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Philanthropy and market timing don't mix, says TD Waterhouse
- Recent market volatility causing potential stock donors to sit on the sidelines - Taking a long-term "investor approach" to donating public securities is best TORONTO, May 14 /CNW/ - The elimination of capital gains tax on donations of publicly listed securities to registered Canadian charities has been a boon for donors and charities. However, some donors may be holding back on account of market volatility and significant price pull-backs in the first few months of 2008. The Federal Government introduced the 100% capital gains elimination for donated securities in the spring of 2006, and overall giving spiked 8.3% that year compared with 2005. Much of this increase has been attributed to donated securities. Thus a move by donors to put their giving on hold while they wait for the price of a stock to recover could have serious impact on charitable organizations reliant on philanthropy. According to TD Waterhouse's Chief Portfolio Strategist Bob Gorman: "The sharp sell-off in global equity markets earlier this year reflects fallout from the global credit crisis, which caused a deceleration in the growth rate of the U.S. economy and, to a lesser extent, other major economies around the globe. At the same time, many commodities - oil, gold, wheat, corn and soybeans - have fluctuated wildly in price." Gorman believes market volatility will gradually ebb as investors' expectations improve and they shift assets back into equity markets. "If you're trying to wait out current volatile conditions in order to maximize the value of your stock donation, I would say that your heart is in the right place, but your strategy is wrong," says Jo-Anne Ryan, Vice President, Philanthropic Advisory Services, TD Waterhouse Canada Inc. "Timing the market is a feat that virtually all investment professionals and experts agree is impossible to accomplish." Instead, Ryan recommends adopting a personal giving strategy as part of a long-term plan that should include contingencies for market volatility. Rather than trying to time the market, donors should take a 'dollar cost averaging' approach where they spread donations over a period of time in an organized and disciplined manner. "This means applying the same disciplined approach to giving as you would to investing," continues Ryan. "Not only does this reduce the risks and pitfalls of making poor market timing decisions, but it also addresses charities' fundamental need for stable funding." "When organizations have stable funding, they can conduct long-term planning and design programs with greater impact," says Waseem Syed, Vice President of Community Investment, United Way of Greater Toronto. "Being able to plan how resources are invested - and having the certainty that the funding will be there - makes a big difference to a charity's effectiveness." In addition to dollar cost averaging, Ryan offers the following tips to donors seeking to maximize the impact of their donated securities: - If you are holding an investment because you believe it still has upside potential and, therefore, do not want to sell it, consider donating the security and then re-purchasing it. By doing so you avoid paying capital gains tax on profits to-date and get a tax credit for the donation. You will also have "stepped up" the adjusted cost base of your investment, reducing capital gains and associated tax when you sell the investment. - If you own securities that have depreciated since purchase, consider triggering a capital loss by selling one or more 'underperformers' and donating the cash proceeds to charity. With this strategy, you get a tax credit for the donation and you also generate a capital loss. This, in turn, can be used to offset other capital gains in the current year or in the past three years, or may be carried forward indefinitely. - If you are still feeling uneasy about donating stock in light of current market conditions, consider a cash donation instead. You will receive a charitable tax receipt resulting in a tax credit of approximately 46% (subject to certain limits), which may reduce your taxes. "You can donate both your winners and losers with substantial benefits," concludes Ryan. "The bottom line is that neither your investments nor your charitable endeavours need to be held hostage by the market. By taking a strategic approach to charitable giving, you'll maximize your tax savings and the value of your donations over the long-term. You'll also contribute to the stable, long-term funding that is vital to Canada's philanthropic community." About TD Bank Financial Group The Toronto-Dominion Bank and its subsidiaries are collectively known as TD Bank Financial Group. TD Bank Financial Group is the seventh largest bank in North America by branches and serves approximately 17 million customers in four key businesses operating in a number of locations in key financial centres around the globe: Canadian Personal and Commercial Banking, including TD Canada Trust; Wealth Management, including TD Waterhouse and an investment in TD Ameritrade; U.S. Personal and Commercial Banking through TD Commerce Bank; and Wholesale Banking, including TD Securities. TD Bank Financial Group also ranks among the world's leading on-line financial services firms, with more than 5.5 million on-line customers. TD Bank Financial Group had CDN$435 billion in assets as of January 31, 2008. The Toronto-Dominion Bank trades on the Toronto and New York Stock Exchanges under the symbol "TD", as well as on the Tokyo Stock Exchange.
For further information: Julie Bellissimo, (416) 848-1462, firstname.lastname@example.org
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