07 May 2013
(Linkedin Post by Sallie Krawchek past president of Merrill Lynch, US Trust, Smith Barney)
If you believe much of the media, you hire a Financial Advisor to try to outperform the stock market. Never mind that this can have very little bearing on whether you can live or retire as you would like. Never mind that research has shown that even the hottest hedge fund managers struggle to outperform the markets. (Ok, they don’t struggle to; they don’t.)
The better reasons to hire one are to:
Press you to answer questions you don’t want asked, like how you plan to take care of your aging parents if you need to, whether your will is up to date, how you are going to send your kids to college, what you will do if you lose your job. These are the types of questions that make most of too uncomfortable to ask ourselves.
Put together a financial plan. Very few people ever, ever do this on their own. And most drag their feet on doing it with their Financial Advisor, too. It takes time and it can hurt. But it matters.
Identify risks in your portfolio that you might look right past, like being overweight the US (which is most of us in the US) or being mostly invested in tech stocks, when you’re in the tech industry.
Talk you through market volatility. Most of us energetically claim we don’t need this. It’s hard to project forward an image of ourselves being nervous or scared, and our recollection of past pain has been shown to fade over time. (Just ask any woman who has been through childbirth more than once!) But another voice besides your own during tough markets can be invaluable.
Identify your biases. This is a biggie. Many of us think we don’t really have any….which is exactly the point. One big one: women tend to be more risk-averse than men. That is neither good nor bad of itself, but it is something that should be tested and pushed at a bit, given that women as a group also earn less and live longer than men. As a result, they could perhaps tolerate a bit more risk.
Yes, Financial Advisors cost. But if they are able to provide the services above — and particularly if they can do it earlier in one’s investing life — their value can be meaningful.
No one worries more about the future than those who care for family members with prolonged and severe physical or mental impairments. The Government of Canada introduced the Registered Disability Savings Plan (RDSP) in 2007 to help parents and other family members fund the long term financial security of such persons.
The only qualification to be a beneficiary of such a plan is that he or she qualify for the federal disability tax credit and continue to so qualify for each year that the RDSP is in effect.
The RDSP is modelled after the RESP in that contributions are not tax deductible, but growth accumulates tax free in the plan and becomes taxable only when it is paid out to the beneficiary. The contributions to the plan are paid out as tax-free capital to the beneficiary. The contribution limit is $200,000 making this a useful device in estate planning for a disabled child.
In Ontario, having RDSP assets and income will not disentitle the beneficiary from receiving provincial disability income (e.g. ODSP) or other Government benefits.
Canada Disability Savings Grant (CDSG)
The CDSG provides matching contributions to an RDSP from the government, depending on ‘family income’ and the amount contributed by the family. The parental income forms part of ‘family income’ as defined by the CDSG rules only up to the beneficiary’s 18th birthday. Thereafter only the income of the disabled person and his or her spouse is taken into account. The beneficiary will be eligible to receive up to $70,000 in CDSG payments into the Registered Disability Savings Plan before the end 2 of the year in which he or she reaches the age of 49. The CDSG payments out of the plan will be taxable in the hands of the beneficiary.
Lower-income families and beneficiaries will also qualify for the Canada Disability Savings Bond (CDSB) of up to $1,000 per year to a maximum of $20,000 until the end of the year in which the beneficiary reaches the age of 49. CDSB money is taxed in the hands of the beneficiary.
As a Certified Financial Planner I can help you establish a RDSP and take advantage of the available government grants. You can telephone me at 905-984-2100 ex 27 or drop me an email at email@example.com to arrange a free, no obligation, one hour consultation. We can meet at my office or in your home, as you prefer.