2020 certainly was unprecedented in financial markets. The toll that the global pandemic took on the Canadian and global economy cannot be understated, and there will be knock-on effects in both the near and long term.
That said, Canadians who are saving for various goals, be they retirement, the purchase of a house, children’s education or otherwise, would be well-advised to consider certain things that have changed – and some that haven’t – in the world of finance at home. Below, we discuss five tips to keep in mind as you plan the financial year ahead.
Refinancing your mortgage? You may be in luck.
The government’s response to the pandemic saw mortgage interest rates driven to all-time lows1, and the Bank of Canada has signaled that its benchmark rates won’t be going up anytime soon2. You may be able to benefit from the new low-rate environment. If your mortgage term is maturing this year and you need to renew it, you’ll likely get a much lower interest rate than you did a few years ago. Even if you’re still a few years away from renewal, given how low rates are, you might consider refinancing anyway but be very careful about fees; many mortgages have baked-in penalties for breaking them early, meaning refinancing may not make financial sense until your term expires. Either way, make sure to read the fine print and discuss with your mortgagor. In either case, shop around for rates, and if your payments do go down, think about putting that extra cash back into the mortgage so you can pay if off earlier!
Low rates can also help you invest in your retirement
Low rates also mean you’re likely to get a better rate on an RRSP loan. The stock market was surprisingly resilient last year, but think about investing for the long-term. Depending on your circumstances, it may make financial sense to take out an RRSP loan in order to invest and build wealth with various investments. Do keep in mind that an RRSP loan is still debt, so it should be considered in the context of your overall financial situation.
Revisit your asset allocation mix
With all the market changes, a portfolio that started off with a 60/40 Canadian stock/Canadian bond mix at the beginning of 2020 would have looked different throughout the year. In mid-March, for example, it would’ve been closer to a 50/50 portfolio, as the TSX fell and bonds rallied.3 This might be a good time to talk to a financial professional to ensure your portfolio is at its target level in terms of its asset mix. And on that note, also consider the appropriateness of that target and the asset classes in which you’re invested: stocks and bonds are stalwarts, but commodities, precious metals, real estate and even real assets like infrastructure and timberland might also be beneficial for your portfolio’s risk/return levels.
Monitor your credit file
Data breaches are unfortunately becoming all too common, putting personal cybersecurity at the forefront. Canadians have the right to request a free credit report from each of the credit bureaus (Equifax and TransUnion) once a year.4 We suggest taking advantage to ensure your file is true and accurate (requesting the report won’t affect your credit score at all). Consider alternating the requests every 6 months so you can continuously get updated information and spot any errors earlier – the two bureaus may have different information about your credit history. Finally, keep in mind that there are also several services, including through many Canadian banks, that will show you your report more frequently, and will also show you your credit score, which will be a crucial factor in getting loans in the future.
Claim home office expenses on your taxes
Independent contractors know all about the tax benefits of working from home, but this is a new experience for many of us. The Canada Revenue Agency just made it easier5 for Canadians, including company employees, who have been working from home “more than 50% of the time over a period of a least four consecutive weeks in 2020” to claim home office expenses on their tax returns. For large claims, make sure your employer gives you a T2200 or T2200S form, but you can also claim up to $400 without your employer having to provide you with that form thanks to this new CRA initiative. That could means some extra cash in your pocket come tax season, so keep those receipts!
2020 was a year of significant changes in everyone’s lives, and our financial portfolios were likely no exception. Your financial advisor has the tools and the knowhow to explain the changes that have likely affected you and to guide you through the coming year. Speak to your advisor about how these five tips may affect your financial year ahead.
3 Using the S&P/TSX to represent Canadian stocks and the S&P Canada Aggregate Bond Index, in mid-March, a portfolio non-rebalancing portfolio that was 60/40 in Canadian stocks/Canadian Bonds respectively would have been 49.2% in equities and 50.8% in bonds on March 23. Data via S&P Dow Jones Indices website.
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