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Invest smarter Investing TFSAs

Why it pays to invest in a TFSA

TL;DR: If you were to invest consistently for 40 years within a TFSA, you’d end up with 49% more money than if you’d invested the same amount with a non-registered account.*
*Assuming a 5% annual interest rate and marginal tax rate of 32.17%

In 2009, something wonderful was born: The Tax-Free Savings Account (TFSA). Unlike non-registered accounts, you don’t pay any tax on the investment return, even after you withdraw the funds held in your TFSA. 

These tax benefits make TFSAs the smartest way for Canadians to invest, which is why we were thrilled to offer them to our users. We were even more thrilled to see that 9 out of 10 new Advantage users immediately open a TFSA for their goals.


Save & invest in a TFSA

Moka lets you automatically invest in a diversified, tax-free investment portfolio.


Unfortunately, only around 40% of Canadian millennials have a TFSA. That’s more than half of Canadian millennials who are missing out on the opportunity to see a much higher net return on their investments.

We crunched the numbers to demonstrate that a Canadian who invests consistently from the ages of 25 to 65 could end up with nearly 50% more money by investing within a TFSA than with a non-registered account.

What does this mean? Let’s break it down.

Say you begin investing $5,000 a year with a TFSA when you’re 25, and continue putting in the same amount every year until you’re 65. 

After 40 years, your net total TFSA return would be $435,959 (assuming an annual interest rate of 5%*).

However, if you were to have made the exact same investment over the same period of time in a non-registered account, your net total return after 40 years would only be $227,023 (assuming a marginal tax rate of 32.17%*).

You’d end up with 48.36% more money (that’s over $200K more!) with a TFSA than with a non-registered account. 


*Marginal tax rate calculated using the average income of Canadians in this age range, and the average marginal tax rate of all provinces.
*Model assumes that the TFSA program will continue to be offered during the entire period.

You can see the full spreadsheet for the graph here. As the data shows, the valuable tax benefits of a TFSA, plus time and compound interest, make for a lucrative combination. So if you’ve been thinking about opening a TFSA, make today the day. 

Luckily, Moka makes it easy to get started. Just create an account, choose a TFSA for your goal and start saving and investing towards it in the smartest way possible.

For more information on TFSAs, click here.

If you have any questions or would like to talk with a human, simply email one of our dedicated portfolio managers at support@moka.ai

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Save more Taxes

The 5 smartest things you can do with your tax refund

Many of us are scrambling to get our paperwork in order to claim our tax refund as the April 30th tax filing deadline quickly approaches. The good news: The stress and anxiety of tax season is almost over.

More than two-thirds of Canadians will receive a refund of an average of $1,600 (*Cha-ching*) from the government. A number of different factors will determine the exact value of your reimbursement but thanks to free income tax calculator tools, like SimpleTax or TurboTax, you probably already have a good idea of what your tax refund will look like. Whether it’s a couple hundred dollars or in the 4-digit range, the question now becomes, “What do I do with my tax refund”?

Here are the top 5 ways to make the most of your tax refund.

Resist the urge to splurge.

Don’t fall into the trap of treating your tax refund like a winning lottery ticket. Go ahead and treat yourself to a little something like a nice meal out but some itches you should avoid scratching. As finance expert Suze Orman puts it, “Just because you can afford it doesn’t mean you should buy it.” A survey by Finder Canada found that 63% of Canadians make impulsive spending decisions on a yearly basis. A lack of careful decision making can result in buyer’s remorse so when tempted by an item with a hefty price tag, sit on it for a bit to avoid a guilty conscious. After all, your tax refund isn’t going anywhere.

Pay off your debt and pay-back your loans.

The average Canadian has nearly $30,000 in non-mortgage debt. This includes an average credit card balance of over $4,000. Many of us get by paying the minimum monthly payments, but since the average credit card interest rate hovers at 19%, it’s always better to pay sooner than later to avoid the high interest rates stacking up. Not only does debt put a dent in your wallet, debt can also have enormous emotional and psychological burdens. If you have debt, look at what you owe and pay back as much as you can. Prioritize ‘bad debt’ that incurs the highest rate of interest. By using your tax refund to pay off debt as quickly as possible, you’ll be one step closer to becoming debt-free.

Stash your cash in an emergency fund.

It’s easy to overlook the importance of an emergency fund when your finances are going well. With cash in the bank, it’s only natural to remain positive, which is perhaps why only 26% of Canadians have an emergency fund in place, with over a third of millenials having no emergency stash at all to offset unexpected financial difficulties. But the truth is you never know what the future holds. By putting some or all of your tax refund towards an emergency fund, you can be ready to tackle financial emergencies without going into debt.

Hack your life by investing in yourself.

Growing your knowledge and skills may give you a boost in self-confidence, but it can also provide great returns. You’re not only going to become more self-sufficient, but employers will find you more valuable, which means you can confidently negotiate a higher entry salary or ask for a raise. There are many affordable online courses you can take right now to expand your skill set. Not sure what skills will provide the best return on your investment in yourself? Check out this list of in-demand skills.

Save and invest towards a financial goal.

Whether you’re striving to meet a short-term financial goal like buying a new couch or a long-term one like buying a house, chances are that achieving your financial goals equates to saving money. Instead of placing the money from your tax refund under your mattress, start building towards your goals by saving your money into an investment account. By putting your money to work for you in a diversified investment portfolio that aligns with you financial profile, goals and risk tolerance, you’ll benefit from the forces of time and compound interest, and will likely reach your goal faster. Plus, you can reap the tax benefits of a TFSA or RRSP, depending on the type of goal you’re saving towards.

Pay it forward.

Donating to charity is not just a noble cause. It can also affect your bottom line. When you donate to one of Canada’s 86,000 registered charities, you can claim charitable tax credits or deductions with your official donation receipt. So why not do some good with your money from your tax refund, and in the process receive a little kickback from the government?

It can be difficult to decide what to do with your tax refund. When your instincts may be telling you “go spend!”,  reconsider what might be the best option for you given your financial situation and the financials goals you’re aiming for. Want to figure out what’s right for you? Drop us a message in our chat. We’re happy to help!

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Invest smarter Socially responsible investing

Why smart investors back socially responsible companies

Doing good for the world can be good for you, too. If you care about social and environmental issues, Socially Responsible Investing* is a way for you to put your money where your mouth is and see your investments perform better over time.

Socially Responsible Investing (SRI) started as a way to invest according to your personal values, but it also offers built-in risk management benefits that traditional investing can’t match.

Today SRI is not just a niche form of investing. In fact, responsible investments in Canada were valued over $2 trillion in 2017, according to research from the Responsible Investment Association. This means that slightly more than half (50.6%) of all Canadian assets under management are in responsible investments and that’s up from only 37.8% in 2015 with growth expected to continue.

What is socially responsible investing?

Essentially, SRI involves screening for Environmental, Social and Governance (ESG) factors  before buying stocks, bonds and other assets. By considering environmental issues like climate change and water scarcity, social issues like gender inequality and corporate governance* issues like board diversity, investors can support causes they care about through their investments.

The assets in an SRI portfolio or SRI fund can vary greatly depending on the screening strategy of the firm or individual who is managing those investments.

We designed the Moka SRI Fund around the values of Canadian millennials, who are the majority of our users. The companies in this fund may change, but they are always selected for supporting four key issues of environmental protection, sustainable development*, gender diversity in corporate leadership and corporate responsibility.

Can SRI improve the performance of your portfolio?

In the past, analysts often associated SRI with lower returns, but research, including a large research review, indicates that the performance of SRI can actually exceed regular investing for one fundamental reason: companies that consider ESG factors reduce risk in the long term.

Now if you think taking care of the environment or promoting equality can be costly for a company and ultimately lead to lower gains for an investor, it may be because you’re not looking far enough ahead.

Why is SRI smart?

Let’s imagine there are two factories that make boxes. We’ll call them BetterBox and BigBadBox and assume that they enjoy similar market share and sales trajectories.

BigBadBox doesn’t pay its workers a living wage. It is illegally dumping manufacturing waste in a river. Plus, the machinery is old and doesn’t meet safety regulations.

At BetterBox, company employees enjoy competitive salaries and comprehensive benefits. They make boxes with 80% recycled materials in a recently updated factory that uses solar energy.

Which company seems like the better investment? Is BigBadBox really poised for long-term success?

What if their employees go on strike for a fair wage and halt production for a month? What if an employee is injured on the old machinery and sues for damages? What if the government finds out the company is polluting the river and imposes a huge fine? What if the river pollution gets into the drinking water of a nearby community? What if the media picks up on the story and it goes viral? Would customers stop buying the boxes from BigBadBox? Would investors start unloading BigBadBox stock? Would the stock price plummet?

By taking the socially responsible approach today, a company like BetterBox can actually manage risk in variety of ways. By respecting the environment and employees, BetterBox can avoid expensive legal, regulatory or divestment costs. By building better relationships with customers and shareholders, BetterBox can establish a reputation as a smart investment.

What’s more, since the demand for SRI is still growing, socially responsible companies (like our imaginary example BetterBox) are becoming more and more attractive to investors. Ultimately, that means that Canadians who invest in SRI today stand to benefit in the future.

SRI is not only a way to help the world, it’s also a smart way to invest, period.


*Glossary

Socially Responsible Investing is any investing strategy that is designed to balance personal financial gain with  larger social and environmental good. The term SRI is sometimes used interchangeably with ethical investing, sustainable investing and green investing, but they all seek to make a positive impact on the world.

Sustainable development is an approach to economic development that aims to balance present and future needs by not using up the world’s natural resources.

Corporate governance is the manner in which a company manages leadership, plans for action, and internal controls, like accounting transparency and ethical business practices including how they handle executive compensation, corruption, bribery, reporting on breaches, board diversity, and crisis management.

Disclaimer: The views expressed in this story do not constitute financial advice. Please speak with your Moka portfolio manager to find out if SRI is the right option for you.

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Invest smarter Investing

Why did I lose money on my investments?

October was rough for the financial markets in general. If you noticed a decrease in the value of your investment account, please know that there’s no reason to panic.

Dips are normal. The markets often go up like an escalator and down like an elevator, but if you stick with the plan, you’ll do better over time, even if you do take a few elevator rides once in a while.

Take the Toronto Stock Exchange, for example. In October, the TSX decreased by 6.5%. However, over the last 30 years, it has increased 6.8% on average every year. 

Downturns are not only a normal part of investing, they can actually be an opportunity for investors to buy into the market at a discount (take, for example, dollar-cost averaging*). If you can look past the temporary loss and invest more when the market is down, you’ll be better placed to earn higher returns when the market is up again.

Why do stock prices go down?

When we talk about a downturn in the market, we generally mean that stock* prices are declining. To understand why this happens, let’s look at the difference between price and value. The price of a stock is first determined at the company’s initial public offering*, but will rise or fall depending on supply and demand. Supply of a stock at a point in time is determined by the number of sellers, and demand determined by the number of buyers. If supply decreases or demand increases, then prices tend to rise. But if supply increases or demand decreases, then prices tend to fall.

Value, on the other hand, is a subjective concept and varies by investor. You decide how much value to give stock depending on how you feel about the company it represents. It’s the price that you think it should be trading for on the market.

A rational investor will buy when stock price is below value and sell when price is above value. In fact, investors like Warren Buffett have made a living from doing exactly that.

What causes steep market declines?

Prices can fall quickly when the collective mindset of the market shifts from positive to negative sentiment about the future of investments available in that market. At a macro level, world events (like wars or natural disasters), political news (such as elections or tariffs), and the release of economic data or monetary policy decisions are some of the major forces that lead to a decline in prices. Sometimes there are a variety of factors weighing on markets and sometimes there’s no clear reason at all.

What we can say is that markets (like people) always have their ups and downs, which is why looking at the bigger picture matters.

So what does this mean for my Moka investment account?

If you noticed a dip, it’s likely that you are currently investing in a Moderate, Moderate-Aggressive, or Aggressive investment portfolio with Moka. These portfolios have greater exposure to stocks so your investments will have greater volatility (daily fluctuations) than a Conservative or Conservative-Moderate portfolio.  This additional volatility means that you can experience larger losses in certain periods, and larger gains in others.

The trade-off is that expected returns in the long term are higher for riskier investments like stocks than for safer investments such as bonds or savings accounts.

What should I do now?

We recommend that you stay the course with your investments. We selected your portfolio based on information you provided about your goal, financial situation, time horizon and risk aversion. If you are in one of our riskier investment portfolios, chances are that your profile indicates you have a higher ability to tolerate short-term loss, perhaps due to factors such as a strong, steady income, a relatively long time horizon on your goal, and a higher tolerance for risk.

Of course, your investments are your investments, so you should decide what you feel comfortable doing, and this can change as you gain more investment experience. If you have questions or concerns about your investments, your dedicated portfolio manager is always available to chat and can answer any questions you may have about your investment strategy.

*Glossary

Dollar-cost averaging is an investment strategy that involves buying a fixed dollar amount of a specific stock on a recurring schedule over a long period of time. Investors buy more shares when the price is low and fewer when the price is high, but they will gradually build wealth as the value of that stock goes up and down.

Stock means ownership in a company. If you have stock in a company, you own a part of the company. Sometimes people use the terms ‘stock’ and ‘share’ interchangeably, but they aren’t the same thing. Think of stock as the pie and shares as the slices.

An initial public offering is the launch of shares in a company on a stock exchange. The company pays an investment bank to calculate the value of the company, the number of shares in the company and the cost of an individual share.

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Invest smarter Investing

Ask an expert: I’m young. Should I take a lot of risk with my investment?

We’re told it’s good to take risks early in life, but does this advice hold up when it comes to investing? There’s no short answer except: It depends. The truth is that it comes down to who you are and what you want. I’ll explain.

In the investing world, risk is the probability that you will experience financial losses. The benefit of taking risk, however, is that it can come hand in hand with higher returns, or profit on your investments, in the long run. If you’re trying to figure out how much risk to take, first consider these two questions:

1. What is your financial situation?

It is crucial to determine your risk tolerance before you start investing. How much risk you should take depends on both your 1) willingness and 2) ability to accept risk.

Your willingness to tolerate risk is your subjective attitude toward risk taking.  In other words: What qualitative emotions do you have around investing? At Moka for example, we ask questions like  “Imagine your stocks are down. How would you react?” Your answer gives us a good sense of how willing you are to take risk, and this knowledge helps us invest your money accordingly.

Your ability to take risk is equally important. Before deciding how much risk to take, you should also look at quantitative factors like your income and your net worth. If you have a high income and net worth, you can afford to ride out short term losses and emerge with healthy finances in the long run. Someone with a lower income or net worth simply can’t afford to lose so much.

2. What are your financial goals?

Identifying a goal before you start investing is important. Your goal helps determine how much risk you should take because it points to your investment time horizon, or the length of time you want to invest before reaching your goal.

Historically, stock markets have seen the best returns on investments over time when compared to investing in bonds or leaving your money in savings. However, the road to profit can be long and bumpy. Over a short time period, it’s possible that your investments may not perform well and you could even see a loss. Fluctuations in the market mean that you’re better off taking less risk if you have a short-term goal. However, if you’re saving for a long-term goal like retirement, you can afford to take more risk because you have time to recover from a hiccup in market performance. You’ll still see profit if your investments have a general upward trend over the long run.

For many millennials, saving for short-term goals is a bigger priority than long-term savings. If you’re looking to achieve a goal soon, taking a lot of risk may leave you disappointed. Imagine you’re trying to save a down payment so you can buy a house in the next few years. If you invest in a high risk portfolio and the stock market takes a major downturn, you could see your down payment shrink and end up further away from your goal. The same principle applies to other short-term goals, like buying a car, taking a vacation or repaying debt.

Bottom line: Consider your financial situation and your current goals before you make a risky decision, or enlist the help of a professional portfolio manager who can design a portfolio that works for you.

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Invest smarter Taxes

How to file your taxes if you have a side hustle

So you’ve got a side hustle: Smart. It’s becoming more and more challenging to afford the cost of living in Canada’s major cities, as housing costs outpace salary growth, and creating a second income stream means more money in the bank.

It also means that you’ve got more income to declare when you file your taxes. If you’re working for a business that deducts income tax from your paycheque, they are required to issue you a T4 so you can successfully file your tax return.

If you’re self-employed–whether you’re freelancing as a writer, running an Etsy shop, or driving for Uber–you often won’t get a T4, so tax time can become a bit confusing.  The key to filing your taxes is understanding your side hustle income and related expenses. I recommend hiring a tax professional to help you navigate the ins and outs of filing your side hustle income. After all, you can claim this cost as a professional expense and get a tax deduction the following year. If you’re ready to go it alone, here are some basics to get you started.

Understanding your income

You might have heard that you only need to include a certain portion of income on your tax return, but this couldn’t be further from the truth. The law states you must include all of the income you earn from any source on your tax return. That includes babysitting money, tips, and even cryptocurrency!

If you’ve received a T4, look for your employment income in box 14 and file this income on line 101 of your federal tax return. For any additional income you’ve made that isn’t in box 14, don’t forget to file your income in one of two ways:

  1. For tips or occasional earnings, file this income on line 104 of your federal tax return. If you work at a coffee shop on the weekend, this is where you would report your tips. This is also where you should report an income that didn’t incur any expenses. 
  2. However, if you have any expenses for earning your side hustle income, you should file this income on T2125, which is a form for the Statement of Business or Professional Activities.  It’s a little more work to claim your expenses, but it’s worth the extra effort because they may be eligible for a tax deduction.

Claiming your expenses

If you incur expenses from your side hustle, the most important thing you can do is track those expenses throughout the year. If you’ve got a record of your expenses, your life will be a lot easier when it comes time to fill out your tax return.

When you’re filling out your T2125, enter your expenses on part 4 of the form. Remember, you can only claim expenses that were necessary for making money. Expenses such as advertising, office expenses, and some home office expenses are examples of what you can claim. Here’s the full list.

If you plan to claim work expenses like your cell phone, internet, or travel, be sure to separate them from your personal expenses. It’s important to be honest and keep a record of everything because the Canadian Revenue Agency may check to see if the expenses you’re claiming are reasonable.  

Once you’ve completed part 4 of the T2125, complete the rest of your return and file normally. Your side hustle income and expenses will flow into your return and will be taxed like any other personal income you’ve earned.

Getting extra help

Additional income can really add up and sometimes first time freelancers are surprised with a large tax bill at the end of the year. If this happens, you can always organize to pay your bill in installments. To protect yourself in subsequent years, try to save 20-25% of your earnings so you’re not totalled come tax time.

If filing your additional income seems daunting, you can turn to online programs like Simple Tax, H&R Block, and TurboTax for help filing your return online. These programs will prompt you to answer questions that pertain to your specific situation, guide you through your return, and ensure you are filling out the correct forms.

If you’re still overwhelmed, it’s not too late to reach out to a tax professional, but returns are due April 30, so start hustling!

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Invest smarter Taxes

Ask an expert: What taxes do I have to pay on my Moka investments?

The deadline to file your 2018 income tax return is April 30 for most Canadians, so we’re here to help you figure out what taxes to pay on your investments, if any.

The money you’ll owe is determined by the type of Moka investment account you have. We currently offer non-registered accounts, Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs).

Not sure what kind of account you have? No problem! Just click on your goal in the Moka app and look directly under the goal name. If you have more than one goal, you have more than one investment account with Moka, so be sure to check all of them.

Jump to:

Paying taxes on a non-registered account

Paying taxes on a TFSA

Paying taxes on an RRSP

What taxes do I pay on a Non-Registered Investment Account?

Quick answer: You pay taxes only on the income generated by your investments.

Long answer: You can invest and withdraw as much as you want in a non-registered account. You will only pay taxes on income generated by your investment. There are three different kinds of income to know about.

  1. Dividends are profits that a company shares with its investors. If you own stock in a company that pays dividends, you earn a certain amount of money for each share of the company that you own.
  2. Interest is money paid regularly at a particular rate as compensation for lending a company money (i.e. buying bonds). In the case of your Moka account, interest may be paid out from bonds and money market securities.
  3. Capital gain is the profit you make from selling the holdings in your account. You may see a capital gain or loss following a withdrawal or change of investment model in your Moka account, as in either case, investments may be sold in your account.

There is no penalty for withdrawing from a non-registered investment account, however, please remember you will be taxed on any capital gain arising from this withdrawal. How exactly does that work? Let’s say you deposit $100 in your account. Your money is invested and grows to $105. If you decide to withdraw that $105, you would be taxed on the $5 you made from selling your investment, but only 50% of capital gains count as income.

If you don’t have a non-registered account with Moka, then you have an RRSP or a TFSA. These accounts are registered investment accounts, which means they were set up by the government to provide certain tax advantages as incentives to save and invest.  There is a limit to how much you can contribute to TFSAs and RRSPs and there is a different kind of penalty for withdrawing from either account.

What taxes do I pay on a TFSA?

Quick answer: You don’t pay taxes on money in a TFSA.

Long answer: Tax-Free Savings Accounts can be used for saving and investing. As the name suggests, money inside a TFSA is tax-free.

However, there is a limit to how much you can contribute to your TFSA every year. In 2019, the maximum amount that Canadians can contribute to a TFSA is $63,500. Please note that this limit may differ depending on your age and how long you’ve been living in Canada. If you’re not sure how much you can contribute, please speak with a tax professional.

If you exceed your contribution limit, there is a financial penalty. Namely, you’ll owe 1% of the amount you’ve over-contributed every month until you withdraw the excess or become eligible for more contribution room. For example, if you over-contributed $100, you would have to pay $1 per month until you corrected the situation.

You can withdraw money from a TFSA without paying taxes, however withdrawals impact your ability to contribute to your TFSA in the future. How would this happen? Imagine you have already made the maximum contribution for 2019. If you withdrew money to buy something but then decided against the purchase, you would not be able to put that money back in your TFSA in 2019 because you already contributed the maximum amount. However, you can re-contribute that amount in 2020. You can learn more about withdrawing from a TFSA here.

What taxes do I pay on an RRSP?

Quick answer: You pay taxes on any money you withdraw from an RRSP.

Long answer: Think of an RRSP as a tax-deferred account: money grows tax-free until you withdraw it. Any money you withdraw from an RRSP is considered taxable income. When you withdraw the money, our custodian BBS Securities Inc. will automatically withhold some of what you owe in taxes, but you will still have to declare the withdrawal as income that year, and you may be asked to pay additional taxes depending on your marginal tax bracket.

There is also a limit to how much you can contribute to an RRSP every year. If you exceed the contribution limit by more than $2,000 there is a financial penalty. You can contribute the lesser of 18% of your income or the annual contribution limit, which is $26,500 for 2019. To see how much contribution room you have in any given year, get out your Notice of Assessment from the previous year and look for the page that covers RRSPs.

You’ll be able to find all the tax documents you need from Moka at the end of March. Look for your 2018 Trust Income Report in the Accounts Tab under Documents > Annual Documents > Tax Information. If you’ve made over $100 in trust income on your investments, we will also send you a T3 slip.

If you have any questions about how to read tax documents from Moka, please reach out! For further questions about filing your taxes, we strongly suggest you consult a government website or a licensed tax professional.

What other questions do you want your portfolio manager to answer? Send us an email at support@moka.ai.