Rick Lluis , CFP - Financial Planner

It's that time of year!

It's TFSA and RRSP season, which means it's a great time to make moves and either add to your investments or start them!

Let's take a look a closer look at the TFSA and RRSP.

TFSAs:
- They allow you to invest and receive income in the form of interest, dividends, and capital gains totally tax free.
- The tax free nature of the TFSA remains regardless of your tax bracket.
-You do not get taxed for withdrawing from it - it is not counted as income.
- As of Jan. 1, 2021, an extra $6,000 of contribution room has been added to everyone's TFSAs (even if you don't have one)
- TFSA contribution rooms are unique to everyone but the current maximum is $75,500 and increasing every year. That's a lot of money that can be making you tax-free income!
- Can be used as an estate planning tool

RRSPs:
- Meant to be a savings account for retirement
- Works for people that expect to make less in retirement than they do in their working years.
- When you contribute to an RRSP you save taxes based on your tax rate. Then when you withdraw that money in retirement you pay taxes ideally at a lower tax rate than when you initially made the investment.
- Can be used to split your income with a spouse and pay less taxes overall as a household.
- Can be used as an estate planning tool

Reach out to me if you want to learn more. Now is great time to get started or revisit your existing investments and financial plans!

Rick Lluis
[email protected]
250-507-5574

WHY IS THE MARKET NOT TRACKING THE ECONOMY?

Everyone likes to see their investments go up in value. However, in the current market, something may not feel quite right. The recent rally has seen equity markets enjoy a strong rebound off the March 23 lows. Yet this is all happening alongside sustained growth in COVID-19 cases and rampant unemployment.

So, what gives?

Firstly let's discuss what the stock market is compared to the economy.

- The Stock Market reflects the consensus view of the health and future earnings potential of publicly traded companies. In the media, the stock market is often cited as the S&P 500, a composite of 500 large US companies. Many of these companies are global - think Microsoft, VISA, Amazon.

- The economy refers to how money is made and spent. This usually represents all activities from consumers, corporations, financial institutions, and governments. In the headlines, the economy is often represented as Gross Domestic Product (GDP)

It's natural to think that the stock market should closely track the economy but if you look at the chart below, you'll see just how little the S&P 500 tracks US real GDP growth.

Lets look at some reasons why:

1. The stock market only represents a portion of the whole economy. Like we said above, it only looks at publicly traded companies whereas the economy takes everything else into consideration as well

2. The stock market is forward looking. People pay a price today based on what they believe will happen in the future. The economy looks backwards. It considers data of things that have already happened.

3. The stock market mostly reacts not on absolute values, but on relative values. This one surprises most people so let's think of how expectations shape your reality. Have you ever found yourself not liking a movie that much because it was so hyped up by your friends? You thought it was good but you were underwhelmed. Same thing goes with the markets. Expected good or bad news is already reflected in today's price. That means that the actual news has to be significantly better or worse than the expectations to make the market move.

Now you know a bit more about the reasons we're seeing what we're seeing today!

As always, if you have any questions or want to discuss your investments or financial plans, just reach out!

Rick