investing Archives - Ellen MCKAY

May 1, 2023 investing

How To Protect Yourself From a Stock Market Crash

A stock market crash can be devastating, causing significant losses in a short period. However, there are steps that you can take to protect yourself from the impact of a market crash.

Here are my top tips on how to protect yourself from a stock market crash:

Diversify your investments.
Invest in quality stocks.
Stay invested for the long term.
Avoid emotional decisions.
Consider dollar-cost averaging.
Seek professional advice.

Diversify Your Investments

One of the most important things you can do to protect yourself from a market crash is to diversify your investments. This means spreading your money across different types of investments, such as stocks, bonds, and real estate. This will help to reduce the impact of a market crash on your portfolio, as gains in another may offset the losses in one area.

Invest in Quality Stocks

Focusing on quality over quantity is essential when choosing stocks to invest in. This means investing in companies with a robust financial position, solid track record, and good growth prospects. Investing in quality stocks can help reduce the impact of a market crash on your portfolio.

It can be tempting to jump on the latest fad in investing – whatever that may be – but staying the course with quality stocks is more important than hoping to cash in and “get rich quick.”

Stay Invested for the Long Term

While it can be tempting to sell your investments during a market crash, it can worsen your losses. Instead, staying invested long-term is essential, as the market has historically recovered from crashes and continued to grow. You can take advantage of the market’s long-term growth potential by staying invested.

Avoid Emotional Decisions

A market crash can be emotional, but avoiding making decisions based on fear or panic is vital! Instead, take a rational approach and focus on your long-term goals, and this will help you make decisions that align with your investment strategy, even in the face of market turmoil.

Consider Dollar-Cost Averaging

Dollar-cost averaging is a strategy where you invest a fixed amount of money in a stock or mutual fund at regular intervals, regardless of the market conditions. This can help reduce the impact of market volatility, as you buy more shares when the price is low and fewer shares when the price is high.

Seek Professional Advice

If you’re unsure how to protect yourself from a market crash, consider seeking professional advice from a financial advisor. They can help you develop a personalized investment strategy considering your goals, risk tolerance, and investment time horizon.

Keep Calm And Carry On!

By following these tips, you can help to reduce the impact of a market crash on your portfolio and increase your chances of reaching your financial goals. Remember, the stock market is volatile in the short term, but it has consistently delivered strong returns to investors over the long term.

January 15, 2023 investing

New To Investing? Here’s How To Get Started!

Are you ready to start investing? Investing is an excellent way of getting your money to work for you, but you need to make informed decisions about how you want to invest, or you could risk losing all your money.

This is my six-step guide for getting started investing:

Set financial goals.
Educate yourself.
Consult a professional.
Open a brokerage account.
Make sure you have a diversified portfolio.
Review and adjust your investments as necessary.

Set Financial Goals

Before you start investing, you must clearly understand what you’re saving for and how much you’ll need to reach your goals. This could be anything from saving for retirement, buying a house, and paying for your child’s education. Knowing your goals will help you determine your risk tolerance and choose investments that align with them.

Another benefit to setting financial goals is that you will be more motivated to set money aside for investing as you’ll have an end goal in sight!

Educate Yourself

Investing can be complex, so educating yourself about different investments and how they work is essential. For example, stocks represent ownership in a company and can provide growth potential. Bonds are a form of debt and tend to be less risky but provide less growth potential. Real estate investments can provide cash flow, appreciation, and tax benefits.

There are so many options available today for investing, so you must understand the differences between each kind of investment and what benefits and drawbacks they offer.

Consult A Professional

A financial advisor or professional can help you create a personalized investment plan that considers your goals, risk tolerance, and current financial situation. They can also help you diversify your portfolio and make adjustments as needed.

However, working with a professional can also mean paying higher fees. There are many online options to consider if you prefer doing it alone, such as Wealthsimple and Questrade.

Open A Brokerage Account

A brokerage account is an account that holds securities like stocks, ETFs, bonds and other assets on behalf of an investor (that’s you!). Once you know your financial goals and what type of investments best suit you, you’re ready to open a brokerage account.

Make Sure You Have A Diversified Portfolio

It’s essential to diversify your portfolio by investing in a mix of different types of assets, such as stocks, bonds, and real estate. This can help spread out the risk and improve your chances of earning a positive return on your investment.

Review And Adjust Your Investments As Necessary

It’s essential to review how your investments are regularly doing and adjust them as necessary. This doesn’t mean you panic at short-term market fluctuations- it just means you make sure that your portfolio is still aligned with your goals and risk tolerance a few times a year.

Having a balanced portfolio in the first place and investing in diversified investments like ETFs will help cut down on the rebalancing you’ll need.

How Did You Get Started Investing?

Let me know in the comments!

August 15, 2022 investing

An Introduction To The First Home Savings Account

Housing prices have skyrocketed in the past few years! They are starting to calm down a bit, thanks to higher interest rates, but it’s still costly to buy a house, especially if you’re living in a popular area such as Toronto or Vancouver.

One of the ways the government is trying to help Canadians afford houses is via the new First Home Savings Account (FHSA). I’ll explain:

What is the purpose of the First Home Savings Account (FHSA) is.
What the benefits of the FHSA are.
Why the FHSA is a better choice than the current Home Buyer’s Plan.

Note: These accounts can’t be opened til 2023, and some of this information may change by then, so please consult with an investment professional before opening one.

What is the purpose of the FHSA?

The purpose of the FHSA is to help first-time home buyers be able to afford to buy their first home. This type of account is only available to people over 18 who either don’t currently own a home or haven’t owned one in the past four years.

You can contribute up to $8,000 a year to an FHSA, with a lifetime maximum of $40,000. Your contribution room does roll over each year, so if you can’t contribute the total amount in a year, the unused contribution room will roll over.

What are the benefits of opening an FHSA?

The most significant benefit of opening an FHSA is it is a superb tax-saving vehicle! It’s similar to a TFSA when it comes to taxes but also has some of the benefits that an RRSP offers as well.

Your contributions to your FHSA are tax-deductible, and you do not pay taxes on any qualifying withdrawals for a first home purchase. In addition, you will not have to pay taxes on capital gains or income earned in your FHSA account.

Why is the FHSA better than the Home Buyer’s Plan?

There are several reasons that the First Home Savings Account (FHSA) is a better choice than the Home Buyer’s Plan:

The lifetime limit is higher. You can save $40,000 in an FHSA account, whereas, for the Home Buyer’s Plan, the limit is $35,000.
You must pay back all the money you take from your RRSPs as part of the Home Buyer’s Plan.
If you miss any repayments, those payments count as income, and you must pay taxes on them.

What do you think of the new FHSA?

Do you think it’s a good idea? Will you be opening one? Let me know in the comments!

August 1, 2022 investing

What is an index fund and why should I invest in one?

Many people don’t like to invest because they can’t figure out exactly what they should invest in! One of the easiest and best choices for investing is with an index fund. I’ll explain:

What an index fund is.
Why you should invest in one.
What you should look for when choosing an index fund.

What is an index fund?

You’ve likely heard of market indexes, such as the S&P 500 or the Dow Jones industrial average. But you may not be sure what they are exactly. In layperson’s terms, an index is designed to track the performance of a group of stocks, bonds or other investments.

The purpose of an index fund is to replicate the returns of a specific market index. This is done by putting together an exchange-traded fund (ETF) or mutual fund that contains fractional shares of all the investments a particular index comprises.

Why should I invest in an index fund?

These are two of the top reasons you should invest in an index fund:

Index funds tend to be low-cost and aren’t actively managed, so you aren’t paying for an involved fund manager. They also don’t have recurring transaction costs because you (or a manager) aren’t constantly picking individual stocks.
Index funds enable investors to benefit from the long-term growth of a specific market. Markets generally have a solid return over time, and investing in an index fund is a great way to benefit from this!

What should I look for when choosing an index fund?

These are the top things you should look for when you choose an index fund:

Check that your index fund has a low management-expense ratio (MER). This is one of the main fees you’ll pay for your investment, so it’s essential to ensure you aren’t paying a high MER.
That they come at a reasonable price. While you don’t want something at a rock-bottom price (as that may indicate the fund isn’t doing too well), you also want to be able to afford shares of the fund without breaking the bank!
That the index fund pays you a dividend. This dividend could be monthly, quarterly or semi-annual. You can either cash out your dividends and use them as an income stream or reinvest them to help your investments continue to grow.

Do you have any experience investing in index funds?

Have you invested in index funds before, or was this an entirely new topic for you? Let me know your thoughts in the comments!

November 15, 2021 investing

The yield curve – a primer

I listen to a great NPR podcast called Planet Money. It takes various aspects of the economy and explains them in a fun, down to earth way. I highly recommend it.

One of the things they talk a lot about on Planet Money is the yield curve. I’d never heard about the yield curve before listening to Planet Money, but it’s a key economic indicator that can help forecast if a recession is imminent! Today, I’m going to tell you about:

What the yield curve is
What the shape of the yield curve means

1. What the yield curve is

The yield curve is just a line – but it’s a very important one. It shows the yield or interest rate that is associated with securities that have the same credit quality, but different maturity dates. Credit quality is basically what it sounds like – it lets you (the investor) know how high the risk of default on the bond. A maturity date is when a bond comes due – that is, when the investor will get the money back they put into the bond!

Typically, bonds with longer maturities – those that require investors to wait longer before redeeming them – pay more than those with shorter maturities.

The most common way to determine a yield curve is with U.S. Treasury securities. The following is taken into consideration when building a yield curve:

Having securities with similar characteristics – such as risk. For U.S. Treasury securities, the risk is generally low
The interest rate for a series of bills or bonds – anything from a six-month Treasury bill to a twenty-year bond

2. What the shape of the yield curve means

The slope of the yield curve gives an idea of future interest rate changes and economic activity. There are three main types of slopes:

Normal – an upward sloping curve
Interveted – a downward sloping curve
Flat – there is no slope

Normal yield curve

In a normal or upward sloping curve, longer maturity bonds have a higher yield compared to shorter-term bonds due to the risks associated with time. A normal yield curve is the most common yield curve shape – it is often referred to as the “positive yield curve.”

Inverted yield curve

An inverted yield curve occurs when shorter-term yields are higher than the longer-term yields. This kind of yield curve can be the sign a recession may occur in the near future.

Flat yield curve

In a flat yield curve, well – there’s not much of a curve! A flat yield curve occurs when short-term and long-term rates for bonds of the same credit quality are basically the same. Like the inverted yield curve, a flat yield curve can often be the sign of an approaching recession.

So now what?

Now you know a key indicator in investing – the yield curve! You can keep an eye on it to determine where it seems like the economy is heading. If it looks like a recession may be imminent, it may time to rebalance your portfolio!

June 15, 2021 Good money habits, investing

Save For Retirement

You’ve likely been told over and over again – you should start saving for retirement! And that sounds great to you – but how do you get started?

Set up automatic savings

The key to making sure you save for retirement is to set up automatic savings. This means that you have a fixed amount coming out of your bank account every time you get paid (or on another schedule that works for you). By having your retirement savings go directly out of your account into a retirement account, you avoid the temptation of spending all your money! Plus you don’t have to worry about remembering to put money aside constantly – it’s all set up to be done automatically!

Try to aim for putting at least 10 percent aside of what you’re making in your retirement savings. If you can put aside more, great! If you can’t put aside that much, that’s OK too – the important thing is that you’re saving for your retirement.

Saving For Retirement With An RRSP

Traditionally, most people think of RRSPs when it comes to retirement. Registered Retirement Savings Plans or RRSPs came into existence in 1957, as a way to help encourage Canadians to save for retirement. They work as follows:

You can put a certain amount, up to a designated maximum, into your RRSP each year.
Any contribution room you don’t use rolls over to the next year, so you don’t lose it.
You can deduct RRSP contributions to reduce the amount of taxes you owe.
All gains in your RRSP are tax-free until you take the money out of your RRSP.

While it can benefit anyone to open and contribute to an RRSP, they are most beneficial to high-wage earners. High-wages earners benefit more from the tax deductions up front, and being taxed on their gains later in life when they’ve retired and are in a lower tax bracket.

Saving For Retirement With A TFSA

TFSAs are a much more recent way to save for retirement. TFSA is short for Tax-Free Savings Account and they’ve been around since 2009. This is how TFSAs work:

You can put a certain amount, up to a designated maximum, into your TFSA each year. Unlike an RRSP, the TFSA maximum is the same for everyone.
Any contribution room you don’t use rolls over to the next year, so you don’t lose it.
All gains in your TFSA are tax-free – you never have to pay taxes on them, even when you withdraw them!

If you have a lower income, then TFSAs may be better suited for you for retirement than RRSPs. You may not need the tax deductions an RRSP offers, and then your entire retirement income will be tax-free!

The Takeaway

There are two key things to take away from this post. One is that automated savings is the best way to keep on track with saving for retirement. The other is that it’s best to save for retirement in a manner that helps you cut back on the amount of taxes you have to pay – whether that’s via a TFSA or an RRSP or both!

June 1, 2021 Good money habits, investing

Diversify Your Portfolio

Welcome to step 4 of managing your money! So far, you’ve set up a budget, tracked your expenses, and gotten used to the idea of investing.

Now you’re ready to move forward with investing, you need to get comfortable with the idea of a diverse portfolio – that is, one that contains a variety of investments.

Why do I need a diverse portfolio?

It’s important for you to have a diverse portfolio so can balance risk with return. The amount of risk you’re willing to accept in exchange for getting potentially higher returns will depend both on your personality and what stage of life you’re at. When you’re younger and have more time to recover, you’re more likely to accept higher risks than when you’re nearing retirement age and want to protect your nest egg.

A diversified investment portfolio is the best way to ensure you can count on your investments to provide stable returns and income. Generally, when stocks are doing well, bonds tend to offer lower returns. And vice versa – when stocks are underperforming, bonds offer a better return. So you’re protected both ways!

What exactly does a diverse portfolio contain?

A diverse portfolio contains a little bit of everything. It can be tempting to want to buy only bonds so you have a guaranteed return or to buy only stocks with the hope of a big payoff. But if you only buy bonds, you’ll have a very low return on investment, and if you only buy stocks, you risk losing everything if the stock market has a serious dip.

That’s why diversity is so important! Buying a variety of investments – individual stocks, bonds, ETFs, and mutual funds is the best way to ensure you have a diverse portfolio.

So how do I create a diversified portfolio?

You may be panicking, thinking that you have no idea how to pick all of these different types of investments. That’s why ETFs (short for exchange-traded funds) and mutual funds exist! They contain a large variety of bonds and stocks, so you don’t have to shop around trying to buy a whole bunch of specific investments just to get a diversified portfolio.

Whether you work with a financial advisor or robo advisor, you need to consider how much risk you’re willing to take, what kind of investment returns you’re looking for, and how long you plan to invest for. More and more places are offering “set” portfolios designed to fit a specific age and stage in life – so you’d buy one type of portfolio in your 20’s and then gradually move towards another portfolio as you age.

The Takeaway

The notion of diversifying your portfolio can seem overwhelming, but it doesn’t have to be. No one expects to you to pick from hundreds of different investments – instead, a professional advisor or robo advisor can gather some basic information about you and then make suitable recommendations. So don’t let fear keep you from getting started!

May 15, 2021 Good money habits, investing

Start Investing

Congratulations! You’ve made it to step 3 of managing money. You’ve already created a budget and started tracking your expenses, and now you’re ready to begin investing.

Why do I need to start investing?

Once you have enough cash to cover your everyday needs, as well as to start putting money in an emergency fund (which shouldn’t be invested as you need quick access to it!), it’s essential to start investing to help build yourself a solid financial future.

Most savings accounts pay very little interest. You can open a high-interest savings account to put your emergency fund in (check into any fees first – no point in losing more in costs than you earn in interest), but that type of account won’t cut it for any other kind of savings.

Investing appropriately can help you earn money over time through the magic of compound interest! While returns vary, you’ll undoubtedly make more via the stock market than you ever could via a savings account.

What kind of investments should I get into?

What kind of investments you should get into will vary. The most common types are bonds, stocks, ETFs, and Mutual Funds.

Both mutual funds and ETFs hold portfolios of stocks and bonds, but ETFs trade on exchanges (like stocks) and tend to have lower fees. Stocks are generally considered the riskiest investments, with bonds being the least risky, guaranteeing an interest payment. ETFs and mutual funds tend to fall in the medium-risk category.

The key is diversity! You don’t want just to buy a few stocks or a few bonds. ETFs and mutual funds are good at spreading the risk out, so even if one investment is going down, another one may be going up. Your goal should be to minimize your risk and maximize your returns!

I’ll talk more about diversifying your portfolio in my next post.

How do I get started investing?

There’s the “traditional” way to get started – where you speak to a financial advisor, talk to them about your goals, and then put together an investment plan for you. The problem with this approach is that it can be pricey, as you pay higher fees, and you may get pushed into investments that aren’t necessarily right for you. If you really want a hands-on approach, ask friends and family for recommendations and make sure you’re clear on what fees you’ll pay your advisor.

The other option is a robo advisor or online broker. They tend to offer reasonably low fees, and you can select a portfolio that suits your investment goals, risk tolerance, the required rate of return. Some brokers offer only set portfolios, whereas others may provide more customized ones.

The Takeaway

This may seem overwhelming, but it doesn’t have to be. And the great thing is – once you’ve got your investments all set up, your hard work is done!

March 15, 2021 Good money habits, investing

How do you get your personal finance advice?

There are so many ways to learn about personal finance these days – there are TV shows on it, books, online articles, and more! Here are some of the many ways you can get advice:

Podcasts

There are lots of podcasts of all different aspects of personal finance – from how to get out of debt to how to invest. If you’re the kind of person who wants to learn, but doesn’t have a ton of time to sit and read, then podcasts may be a great choice for you.

Personal Blogs

Personal finance is definitely a hot topic for personal blogs, and some have amassed quite a following! Some of them are from people who have professional training, whereas others are like me and just want to share the knowledge they have.

Books

I haven’t bought a ton of personal finance books, but I did enjoy “The Wealthy Barber” by Dave Chilton and “Millionaire Teacher” by Andrew Hallam. No links because I recommend you support a local bookstore or try your local library! They are both great books that explain a variety of personal finance issues in an easy-to-understand way.

TV Shows

As my husband can attest, I used to be addicted to “Til Debt Do Us Part” with Gail Vaz-Oxlade. She’s written a number of books as well and also hosted two other money-based TV Shows. She’s blunt and funny. Her shows give you a chance to watch how other people re-examine their spending habits and may encourage you to do the same thing yourself!

What’s your favourite way to learn about personal finance?

Do you like to settle down with a good book? Or perhaps you have a favourite blogger that you’ve read every post of? Tell me about it in the comments!

March 1, 2021 investing, Kids, Saving money

What is an RDSP?

In my previous posts, I’ve talked about three different types of government savings plans:

Today I’m going to talk about a savings plan not a lot of people are familiar with – a Registered Disability Savings Plan.

What is an RSDP?

A registered disability savings plan or RDSP is a savings plan for parents and others (e.g. grandparents, aunts and uncles, etc.) that is intended to provide anyone who is eligible for the disability tax credit with long-term financial security. A beneficiary can only have ONE RDSP at any given time.

Who is eligible to be the beneficiary of an RDSP?

The following criteria must be met in order for someone to be the beneficiary of an RDSP. They must:

Have a valid social insurance number
Be eligible for the disability tax credit (DTC)
Be a resident of Canada when the plan is opened
Be under the age of 60

To be eligible for the disability tax credit, a qualified medical practitioner must have filed in Form 2201 Disability Tax Credit Certificate and the government must have approved it.

How do contributions and government matching work?

There is no yearly maximum for RDSP contributions, but there is a lifetime maximum contribution of $200,000. And the government will match your contributions up to a certain amount, depending on your household income. If your income is low enough, they will give you a contribution via a bond even if you have made no contribution.

Canada Disability Savings Grant

If your family income is $97,069 or less:

on the first $500 contribution—$3 grant for every 1 dollar contributed, up to $1,500 a year
on the next $1,000 contribution—$2 grant for every 1 dollar contributed, up to $2,000 a year

If your family income is more than $97,069:

on the first $1,000 contribution—$1 grant for every 1 dollar contributed, up to $1,000 a year

Canada Disability Savings Bond

The Government will pay a bond of up to $1,000 into an RDSP – even if you haven’t made any contributions! No contributions have to be made to get the bond. The amount the government contributes will be based on the beneficiary’s adjusted family net income as follows:

$31,711 or less — Bond $1,000
between $31,711 and $48,535— Part of the $1,000 is based on the formula in the Canada Disability Savings Act
more than $48,535—No bond is paid

RDSPs are a great savings vehicle

With the government providing a match to your contributions – or even a bond if you make no contribution, but have a low income, RDSPs are a great savings vehicle! Do you know anyone who has an RDSP or is contributing to one?