What Is “Adjusted Cost Base”? And Why Every Investor Should Know

What Is “Adjusted Cost Base”? And Why Every Investor Should Know

For many investors adjusted cost based is something they may never need to worry about (but should still be aware of!) For most investors who are only using tax-sheltered accounts like the TFSA or RRSP, they never need to worry about adjusted cost base (or ACB for short).

This is because ACB is only required to calculate capital gains tax, and because most investors are investing inside a tax-sheltered account like a TFSA or RRSP, this is a non-issue.

But for anyone with investments outside of a tax-sheltered account, adjusted cost base is extremely important! And your ACB is something that you need to stay on top of.

Adjusted cost based is something every individual investor needs to track on their own. Yes, some mutual funds or robo-advisors or even brokerage accounts track adjusted cost based, but in the fine print they typically tell investors to track it themselves too. Why? Because they don’t want to be held accountable for a tax issue in the future.

Here’s why we need to worry about ACB and some tips on how to track it…

How To Manage Money… Made Easy

How To Manage Money… Made Easy

Managing money is an important life skill. Whether you’re a few years into your first job, or a few years away from retirement, do it well and your financial stress will disappear. Do it poorly and you’ll probably find yourself in a difficult situation more often than not.

The problem is we were never taught how to do this! We were never told how to manage our money. We were never told how to budget, how to pay bills, how to invest, or how to save.

We were never taught about best practices like emergency funds or automated investment plans.

Some of us may have been lucky enough to have a parent or older sibling who was good with money. We were able to learn by watching them manage their money. But because money is so secretive, its often hard to see what they were actually doing on a day-to-day basis.

This post will cover a few of the best practices, the best money management tips, and the best ways to manage your money.

If you’re reading this post my guess is that you’re probably already doing some of these things, or maybe all of them! But you might find something new to add to your financial routine. Something to make it stronger and easier to manage in the future.

Taking CPP Early Or Late? The Soft Benefits

Taking CPP Early Or Late? The Soft Benefits

In the last blog post we looked at the financial considerations when deciding to take CPP early or late. But personal finance is never just about the money. Half of personal finance is personal. The “best” path varies from person to person even when the numbers are exactly the same. When it comes to taking CPP early or late these personal considerations can make a big difference.

There are many “soft benefits” to taking CPP early or late. These benefits can make taking CPP early look more favorable…  or it can make taking CPP later look more favorable… it just depends on how much YOU value each benefit.

Before deciding to take CPP early or late it’s important to understand what your goals are for retirement. Not just financial goals but personal goals. What do you want to do in retirement? What does your retirement look like? This may inform some of your decisions around these “soft benefits”

It can also help to have a financial plan and see how taking CPP early or late helps you achieve your financial goals. Everyone is different, and the decision to take CPP wont be the same for everyone.

Taking CPP Early Or Late? How Long Until Breakeven?

Taking CPP Early Or Late? How Long Until Breakeven?

Should you take CPP early or late? Are you considering taking CPP early? Are you wondering if you should delay? Should you take it early at age 60? Should you wait until regular retirement age at 65? Should you delay until age 70, the last date possible?

When to start taking CPP is just one of the many difficult decisions soon-to-be retirees face as they approach their retirement date.

It’s a big decision, and like many financial decisions there are many aspects to consider when deciding when to take CPP.

When a soon-to-be retiree is deciding to take CPP early or late there are both financial considerations as well as non-financial considerations to weigh.

Taking CPP late can provide a financial benefit if you plan to live past a certain age. This is a number and it’s easier to evaluate but it’s based on longevity, which is a big unknown.

Taking CPP late also has non-financial considerations. There are “soft benefits” to delaying CPP. Depending on how much you value these soft benefits they can be worth quite a bit as well.

Even when two people have the exact same financial situation, they may choose different times to start CPP simply due to these longevity questions and soft benefits.

When deciding to take CPP or delay its first important to get basic understanding of how CPP works and how CPP payments change each year as you delay.

Should You Consider Paying Off The Mortgage Early or Investing Instead?

Should You Consider Paying Off The Mortgage Early or Investing Instead?

Paying off the mortgage early can be a fantastic financial goal. In the last post, we looked at the different ways to pay off a mortgage early, how to make a mortgage payoff plan, and talked a little bit about the benefit of paying off the mortgage early.

In this post, we’re going to look at some considerations when deciding to pay off the mortgage early vs investing. This is a common dilemma for many people in Canada. Where should they put extra cash? Against the mortgage? Or in non-registered investments?

Generally, it’s better to invest inside an TFSA or RRSP before choosing to pay off the mortgage early. There is no annual tax impact when investing inside either of these two accounts. Investments can grow tax free. This can make it more attractive to invest inside an tax advantaged account before paying off the mortgage early. But not always…

RRSPs can be counterproductive at certain income levels and in certain situations. Investing inside an RRSP for someone expecting a very low income in retirement might not be the best use of those extra funds. They may experience large GIS claw backs on RRSP withdrawals in retirement. In those cases, it may make sense to pay off the mortgage early before maximizing RRSP contribution room.

As always, when making a financial decision, like paying off the mortgage early vs investing, it’s important to look at the whole financial picture and not just one aspect. If you’re struggling with this decision then it might be helpful to get a custom financial plan from an advice-only planner.

Deciding to pay off the mortgage or invest isn’t just about taxes and investment returns… there are also a bunch of soft benefits to consider. These aren’t pure financial benefits but they can still be “worth” a lot depending on how much you value them. Make sure you consider the financial benefit of paying off the mortgage early but also the soft benefits as well.

To decide between paying off the mortgage or investing we absolutely need to look at the after-tax rates of return. We’re going to assume that we’ve maximized our RRSP and TFSA contribution room already and are deciding between paying off the mortgage or investing in a non-registered investment account.

The Effect Investment Fees Have On Retirement Planning

The Effect Investment Fees Have On Retirement Planning

Everyone is talking about investment fees these days. There are ads on the radio, television, and online… there are podcasts, websites, blogs dedicated to low-fee investing… there are also books, magazines and research studies… all focused on one thing… how much the average investor pays in fees while saving for retirement.

But very few people are talking about the effect investment fees have on retirement itself. Mostly they talk about how fees impact you as you save for retirement, but very few mentions what happens if you continue to pay high fees as you enter retirement.

Fees definitely have an enormous impact on how much you can save for retirement. The average mutual fund fee is 2.35% in Canada, and that’s the average, there are lots of situations where the fee is even higher. The effect of this fee on a lifetime of savings and investments is enormous!

But what if you’re close to retirement? What is the impact then? Arguably the effect of investment fees on retirement planning is even greater than any other period.

Why?

Fees have an enormous effect on retirement planning because by the time we’ve reached retirement we’ve already saved up a huge nest egg. Unlike the accumulation phase, where you have limited assets in the beginning, when it comes to retirement, you’re starting with a huge amount of investment assets. This makes the impact of fees enormous, especially in early retirement.

The problem for retirees is that investment fees are hard to spot, hard to find, they’re almost hidden by investment providers, whether that is intentional or not. I’ve seen this on countless investment statements I receive from clients. Based on the statement alone you would NEVER know how much they’re paying in investment fees each year.

This isn’t an isolated issue, it’s a problem that many, many retirees face. Low-fee investing is a relatively new option in Canada. If you were investing 10-20+ years ago there just weren’t as many options to reduce your investment fees.

Many retirees who have high-priced investments are shocked (and somewhat saddened) to learn exactly how much they’re paying each year. It’s not their fault, this information is hard to find and not readily available to investors.

To figure out how much an investor is paying each year usually requires some digging. Mutual fund codes vary by fund and fund class. Sometimes fees can vary by 1% or more for the same mutual fund depending on the class.

But once you know how much you’re truly paying you can start to see the impact it will have on your retirement plans. There are two main effects that high fees can have on retirement, and the impact can be substantial.

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