Managed Money Reporter Newsletter — Issue 249, January/February 2009

Editors: Carl Spiess & Allan McGlade

Featured Articles

Special RRSP Edition: TFSA vs. RRSP

Carl Spiess

By Carl Spiess, CFP, CIM, FMA, FCSI, MBA, Director, Wealth Management

It is RRSP time again and, if you have not already made your RRSP contribution, I wanted to give you a few of my thoughts to consider. There is a lot to think about, both with the markets in flux and new options like the TFSA and what to do if you are concerned about career and financial stability in these economic conditions. If you would like more information on any of these topics, remember, we are only a phone call or email away and we are happy to help you sort out all your options so you can make well-informed choices about your retirement savings.

Tax Free Savings Accounts (TFSAs) vs. RRSPs

Canadians have a new way to save for retirement. It seems the annual RRSP season flood of advertising this year is not about RRSPs, but rather about the new Tax Free Savings Accounts (TFSAs). We have even written about them twice in the last few months. There is good reason for all this excitement. The TFSA is a great new savings vehicle for Canadians and everybody wants to get the word out. It's a no-brainer that this is a great deal that the government is putting in our laps. You put money in (up to $5,000 this year) and all growth is sheltered from income-tax. And, since your contributions are made in after-tax dollars, there is no income tax on the money when you withdraw it (unlike an RRSP) so you can pull it out at anytime. This means if you want to save for a rainy day fund, a house, a car or a trip, move money out of your savings account TFSA vs. RRSP (click to enlarge)and into a TFSA, you can do so and have the money grow tax-free. If you have investments in a taxable, non-registered account, you can move some into a TFSA and stop paying tax on the income.

The question though is which is better - investing in an RRSP or a TFSA. The easy answer is to max out your contribution to both the TFSA and the RRSP, if you can.

But if that's not an option, then it's time to look at your 2008 marginal tax bracket and try to guess whether it will be higher or lower at retirement. From the chart, right, (click to enlarge) we can see that all things being equal, the TFSA &RRSP are better than leaving money in an unsheltered account. The income in the taxable account is reduced to 3.4% from 5.0% due to taxation. The middle two columns show that the TFSA and the RRSP perform equally well over the long run for the same $5,000 cost. There is really little difference - unless your marginal rate is lower after retirement, as shown in the fourth column. When you pull the money out at a lower marginal tax rate than when you put it in, the RRSP outshines the TFSA.

So if you cannot afford to do both, think about whether your marginal rate for 2008 is higher now than it will be in retirement. If so, go for the RRSP. If you think it will be higher, opt for the TFSA. If you think it will be about the same, then it really doesn't matter.

TFSA vs. RRSP (click to enlarge)Here is another way to think about it. Take a look at what stage of your career you are at right now and how much your current income is vs. what you expect it to be in retirement. Using the chart, right, (click to enlarge) as a guide, if you are just starting out in your career and expect your retirement income will be more than your current income, put the money in a TFSA. That way you pay the income tax in your current (lower) tax bracket rather than in your future (higher) tax bracket. If, however, you are in the later part of your career and expect your income could be lower at some point in your retirement, then the RRSP makes more sense because you are deferring paying the income tax until you are in a lower bracket. Mid-career it's probably "6 of one and half-a-dozen of the other". Either split your contributions between the two accounts or alternate year-to-year.

A few other circumstances to think about - if you are working now, but are worried you may be out of a job at some point in the near future, put your contribution in your RRSP. Then, should your income drop rather suddenly for 2009, you have access to the money in the RRSP at a lower marginal tax rate (see chart, below). If you have already allocated money for your retirement savings and want to save for a short term goal (car, trip, etc.), put the money in the TFSA because there is no income tax implication to withdraw when you need to. If you want to encourage your self disipline to leave money you've put aside for retirement alone, you are probably best to put it in the RRSP since the income tax penalty of pulling it out will make you think twice about using it to buy that really cool new stereo you've been wanting.

Ontario Marginal tax rates (click to enlarge)If you are saving for your first house, both accounts have benefits. The home buyers withdrawal plan allows you to withdraw money from your RRSP to buy a home. You don't lose your original contribution room because you are required to pay it back over 15 years or suffer heavy penalties - another good feature for self-discipline. The TFSA does not require you to pay it back but you don't lose you original contribution room either - if you take out an original contribution of $1,000, your available room goes up by $1,000 so next year, you can put in $6,000.

Scotiabank $5,000-a-day give-away

As I have said, there is a lot of excitement about TFSAs. Scotiabank even has a contest: our $5,000-a-day TFSA give-away contest. It is free to enter. Between now and March 6th, participants are eligible to win one of Scotiabank’s daily $5,000 prizes. The contest is open to all of our clients, even those who already have a ScotiaMcLeod TFSA account. To take advantage of this great opportunity, visit

We are your one-stop solution for all your savings needs

Remember that we can help you put your plan in action no matter whether you want to contribute to a TFSA, a RRSP or to both. ScotiaMcLeod RRSPs and TFSAs can hold the widest range of investments - from Cashable GICs, to Bonds, to Stocks, to Mutual Funds and also Exchange Traded Funds. We can help set up the right plan, and the right investments for you.

If you are still not sure which option is right for you, don't worry. We're happy to help you out. Just call or email either myself or any member of the Spiess McGlade Team.

To buy or not to buy, that is the question

For those trying to decide whether the current decline in the markets presents a buying opportunity, this chart may be interesting. There is certainly no shortage of risk and bad news out there, but some would say there has never been a better time to invest…

S&P/TSX Total Return

Get your RRSP contribution in

Even more important than deciding what to do with your 2008 RRSP contribution is getting it in on time. Due to Canada Revenue Agency regulations, we cannot accept any contributions for 2008 after March 2, 2009, regardless of postmark. For your convenience, we can accept post-dated cheques prior to the deadline. We cannot accept third party cheques or bank drafts (anti-money laundering regulations). ScotiaOnline provides a convenient way for Scotiabank clients to contribute to their ScotiaMcLeod RRSP or TFSA online. As long as you get the contribution in on time, we can always put it in cash and decide what to do with it later if you need a little more time to think it through.

To help make your RRSP (or TFSA) contribution as easy as possible, we are providing this handy form. Just fill it out, attach your cheque and send it to the address on the form:

More on TFSAs


2009 Federal Budget Update

The budget of January 27, 2009 had several items of interest to investors. First, marginal tax rate thresholds will be changing slightly, meaning lower taxes overall. For those considering a Home Buyers Loan from their RRSP, the limit has changed to $25,000. Also, there is now a renovation tax credit for people making improvements to their homes.

The government is allowing people to repay up to 25% of their minimum RRIF withdrawal from 2008. This is a one-time deal. For RRIF clients who only took the minimum withdrawal in 2008 and who would like to repay the 25% allowed, please contact us before the end of February.


E-confirms Now Available

Scotia eRecords, our paperless record keeping service, has now been enhanced to include Trade Confirmations and Mutual Fund Prospectus documents. Many clients have already taken advantage of this service for their Monthly Statements and Annual Trading Summaries. Benefits include:

  • Reduced paperwork and clutter
  • Enhanced privacy by accessing online
  • Faster delivery - confirmations are available online the next day after the trade has been processed
  • Enhanced record keeping and the ability to search for and retrieve specific documents
  • Flexible access to confirmations and statements 24/7
  • Advanced confirm search in Scotia OnLine via Account History

Sign Up Now in 3 Easy Steps!

  1. From the Accounts & Transfers tab in ScotiaOnline, click on Document Preferences under the Document Services left-hand menu
  2. Select the Paperless option for some or all of the available document types shown.
  3. Confirm your choice.

Please Note: Investing documents are available to all clients on a trial basis until July 31, 2009. To ensure that you continue having online access to these documents, please ensure that you have registered for eRecords following the steps noted above.

More on Scotia eRecords


Mackenzie Announces Management Changes

There are lots of transitions at Mackenzie Financial. In January, Mackenzie announced plans to appoint new leadership of the Ivy investment team as its current head, Jerry Javasky, transitions towards retirement over the next year. Paul Musson CFA, Senior Vice President, Mackenzie Financial Corporation, his hand-chosen successor and co-manager with Mr. Javasky on many of the Ivy fund mandates, will take on the role of Ivy team lead in February. After years of lacklustre performance, Ivy funds held their own in 2008, proving their conservative mandate.

In other Mackenzie news, George Morgan, joins the Cundill team. George Morgan, formerly of Templeton Growth Fund, is getting back into the investment business after a few years working in an advisory capacity only, and will be helping out on the Mac Cundill team. A very strong value-oriented portfolio manager, we've been very impressed with his performance in the past and will be watching his progress at Cundill.

More on changes at Mackenzie


Labour Fund Update

In an effort to avoid having to liquidate sound long-term investments in an unfavourable market, B.E.S.T. Discoveries has suspended redemptions for the time being. B.E.S.T. is the latest in a series of labour funds that have suspended redemptions. Last month, we wrote about Vengrowth closing to redemptions. There a few factors affecting the labour funds, giving them their own "liquidity crisis". Our Annual Review of Labour Funds delves into the root causes.

Of the funds that have not been affected by recent redemption restriction announcements, there are still several LSIF issuers available for purchase that continue to offer the ability to generate a 30% tax credit, and exposure to a unique asset class. These funds have historically had very little correlation to the TSX (or other major market indices). They can, therefore, have a positive impact on diversifying your portfolio. Though many funds have been challenged on performance over the past several years - most notably 2008, where both the venture and publicly traded companies (a newer trend in several LSIF portfolios) in these funds suffered. Despite this fact, many investors do see these as one of the few remaining ways to generate tax-benefits through their portfolios. While this may be true, investors should balance their exposure and risk tolerance when considering these LSIFs.

Of the many LSIFS still available for purchase, we do continue to follow Venturelink, Growthworks and Dynamic Venture Opportunities Funds. Venturelink Funds offers investors exposure companies operating in financial, manufacturing, technology and alternative energy sectors. Growthworks offers a series of funds where a blended portfolio offers venture capital exposure and a portion of the portfolio that tracks a major public index. Dynamic Venture Opportunities shares a similar public/private strategy holding several TSX listed companies in the top holdings alongside it's venture capital names.

For more information on these funds or other questions about your account, please contact Andrew McGoey by email or at 416.945.4107.

More on labour funds


Recommended Reading

The Scotia Capital Equity Research Group's Focus 2009 report looks at industry outlooks and themes and makes stock recommendations. Given that everything is inexpensive these days, this report tries to identify stocks that will benefit or suffer from the economic and political conditions our analysts expect to unfold over the course of 2009.

Because it is a bit verbose, we have also included a shorter summary market outlook in Point of View from Fidelity Canada:


Scotiabank one of 50 Best Employers in Canada

Top 50 Employers

Scotiabank has been named one of the 50 Best Employers in Canada by The Globe and Mail Report on Business Magazine (ROB) for the fifth consecutive year. This year Scotia placed 20th on the list and was again the highest placed bank.

Each year, companies across Canada strive to be counted among the ROB 50 Best Employers, considered by many to be the country’s most prestigious employer award. What makes this award special is that the winners are determined by measuring the opinions and workplace experiences of more than 115,000 randomly selected Canadian employees, (including workers from Scotia and our competitors). Our five-year presence on the list is a testament to the strength of our employment experience and the perception of Scotiabank as a great place to work.

This translates into positive experiences for our customers and clients, and thus reinforces our success, as demonstrated in the following articles:

Best wishes to Jane-Ann in Calgary

For your investment Team at ScotiaMcLeod, this positive work environment has meant that we have had no employees leave us in the last 6 years. The team will, however, shortly be saying goodbye to Jane-Ann Crombeen, who after 16 years with ScotiaMcLeod in Toronto, will be relocating with her family to Calgary. We wish Jane-Ann, her husband Dave, and daughters Katie and Megan all the best for their coming move.


Recommended Link of the Month

It's only natural to be concerned about investments when stock markets are fluctuating. Yet history shows that investors who stick to their investment plan come out ahead. These intereactive web tools from Fidelity help to demonstrate the effects of market volatility and why it's beneficial to stick to a long-term plan.



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