potential clients start a conversation with me  like this, ” My last accountant/bookkeeper didn’t know a damn thing and was never available.” My first question usually is where did you find them? 9 times out of 10 it was a referral from a family friend or someone they knew. The other question is how much are you paying them? This is where the conversation takes an awkward turn. When they realize they never took the time or effort to look at what they needed and skill set required , coupled with their unwillingness to pay more than a basic wage, then they usually get what they pay for.

Most small business bookkeepers tend to be glorified data entry clerks that know how to work a program. Accountants are professionals who dig deeper, prepare adequate and detailed documentation, and make sure the books are balanced and make sense. Many times the awful truth is that business owners don’t want someone who knows or is willing to enforce  ASPE/US GAAP/IFRS and CRA rulings. So they hire a bookkeeper who doesn’t ask questions. Little does that bookkeeper know that any information that is not in compliance with CRA policy gets linked to them and recorded in CRA’s database for follow up.

The moral of the story is, make sure you find the right accountant. They may cost more, but in the end they will do a better job and let you sleep at night.

 

Your Friend,

Rick Barbosa

 

 

The Road to Prosperity : Step 5 Celebrate Success

You’ve done the hard work of taking responsibility for your own success, tracked everything, learned to pay yourself and finally started living below your means.  At this point you should have had some traction at paying off debt or accumulating some savings or both. It is equally as important to mark these wins as to achieve them. Celebrating milestones keeps you motivated and gives you something to look forward to. Enjoy a night out, nice meal or a weekend away with the family. You’ve earned it. Keep at it and you will start to celebrate more often and enjoy life rather than just living it.

Thanks for staying with me on the Road to Prosperity.

Rick Barbosa

 

The Road to Prosperity: Step 4 Live Below your Means

Like my other posts, the 4th step on the “Road to Prosperity” is not new or a “Quick Fix” but instead is time-tested and wisdom from generations of prosperous families and individuals throughout the ages. All of us have heard stories of celebrities and lottery winners that have wound up broke and worse off from lack of proper money and lifestyle management. To a lessor extent, our neighbours that try to “keep up with the Jones” often find themselves up to their eyeballs in debt and stressed out.  A prime example here in Canada are those hoards of Hockey parents spending thousands of dollars each year on their children for fees, equipment and travel. Many say they are doing it for the kids, but if you’ve ever hung out with Hockey parents its more often than not about the social aspect of the group. Many parents don’t know what to do with themselves once the kids choose not to play sports anymore or simply outgrow or don’t make the cut any longer. Parents often come to me with stories of how they blew 50k or more on organized sports with nothing to show for it but a burnt out mini van and a large line of credit.

To truly build wealth we must look at not just what we are doing or making in our careers, but how we are living our lives. It’s easy for governments to print money because there is no individual accountability to pay it back. They just tack it on to future generations’ tax bill and carry on. You and I live in the real world where we have to balance what comes in with what goes out. If we’re spending more than we’re making trouble is not far behind. In these situations the main culprit is “Lifestyle”. Keeping up appearances and a façade can only go on so long. Better to have a smaller house, older car and better family cohesion than to worry about maintaining all of the above.

Learn to live well. Don’t worry about what everyone else has. Appreciate what you have.  Think about what you need versus what you want and watch your wealth grow.

Take care and till next Step,

Rick Barbosa

 

The Road to Prosperity: Step 3 Pay Yourself

It’s not a secret, nor is it a new concept, but it is worth repeating, and it is extremely important if you ever want to build wealth and prosperity. After accepting responsibility for your future, tracking and budgeting your spending, the next logical step is to ensure that you treat yourself as an item on your budget. One of my clients asked me how do I pay myself??? Trying to keep things simple I said, treat yourself like a bill. You pay Hydro, Gas, Mortgage, so why not pay yourself. She immediately got the concept. She slotted “Savings” into her spreadsheet and began slowly putting away money each paycheque and was surprised how fast it started to add up.

Now there are different schools of thought on the order and importance savings plays in your budget so I will give you my view based on my own personal experience. During my crunch years (raising kids, paying the mortgage, high household debt) I made it a priority to pay my loans and mortgage off as quickly as I could. This meant that I put very little aside into savings, but still managed to save something each time. My reasoning was simple. I was going to get rid of the debt sooner and sacrifice now (social life, travel, entertainment) while the kids were young so I could enjoy life later. Some may opt to have a more balanced approach, while others are able to both save and pay off debt successfully at the same time. Whatever method you choose, so long as you remember to keep something aside for yourselves then things will work out. If you’re not saving, then ask yourself this question, “What do I have to show for all my hard work?”

Until next time.

Take Care.

Rick Barbosa