BJK Financial Group Blog

With Donald Trump back in office following this year’s U.S election, many Canadians are growing increasingly concerned about the effects his plans and policies could have on our country, specifically economically. As the United States is Canada’s largest trading partner and a key player in all global economics, Trump’s proposed tariffs, energy production, and immigration are bound to have significant implications for Canada. 

Tariffs and Trade Relations 

To start, one of the major potential causes for economic disturbances for Canadians stems from the  tariffs  promised to be imposed by Trump and the Republican Party. According to Marc Ercolao, an economist with TD Bank, these tariffs could lead to higher costs for Canadian imports and could bring temporary inflation spikes. For many Canadians inflation is already a major concern and “Tariffs create a negative income hit to Canadians as they pay more for imports, which would feed into a temporary and modest re-acceleration of inflation to the 2.5–3.0% y/y range before roughly reverting back to the Bank of Canada’s (BoC) 2% target by 2026” TD  The sectors most vulnerable to U.S. tariffs include the auto industry, energy, chemicals, forestry, and machinery. For example, our automotive supply chain is deeply integrated with the U.S., with approximately 20% of immediate goods coming from American suppliers. In contrast, industries like agriculture and mineral exports may be less affected, as only about half of their goods are destined for the U.S. market. Canadian businesses are expected to adapt by diversifying supply chains or absorbing some of the additional costs. Now these adjustments might still hurt corporate margins and household incomes. In the worst-case scenario, these tariffs could push Canada’s GDP down by 1.7% by 2028, with even a risk of a recession if Trump brings harsher policies.

Adding to the tension is Canada’s Digital Services Tax (DST), which imposes a 3% tax on revenue earned by foreign tech companies. The U.S. has pushed back, arguing that this tax violates trade agreements, and there are concerns that it could lead to further strain on negotiations between the two countries.

Energy and Resource Sectors

Moving on to Trump’s commitment to expanding U.S. oil and gas production, disregarding environmental impacts —echoed in his “Drill, Baby, Drill” slogan—Desjardins team including Jimmy Jean, Vice-President, Chief Economist and Strategist mentioned the mixed consequences for Canada. On one hand, an increase in U.S. energy output could lead to lower global energy prices, which might hurt Canadian oil producers. Similarly, reduced energy prices often translate to lower corporate profits and wages in Canada’s energy sector, further taking a toll on economic activity. However, experts believe the integrated nature of the North American energy market may provide some relief as they could be negotiated. In particular, Canada’s role in supplying energy and related goods to the U.S. might shield it from the harshest impacts.

Immigration Policies

On to immigration, which is another important area for the Republican Party, where Trump’s policies could indirectly affect Canada. His administration has vowed to significantly restrict immigration and deport millions of undocumented residents in the U.S. While some Canadians worry this could drive more immigrants to move up north to Canada, experts suggest that Canada’s recent tightening of visa requirements for travelers could mitigate a potential surge in immigration. Nonetheless, The American Immigration Council stated: “ It would cost $315 billion to arrest, detain, and deport all 13.3 million living in the United States illegally or under a revocable temporary status”, which could indirectly impact Canada through disruptions to cross-border trade and labor markets. Businesses that rely heavily on immigrant labor will also be forced to downsize and there may also be a reduced demand for Canadian goods and services.

Finally, the adaptability and strategies from Canadian businesses and government policies will also determine how everything will play out and affect Canada. It's also important to note that these predictions are based on all current information and plans from Trump as well as the current market performance meaning it is subject to change. In the meantime, Canadians can prepare by staying informed and proactive with their personal business decisions.  

When it comes to investing, finding that perfect balance between risk and reward can seem very complicated. If you're someone who prefers security over the ups and downs of the stock market, a Guaranteed Investment Certificate (GIC) might be exactly what you’re looking for. In this blog, we’ll discuss what a GIC is, how it works, and other important things to keep in mind before choosing this type of investment. 

What Is A GIC?

The GIC is a guaranteed investment certificate, meaning it offers a guaranteed rate of return after a fixed period of time, most commonly issued by banks or trust companies. This is different from many other investment products such as stocks, bonds, mutual funds, etc., in the sense that the GIC is very low risk. Unlike stocks, bonds or mutual funds, where your gains or losses are based on the market's day-to-day performance, the GIC is not. The GIC rate of return you receive will be disclosed upon purchase, and these rates are affected primarily by the Bank of Canada’s policy rates and the market competition with other banks. The GIC is guaranteed because it is a loan to the banks and after a fixed period of time you will receive your money back and with that a guaranteed personal gain from the interest accumulated. The trade-off here is that GIC does typically have lower returns than high-risk options that do well but if you're looking for security and a guarantee it's a solid choice. Although this investment is not high-risk, it is still important to get all the right information before getting started and make sure this type of investment is right for you. 

Real vs Nominal Return 

 Another component to better understand the GICs is to consider the real vs the nominal return. To start, the nominal return which is the most commonly used to describe a return is simply the face-value interest you’re receiving, meaning if you are told 5 % rate of return that doesn't account for any outside factors meaning your real return could be different. Now the real return, which is what you would really receive, is affected by the growth and profits caused by outside factors, mainly inflation and even potentially deflation. Inflation being where each dollar has a diminishing purchasing power, and deflation the opposite. Here the same nominal return of 5% with a 3% inflation will only give you a real return of 2%, the nominal returns are what most GIC are present as, however the real return is what matters. Besides that, here are a few of the important questions to ask yourself that are recommended by the government of Canada before entering an GIC agreement ": 

What is the term of the product, how and when the interest, if any, is to be paid?

• If the annual interest rate is fixed, what is the annual rate of interest?
• If the interest rate is variable: how they calculate it, any charges that apply and their impact on the interest payable, the dates the investment period begins and ends? (trust and loan companies only)
• If you can cancel the product and how?
• If they can amend a term or condition and if so in what circumstances?
• Any risk associated with the product, including if no interest accumulated?
• Any charges that apply and their impact on the interest payable?
• Whether or not the Canada Deposit Insurance Corporation (CDIC) will insure the product?

CDIC Coverage

 Now focusing on that last question about the CDIC, typically the GIC is covered by the CDIC and it is also one of the few investments that is covered by the Canada Deposit Insurance Corporation. This means that if the bank or the trust company that provided the GIC were to go under or have financial troubles making them no longer able to pay back the client, the CDIC would be able to step in and reimburse the client up to 100,000$ per deposit insurance category for both deposits and interest acquired. The only exception here is for the GIC’s issued by a provincial credit union and caisses populaires which are member-owned financial institutions, which takes on the roles of a typical bank and are the equivalent to credit unions in the United-States. These are not covered by the CDIC but may still be protected by the provincial deposit insurance.  It’s also important to note that GIC’S are not their own CDIC insurance deposit category but are rather deposit products that are held in any CDIC deposit insurance category.  

Finally…

GICs offer a reliable and straightforward way to grow your savings with minimal risk, making them a satisfactory option for newer, conservative investors or even those just looking to balance out their portfolios. While the returns offered may be lower compared to most investments, knowing that you're going to be looking at a steady growth and being often insured by the CDIC brings most the peace of mind to proceed with this option.

Lately, my soon-to-be graduating high school co-op student has been thinking a lot about savings and investing her my future and with that the different types of financial accounts available in Canada. We all know how important it is to save, but navigating through the options can sometimes feel like a maze. Whether you’re saving for your education, retirement, your first home, or even helping a loved one with disabilities, each account has its own specific purpose. But how do they differ? I'll explore the different options below. 

RRSP: The Classic for Retirement. 

Most of us have heard of the Registered Retirement Savings Plan (RRSP), this is tax-deductible at the time of contribution to the account meaning you lower the income taxes you need to pay as long as you remain in the plan. However, it is important to remember that this account does not eliminate taxes but rather defers them to the time of withdrawal for the account. The benefit here is that when you withdraw this amount you’ll be retired and have a smaller income so overall your income taxes will also be lower. A downside for this account is that your contributions depend on your income meaning there is a limit, specifically 18% of your income earned the previous year. " Overall, your savings depends on your income and the tax bracket you find yourself in.  

RRIF: The Transition into Retirement 

This account is called the Registered Retirement Income Fund, it will receive its funds from the RRSP and when that transition happens no more contributions can be made, and investment growth will cease. The money withdrawn from this account is also taxable and will be taxed as income. The requirement for this account is to convert your RRSP to RRIF by December 31st the year you turn 71, however, you can choose to convert your RRSP for withdrawal as early as 55 but here there will be a required annual withdrawal amount. A benefit here is that the RRIF allows you to spread your savings across your retirement years, but make sure to plan carefully if you intend to use this account so you don't outlive your funds. 

LIRA: Retirement Focused Option Like RRSP… 

The Locked In Retirement Account, this option is less flexible as the name suggests, where your funds are locked in meaning you can't withdraw money until you reach the age of 55 without facing severe penalties. The difference and advantage with the RRSP over this one is that you can withdraw money if needed but there will be a withholding tax penalty starting with 10% on 5,000 $ " , whereas with the LIRA you cannot. Similar to an RRSP you will not be taxed on any growth but an advantage of this account over RRSP would be that you and your previous employer can also contribute to this account unlike the RRSP. This account defers taxes on your income and is taxed at a lower rate once the money is withdrawn. 

LIF: The RIF For the LIRA Account

A Life Income Fund (LIF) is similar to a RRIF but specifically designed for LIRA accounts. Once you reach the appropriate age and begin withdrawing from your LIRA, those funds are transferred to a LIF. Like the RRIF, your withdrawals are taxed as income, but you must stick to minimum and maximum withdrawal limits annually. This is also one of the differences compared to the RRIF where there is only a minimum withdrawal and no maximum. These limits can ensure a steady stream of income over your retirement years, though it limits how much you can take out at any given time. In most provinces, these withdrawals are taxed as regular income, which could affect your overall tax planning in retirement by potentially putting you in a higher tax bracket.

RDSP: Special Savings for Disability 

This account is the Registered Disability Savings Plan and is made only for individuals with disabilities and their families to help them save long-term and have that financial security. While the amounts contributed are not tax-deductible like the RRSP, the contributions will grow tax free until they are withdrawn by the beneficiary. Another benefit of this option will be the government contribution opportunity, where the government of Canada can provide a grant based on the contributions made to such an account, besides that there are bonds that the government can also provide for low- and modest-income individuals regardless of private income. " 

TFSA: Flexibility and Freedom 

This account is the Tax-Free Savings Account that offers lots of flexibility, where you can choose to invest in various financial products such as: GIC’s, bonds, stocks, mutual funds and any other investment products. While contributions are not tax-deductible all withdrawals will be tax-free, and this account can be ideal for both short term and long-term investments. Here unlike other accounts, there is no age restriction for withdrawals so this money can be taken out in case of an emergency or kept as savings for any purposes like dream vacation.  

RESP: The student-oriented option 

The Registered Education Savings Plan is made for post-secondary education savings. This one is similar to the RDSP where government contributions such as grants can be made matching personal contributions to the account which can significantly boost savings. Here the contributions are not tax- deductible however any investments and grants grow tax-free until the student begins withdrawing the funds for their education. This account offers an advantage for parents to structure a way to save for their child’s future without the burden of taxes cutting into the savings process. 

FHSA: The First Time Homeowner

 The First Home Savings Account is a newer investment and savings account option that is aimed to help Canadians save for a house down payment. This account allows investments in stocks, EFTs and other assets, and at the time of withdrawal the money for your first home will be tax-free. There are however contribution limits being 8000$ a year or up to 40,000 $ as the lifetime maximum."   Unlike most of the other accounts the FHSA is designed for single use and short-term goals, such as home ownership. 

Ultimately, the best account for you depends on personal financial goals and savings needs. It’s also important to think about how these accounts can work together, many Canadians use a mix of RRSP, TFSA and others to balance their tax savings and investments.  

Fall Always Makes Me Think About School and... RESPs

As classes start again, I find myself thinking once again about Registered Education Savings Plans (RESP). So, while almost all of us have heard of RESPs (92%) less than half (40%) of us are putting money into them. This article I found from Newswire goes on to describe an even more disturbing number – “A mere 17 per cent claim they’re knowledgeable about the contribution limits and benefits they offer.” Yikes.

I wrote a blog post about RESPs two years ago and will let you read what I had to say then. I describe how much money you can contribute to a plan, and how much money you can get to help build on it with the Canada Education Savings Grant (CESG). If you haven’t read it, or you need a refresher, I would suggest that you go ahead and check it out.

Go ahead, I’ll wait...

In that article I wrote about my daughter’s start at Laurier that fall. It turned out that Conestoga College was a better match for her. She moved over there and has already graduated. The important thing is that we had options, and she was able to do what was right for her. I couldn’t be prouder.

Conestoga: Where Education Meets the World

But talking about Conestoga College here in Kitchener and across SW Ontario brings us to the topic of international students. If you aren’t familiar with the story, last year Conestoga accepted 30,000 foreign students out of a provincial total of 100,000. One of the consequences of that was a surplus for the college of $252 million.

And while the college is proud to be providing schooling to so many students from around the world others aren’t certain that the school can sustain it. And things like the new limitations on international student cap are going to have an impact. Just to put this into context, the number of foreign students accepted in 2023 was a 31 percent increase over 2022. In fact, the number

This has had consequences. The overall student body has doubled in the last four years, putting a strain on both faculty and infrastructure. The school is dealing with a shortage of classroom space and of housing.

Housing Options are Being Developed, But...

Last year, Conestoga announced the purchase of a couple of buildings in Kitchener and Waterloo to deal with the housing needs of its students, especially its foreign students.

The building in Waterloo is on University Avenue E and used to be a student residence. The building in Kitchener is on Frederick Street and will be converted from being an office building to becoming a residence. The college even offered an opening for these buildings in the fall of 2025.

While significant, I don’t know if that will be enough.

And by the way, I refreshed my memory on these events with a look around the CBC News site. Always worth it...

Meanwhile at the Provincial Level

I just came across a Global News story that highlighted the growing crisis across Ontario. According to a study by Building Industry and Land Development Association: “The gap between Ontario’s housing stock and its rapid population growth is the widest it has been since records began”. Wow!

While the premier and his mates have proclaimed that they can fix our housing shortage, their one attempt turned into debacle and a nightmare. The Greenbelt Scandal that consumed his administration for almost the last 2 years. It’s hard to believe that all started in November of 2022. And thankfully the effort to build houses, which we need, in the one place we don’t need them.

Please Feel Free to Reach Out – To Talk About RESPs or Whatever Else

And remember, if you want to talk to me about saving for your children’s education, getting their money out to pay for this year’s tuition or anything else related to your financial well-being, give me a call at (519) 279-0186, email me at [email protected], or visit my website at www.bjkfinancialgroup.ca. I look forward to chatting with you soon.

As inflation continues to fall – to 2.5 % in July – economists expected to see the Bank of Canada (B0C) cut interest rates again to start off the month of September. They did. On Wednesday, the Bank of Canada announced another rate cut – the third since June.

And while it was generally expected, Governor Tiff Macklem also let Canadians know that the BoC would continue watching economic conditions in the months ahead and adjust rates as they deem necessary. That will be opportunities to see what the BoC is thinking twice more this year, in October and December.

Interest Rates React as Much as They Lead

As we hear again and again, the most significant tool monetary officials have for controlling inflation is the interest rate they set for banks and other financial institutions to follow. Up until Wednesday, the BoC Policy rate was sitting at 4.5%. Now it’s sitting at 4.25%

And to put that into perspective, the BoC Policy rate plummeted to .25% in late March of 2020 at the start of COVID and started to rise in 2022 to reach the kind of rates we are seeing now around the end of 2022.

Throughout that period, inflation rates fell to negative values in the first few months after COVID struck and then peaked in the summer of 2022. And as inflation rates skyrocketed, interest rates rose to try and tame it.

COVID was an economic as well as a health crisis for people around the world. While giving many of us an appreciation for the opportunity to work from home, it also devastated our ability to deliver products around the world. When things were at their worst we were all complaining about the double digit inflation we were seeing in the aisles of our local supermarkets. Now those prices have settled to a more acceptable rate of 2.1% in July.

The most disturbing part about the discussion of the inflation report by the BoC was the fact that the one sector still seeing relatively high inflation is what is referred to as the shelter price, still sitting at 5.7% for July, down from 6.3% in June.

That is not a good sign, considering how much time we spend talking about housing and the high cost of both buying and renting a place to live.

Rail Action Stemmed by the Federal Government

As we all know, it became difficult to get products delivered around the world during COVID. Last month it looked like we might see that happen once again as the railways locked out their workers. But in an effort to prevent that the federal government forced an end to the strike and sent the contract into binding arbitration. This has not been taken very well by the Teamsters and they have promised to take the government to court, claiming that the move by the Canada Industrial Relations Board set(s) a dangerous precedent that threatens workers' constitutional right to collective bargaining.

This is just one example of labour unrest that seems to be stemming from the aftermath of the COVID crisis we started out talking about. Airlines, both WestJet and Air Canada, have been in the news and I even came across a story about labour unrest at the Halifax harbour, earlier in August. I have no doubt there are many other examples.

And as Fall sets in, we can settle down

The passage of another Labour Day weekend and the return to school reminds us of the end of summer once again. And that passage often leads to renewal and re-evaluation. It is dropping interest rates or renewed school bells put you are in the mood for a review of your financial goals then feel free to reach out to discuss this or anything else in your financial plan. I would love to help. As usual, you can call me at (519) 279-0186 or send me a note at [email protected].

But while finding time for financial re-evaluations, keep in mind that you will need to also make for raking leaves, preparing for Thanksgiving, and digging your snow shovel out of the basement. (Oops, too early for that?)