Investing during uncertain times and high inflation

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For the past few decades the Canadian economy has experienced exceptionally low inflation rates ranging from one to three per cent. Unfortunately, Canadians today are challenged with a 30-year high inflation rate of 6.8%, with expectations that it will remain high through 2023. With rising inflation rates, how does this impact your income and investments? And what should you do?

What is inflation?

Inflation is a measurement of the increase in the cost of goods and services over time, which in turn impacts the purchasing power of your money. For example, an apple today could cost you $1, but the following year it could be priced at $1.07. In Canada, inflation is measured using the Consumer Price Index, which tracks the increase in the prices of goods and services across eight major categories. From April 2021 to April 2022, gasoline, food and shelter have all seen inflated prices that are more than double the Bank of Canada’s (BoC) benchmark goal of three per cent maximum. These rising prices mean that the quality of life for those with low, stagnant and fixed incomes will be significantly impacted, consumers will afford less goods and services, and businesses may generate lower profits. To learn more about inflation, please visit the Bank of Canada.

Why is inflation rising in Canada?

Inflation in Canada has been greatly impacted by both national and international pressures, such as:

  • record low-interest rates
  • government’s pandemic response to stimulate the economy
  • massive disruptions in the global supply chain
  • and the ongoing war in Ukraine driving up commodity prices

To slow down and reduce inflation, the BoC has begun increasing interest rates in phases, which discourages consumers and businesses from borrowing money and spending. While these increases put added pressure on businesses and families in the short term, if implemented correctly these can bring down inflation and stabilize markets too.

Investing during high inflation

During times of high inflation and uncertain global markets, it is not uncommon to feel anxious as you watch interest rates rise and some or all of your investments fall. Investors who have more experience and can tolerate more risk with their money may look for opportunities to capitalize on certain industries or investments that have outperformed during periods of high inflation. It is worth noting that the past performance of any investment is not an indicator of future performance. By attempting to change your portfolio to capitalize on different economic situations, you are exposing yourself to the risk of trying to time the market, which more often than not will have you underperform average market returns.

During bear markets (when markets decline by more than 20%), it is important to recognize how you may be feeling about your portfolio and revisit your financial plan and investments. If you work with a financial advisor, you may want to arrange a meeting with them to discuss the long-term view of your investments and how they are tracking towards your financial goals for peace of mind. For those without an advisor, remember that periods of high inflation may be temporary. Higher interest rates and recovering global economies may lessen the severity of inflation quicker than you think. Before you take any action, consider the time horizon of your investments and their underlying fundamentals. If you need more help assessing the long-term suitability of your investment portfolio and financial plan, you may want to talk to a financial planner or a registered financial advisor.

Without question, Canadians are facing challenging times. When it comes to your investments, stay focused on your financial goals and avoid the noise in the news and media. By maintaining a long-term view and a diversified investment portfolio aligned to your risk tolerance and goals, you can weather the storms of uncertain markets.

Developing the right mindset and processes to invest wisely and avoid fraud

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For any investor, novice or experienced alike, there can be pitfalls and challenges that potentially lead you to making unsuitable investments.  These pitfalls include cognitive biases, poor planning, and even missing the red flags of fraud. To help you recognize these pitfalls and define sound practices and behaviours that will help you improve your approach to investing, consider the following core principles.

Behaviour and mindset – Investing is not just the act of buying or selling investments. It is also about your mindset and processes. Over confidence, anxiety, and the fear of missing out can lead you to jump into inappropriate investments that are tied to hot trends and new innovations, or fall prey to fraudulent or misguided get rich quick schemes. The best way to avoid these challenges is to refine your processes.  Start by developing a financial plan and goals before you actually make that first investment. Your plan doesn’t have to be complicated, but by having your goals laid out can help you maintain your focus and avoid the noise and distractions in the market. For investors that recognize that their emotional discipline may not be strong enough to avoid these traps, the assistance of registered investment professionals may be needed. Utilizing the services of a registered financial planner or financial advisor may provide the dedicated service, and peace of mind, to help you choose the suitable investments that will help you achieve your financial goals.

Investment literacy and fraud knowledge – To invest successfully, start by developing your understanding of securities, in addition to investing principles and strategies. As you build your knowledge and your portfolio, you may want to explore more advanced investments like exempt market securities, options trading or even crypto assets. Recognize the limitations of your investment knowledge and consider taking time to talk to registered investment professionals and assess what new investment opportunities might fit best within your financial plan and risk tolerance (your ability and willingness to take risk with your money).

While knowing the inherent risks to investments is essential, understanding and recognizing the risks of fraud and scams is just as important. A recent study conducted by the Alberta Securities Commission (ASC) found that nearly half of Albertans have been approached by what they felt was possibly a fraudulent investment opportunity. Some of the key signs of fraud include promises of high return rates with little to no risk, exclusive or time-sensitive investment offers, offshore and tax-free investments, and insider tips. Understanding these signs and the situations and scenarios in which they can be presented can help you better safeguard your money and assets. To learn more about investment scams and how to recognize, avoid and report them, investors should review the red flags and scams sections of CheckFirst.ca, brought to you by the Alberta Securities Commission.

Proactive measures – By taking a few proactive steps you can help reduce the chances of your portfolio underperforming, and prevent you from taking on unsuitable investments and falling for fraud. Some suggested steps include thoroughly researching the legitimacy and suitability of investments before investing and regularly monitoring the performance of your investments and your portfolio as a whole. By taking the time to do this, you can better validate new investment opportunities and ensure your existing investments are tracking towards your goals.

In addition to these proactive measures, one of the most important steps you can take before investing with any financial advisor, firm or brokerage, is to conduct the necessary due diligence. Generally speaking, financial advisors, firms, and brokerages must be registered to offer you securities. By checking registration at CheckFirst.ca, you can ensure you are working with registered professionals and businesses that are compliant with securities law before you hand over your money.

Investing wisely may seem complicated, but following these core principles as part of your investing process will lead to a more successful and enjoyable journey and help you avoid common mistakes and fraud.

Four steps to take before jumping into crypto investments

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The increasing popularity of crypto assets and the ongoing media coverage of coins like Bitcoin and Ethereum have piqued the interest of many new and experienced investors alike. Whether you’re interested in investing in crypto assets or simply learning more, consider the following before jumping in:

1) Understand your risk tolerance
Crypto assets are high-risk alternative investments that have the potential for high returns. Judging the inherent value in any crypto asset can be difficult, with its values largely determined by its evolving utility, public interest and the current levels of supply and demand. Before investing in any security, a crucial first step is to weigh the risk of the investment against your risk tolerance. Risk tolerance is your ability and willingness to take risks with your money. By recognizing the amount you can afford and are comfortable with potentially losing in a crypto investment, the more likely you are to invest suitably. If you are unsure of your risk tolerance, you can take the risk tolerance quiz at CheckFirst.ca.

2) Be mindful of the crypto asset trading platform you choose to use
The popular way for many investors to buy or trade crypto assets is through a crypto asset trading platform. If you are considering using a trading platform to buy and sell crypto assets, it is strongly advised that you use one that is registered with the Alberta Securities Commission (ASC). If a crypto asset trading platform is not registered, there are no assurances that any of the typical investor protections may exist, including secure handling of client funds, safekeeping of client assets, protection of personal information, pre-trade disclosures, and measures against market manipulation and/or unfair trading. To check the registration of any crypto asset platform, use the check registration tool on CheckFirst.ca or the list of registered crypto asset trading platforms across Canada on the Canadian Securities Administrators website.

3) Be cautious of crypto scams and frauds
Fraudsters are always looking for the next big trend or buzzworthy event to leverage. As crypto assets continue to generate excitement with new and potential investors, fraudsters will continue to take advantage of people’s interest to promote crypto scams. Be mindful that many crypto scams involve one or more of the following:

  • Unusual requests for payment like wire transfers or the transferring of crypto assets from one platform to another.
  • High-pressure sales tactics, confusing jargon and complex documentation regarding an investment opportunity.
  • New initial coin offerings with limited or no documentation like whitepapers on the coin or the coin’s founders.
  • Promises of high returns with little to no risk.
  • Unsolicited crypto investment offers online, over social media and in dating apps.

4) Strengthen your investment literacy and conduct thorough research
Investing wisely in new alternative investments like crypto assets requires you to strengthen your knowledge to ensure that you fully understand the investment opportunity before you hand over your hard-earned money. Before investing in a crypto asset, visit the Innovation in Finance section of the Alberta Securities Commission’s website for important questions you should consider asking.

Crypto assets are high-risk investments that are not suitable for all investors. The nature, longevity and future application of crypto assets are largely unknown and evolving. While the excitement can be overwhelming, taking the time to learn about crypto assets before investing can help you invest suitably and avoid scams. Learn more about crypto assets at CheckFirst.ca.

Four reasons to consider opening or contributing to your RRSP or Group RRSP

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March 1, 2022 marks the deadline for Albertans to contribute to a Registered Retirement Savings Plan (RRSP) for the 2021 tax year. RRSPs are a retirement savings vehicle that allows you to put away up to 18% of your last year’s income and any carry forward room from prior years. The real benefit is that you defer tax on the amount you contribute, until you withdraw the funds in retirement. If you don’t yet have an RRSP account or feel you have underutilized your existing plan or Group RRSP through your employer, here are four reasons to reconsider and contribute to an RRSP consistently.

1. RRSPs are not just for saving

A common misconception is that RRSPs are just glorified savings accounts. While it may say “savings” in the name, you can also invest in an RRSP and rely on the compound growth of your investments within the plan. RRSPs also discourage you from withdrawing your funds until retirement, which maximizes the compound interest you can generate. RRSPs do this by charging both income tax and a withdrawal tax on any funds removed prior to retirement, and permanently removing contribution room in the amount you take out before age 71. For example, if you invested $100 a month at age 35 into your RRSP in an investment fund that generated an annual 6% return and did not touch it till maturity, you could expect your plan to be worth nearly $143,000.

2. Tax-deferred growth

One of the most significant benefits of the RRSP is that any contributions made to your plan in your working years are deducted from your taxable income and, if invested, can grow tax-free while the funds stay in the account. The longer the time horizon before you retire, the more time you have for compound growth to accelerate and grow your retirement nest egg. Once in retirement, withdrawals from your RRSP will be taxed at your retirement income bracket, which should be less than in your working years.

3. Lifelong Learners Plan (LLP) and the Home Buyer’s Plan (HBP)

RRSPs are generally restricted to retirement savings, but they do include unique benefits to help you pay for significant expenditures in your life, like going back to school or buying a first home. The LLP allows you to withdraw up to $10,000 in a calendar year from your RRSP to finance full-time training or education for you or your spouse or common-law partner. Once withdrawn, you have to make annual payments to your RRSP over a ten-year period until the balance is zero. The HBP allows you to withdraw up to $35,000 from your RRSP to buy or build a qualifying home for yourself or a related person with a disability. The repayment period starts the second year after the year you withdrew the funds, with 15 years to repay the funds in your RRSP. It is worth noting that if you fail to repay the funds from either plan in the allotted time, you will lose that contribution room from your RRSP and any missed annual payments will be added to your annual taxable income.

4. Group RRSPS

A Group RRSP is administered by employers as part of its compensation package to employees and can be a powerful savings vehicle for your retirement. One of the biggest benefits of a group RRSP is contribution matching. Employers will define a contribution level as either a fixed dollar amount or a percentage deducted from the employee’s paycheque automatically each pay period. Whatever amount the employee chooses to allocate to the Group RRSP, the employer will match the contribution, effectively doubling the savings rate for the employee. Funds contributed to a group RRSP are invested in securities offered by the financial institution administering the Group RRSP. Most Group RRSP providers offer a selection of funds for varying retirement dates, asset allocations and risk tolerances. If you do not utilize a Group RRSP from your employer or do not contribute the total amount allowed, you may be leaving a significant amount of money out of your possible retirement savings.

With tax time nearing, consider the benefits of opening or contributing more routinely to an RRSP or Group RRSP. Not only will you defer some of your income tax payments throughout your working years, but you will also be creating a nest egg that your future self will appreciate.

How to successfully approach your new year’s resolution to invest

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Now more than ever, investing has become top of mind for many, with new investors ready to jump in and start their investment journey in 2022. While investing can be a core component to growing your wealth, approaching it wisely will help you reach your goals and avoid costly mistakes and fraud. If your new year’s resolution is to start investing, consider the following steps to hit the ground running and invest wisely in 2022 and beyond.

1) Map out your financial goals first
While you may be raring to go with starting your investing journey and building out your investment portfolio, remember that success relies on planning your goals and utilizing the appropriate investments to get you there. By understanding the time horizon (the length of time you expect to hold an investment before needing the funds), you can assign suitable investments with varying levels of risk to drive the best returns over time. Before you consider any investment, first map out your short (6 months to 5 years), medium (5-10 years) and long-term goals (10 years or more).

2) Learn about the registered and unregistered accounts available to you
As a Canadian citizen, registered accounts are available to you with unique properties to help you reach your financial goals. A registered retirement savings plan (RRSP) is an account designed to reduce the income tax you pay on the money you contribute towards your retirement. A tax-free savings account (TFSA) is an account allowing you to save or invest a defined amount tax-free each year throughout your life. These are examples, and you have access to a variety of accounts that can help you achieve your goals. Learn more about the different accounts and how you can leverage them.

3) Understand your risk tolerance
Investments carry a level of risk in line with their potential for return. One of the most common mistakes investors make is exposing themselves to a level of risk far outside what’s appropriate for them. This is called investment risk tolerance, and ignoring or not knowing your ability and willingness to take risk can expose you to dramatic losses. If you are unsure what your risk tolerance is, you can take the Check your risk tolerance quiz. By answering these questions openly and honestly, you can get a better sense of the level of risk you are comfortable taking with your investments, before you start.

4) Improve your investment literacy
If you feel like you still need to learn more about investing before starting, that’s great. It’s important and worthwhile to enhance your knowledge and learn how to invest your hard-earned money wisely. The Alberta Securities Commission offers free, unbiased investment literacy programs with partners across Alberta, covering everything from starting your investing journey to recognizing and avoiding scams and investing in cryptocurrency. If you are interested in attending a virtual program, visit Investing 101 classes and events page to learn more.

What to consider before day trading

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The number of novice investors day trading has surged during the coronavirus pandemic. People stuck at home have turned to playing the stock market on trading platforms with the hopes of big returns on their investments. While it has made some savvy investors rich, day trading has left many others with massive losses and in worse financial shape than before.

Day trading is risky and different from traditional investing. Day trading involves rapid buying and selling of securities to take advantage of small movements in prices. As a day trader, hedging your bets across a variety of day trades comes with inevitable losses on some trades and gains in others, with the goal of ending the day in the green. Day trading isn’t for everyone, and it takes a particular type of person to ride day trading’s rollercoaster of volatility day-in and day-out. Most individuals do not have the wealth, the time, risk tolerance or the temperament to make money and to sustain the devastating losses that day trading can bring.

If you are considering day trading, make sure you understand its dangers:

Huge risk – losing money is part of day trading.

Don’t enter into day trading if you don’t have the money to lose and you don’t have the flexibility to sustain losses daily across multiple trades.

Quick wins don’t guarantee future success.

Be careful of unfounded confidence and emotional decisions – each trade is unique and a huge win one day could be a loss the next.

Be prepared to treat it as a full-time job.

Day trading is time-consuming – to be successful, you need to have the self-discipline to view it as a full-time job and conduct ongoing investment research and monitoring.

Watch out for claims of easy profits, hot tips or expert advice

Relying on investment advice from day trading firms or platforms, websites, social media like TikTok or charismatic day traders can be dangerous as they may be seeking to gain profit from their recommendations. Don’t believe any claims without checking sources thoroughly.

Remember that seminars, classes and books about day trading may not be objective.

Find out whether anyone offering advice about day trading stands to profit if you start day trading.

Beware of easy training sales pitches.

Day trading training systems are heavily marketed to make it seem like an easy, safe, fun way to make money. These commercials leave out details about the pressure, the importance of researching and testing, and the high levels of risk.

 

If you recognize this and are still determined to try your hand at day trading, make sure you do the following:

Understand the risks and then choose whether this type of investing is right for you.

Know yourself as an investor, your risk tolerance and your financial goals before you decide to day trade. Take our Check your risk tolerance quiz to see if day trading aligns to your investing style. > Go to quiz

Learn all you can about investing and day trading.

In order to increase your chances of success, you need expertise, so read and research all you can on it. Day trading is not ideal for those new to the investing world.

Assess if you have the right personality and discipline 

You need long-term dedication, a focused mindset and the ability to ride the stressful highs and lows of the day trading roller coaster.

Only invest what you can afford to lose.

Day traders typically suffer severe financial losses in their first months of trading, and many never attain profits. Set aside a set amount and don’t get caught up in the hype or panic to invest more as a way to make up losses. Think of it like gambling in Las Vegas – it’s never a good idea to double down at a table when losing. Get up and walk away.

Research a good trading system, and keep at it.

Day trading requires a lot of self-discipline and trust in your trading system and algorithms. It is more complicated than just following a hunch. If you don’t have a system and manage risk, you are more likely to lose money.

Day trading requires expertise. If you do decide to pursue it, do your homework, and develop a financial plan to ensure it’s the right approach for you. Remember, all day trading firms must be registered, visit CheckFirst.ca to check the registration of any firm or call 1-877-355-4488.

5 Steps to Manage Financial Stress

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We are living in challenging times and every day Albertans face the unprecedented combination of economic uncertainty, ongoing COVID-19 dangers, volatile stock markets, a shaky job market and rising costs of living expenses. In a recent national poll by FP Canada[1], more than forty percent of people in Alberta ranked money as their biggest cause of stress in life and more than half said the pandemic had impacted their finances.

Financial stress can impact your health and relationships, while negatively affecting how you approach money and planning for your future. The good news is that you can take control and do what’s right for you. By taking these five steps you can reduce your stress level, optimize your expenses to weather the storm and avoid unwise investments.

1. Start with your budget

When it comes to your finances, there is no better ally than your budget in order to understand where your money goes and give you a plan of action that can relieve stress. If you don’t have a current budget or know how to make one, visit CheckFirst.ca  to build your own. Compare the money you bring in to the house, and your expenses. Consider looking for areas where you can reduce unnecessary costs and make a few changes if you’re spending more than you make. For example, maybe you can take that step you always talked about and cut your cable or stop using food delivery services and cook at home instead. Once you have built your budget, make sure you review it at the end of each month to stay on track. Take note though, a budget isn’t a dream scenario – use real numbers and take action based on what you learn.

2. Establish or strengthen your emergency fund

Unforeseen events happen. Whether your hot water tank goes on the fritz or you unexpectedly lose your job, unwanted expenses can strike when you least expect them. Saving and protecting emergency funds are a great way to hedge your bets against these unforeseen circumstances and avoid the financial impact and stress that can occur. A solid budget includes dedicating some of your income to an emergency fund. Open a separate savings account, ideally one with a decent interest rate and low or no fees, and start automatically contributing what you can. Even $40 every two weeks can net you $1,000 in savings within a year – the key is to consistently save the amount you are comfortable saving, no matter how small.

3. Defer payments

You are not alone in feeling the financial stress of COVID-19. Many Albertans are facing unprecedented challenges, which has made meeting financial obligations like paying mortgages, utilities, and other monthly expenses more difficult. Fortunately, many businesses, banks, service providers and municipalities recognize this and are providing payment deferrals for up to six months to help ease your financial stress. If you’ve reviewed your budget and removed all unnecessary spending, your next step is to identify bills that may qualify for a deferral. Try and pinpoint the smallest bills you can defer that will help you balance your budget.  Just remember that deferred payments still have to be paid – they do not cancel or eliminate the amount owed, but instead put them on hold to give you time to either grow your income, or further reduce your expenses.

4. Consider using an investment adviser or planner

Sometimes calling in an expert is a necessary step to help reduce the stress you might be feeling about your financial future. If you have investments, you are not alone in worrying about the volatility of the stock markets and the rapid changes in your portfolio. Making an appointment with a registered financial adviser or planner and seeking their knowledge and guidance can be a great way to review your investment portfolio against your financial plan, ensure you’re staying on track with your goals, and make any adjustments as needed. Learn how to ask the right questions and check the registration of your investment adviser by searching “Choosing the right financial adviser” on CheckFirst.ca.

5. Beware of “get rich quick” opportunities

Current economic conditions create a breeding ground for fraudsters looking to capitalize on the fear and vulnerability of hard-working people trying to make ends meet. Fraudsters use economic uncertainties and current trends to sell COVID-related investments, forex trading work-from-home opportunities, and too-good-to-be-true offers with the sole purpose of stealing your money quickly and efficiently. If you’re approached with a red flag of fraud such as an investment opportunity with the promise of significant returns with little to no risk, you could be dealing with a potentially fraudulent investment that could make your financial situation worse. Don’t make rash decisions with your money. Learn more about the red flags to be wary of, and always check the registration and disciplinary history of the individual or firm offering you any investment at CheckFirst.ca

Financial stress is an overwhelming reality for many households across Alberta. Take control of your financial security and relieve stress by taking action through these five steps. Visit CheckFirst.ca for free, unbiased resources to empower you through every step of your investment journey, detours and all.

[1] Seto, Steve, Financial stress biggest concern for Albertans during pandemic: survey, 660 News, Jul. 13 2020.

Buying in the dip: What to consider when investing during an economic downturn

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You may hear the investing motto “buy the dip” being used a lot these days. This phrase refers to looking at economic downturns as lucrative investment opportunities – one that can bring you significant gains by buying investments at reduced prices. While the idea behind the motto certainly seems exciting for investors, the truth is that there are many considerations and risks to weigh before buying the dip in today’s economic climate. If you are thinking of investing during this time, consider the following beforehand to ensure you make wise decisions that meet your financial goals.

 

Have you considered whether the money you invest is money you can afford to lose?

Many Albertans are impacted by the economic downturn in their immediate day-to-day lives with reduced working hours, less income and even job loss. Over the long-term, this may affect current retirement accounts and future retirees’ ability to save. If you are looking to invest money with the hope of covering your bills or building back your retirement fund quickly, you could be setting yourself up for unsuitable investments and even potentially fraud. Review your current financial situation against your financial plan and consider whether the money you want to invest is money you can afford to lose, should the investment not turn out as expected.

 

Are you in the right head space to be investing?

Emotional investing spurred on from fear of missing out or not having enough money to meet your needs is dangerous as it can quickly expose you to unsuitable investments and fraudsters. Removing the emotional component from investing is hard, but by analyzing the investment against your risk tolerance (how willing and comfortable you are to the risk of losing your money on an investment), the risks of the investment, your financial plan and investment strategy can help you see the opportunity clearly and determine if it is right for you.

 

Have you considered the significant market risks?

We are living through unprecedented times. Rapid market volatility over the past few months has resulted in some of the sharpest declines and gains in the history of many stocks and indexes. While governments worldwide try to stem the impacts of COVID-19, the fact remains that no one knows what the market will look like tomorrow or over the next while. The investment world is full of speculation on when and how things will turn around. With this in mind, make sure you research the investment you are considering. Check to make sure the person selling the investment opportunity is registered to do so; investigate the validity of the product, solution or service that you are considering investing in; understand what the opportunity is offering; and, ensure you are comfortable with its risks.

 

Have you considered whether the investment opportunity you’re interested in is fraudulent?

When it comes to economic downturns, many fraudsters capitalize on the uncertainty, fear and financial strain that people experience to gain their trust and then to sell them false investments. Watch out for red flags. Anyone offering you an investment opportunity with the promise of significant returns with little to no risk is a major cause for concern. If it sounds too good to be true, it probably is. Make sure you always check the registration and disciplinary history of the individual or firm offering you the investment at CheckFirst.ca or call the Alberta Securities Commission at 1-877-355-4488.

This global economic downturn is bringing a lot of uncertainty and panic. While mottos like “buy the dip” seek to bring a positive outcome, you should never let fear or the expectations of great returns cloud the proper assessment of any investment opportunity. By taking deliberate actions with your investments, based on your risk tolerance and research, you can stay true to your financial plan and navigate the uncertainty of today’s investing market.