January 2019 Update

by | Jan 22, 2019

Happy New Year!! Feel free to attack this month’s blog content in bits. Like everything else in January, it’s just best to take it at your own pace, as we have lots to talk about, starting with the markets and moving into tax updates, TFSAs & RRSPs, CPP contributions, lots of fabulous reading and all the things we want for you this calendar year.

We hope you’re easing into 2019 carefully and mindfully – you may need a little rest. The last quarter of the year is always a whirlwind, with school and work re-starting in September, Thanksgiving and Halloween in October, Remembrance Day and just catching your breath in November, and then of course all the things that come with December, from work to family and much, much more.

If you’re invested in equity markets and actively reading your investment statements, then the last quarter may have felt even more intense than usual – especially if you haven’t had a lot of experience with market corrections. After 10 years of markets grinding upwards, and especially after the complete lack of volatility we experienced in 2017, you may be looking at your December statements and wondering if this whole “investing” thing is for you.

As you know, we are not investment managers. However, in our past lives, we’ve all been involved in the markets to one extent or another, and they continue to heavily influence the financial planning we do with you every day. It can be easy for people like us, and our colleagues who put your money to work, to feel pretty comfortable with these market downturns. Just like it can be pretty easy for you to feel comfortable with negative situations in your workplace, where you’re the expert. If you’re a general contractor looking at a financial planner’s roof leak, for instance, you’re probably going to be a lot calmer about the whole thing than we are. We’d like our roof to go on working forever, thank you very much. We know that’s not rational or sensible, but we’re always disappointed whenever our hopes are dashed.

As humans, we all naturally lean towards the assumption that what has happened in the past is likely to repeat. When we’ve had 10 years of pretty decent returns in the markets, our minds want us to believe it’ll happen forever. Rationally, we know it won’t, just like a roof has a certain amount of life in it, but there’s that irrational part of our minds that really wants to believe that we figured out some magic solution that everyone else is missing.

When the inevitable occurs, and markets correct, our feelings of safety and security can be significantly damaged. On top of that, now our brains want to believe that what just happened will also happen forever, so we’re worried that whatever we’ve invested in is now going to keep doing what it just did, until it disappears entirely. The roof is leaking …. Should I get a new house? (Okay, maybe it’s not the best analogy but just go with us on this one.)

As Richard Thaler said: People aren’t dumb. Life is hard. First of all, give yourself some room to be a human being who experienced a disappointment. Second, figure out how changes in your investments may or may not impact you. Do you need to draw down from a portfolio that is on its way down? That – very reasonably – feels pretty bad. Is it something you can leave alone for a while? That feels a bit better. Are you really invested where you need to be? This is a great question. Experiences like these are perfect for measuring your own appetite for risk.

When markets look like they’re trending upwards all the time, you feel pretty confident about risk. We all do. But when they’re trending downwards, we might find that we don’t have the stomach we thought we did. That’s okay. Now we know. Talk to your advisory team about where you are right now. Ask questions. You’re not a dummy for not knowing all the things that people who live and breathe this stuff everyday know, just like we’re not dummies for not being general contractors.

There’s gobs of other stuff to chew on this month, including Sandi’s Top 3 Reads and her review of our friend Shannon Lee Simmons’ new book, Living Debt Free. We also wrote a group article on What We Want for You in 2019 [coming soon – subscribe to our newsletter to get the update, or keep an eye on our Facebook, Twitter or LinkedIn pages]. On top of that, we’ve been in the news a fair bit lately, AND there’s lots of new tax stuff to be aware of – including your 2019 TFSA and RRSP limits. Scroll down for details!

2019 Tax Planning News:

  • 2019 TFSA Contribution Room: $6,000. If you’ve been a Canadian resident over age 18 since 2009, your cumulative contribution room is $63,500.
  • 2019 RRSP max contribution limit: $26,500 or 18% of your 2018 income (whichever is lower) plus any unused room from previous year.
  • 2019 Federal Small Business Tax Rates reduced to 9%.
  • 2019 Federal Personal Income Tax Brackets and Tax Rates remain unchanged, but the Basic Personal Amount increases to $12,069.
  • 2019 Canada Pension Plan Yearly Maximum Pensionable Earnings (YMPE) amount increases to $57,400. You’ll also pay more towards it this year – contribution rates increase from 4.95% of earnings to 5.1% for employees and from 9.9% to 10.2% for self-employed. Read more about the CPP enhancement here.

For those that have worked with Kathryn and have implemented a Spending and Savings plan, the CPP increase will impact you slightly. If you are an employee or are paying yourself a salary from your business you will notice that your surplus in Fixed Expenses will reduce since more CPP will be taken off your pay cheque. You will notice this on your first pay cheque of 2019.

For an employee earning over $57,400 per year, your maximum CPP contribution will be $2,748.90 which is an increase of $155.10/year. Or $6.46/pay cheque if you are paid semi-monthly.

If you are concerned about how this will affect your Spending and Savings plan please contact Kathryn for a review.

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Julia Chung
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