Last year, Canadians were treated to a
raucous U.S. election (which I would admit, I find entertaining) and
a Washington fiscal melodrama along with ongoing woes in Europe and
Asia, which have put a chokehold on global economic growth. As the
new year begins, taxpayers will be bombarded with advice on how best
to manage their finances. Crystal balls aside, here’s what the
experts think is heading our way.
Even though Canadian economists aren’t
predicting a recession at home, the general consensus is that we’re
in for a period of slow growth across the board due to concerns about
political gridlock in the U.S. and a softening Chinese economy, not
to mention the Greek tragedy that is playing out in Europe which
threatens the stability of the Euro and along with it the European
Community. Any one of these factors could adversely impact Canada’s
resource and manufacturing sectors – our Northern Ontario sectors.
The main takeaway is that you should be prepared to be more involved
in your finances if you want to weather the storm.
If it’s one thing that all the
pundits agree on it is getting your debt under control. Currently, a
record amount of personal and household debt is being carried by
middle-class Canadians. Interest rates, which have been at historic
lows, are not expected to remain so for much longer. If you have to
borrow for that special project, a line of credit is probably your
best option, particularly if it is at a low interest rate.
The outlook on the housing markets is
divided. Concerned about a potential bubble, last year the government
took measures to dampen speculation in the housing market. Still,
demand remains strong which has some economists saying that we are
still in the middle of a gravity defying boom. Even with signs of
life returning in the U.S. housing markets, most economists expect
that growth will begin to soften nationally, including in Toronto and
Vancouver, which has been fueled by strong condo demand.
Historically, buying a home was a rock
solid investment that would appreciate over time to create a
retirement nest egg. Unfortunately, that’s not the case anymore.
Buying a home is more of a lifestyle decision. Not to mention, if the
interest rates do rise, you will need to realistically manage your
expectations on how much of a mortgage you would be able to maintain,
if you have one, especially if you opt for a variable rate mortgage.
For those of you with a surplus of
funds that you can allocate to investing, there are several areas
that are well established this year. While I would never propose to
recommend, I can tell you where I feel comfortable. Dividend-paying
stock companies are not as erratic as other stocks and they provide a
modest return of two to four per cent, or it can be even higher. Even
mutual funds provide a safe harbour for a less risk-adverse investor.
Try to remember to maximize those TFSAs, RRSPs and RESPs which will
provide for you and your family in the long term.
The best advice for this year is stay
within your limits. It’s always good advice to buy within your
limits, and think twice about incurring any additional debt that is