Understanding what motivates your Investment Advisor
With respect to accumulating Wealth, most people rely on advice from somewhere. Very few people invest successfully on their own, absent any advice, consultation or some kind of team effort. If you work with an advisor of some kind, the first question at the front of their mind, about you, is:
“How Big Is Your Stack?”
YOU may not think of yourself as a gambler, but if you hope to make your money make money you are going to take on some risk. The secret it to understand the risks you are taking and always manage that risk properly.
In the game of Poker “your stack” is more important than the other people/personalities at the Poker table, the cards in their hand(s), or the cards in your own hand. “How Much Do I Have?” dictates what you can do realistically, to achieve your Wealth Accumulation goals. Good advice does not come for free.
To avail yourself of a Local Wealth Professional, you need enough of a “stack” so that you can represent a worthwhile client to them – and in turn can expect an appropriate level of service from them.
A hint is how you express your wealth to yourself – do you express your Net Worth is in the millions, thus $250,000 is not “two hundred and fifty thousand” but rather “a quarter of a million dollars”? Yes? If so, you probably should avail yourself of a Local Wealth Professional. If you like to investigate that option, please go to the postal code LOCATOR, put in your POSTAL CODE, to receive the name and contact information for a Local Wealth Professional near you.
Please see where you are stand on this Investible Net Worth Ladder (exclude your primary residence – your home):
- WA – Wealth accumulator; $10,000 to $100,000
- aHNW – aspiring High Net Worth; $250,000 to $1,000,0000
- HNW – High Net Worth; $1,000,000 plus
- UHNW – Ultra High Net Worth; over $10,000,000 (starting point varies)
The question is now “Where Are You on the HNW Ladder?”
e Note: Traditional Net Worth calculations typically include the value of the residential home. However, home ownership (renting versus owning) and location of the home can greatly impact this valuation – and investible assets are the money you have available for investment.
There are generally two aspects to accumulating Wealth:
Investment; growth and protection of existing monies and assets
Optimization of tax consequences for higher income earners and business owners; either through explicit Tax Savings, or Tax Deferral
Salary or Dividends
For the most part, the pertinent question is “How can I pay for my lifestyle while maintaining my business?” And the answer generally includes a discussion about Salary and Dividends in the context of Accumulating Wealth.
Since the Small Business Deduction (SBD), of approximately 15%, only covers the first $500,000 of active business income, there are opportunities to decrease income to this level via bonuses (a form of salary), known as ‘Bonusing Down’; additional income, beyond MPS, can be achieved via Dividends.
To help position the Salary and/or Dividend levels, let’s keep in mind a few approximate figures:
- $40,000 – starting salary level for newcomers to the working world
- $80,000 — the average Canadian household income
- $100,000 – a minimum income for a Government Sunshine list
- $145,000 – In 2016, the approximate Maximum Pensionable Salary (MPS)
- $200,000 – Approximate amount needed to pay MPS, contribute to a Registered Retirement Savings Plan and address all deductions and professional fees – also the approximate point where the top marginal tax rate applies.
Some “Rules of Thumb”:
- Tax levels vary by Province.
- For ‘Low’ income business owners the fees and administration negate the benefits of incorporation, unless they have liability issues or some form of subsidy from spouse, family, partners, inheritance, previous business sale, etc