Archive | December, 2016

Podcast 2: Planning vs. Investing

The second episode of the Canadian Couch Potato podcast is now available:

Many thanks to the thousands of people who downloaded and listened to the debut episode, and for sending your feedback and suggestions for future topics. After an initial delay, the podcast is now available through iTunes as well as all major podcasting apps, so please subscribe if you haven’t done so already. If you enjoy what you hear, I invite you review the podcast on iTunes, which helps more listeners hear about it.

Our new episode features financial planner Sandi Martin, who will be well-known to readers of Canadian financial blogs: she has her own blog at Spring Personal Finance, and has been a contributor to Boomer & Echo. Sandi is also one of the creators of the Because Money video and podcast series.

In our interview, Sandi and I discuss the important (and frequently misunderstood) differences between financial planning and investment management. The media often lump these two services together, but they are fundamentally different: in all provinces except Quebec, financial planning is not even regulated.

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Making Sense of Capital Gains Distributions

Imagine you’re part of a group of 10 friends at a restaurant to celebrate the holidays. Everyone else arrives on time and enjoys cocktails, appetizers and a main course, while you get stuck in traffic and barely make it in time for dessert. At the end of the meal, the server brings 10 separate bills, each for the same amount. “But I only had a slice of pie!” you complain. “Why am I paying for a full meal?”

If you’re an ETF or mutual fund investor who makes a large purchase in December, you may end up feeling the same way. That’s because some funds distribute capital gains at the end of the year, and you’re on the hook for the taxes whether you’ve held the fund for a couple of weeks or the full 12 months. (Note this only applies to non-registered accounts: you don’t need to worry if you’re using only RRSPs and TFSAs.)

Giving them the slip

Let’s back up and review why this happens. Mutual funds and ETFs occasionally sell investments that have increased in value, resulting in capital gains. Over the course of the year, a fund may also do some tax-loss harvesting to realize losses that can offset some or all of those gains.

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