Grow Wealth Using Eight Important Steps

Allowing too much erosion up front (before investing and along the way reduces the opportunity to accumulate, grow, preserve, and transition wealth and cripples the power of compounding.

Keeping that important principle in mind, you’ll want to grow your wealth in today’s economic climate using eight important steps:

1. Invest Consistently. Growth of capital cannot take place without the regularly and systematic investment of income. This is also a positive way to average your investments into various economic cycles. Make regular contributions to registered and non-registered accounts according to age eligibility and contribution room, and stick to your pre-determined investment plans: monthly, quarterly, semi-annually, etc.
    
2. Manage Debt. Debt, in a potentially rising interest rate environment, could be disastrous for some, especially those over-leveraged with margin accounts or ownership.
    
3. Manage Risk With Tax Efficiency. To better manage risk factors relating to the growth and preservation of portfolios, establish tax efficiency as a leading factor in growth planning. Invest in assets that generate tax-efficiency as a leading factor in growth planning. Invest in assets that generate tax-efficient income sources: dividends and capital gains, for example. But as it relates to managing capital, be sure to preserve documentation on prior capital losses which are valuable hedges against future taxation because they will offset inflationary capital gains. Capital loss balances are currently not indexed to inflation, but they perhaps should be.
    
4. Don’t Prepay Taxes. Pay only the correct amount of tax on your source deductions and quarterly instalment remittances.
    
5. Manage Costs of Building Wealth. Reduce the costs of both spending and saving money to maximize the time value of money: invest whole dollars, sooner. Then minimize the costs of fees on your investments, since this is one of the most significant eroders of wealth over time.
    
6. Beat Inflation on Income. Remember, unused RRSP and TFSA contribution room are not indexed to inflation. This means that investors who maximize their savings sooner beat both tax and inflation erosion using these investments.
    
7. Beat Inflation on Capital. Likewise, adjusted cost bases on capital assets are not indexed to inflation. Therefore capital dispositions should be planned to minimize tax as a hedge. This can be done with timing (disposing assets over multiple tax years to reduce marginal tax rate spikes), by transferring assets into the hands of lower income earners (with resulting income being taxed at lower marginal tax rates) and by using options to earn exempt gains (by transferring qualifying securities to charity or selling tax exempt assets).
    
8. Increase Net Worth: Assess Financial Stability Regularly. Make sure personal net worth of each family member is growing. This requires management of spending and saving, asset, and debt ratios.

Excerpted from Essential Tax Facts: 2013 Edition, by Evelyn Jacks.©Knowledge Bureau Newsbooks. All rights reserved.