Posted by On a macro level, it feels that it will be a tougher year for Canadians. On a personal level, our wallets will be tight on a single income, but there’s no need for us to panic as I feel that we have planned appropriately. For our investment plan and financial goals, we will continue keeping to the plan that we’ve had for several years now. It’s starting to feel like we’re hitting the “boring middle” of the accumulation phase and we’re firmly in the “middle life” family phase.
Macro Outlook: A tough year for Canadians
The Canadian dollar has taken a walloping against the US dollar, falling to a two-decade low. With the US central bank largely maintaining the interest rates as Bank of Canada has decreased it, the interest rate differential has caused a weakened Canadian dollar. The potential tariffs from the US continues to be an ominous risk to our economy. A depressed loonie is going to cause inflation as imports and cost of goods is going to increase.
The Canadian economy continues to show weak underlying figures. Unemployment rate has risen to 6.8% as at November 2024. Inflation is at 1.9%, with core inflation figures of ~2.6% landing higher than the target 2%. Coupled with a weak Canadian dollar and possible inflationary pressure, the BoC will be more hesitant to lower rates. I’d expect there to be only 25-50bps of interest rate decreases in total for 2025.
For the broader stock market, I do think returns will taper and come down from the high growth in 2024. The euphoria amongst the average investor is (anecdotally) hitting a fever pitch. Average Joes are talking about piling further in on the 2024 winners: technology and crypto. It’s not to say that these investment vehicles don’t have further runway to climb. It simply feels like the fundamentals have been tossed out the window. As Warren Buffett famously said, “Be fearful when others are greedy.”
Given all the headwinds, I think it’ll be a tough year for all Canadians. Wallets keep getting tighter with no positive catalyst in sight.
Personal Outlook: Practical family matters
Parental leave: In 2025, I will be on maternity leave for 9 months (January to September). Mr. LJ will take a 3 month paternity leave (September to November). This means we will be on one income for almost a full year. We won’t have much ability to save and contribute a lot to our investment accounts until 2026.
Home Ownership: We’ve lived in our house for almost 5 years now. Every year, we’ve spent $10K+ on renovations or improvements in the house. In total, we have: replaced flooring throughout the house, renovated the main bathroom and kitchen, added attic insulation, added roof vents, and replaced the backyard deck with a patio. Some are cosmetic in nature and others were required. In 2025, we’ll likely replace all the windows, as I can feel cold air drafts coming in. Home ownership is expensive!
Personal Development: As a personal finance geek, I want to learn more about estate planning and retirement planning. During my last maternity leave, I was seriously considering taking the courses towards getting a CFP (Certified Financial Planner) designation. However, I wouldn’t be able to get the required work experience to fully receive the designation. For my current maternity leave, I might spend a few hundred bucks and take the CSI (Canadian Securities Institute) courses on retirement and estate planning.
Asset Allocation: Keeping to the plan
Our investment plan has always been to maintain our asset allocation at 100% equities. From a country allocation, we’ll be keeping to the plan and targets from 2024, as we made an update to these last year already:
- Cash/Bonds: 0%
- Canadian Equities: 27%
- US Equities: 44%
- International Equities: 29%
Mr. LJ’s employer has a 2-year vesting period on his Canadian employer’s shares. As he accumulates more shares that he cannot sell, we may become overweight in our Canadian equities’ allocation. Since our plan is to sell his company’s shares upon vesting, we will not be selling other Canadian equities to bring the portfolio back within the 27% allocation target. The main reason is that Mr. LJ only holds XEQT and VEQT, so it’s not possible for him to only sell the Canadian portion of these all-in-one ETFs to reduce Canadian exposure.
2025 Financial Goals
Every year, it seems our financial goals are pretty similar to the prior years. Our 2025 financial goals will be similar to 2023 goals, when I was also on maternity leave.
Our 2025 goals in priority sequence:
- Fund any monthly expenses only with our “baby #2 cash fund”: Mr. LJ’s paycheque and maternity EI payments should fund a majority of the expenses. For any shortfall, we will transfer cash from the baby #2 cash fund into our chequing account to support monthly expenses. The goal is to spend no more than what’s available in the baby fund!
- Max contributions on company plan top-ups: such as pension plan matching and employee stock purchase plans. Even though I am on maternity leave, my company allows me to contribute to my pension, so I have opted to continue this. They do not allow for me to continue the employee stock purchase plan, which is a bummer.
- Contribute $2,500 to Baby LJ #1 RESP & $5,000 to Baby LJ#2 RESP: With Baby LJ#2 born in November 2024, we were unable to set up her RESP in 2024. Once the RESP is set up in 2025, we will contribute $5,000 ($2,500 to catch up 2024, plus $2,500 for 2025) to maximize CESG.
- Adjust payments on our variable mortgage to maintain <20 year amortization: we have been making voluntary prepayments amounts to offset the climbing interest rates since 2021. Since I do expect rates to slightly decrease in the year, we can reduce our voluntary prepayment amounts without increasing our amortization period. Any reductions can be diverted to savings, including our TFSAs, which have a lot of room.
- Max out both TFSA: this is a significant stretch goal given we will be on one income through most of 2025. Combined in both TFSAs, we have $28,000 of contribution room ($14K each as we didn’t contribute in 2024 and 2025). I don’t plan to make monthly contributions from our paycheques to TFSAs. I do expect to have excess cash leftover from our baby #2 fund at the end of maternity leave. Any leftover cash should get us halfway to maxing out our TFSAs.
Nothing too exciting in our 2025 goals and plans. Frankly, I’m hoping for an uneventful year. Boring is good.