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Part A: Take a look at the Canadian Andex chart (Attached PDF File)

1. List 10 elements of the Andex chart. All combined Indices performance count as 1 element.
2. Why do you thing the Andex chart can be a great tool for financial planning?
3. After analyzing the chart, name 2 lessons/stories/relationships in the data that stand out personally as important, interesting or surprising.

Part B: List the risk-return trade off in ascending order of the following securities:

• Corporate bonds
• Government bonds
• Precious metals
• Cash
• Small capitalization stocks
• GICs
• Large capitalization stocks
• T-bills

Assign the appropriate securities (from the list above) to the following goals:

• Saving for a down payment on a house in the next 5 years
• Saving for your retirement 30 years into the future
• Saving for your childs education 15 years into the future
• Saving for a new car next summer
• Earning a higher return in your long-term savings

Part C: Three friends, Jenna, Michael & Alice are debating whether an RRSP or a TFSA would be a better choice for them. Each of them is the same age (e.g. 40 years old) and is saving for a goal that is 15 years into the future (retirement). Jenna has an income of $100,000, Michael has an income of $70,000 and Alices income is $40,000. After the target date, Jenna expects to have an income of $70,000, Michael expects to be earning about the same and Alice expects to be earning $70,000. Assume they planning to contribute $5,000, and they face different income tax brackets based on their income levels. For example, the Federal Tax Rates for 2020 are as follows:

Federal tax rates for 2020

• 15% on the first $48,535 of taxable income, plus
• 20.5% on the next $48,534 of taxable income (on the portion of taxable income over 48,535 up to $97,069), plus
• 26% on the next $53,404 of taxable income (on the portion of taxable income over $97,069 up to $150,473), plus
• 29% on the next $63,895 of taxable income (on the portion of taxable income over 150,473 up to $214,368), plus
• 33% of taxable income over $214,368[1]

Provincially, the Ontario tax rates are as follows:

5.05% on the first $44,740 of taxable income, + 9.15% on the next $44,742, 11.16% on the next $60,518, + 12.16% on the next $70,000, + 13.16 % on the amount over $220,000[2]

Assuming they use the tax refund generated from RRSP contributions to re-invest into their RRSP, which vehicle would be the best choice for each of Jenna, Michael and Alice? Assume they live in Ontario and will earn the same return (e.g. 5 percent) in both vehicles. Identify any assumptions made. Your conclusions should focus on the reason(s) for selecting a RRSP or TFSA, including tax implications of a changing income level, and not just focused on calculations.

NOTE: All of the analysis provided by you must be your own work and reflect your own original thought. Do not provide any copy/paste material, do not reference or provide citations for other material. I want to receive your opinion, the results of your research and your own thoughts.

[1] Canada Revenue Agency (CRA) website Canadian Income Tax Rates for Individuals

[2] Ibid.

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