Bionic Eye

| Finance |
30
By JoAnne Sommers
Coping
with
Interesting
Times
|
Oil at $130-plus a barrel. Growing evidence of a U.S. recession. News that Canada's economy
shrank unexpectedly in the first quarter of 2008 for the first time in five years.
We are, as the Chinese proverb puts it,
living in “interesting times.”
What’s more, we should probably get
used to it. There has been speculation that a
steeper-than-projected slowdown in the economy
could push the federal government close or even
back into its first deficit in just over a decade.
TD Bank, for example, has warned that the
weakness in the manufacturing sector could
result in once-dominant Ontario becoming a
have-not province and being entitled to federal
equalization payments as soon as 2010-11. That,
TD economist Derek Burleton recently said, is
"one more factor that could tip the federal
government into deficit down the road.''
Uncertainty and volatility will continue to
dominate the economic headlines for the rest of
the year, predicts Adrian Mastracci, portfolio manager
with KCM Wealth Management in Vancouver.
“Canada’s economic outlook is still dictated
largely by the U.S. If their recession takes hold
the way I think it will, we will feel the downdraft.”
All the more reason, then, to get your
economic house in order – and quickly. According
to Mastracci, that begins with a review of your
investment mix.
Start by assessing your risk tolerance. And
be realistic – a lot of people tend to overestimate
the amount of risk they’re comfortable with.
Your portfolio emphasis should shift in
difficult economic times, he adds. Stocks,
equities and mutual funds are great if you’re
looking for growth but in an uncertain climate
you need more fixed-income investments that
generate income and add stability to your
portfolio, particularly if your risk-tolerance is low.
Says Mastracci: “The key financial question
facing every small business person right now is
‘what’s more important – preserving what I have
or growing it?’ Because of the economic
uncertainty, the top priority should be capital
preservation. Don’t speculate. Bigger, more solid
companies are better than small caps in times
like these.”
Next, take a look at how to pay yourself
most effectively, based on your legal structure.
For example, explore salaries, dividends, bonuses,
draws, capital gains, holding/management
companies and income splitting by employing
family members.
Seek professional advice from a chartered
accountant to determine the best way to get the
money you need while paying the lowest amount
of tax, Mastracci advises.
Since most small business people don’t
have company pension plans, employer stock
purchase programs or mandatory Canada
Pension Plan contributions to fall back on,
VISION | jul_aug | 2008 | The Opticians Association of Canada |
they’re on their own when it comes to planning
and saving for retirement.
“It’s essential that you maximize your RRSP
and spousal RRSP contributions every year and
that you contribute as early in the year as
possible”, says Mastracci. “Your 2007 notice of
assessment from the Canada Revenue Agency
will tell you your contribution limit.”
Think about setting up a monthly savings
plan to ensure that future RRSP contributions are
not left to a last-minute decision.
The self-employed have other retirement
savings options, including Individual Investment
Plans (IPPs), which are defined benefit
Registered Pension Plans established for an
individual, rather than a group of employees.
(See Vision Magazine January/February, 2008.)
“The IPP is essentially an RRSP upgrade
with three main differences,” says Peter Merrick,
president of merrickwealth.com and author of
The Essential Pension Plan Handbook.
They have significantly higher contribution
limits that allow you to accumulate up to 65 per
cent more in retirement assets than an RRSP will
allow. They provide creditor proofing, unlike
RRSPs in most provinces, and they cannot be
fully collapsed unless the plan holder is critically
ill, severely disabled or is experiencing financial
hardship.
Another key aspect of your financial life is
insurance. In addition to business insurance,
which protects both the business and its key
players, anyone who is self-employed should
have personal health, long-term disability (LTD)
and dental insurance to protect them both now
and in the future.
“It’s vital to have a good personal disability
policy for yourself,” says Mastracci. “Keep it
separate from the company disability plan if you
have one so that you can take it with you if you
sell or leave the business.”
Consider critical illness coverage, which will
cover you and your family in the event of a
catastrophic illness. (See Vision Magazine
March/April 2005.) And check your life insurance
coverage to make sure that your family would
have adequate financial support in the event of
your death.
It’s also wise to have a larger-than-normal
emergency fund available in case of a financial
crisis.
“Remember that if your business does
poorly it impacts what you take home. Make sure
you have the means to last if the bank calls a
business or personal loan. Remember: these are
not normal economic times.” ISI