It’s RRSP season! Do you know how much you can contribute this year?
Happy New Year! Another year, another RRSP contribution deadline.
This year, you have until March 1 to make RRSP contributions that can count as a deduction against your income in 2016. If you know the basic formula to calculate RRSP contribution room, you probably also know that it can make your head spin. It’s 18 percent of your 2015 year’s income, plus any unused room from previous years, less any pension adjustment from 2015.
Fortunately, there’s an easy way to take the guesswork out of this calculation. The Canada Revenue Agency (CRA) offers a tool called “My Account” and you can find it on their website at http://www.cra-arc.gc.ca/myaccount/. By registering for My Account, you’ll be able to see exactly how much you can contribute to your RRSP this season. There are a few other things you can do there as well, but at this time of year the RRSP contribution room feature is probably the most relevant.
Whether you register for My Account or not, now is a perfect time to get together and discuss any plans you have for contributing to your RRSP this year. And if you’re not doing this already, we can talk about the idea of making regular monthly contributions to your plan throughout the year, which is sometimes easier than making a larger contribution at the deadline.
Feel free to give me a call if you’ve got any questions about investment options, strategies, or if you’d simply like to go over your portfolio. You’ll be able to see how to reach me at the “Contact” page on this site. Or if you don’t have an RRSP yet, we can talk about how to get you started. Building your retirement savings with an RRSP can be a very effective way to prepare you for your life after work.
Market Update - April 2017
Considering the year began with such uncertainty, equity and fixed income markets performed exceptionally well in the first quarter. Investors overestimated the magnitude of market volatility that would ensue from an Obama to Trump transition of power and markets shrugged off the political drama and took equities higher.
Challenges in the quarter
This past quarter exemplifies what investors should consider with regard to their portfolios. There are many sentimental reasons to fear the stock market, including recent examples like Brexit, Grexit, the Fiscal Cliff, the Debt Ceiling, the election, and the budget. Markets can be swayed over the short term by daily headlines. Equity markets can move up or down for any and all reasons on a daily basis. However, over the long term, market valuations tend to return to their fundamentals—and the fundamentals over the past two quarters have justified markets moving higher.
Starting in Canada, oil prices seem to have stabilized through the first quarter to nearly US$50 per barrel, bringing less volatility for Canadian stocks. The S&P/TSX Composite Index gained 2.4 per cent factoring in dividends through the quarter. Oil prices are expected to remain near their current level, which has multiple implications. First, stable oil prices are positive for the Canadian energy sector and Canadian stocks overall. Secondly, as oil prices remain a strong influence on the Canadian dollar, stable prices should translate into a stable dollar with an average exchange rate near its current US$0.75.
The United States
South of the border, the newly appointed Trump administration added a new element to conversation–and not just for talk shows! Putting politics aside, companies are reporting better year-over-year results on sales and earnings. Unemployment continues to fall. Economic growth continues to improve. In short, the U.S. economy is on the right track. And with it, come prospects for equities through the remainder of the year. The benchmark S&P 500 Index gained 6.1 per cent in the first quarter including dividends, in U.S. dollar terms, or 5.3 per cent, in Canadian dollar terms, reflecting improvements in company results.
Overseas markets showed healthy gains with international equities up 6.6 per cent in Canadian dollars as measured by the MSCI EAFE Index. Brexit considerations aside, the European economic outlook has improved, akin to that of the United States. On the other side of the world, Asia is showing improvement in its regional economies and stock markets—suggesting the growth we see is truly global in nature.
Central Bank Policy
This quarter marked the third time in two years, and since the Great Recession, that the U.S. Federal Reserve raised its benchmark interest rate. The Bank of Canada didn’t and hasn’t followed suit as the Canadian economy hasn’t performed as strongly as the U.S. economy. The U.S. Federal Reserve is expected to continue to raise its benchmark rate another two or three times this year. The environment is meeting the conditions of low unemployment and stable inflation, allowing the Fed to act.
We continue to believe the U.S., Canadian and international economic environment will improve over what it was a year ago but it bears repeating that a positive economic environment doesn’t necessarily mean better returns. While we may be confident that equity markets will deliver another year of positive returns, market volatility is likely to remain through much of 2017—driven mainly by headline news and politics. We continue to advise a balanced approach to asset allocation matched to your individual goals.
As always, if you have any questions about the markets or your investments, we're here to talk.