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‘THE INCOME INVESTOR’ 1

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B u i l d i n g

W e a l t h

THE INCOME INVESTOR

Volume 12, Number 14

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Issue #1414

I S S U E

The new normal

REITS are a special breed

Go West

July Top Picks: iShares J.P. Morgan Emerging Markets Bond ETF, Amica Mature Lifestyles, Talisman Energy

July updates: Canexus Corp., Freehold Royalties, Just Energy Group

Housekeeping

All material in The Income Investor is copyright Gordon Pape Enterprises Ltd. and may not be reproduced in whole or in part in any form without written consent. All recommendations are based on information that is believed to be reliable. However, results are not guaranteed and the publishers and distributors of The Income Investor assume no liability whatsoever for any material losses that may occur. Readers are advised to consult a professional financial advisor before making any investment decisions. Contributors to The Income Investor and/or their companies or members of their families may hold and trade positions in securities mentioned in this newsletter. No compensation for recommending particular securities or financial advisors is solicited or accepted.

THE NEW NORMAL By Gordon Pape, Editor and Publisher Anyone who still hankers for the good old days when GICs paid 6% or more is going to have to wait a long, long time. It’s too much of a stretch to say those days are gone forever, but it’s not inconceivable that we could go through the rest of this decade without seeing a return to those levels. That’s the message we’re getting from the bond market. Professional bond traders are a pretty smart bunch – some of them pull down multimillion salaries – and their actions are telling us that interest rates are unlikely to make any serious upward move in the near to medium future. I’ve written before about the surprising performance of the bond market this year and it just keeps continuing. Back in January, most forecasts, including mine, predicted a weak year for bonds. That was based on the assumption that the economic recovery would continue to gain momentum, pushing interest rates higher in the process. That’s not happening. The harsh winter derailed U.S. growth to such an extent that first-quarter numbers showed a contraction of 2.9%. That’s a shockingly high number. The rest of the year should be much better but the damage has been done. Last week the International Monetary Fund slashed its forecast for 2014 U.S. growth to 1.7%, down from the April prediction of 2.8%. That would make this the weakest year since the credit collapse of 2008-09.

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July 31, 2014

The Income Investor is an electronic newsletter devoted to finding TOP-QUALITY INCOME SECURITIES THAT CARRY MINIMAL RISK. It is designed to help people find investment solutions to the two big problems they’re facing: low interest rates and volatile stock markets. The Income Investor covers all types of income securities including preferred shares, high-yielding common stocks, bonds, mutual funds, exchange-traded funds, and GICs. Any security that generates cash flow is fair game for our experts. EXCLUSIVE MONEY® CANADA LIMITED OFFER!!!

One of the results of this economic faltering has been to push forward the day when the U.S. and Canadian central banks are likely to finally start raising interest rates. The consensus is that’s not likely to happen until mid-2015 at the earliest, and some analysts now suggest it may not be until 2016. Even when rates do finally start to turn up, it will probably be at a slow and measured pace. A sudden and dramatic rise in rates would put tremendous stress on overextended North American households, which are carrying more mortgage and other debt than economists are comfortable with.

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Bond traders see all of these crosscurrents at work and their conclusion has been that fixed-income securities are underpriced, even at the current low levels. As a result, they have been buying bonds, driving Continued on page 2…

Building Wealth’s The Income Investor is published monthly by Gordon Pape Enterprises Ltd. All Rights Reserved July 31, 2014 showing a year-to-date gain of 5.77%. And the trend line shows no sign of changing; the gain for July alone was almost 1%.

What is even more telling is the performance of long-term bonds (10+ years). If traders expected rates to rise, the price of long-term bonds would decline to reflect that. Instead, they’re rising. The year-to-date gain

Now you can join the select club of IWB members for one year for only $179.95 plus tax. Here’s what your exclusive membership provides: • 44 information-packed issues • Special bulletins when major events occur. • Weekly internet delivery. • Top investment experts like Gavin Graham, Shawn Allen, Ryan Irvine, Glenn Rogers, and Gordon Pape • Access to a password-protected Member Section of the Buildingwealth.ca website. See our full list of recommendations and model portfolios, read and download back issues, search for topics and securities of special interest.

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Volume 19, Number 28

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Issue #21428

I S S U E

August 5, 2014

CASH OR CANNED GOODS? By Gordon Pape, Editor and Publisher

Cash or canned goods?

Russian turmoil hits Europe

Gavin Graham’s updates: Home Capital Group, Copa Holdings, BMO Asian Growth and Income Fund, Templeton Frontier Markets Corporate Class A Units

Gordon Pape’s updates: AT&T, ArcelorMittal, Google, iShares Japan Fundamental Index ETF, iShares Gold Bullion ETF

Things weren’t any better in New York where the Dow fell almost 70 points on Friday after a plunge of more than 300 points the day before. It’s now in the red year-to-date by 0.5%.

Members’ Corner: Cash in Chou Funds

We won’t know for several days whether this was just a blip brought on by concerns that interest rates could rise sooner than expected because of stronger than predicted U.S. economic growth, or if the long climb of the markets has finally hit a wall.

B U I L D I N G The

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Internet Wealth Builder

All material in the Internet Wealth Builder is copyright Gordon Pape Enterprises Ltd. and may not be reproduced in whole or in part in any form without written consent. All recommendations are based on information that is believed to be reliable. However, results are not guaranteed and the publishers and distributors of the Internet Wealth Builder assume no liability whatsoever for any material losses that may occur. Readers are advised to consult a professional financial advisor before making any investment decisions.

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Maybe the long-predicted stock market correction has finally begun – or maybe not. The TSX ended the week with two double-digit drops in a row, giving back 194 points on Thursday and another 115 on Friday. For the week, the index was off 240 points or 1.55% although it is still up 11.7% for the year.

At least one big financial firm, Goldman Sachs, believes that this could be the real thing. If not, it will hit soon. In a research report, the influential Wall Street company downgraded its short-term (three month) rating on stocks to neutral. The research team was also negative on bonds, which it said could be heading for a sell-off that would impact the stock market. "We are concerned that a sell-off in government bonds will lead to a temporary sell-off in equities in line with what we saw last summer, though the magnitude is likely to be smaller as the need for bond yields to correct is lower than it was back then," the Goldman Sachs team said. In reaction, RBC Capital Markets commented that the analysis means “cash and canned goods are the only compelling investment options”. Goldman Sachs still believes that stocks are the best place for money over the next 12 months “by a wide margin”, predicting a gain of 10.5% for the S&P 500. But the near-term outlook is for a return of just 1.8% between now and the end of October.

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So what are we to do with this forecast? If we assume Goldman Sachs is right, the instinctive reaction would be to sell all stocks and bonds and sit in cash (canned goods are much less practical). But that would be both irrational and very expensive. All the sales would attract brokerage commissions, as would the repurchase later. Moreover, selling would trigger capital gains, creating a hefty tax burden for next year.

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Plus tax.

My advice is to stick with your plan. Hold off on extensive new purchases for now but don’t sell unless there is a compelling reason to do so. Short-term in-and-out trading is fine for the professionals. For the rest of us, it’s impractical and costly.

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M A G A Z I N E TABLE OF CONTENTS

$10,000 TFSA James Dean | Pg. 4

My Travel Insurance will cover me foraccidents, won’t it? Ian Whiting, Senior Editor | Pg. 6

Understanding Independent Mutual Fund Dealers Heather Phillips | Pg. 8

Behind the Curtain of Life Insurance Distribution Today Jim Ruta | Pg. 10

Where To Invest Now Gordon Pape | Pg. 12

No More Clicks and Eyeballs Scot Blythe | Pg. 14

A Dark Look Ahead Pat Bolland | Pg. 15

Would you get your money back if your financial institution went broke? Gail Bebee | Pg. 17

Interest Rates Rising - the sequel Malvin Spooner | Pg. 18

Minding Your P’s and Q’s Robert M. Gignac | Pg. 20

Advertisers Index

Gordon Page Enterprises Ltd. TravelInsure.ca Scott Insurance Guildhall Wealth GICRates.ca ScoreUp The Rock Golf

In The Long Run The Government Gets All The Money Don Shaughnessey | Pg. 22

A Sinking Boat Without A Life Raft In A Sea Of Sharks Can You Survive?

What is a ‘foreign property’? Becky Wong | Pg.35

To concentrate or to diversify? Steve Nyvik | Pg. 37

Why Buy a Franchise?

Darren Long | Pg. 23

Joe White | Pg. 38

Is Your Home a Good Financial Investment?

Its your call - How to get new clients.

Tom Drake | Pg. 26

Mark Borkowski | Pg. 41

When Do You Start Teaching Kids About Money?

The Value of Working with a Mortgage Professional

Tammy Johnston | Pg. 27

Guy Ward | Pg. 42

My 7 biggest financial mistakes and what I learned from them

The Trouble with Taxes

Jonathan Chevreau | Pg. 28

Buyer Beware of These 7 Mortgage Conditions Tom Sigsworth | Pg. 30

Executors, If Only You Knew! Ed Olkovich | Pg. 31

The lure of cheap versus the peace of mind of quality - can you pass up the bargain? Ian Whiting, Senior Editor | Pg. 34

Pg. 2 Pg. 7 Pg. 11 Pg 13 Pg. 21 Pg. 25 Pg. 29

Frank Flynn | Pg. 44

Millennials Can Make Use of TFSAs Too! Kyle Prevost | Pg. 45 Retiring? How Much Money Will You Need?

MONEY® MEDIA Contact:

James Dean, Editor & President Kennon S. Vaughan, Artistic Director Ian R. Whiting, CD, CFP, CLU, CH.F.C., FLMI(FS), ACS, AIAA, AALU, LSSWB Senior Editor/Writer Inquiries: +1 416 360 0000 james@money.ca Mailing Address: Head Office 7181 Woodbine Ave., Suite 226 Markham, ON L3R 1A3

Richard Atkinson | Pg. 46

Regular Features

Thinking about day trading? What you first need to know. | Trade with Kavan | Pg. 48

Best Rate Around Mutual Fund Review The MONEY® Book Media Release The Social Currency The Advisors Channel

Tax time 2014 what a fun way to start 2015! Ian Whiting, Senior Editor | Pg. 49

King’s Court Estate Winery Ruth’s Chris Reputaiton.ca The Mortgage Centre Taxpayer Relief Letters GICDirect.com Canadian Coin/Stamp News FDS Broker Services

Pg. 33 Pg. 39 Pg. 40 Pg. 44 Pg. 44 Pg. 47 Pg. 50 Pg. 52

pg. 5 pg. 9 pg. 16 pg. 32 pg. 36 pg. 51

MONEY® CANADA LIMITED MONEY.CA

James Dean

MONEY® Magazine

Save with the Tax-Free Savings Account

The Tax-Free Savings Account (TFSA) is a flexible, registered, general-purpose savings vehicle that allows Canadians to earn taxfree investment income to more easily meet lifetime savings needs. The TFSA complements existing registered savings plans like the Registered Retirement Savings Plans (RRSP) and the Registered Education Savings Plans (RESP).

The Tax-Free Savings Account Important notice Under proposed legislation, the annual TFSA dollar limit for 2015 is increasing from $5,500 to $10,000. The proposed measure increasing this limit is subject to parliamentary approval. Consistent with its standard practice, the CRA is administering this

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Unused TFSA contribution room is carried forward and accumulates in future years.

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Full amount of withdrawals can be put back into the TFSA in future years. Re-contributing in the same year may result in an overcontribution amount which would be subject to a penalty tax.

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Choose from a wide range of investment options such as mutual funds, Guaranteed Investment Certificates (GICs) and bonds.

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Contributions are not taxdeductible.

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Neither income earned within a TFSA nor withdrawals from it affect eligibility for federal income-tested benefits and credits, such as Old Age Security, the Guaranteed Income Supplement, and the Canada Child Tax Benefit.

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Funds can be given to a spouse or common-law partner for them to invest in their TFSA.

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TFSA assets can generally be transferred to a spouse or common-law partner upon death.

How the Tax-Free Savings Account Works •

NEW: Economic Action Plan 2015 proposes to increase the TFSA annual contribution limit from $5,500 to $10,000, starting in 2015.

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All Canadian residents, aged 18 or older, can contribute to a TFSA.

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Investment income earned in a TFSA is tax-free.

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Withdrawals from a TFSA are tax-free.

measure on the basis of the Budget announcement. Financial institutions may immediately allow existing and new account holders to contribute up to the proposed maximum. Saving just got a whole lot easier! The Tax-Free Savings Account (TFSA) program began in 2009. It is a way for individuals who are 18 and older and who have a valid social insurance number to set money aside

For further information, please visit Economic Action Plan 2015 and the Canada Revenue Agency’s TFSA website.

tax-free throughout their lifetime. Contributions to a TFSA are not deductible for income tax purposes. Any amount contributed as well as any income earned in the account (for example, investment income and capital gains) is generally taxfree, even when it is withdrawn. Administrative or other fees in relation to TFSA and any interest or money borrowed to contribute to a TFSA are not deductible.

W W W . T A X - F R E E S A V I N G S A C C O U N T. C O M 4 - MONEY® Magazine • Issue 2 • 2015

TE A R O RA

B E ST

BEST RATE AROUND®

MAGAZINE

BEST RATE AROUND® refers to exactly that - the highest interest rates paid, the lowest mortgage rates offered and the best rates, ranking and returns overall on all core financial products, services and investment schemes.”

GIC Rates

Exchange Rates

GIC 1 Year 2.100% 2 Year 2.150% 3 Year 2.180% 4 Year 2.290% 5 Year 2.310%

RRSP 1.850% 2.150% 2.180% 2.200% 2.310%

RRIF 1.760% 1.950% 2.100% 2.120% 2.310%

Mortgage Rates - MortgageCentre.org 1-Year 2-Year 3-Year 4-Year 5-Year 7-Year 10-Year

MONEY®

The Mortgage Centre The Mortgage Centre The Mortgage Centre The Mortgage Centre The Mortgage Centre The Mortgage Centre The Mortgage Centre

2.29% 2.19% 2.34% 2.54% 2.64% 3.39% 3.84%

Canadian $ 1

www.thecanadiandollar.ca 0.81865 USD

www.theamericandollar.ca

Precious Metals Gold $1,474.83 - CAN PER OZ Silver $17.13 - CAN PER OZ Platinum $1564.50 - OZ CDN

Crude Prices US $58.98

Prime Rate

Stock Update

2.85%

(NASDAQ: BBRY; TSX: BB) Stock price: $10.11

Seminars and Events

INVESTMENT MARKETPLACE BestRateAround.ca MediaRelease.ca TheFinancialShow.ca TheAdvisorChannel.ca MortgageCentre.org 1-800-789-1011.ca Reputation.ca FinancialSeminar.ca MortgageSeminar.ca CanadianRealEstateShow.com GICRates.ca GuaranteedInvestmentCertificates.ca

MutualFundReview.ca InvestmentMarketplace.ca TheMoneyShow.ca TheMoneyBook.ca NewProductLaunch.ca FreePortfolioReview.ca InvestmentSeminar.ca GuildhallDiamonds.com CanadianRealEstateSeminar.org CoinDealer.ca InsuranceSeminar.ca TaxSeminar.ca

WWW.INVESTMENTMARKETPLACE.CA

BestRateAround.ca

Ian Whiting, Senior Editor

MONEY® Magazine

My Travel Insurance will cover me for accidents, won't it?

Spring is nearly over and summer is upon us. Now off to see the world – or at least some special parts. You prepared properly and planned everything including your travel medical insurance – well done! But did you really check the details on your insurance? Yes, you answered a lot the questions completely and thoroughly, you even checked with your doctor to make sure everything was 100% accurate, no disallowed claims for you and your family! Great to hear and you and your family seem to have done everything correctly from a medical perspective. It all looks perfect until ....... that zip line accident where the carabineer snapped open and you fell 60 feet, via a few trees and some rocks, to the ground. It hurt, and so it should – two cracked ribs, a dislocated shoulder and arm broken in two places. Ok, but at least your travel insurance will cover the cost, if not your pain .... sorry you get the real pain and the financial pain! Your all-inclusive resort offers SCUBA lessons, free. Never done that, it sounds like fun. Then you can see the beautiful reefs and those brightlycoloured fish! Nice lesson in the pool, all goes well. Now across the beach, 6 - MONEY® Magazine • Issue 2 • 2015

wade out 20 feet, pull on the mask, mouthpiece in and follow the instructor. My, aren’t those jellyfish beautiful, such colours and so graceful. You can see through their bodies and their crinkled tentacles. OUCH that hurt, a lot! After rapidly returning to shore, your arm is now bright red from elbow to fingertips with lots of swelling and very itchy pain. It is driving you crazy! Your instructor calls for the ambulance because he thinks you are going into allergic shock. Off to the hospital, an overnight stay, some fun, mind a altering drugs and finally the pain and itching subsides. The bill on leaving the hospital – $3,800! Worse than a tenstar resort for one night, but that’s ok, your travel insurance will pay ..... sorry, guess again!

tours? What about the zoo where you can hold a wild, just rescued (and very cute) baby monkey or baboon – oh yes, those canine teeth ARE sharp! What about riding wild dolphins, feeding alligators and crocodiles, even from the safety of a tour boat or vehicle? What about big game hunting (with camera or firearm)? High-marking on a winter snowmobile trip is fun – noise, speed and snow, to say nothing of some liquid courage. What about some heli-skiing? What about long boarding in a park or mountain biking down a tough course? Any speed contest – pro or amateur? Hot-rodding or off-road driving/ sight-seeing or just playing on ATVs? Shooting fun and interesting weapons – fully automatic and large calibre at public weapons ranges?!

White-water rafting, rappelling, climbing walls, surfing (body or board), snorkeling – what else? Each plan is different but they all use words such as “no benefits will be payable if any insured engages in any high risk activities”. What about para-sailing or kite-surfing?

So, what do you do to ensure you really ARE covered? Ask LOTS OF questions first. Get a list of what your chosen insurer considers high risk. Are you a professional who is going to practice your skill or sport or are you just an amateur looking for some fun? These are very different risks for an insurance company. If you need special travel risk coverage, consult a professional, not a website. Learn about any restrictions before you go, not on your way out of the hospital!

Fine print to be sure, but shouldn’t you know BEFORE you plan all those wonderful side trips? What about helicopter sightseeing? Swim-board excursions, rock climbing or jungle

CALL Toll-Free

1-855-933-7462 MEDICAL EVACUATION

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CALL YOUR LOCAL AGENT NOW! Vancouver (604) 239-2136 Edmonton (587) 400-6832

Calgary (403) 800-0838 Regina (306) 988-0748

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Montreal (438) 899-8446 Quebec (581) 318-2112

We don`t sell you insurance, we help you buy it. TravelInsure.ca

Heather Phillips

MONEY® Magazine

Understanding

Independent Mutual Fund Dealers I had an advisor write me the other day expressing frustration because a potential client could not see value in the Independent Channel of Mutual Fund Dealers. I will share with you the Value Story about Independent Mutual Fund Dealers and their advisors. The Independent Channel of Mutual Fund Dealers (IMFD), provide clients with safety for their investments. I don’t mean the investment objective of safety. There are several ways that IMFD provide security while providing investment advice. Here are a few: 1. IMFD are members of a SelfRegulatory Organization; either the Mutual Fund Dealers Association of Canada (MFDA) or Investment Industry Regulatory Organization of Canada (IIROC). 2. The mutual fund dealers are covered by either the Investor Protection Corporation (IPC) Fund (http://www.mfda.ca/ipc/ ipc.html) for MFDA members or by Canadian Investor Protection Fund for IIROC members: (http:// www.cipf.ca/Public/CIPFCoverage/ hatCoverageDoesCIPFProvide.aspx) 3. If you are working with an advisor who’s Mutual Fund Dealer has “client name” or “client held” accounts available, it will be YOUR name on the account at the trust company and not your mutual fund dealer’s name. 4. Yearly financial audits by an independent accounting firm are performed in addition to the regular regulatory audits for financial and business practices. 5. The definition of Independent means that IMFD sell only third party mutual funds. If the mutual fund advisor sells mutual funds owned by a subsidiary company 8 - MONEY® Magazine • Issue 2 • 2015

(not third party), there is a builtin potential conflict of interest. The advisor may be paid a higher commission, a bonus based on selling the internal product or gets shares in the parent company that the mutual funds belong to. This means that there is an incentive outside of the regular commission structure. This incentive may prompt the advisor to overlook or not consider other products. Since commissions are regulated for third party mutual funds this is not an issue for IMFD. 6. An IMFD will allow you to give a limited trading authority to your advisor. At no time are you giving them permission to make decisions without you. You have to weigh the risk of giving investment instruction without providing your signature or signing for all your trades. In this industry, you must give permission for transactions. One exception: you must Sign banking changes. 7. Client responsibility - It may be convenient for you to sign a blank form but there are 2 things that could go wrong: a. Both the MFDA and your IMFD perform audits on your advisor and if your advisor has pre-signed blank forms in your file, they are reported and subject to further investigation, a possible fine and hearing. The practice of pre-signing blank forms for convenience is bad for your advisor; bad for the industry; and ultimately, bad for the consumer. b. If you have provided an advisor with pre-signed blank forms, they could make changes to your account that

you have not authorized. Having an independent mutual fund advisor means you have more choice with products, services, pricing. If you do not like banking fees, choose to buy your mutual funds from an Independent Mutual Fund Dealer and Advisor. Right now in the mutual fund industry there is a lot of conversation about embedded fees (MER) and unbundled fees; fee for service and client disclosure of fees. The Independent Chanel will continue to choose what is in the best interest of the client and the Mutual Fund Companies / suppliers are creating that choice now; whether it be embedded fees or fee for service accounts. For now embedded fees are preferred by Canadians just like an “all inclusive” holiday is preferred by Canadians. Once you receive disclosure of mutual fund fees in 2016, you will be able to make an informed choice about whether the fees disclosed are worth the Value your Independent Advisor is providing. As you can see from the above points, much of the “safety” features of mutual fund investing are shared among mutual fund dealers, advisors, mutual fund companies and you. The mutual fund industry and the Independent Financial Advisor are evolving with fee disclosure and consumer protection at the forefront. With all the protective measures in place, your Independent Mutual Fund Dealer is a safe place to invest your money.

MUTUAL FUND REVIEW® March 2015

MONEY® MAGAZINE

Starting assets (February 28, 2015) + Net sales +/- Estimated market effect = Ending assets (March 31, 2015) Top 3 Categories

$986.3 Bil. $7.8 Bil. -$5.0 Bil. (-0.3%) $989.1 Bil.

Bottom 3 Categories

Asset Growth ($)

Canadian Neutral Balanced: $8.066 Bil. Global Neutral Balanced: $2.392 Bil. Cdn. Fixed Income Balanced: $1.018 million Asset Growth Miscellaneous – Other: 62.5% (as a % of starting assets) Alternative Strategies: 10.3% Canadian Neutral Balanced: 8.0% Net Sales ($) Global Neutral Balanced: $3.145 billion Cdn. Fixed Income Balanced: $1.343 billion Canadian Fixed Income: $1.259 billion Net Sales (as a % of Miscellaneous – Other: 55.8% starting assets) Alternative Strategies: 10.3% Misc. – Undisclosed Holdings: 3.3% Performance Greater China Equity: 3.5% (Fund Category Averages) Asia Pacific ex-Japan Equity: 2.2% U.S. Small/Mid Cap Equity: 1.9%

Canadian Equity Balanced: -$9.799 Bil. Cdn. Dividend & Income Equity: -$1.149 Bil. Canadian Focused Equity: -$698 million 2015 Target Date Portfolio: -33.3% Canadian Equity Balanced: -17.2% Precious Metals Equity: -10.9% Canadian Money Market: -$508 million Cdn. Equity Balanced: -$346 million Canadian Focused Equity: -$324 million U.S. Money Market: -3.2% Cdn. Inflation Protected Fixed Income: -1.8% Emerging Markets Equity: -1.6% Precious Metals Equity: -11.3% Natural Resources Equity: -4.3% Cdn. Inflation Protected Fixed Income: -2.1%

ALL THE INFORMATION AND SERVICES YOU NEED •

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Mutual Funds Newsletter website is number one on yahoo google bing and youtube Mutual Funds Newsletter is the preferred choice of investors, advisors and fundco’s. Top Ranked Mutual Fund Dealer - Mutual Fund Company Co-operative in Canada. MFNL attracts and retains the attention of the advisor channel and over 50,000 financial consumers. Mutual Fund Review - make sure you update these numbers carefully and ensure they line up with accurate numbers. Replace the MFNL - paragraph that exists...on the bottom right...this may be reduced in size to accommodated some bullet points and this longer paragraph.

The Mutual Funds Newsletter was created specifically for the investor-advisor relationship and mostly as an important communication tool that really helps to explain important trends in the mutual fund industry. Financial consumers and Mutual Fund Investors as shareholders today are more savvy and demand more attention and better service towards their long-term investment goals. It is clear mutual funds stakeholders expect open disclosure, ethical investing and then superior returns in exchange of quality customer service. Helping make, save and preserve more of your money more of time is indeed the essence behind this important, timely and newsworthy communique. Consult your advisor or a recommended professional on a regular basis and engage them in this important information, data and focal point for decision making and portfolio design and maintenance.

MutualFundsNewsletter.ca We’re number #1 on yahoo, google, bing and youtube. Top Newsletter for both Mutual Fund Investors and Advisors.

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Jim Ruta

MONEY® Magazine

Behind the Curtain of

Life Insurance Distribution Today There’s more to life insurance distribution than the agent that you meet at your home or office. Here’s a peek behind the curtain of the complicated world of life insurance product distribution and advisor management. You can get your products in one of these four ways: 1. Direct from Insurance Companies – Some insurance companies market basic life insurance policies directly to consumers through various media. You’ve seen television ads promoting relatively small amounts of life insurance for final expenses at apparently low prices. Some of these ads say “No salesman will call”. Some require limited medical evidence to qualify. Some require none at all. Remember, the less you have to do to qualify at the beginning, the more someone will have to do at claim time to be paid. There is something else important to note here. Just because “no salesman will call” or you do all the work to subscribe for the insurance yourself, does not mean that you will pay a lower price, net of those costs. In fact, more often than not, the price you pay without an advisor helping you is the same or even more than you would pay with their help. So there not usually a price advantage for DIY Insurance. This method of getting a policy is an impulse buy where a message moves a consumer and makes the purchase. Of course, any insurance is better than none, but this is not the best way to get best value for your investment. 2. Through Intermediaries – Another version of company direct insurance is insurance through credit card companies, lenders, associations like your university alumni, affinity groups or even your company benefits plan. These 10 - MONEY® Magazine • Issue 2 • 2015

“intermediaries” receive payment for the insurance they market through their lists or to their customers. Some of these policies are only “certificates” of insurance noting your coverage under the master plan someone else owns. Some, you own personally. But again, the price you pay does not have to be better than what you can get with a professional life insurance advisor walking you through the process. It pays to check before committing your family’s lifestyle and your legacy to one of these insurance sources. 3. From a “Career Advisor” – At one time, there only were “career company agents” or advisors. Until the middle 1990s, dozens of career agent companies recruited new advisors and marketed life insurance products and services. Today there are only a small handful. The shrinking of the career system does not mean it’s a bad system. Some say that it is still the premier distribution system. A career agent is trained, developed, supervised and backed by the full weight of the insurance company that owns and manages it. Companies take an active role in advisor continuing education, compliance with regulations and business management. You could also say there is an additional layer of insurance working with these advisors. Beyond their professional liability insurance, there is the “insurance” of the major company behind them to help make things right when something unfortunately goes wrong. Their prices are reasonable and in line with the service and protection you get. Like with any professional service, the quality of the individual

has a lot to do with the quality of the work and product you receive. 4. From an “Independent Advisor” – Think of independent advisors as career agents associated with independently owned, multicompany distribution agencies. These organizations for independent advisors are “Managing General Agencies” or MGAs. They provide the service, training and product services that career agencies provide but for a group of insurance companies not just one. So, career shops are like exclusive MGAs. Some MGAs are regional and have a few dozen associate advisors. Some are national and have several thousand advisors. Size does not matter. Local management makes all the difference. MGAs have contracts with insurance companies where there receive all the field compensation for the business placed with the companies and then pay out appropriate shares to their associates, pay their expenses and make a profit. Advisors pay their own costs of doing business. You could say insurers delegate their distribution, training and development to specialist companies (MGAs) who handle the distributors – the insurance advisors. There is limited recruiting but growing advisor development programs. Life insurance distribution is not well known but it is well-managed and regulated. They key for consumers is to understand their needs and get the right product for their circumstances and budget. Good insurance advisors, who should be transparent in their dealings, are usually the best way to do that. Jim Ruta, President AdvisorCraft Media and Consulting

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Gordon Pape

MONEY® Magazine

Where to invest now still has most of their money in Canada can expect mediocre returns for the rest of the year. The U.S. offers better potential especially in the technology and healthcare areas but the supposedly robust American recovery still looks tepid and uncertain. The big profits so far this year have come from overseas: Europe, as we’ve seen, Hong Kong (up 20 per cent year to date as of the end of April), and Japan (ahead 15 per cent). This doesn’t mean those regions will dominate in the second half. But it highlights the importance of maintaining a portfolio with global exposure.

Expect the unexpected. That’s been especially true so far in 2015. So far, things haven’t gone the way most people anticipated this year. Consider these developments. Gains for bonds. The long bond bull market was supposed to have ended last year, and two years ago, and three years ago. But, like the Energizer Bunny, it just keeps going and going. This was supposed to be the year when rising interest rates finally stopped it dead. That still might happen but as of the time of writing the iShares Canadian Universe Bond Index ETF was showing a year-to-date gain of 2.69 per cent. That’s not spectacular but it’s more than the forecasts suggested. It appears there is still life in the bond bull. Surprising results from Europe. It seems like all we ever here from the other side of the Atlantic is gloom and doom. Greece is going to quit the Eurozone and bring down a bunch of banks in the process. European economies are stagnant and deflation is a major risk. Sanctions against Russia are hurting German industry. The beat goes on. So why is it that the Frankfurt DAX index and the Paris CAC 40 are both up more than 15 per cent this year? A plunge in the value of the euro and a quantitative 12 - MONEY® Magazine • Issue 2 • 2015

easing plan by the European Central Bank have upended all the predictions and European investors are reaping the profits. A surge in technology. Shades of 1999! The U.S. high tech sector is going crazy. Nasdaq hit a new record high in late April, 15 years after the crash of 2000 that took it down more than 80 per cent. Some people thought we’d never see 5,000+ again, but here we are. And this time the gains are sustainable – these are real companies making big profits, not shells based on a smart idea and hope. Better than expected returns on the TSX. The year opened with the energy sector in despair. The plunge in oil prices had companies slashing payrolls, cutting dividends, and trimming capital spending. The ripple effect resulted in what Bank of Canada Governor Stephen Poloz described as an “atrocious” first quarter. Despite that, the TSX managed to post modest gains through the first four months, beating both the Dow and the S&P 500. So now what? Here are my suggested strategies for the rest of 2015. Diversify. Yes, it’s an old mantra but it’s more valid now than ever. Anyone who

Keep some bonds. No one expected interest rates to fall in the early part of this year but that’s what happened. Bondholders made nice profits. No one expects them to fall in the second half either but if the North American economy doesn’t start gaining traction anything is possible. In any event, bonds provide stability to a portfolio if the stock market dives. Never ignore them. Avoid danger zones. I don’t like to gamble with my money. The world is risky enough without adding more. That’s why I’m steering clear of most energy stocks right now. Of course, the price of oil will recover at some point and today’s prices will look like bargains when that happens. But that could take a couple of years and in the meantime you could be doing more productive things with your cash, like buying highquality dividend stocks. Use tax shelters. Ottawa has increased the annual contribution limit for TFSAs to $10,000. That’s $20,000 per couple, every year. I can’t think of a better way to build a tax-free nest egg. Fill your TFSA basket with stocks like Enbridge, CN Rail, Royal Bank, Walt Disney, Wells Fargo, Apple and other great companies and watch the profits roll in. Gordon Pape is the Editor and Publisher of the Internet Wealth Builder and Income Investor newsletters. His website is www.BuildingWealth.ca.

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Scot Blythe

MONEY® Magazine

No More Clicks and Eyeballs NASDAQ is back to 5,000. What a long, strange trip – or rather draw down -- that’s been. But can investors finally breathe easy? Well, Apple has reinvented the watch as the Swiss army knife of wearable technology.

Let’s take fraud first. In a conventional narrative, regulators exist to protect investors and the media’s job is to pressure them for redress.

Will that technology change the world, the same way as the Internet, or iPods and iPads? It’s too early to tell.

Rarely do investors get satisfaction. And though it may be hard to admit, mostly it’s the investor’s fault.

But one things is certain. Unlike the days of the dot.com boom, the Apple watch is priced to make a profit. That was not a key factor the first time NASDAQ hit 5000. Leading up to the market peak, dot.com companies had sold us all with tales of exponentially increasing eyeballs and clicks, rather than solid revenue growth and reasonable return on equity. Underwriters became notorious for putting lipstick on pigs to grease the next hot IPO. And investors paid such inflated prices that, after the gold rush to pan for your piece of the tech boom ended, more than $7 trillion in stock market capitalization vanished. Investors saw their money vanish as irretrievably as an unsaved document. There is, as always, an investment lesson here. The year before the last NASDAC peak, value investor Warren Buffett had his worst year ever. In part, it was because he didn’t understand technology stocks, and the digerati mocked him. In the end, however, Buffett knew all too well that innovations in accounting terminology are not a substitute for more traditional means of pegging a stock’s value. In my previous article, I stressed a number of themes. Among them the dynamics involved when investors buy high and sell low. They are driven by unnecessary fears, but also unrealistic expectations. Above all, they need a plan. With a plan like Buffett’s, you don’t invest in what you don’t understand. So a solid plan considers other factors: fraud, advice and value for money. 14 - MONEY® Magazine • Issue 2 • 2015

It’s a nice concept, but it doesn’t always work that way.

Why? They reached for unrealistic returns. They bought something they didn’t understand. They were dazzled by the lipstick on the pig. Let me give two examples. In 2005, Quebec’s financial regulator shut down a company called Mount Real. Often talked up on stock boards, the firm was one of Canada’s fastestgrowing companies, according to the annual rankings of Canada’s top companies published by the Financial Post magazine and Report on Business. Sure Mount Real was growing -- but in debt not profit. It offered promissory notes to fund itself that were repayable in less than a year. But brokers convinced clients to roll over the notes and buy more – offering returns in the range of 12%. But what of the assets to back up those notes? They were just worthless receivables that could never be collected. For some reason, fraudsters thought 12% to be an enticing number. That’s the return former NASDAQ chairman Bernie Madoff offered his investors. He enticed investors into a Ponzi scheme, using an obscure market-timing strategy that no outsider found plausible. The lesson here is that unscrupulous operators fleece both rich and poor because the only way such unscrupulous schemes are made public is once they have failed. It’s not just that the horse had left the barn – there was no horses to begin with. This is why having a plan is so fundamental. A good plan establishes your goals, how to achieve them,

as well as how much risk you can take. And it factors in a reasonable expectation of returns. A 12% return on a “safe” investment is not a reasonable expectation. Fifteen years ago, Warren Buffett suggested a reasonable return is 4% after inflation. A plan built and sold beyond higher numbers is speculation. Some investors are capable of building a robust plan themselves. They plan for every contingency, be it a market crash or a personal financial crisis. Many investors need and rely on outside advice. But despite the benefits only 20% of Canadians have such a plan. There is a myth that, when considering investments, cheapest is best. Generally, that’s part of the argument between those who advocate ETFs and those who promote mutual funds. I’m going to sit on the fence regarding the active versus passive investing debate, as to whether you should just buy the market or whether there are ways to beat it. The key point is that, in Canada, mutual funds are expensive compared to ETFs. One reason is, that up to now, compensation for financial advice is part of the price of the mutual fund. For do-it-yourself investors, sound investment advice is secured by the time they spend researching their choices, rather than paying some else to do it. I’m a DIYer. I happen to enjoy it. But others don’t. For people who seek advice, advisors can offer ETFs, mutual funds or both. To get a good financial plan – and avoid a Madoff or a Mount Real – you’ll have to pay one way or another, in time or in money. That is the way to ensure you’re getting value. Good advice will boost your returns. Bad advice leads to misery and financial loss, not just in sub-par returns, but in wasted time and money. Scot Blythe is a Toronto-based financial writer.

MONEY® Canada Limited

Pat Bolland

A Dark Look Ahead I have a friend who bought his house a decade or so ago for a million dollars. Fair change back then, as it is still. It’s now on the market for well over $5 million. Low interest rates and nesting instincts are said to be at the heart of what we’ve seen in real estate, but I doubt whether many $100,000 homes are now selling for $500,000. It makes for two interesting questions, both with investment implications: is there a real estate bubble: and is there an increased stratification in American society. … The rich are getting richer faster than the poorer.

The reality of massive debt levels have hampered the economic activity of many a European state. The US is only just now recovering from the Global Financial Crisis.

Ask most realtors, and bubbles in their business are almost always based on location. Local forces have a greater impact than economic ones, although they tend to work hand in hand. Many towns have had tremendous real estate appreciation over the past decade, but the top price movers for the past decade are areas that serve major metropolitan centers; Think Vancouver and area. Is it a ‘house of cards’? Well everyone has to have a roof over their head, why a nice one? On the other hand, real estate as an investment, think twice … thrice even.

Over the past few years we have seen areas of strength in the western

Further, the benefits of the wired, digital age are now increasingly offset by the risks. The internet has filled the void created by the ‘500 channels, with nothing to watch’ syndrome. Online porn is a sign-post of creeping amorality. Meanwhile ISIS, and Al Qaida have raised geopolitical concerns. Online terrorism is a very real threat.

growth in America and you get an idea of the impact of job exports. When we balance the euphoria of the stock markets with the risks that continue to grow, we must bear in mind that Western political leaders cannot afford to allow the social safety net to collapse. Not that long ago General Motors was plagued by concerns that they wouldn’t be able to serve their duties to their retirees. A similar concern affected federal Social Security as well … a shortfall, or rumors thereof, would spell political and economic doom. In General Motors’ case a roaring recovery in the stock market averages has almost

The stratification issue has different implications. I’ve been struck by the relationship between social fabric and economic fate. Cultures at the zenith of their influence become more militaristic, egotistic, xenophobic, amoral and over-extended … both geographically and financially. Alexander the Great, the Roman Empire, and the British Commonwealth Era come easily to mind. Is it going too far to say that America is at that peak … the top rung of the ladder … and the only place to go is down? Could we be looking at the proverbial ‘Decline of the American Empire’? American capitalist ideals and democratization have prevailed for a generation if not more. Trade globalization is a hallmark, and continues even now as the Trans Pacific Partnership gets hammered out. With the advent of the digital age, and increasing productivity, and it’s no wonder that stock markets have rocketed higher. But all great parties result in hangovers.

economies; notably the American consumer. Rock-bottom interest rates and low gasoline prices have substantially increased household cashflow. To keep the economy going the focus for growth must translate to the corporate world. Earnings have seen a marked improvement as have pricing power and corporate confidence. But capital spending has been slow to follow. The robust global stock market recovery, one that forecasts better economic times ahead, has come without corresponding job growth. Granted, job growth is often a lagging indicator but global developments are impacting the job scene. The increase in world trade, the education of thirdworld nations, and the commutability of IT (Information Technology) have all resulted in a globalized job market. Witness the growth in IT jobs in India and compare that to the corresponding

completely quelled that concern. The governors of the central banks around the world are not blind. They say that they don’t pay attention to the stock markets but I wonder. A bull stock market has bailed out the retirement futures of many nations, but can it continue? Yes, but it might be smart to start to diversify. Lighten one’s exposure to the American Dollar and the ‘hot’ sectors of the US stock markets. Interest rates rates are unlikely to go lower, so spread your fixed-income investments amongst various credits. Look to bring some money back to Canada, we’re getting little respect right now, and start investing internationally too. Like my friend, chances are your house has made you richer. Your investments too. Now is when things get interesting. MONEY® Magazine • Issue 2 • 2015 - 15

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MONEY® Canada Limited

Gail Bebee

Would you get your money back if your financial institution went broke? What would happen if one of our banks, credit unions or investment firms went belly up and you had an account at the bankrupt firm? Would you get your money back? You might be fully reimbursed for your losses by one of several insurance programs which protect Canadian investors. Your compensation depends on the type of investment, the amount in your account and the institution involved. The Canada Deposit Insurance Corp. (CDIC), www.cdic.ca, a federal Crown corporation, insures savings in most Canadian banks and reimburses depositors in the event of insolvency. If a CDIC-insured firm fails, you will likely get your Canadian currency deposits back if they are held in a savings or chequing account or a GIC or term deposit of 5 years or less. There is a limit of $100,000 of eligible savings per member institution per separate eligible account. Check the website for complete coverage details. CDIC coverage is automatic for eligible deposits. CDIC will contact you if you have an account at a failed bank regarding the payout procedure. A separate deposit-insurance corporation in each province protects investors’ money if a credit union, caisse populaire or provincially regulated trust or loan company fails. The guarantees against loss are similar to, and in some provinces better than, those provided by CDIC. In Manitoba, home to credit unions with some of the highest savingsaccount interest rates in the country, the Deposit Guarantee Corporation of Manitoba, www.depositguarantee. mb.ca, offers an unlimited guarantee for all deposits in a Manitoba credit union or caisse populaire. The guarantee even extends to foreign-currency deposits and term deposits longer than five years.

Each provincial deposit-insurance corporation posts a directory of members and the specifics of its insurance coverage at its web site. The Financial Consumer Agency of Canada web site, www.fcac.gc.ca (search provincial deposit insurers), lists these corporations and a web link to each. There are no deposit-insurance corporations in the three territories, where credit unions are either banned or not well established. If you invest with a company licensed to sell mutual funds and the company goes bankrupt or becomes insolvent, you could get your money back if the firm is a member of the Mutual Fund Dealers Association of Canada, www. mfda.ca. The not-for-profit MFDA Investor Protection Corporation reimburses clients of failed MFDA members for losses of up to $1 million total value per customer account. Each additional “separate account,” such as an RRSP or RESP, has its own $1-million coverage limit. Securities, cash and other property in your account are eligible. The bankruptcy trustee normally contacts customers of a bankrupt firm regarding the claims procedure and time limits for making a claim. Investors in Quebec should note that mutualfund dealers in Quebec are not covered by this insurance. If you hold investments in an account at an investment dealer (a firm licensed to trade a broad range of investments including stocks, bonds and mutual funds), yet another insurance program protects your money in case of insolvency. The Canadian Investor Protection Fund (CIPF), www.cipf. ca, set up by the Investment Industry Regulatory Organization of Canada (IIROC), covers financial losses by customers of any member company that becomes insolvent.

All IIROC members are CIPF members. CIPF provides up to $1 million in coverage for each group of customer accounts held for the same purpose. So, for example, if you had both RRSP and RRIF retirement accounts, these two accounts together would be insured for up to $1 million in losses. If your investment dealer becomes insolvent, you will be notified regarding the claims procedure either by mail or a newspaper notice. Investments such as segregated funds and annuities are forms of insurance. The insurance company that issues such policies is required by law to be a member of Assuris, www.assuris.ca, a not-for-profit organization that steps in if a life-insurance company fails. Its role is to arrange the quick transfer of policies from the failed company to a solvent insurance company, where the policy’s benefits will continue to be honoured. Annuities are guaranteed up to $2,000 per month or 85% of the promised monthly payout, whichever is higher. Deposit type products are guaranteed up to $100,000. Segregated funds are guaranteed up to $60,000 or 85% of the promised guaranteed amounts, whichever is higher. Before trusting your money to any financial institution, check the website of the relevant investor-protection insurance program to make sure the firm of interest is a member and take the time to understand the program rules. Gail Bebee - Personal finance writer, speaker, teacher Author of No Hype - The Straight Goods on Investing Your Money www.gailbebee.com

MONEY® Magazine • Issue 2 • 2015 - 17

Malvin Spooner

MONEY® Magazine

Interest Rates Rising - the sequel Mal Spooner is a veteran fund manager and currently teaches at the Humber College School of Business. No doubt you’ve noticed about half the industry pundits are cautioning that the US Federal Reserve is closer to ‘tightening’ monetary policy. What this implies for us regular folk is that they will introduce monetary measures that will allow interest rates to rise. We have enjoyed a very long period of inflation and interest rate stability following the financial crisis (a crisis almost forgotten by many). Despite a recent slowdown in economic indicators, efforts by governments around to world to jumpstart an economic recovery did bear some fruit. The rebound in profitability, employment and growth has been particularly robust in the United States. Both Europe and China are now making efforts to replicate this success by bolstering liquidity in their financial systems as the US did. So what’s to worry about? Savvy investors will have already noticed that interest rates in the world’s strongest economy have already begun to rise, even before the FED has taken any action. This is what markets do – they anticipate rather than react. Some forecasters predict that although interest rates are bound to trend upward eventually, there’s no need to panic just yet. They suggest that there’s enough uncertainty (financial distress in Europe, fallout from falling energy prices, Russia’s military ambitions, slow growth in China) to postpone the threat of rising rates far into the future. What they are ignoring is that the bond markets will anticipate the future, and indeed bond investors out there have already begun to create rising interest rates for longer term fixed-income securities. The graph illustrates that U.S. yield curves have shifted upward. The curve shows market yields for US 18 - MONEY® Magazine • Issue 2 • 2015

Treasury bonds for various maturities back in February compared to rates more recently. So what’s the issue? If investors hang on to their bonds while rates are rising, the market value of those bonds declines. This often comes as a surprise to people who own bonds to avoid risk. But professional bond traders and portfolio managers are acutely aware of this phenomenon. So they begin to sell their bonds (the longer term-to-maturity bonds pose the most risk of declining in value) in order to protect themselves against a future rise in the general level of

the same as the ones I’d studied from the old examination papers. In my experience recent history is not useful at all when devising investment strategy or trying to anticipate the future, but often a consideration of historical events further back in time – especially if trends in important economic drivers are similar – can be very helpful indeed. The consensus is that interest rates will rise eventually. But it is human nature to stubbornly hang on to the status quo, and only reluctantly (and belatedly) make adjustments to change. What if what’s in store for us looks like this: Consistently increasing interest rates and inflation over the next decade? This has happened many times before (see graph of rising 10-year Treasury bond yields from 19601970). US Treasury Yields 1960 - 1970

interest rates. More sellers than buyers of the bonds pushes down the market price of the bonds, which causes the yields on those same bonds to increase. Many money managers (including me) learn that despite how dramatically the world seems to change, in many respects history does repeat itself. For example, while writing my CFA exams back in the mid-1980’s, I was provided with sample exams for studying, but they were from the most recent years. I figured it was unlikely that questions on these sample exams would be used again so soon, and managed to do some digging in order to find much older previous exams. I reasoned there are only so many questions they could ask, and perhaps older exam questions might be recycled. I was right! In fact several of the questions on the exam I finally wrote were exactly

Before you rant that things today are nothing like they were then (and I do agree for the most part) consider the following: Is the boy band One Direction so different today compared to The Monkeys then? And wasn’t the Cold War simply Russia testing the fortitudes of Europe and America just like the country is doing today? Wasn’t nuclear capabilities (today it’s Iran and North Korea) always in the news? Yes there have been quantum leaps in applied technology, brand new industry leaders in brand new industries. China’s influence economically was a small fraction of what it is today. So where is the commonality? The potential for rising interest rates coming out of a recession. The US government began raising rates in 1959, which caused a recession that lasted about 10 months from 1960 – 1961. From that point until 1969 the US economy did well despite rising interest rates and international crises. But which

asset classes did well in the environment? Growth of $100 - 1960 to 1970 Could the disappointing 1st quarter

economic data be hinting that we might also be entering a similar transitioning period? Inflation is bad only for those unable to pass higher prices along to customers. If the economy is strong and growing then real estate and stock markets provide better returns. Since the cumulative rate of inflation between 1960 and 1070 was about 31%, investors essentially lost money in constant dollars (returns below the rate of price inflation) by being invested in the bond market.

They would have done better by simply rolling over short-term T-Bills. An average house in the US cost about $12,700 in 1960 and by 1970 cost $23,450 – beating inflation handsomely. Do I believe we will see a repeat of the 60’s in terms of financial developments? Yes and no! There will be important similarities – especially in terms of stock markets likely performing well enough and the poor prospects for the bond market. There will be differences too. The outlook for real estate is clouded by the high level of indebtedness that has

been encouraged by extremely depressed interest rates over the past few years. Higher rates mean higher mortgage payments which might serve to put a lid on real estate pricing, or cause prices to fall significantly for a period of time before recovering. Companies that have substantially financed their acquisition binges with low-cost debt will soon find that unless they can pass along inflation to their customers their profit margins will be squeezed. Who will benefit? Commodity producers have had to significantly reduce their indebtedness – commodity prices tend to stagnate when inflation is low, and even decline when economies are growing slowly. In a global context, these companies have had a rough time of it. It is quite possible that their fortunes are about to improve. If Europe and China begin to enjoy a rebound then demand will grow and producers will have more pricing power – perhaps even enjoying price increases above the rate of inflation. Do I believe any of this retrospection will prove useful? I hope so. The first signs that a different environment is emerging are usually evident pretty quickly. If there were a zero chance of inflation creeping back then why are some key commodity prices showing signs of strength now? If we begin to see inflationary pressures in the US before Europe and Asia, then the $US will depreciate relative to their currencies. In other words, what might or might not be different this time is which countries benefit and which countries struggle. Globalization has indeed made the world economy much more difficult to come to grips with. Nevertheless, there

are some trends that seem to be recurring over the years. There will be recessions and growth spurts. In recessions and periods of slower growth, some formerly stronger industries and companies begin to lose

steam as a paradigm shift takes place, but then other industries and companies gather momentum if the new reality

is helping their cause. This is why I’ve biased my own TFSA with commoditybiased mutual funds (resource industries, including energy) and a European tilt. You guessed it – no bonds. Any success I enjoyed while I was a money manager in terms of performance was because exercises like this one help me avoid following the mainstream (buying into things that have already done well) and identifying things that will do well.

MONEY® Magazine • Issue 2 • 2015 - 19

Robert M. Gignac

MONEY® Magazine

Minding Your P's and Q's Long ago, in the days of hand set type, the phrase “mind your P’s and Q’s” had to do with the fact that the letter “p” and “q” while appearing to be mirror images of each other – are in fact slightly different. The expression reminded one to be careful not to switch them, since they were side by side in the letter bins. Today, I’d like to relate some P’s and a Q in how we approach our personal finances.

your actions will reveal more about your desire to attain a successful financial future than any other thing you do. Actions. Sticking to the plan, not letting shiny objects distract you from your long range goals is key. Doing the things today that your friends/coworkers aren’t willing to do in order to live the life tomorrow that they will be unable to.

Purpose:

We persevere through difficult times because tough times don’t last. Tough times are often the best teachers, because if everything goes as planned all of the time, we don’t learn anything, and perhaps worse, we begin to think that we know everything. Markets go up and down, recessions, taxation, interest rates, global economics; so many things that affect our future are out of our control. Most of us have seen numerous applications of “Murphy’s Laws”. Not familiar with Murphy? Wait, be patient. Perhaps the phrase, “Anything that can go wrong, will go wrong - and at the worst possible time”, will ring a bell? When this happens, your ability to persevere will be given a chance to shine.

Why do we do what we do? What is the goal of the work we undertake to manage our money, plan our futures and protect our families? Those who are successful at managing their personal finances don’t become that way by accident. It is our purpose that keeps us centered when life wants to tip us off-balance. Plan: We don’t plan to fail, but we often fail to plan. Actors have scripts, architects have blueprints, and our personal finances require a Plan. Plans involve both thought and action. Deciding what it is you want to accomplish, then writing the plan down so you have an achievable objective is the first step. The act of writing the plan creates insight, raising issues that will not be found if you are merely using a mental ‘virtual’ plan instead of a concrete documented one. That said, good plans are not static. A big part of planning is the re-writing of the plan. Why? Things change. People change. Markets change. Don’t count on others to do this planning for you. The plan is your responsibility. But you just changed the plan last year? So what? Be prepared to change yet again. As someone once said, “A curve is not the end of the road unless you don’t navigate the curve”. Performance: Having a Purpose and a Plan will set you on your way - but those two steps are irrelevant if you don’t Perform. Actions always speak louder than words, and 20 - MONEY® Magazine • Issue 2 • 2015

Perseverance:

Mind your “Q” – Quality For decades the Ford Motor Company used a slogan that said, “Quality is Job 1” and it’s something worth remembering as we strive to be excellent managers of our finances. How much time do we put into defining the Purpose and Plan? Will we Perform? Can we Persevere? Quality is not determined quickly – it reveals itself over time. That’s why we adopt a longrange planning perspective – it’s not about the next five years, it’s about the 10, 15 and 20 years beyond today.

The Last P: Professionals Now that you have seen the P’s and the Q – should you seek professional help? Your ability to state and stay true to your Purpose, to work your Plan, commit to enough action that allows you to Perform, and Persevering through difficult time will generate a future you can be proud of. While we are responsible for our own P’s and Q’s, sometimes we require the encouragement and professional

guidance of those who can offer a second opinion about the plans we have created. We hire personal trainers to help us with our physical health, seeking similar guidance for our financial health can ensure our P’s and Q’s are well minded. Bio: Robert Gignac is the owner of “Rich is a State of Mind” providing keynote presentations, client seminars and workshops on personal financial development and motivation. He is the author of the Canadian best seller “Rich is a State of Mind” (14th printing) and the author of the US edition of the same title. Sample chapter and video clips at: www.richisastateofmind.com. To book Robert to speak at your next corporate or organization event, contact him at: robert@richisastateofmind.com Copyright 2015 – Rich is a State of Mind Rich is a State of Mind 1061 Lindsay Drive Oakville, Ontario L6M 3B6 (905) 841-0837 robert@richisastateofmind.com

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Don Shaughnessy

MONEY® Magazine

In The Long Run

The Government Gets All The Money Twenty years ago, I did consulting work with First Nations. I never heard anyone ask, “Did we take advantage of the white men?” Probably a good reason for that, but nonetheless there is a case and it tangentially involves Tax Free Savings Accounts. (TFSA) The recent budget raised the annual deposit limit to $10,000. A valuable gift. If the Canarsie Indians had used a skilled advisor and a TFSA in 1626 when they sold Manhattan Island for $24, history would have unfolded differently.

the deferral is worth more. By age 60 or so there will not be long enough to recover the extra, so portfolio management must also include what container holds which particular asset. The next category, Type 1 shelters, wear out quickly. The greatest value is immediately after purchase and falls as the investment earns taxable income.

Type 3 includes RRSPs, Pension Plans and Deferred Profit Sharing Plans. All of these arise by specific rules, have tight limits, and all create taxable income when you remove the money to spend or at death. Type 3 shelters are powerful but their value shrinks as you age. After 71 you must take money out and pay taxes. We value tax shelters by how much they defer tax. An RRSP peaks around age 80 and it falls quickly after that. Also notice, tax preferences for capital gains and dividends are lost in an RRSP. When you are young, paying double on a capital gain doesn’t matter because 22 - MONEY® Magazine • Issue 2 • 2015

For the Canarsie, their $24 invested at 8% would now be worth $241 trillion. More than the value of all financial assets on earth. With tax at 40% along the way, it is worth less. $241 trillion less. All they keep is the round off $2 billion. Nice, but not in comparison. What we see is the effect that reducing investment returns has on accumulation of capital. It becomes more obvious as the time grows longer, but it is always there. The Canarsie kept only 1/100,000 of the potential because of a 40% tax.

It has to do with how compound interest and tax shelters work together. All tax shelters rely on two characteristics. Deduct the capital against other income or defer paying on earnings. A Type 1 shelter means you deduct the capital but all income is taxable. Type 2 is where you do not deduct capital but avoid tax on accruing income, and Type 3 is where you both deduct and defer.

If you want to keep more of what you earn, you must learn to play the game. Pay attention to tax shelters.

Sometimes you need another shelter for the one you bought last year. Type 2 shelters, work forever and the tax deferral grows forever. Like a TFSA or life insurance policy, the money grows tax sheltered and there is none to pay on death. Your principle residence also works this way. Once upon a time, most people used RRSPs to start, and followed a progression. Once the investable cash became greater than the RRSP limit, then Type 2, and finally type 1 to move income from one year and another. That is changing now and it is certainly changing for older people. TFSAs may work better as you near retirement. Always verify your position because there is no certain, always right, answer for everyone.

For young people the time frame is likely 75 years. At 75 years, the tax loss with 40% tax in an 8% investment world is 90% of the potential income. Even a 20% tax hit over just 50 years will cost more than half the potential. We can all benefit from improving our yield by first addressing taxation and then other things that reduce income. Things like unnecessary fees, tiny losses due to lack of investment knowledge, occasional larger losses due to lack of discipline. All contribute to diminished yield. Work diligently at keeping more of what you earn. Even tiny variations have huge effects. Don Shaughnessy is a retired partner in an international public accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.

MONEY® Canada Limited

Darren Long

A Sinking Boat Without A Life Raft In A Sea Of Sharks - Can You Survive? If you have not already figured it out, witnessed it for yourself, read about it, or otherwise experienced it firsthand, the developed world is swimming in debt in a proverbial sea of sharks without a life raft anywhere to be found. If we have learned nothing about ourselves since 2008 we should now at bare minimum know this. There are really only two viable options or outcomes to the furtive policies of our lovely central bankers and governments of the developed world.

expansion in the US monetary base.

One option is a global economic melancholy while the other remains very high inflation. It has been my contention, for some time I might add, that the policymakers have preselected door number two and that over the following years we will experience the anguish of severe inflation.

It is also noteworthy that the US is not alone in pursuing inflationary policies. All over the world developed nations

As you can see, over the past seven years, the monetary base in the US has expanded from approximately US $848 billion, in January of 2008, to a bewildering US $4.1 trillion! And, believe it or not (By the way I am certain this sideshow will be posted in a Ripley’s museum at some point in the future), until now, this surge in the monetary base has not produced a highly visible inflationary impact…yet that is.

are printing money and debasing their currencies. In this era of globalization no country wants a stout currency and as a result many of these very countries are betrothed in competitive currency devaluations as we speak. This massive money and debt creation will cause an inflationary explosion over the coming years at some point. In fact, those who believe, fallaciously, that deflation is more likely should consider the chart below, which highlights the mind-boggling expansion in the balance sheets of various central banks. As you can see, there are several

The basic premise for this argument is a simple one. The US government, “arguably” still the largest economy in the world, is staring at total obligations of US$181 trillion in funded and unfunded liabilities with a debt-to-GDP ratio which is off the charts, at last check over 102%, up 1 full percentage point since 1st quarter of 2014. The American public is also swimming in debt. Total US debt as of May 5th, 2015 is now approximately $61.6 trillion, up a full 3.7% from $59.4 trillion – staggeringly high by any standard. By comparison, total debt (the combination of government, business, mortgage, and consumer debt) was merely $2.2 trillion 40 years ago. Under this scenario, it is arguable that the US will try to reduce this debt through the usage of a sustained increase in the money supply, more commonly referred to as “monetary inflation”. If you have any reservation whatsoever, take a look at the chart below, which captures the incredible MONEY® Magazine • Issue 2 • 2015 - 23

MONEY® Magazine nations participating in this economic calamity of sorts by printing copious amounts of money; many of which have been in the same race since 2008. Despite this clarity many prominent commentators remain steadfast on calling for deflation. “After all,” they argue, “how can inflation be a problem when bond yields are so low?” Well, these deflationists seem to be missing the point because the US Treasury market is no longer an entirely free market and hasn’t been, along arguably with many other markets like silver and gold, since 2008 and perhaps much before that. The Federal Reserve’s intervention, in the form of good ole’ dirty and

excessive money printing, is largely accountable for keeping bond yields artificially low while at the same time leaving the impression that the stock market and, for that matter, many other markets are witnessing substantiated rebounds. However, over the past several years the US Federal Reserve itself has purchased most of the net new issuance of Treasuries. This is a desperate act which the central bank in the US uses in order to keep interest rates low. However, it is buying these Treasuries by creating currency (paper money) out of thin air. This is inflationary (either now or long term) and those that do not accept this premise are, with all due respect, daft.

my assessment is correct then somewhere in the near future the Federal Reserve will lose its battle and T-bond yields will soar. As more and more bond investors wake up to this impending inflationary hazard, they will start demanding a higher rate of return on their money. When that happens the dyke will burst and the Federal Reserve will become superfluous. Inflation would certainly make US debt more manageable but it would also water down the purchasing power of the US dollar even more so then is happening already. Of course, this inflationary agenda is not a secret and this is why many creditor nations with huge reserves are beginning to diversify away from the US dollar and into assets such as gold and silver; it should come as no surprise that the largest holder of US debt is also now arguably about to become the largest holder of physical gold in history. All of this is pointless, of course, if you still believe that Fort Knox holds the gold they claim to have been keeping for decades; nudge, nudge, wink, wink. In the past when chapters of inflationary stories have been written the ending has always been the same; a spiraling out of control for a period of time and a momentous growth in the value of hard assets. This trend is expected to continue. Furthermore, on a comparative basis, we expect precious metals and commodities to outperform all other asset classes. If you are looking to purchase and own segregated, unencumbered, physical bullion in the form of gold or silver either at home, in storage or through your RSP of any kind then feel free to contact us at Guildhall to answer any questions you might have. Yours to the penny, Darren V. Long Guildhall Wealth Management Inc.

24 - MONEY® Magazine • Issue 2 • 2015

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Tom Drake

MONEY® Magazine

Is Your Home a Good Financial Investment? As you shop for a home, there is a good chance that you will hear your home referred to as an “investment.” But is a home a true financial investment? Depending on when you buy, and the situation you are in, your home could provide you with a good monetary return. However, the reality is that the home you live in might not actually be the financial investment you think it is. Location, Location, Location: Your Real Estate Market Matters Every real estate market is different. In the last few years, Alberta’s real estate market has taken off. Homes bought before the oil boom are worth much more today. Even with oil prices dropping, and home prices in some markets, like Edmonton and Calgary, off their recent highs, some sellers are still coming out ahead. There are some markets where you can buy a home, and expect to see significant appreciation over time, leading to gains at the end of a decade. However, there are some real estate markets that don’t offer the same results. You could spend years in a home, only to realize that the annualized appreciation doesn’t even beat inflation. Timing the Real Estate Market Another reality of real estate is that it can be difficult to time the market. At one point, it looked as though home prices in Alberta would just keeping going up. However, in the last year, some markets have seen drops as buyers hold off due to the uncertainty in the oil industry. While these drops haven’t been huge so far, many sellers would have been better off closing their sales in 2014, instead of now, 26 - MONEY® Magazine • Issue 2 • 2015

when they might be getting $10,000 or $20,000 less than they might have otherwise. Unfortunately, timing the real estate market isn’t a proposition that’s any better than timing any other market. Besides, what happens if you end up in a position that requires you to sell your home at an unexpected time? You might not be able to wait out a price slump, or you might end up selling just before home prices in your market skyrocket and you could miss out.

some provinces, you also pay property taxes. And don’t forget that most home improvements you make in an effort to boost the value of your home rarely offer a dollar-for-dollar match in terms resale price. Once you factor in all those costs, even if your home does appreciate over time, there is a good chance that you will be lucky to break even. Only if you live in the right market, and sell at the right time, can you expect to see a positive investment result from your primary residence. Forced Savings and Emotional Investment

What About the Costs? Even if you manage to take advantage of a good real estate market and fortunate timing, your home might still not be a good financial investment. Don’t forget about the costs involved. First of all, there is a good chance that you will need a mortgage to make your home purchase. This means you will be paying interest. If you get a loan with a longer term, you could end up paying more than you thought in interest. And, in Canada, mortgage interest isn’t even tax-deductible, so you can’t take away the sting. Realize, too, that there are other costs that can reduce your return. Maintenance, repairs, and insurance are all items that cost you money. In

That doesn’t mean that your home purchase is a waste, though. A home can often act as forced savings. While you might not see a high real return, a home is a way to build up an asset that can result in a large amount of capital later. This forced savings mechanism can provide you with the money you need to supplement your retirement income, downsize to other living arrangements, or fulfill some other need. However, you do have to sell your home or borrow against it to access the assets. On top of that, a home is often an emotional investment. Even if you don’t end up ahead in terms of finances, you still have a stable place to raise your family, community roots, and peace of mind. Those are priorities that many of us have -- and they are advantages that you can’t put a price on. Tom Drake is a financial analyst and personal finance writer living in Edmonton, Alberta. He writes at CanadianFinanceBlog. com and BalanceJunkie.com.

MONEY® Canada Limited

Tammy Johnston

When Do You Start

Teaching Kids About Money?

Money is a fact of life and affects almost every aspect of it. We know that having a strong and healthy grasp of how money works, how to ask the right questions, and how to navigate the financial world are skills that set you up for success, but we typically have no idea where to start in terms of teaching these things to our kids. The simple and truthful answer is it is never too early or too late to start when it comes to money conversations with kids. The biggest obstacle I have found for parents trying to open up the topic of money is thinking it needs to be a big formal lecture. We all know the jokes around having the “birds and the bees” talk with kids and how you are best to avoid it, let kids find out on their own, or just hope the school will give them the basics. Well that is a big failure in terms of sex education and just as big a failure for financial education. The truth is our kids are surrounded by the money and sex topics and if we don’t start to properly educate them they will learn on their own, and the chances are good it won’t be a healthy education let alone the best education. Well this should be a huge relief for you. It does not need to be a scary,

formal, sit down talk. In fact it works a thousand times better if you never even go that route. Make teaching kids about money just a part of everyday life and your kids will learn easily. Take your kids grocery shopping with you and talk about figuring out the budget for what you need to get, how it fits in with what you have at home, compare prices of ready-made versus ingredients for making it yourself, let them see you paying for everything with cash or explain how it works when you use your credit card or debit card. When you get the mail with your bills and your credit card offers use it as a teaching / conversation opportunity. Explain to your kids that you get the electric bill and you get to pay it because that is what keeps the lights on in the house. Open up the credit card offers and talk about what credit is, how interest works, how some of the different perks works, the pros and the cons of using credit versus using cash. Let your kids ask questions, and if you don’t know the answer don’t worry. You can look it up together and learn. The financial world is complex and ever changing so learning is encouraged no matter your age.

While watching TV or a movie and seeing the different commercials coming up advertising “Buy now, pay later”, “No money down”, credit card offers, and the whole host of other money spending opportunities you can use these to ask questions of your kids. What are they hearing when they see these commercials? What are their friends talking about when it comes to money / credit cards / consumerism in general? In order to be happy, successful, and able to fully take care of themselves as adults we need to teach our kids a whole host of important life skills. Feeling confident and capable in dealing with money is one of the most important skills we can give them and all it takes is a little time, an openness to learn and discuss with them, and getting over the taboo of talking about money. Now go out there and open up the conversations. “Money isn’t the most important thing in life, but it’s reasonably close to oxygen on the ‘gotta have it’ scale.” Zig Ziglar

MONEY® Magazine • Issue 2 • 2015 - 27

Jonathan Chevreau

MONEY® Magazine

biggest financial mistakes and what I learned from them

When people look at my resume, they tend to assume I was born into a family well versed in financial matters. Actually, my father (sadly, now departed) was a high school teacher who enjoyed a Defined Benefit pension, bought a house in the 1950s and invested in Guaranteed Investment Certificates. He thought it was a badge of honour when he declared he “didn’t know the difference between a stock and a bond.” In these days of self-directed investing and market-dependent Defined Contribution pensions, such an attitude would be financial suicide. Here are the seven biggest financial mistakes I made in my 20s and 30s. 1. Carrying an outstanding balance on my credit cards. The first time I was a freelance writer was in my early 30s. I was single, renting a downtown apartment and didn’t really cook. I ate a lot of fast food and while strolling downtown, tended to buy too many Compact Discs or music CDs. The balances weren’t huge but tended to run around $500. After a while, I realized I was constantly paying $40 or so in interest charges every month, and that that same money could be used to buy two new CDs! That cured me of a bad financial habit that could have grown into a monster problem had I not nipped it in the bud. Ever since, I ignore the “minimum monthly payment” and pay off credit-card balances in full. 2.Starting my first RRSP relatively late in life. My first journalism job after graduating from J School was in 1979 didn’t offer a pension plan and I didn’t know much about RRSPs at the time. Like many young people, I spent roughly what I earned. In 1981, I joined the Globe & Mail newspaper as a high-tech reporter and enrolled in the company’s Defined Benefit pension. I didn’t RRSP on top of that but when I quit the paper in 1984, the pension payout became my first RRSP contribution. I’ve maxed it out ever since but regret the fact I hadn’t started the RRSP five years earlier. Today, I’d also advise young people to max out their TFSAs.

28 - MONEY® Magazine • Issue 2 • 2015

3. Switching from my second DB pension to a DC pension. When I joined the Financial Post in 1993, I wisely enrolled in the company’s Defined Benefit pension plan. But at some point, the firm persuaded many workers to switch from the DB plan to a Defined Contribution plan called TRRIP, which “targeted” but didn’t promise a certain pension payout. When the Post became the National Post in 1998, I joined the new DB plan on offer soon after but I lost six or seven years of DB plan participation, with only a small RRSP lump sum payment to show for my years in TRIPP. 4. Waiting too long to buy a first home. Considering that the constant message of my book Findependence Day is that “the foundation of Financial Independence is a paid-for home” I was relatively late to enter the housing market. I rented in downtown Toronto from 1979 until 1988, when at age 35 I became engaged to be married. If you’re a student of Canadian housing, you’ll know that all those years I was renting, the Toronto real estate market just kept on rising higher. People were frantic to get a foot on the first step of the housing ladder because prices were rising faster than you could accumulate a down payment. As it turned out, when my new bride and I finally ponied up for a starter home, it was almost precisely the top of the market. It didn’t get back to those highs until 1996, which is when we decided to move to our current, slightly larger, home. 5. Buying high-fee DSC mutual funds. Like many people who don’t know better, I found my first financial advisor after attending a “free” seminar on investing. Actually, this worked out fairly well initially, since it got me into the habit of investing not just in GICs or bonds but in equity mutual funds. After a few years, I realized I was locked in to the Deferred Sales Charge schedule as well as funds with fairly high Management Expense Ratios. Today, I buy individual stocks and ETFs at a discount brokerage and “validate” my decisions with a fee-for-service advisor. This triple arrangement is what I call in the book the “Findependence Day” model.

6. Selling a car that turned out to be a Collector’s Item. Now we get into the realm of specific regrets but this is one that still sticks in my craw. Back in 1972, my father bought a brand-new AMC Javelin: a snazzy white car with racing stripes and bucket seats with a Pierre Cardin interior. Eventually, I took it over and, soon after my marriage in 1989, decided to sell it in order to buy my first “new car.” I put an ad in the local paper and one in the weekly Auto Trader. The daily generated a buyer who offered half of the $1,000 I was asking, I sold it and that was that. A few days later, someone in the Maritimes called about the ad in Auto Trader and asked me if the $1,000 was a misprint: surely it was $10,000? Turns out they’d only made four models that year with the Pierre Cardin interior. I wouldn’t be surprised if that car is now worth more than $100,000, while the “new” Dodge Shadow I bought? I doubt it’s worth the $500 I received for the Javelin. Regrets, I’ve had a few! 7. Selling Apple stock way too early. Here’s an investment mistake that probably cost me half a million dollars. Call me smart for buying $5,000 worth of Apple shares just before the iPod took off. Call me dumb for selling those same shares a year later because the stock hadn’t done much. Yep, a 100-bagger cut down in its prime because of impatience. Well, there you have it. Seven huge mistakes by a supposed “financial expert.” I could have been “findependent” long before 2014 if I knew then what I know today. But you, lucky reader, don’t have the same excuse after reading this! Jonathan Chevreau is the author of Findependence Day and the ebook, A Novel Approach to Financial Independence, both available in U.S. and Canadian editions. He writes for various financial media, including MoneySense, Financial Post, Motley Fool Canada and Investored.ca. He runs the Financial Independence Hub, which blogs daily on Findependence.

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Tom Sigsworth

MONEY® Magazine

Buyer Beware of

These 7 Mortgage Conditions Caveat emptor, buyer beware, due diligence -- whatever the term, we all get the basic idea: the onus rests on us, as customers, to understand the product or service we’re purchasing. Canadians usually take this concept to heart when buying big-ticket items like cars, televisions, appliances -- even houses -- but sometimes they don’t do the work they need to when it’s time to get a mortgage. They see a great rate and simply say ‘that’s the one for me’ without paying enough attention to the all-important fine print. With that in mind, here are seven mortgage conditions you should watch out for when you’re taking out or renewing your home loan. When it comes to mortgages, it’s borrower beware! (1) Prepayment and Lump Sum Restrictions While it might be hard to believe right now, but you’ll probably want to put extra money toward your mortgage at some point. Some discount mortgage offers have great rates but severely limit the amount you can pay off early using prepayments and lump sums. (2) Owner-Occupied Only Do great mortgage rates have you thinking about a rental property purchase? Not so fast -- some of the best mortgage rates out there are only available to buyers who are actually going to be living in the property they are buying. (3) Minimum Loan Amount A few lenders dangle bargain basement mortgage rates in front of borrowers only to require a huge mortgage amount to qualify. Canadians with smaller mortgages (and thankfully, less debt) need not apply. 30 - MONEY® Magazine • Issue 2 • 2015

(4) Accelerated Close Some discount mortgages require very accelerated closings on the property being borrowed against -- sometimes as brief as 15 or 30 days. If you don’t have your paperwork in order or the seller can’t wrap things up on their end in a short amount of time, you’ll be out of luck with this condition. (5) New Purchases Unfortunately, some of the best mortgage offers in the country only apply to new home purchases. If you’re one of the millions of Canadians refinancing or renewing your loan, this is a condition you don’t want to see. (6) Insured Only This is a more common mortgage disclaimer than you might think. Many of the bargain basement mortgage deals you see advertised only apply to insured mortgages, where you have a downpayment under 20%. Insured mortgages actually have less downside risk for lenders so in general they have lower rates. (7) Teasers Teaser mortgages offer an enticing, steeply discounted initial interest rate before resetting (usually after a period of six months to a year) to a much higher rate. Reviled by many Americans for helping cause the U.S. housing bust, teaser mortgages have not been widely available in Canada until just recently. Several banks, including CIBC, now offer teaser loans, and with competition in the mortgage market continuing to intensify, you’ll likely see them more often in the weeks and months ahead. Borrowers should beware of two big things when considering a teaser loan: they should (1) make sure they are comfortable with the size of the

mortgage payment once the teaser offer expires and the rate resets (in Canada borrowers must qualify for teaser loans based on the higher, ‘reset’ rate), and (2) they should figure out if a regular fixed rate mortgage might actually be a better deal. Teaser mortgages often charge more interest over the full term of the loan than their fixed rate counterparts, even though the great initial rate makes them look better on paper. Consult a mortgage expert if you aren’t sure -- teaser mortgages are often more gimmick than great deal! Look for Disclaimers When Comparing Mortgages While it’s always satisfying to get the lowest mortgage rates possible, sometimes mortgages that look great at first glance come with conditions you either can’t or don’t want to meet. That’s why I suggest you shop around for your mortgage rate and search online comparison websites such as LowestRates.ca. Before you sign any documents or accept a mortgage offer be sure to ask questions and read the fine print when it comes to conditions attached to the mortgage rate. As a home owner myself I appreciate seeing the disclaimers on loans, mortgages, credit cards and other types of financial products. I learned first hand that sometimes the best mortgage isn’t necessarily the one that charges the least interest!

Ed Olkovich

MONEY® Canada Limited

Executors, If Only You Knew! You will likely act as an estate executor someday. You’ll do that for a partner, parent or family member. But will you know what to do while administering an estate? You need to follow certain rules for success. Let me tell you an easy rule I found that works. Record-keeping is Vital Do you have trouble balancing your own finances every month? Do you go crazy figuring out your taxes each year? Then you should be prepared for extra challenges in estate work. Being an estate representative is loaded with financial stresses. As executor you must pay someone else’s credit cards, mortgage and income taxes. You are responsible for investing or earning interest on estate money. I’ve seen estate worries push people to the breaking point when they get into trouble. That can easily happen to you and your good intentions. As a Certified Specialist in Estates and Trusts law, I help executors with problems. Executors can find out the hard way what they did wrong. Often they receive bad advice or no advice at the start. They may think being an executor is an honour – but it comes with legal duties. Executors are Legal Representatives You may come across these terms that can refer to you: •

Executors are named in a will. They are also called estate trustees with a will in Ontario.

•

Estate Administrators are appointed by the court where there is no will. (or when the will does not name an executor). In Ontario the term is estate trustee without a will.

•

Liquidator is the Quebec term for the person handling the estate.

As an executor, your job is more than an honour. It carries legal responsibilities. Executors are Entitled to Compensation Every province and state allows estate representatives to charge a fee. This is for their time, trouble and responsibilities. The amount of payment will vary and usually depends on the size of the estate. There could be more work in small estate and less in larger ones.

In Ontario the rule of thumb for compensation is roughly 5% of the estate. Yes, you have to pay income tax on what you receive. You cannot just take the fee. You have to get permission to take compensation. You get permission from the residual beneficiaries or the estate court.

Brenda was also asking Bob for: •

the real estate appraisals used to list and sell Jack’s house

•

the contracts for the tradespeople Bob hired to repair Jack’s house

•

a detailed inventory of the house contents

You have to explain what you did with the estate money. Hopefully you kept it separate from your own money. You need to keep records of the decisions you made.

•

the initial value of Jack’s investments which Bob sold

•

copies of all vouchers, receipts and invoices for Bob’s expenses

Problems Surface Years Later

•

details of how the estate money had been invested

•

proof that all federal income taxes had been paid on time

Two or three years after you start the job is when problems can surface. You may be ready to distribute the estate. What happens then when you ask for your compensation? You will need the beneficiaries to approve your work and your financial records. You could be asked to produce the evidence to show you acted prudently. It can be difficult trying to retrace an incomplete paper trail years later.

Bob’s lawyer should have told him to keep receipts and records. He would need to show the original assets that he discovered with supporting documentation. Now, two years later, Bob would have had less trouble reconstructing these financial records.

Let me tell you about Bob who has been working on his uncle Jack’s estate.

Bob wondered where he went wrong. Why did nobody tell him this at the start? Should he have known?

Bob’s Story

Perhaps.

Jack appointed his nephew, Bob, as executor under his will.

While every estate is different, the recordkeeping steps are the same.

Bob hired a lawyer to apply for an estate certificate. He wanted to prove Jack’s will was the last will and comply with all legal requirements.

The number one rule for executors is simple: keep records of everything you do.

Bob considered his responsibilities seriously. He took months to probate Jack’s original will and repair Jack’s house to prepare it for sale. Two years after Jack died, Bob was ready to claim his compensation. Bob had to ask Brenda, his cousin and Jack’s niece, to agree. Brenda asked Bob for his executor report. She was entitled to one-half of the estate. She wanted Bob to produce his executor accounts. Executors Must Keep Records Executors need to produce their accounts for approval by the beneficiaries. What Bob did not know was that he should have kept better financial records as he went along. Brenda also wants to see breakdown of the estate bank account showing income receipts.

Executor success starts with getting the right advice from an experienced estate lawyer. You should aim to prevent problems. Before you go to work, learn what you need to know about your job as executor. Invest in proper legal advice for the estate and yourself. About Edward Olkovich Edward Olkovich (BA, LLB, TEP, C.S.) is a Toronto estate lawyer and nationally recognized author. Ed is a Toronto based Certified Specialist in Estates and Trusts. He is contributing editor of Carswell’s Compensation and Duties of Estate Trustees, Guardians and Attorneys and author of Executor Kung Fu: Master Any Estate in Three Easy Steps. Ed can be reached via his website MrWills.com © 2015.

MONEY® Magazine • Issue 2 • 2015 - 31

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The FINANCIAL Show draws attention as Canadian Financial Literacy Advocate Financial Industry Pundits Pape, Bolland, Chevreau, Blythe and Bebee set to Speak in Favour of Financial Literacy. Wednesday, May 27, 2015 - Mississauga Convention Centre Tickets and Information: www.TheFinancialShow.ca Event Producer: MONEY® Canada Limited - money.ca One of Canada’s fastest growing financial publishing companies - MONEY® Canada Limited - is set to take the GTA by storm with a galla event in honour of Financial Literacy - The FINANCIAL Show. What began simply as way in which to bring together financial consumers, advisors, and product manufacturers in the Investment Marketplace has turned into an exclusive financial literacy showcase for all parties to embrace one another in the spirit of financial literacy. Not to be outdone, The FINANCIAL Show boasts a Top-Speaker list which includes some of the biggest names in the Canadian financial publishing industry, such as Gordon Pape, Pat Bolland, Jonathan Cheverau, Scot Blythe, and Gail Bebee. These top financial speakers will provide in-depth analysis of the markets and the financial picture as a whole and how they impact regular Canadians. While industry advisors and product manufacturers will also be on hand to answer questions and present the view from their specific industry. MONEY® Canada Limited is the publisher of money.ca online and MONEY® Magazine in print available nationwide at fine retailers. MONEY® has but one principal mandate which is Financial Literacy. Representing the needs of the ‘average Canadian’ financial consumer is what we are all about. And as such Financial Literacy is at the core of our operations.

For more information or to buy tickets to support this Exclusive Canadian Financial Literacy Event, please visit: www.TheFinancialShow.ca. To speak directly with a representative from MONEY® Canada Limited, please call 416-360-0000 or 1-800-789-1011. MediaRelease.ca

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Ian Whiting, Senior Editor

MONEY® Magazine

The lure of cheap versus the peace of mind of quality - can you pass up the bargain? We are bombarded daily with multimedia ads such as “10% off lowest prices ever”, “shop and compare”, and of course “no-one can beat our prices”. I have always wondered why we don’t see advertisements that shout “Highest quality”, “the best in the world”, or “nobody gives you better quality”. Many years ago I heard this from a long time pilot...”2 things in life you never buy on the cheap - parachutes and life insurance”. Simple logic really, if you ever need either one, you want the best quality available, and that still holds true today, by the best quality that you can possibly afford! I would certainly expand that beyond just life insurance to include all financial products and services. It continues to amaze me that people still don’t remember...you only get what you pay for (poor grammar aside). People say they want high quality but then complain about the prices. Yes, some items, such as fashion clothes and accessories are overpriced due to brand recognition or ego-based advertising to lure in customers (and put them into debt at the same time!), but that aside, 200 count sheets cost much less than 800 count sheets and there is a huge difference in comfort, but you can sleep on either. Have you ever noticed that the very top quality brands in any field, rarely if ever, do any advertising? They don’t need to do so! Top restaurants (LJ’s, Ruth’s Chris, Brennan’s, Morton’s)use minimal ads since word of mouth is free, more effective and targets exactly the right client for their business model. Rolls Royce doesn’t do any either, even their dealer signs are very hard to see. So 34 - MONEY® Magazine • Issue 2 • 2015

why do some people think that financial products are any different? No cost banking, no fee brokerage account, never any service charges, our life insurance is the cheapest you will find anywhere! Do you really believe things are free? How do companies stay in business if their products are given away free? What about...cheapest laser eye surgery here, do-it-yourself appendectomy kit now available, grind your contact lenses at home and save 90%, gall bladder removed in 30 minutes or it is free, you

is necessary. Cheap insurance is false economy. People buy it to cover financial loss in usually catastrophic circumstances. If the insurance product is cheap, there is always a reason. Those reasons will include some or all of the following:

a) The insurance company isn’t paying many claims due to:

a. lots of small print that hides exclusions or imposes strict limits on benefits;

b. pre-existing condition exclusions;

they contest almost every claim through their lawyers; and

their claims philosophy is to find a way to avoid the claim rather than pay the claim.

help fuel the aircraft and we reduce your fare by 10% ( Southwest Airlines notwithstanding – sorry, too good to miss but of course it isn’t true!). These are silly extremes to be sure...but the message is clear. A farmer once put it another way: “if you want nice fresh oats, you are going to pay a fair price but if you want them after they have gone through the horse once, you can get them much cheaper!” Haven’t met anyone that deliberately goes out look for the most expensive alternative for their purchase plans – that would be rather foolhardy. Noone wants to, or should, over-pay for anything, including financial products. However, decide what level of quality

The insurance company relies on “inventive” advertising to attract people who will qualify for the insurance to be issued but who will likely either lapse the policy before a claim occurs or present many reasons after death to deny the a death claim.

c) The insurance company accepts

virtually everyone who applies and does very little underwriting – until a claim occurs then by using “postevent underwriting” they deny large numbers of claims.

d) The product is designed to be out

of force, by any means possible, when a claim occurs – insurance for if you die while qualified rather than insurance for when you die that is based on the expectation of paying the full claim.

MONEY® Canada Limited

Becky Wong

What is a 'foreign property'? and TFSAs. The following are also exempted: foreign investments held in Canadian-registered mutual funds, any property used mainly for personal use and enjoyment, such as a vehicle, vacation property, jewelry, artwork, or any other such property.

How many of us really pay attention to the following question when you file your personal tax return “Did you own or hold foreign property at any time in the year with a total cost of more than CAN$100,000?” Perhaps, like many, you’ve always answered “No” for this question because you might have assumed it meant Swiss bank accounts or a foreign rental property. It is important to define what is “specified foreign property”? Specified foreign property (SFP) includes: funds held on deposit outside of Canada, foreign real estate, other than personal residential real estate that isn’t income producing, and shares and debt of nonresident corporations, even if held in a Canadian non-registered brokerage account.

In an effort to combat and prevent tax evasion, the Canada Revenue Agency (CRA) released a new version of Form T1135 in 2013. For each individual foreign asset, the taxpayer had to report details such as the name of the specific foreign institution at which the property was held, the country in which the asset was located, the income earned on the asset, and the maximum cost of the asset in the year. In 2014, again the form was revised to make it less cumbersome for the taxpayer to gather information. It is important to ensure that the T1135 is filed as required, as the penalties are onerous. If you fail to file, you could be subject to late filing penalties of $25 per day to a maximum of $2,500 per year. If you knowingly or under circumstances amounting to “gross negligence” fail to file the form, the penalty jumps to $500 for each month the form is not filed, to a maximum of 24 months. If you are using an accountant to do your taxes, make sure that this form is filed – it is ultimately the taxpayer’s responsibility to ensure that taxes are filed correctly, even when you are paying someone

else to do them for you. The most recent federal budget included the streamlining of foreign asset reporting. The current reporting $100,000 threshold will increase to $250,000. Budget 2015 proposes that for 2015 and later taxation years, if the total cost of a taxpayer’s SFP is less than $250,000 throughout the year, the taxpayer will be able to report these assets to the CRA under a new simplified foreign asset reporting system. The form is currently being developed by CRA. The current reporting requirements will continue to apply to taxpayers with SFP that has a total cost of $250,000 or more at any time during the year. It may still be unclear to the average taxpayer as to just what foreign property triggers the need to file the T1135 form. The CRA has published a number of questions and answers on its website (http://www.cra-arc.gc.ca/ tx/nnrsdnts/cmmn/frgn/1135_fq-eng. html) on the types of situations that would lead to a requirement to file Form T1135. If you have such SFP, it may also be prudent to have a tax accountant to help you. Becky Wong, B.Comm (Hons), CFP, FMA, Independent Financial Planner, Richmond, BC, (778) 227-7087, becky. cfp@shaw.ca, www.beckywong.com

If the cumulative cost (not fair market value) of all SFP owned at any time of the year exceeds $100,000, then a T1135 “Foreign Income Verification Statement” must be filed, reporting all SFPs held during the year, even if some or all of the property was sold before the end of the year. The form itself does not have an impact on taxable income but is used by CRA to gather information. Property not included in SFP includes securities held in registered accounts like RRSPs, RRIFs, RESPs, RDSPs MONEY® Magazine • Issue 2 • 2015 - 35

MONEY®

THE SOCIAL CURRENCY

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Making Print, Broadcast and Online Media The vast majority of post Korean War Veterans – called “Modern Day Veterans” (MDV), not in receipt of VAC benefits, are excluded from Last Post Fund indigent funeral & burial program. No funding is contributed for Modern Day Veterans, whose applications are rejected due to the specific nature of eligibility requirements. The number of MDV in Canada currently stands at approximately 600,000 with an average age of 58 years, giving rise to an estimated 4001 cases per year of indigent MDV requiring assistance to have a dignified funeral and burial. [1] Figures provided by VAC

In-person, regional interviews with Major-General E.S. (Ed) Fitch (retired), OMM, MSM, CD, Vice-President (West), Last Post Fund, are available throughout this campaign. MGen Fitch can be reached: +1 250 381-1166 or +1 250-893-1162. "In Memory of Our Veterans", Campaign BC/Yukon Branch * 1-800-268-0248 203 - 7337 - 137 Street,

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Steve Nyvik

MONEY® Canada Limited

To concentrate or to diversify? On driving through the Italian countryside… “There’s no need to drive fast. It just increases the percentage of risk. I am not being paid and there is no incentive or reward. So why would I drive fast?” – Niki Lauda, Austrian former Formula One driver and three time world champion, from the 2013 movie, ‘Rush’ Although concentrating your money into one or a small number of investments can make you rich, does it ever make sense to be “all in”? You can become rich by saving enough and making wise diversified investments. It may take more time, but you have the highest probability of getting there! Many years ago, I thought I could become wealthy through making a single large investment. I learned very early about a new patented technology called, Wideband Orthogonal Frequency Division Multiplexing, or W-OFDM. This is a modulation technique that became the technology for 802.11g and 802.11n wireless standards for low cost, high-speed Wi-Fi products. The company had sued several large companies for patent infringement, including Cisco. The speculation was that Cisco might try to buy them out or come to a licensing deal. Some analyst reports had price targets on the company with a potential five-fold increase in share price. I also had several friends that were computer technical people who were familiar with the technology who also made investments in the same company. Although the company ultimately got most technology companies that rely on the wireless standards to license its technology, including Cisco, the licenses were at such low rates that the hoped for company share price never materialized. Instead, my shares were diluted as the company went through many rounds of equity financing as

they regularly ran out of money. To make matters worse, the developers of the technology who controlled the company were not the best managers. My investment eventually became practically worthless.

and down in perfect synchrony. As a result, a portfolio of different types of businesses will have less risk than the weighted average risk of each individual investment, and often less risk than the least risky of its constituents.

I made a concentrated investment thinking I might become rich. In essence, I did not fully appreciate all of the risks – a small company that is not financially strong enough to be able to defend its patents through having enough resources to last years through trial. Companies like Cisco simply ran roughshod over the patents building their routers and other products with impunity.

It goes without saying that in selecting different businesses to own, it is important that each such different business are all attractive stocks of profitable businesses that can be acquired at a good price; otherwise we ‘diworsify’ the portfolio. •

don’t risk your life by concentrating your portfolio, and

The reality is that any investment, regardless of its prospects, simply might not work out. There are no guarantees in life. Human behaviour is another unpredictable factor that can make even a high probable investment return into a short-term loser where people choose to sell an investment to low prices compared to its true intrinsic value.

•

your portfolio should consist of profitable blue-chip income producing quality businesses that sell different types of products or services.

For this reason, I am a strong proponent of not making concentrated investment bets. But this is not the end of the story. I seek to own different types of profitable businesses that sell different types of products or services. (To help with this, I try to diversify my stock investments across several industry sectors). This is based on the idea that these different types of businesses don’t move up

So let us never forget:

If you are going to take risks, bet on yourself through education and career training where your talents and interests lay where you’re able to make a good living. If you’re going to concentrate your life savings, it better be where you control the business, that you have years of experience in such a business, and that you have all of the qualifications you require. Written by Steve Nyvik, BBA, MBA, CIM, CFP, R.F.P. Financial Planner and Portfolio Manager, Lycos Asset Management Inc.

MONEY® Magazine • Issue 2 • 2015 - 37

Joe White

MONEY® Magazine

Why Buy a Franchise? Why Your Uncle May be Wrong About Advising you Not to Buy a Franchise OR Do Your Research and Learn the Real Story It amazes me how many so called business advisers like my Uncle Bob know so little about franchising but are always ready to give advice without knowing the facts. I am often asked what the best franchise to buy is. Where can I make the most money? What is the hottest brand? The answer I give every time to these questions is, I do not know, because I do not know you and what is right for you. It my might be easier to ask why do people buy a Franchise versus just starting their own business? Now that is a great question. There are number of misconceptions around franchising that need to be erased. Here are just a few erroneous ideas. • Buying a franchise is like buying a job. You never will be able to resell your job or take advantage of the goodwill you created in your job. The race to success is always better in the long-term in franchise business ownership. • You have to pay Royalties. Yes you do and all royalty streams are not created equally but you need look at the value proposition and understand royalties are no more than a line item on a balance sheet, it is the cost of doing business. • I know someone who failed in a franchise because they (fill in the blank). Yes people do fail in franchising but well over 80% of the people who start a franchise are still running and growing these business 5 years down the road. 38 - MONEY® Magazine • Issue 2 • 2015

Okay how many non-franchise businesses are still in business 5 years down the road not too many and it less than 20%. Or even better how many people will have their job in five year. So Why Buy a Franchise Business 1. The safest path to Entrepreneurship is the franchise system which allows first time business owners to avoid the traps and mistakes of starting a business. This can be from

business. As you appreciate the value of what you grown. In fact of investing in your own business can reap a much bigger reward then taking a MBA. I recently had a family purchase their son a business. The parents deemed there was much greater learning value for the son in running the business. I remember chuckling when the investing father told me it will be his experiential MBA. As a side note this business is thriving and growing and the son has repaid his father the investment and looking to open a second territory. 4. It is easier to get funding. Banks and lenders like a proven system and a franchise business plan. They know it success chances are much higher and thusly less risky.

marketing to sales to accounting to networking to existing National accounts and a brand that is established or growing. Question, how long would that take to do all of that on your own? 2. The Investment is a lot safer. The failure rate is much lower the investment is a lot lower and the opportunity can be bigger depending on the choice in selecting a franchise. 3. Personal and professional development. This is seldom thought of as an advantage but there is much you can learn about

5. Start-up cost can be less Remember you are buying a proven system and all you should have to do is apply the model and work at it. 6. A more Flexible Lifestyle. Do not be confused about this, you still have to work hard and drive the business but the decision you make to attend a family event or work late or not, are yours and your schedule to run. You never have to answer to the boss because it is you. 7. Training and support and direction become cornerstones of the franchisors commitment to your success. Remember they are fully invested in your success and long term the Royalties they obtain from helping you grow the business far

out reach the money they may make on the franchise fee. This is why franchising can be and exciting entrepreneurial partnership. 8. This is a Regulated industry and as such the franchise companies must comply with the laws around franchising and they can be held accountable for the promises they make. They are required to fully disclose to the buyer how the business is run. This eliminates a lot of surprises generally associated with a start-up business. 9. Pride of ownership. It is nice to say, I own this or I build that and this is my business. This is why when you step back and truly understand franchising you might ask a different question like how do I learn more about this huge business category and where do I fit in.

Joe G. White is Owner of MFR Inc. “The Franchise Rainmaker”. He provides professional advice to people looking to engage in franchise ownership He can be reached at 647-724-0742 or jwhite@franchiserainmaker.com. “Success through knowledge”

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Mark Borkowski

Its your call - How to get new clients

Humour me for a second. Think back to the last deal you closed and ask yourself, “Who was the decision maker I had to reach and influence? How did I do it?” The reason I asked you to think about that is because there will always be someone you will need to contact and influence to get the next deal and the one after that and all the deals you could ever possibly close in one lifetime. Your success doesn’t just happen. You make it happen, and it all begins with prospecting. Prospecting is nothing more than the art of speaking with people who might do business with you, and engaging them in a meaningful conversation so that they will want to see you and talk further. Let’s not make it any more complicated than that. At the end of the day a telephone sales call is only a conversation between two people. Make a list of everyone you just identified. It doesn’t matter if you need to speak with fifty people or only one; your focus is on precision not volume. Once you have the names write down the main issues facing each person on that list. The reason I’m suggesting that is because you will have to address their issues, not yours. If you start your conversation rambling on about your products and services you will sound like you’re selling something. When you talk about their issues you hit their Greed Glands which address what’s in it for them. Retirees are not waking up in the morning wanting financial products. (It would

be nice.) They are, on the other hand, concerned about the rising cost of living. Once you’ve worked out what you want to say you will have to get the person on the phone. The objective of your call list is not about making calls. Many financial advisors base their lists on volume, in other words the more names on the list the better because if they don’t contact someone there are plenty more to call. What happens with this approach is that most people end up leaving a lot of money on the table, missing up to 75% of their opportunities, simply by not contacting people. A call is not a commodity. It’s precious. It would be nice if we were mind readers and knew where our biggest opportunity was, but we don’t so we have to speak with everyone. Your objective is to book appointments. So whether you have twenty people to call or only one, get them on the phone. All of them. Without exemption. Leaving a voice message doesn’t count. That only fools you into thinking you contacted someone when in fact all you did was leave a voice message. The easiest way is to ensure that you connect with your prospects is to simply find out when they are in, and then call at that time. By planning your calls and your message you stay in control. Once you get your prospect on the phone you will have the opportunity to speak for all of about thirty seconds

at which time you will either ask for an appointment or ask a qualifying question. From the time you introduce yourself to the time you ask for an appointment there are less actually than thirty words. Make each word count. The words you speak paint images in people’s minds and you have complete control over what those words are. Twice as important as what you say will be how you say it. Speak slowly and send the message that what you have to say is important. It’s so important that you will take a minute before the call to focus on how you can make the prospect’s life better, and that will bring out the passion in your voice. At the end of each call you will either be sitting there with an appointment or you won’t. Either way self-assess to either see what you did well so that you can do it again on the next call, or look at where you need to improve. If a call does not work out for whatever reason figures out if it was they or you. If there was something you could have done better, make sure to take correction action for the next call and then reward yourself for learning from your mistakes. When you consistently self-assess you stop repeating the same mistakes, and when that happens your performance benchmarks rise as like gravity. By making yourself more effective you ensure that your next deal will be more successful than your last. Mark Borkowski – www.mercantilemergersacquisitions.com MONEY® Magazine • Issue 2 • 2015 - 41

Guy Ward

MONEY® Magazine

The Value of Working with

a Mortgage Professional The real estate and mortgage industry is a competitive business. Changes in lender policies have led to an altered mortgage landscape. The recent slump in oil prices and a lowered loonie have dampened housing activity in some parts of the country. Early forecasts pointed to a slower pace in sales but that has not happened, with the exception of regions affected by a prolonged winter. The Spring market has turned out to be surprisingly strong and house price projections have been revised upward due to high consumer confidence and low inventory. Each year hundreds of thousands of properties trade hands and this will continue. For consumers, competition is a good thing because it gives you choice. In the mortgage industry, with historically low interest rates, it’s easy to shop the market to find a low advertised rate, whether from your local bank or from your mortgage broker. However, mortgages are not as simple as some make them out to be, especially when rate is all that is considered.

42 - MONEY® Magazine • Issue 2 • 2015

It’s important that homebuyers educate themselves about mortgages including the following areas: pre-payment terms, penalties, fixed vs. variable, open vs. closed, etc. Each situation is as unique as each borrower and each needs a unique strategy. By working with a licensed mortgage professional, you have a trusted adviser and problem solver. Brokers take the time to first understand a client’s needs, both short term and long term, then recommend the right mortgage and present options. In addition to straight home purchases, brokers work with clients who refinance to consolidate debt, who are looking to purchase second homes, who are looking for the best options at renewal time, and brokers help clients make propertyrelated investment decisions. Although the lending environment has changed over the past few years, brokers keep up-to-date with all the changes and have access to a variety of lenders including banks, credit unions, trust companies, monoline lenders and private lenders. For example, if your personal profile does not quite fit a

particular bank’s profile, you may still be able to qualify for a mortgage by working with a mortgage broker. No one is more knowledgeable and more informed than we are. Many clients are doing research online and we encourage that. We work with a wide variety of clients with different credit profiles. We counsel clients who have less-than-stellar credit or home buyers who don’t qualify under the new mortgage rules. Everyone is important to us. We take care of our existing clients, understand our lenders and keep educating ourselves. We make sure we understand what you want and what you need – both your financial goals and your personal goals – and not just in the short term. Simply, we are here to help. Call me today! Guy Ward is a Mortgage Broker in Calgary, Alberta with TMG (The Mortgage Group Alberta) and can be contacted at WWW. GUYTHEMORTGAGEGUY.COM

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Frank Flynn

MONEY® Magazine

The Trouble with Taxes Taxes are a never ending source of frustration. There’s no getting around them. Most people know all too well the overwhelming power of the Federal bureaucracy; the indifferent service, often heavy-handed agents, confusing forms, inaccessible offices… the list goes on. Having spent more than a decade as a senior collections enforcement officer with Canada Revenue Agency, I know better than most how things work - or don’t. Sometimes having just a little bit of information or at least a different perspective can sometimes make a big difference. Let me just share a few pointers based on my years spent with the Agency. First, I would say among the most common mistakes people (including accounting practitioners) make, is to assume that the Agency’s numbers are correct. The Agency miscalculates tax, penalty, and interest with surprising frequency. More often than not it has to do with misapplied payments, or re-assessed tax balances where the original interest amounts are not correctly re-calculated. Do yourself a favour and check your Notices of Assessment very carefully. Don’t assume that the numbers are right. Payments can be inadvertently put

into an instalment account, applied to a spouses account, or applied to the wrong period- these are just some of the circumstances where an incorrectly applied payment can result in significant errors. When asking for clarification, be sure to ask for a detailed, periodby-period, account reconciliation that sets out how and when payments were applied i.e. tax, penalty, interestwith dates. The Agency will tell you that they’ll send you a “statement of account”. NO. You do NOT want a statement of account. It doesn’t contain any of the details you’re looking for and will not provide clarity. It will only provide confusion and more often than not, their statements of account are just statements of error. I work with accounting practitioners who’ve been preparing complex tax returns for over 30 years who have no idea how to read an Agency statement of account. If they can’t figure them out, the average person has no hope of ever doing so. Another common mistake people make is to assume that the Agency staff a) want to help you b) know what they’re doing. By and large Canada Revenue Agency staff are nice enough people, but globally speaking, their goal is to collect money, not help Canadian taxpayers. Again, nice people but far too many of them don’t have a clue

what they’re doing. They’re not given sufficient training. It’s not their fault, so don’t take it out on them. When you’re not getting the answers you’re looking for, be courteous but persistent. Very often it’s helpful to take down an agent’s name and i.d. number. Doing so sends the agent the message that, yes, indeed you will be held accountable for the things you say! You’d be amazed at how that one little thing can shift someone’s outlook when it comes to assisting you. It’s also helpful to keep in mind, when you speak with folks at the Agency, usually the person is making notes of your call and entering them into a computer diary that can be read by anyone else handling your account at some point in the future. That’s why it’s never a good idea to lose your cool or be unreasonable. It makes a difference. And finally, as far as sharing information with Canada Revenue Agency goes, use the golden rule: If you don’t know what to say, don’t say anything. Don’t complicate your situation by getting into long drawn out conversations where you’re providing information you’re not being asked for. Nothing good can come from that. Frank Flynn Taxpayer Relief Letters www.taxpayerreliefletters.ca

info@taxpayerreliefletters.ca Or call us at (705) 745-5354

Taxpayer Relief Letters provides expertise and specialty writing services to Canadian taxpayers and their accounting or legal representatives. We specialize in the Taxpayer Relief Legislation, and the procedures and protocols required for requesting remission, reduction, or waiver of penalty and interest. We write customized penalty and interest relief requests as well as applications for acceptance of late, amended, or revoked elections; and applications for refunds or reductions to amounts payable that are beyond the normal three year period. 44 - MONEY® Magazine • Issue 2 • 2015

MONEY® Canada Limited

Kyle Prevost

Millennials Can Make Use of TFSAs Too!

There has been a lot of talk the past few weeks about the Canadian Government’s decision to boost the annual TFSA contribution limit to $10,000. Much of this talk has centred around who all this new contribution room is ultimately going to help most. The undeniable truth is that the short term at least, the increase to room available in TFSAs will help older Canadians more than younger Canadians. This is true for several reasons, but chief among them is the obvious fact that higher incomes of those later in their careers means more discretionary income and consequently more budget surplus available for investment. There are also some great benefits available to older Canadians who can use TFSAs to shelter assets which they can withdraw without hurting their income-tested benefits such as OAS. As a result of all this talk, the TFSA increase has been viewed mostly as a bunch of lemons for young folks. While we millennials might not be getting the same tasty treats as Canadians that vote at a much higher rate, there is still lemonade to be made and enjoyed where TFSAs are concerned. If you’re reading a magazine with “Money” on the cover you likely know by this point that TFSAs are contributed to with after-tax income, but that when you take your money out there is no taxation on the initial principal or any capital gains, dividends, or interest earned while in the account. This means that in a vacuum, the best use for TFSAs are higher-risk investments

that you can hang on to for several decades and realize a great return on investment with (aside from US equities due to withholding tax). The problem for millennials is that very few of us have $10K sitting around every year to be invested. Then, even if we do scratch together some savings to take advantage of this magic compound interest stuff we’ve been hearing about, people starting throwing acronyms at us and some shout that RRSPs are better than TFSAs, or that you should be paying down debt, not investing anyway. All this noise leads to many millennials not doing anything at all. If you’re a young Canadian that is just getting their career on track and want to start investing for retirement, the TFSA is actually a better choice in a lot of cases. As a rule of thumb, if you’re income is below the $30,000 – $35,000 mark and you have a bunch of tax credits and deductions left from going to post-secondary education or just aren’t paying much tax for one reason or another, then you should be making use of your TFSA before your RRSP. Using your TFSA in this scenario will save room in your RRSP for later in your career when (hopefully) larger paycheques start arriving. Another strategy that you can take advantage of by contributing to a TFSA early in the ball game is that as your income climbs you can actually withdraw funds from the TFSA and contribute them to your RRSP in order to generate a larger tax refund. While high-risk investments that are appropriate for long-term retirement

saving might be the best use for TFSAs, that doesn’t mean they are useless for everything else. TFSAs are a great place to save money for medium-term goals as well. For many people the $25,000 down payment that can be saved via the RRSP-funded Homebuyer’s Plan is not nearly enough to get to the 20% of a purchase price needed to avoid paying CMHC fees; therefore, in some instances a combination of saving side by side in an RRSP and TFSA is the best option. In a perfect world, someone really committed to saving for a new house could max out their RRSP contribution and then use the resulting tax refund to pump up their TFSA. Because RRSP contributions can generate a juicy tax refund that can subsequently be used to supercharge saving for a down payment, some people assume it’s always the best option for getting into a house. But the truth is that using RRSP money to for your down payment means you are subject to many restrictions that could tie up your financial flexibility going forward. Just be aware of repayment schedules, eligibility restrictions, and the fact that you can only use the HBP plan once in your lifetime. In many cases the HBP isn’t an option and/or the TFSA is actually a better fit. Just remember that while the flexibility of a TFSA is a great feature, it can also cut both ways. Don’t let the ability to withdraw funds from your TFSA tempt you into using cash that you had previously designated as long-term savings to evaporate into “treat-yo-self” day. MONEY® Magazine • Issue 2 • 2015 - 45

Richard Atkinson

MONEY® Magazine

Retiring?

How Much Money Will You Need? How much money do you need to retire comfortably? Is it $250,000? $500,000? $1 Million or more? What is a realistic amount based on your current and visualize lifestyle? Most people feel they need more money than what they have. Ask a person with $500,000 in retirement savings

how much they need for retirement and nine times out of ten they will say, “More than what I currently have.” Ask a person with $1 million or $3 million in retirement savings and the answer will be the same. The monetary trick to a happy retire-

ment as related to me by hundreds of successful retirees is not to concentrate on amassing an abnormal amount of wealth, but to determine how much money will make you feel secure. In other words, how much money do you need to enable you to live and fulfill your visualized retirement lifestyle?

To establish how much is enough, ask yourself the following questions: 1. At what age(s) do my partner and I want to retire? Me _______________ My partner ____________

2. 3. 4. 5. 6. 7.

Are we planning to downsize our home?

Yes

Will we move out of the city to a less expensive home?

Yes

Will we rent out part of our home?

Yes

Will we be moving to a retirement community?

Yes

Do we want to rent or own a vacation home?

Yes

Will we spend time in warmer climates each year?

Yes

If so, for how long?_________________________

8. Do we plan to travel abroad frequently? 9. Will we be staying in upscale hotels? 10. Do we plan any major purchases or renovations? 11. Will I (we) be working part-time while retired? 12. Will I (we) be helping to support any family member? 13. What hobbies will my partner and I pursue and what are the costs? Hobby

Costs

__________________________

____________________________

__________________________

____________________________

__________________________

____________________________

14. Do we plan to frequently dine out, attend the theatre? 15. Do we plan to spend all our capital during our lifetime

Yes

or are we planning to leave an estate?

Yes

16. Do I (we) expect to receive a substantial inheritance?

Yes

46 - MONEY® Magazine • Issue 2 • 2015

In a practical sense, how you spend your retirement time determines how much money you will need. If you plan to travel the world or indulge in expensive hobbies such as luxury sailing, then your financial needs will be much greater than someone with more modest plans. What you don’t want is to envision a retirement you realistically cannot afford. All this does is cause anxiety and unease. By creating a retirement that is realistic and affordable, you gain satisfaction and peace of mind. Financially estimating your retirement plans is the key to determining the amount of money required. By answering the questions above, you should start to get a sense of how much money you will need in retirement. Obviously, there is no single amount that will guarantee an adequate retirement.

Most financial advisors in North America use a guideline of 60 to 80% of what you earned in the years right before retirement to determine the amount you will need to maintain your standard of living in retirement. This is assuming that you are living mortgage or rent-free and that you will be able to live somewhat more inexpensively at this time. The closer you are to the 80% mark when you retire, the more comfortable you will likely to be after you retire. However, remember, your spending will likely decrease as you age. In retirement, we go through three stages – the Go-Go Years; Slow-Go Years; No-Go Years. Our biggest outlays of money (i.e. trips, activities, hobbies, etc.) normally happen in the Go-Go and Slow-Go years.

‘minimum’ retirement savings needed as reported by banks and other financial institutions. Do your homework! What is your realistic vision of retirement? How will you be spending your time? Where will you be living? How are you maintaining your health and wellbeing? What are your relations with family, friends and spouse or partner? Your vision and actions will help determine how much money you’ll need in life after work. Richard Atkinson RA Retirement Advisors

www.whencaniretire.info ramgt@rogers.com 416-282-7320

In closing, don’t be scared off by the

Rates available by Province • Updated Daily • GICDirect.com MONEY® Magazine • Issue 2 • 2015 - 47

Trade with Kavan

MONEY® Magazine

Thinking about day trading? What you first need to know.

There are a lot of people out there who have big dreams of trading stocks to make a bit of extra money on the side, or maybe even taking it up as a full-time profession. In reality it isn’t as easy as it sounds. If you don’t know what you are doing, you can lose big. My name is Kavan Klein. I run an interactive stock-trading platform called Trade with Kavan that provides investors the tools they need to succeed, including a chatroom with live screen-sharing, audio alerts, news, and real-time education. I formed Trade with Kavan after studying charts and price actions on my own and coming up with trade strategies that would allow for success, with little risk. In this article, I would like to give beginners some pointers to keep in mind when getting started trading stocks. One of the first things someone should do when getting started is to learn the basic terminology associated with stock trading. This includes terms like outstanding shares, dividends, earnings per share, market capitalization, price to earnings ratio, and a lot more. I recommend going back to your grade school roots and just making simple flash cards with all the terms, then 48 - MONEY® Magazine • Issue 2 • 2015

going through them over and over. Start with the basics and add more complex terminology as you go. Of course, everyone learns differently, so if this method doesn’t work for you, find something that does. After learning the very basics, the next thing to keep in mind is to always have an established entrance, exit, and escape price before making any trades. These established entrance and exit points will keep you from losing your skin and helps to establish discipline, which is extremely important for any trading strategy. I can’t stress this enough; if you don’t have discipline, emotions can get in the way of your trading, and the results can be disastrous. Though it may sound tempting at first, you absolutely should avoid buying on margin. This is essentially like getting a loan from a broker, and puts you in the red before you even begin. You also have to pay interest on the loan, which can cut sharply into any gains you do make. Until you become an experienced investor with a proven track record of success, you shouldn’t even begin to think about buying on margin. Chart patterns are another important aspect of trading that people should

know about. While some people swear by them, others feel their usefulness is exaggerated. At Trade with Kavan, we take chart patterns into account and recommend doing so. Every new investor should know what the most common stock patterns are, and, more importantly, should be able to identify them. Another invaluable tip I like to share with those new to trading is to keep a record or journal of every trade made. It could just be in a notebook, a spreadsheet, or whatever. When I was getting started, recording my trades was one of my main resources for learning. I tracked my mistakes and my successes, and eventually was able to develop a pattern that allowed me to replicate the successes and avoid the failures. All of this can be overwhelming at first, and that’s understandable. That’s why we recommend seeking guidance from more experienced investors when getting started. Just like any subject in school or anything else in life, sound instruction will be one of the most important things that factors into building a solid knowledge base, which will enable future success.

Ian R. Whiting, Senior Editor

MONEY® Canada Limited

Tax time 2014

what a fun way to start 2015! Wow – another 3 month (and 5 day) push on behalf of the CRA, with more to come when all of the corporate and trust tax returns have to be filed! So, were there any special changes or affects this year – see indeed? I have exposure to tax returns from several other countries and it is interesting to compare the results (financially) between countries for the same personal and family situations. I have come the conclusion that while the Canadian Tax System is clearly the most complex, cumbersome and frustrating for taxpayers to use and complete on their own, our seems to offer the fairest outcome (i.e. lowest taxes) than either the US, Australia or the UK – good for us! On the flip side we kill way more trees – the average Canadian paper-filed return seems to require upwards of 20 pieces of paper, the US version requires 6 – federal and state, combined. This is not trying to say that more complex makes lower taxes but the time and expertise needed is much lower. So what did I see this year? 1. Medical expenses that people wanted claimed for the Medical Expense Tax Credit:

• sorry, Aspirin, Tylenol, Ibuprofen,

pain liniment, wrist and knee braces and elective dental and medical surgeries (to make us all bootiful (sic)) aren’t eligible expenses even if your doctor gives you a prescription for an over-thecounter drug – nope;

• teeth whitening treatments

(chemical or laser or both), aren’t eligible and neither are braces for purely cosmetic purposes nor implants;

• naturopathic “prescriptions” with

no proven and accepted medical efficacy are likewise not claimable – the same applies to herbal remedies from various cultures;

• healing lodges and residence

therein, are not on the list and neither are alternative treatments such as chelation therapy or other type of experimental, nonapproved approaches;

• The Pension Income Splitting

opportunity under the tax act is still perceived as more confusing each year. Even when clearly explained, people ask how can adding more money to my spouses’ taxable income, reduce the amount payable? But it does!

• non-medically approved vitamins

and potions, regardless of whether or not you have a prescription or who tells you to take or use them;

• The Charitable Donation Tax

Credit continues to amaze me and frustrate clients. Pledges made, are not claimable, only actual donations made and if you have received an approved receipt from an approved organisation (www.cra.gc.ca/charities) . Local fund raisers, regardless of the worthiness of the cause, are not claimable.

• the same applies for “miracle

treatments” performed outside Canada – you can take them all you like, but Canadian Provincial and Territorial plans will not cover them, nor will your group plans and neither will they be permitted as eligible medical expenses; and

• before you embark on such plans,

check with your Provincial and group carriers, along with CRA so you know which costs are all yours!

•

The Family Care Giver Credit is often missed – and the person for whom you are providing care does not necessarily have to be personally eligible for the Disability Tax Credit.

•

Miscellaneous credits such as the Public Transit Credit, Adoption Expense Credit, Children’s Fitness and Arts Credits and the Home Buyers Tax Credit (not to be confused with the Home Buyers Plan for temporarily withdrawing funds from your RRSP to purchase a first home).

2. On the flip sides, things that are eligible but were missed included:

• Incontinency supplies; • Batteries for hearing aids and other medically prescribed devices;

• Crutches, walkers, scooters

and wheelchairs when medical prescribed and required – including rental fees and outright purchase in some circumstances plus repairs; and

• Prosthetic devices – mechanical

and otherwise, including hairpieces for cancer patients and breast prostheses.

• Lots of confusion about the

recently announced Family Tax Savings plan, most people thought it meant they would average both their incomes and shift as much as $50,000 into the name of the other spouse and were quite disappointed when they learned that their utopic view had no connection to reality.

Plan now for 2015. Start a file or envelope into which you put every possible receipt that could entitle you to increased expense or tax credit claims. In early 2016, set aside an hour or so and sort all of them into categories, then let a qualified taxpreparer help you get everything you deserve!

MONEY® Magazine • Issue 2 • 2015 - 49

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