RISK TOLERANCE & CAPACITY
Cardinal Point provides personally tailored investment management services for clients with U.S. and Canadian investment accounts. Investment strategies are customized to our clients’ risk tolerance and goals and then we work to fully integrate them into their tax, financial and estate planning initiatives.
RISK TOLERANCE & CAPACITY
Cardinal Point provides personally tailored investment management services for clients with U.S. and Canadian investment accounts. Investment strategies are customized to our clients’ risk tolerance and goals and then we work to fully integrate them into their tax, financial and estate planning initiatives.
All of us have lifestyle goals and aspirations. Perhaps they are as simple as ensuring a certain standard of living in retirement or as complex as planning for multiple generations spread across multiple countries with specific mandates. One baseline goal for many investors is to maintain their purchasing power over time, growing their assets faster than the rate of inflation. In order to do so, investors need to take on some level of risk. As shown on the chart below, stocks over the long run do a much better job at this than bonds, which only marginally outperform inflation.
Determining the right amount of stocks and bonds for your situation is a comprehensive task, involving multiple conversations with Cardinal Point professionals in combination with an industry leading risk profile questionnaire.
There are two main considerations needed for this decision: your risk capacity and your risk tolerance. Finding the balance that will both help you reach your goals and allow you to sleep peacefully at night is an important task.
Growth of a Dollar
1926-2018
Risk Capacity
Your risk capacity encompasses the constraints put on the portfolio, namely the time horizon and liquidity needs expected for the assets. For example, the need for a 15% withdraw for a home purchase in 3 years or entering retirement and supporting a 4% withdraw rate each year may necessitate that a meaningful portion of the account be held in somewhat lower volatility investments. Alternatively, higher or lower volatility in your income and job stability can have ramifications for what types of investments may make the most sense for your portfolio.
Risk tolerance
A perfectly designed portfolio that you can’t stick with through the down periods is not going to be helpful in reaching your goals. That’s where risk tolerance comes into play. Your risk tolerance has to do with your relationship with risk. Do you view a riskier investment as having the potential for higher returns, or does the idea of a holding dropping 40% in value make you queasy? Do you prefer a job where most of your income was from a steady salary or do you prefer potentially higher pay from a commission style compensation package? Higher allocations to stocks will have higher expected returns but come with considerable volatility. Bonds historically have had lower rates of return, but also much lower risk.
OUR RECENT PUBLICATIONS
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There are fees or taxes associated with probate, which vary depending on the jurisdiction and can be quite high. Failing to plan carefully can result in greater tax liability and assets not being distributed among beneficiaries as intended. Fortunately, strategies to reduce those fees can have a significant impact on the distribution of wealth upon death. But while some strategies work in certain jurisdictions, they may not be applicable elsewhere. There are also special ways to reduce fees for those over the age of 65. While probate fee planning is a complex process, it’s valuable – and worthy of guidance from a qualified professional advisor.
Pension Options for the Canadian Business Owner-Managers Retirement
Planning for retirement is an important objective for owner-managers operating businesses in Canadian-controlled private corporations (CCPC). Their options include Registered Retirement Savings Plans, Canada Pension Plans, Quebec Pension Plans, or Individual Pension Plans. Generally, these are funded by the employer for the benefit of employees once they retire. They can either be funded only by the employer or may by the employer and the employee. Each plan has its own rules and timelines regarding contributions, contribution limits, and withdrawals – and there may be penalties for not adhering to the rules. Planning ahead with strategies based on your particular situation can help boost retirement savings. Learn more by reading our article devoted to this topic.
Canadian Business Owner-Manager Remuneration Planning
If you are an incorporated Canadian entrepreneur or business owner, there are two general ways to pay yourself from your corporation. You can use a salary or bonus, and that’s a deductible business expense but is fully taxable as your personal employment income. Or the company can pay a dividend that isn’t a deductible business expense but is taxed at a lower rate to you as personal income. Each option has different personal and corporate tax implications. There may also be some different tax rate advantages or disadvantages, depending on the province. Our article covers the details to provide understanding and strategic tax planning insights.