Happy New Year. In a few short days, 2007 will be history. The year will finish much like every other year; a year that went by too fast with lots of change, both good and bad. It's amazing how at this time of year, when I look back at the last 12 months, I find myself repeating myself year after year with the same words about change.
In looking back at my column of articles for 2007 and all the feedback provided by readers, I think there are three stories that solicited the most response and questions. I'd like to finish 2007 with a look back at some of the highlights of change for 2007.
Pension Income Splitting
Every year, governments propose new tax rules. Last year, the big news was the changes to taxation of income trusts, which angered many individual investors. This year, the most interesting change revolves around pension splitting which gives retirees more reasons to be happy. 2007 will be the first year where retired Canadians can split pension income with their spouses. From my perspective, this is one of the most advantageous changes made since I have been in the personal finance industry for retirees.
In case you missed it, if you have are receiving income from a pension plan through an employer, you can give your spouse up to 50% of your pension income. If your spouse is in a lower tax bracket than you, you will save money through pension splitting. If you do not have income from a pension plan, you can split income from RRIFs and annuities but only if you are 65 or older. Pension splitting is done on your 2007 tax return.
Rise and fall of real estate
What a difference a date makes. At the beginning of the year, much of Western Canada was experiencing a real estate boom. Here in Alberta, we were experiencing some of the strongest gains in the country. In some months like February and April, prices accumulated by almost 6% in just one month. Today, that story is really different. Instead of bidding wars on properties, we are seeing properties sit and even listing expire over 3 months. Instead of more buyers than sellers, we now have more sellers than buyers and prices are going down because of it. It's not doom and gloom but as I said in my June 30th column, real estate is not meant to boom the way it did. I hear many people talk about how real estate is going to be better in 2008 but the fact remains, no body knows. Be smart and be cautious when it comes to speculating on real estate. Speculation is where most people get burned in real estate.
Take a look at a chart for the stock market this year and you will see another rollercoaster ride. The only consistency the markets could find in 2007 was consistently volatile. The good news is despite the ups and downs, the markets are likely to finish ahead of where it started at the beginning of the year. While most people would prefer a year where markets consistently go up, market volatility is normal. While we hope we can predict future movements of the stock market, we can't. Although there are many new reasons why stock markets go up or down, history has shown they will always go up and down.
“This time it's different” is a phrase commonly used by financial conservatives and contrarians to suggest that things really don't change that much because the up and down cycles tend to repeat themselves over and over. In other words, whether we talk about tax rules, real estate or stock markets, chances are, 2008 will be much the same – full of change. Be careful about thinking otherwise.
Thanks to you all for your readership, questions and support. I look forward to 2008 starting with a discussion about some of the most common financial resolutions.