Cliff Asness

[music] >> Hello, I'm Greg Bonnell. Welcome to MoneyTalk Live, brought to you by TD Direct Investing.

coming up on today show, we will discuss whether the 60-40 investing strategies to hold up in this environment. We will hear from noted hedge fund manager Cliff Asness from AQR Capital.

MoneyTalk's Anthony Okolie is going to give us a preview of what to expect from Wednesday's Bank of Canada rate decision.

We are also going to hear from TD Wealth Nicole Ewing on a couple of tax deadlines you don't want to miss. Plus in today's WebBroker education saving, Ryan Massad is going to show us how you can keep updated on big events moving the markets. We have a lot to get to.

Before we get to all that and our guest of the day, let's get you an update on the markets.

First trading day of the week. Not a lot of excitement.

The TSX Composite Index is up a modest six points, just three ticks. Among the most actively traded names include the gold names.

Gold per ounces above $2100. To add $20.87, you got Barrick Gold up to the tune of almost 3%.

BCE, the telecom heavy weight, it's been on a downward path for a few months.

Right now in the US markets, your at $36.38, down 1 1/2%.

South of the border, we have a very modest retreat for the S&P 500, the NASDAQ from record highs that they breached last week.

Very modest because the S&P 500 is down two points, for takes. The tech heavy NASDAQ, a modest retreat off of recent highs.

16,234, down 40 points on the NASDAQ, 1/4 of a percent.

And Macy's, the name is to the upside today, up about 16%.

The investors that wanted to take it Macy's private, they have sweetened the deal to $6.6 billion and there is a reaction in the stock at $20.84 per share.

And that's your market update.

The big event of the week will come this Wednesday.

Now has another interest rate decision to make.

Joining us now for preview is MoneyTalk's Anthony Okolie. What are we thinking about here?

>> I think no surprises here. TD Economics believes that the Bank of Canada is expected to hold and? At 5% on Wednesday, that sort of in line with expectations. TD Economics believes that the Bank of Canada might shift modestly to more dovish tones in the March 6 meeting. Expect the Bank of Canada will deliver its first rate cut in June. After all, we have seen June CPR report which is more encouraging. More importantly, CPI trim and CPI median have edged lower in January, trending in the right direction, but TD Economics believes that inflation is still too high.

>> A couple of meetings to wait for that one. That TD Economics has been penciled in. The BOC is going into this meeting with a few bits of information about the economy, whether it's inflation cracking politically present or last week reporting on GDP, that was an interesting number.

You had growth at the end of the year and he dug into the details. Perhaps the Canadian growth story is not as robust.

>> That's the thing, digging into the details.

Headlamp reported GDP was up .2% after .1% drop in the third quarter.

That marks three quarters of sub trend growth that saw our population grow by more than 3% during the quarter. When you strip out the international drivers, we saw strength in exports, the economy contracted while GDP per capita has fallen and five of the last exporters.

I think if there is any positive to take from this it is that the economy has held onto modest gains and perhaps a soft landing is still the base case scenario for TD Economics.

That allows the Bank of Canada to sit back and wait to see if inflation is in fact coming down before they pull the trigger on cutting interest rates.

>> We are getting used to that subtle language. A couple of meetings ahead, they are trying to warn Canadians in the market that they are thinking in this direction.

>> I think that's the case. They don't want to come out and start cutting rates.

There could be a risk that inflation could be accelerate.

They want to slowly get people used to the idea that eventually they will get there.

But their focus is to make sure that inflation moves towards their 2% target before they actually cut rates.

>> Thanks for the preview.

>> My pleasure.

>> MoneyTalk's Anthony Okolie. Stay tuned.

Later the show, we will bring your interview with AQR Capital's Cliff Asness on what he thinks is ahead for the markets.

Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.

Apple is being fined almost $2 million in an antitrust case focused on music streaming. The European commission says Apple abused its market dominance in distributing music streaming apps. The knight was initiated by saponify, a streaming out, and in a response to this decision, Apple said its App Store is a large part's bona fide success story.

Right now Apple is down about 3%. TC Energy is selling a natural gas transmission asset in the United States for more than $1 billion US. The Canadian pipeline giant has a deal with BlackRock to sell a share in the Portland Natural Gas Transmission System. TC Energy holds a nearly 62% stake in the name.

JetBlue Airways and Spirit Airlines putting an end to their merger agreement.

This decision comes after losing a US federal antitrust lawsuit that oppose the deal. The airlines had argued that they needed to merge to compete with the larger US airlines.

At $5.50 per share, spirit is down to the tune of almost 15%.

A quick check in on the markets. We will start on Bay Street with the TSX Composite Index.

A tepid start to the week. The TSX is up a modest eight points or four ticks.

The gold names getting a bit as the price of gold continues to rise. South of the border, you had the S&P 500 and NASDAQ hitting new all-time highs last week. A very modest pullback from that level.

You are down less than four points on the S&P 500.

Aggressive central bank rate hikes put the traditional 60-40 portfolio strategy into question but with the prospect of lower interest rates ahead, his 60-40 making a comeback? I had a chance to discuss that with noted hedge fund manager Cliff Asness, managing and pounding principal and Chief Investment Officer Dan Chornous AQR Capital.

We started the discussion by talking about how his firm's strategy works.

>> AQ R stands for applied quantitative research, sometimes I like people to believe I am the a. I am one of the cofounders.

We have our roots in academic finance as far back as the 1980s where things that we know cow quantitative investing, they were then called factor investing, started.

We were grouped together, quarter of us at Goldman Sachs in the 90s. We left to start our own firm.

Our strategies are trading and investing horizons.

But we have been doing quantitative my whole career. I've never done anything out.

>> That's an interesting foundation. The 60-40 portfolio's, I know you've written about them in the past and they've had a difficult time due to dislocations due to the pandemic.

What are you thinking about that now?

>> Whenever I talk about the outlook on 60-40, my colleague, he's finished, he's been a friend for 35 years, he is an AQR partner, he is our guru on long-term especially returns. He wrote a book on this, about a low future return environment, and it came out in 2021.

Sometimes luck is better than skill, not that he is not skilful. A global 60-40 portfolio has made about 4 1/2% over inflation over 100 years. To some people but often sound like a lot but it's 40% bonds in your subtracting inflation so it's very healthy return.

He thought at the end of 2021 that it was poised to be call at 1 1/2 to 2. Nobody knows exactly what this number should be.

I come from academic finance and no one there does, but one and 1/2 seemed insanely low.

He got very lucky because of course the worst year for 60-40 and about 50 years have been immediately after that book.

Will forward to today with the interest rate backup, this number is probably a little bit under but closer to 3%. That's a pretty reasonable return on global 60-40.

I would not try to make a hero call. At 1 1/2, no one has great market timing. I wouldn't say next Thursday it's going down. I would say that's not going to last. At three, we think 60-40 is not as attractive maybe as the last hundred years, but probably pretty reasonable.

>> Along those lines, I was on your website in recent days.

There was a research paper published a couple of weeks ago. It's taken some interest among our audience members about bonds having low value in a portfolio. I'm paraphrasing.

You took a run at that. Your thoughts on that?

>> It depends on what you can do.

The standard logic we hear, that I disagree with, is a long-term investor can tolerate volatility so they should be all inequities. Let's go back, academic theory can sometimes lead you astray. Sometimes the world is more complicated. Sometimes it can help in this is a place I think it can help.

If you take a finance class, we are not talking about… We are talking about first-year finance and an MBA program. You learn about the efficiency frontier.

You're supposed to invest in the best combination, if it's just stocks and bonds, let's limit it to that, the best combination of the two, meaning the highest return for the risk taken.

If you are an aggressive investor and can tolerate a lot of risk, you are supposed to apply some leverage to that.

It turns out that there he actually has worked exceptionally well practically for 100+ years.

I wrote a paper on it in 1996.

It's held up for the last 28 years.

There are investors who cannot lever and for them the worry about 100% equity would be fear about their ability to stick with it.

He needs to borrow about $0.30 to lever 60-40 to be a similar risk and in my view a long-term higher expected return than equities because you are starting with a better portfolio, your starting with a portfolio with more return for the risk taken.

And particularly when bull markets have been going on for a while, you see a proliferation of the everyone should be 100% equity papers and not that it's terrible advice but I think you can do better.

>> Interesting stuff. AQR is in the hedge fund space. What role they play in a portfolio?

>> The key to any hedge fund, and many of them don't do this, and this is what I think the key should be, is can you create a decently appositive average return that is not very correlated, in fact, in a very good case, uncorrelated to 60-40, to stocks and bonds?

Geek speak uncorrelated means you tell me what happens to stocks and bonds in a year, my guess is the same or what happens to us, we made some money. Not that we will make money every year but I will learn about from the stock market. It's a diversifier. I think you can do that.

On one hand versus the other, I equivocate on this. The empirical research, we wrote a paper, called do hedge funds hedge.

It has a point 8 correlation to stocks.

That's very high. It means they are not doing what I said, creating something uncorrelated.

In the quantitative world, quality, momentum, value, we believe they can create a premium and because they are long and short be uncorrelated. We are not the only one to do it by any means but we do think the hedge fund industry generally is not delivering this. But we do think it is deliverable.

>> When I think about hedge fund strategy and longshore strategies, it's basically the fact that the market is not perfect.

If the market was perfect, you would need to go there. You are taking at the imperfections and investing around that.

>> That's absolutely free. The cochair of my dissertation committee it was and I named Eugene. He is justifiably the Godfather, demigod, whatever you want to call him, of markets. He is on absolutist and doesn't think markets are perfectly efficient but he's pretty far on that spectrum and I wrote a dissertation for him.

Maybe the scariest thing I ever had to do in a meeting was go into Gene's office, and Jean was very nice so it wasn't that the man is scary, but tell him I want to write a dissertation, which I then did, what's called the price momentum strategy.

It's a childish strategy.

You buy with going up the last six months and you sell what's going down.

It's not all you want to do, a lot of strategies that are more rational help also but I had to tell Jean, I want to write a dissertation on price momentum and that I mumbled the second part, and I find it works really well. He was like, what was that?

I was like, it works really well. This is not about Jean, but to give him abroad, he said words that sounded religious to me.

He said, if it's in the data, write the paper. I don't care if I like it, but if it's true, write the paper.

My view on efficient markets is I don't think they are perfect, I do think there are some systematic ways to exploit them not being perfect, I probably think they are more perfect than the average acting manager, that might be Gene's influence still on me, and I think they are less perfect and probably Jean thinks. It may be my most controversial view is I think they have gotten less perfect over my career, call it 30 years. Most people assume with technology getting better and data being instantaneous… >> Think should get more efficient.

>> In some ways they do.

A strategy dependent on speed happens faster. Prices react faster to new information. Even 30 years ago, we were minutes after the announcements, and now we are nanoseconds. It's not that big a difference in terms of grand efficiency.

When it comes to actually pricing things accurately, I think more information can sometimes lead people astray. The most extreme example, I'm not saying this is the norm, is the US meme stock example.

That was in large part driven by people's belief that they knew it all just from a web search.

I think we've seen this, the two biggest goals where the data has been recorded, and even tell I'm not a perfect student because I believe there have been bubbles, was the end of the 90s, the.com bubble, and then 19 and 20, culminating in COVID.

So we have seen the two most extreme differentials between cheap and expensive stocks as we measure them in the last 20+ years looking at about a 70 year history so the data also supports this idea that maybe we have gotten a little less efficient.

That is both good and bad news for active managers. It's good news because if you make your money from inefficiencies and they are bigger, there should be more money to be made, but it also makes it harder to stick with.

It means the deviations can be bigger and last longer MS the period where the whole world things or domineer clients get mad at you. I find this to be a, not that the world cares what I think is fair, but is a pretty fair trade-off. It's harder to do with probably more lucrative going forward.

>> That's a nice opportunity for us to talk about the value opportunity in stocks.

A good call over the past 3+ years but bumpy at the same time as well.

Let's talk about this relationship between what is considered cheap and expensive stocks.

>> First in the quantitative, academic world, value is I think kind of misnamed.

It's almost always price compared to some fundamental, price-to-book, prices sales, priced cash flow, price-to-earnings.

That's not value. That number matters, they want to pay as little as possible, but it's in the context of the profitability, the growth opportunities, how risky it is, a set of other things.

The funny part is this has caused all sorts of arguments when they are really doing the same things.

Quants and academics have labelled this thing that I think should have been called a low pr so they get to the same place but huge miscommunication.

ice factor the value factor and then they have a profitability factor.

One thing you could measure, we were the first to do this back in 1999, was nobody to my knowledge had looked at the magnitude of the difference.

The standard academic approach was to sort stocks on your favourite measure of value, go along the low multiples and short the high multiples and see how will you did.

No one had at least publicly to our knowledge to that point asked but sometimes is multiples might be similar and sometimes they may be very different and is the opportunity better when they are different?

We do find, and this can be argued, but we believe the opportunity is better when there are bigger differences. Go to the opposite extreme, everything is priced the same, not a lot of value opportunities going on.

The biggest river saw the differential was March 2000 it peaked. Blew away prior ones. Then a few months after COVID, blew away March 2000.

What I convey is that it was substantially above the prior hundreds percentile.

The numbers bumpy, some months it retreat, but has steadily come in the last 3 1/2 years. Even last year, generally considered a lousy year for value, was really about the Magnificent Seven.

If you do value in a systematic way, 1000 stocks that you like in a thousand they don't like her on the road, it was still a good year for value. At last I looked, but three days ago, so if anything radical happened, I will probably have to amend, and I don't mean to be overly precise, but we are down to about the 83rd percentile versus history.

That's not the same!

We come way down because there was a new hundreds, way up there, so we've had a substantial move in on that spread but it's still certainly on the very wide side versus history. So it could retreat, these are not short-term predictors, we don't make giant calls on this, even at the maximum, we did a small tilt more value, we still like it. We still think it is a way to go.

We would still do a little more value than you would normally do you because that spread matters. You are getting a better deal than normal. The fact that we can have three and have very strong years on net, not every month, for this value factor and could still be the 83rd percentile as a testimony to how extreme it had gotten when the starting point was really just, I don't like using the word crazy too much about markets, I'm a little nervous Jean will hear this and get mad at me, but it got a little crazy by the end of 2020.

>> That was Cliff Asness, managing and pounding principal and chief investment officer at AQR Capital.

As always, make sure you do your own research before making any investment decisions.

Now, let's get our educational segments of the day.

If you are looking to stay up-to-date with the big events moving the markets, what progress tools which can help. Joining us now with more is Ryan Massad, Senior client education sector with TD Direct Investing.

Great to see you again. Let's talk about using WebBroker to stay up-to-date. It's a big world.

>> It always is and we are busy.

We want to multitask when it comes to investing and life for that matter. It would be nice to have a virtual assistant that's reminding you about what's going on in the markets and this is where the word broker alerts feature comes in so let's go into a broker and check it out.

So in the markets overview page, we are going to take a look at what markets are doing and for those of you who forgot, you're on the research tab under markets and overview, on the top right corner, you're going to see this set alerts icon.

You're going to click on set alerts. And in this menu, we are going to be able to set certain market alerts when it comes to the market here.

Let's give it another go here.

All right.

Let's bring it back here.

So this is where we are going to be able to set certain market alerts just to let us know what's going on in the markets.

For example, under market analysis, the market analysis tab, if you want to know the gainers and losers on a particular index and we want to be notified at a particular time during the day, we can just set those up here. For example, if we wanted to see the TSX compensated at the open 10 AM, I can check mark this item and I will get an email with the market gainers and losers as well as some price gaps up and down. I wanted to know about research for that matter, I can click on the research tab, I can type in certain news items that I want to know about, certain earnings, or is there something in the news that's very particular to me, artificial intelligence.

I checkmark the item to send me an email.

There are also categories of items that I can be notified of and as well if I'm into research reports and I really love those things, I would really want to be notified when there is a brand-new research report.

I can checkmark, choose my research report, and will broker will notify me when one is available.

>> All right, so we can stay on top of the TSX open, figure out who are they gainers and lifeguards in the markets, somatic stuff. For investors that hold individual stocks in holdings, how do they keep on top of those?

>> A great way to do that is if you have a lot of holdings, it's hard to keep up with all the events and news going on with each or if you have a watch list of items that you're watching, you want to be notified of what's going on. Let's again go into a broker and check out those individual stocks and how that would be.

If we come into a stock and we get here anyway from our holdings, from our watchlist, we got an overview of specific stocks, in this case is going to be TD Bank, I passed my cursor over here to where it says set alerts and here's where I can set on number of types of alerts that will really help me to keep on top of things, whether it's a price alert, the price going below or above, hitting a new 52 week high, a change from a close, a certain P/E ratio, change, volume numbers, I have a tab for news, and he views having to do with the security that I've chosen, any ratings changes. If I'm a technical analysis trader, I have a lot of technical analysis items that I can set up and as well I might be looking to be notified when earnings are announced to give myself the opportunity to set that up. Once I got all the alerts, I click on save and I can see where all my alerts are on the top here under research, tools and alerts and this is where I have everything organized.

I have my individual security alerts of which I can look at the detail, edit and I've got my market news and research alerts and as well, I can go to the top rights and I can play around with the suspension of alerts. Maybe I'm going off on vacation and I want to suspend those alerts and knock at those emails for a bit or I can pick a particular time frame as well and suspend those alerts for a small moment.

And that's how you can make WebBroker your own personal virtual assistant and reminding you about certain market events.

>> Some very useful tools there. Thanks for that.

>> Thank you.

>> Ryan Massad, Senior client education structure with TD Direct Investing.

And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.

Well, if you own more than 1 Property in Canada or have a trust set up in the underused housing tax expanded trust reporting rules may apply to you this tax season.

Nicole Ewing, Dir. of tax and estate planning, TD Wealth, join MoneyTalk Kim Parlee to discuss.

>> The underused housing tax is a 1% tax on the value of property that is deemed to be underused or vacant. It was originally thought that it would only apply to non-residents, non-Canadians, nonresidents, and saying who it applies to can be tricky because it applies to people in ways that they didn't necessarily think it would.

Even if you are a Canadian resident, Canadian citizen who owns property, you may be caught by these rules if you are holding the property in a particular way.

For example, if you are holding it in trust for somebody or through partnership, you might be caught by these rules. It's a little bit surprising because I feel like this is the year of the trust and everybody is learning a little bit about these different sorts of relationships and so the underused housing tax might apply for someone for example who is on title to their parents home if they were added on for ease or convenience to help mom and dad worked through the property or to ease probate or the administration of the estate, they've been added on, they might be called by these and so to move the parents were added onto the children's title for example for financing purposes or ways to protect that property, they might be considered trustees for the purpose of these rules and be called by them as well.

>> Now I understand as well that there might be some work where the government might be looking to narrow the application of some of these things or is that coming later?

>> We have to think about the different years. The rules came into effect in 2022.

Lots of confusion. The first filing would be due for 2023. They are looking at clarifying, I'll say, some of the situations I just mentioned so that the rules are not applying to that.

That has been proposed. So legislation amendments have been proposed that would allow or restrict the rules to not apply in those situations.

Those rules have not yet been introduced or passed so at the moment, they are proposed and we look forward to getting clarity on that but we don't yet have it.

So for the 2022, if at the end of the year, December 31, you were on a title to one of those properties and that really is the past, is your name on title, there might be other ways but for certain if your name is on the land registration, you will be regarded as an owner for the purpose of these rules at year end and if you are on their board December 31 of 2023, you are certainly going to be caught by these rules and need to apply.

This is going to be, it's a bit of a strange test. Do you own the property?

Is it a residential property? Very broad definition. Are you the owner of this property?

Again, a broad definition. Can we get you exempted? The new rules are intended to narrow that, they might get you out with an exemption but at the moment you are caught by these rules and will need to file an underused housing tax return for both 2022 and 2023. The rules were extended, the filing deadline was extended for the 2022 tax year but that deadline is now approaching or both 2022 and the 2023 tax year, both need to be filed this year.

>> And that deadline I think was April 30.

>> April 30, that's the deadline for 2022 and 2023. The tax filing deadline is April 30, 2024.

There is a specific form that needs to be filed, it is the UHT 2900 underused housing tax return and election form. The CRA, because there have been a lot of questions about this, do you have a fairly well built out Q&A section on their website that I would encourage people to go to and it has drop downs and examples up with this be a situation where I might be caught so you can see if you might find yourself in the scenarios for a bit more clarity but it is still a bit of a fuzzy situation for many people.

>> At the end of the day, you gotta do it.

I want to talk about, we got about three minutes, I want to talk about trusts and who needs to file that T3 returned that's coming out. The deadline also is earlier than some people may think. It's not April 30.

And maybe also again who will because this is a new thing, we talked will bear trust before, it may be people with a joint account with their parents may suddenly have to do this.

>> If you had to file for the underused housing tax because you are on title, you're probably going to have to file as a trustee for the new trust reporting rules as well.

The previous reporting rules in terms of who needed to file a T3 trust return were relatively limited. They have been expanded greatly and now apply explicitly to bear trust situations.

If you are on title on a parents account, on a joint account for ease of trading, you may be caught by these rules.

Certainly if you are on a family trust document and or the trustee, you might be caught by these rules. A lot of confusion out there again. We are looking for clarity from CRA but these T3 returns need to be filed if you are the trustee of any sort of trust where your name is on title even if you don't have full beneficial ownership of the property, particularly when we look at adult children and their parents, this is due April 2. It is one month earlier than the filing deadline for individuals.

This will likely catch a lot of people off guard if you are not used to filing a trust return, April 2 is the due date and it is quickly approaching.

>> I'm going to ask a really damn question. Who pays the fine, the person who didn't file is obviously the one who pays the fine?

>> It's the person who didn't file because you are regarded as the trustee and if both the underused housing tax and the onus is on you as the individual to be filing so it may very well be that there are multiple people filing these returns for the same properties, so the underused housing tax, if you've got multiple children on title, they may each need to be filing one, similarly if you are the trustee of a trust for your parents you may have multiple accounts that would be regarded as multiple trusts, you need to be filing there. If you don't file these on time, and this is where we are generally recommending people to air on the side of filing because the penalties are quite large because the greater of $2500 and 5% of the highest value of that account during the year, that's for property that you don't even regard as your own and you have no beneficial ownership in, simply by having your name on title you have this obligation to file.

It failure to file results in not only the penalties for not filing but if there is any tax over DO that needs to be paid, we are now seeing a 10% interest being paid on overdue taxes as well so is getting to be quite an expensive proposition for people.

>> That's deep. That's an understatement.

I've only got about 30 seconds but I guess the next step is if you're not sure what to do, just talk to somebody.

>> This is getting progressively harder as well and I wish I had better news for people. Usually I would take all your investment advisor, call your accountant, have them speak to each other and get on the same page.

It's very difficult to do that right now.

We have accountants who are not taking on additional business, lawyers who are sending people to accountants, investment advisors were really looking for that clarity that we simply don't have. Do your best, make your best effort. At the very minimum, you don't want to be subject to penalties for failing to try to comply.

Reach out to those who might be able to provide some guidance, look at the CRA website, see if you can get some information there but we are in a best effort situation.

>> That was Nicole Ewing, director of tax and estate planning at TD Wealth.

Now, for an update on the markets.

We are going to have a look at TD's Advanced Dashboard.

We are looking at the TSX 60 by price and volume.

Barrick's up more than 3%, Kinross is that more than 3%.

You are seeing a bit of get back from some of the energy stocks that rallied last week on the rising price of oil, giving some of that back today. Nothing too dramatic. Suncor down a little more than 1%, Cenovus down 1% as well.

Notable from the telecoms is BCE today, pulling back more than almost 2% of the downside on this session. South of the border, we have the S&P 500, the NASDAQ pulling back from recent all-time highs, it's pretty modest. To get a clearer picture, we are dealing into the S&P 100.

We are seeing a sizable pullback and has low shares, down to the tune of about 7%.

4 1/2% gain for Nvidia, AMD up more than 2% and Intel, strong rally on that name as well, up 5%.

You get more information on TD Advanced Dashboard by visiting TD.com/Advanced Dashboard.

The deadline for RRSP contributions for the 2023 calendar year has just passed but if you find that you accidentally over contributed, there are steps you can take to fix the situation.

Nicole Ewing, Dir. of tax and estate planning at TD Wealth joined MoneyTalk's Kim Parlee to discuss.

>> Generally speaking, if you take the money out within the same month, you are going to be safe. If you have passed over that one month period, now we need to think about how to get that money out as quickly as possible.

You can do that with withholding tax applying or without withholding tax applying. If we want withholding tax to not apply, it will be a process. There are forms to fill out that need to be provided to the financial institution. Depending on the time of year, we might be waiting for contribution room to generate. If you did this in December, come January, there's new room, maybe that will resolve the issue for us.

Otherwise, we are going to pay the penalty and the penalty can be quite significant.

We might have the opportunity to request in writing to have that penalty waived if we can show that this was a genuine error on our part, it was not intentionally done, and we are doing everything we can to rectify that situation as quickly as possible.

>> Okay, give me a little context on the things we should think about to make sure that we don't do that, so what are the penalties and what we need to think about?

>> The penalties, we will be responsible for paying 1% in tax per month for each dollar of over contribution over a $2000 buffer. So we have our contribution limit.

If we do that plus $2000, anything else over that, this is where we are going to get hit.

Once the government determines that we have had this over contribution, we need to pay that back as quickly as possible.

There are forms that need to be filed there as well. They need to be filed within that 90 days, you need to pay that back within 90 days. Otherwise we are going to have a late filing penalty of 5% of the balance +1% each month. If we are a repeat offender, they essentially double those in figures and it can get quite out of hand. We want to be taking that money out as quickly as possible in the most efficient way possible.

>> Why does it happen?

>> Sometimes we are not as mindful about what we have done throughout the year.

Other times it can be things we have overlooked.

If you are part of a group plan at work and we get this great matching contributions, those are going to count against your contribution limit. If you have other pension amounts that are going to be, that you are contributing to, those are going to be counting against your limit. We may not have coordinated with our spouse that we may have spousal contributions that we didn't factor into our own limit so often times this can be really essentially inadvertence and overlooking, we just haven't looked at what our numbers are without full awareness of what all is included in counting against our country should limit and we don't do this as part of a planned strategy so we can trip over ourselves a little bit.

>> It could help to work with somebody who is watching this.

>> We want this to be part of a plan.

Contribution should be made all year long.

If you have the opportunity to do that, perhaps you are making them earlier in the year and you can use them against last year and this year. We want to work with an advisor who can look at our overall strategy, help us determine with the best approach to this contributions is going to be and then we don't have to worry about these missteps.

>> That was Nicole Ewing, director of tax and estate planning at TD Wealth.

Be sure to do your own research and perhaps consult a professional before making any tax or estate planning decisions.

Stay tuned for tomorrow show, we will be back with Leslie Preston, senior economist at TD. We will get our expectations for the Bank of Canada and take your questions about tax and estate planning-- no, taking your questions about the economy. And a reminder that you can get in touch with us at any time. Just email moneytalklive@td.com.

That's all the time we have for the show today. Thanks for watching. We'll see you tomorrow.

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