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Financial Focus
Capitalize on protability
ith their proven growth, lucrative dividends, and stable earning power, its no wonder blue-chip stocks are favourably regarded by savvy investors. Here are a few reasons why. An established record of strong performance. By investing in large, well-established companies, you can capitalize on the growth potential of equity markets while managing risk and volatility. Not only do blue-chip stocks boast strong balance sheets, but they have a demonstrated ability to pay dividends in both good and bad economic times. Better yet, from a historical perspective, bluechip stocks are good long-term performers because of their solid nancial fundamentals. In addition, shares of large, well-established companies are often less volatile than those of smaller companies and may suffer less in stock market downturns. Blue chips are poised to lead. Investors seeking greater potential for capital appreciation, along with reduced volatility, should look

Peter Fink, B. Comm., CMA Suite 3300-666 Burrard Street Vancouver, BC V6C 2X8 Telephone: (604) 623-6769 (888) 233-0833 peter.fink@nbf.ca Email: Theres definitely a back-to-school feeling in the air at this time of year and not just from getting the children back into the routine of autumn. Its time to get ourselves on track to reach our goals for the final quarter of the year. While the end of the calendar year is indeed within sight, autumn still leaves plenty of time to review your finances and investments with an eye for the longer term. Consider taking this time to ensure that the important components of your financial strategy are in order. So as you buckle down for fall, all refreshed and recharged from your summer vacation, remember: Were always committed to helping you find innovative ways to make investments work harder for you.

to blue-chip stocks. As the economic recovery matures, many experts expect market leadership to transition toward larger-capitalization, value-oriented stocks a shift from the smaller-capitalization and cyclical stocks, which until now, have led the recovery. Theyre industry bellwethers. Financially sound and laying claim to well-known brand awareness, large corporations are in the best nancial shape in years. Cost-cutting, efciency improvements, and record prots have earned them strong balance sheets and huge amounts of cash. Whats more, these globally diversied companies can reward investors through increased dividends, share buybacks (which can create demand for stocks and drive up prices), and business expansion for future growth.

NEXT STEP: Let us help you discover how blue-chip stocks can be a valuable component of your portfolio. I

Investing Strategies

Go with investment quality to reach your goals

Fundamentally sound. Also working in favour of quality in todays investing climate is that large corporations are in the best nancial shape in years. Cost cutting, efciency improvements, and prot growth have left companies with strong balance sheets and large amounts of cash, which can be used to reward shareholders through share buybacks or dividend increases. EQUITY OPPORTUNITIES There are many opportunities for investors to take part in equity markets in a conservative, disciplined fashion. For instance, Canadian blue chips can help investors benet from our strong scal position and resource base, while large U.S. multinationals are a sound way to participate in the growth of emerging markets. NEXT STEP: These are just some of the ways that we can work with you to identify quality equity investments that are in line with your goals and risk tolerance. Please give us a call today to review your portfolio. n

fter the tumultuous events of the past six months, including the political changes sweeping North Africa and the Middle East and the tragic man-made and natural disasters in Japan, investors can be forgiven for feeling a little apprehensive. However, despite a volatile market climate earlier in the year, U.S. equity markets have been on an upward trajectory during the rst half of 2011, helped by continuing strength in emerging markets, solid corporate prots, and an improving situation in the U.S. economy. With world economic growth expected to reach 4% in 2011, National Bank Financials Investment Strategy Group continues to favour equities over xed income and cash. EQUITIES KEY TO BUILDING WEALTH For investors looking to reduce volatility, the key is to nd the risk-tolerance level they are comfortable with and then decide on the kind of equity exposure that can help them reach their goals. In todays climate and indeed in any climate large-capitalization, dividend-paying stocks remain a solid way to take part in the growth of the markets, while managing risk and volatility. Heres why quality, as exemplied by large-cap dividend payers, is a good idea today.

Change in leadership. Small-cap stocks have outperformed large-cap stocks over the past two years, which typically happens during an economic recovery. But as the recovery matures and growth moderates, market leadership tends to shift to fundamentally sound larger-cap stocks, which tend to be less affected by market volatility than shares of smaller companies. The dividend advantage. There are good reasons why quality and dividends go hand-inhand. Having to pay a regular dividend imposes discipline on management to use their cash wisely, which in turn can put a oor on the share prices of these companies. Whats more, dividend payers tend to increase their dividend payouts each year, which provides investors with a hedge against ination. As the boomers move into their retirement years and demand for income grows, quality dividendpayers could pay off for years to come. There are other reasons why dividends make sense today. The yield on many top-quality dividend-paying stocks today is higher than the yield on the 10-year Government of Canada bond. And when investing outside of a registered account, the dividend tax credit makes each dollar of Canadian dividends equal to about $1.30 in interest income.

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Fall 2011 | Financial Focus

Retirement Planning

Making the switch from RRSP to RRIF

ouve spent decades contributing to your Registered Retirement Savings Plan (RRSP). Now, as retirement age approaches, youre probably seeking more accessible sources of income. How do you know if its the right time to draw on your savings for income by converting your RRSP to a Registered Retirement Income Fund (RRIF)? You have until the end of the year in which you turn 71 to start using your RRSP for income; you can also wind it down and convert it to a RRIF earlier. But once you convert, you must withdraw a minimum amount of income each year. You cannot convert back to an RRSP. To convert your RRSP to a RRIF at a time that best satises your nancial circumstances and lifestyle preferences, consider these three options: YOUR RETIREMENT YEAR Are you planning to retire without any substantial income from other sources, such as a workplace pension plan or non-registered investments? Then converting to a RRIF may be your best bet.

However, if your plan is to hold on to as much of your registered funds as you can, to leave to your heirs, note that the funds may be heavily taxed if left to anyone other than your spouse or a dependent child. You worked hard to build your savings; use them for retirement instead. HOLD OFF CASHING IN You can delay converting your RRSP and withdrawing money for a few years if you have other income or assets to fund the early years of retirement. The advantage is that retirement savings will have longer to grow while sheltered from tax. Of course, you must convert by the end of the year you turn 71, which leads us to the next consideration. WAIT UNTIL THE DEADLINE If you have substantial non-registered assets or a generous pension plan, delaying the conversion until the end of the year you turn 71 will give your money the maximum amount of

time to grow while sheltered from tax. For couples, consider the fact that minimum RRIF withdrawals can be calculated based on the age of the younger spouse. Mandated minimum withdrawals are based on a percentage of assets in the plan, with that percentage increasing with age. Using the age of the younger spouse will keep minimum withdrawals lower and keep more of your savings in your RRIF longer. You can also continue contributing to your RRSP until the end of the year you reach 71, provided you have earned income. If your spouse is younger, you may be able to contribute to his or her RRSP even when youre past the age limit for having your own RRSP. Determining when, and how much, to withdraw from a RRIF depends on your situation and deserves careful consideration. NEXT STEP: Let us help you determine the best retirement income strategy for you. We can help you review your nancial goals and decide on how much to withdraw from your RRIF based on detailed nancial analysis. n

Investment Planning

How to make income-splitting work for you and your partner

ending money to your spouse to invest is a strategy that may enable you to reduce your family tax bill and increase investment returns. The spousal investment loan is one of the few income-splitting strategies available for Canadian couples. If you and your spouse have an income gap, you may be in an ideal position to benet from it. Now may be a good time to implement this strategy. The prescribed interest rate determined by the Canada Revenue Agency (CRA) is the lowest its been in years, at just 1%. The rate can be locked in for the life of the loan. Heres how a spousal loan works.

Through a spousal investment loan, a higher-taxed spouse lends money to a lower-taxed spouse, who then uses the funds to invest. Income earned from the investment is taxed in the hands of the spouse with the lower tax rate. This results in lower combined taxes for a couple than if the highertaxed spouse does the investing. The only stipulation is that the loan must bear interest at the CRAs prescribed rate (or higher) and the interest must be paid by the end of January every year for the previous calendar year. There is no obligation to repay

the principal. The borrowing spouse receives a tax deduction for the interest and the lender pays tax on interest income. NEXT STEP: We can help you decide whether it makes sense for you and your spouse to use this income-splitting strategy, and help you choose a suitable investment. n

Fall 2011 | Financial Focus

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Investing Opportunities

TFSA is more than a savings account

Your Tax-Free Savings Account (TFSA) is more than simply a savings account or emergency fund. Instead, its a tax shelter that deserves your attention. By focusing solely on conservative, traditional savings investments, you could be robbing yourself of much of the tax-free, compound growth potential your TFSA offers. For three years now, youve been able to contribute $5,000 per year, for a potential total of $15,000 to your plan. What started out as a maximum-$5,000 account is now a vehicle with serious investment and tax-saving potential. Yet a recent survey shows that 87% of Canadians who have a TFSA use it as an emergency fund only. The real value of a TFSA lies in its ability to shelter capital gains and dividend income earned by stocks, equity mutual funds, and other investments, as well as interest income. These investments have better growth potential than savings investments. A TFSA also allows you to meet sophisticated nancial planning needs. For example, using a TFSA to shelter dividend income can help higher-income retirees avoid the Old Age Security clawback. By working together, we can ensure that you use your TFSA to its maximum advantage.

The emotional side of inheritance

n inheritance is more than simply a nancial windfall. Rather, its an emotional event with serious implications. If youre expecting a considerable inheritance, its important to plan for the transition that sudden wealth requires. Taking care of the nancial transition may also help you with the emotional one. THE GOOD AND THE BAD Emotionally, an inheritance can affect you in ways you might not expect. The fact is, it is a truly mixed blessing. Youve suddenly gained a sum of money that could alleviate nancial worries or open up desirable opportunities for you, but you have also lost a loved one. There can be other potentially complicated consequences of receiving an inheritance. Family relationships can be strained, and sudden wealth can result in jealousy on the part of family and friends. For people who are facing the complexity of emotions that an inheritance can bring, it might be helpful to keep in mind that the person who left you the legacy did so with the intent of helping you forge a secure or more comfortable future. STICK TO A STRATEGY Its crucial to plan. Failing to have a solid nancial plan in place that is specically created to address your inheritance is a recipe for disaster. In fact, the absence of such a plan for this windfall can actually put it in jeopardy. Time and again, people who receive a substantial sum of money tend to blast through it far too quickly, and without addressing the needs they had before receiving it.

By letting emotions cloud good judgment, you are more likely to make decisions that arent consistent with your nancial needs and goals. Theres also the unavoidable fact that newfound wealth may change your life and therefore involves major decisions about what you want to do with your life. With more money, youll have more possibilities now and in the future. These might include possibilities youve never considered before. By working together, we can establish clear nancial objectives and a roadmap for reaching them. With a plan, we can avoid missteps and prepare you for the challenges of safeguarding and benetting from the legacy of a loved one. NO NEED TO RUSH You need time to adjust to your new situation and to sort out your emotions. A plan can grant you the time you need to acclimate to your new situation. Youll already know where youre headed, and you wont be in a hurry to gure things out. Often its a good idea to wait a few months before you do anything major with a windfall. Taking a break gives you a chance to gain control over your emotions. Planning today can avoid problems tomorrow and ensure that the money you inherit will help provide nancial security for you and your family.

NEXT STEP: Discover a TFSAs real value and how you can make it work harder to meet your nancial goals. I

NEXT STEP: Everyones reaction to sudden wealth is unique. If a major inheritance is in your future, lets talk now about the best way to handle it and how to forge a secure future. I

Vol. 15, No. 4. 2011. This newsletter is copyright; its reproduction in whole or in part by any means without the written consent of the copyright owner is forbidden. This newsletter has been produced by the Firm as a service for our Investment Advisors. The information and opinions contained in this newsletter are obtained from various sources and believed to be reliable, but their accuracy cannot be guaranteed. Readers are urged to obtain professional advice before acting on the basis of material contained in this newsletter. Nothing in this newsletter should be considered as a recommendation, please consult your Investment Advisor to discuss your investor profile and risk factors. National Bank Financial is a wholly owned subsidiary of the National Bank of Canada. National Bank of Canada is a public company listed on the Toronto Stock Exchange (NA:TSX).