YOUR BIGGEST RISKS TO WEALTH
You worked hard to grow your wealth, now it’s time to protect it!
Here are the risks you should be aware of.
1. Not having an emergency fund
How will you cover unexpected expenses or a reduction in income due to a maternity leave or a
disability? 42% of Canadians are living paycheck to paycheck (Source: Canadian Payroll Association 2013 survey)
with no money saved for emergencies such as dental costs, auto repairs, replacing appliances, etc.
Recommendation: set aside 6 to 9 months’ worth of expenses into a savings account that you only dip into in case of
emergencies! (No, getting a manicure because you broke a nail doesn’t count).
2. Taxes
Tax Freedom Day in Canada is approximately June 10th (Source: Fraser Institute 2013). This is the day when
the average family has worked enough to pay for the tax burden imposed by all levels of government. Do
you realize it means half the year is spent working to pay the government? Taxes take a huge bite out of
our income, so finding ways to minimize it is important. Two great ways to invest Tax Free are through
personal home ownership and with a TFSA. The next best thing is Tax Deferred, such as an RRSP, RESP, or a pension plan.
Finding ways to income split with your spouse can also be valuable in lowering your tax burden, so talk to your accountant and
advisor about it.
3. Inflation
Inflation erodes purchasing power. This affects you most when you are on a fixed income with no ability to
earn more. Owing assets that tend to rise with inflation can help. Typically, gold, real estate, real return
bonds, or emerging market investments can be used, but talk to your advisor first to see if the risk profile of
these investments is appropriate for you. Another way to protect yourself is to have a pension or an annuity that is indexed to
inflation, so that the amount of income you receive in retirement keeps going up each year, to keep up with the cost of living.
4. Disability
Your greatest asset is your ability to earn an income. So remember to insure yourself! Note: 1 in 3 Canadians will be disabled
for 90 days or longer at least once before age 65. (Source: Commissioner’s Disability Table A)
Car insurance
$30,000 value
House insurance
$500,000
Lifetime earnings
$1.6 Million = $50,000 x 25 years with a 2% increase per year
5. Longevity
The average life expectancy for women is 83, which is approximately 4.5 years more than men. (Source:
Statistics Canada, Demography Division.) This means women have a greater chance of outliving their money,
especially if the last few years are spent in nursing care - which can quickly erode your wealth. To
eliminate this risk: save more; invest for a higher return; delay retirement or work part-time during
retirement; or consider purchasing long-term care insurance.
6. Death
Protect your debt by owning a personal insurance policy, signing up for group coverage at work, or buying
mortgage insurance through the bank. Your RRSP / RRIF is also at risk because it will be considered as one
large paycheck in your year of death and will be taxed at your highest marginal tax rate - unless you name
your spouse as the beneficiary. Talk to your advisor about other ways to avoid being “taxed to death”.
7. Your emotions
Your emotions can get in the way of making smart financial choices. To prevent your emotions from
clouding your judgement, create an Investment Policy Statement with your advisor. This is a blue print for
how to manage your money. It will help keep you within your risk parameters. Even more important, have
a financial plan and stick to it!
8. Not being diversified, or being over diversified
I know you have heard this saying before: “Don’t put all your eggs in one basket.” Some people think that
this motto doesn’t apply to real estate, but I beg to differ because real estate can have double digit
negative returns. Other times, I see the opposite problem – being over diversified. A portfolio with more
than 40 different mutual funds is hard to track. It causes you to duplicate holdings, and in the end you are
no safer than before.
Final thoughts
The benefits to protecting your wealth:
•
You will enjoy more income in retirement.
•
You will sleep better at night because you will worry less.
•
You will pass on more wealth to the next generation.
•
You will create opportunities for philanthropy.
Stay wealthy,
905-337-5785 or 1-800-667-2804
Email: [email protected]
Website: www.jamison.ca
@womenandwealth
http://www.linkedin.com/in/womenandwealth
Women & Wealth ® - Your life. Your family. Your legacy.
This educational article is intended to highlight informative and timely topics, as they relate to women, their families, and
investing in general.
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("SCI"). SCI is a member of the Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund.
Opinions expressed are not necessarily those of ScotiaMcLeod.