Mailbag (taxes, illiquid investments, Rule of 72, rate cuts, robo-advisers)

Each month, we select a handful of questions that were asked by clients or soon-to-be clients. We like to post our answers online because others may have that same question as well. Here are a few of the things we were asked about most recently.

Question from Toronto: Does tax get triggered if there are transactions but no withdrawals from my account?

Yes, transactions within a non-registered account are a taxable event. If we sell shares at a price higher than what you paid, you’ll have a realized capital gain, which is subject to tax. On the other hand, if we sell at a lower price than your purchase price, you’ll incur a realized capital loss, which can be used to offset gains.

Dividends received in a non-registered account are also taxable, though Canadian dividends qualify for the dividend tax credit, which can help reduce your tax bill. 

However, if these transactions occur in a TFSA, RRSP, RRIF, or RESP, they are not subject to any tax.

Question from Toronto: Do you buy stocks that are illiquid with a hold period?

No, we do not invest in illiquid securities that require a lock-in period. Some investments, such as private placements, require investors to hold them for months or even years before they can sell. We ensure that all securities purchased for our client accounts are publicly traded and liquid. This means we can sell any security and have funds available within two business days.

Question from Toronto: What is the “rule of 72”?

The Rule of 72 is a formula used to estimate how long it takes for an investment to double given a fixed annual rate of return.

Years to double your money = 72 / annual return

For example, if you earn 7% per year, your investment doubles in 72 ÷ 7 = 10 years.

Question from Burlington: Are you discretionary?

Yes, we operate on a discretionary basis. We don’t sell mutual funds or any third-party products. Additionally, we have no proprietary products of our own. This ensures that we have no conflicts of interest and always act in the best interests of our clients.

Question from Toronto: How many rate cuts do you expect this year?

This is a moving target depending on the tariff situation, but we anticipate interest rates will trend lower in Canada. A key indicator to watch is the 5-year bond yield, which provides insight into market expectations for future rate changes. As of this writing, we expect another two 25 basis point cuts this year.

Question from Toronto: Why not work with a robo-adviser?

Robo-advisers lack the human touch that a lot of people want in uncertain times like these. During volatile markets, investors want real conversations with someone who understands their concerns and can provide guidance. One client put it best last week: “I always feel better after talking to you.” Having direct access to the person managing your money provides peace of mind, especially in uncertain times.

Please reach out to us at info@SchneiderPollock.com 

-written by Jeff Pollock