January 2024 LifeSpring Insights

After the events of the past few years, we’d all like a stable year in 2024. While no one knows exactly what the future will bring there are some trends from 2023 that we can expect to continue in 2024. 

There are two positive things to start with. Tax-Free Savings Accounts (TFSAs) have seen their contribution room continue to rise over the years, making them more important to investors’ financial planning. And the new First Home Savings Account (FHSA) – arguably the biggest news on the home-savings front in years – was introduced by the government just last spring.

Take a look at what each of these have to offer plus other tips and strategies investors can take advantage of in 2024…and beyond.

Consider “locking in” today’s great term-deposit rates

As interest rates rose in 2022 and 2023, they pushed up rates on term deposits (similar to guaranteed investment certificates, or GICs). That was a big shift from the previous 15 years, during which low interest rates left term deposits with rates of return well below inflation.

Now, with inflation falling, many economists are forecasting a decline in interest rates, as well. That would put downward pressure on term-deposit rates. 

The takeaway is that if you’re considering term deposits, now could be a good time to do so. And with interest rates forecast to move lower, you may also consider a term longer than one year. To make sure such a move fits your investment goals, contact your BlueShore Financial advisor today.

Monitor your equity/fixed-income mix as rates shift

If interest rates do move lower in 2024, the stock market may benefit. To be sure, stock moves depend on much more than rates, but lower interest rates could prompt investors to look beyond guaranteed investments, like term deposits, for higher returns, and equities could give them one potential landing spot. 

That’s another trend to watch for in 2024. As with the first point above, if you’re considering adding equity exposure, you should speak to your advisor to make sure such a move fits your needs, goals and risk tolerance.

RRSPs are a great savings choice – but don’t limit yourself to them

For many Canadians, RRSPs are the first stop when it comes to saving, particularly for retirement. But it’s important to not only focus on RRSPs, as other savings vehicles have come along in recent years that make great partners with these tried-and-true tax shelters. 

For example, one popular aspect of RRSPs is the home-buyers’ plan (HBP), which lets you withdraw up to $35,000 to buy a first home. The withdrawal is tax-free if you repay it to your RRSP over a 15-year period. 

It’s been a great option for many savers. But the new FHSA has changed the picture somewhat: with these accounts, you can contribute up to $8,000 annually, with that amount available to be carried forward to the following year, to a maximum of $40,000. You still get a tax deduction, as you would with an RRSP. But unlike the RRSP’s HBP program, you don’t have to repay these funds.

It’s also a great time to take another look at TFSAs, whose contribution room has increased since they were introduced in 2009. This year, you can contribute $7,000 to your TFSA (annual contributions started at $5,000, indexed to inflation, when TFSAs launched). You don’t get a tax deduction for your contributions, but you can withdraw anytime, for any reason, and pay no tax. And your investment grows tax-free within the account.

Because TFSA contribution room carries forward, you could now have as much as $95,000 of space (or $190,000 for a couple who each has their own TFSA). 

TFSAs boast a couple of retirement-friendly advantages. For example, an RRSP requires a minimum withdrawal once it’s converted to a Registered Retirement Income Fund (RRIF), and those withdrawals are taxed as income. If you’re in a lower tax bracket in retirement than you were in your working years (when you made tax-deductible contributions), you’ll save on the difference between the taxation rates.

But if your tax bracket is still high in retirement, this benefit is eroded. Be mindful though, as your RRSP income could trigger a clawback of federal Old Age Security payments, which are income-tested. Since TFSA withdrawals aren’t income, they don’t have this issue. 

If you’re thinking of following the first strategy listed above and invest in term deposits, consider putting them in a TFSA. That’s because their interest counts as income and holding them in an unregistered account could bump you into a higher tax bracket. Finally, your TFSA is also a good home for stocks†, mutual funds† and other growth-oriented investments you intend to hold for the long term.

Consider helping a family member in the tough real estate market

When it comes to homeownership, we can expect continued high home prices across the region and throughout the country this year. But thanks to FHSAs, there may be a way for you to help a first-time buyer in your family.

If you know someone who’s either thinking about buying a future home or starting their first-home hunt, urge them to open an FHSA so they can begin to build contribution room – and then “gift” them their first yearly contribution (up to $8,000). 

An important thing to remember is that an FHSA account holder will want to be mindful about what they hold in these accounts. That’s because most buyers will want to make a home purchase in a relatively short time – likely two to three years.

That makes assets like cashable term deposits, or GICs, or perhaps high-interest savings accounts, good places to start. Stocks, on the other hand, carry a higher risk of loss in the short term, so they’re typically better held in a TFSA, RRSP or unregistered account, and with a long-term perspective.

Stick to the plan (and keep the headlines in perspective)

Finally, while everyone hopes for a more “normal” investment environment this year, there’s no shortage of impactful events that could crop up – from conflicts overseas to a possible election here in Canada or the US presidential election scheduled for November.

In times like these, having a financial plan is particularly important to staying on track. A long-term plan also helps reduce the temptation to make investment moves based on the headlines. 

If you need to review or update yours, then now – with a new year and new twists in the investment world likely headed our way – is a good time to meet with your BlueShore Financial advisor. Make a call today and ensure that your plan is on track with achieving your financial goals for 2024…and beyond.