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M A G A Z I N E TABLE OF CONTENTS
The Six Steps to Financial Independence by
Jonathan Chevreau pg.4
Fuddle Duddle! by James Dean pg. 6
Even in the Quietest Moments
by Robert Gignac pg. 9
Should You Pay Off Your Student Loans Early? by
Kyle Prevost pg. 12
Real Estate vs Stock Investing by Steve Nyvick pg. 19
Herb Stein’s Law Revisited by Don Shaughnessy pg. 21
Why Owning a Franchise Business May be Your Best Retirement Plan
by Joe White pg. 22
The Most Wonderful Time of the Year
Riaz Mamdani sees active community involvement as priceless by Riaz
by Tammy Johnston pg. 24
Making sen$e of your savings portfolio - A case study by Malvin
by James Dean pg. 23
Mamdani pg. 14
Spooner pg. 16
The End of Cash Money by Gerald Trites pg. 18
CANNEX Company Profile - A Canadian Success Story
ALERT: Emerging Threats to your Financial health by Kenmar Associates pg. 26
Panic, Planning and Persistence
by Scot Blythe pg. 28
Diversification with Real Estate
by Erik Mitchell pg. 30
5 Things you need to know about buying your first home by Tahnya Kristina, pg. 31
Retail Banks in Canada LOSING TOUCH with Customers as Profits Climb and Satisfaction Declines. by J.D. Power Reports pg. 32
Mutual Funds vs. Mortgage Investments by
Guaranteed Investment Certificates: Are GICs Risk Free?
by Tom Drake pg. 39
7 Cause of Financial Stress by Jim Yih, pg. 40
“Dream as if you’ll live forever, live as if you’ll die tomorrow.” Pamela GreinerLabelle, pg. 43. PREVENTING NASTY SIBLING ESTATE FIGHTS
by Charles Ticker pg. 44
MONEY® MEDIA Contact:
James Dean, Editor & President Kennon S. Vaughan, Artistic Director
Maggie Bell, Senior Editor Inquiries:
+1 416 360 0000 james@money.ca Mailing Address:
Head Office 7181 Woodbine Ave., Suite 226 Markham, ON L3R 1A3
Life Insurance for Your Kids? Good Idea or Bad? by Jim Ruta, pg. 48
Peter Lantos pg. 34
TAXES: Great Politics Isn’t Always Great Policy… and Vice Versa by Frank
Regular Features
Best Rate Around pg. 7 Mutual Fund Review pg. 11 Media Release pg. 41 The Social Currency pg. 42 The MONEY® Book pg. 46 The Advisors Channel pg. 51
Flynn pg. 36
Advertisers Index
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By Jonathan Chevreau
The Six Steps to
Financial Independence
Generally speaking, human beings all travel the same trajectory from life to death, and the same goes for our financial lives. There are many shared experiences in life: marriage, parenthood, education, launching and mastering a career, and so on.
earning capacity. This is so-called Human Capital. Over the decades, we “work” and convert human capital to financial capital. The whole traditional idea of “Retirement” is to have a large reserve of financial capital for the day we can no longer use our Human Capital.
Similarly, there is a financial life cycle that is, or should be, common to all of us as we move from Youth to Old Age. Most of us start with zero financial assets or even a negative net worth but with millions in potential future
In my books and websites, I’ve long made the distinction between retirement and financial independence. In developing the Financial Independence Hub, we applied these ideas of the financial life cycle and arrived at six main
4 - MONEY® Magazine • Issue 3 • 2015
MONEY® Canada Limited
steps to Financial Independence. The blogs on the “Hub” are therefore organized to reflect these six steps. You can find these six blog categories in the horizontal grey band that appears below the horizontal blue band at the top of the Hub’s home page. The Life Cycle approach to Investing is also roughly how I structured my financial novel, Findependence Day. Debt & Frugality The first stage is what I call Debt & Frugality: you graduate from college perhaps with some student loans and credit-card debt. To pay it off, you need to practice what I call “guerrilla frugality.” As noted above, you probably have a negative net worth but millions of human capital and future earning potential. As the fictional financial reality TV show “Didi” says in “Findependence Day”, “You can’t climb the tower of wealth until you dig yourself out of the basement of debt.” Family Formation & Housing At some point, usually in college or early in your worklife, you meet a special someone, fall in love, marry and consider children, which brings you to Stage 2: “Family Formation & Housing”. As I’ve long said, “marriage, mortgage and kids” all go together. It’s hard to pay off debt or build wealth at this stage because you have to scramble for a down payment on a home, fill it up with stuff, buy a car or two to get to work, and build a wardrobe suitable for most corporate jobs. Soon enough, the honeymoon is over and you settle down for the long haul of raising a family and establishing a base for Financial Independence. Building Wealth This is Stage 3, a very long one we call “Building Wealth” (aka Wealth Accumulation). This is the focus of the entire financial services industry and could easily last 30 years: from 30 to 60. When you achieve financial independence, it means your primary focus is no longer Wealth Accumulation per se. Still, at mid-life we’re only half way through the cycle.
Encore Acts Stage 4 of the 6 we call “Encore Acts”. Again, this has evolved. Originally, on the Hub we called this Business Ownership, reflecting the fact that many Baby Boomers leaving the full-time employed workforce were starting their own Businesses, often late in their 50s or even, like me, in their early 60s. My term for these is “Boomerpreneurs.” However, as I continued my research, I realized not everyone wants to start companies and employ people. An Encore career or Encore Act may include business ownership but it may also entail just being a free agent or freelance person unencumbered by the need to have a business location and/or employ people. It’s at this stage that Encore Career gurus like Marc Freedman suggest is a new one and one that may prove to be a long one: perhaps not as long as the three or four decades of Wealth Accumulation but it could easily run two decades. Decumulation & Downsizing At some point, though, you may decide you’re ready for what we used to call traditional Retirement. The occasion could be triggered by a health problem. If still employed, an employer may decide it no longer needs your services. If you own your own business, the loss of a major client or two could prompt you to close the operation, sell it or other things. In any case, you’ve now fully converted your Human Capital into Financial Capital and it’s time to start drawing down pensions and withdrawing money from your investments. This Stage 5 we call “Decumulation & Downsizing.” Decumulation is of course the opposite of Wealth Accumulation. Downsizing we all know: once the kids have left the nest and you no longer need to live close to an employer, you may choose to sell the big city home and either find a smaller one further away, or move to a condo or rent an apartment. You start getting rid of lots of your “stuff” and start to simplify your life. Longevity & Aging Finally comes Stage 6, “Longevity & Aging.” It’s quite possible that many boomers will sail through their 90s and even pass 100. There will be issues like dementia and long-term care. Your working days are truly over, although if you’re a creative person, you may continue to dabble at things like painting or writing. For the most part, however, you’ll be getting ready to meet your maker, a spiritual journey that is beyond the scope of article or the Hub but which could indeed be the most exciting stage of all. Jonathan Chevreau is the founder of the Financial Independence Hub and author of the financial novel, Findependence Day. He can be reached at jonathan@findependencehub.com
MONEY® Magazine • Issue 3 • 2015 - 5
MONEY®
Fuddle Duddle!
Canadian's are really angry with all the barnyard stench and will no longer stand idly by. There is a call to action; not exactly 'Trudeaumania' but Canadians including Albertans look forward to sweeping and wholesale changes after years of ups, downs, lies and bold unfettered moves that resemble those of some present, past and future dictatorships and dynasties.
Don't be an armpit! Exercise your right to vote in a beautifully Canadian democracy by learning the issues, knowing the candidates, remembering the past and casting your vote.
Canadians will go to the poles each carrying with them their own known versions of political mistrust, vanity and lies. After many years in power and control any government will tire, fatigue and crack by the will of their people. Canadians are generally kind and forgiving but cross them once, twice or thrice and they will complain to the high heavens to anyone who will listen. Canadians are good listeners and have time to hear the collective complaints, wishes and goals of their brothers, sisters, family, friends and strangers including those that are doing well and more often those they personally know who are experiencing a world of hurt, bad luck or poverty.
Who seems like a statesman, older and wiser and a keen understudy to the wizard of Canadian politics and could easily make a natural leader?
It is good and great to be a democratic nation where good and temporarily noble people are ready to take power and lead the country for all the right reasons. Red, Orange, Green or Blue which one are you? “Don't be an armpit!” my math teacher used to say to me. 30 years later I now miraculously figured out what he meant. Your vote does count and your say does matter. And it can be heard and empowered by the votes of your family, friends, and that of your fellow Canadians. 6 - MONEY® Magazine • Issue 3 • 2015
Who has nice hair, is young, hungry with a strong will to succeed and a raison d'etre to follow through on a legacy of national unity and federal pride?
Who is too smart, arrogant, learned, bold and brazened with many detractors may in fact be your best leader for leaders sake? It's up to you to choose and it is your right to vote as much as it is an obligation, and but a privilege and freedom to participate in determining the direction of your country both locally and in the grand scheme of the world. In any event, if I were a betting man, I’d say a coalition government could do the job serving the rights of all Canadians best. Fuddle Duddle why can't we all just get along? Do the right thing; at the right time; and for all the right Canadian reasons. https://en.wikipedia.org/wiki/The_finger
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MONEY® Canada Limited by Robert Gignac
Even in the
Quietest Moments My apologies to the musical group Supertramp for borrowing the title of perhaps their best album, but there is certainly something to be said for quiet moments of reflection. Unfortunately for far too many of us, there is zero time for quiet reflection between a ringing cell phone and the vibration of a new e-mail joining the 78 unread messages that we just haven’t had time to deal with. Oh, and I also forgot about the pile of ‘snail mail’ and a laptop covered in yellow sticky notes. In the past several years, there have been many studies into what some people are calling the ‘cult of busyness’. We live in a world that worships ‘busyness’. Everywhere you go people talk about how busy they are. Not only that, they’re busy and they’re stressed. The two seem to go hand in hand. I experienced this last week scheduling lunch with a friend. Between my iPhone and her Samsung, it took us 15 minutes to find a compatible date - five weeks into the future. All of this to plan a friendly lunch? Appointments. Clocks. Projects. Deadlines. Schedules. To do lists. Personal obligations. These are just a few of the symbols of ‘the cult’ that we have fallen prey to in our modern society. We have become hard-driven individuals so intent on deriving personal value from our work that we seem to have very little time left for our families, friends, or heaven forbid—our financial future. My point is this: while we are struggling with the lists, schedules, and projects, we are also trying to juggle serious decisions about our personal finances and investments. Decisions that need to be carefully thought out, with some form of analysis completed. Then the data is reflected upon before decisions are actually made. In the absence of ‘quiet moments’, too many of our decisions are arrived at in a reactionary, almost ‘crisis mode’ mentality. It’s exactly how the financial media presents it – “Global Oil Crisis”, “Falling Loonie Crisis”, “Financial Market Armageddon”, etc. The problem is that when we make decisions in this manner, we end up making what we think is the right choice for the moment, but we often don’t anticipate the future consequences that come from those quickly made, inadequately thought out conclusions. Those consequences sometimes come back to haunt us—always at a point after we have long forgotten about the snap decision we made under pressure when we didn’t have time to think.
I use an old Will Rogers quote that in almost every presentation I give: “If you find yourself at the bottom of an 8 foot hole with a shovel in your hand - stop digging!” In some ways, we have lost the ability to value thought over action. Instead, we value ‘doing’ over ‘thinking’. Action is important, it moves us forward and accomplishes tasks, but it is thought that ensures that the correct action is initiated in the first place. I polled some friends recently with this question, “When was the last time you took the opportunity to sit quietly with a cup of coffee and actually do nothing but think?” Once they stopped laughing, it hit me. We are losing the ability to be introspective. Instead of thinking, we define ourselves by how “busy” we are. One friend told me: “When I do actually take the time to purely think, I sit with my fingers poised on the keyboard so nobody knows I’m just thinking.” Just thinking? What a fascinating concept. How did we get to the point where ‘thinking’ is akin to ‘daydreaming’? If we are not actively engaged in action, is it the equivalent of doing nothing? I hope not. How many of your best ideas arrived courtesy of quiet, unstructured time—a walk in the woods, sitting by a lake, puttering in the garden, doodling on a notepad. As we get back into the swing of work (hopefully after taking some much needed downtime over the summer…) it would do us all some good to simply spend a little more time without the added stimulation of our technology reminding us how “busy” we are. Ditch the iPhone, tablet and put your laptop to “sleep”. I am not suggesting for a whole day, start with something simple, start with 30 unstructured minutes. Grab a pad of paper and a pencil for doodling and spend some quality time ‘thinking’ about your financial future instead of simply ‘doing’. I suspect you (and your personal finances…) will be better for it. 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
MONEY® Magazine • Issue 3 • 2015 - 9
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MUTUAL FUND REVIEW® July 2015
Starting assets (June 30, 2015) + Net sales +/- Estimated market effect = Ending assets (July 31, 2015) Top 3 Categories
MONEY® MAGAZINE
$988.5 Bil. $3.2 Bil. -$17.6 Bil. (1.8%) $1.0093 Trillion
Bottom 3 Categories
Asset Growth ($)
Global Neutral Balanced: $7.102 Bil. Global Equity: $3.154 Bil. U.S. Equity: $2.700 Bil. Asset Growth Cdn. Focused Small/Mid Cap Equity: 39.6% (as a % of starting assets) Sector Equity: 10.4% European Equity: 8.4% Net Sales ($) Global Neutral Balanced: $1.929 billion Global Equity Balanced: $606 billion Global Equity: $458 billion Net Sales (as a % of Alternative Strategies: 38.9% starting assets) Misc. - Undisclosed Holdings: 5.5% Sector Equity: 3.1% Performance European Equity: 6.5% (Fund Category Averages) Real Estate Equity: 5.9% U.S. Equity: 5.7%
High Yield Fixed Income: -$ 1.826 bil. Cdn. Div. & Income Equity: -$ 1.401 bil Cdn. Small/Mid Cap Equity: -$ 967 mil 2015 Target Date Portfolio: - 25.2% Alternative Strategies: - 20.6% Precious Metals Equity: - 16.1% Cdn. Neutral Balanced: -$ 573 mil Cdn. Div. & Income Equity: -$ 557 mil Canadian Equity Balanced: -$ 477 mil 2015 Target Date Portfolio: - 26.5% U.S. Money Market: - 3.8% Greater China Equity: - 3.2% Precious Metals Equity: - 15.5% Energy Equity: - 11.0% Natural Resources Equity: - 10.1%
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By Kyle Prevost
Should You Pay Off Your Student Loans Early? With many budgetary demands and conflicting advice pulling young Canadians in a myriad of directions, it’s no wonder that so many of us end up defaulting into paralysisby-analysis mode. A lot of times there is no easy one-rulefits-all answer when it comes to personal finance decisions such as paying off debt versus investing for the future. Sometimes life can be broken down into easy cause-andeffect “Top Seven” lists, and sometimes in order to get the full utility out of your cash, you need to look a little harder and dust off those math skills you swore to your teacher you’d never find a use for. While you will never go broke by paying back borrowed money as quickly as possible, it might not be the ideal use for the money. Paying your student loans off early is a classic example of this dilemma. Whereas credit cards, payday loans, and other types of consumer credit often have such high interest rates that it makes paying them off a no-brainer, student loans are a bit of a different beast. Because government student loans have some unique characteristics, it sometimes make sense to ignore what many of the experts say about paying them off right away, and focus on long-term investments instead. According to the Canadian Federation of Students the average student that graduates with student debt is now $27,000 in the red when they don the iconic cap and gown. In a job market where young folks are having trouble launching their careers, that number can cause intense anxiety. That anxiety can lead to financially illiterate people making one of two suboptimal decisions. In a worst-case scenario, new graduates can find themselves so overwhelmed by the “real world” of financial decision making that they simply run away from it and make no decision at all. This of course leads down a painful path of ruined credit and long-term insolvency. Since you’re reading a financial magazine I’m going to go ahead and assume you’re not one of those people. The other decision that is much less destructive - but still not ideal - is taking your budgetary surplus and plunking it down on debt that is only charging you a relatively low interest rate (in the 0-5% range) instead of using it to jump start your wealth building at an age when the realities of 12 - MONEY® Magazine • Issue 3 • 2015
compound interest are heavily skewed in your favour. I understand the psychological side of paying off debt trumps all other considerations for some people, but if you take a look at the basic math behind paying down a 3% loan and investing at an annual return of 8%, it doesn’t take a rocket scientist to realize which action will leave you further ahead. In order to better understand how these decisions pertain to you, the first thing you need to know is that the generic term “student loan” actually refers to two separate types of government loans (federal and provincial) and a third type of loan that is money borrowed from a bank or credit union. The reason this distinction is so important is that these three loans will get treated differently after you leave post-secondary education. Your province sets the interest rate for the provincial part of your student loan and the Canadian Government is responsible for the interest rate on the federal share. If you have a privately-held student loan, obviously the bank determines what your interest rate is there. The first important difference between the types of student loans is that both types of government student loans are eligible for a tax credit, whereas the private student loan is not. This means that you are basically getting a 15% discount on the interest paid on federal and provincial student loans. It’s also why you should almost always pay down your private student loans before your government ones. The second consideration is the interest rates involved with each of your student loans. Just to keep things as confusing as possible provincial student loans are administered a different way and with different interest rates across Canada. My home province of Manitoba for example, recently announced it would no longer charge interest of any kind on student loans (it had previously been set at the prime). Clearly in the case of a Manitoba student, paying your loan off early has no real benefit. Ontario, by comparison, will charge you a pre-tax credit rate of prime + 1% (3.5% currently). Once we apply our 15% tax credit we come out with a “real interest rate” of under 3%.
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Some provinces, as well as the federal government, offer you a choice of repaying your student loan with a fixed interest rate or a variable interest rate. The premium you have to pay in order to fix your interest rate is incredibly high and almost never worth it in my opinion. The reason I can say this with such confidence is that the spread between the variable and fixed options is far higher than it is in the mortgage market and I don’t think many banks are losing money there either. The federal government part of your student loan likely accounts for the majority of the money you borrowed to finance your education. The two options available upon graduation are a variable rate of prime + 2.5% or a fixed rate of prime + 5%. Once again, it’s worth reiterating that it’s very difficult to see a scenario where interest rates would rise so quickly that the variable rate didn’t make more sense. With our prime lending rates so low across Canada, the pre-tax credit interest rate you’d be paying today on your federal student loan would be 5%. Once the tax credit is calculated in, you have a real interest rate of 4.25%. Now obviously it’s easy to say that one should invest instead of paying down debt when interest rates are at record lows and stock markets are setting historic highs. That being said, the banks and credit unions that set bond and mortgage rates seem pretty confident that interest rates aren’t going to grow very quickly, if at all. Even if your prime rate does start creeping up over the next few years, it would have to rise quite a lot in order to overtake the long-term return you should get if you don’t mind doing a bit of reading to educate yourself on investing options and tax-advantaged accounts. I understand the advice of “keep it simple and pay down your student loans before investing” if your audience is mainstream and not all that interested in learning how to invest. Paying off your student loan is an easy, guaranteed way to get a tax-free return on your money after all. That still doesn’t mean it’s the best choice overall however. Ultimately, the purely mathematical side of the debate shows that you are pretty likely to come out ahead if you were to invest any extra cash instead of paying down your student loan early. If you don’t mind looking at your financial situation from a non-emotional standpoint, I think you’ll be just fine repaying that cash in small monthly payments over the next few years instead of rushing to pay it all back at once. We don’t live in a mathematical vacuum though, and if the psychological weight of your student loan is causing you to lose sleep at night, then take your heard-earned budget surplus and pay off the part of your loan with the highest interest rate and rest easy. MONEY® Magazine • Issue 2 • 2015 - 13
MONEY®
By Riaz Mamdani
Riaz Mamdani sees active community involvement as priceless
I think that community involvement is something that’s in and of itself valuable for any company. After all, businesses are a function of the communities they operate in, and in my mind, there’s a mutually beneficial relationship that exists between communities and companies. Stronger, more vibrant communities help businesses and business development; successful businesses, in turn, help their surrounding communities. In 2001, I founded Strategic Group, a commercial real estate company based in Calgary. As the company has grown, I have focused on creating a company culture that values active community involvement. The reason for this returns to my belief that there is a symbiotic relationship and both need each other to maximize their impact. Over the years, Strategic Group has been involved with organizations like the Project Warmth Society of Alberta, the Calgary Food Bank and the Calgary Arts Development; we make annual efforts as well to fun city events like Calgary’s annual Lilac Festival. Participating in these events and working with these organizations has truly been enjoyable for myself and my entire team, and I like to think that our contribution has helped in improving our city and community. But, other benefits have also come from Strategic Group’s various community involvements. The advantage of being involved within the community is that you get out of your office and walk the streets. Understanding how and what makes our community tick, in an organic way, positions us to see what others don’t.
14 - MONEY® Magazine • Issue 3 • 2015
I have met many people through community events where we have shared experiences and conversations that have provided me invaluable knowledge on Calgary and what our city’s entrepreneurs and business leaders are looking for as far as commercial space. It is impractical to think you can gain this type of information in a boardroom setting. What community and charitable events then should business owners decide to participate in? I think that’s a question with a fairly simple answer. Participate in events or causes that you as a business owner and your team members are passionate about. At Strategic Group, we chose to involve ourselves with the Project Warmth Society because we are passionate about providing warm clothes and blankets to those that need them during the winter. Calgary’s winter months can be particularly harsh, and knowing that our clothing drives are making a real impact. A real difference to a child; a mother; a family. For a similar reason, we’ve supported Make-A-Wish’s Rope for Hope challenges because we believe in what this organization stands for and for the difference that it makes to children with life-threatening medical conditions. Yes, there’s a lot to keep in mind as a business owner, especially if you are a new business owner or leading a recent start-up. But, don’t forget community engagement is for you, your company and your community. By contributing to a worthwhile cause, you’ll help your local community, and in the long-run, you’ll help your business by seeing things others don’t.
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MONEY®
By Malvin Spooner
Making sen$e of you A case
Recently, I received the following request from an acquaintance I will call Kristina:“Hi Malvin, The company I have most of my RRSP’s at recently assigned me a new adviser. He seems pretty keen and knowledgeable but he also wants to change every fund the original adviser got (BTW: the first adviser quietly disappeared/ retired about five years ago and the funds I currently have were all bought years ago). I am slow by nature to make changes, so I appreciate your thoughts on the new ones being suggested.” I’ve always refused to do this sort of thing for people I know – I am not a financial adviser. But in this case, I was curious. Having spent decades as a portfolio manager I thought it would be interesting to see what sort of recommendations an adviser would be making today, and at the same time educate my friend about investment strategy. A little information can go a very long way in terms of simplifying a confusing scenario. I first examined her current portfolio of mutual funds. The strategy adopted ‘years ago’ was okay. The consensus thinking at that time (keep in mind analytical tools weren’t as sophisticated then) was that holding similar fund types managed by different portfolio managers was a smart way to diversify style bias. Translation? Managers would perform better or worse at different times depending on their investment styles. When one fund was doing poorly, the other might be doing well so net you’re somewhere in the middle. Nowadays though, funds are far more specialized so style is less significant – or in other words one global fund manager performs pretty much the same as all the others.
My first step was to identify where the money was ‘really’ invested right now. This involved looking up each fund to determine how much of each fund was in cash (or short-term liquid securities), Canadian stocks, fixed income (bonds) etc. and creating a summary (see table). The big commitment to Canadian stocks has been fortuitous. Canadian stocks outperformed US stocks (converted to Canadian dollars) and many other asset classes consistently from 2004 to 2010. The weighting would have grown over time because of this. Since 2010 the US has been the big winner. Although a big part of Kristina’s global exposure was probably US stocks, it would take an awful lot of number crunching to pin down the precise weighting here. Bottom line? This mix of funds has served her well. There are two major reasons why her adviser might want to recommend a wholesale restructuring of her portfolio. 1) The funds have grown stale (fund managers change, the fund strategy can change modestly or he believes your own objectives have changed.) 2) Business reasons (the firm your adviser works for requires activity to generate income).
16 - MONEY® Magazine • Issue 3 • 2015
MONEY® Canada Limited
ur savings portfolio e study I pointed out to Kristina there’s nothing wrong with change. It doesn’t hurt to allow the new adviser to earn some money for his efforts. In her case, he was recommending what is known as the 3% ‘low-load’ option, which means the adviser and his firm will share a fee paid by the fund company for doing the work. Should you decide to take your money elsewhere within a short period (usually 3 years) then you will pay a penalty to offset this expense. Given that Kristina hasn’t made changes in many years – this isn’t an issue. Her adviser reduced the number of funds from 9 to 7. Three were three global funds, one US equity fund, two Canadian equity funds, a fixed income fund and one ‘open-mandate’ fund – meaning it could invest pretty much anywhere (essentially another foreign equity fund). What concerned me was the adviser’s recommended weightings. The adviser increased the commitment to US equities substantially. Many financial advisers are pressured to ‘go-with-the-flow’ by their compliance departments. Better to recommend funds that have done well and everyone else is buying in order to avoid potential reputational risk. But based on my many years of experience and study, I know that what has been the best place to be invested is extremely likely to become the worst
place. Also, despite the fact that he recommended multiple global funds, none of them seemed to have a meaningful weighting in Asia. If it were my money I told Kristina, five funds would be plenty and I’d be more discerning in my global exposures. Specifically, I presented my own suggested mix in a pie chart. Far less in US equities and Canadian equities, but more exposure to markets currently out of favour (therefore better value); namely troubled Europe and Asia (including China). The high money market weight I’d consider a reserve to invest in bonds when global interest rates are higher – and one day soon they will be. So how did Kristina respond? “Wow! I love how you presented your suggestions. What you have done is explain the broad categories in which the current vs (your) proposed funds would fall, which for a beginner like me is easy to process. My adviser also had charts with anticipated %s of returns between current vs proposed funds, as well as pie graphs. However, it was too much info and quite overwhelming for a beginner, as I truly couldn’t appreciate all the nuances. However, with your comments I think I am getting better at understanding the details.” And in the end she decided not to make any changes at all. It may hurt her adviser’s feelings some, but not mine. At least her choice was a better educated one.
MONEY® Magazine • Issue 3 • 2015 - 17
MONEY®
By Gerald Trites
The End of Cash It’s quite clear that people don’t need traditional money in the form of bills and coins any more. There are too many alternatives to cash, such as debit cards, payment tokens, e-cards, and cell phones. Many of us rarely carry cash, and if we do it lasts for a long time – mostly for paying for a chocolate bar, chewing gum or other small purchases. Money is expensive for countries to produce and if it is lost, it is gone, whereas most of the alternatives can be replaced. This gives rise to the question – is it worth it to spend the money on producing a currency that is only used for small transactions and is vulnerable to theft and loss? Statistics show that in advanced economies, like Canada and the US, cash is only used for about 6% of the total transactions carried out in the economy – and that measure is declining steadily. Some other countries have been working towards the elimination of cash, including Sweden and Denmark. In Sweden, the banks stopped handling cash transactions. In Denmark, a law was proposed effectively making cash illegal. The trend is continuing in some other countries in varying degrees. Eliminating cash is not necessarily easy, as there are holdouts in the system who prefer cash, including some elderly people, and some who are not into technology. But most people are Ok with it and their options are growing with new phone apps, like Interac, Google Wallet and Quickpay. Easy access to mobile banking is key. Eliminating cash would have numerous benefits. For example, it would undoubtedly lead to a reduction in crime, since stealing cash is a major preoccupation of the criminal element amongst us. It would also bring about more efficiency in the closing of economic transactions, since this could be handled with the push of a button. True, it would lead to a need for security over the electronic means of settlement, but we already have that problem, are dealing with it and will get better at it. Eliminating cash leads to the elimination of traditional bank accounts. In other words, with no cash in the system, the banks would cease dealing with it and you would not be able to go into the bank and draw out your money in cash. Some have suggested that it would be even more efficient for the central bank to take over such accounts for 18 - MONEY® Magazine • Issue 3 • 2015
Money
everyone, thus placing greater control over the monetary system in the central bank and making it easier for them to manage the system in times of recession and inflation. For others, this scenario evokes images of Big Brother – too much government control over individual lives. In any event, newer types of bank accounts would still exist. There would still be a need for someone to keep track of your wealth – your purchasing power. The most likely outcome would be that the dollar would still exist as a monetary unit, it just would no longer exist as a physical thing. Your money would be all digital and digitally transferable for personal and commercial purposes. If we were to go this route in Canada, and the banks stopped dealing with cash, all people would need a means of easily accessing and using their digital money in their accounts. At present, large numbers of people use debit cards, so their use would increase accordingly. Also the use of credit and convenience cards would still be possible. Beyond that, there would no doubt be an increase in the use of private payment systems, such as Tim Cards and the cards used on bridge and highway systems. And there would be a tremendous incentive for the cell phone system to implement easy and viable systems for payments. This would take longer because implementation on a large scale would require infrastructure enhancements, such as the modification of cash registers to be able to read the new systems, whether on cell phones or some other electronic device. Bank notes (previously paper but now polymer) in Canada are issued by the Bank of Canada. The central bank sells them to the commercial banks and invests the proceeds. After paying for the cost of production, profits are paid over to the government. Coins are issued by the Royal Canadian Mint. Under a digital system, the Bank of Canada would still need to control the volume of money available. This could be done digitally, which is in fact the way that the largest portion of the volume of money in circulation is already managed. A new digital system would require some tweaking of the monetary system, but not a major reworking. There’s something to think about.
MONEY® Canada Limited By Steve Nyvik, BBA, MBA, CIM, CFP, R.F.P.
Real Estate vs Stock Investing Which is a better investment – real estate or stocks? To really know which is better, one has to make an apples-toapples comparison. But there are many factors to consider including: 1. Debt Many people who buy real estate borrow to do so. Borrowing magnifies both the gains or losses. Consider a property with a purchase price of $100,000 where you put down 20%, or $20,000. Should the property go up by 5%, or $5,000, compared to the $20,000 you put down, your return on investment is 25%. The same result would have occurred if one borrowed to invest in stocks. So, if we are to compare real estate to stocks, we have to look at the total purchase cost of each and look at their returns. 2. Real estate closing costs and annual costs Investing in real estate comes with significant costs in buying or selling. There are the real estate commissions, legal fees, property transfer taxes, and if you are a high ratio borrower, you might also have mortgage insurance costs. On top of the purchase cost, you will have annual costs for:
• property taxes – which include your share for munici-
pality costs like police, fireman, schools, water, garbage, sewage, etc), • maintenance costs, • strata / HOA fees (if in a condo), and • housing related costs (gas, electricity, insurance, telephone, cable/internet, etc). And you may have costs to advertise for tenants. If you are renting out your property, then hopefully you will recoup some or all of these annual costs in which case we consider the property net rental income that comes to you. Some of this income may effectively be shielded through capital cost allowance on the building and other capital items to get the property to where it can be rented. You will of course have to spend your time to advertise to get renters, interview tenants, set up a trust account for any security deposits, do credit checks, collect rents, pay bills, check to make sure the house isn’t being used to grow pot or make other illegal drugs (or used for other illicit purposes), and be available to renters day or night should
they have any problems with your property (like a leaking roof). You also have the risk that a renter might trash your property or that they might not pay rent and then it may take significant time and legal fees to have them removed. If you own a property but are not renting, then you have this cost drag on your investment, but you have the benefit of the use of the property – we all have to live somewhere. Common stocks on the other hand typically do not have annual costs. Management takes their pound of flesh in their remuneration. So you need to compare net rental income to dividends after factoring the tax preferences. 3. Liquidity Real estate tends to be much less liquid than exchange listed stocks. Sometimes you just can’t sell without a substantial drop in price. Real estate also suffers from the problem of financial size. It is difficult to get small amounts of cash out of your investment. Although a line of credit can be secured against the property to get cash, you still hold the entire investment risk on the property until it is sold. For a position in Stocks, one has liquidity to be able to sell a few shares to partially liquidate a position and reduce investment risk. 4. Tax advantages If your real estate is your Principal Residence, then the gain on sale may be sheltered by your Principal Residence Exemption. Where your stocks are to be held in a tax sheltered account, then there could be deductions for your contributions and income and gains that could grow tax deferred (eg. RRSP or RRIF investments) or grow tax exempt (eg. TFSA investments). SUMMARY: One can’t generalize and say investing in real estate is better or worse than investing in stocks. You have to consider the specific circumstances and options for a specific investor. If one selects income oriented stocks, there is no economic reason why real estate should always appreciate at a higher rate than different types of businesses. Rather, one should own a home to live in and one should have a “pension” comprised of several types of businesses that provide a stable income to meet ones living needs. MONEY® Magazine • Issue 3 • 2015 - 19
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MONEY® Canada Limited By Don Shaughnessy
Herb Stein’s Law
Revisited
It is becoming odd how often Herb Stein’s Law appears in my mind. Herb was chairman of the Counsel of Economic Advisors under Richard Nixon and Gerald Ford. He is also the father of Ben Stein. His law says, “If something cannot continue forever, it will stop.” That law should be the entire first chapter in a book about financial literacy. You cannot build long term security on short term effects. I am baffled at how few people give credence to this simple statement of certainty. Many young people seem to believe that the government can and will look after their health, their retirement, their education, their daycare and at least some of their income. Even assuming the governments could look after anything, that collection includes things that cannot continue forever. When will they stop and how will they stop? The fundamental fact that causes the surprising stop is that some people get something for nothing while other people get nothing for something. That trade only continues while the nothing for something crowd are willing to play along.
The giveaways will become harder to sustain and soon. When interest rates inevitably rise, governments will be among the hardest hit. If rates become as they were 25 years ago, the cash cost to pay interest for the Canadian federal government will nearly triple. That money will come from somewhere. If from the people there is less to invest for retirement or in new productive capacity. If from borrowing then the problem grows.
“If something cannot continue
The wealthy will not save the system because the wealthy have the means to move elsewhere or find other ways to avoid paying for the government’s current lack of courage and foresight.
forever, it will stop.”
The Stein “stopping” may appear in some places before others. Chicago and Detroit may be the canaries of California, Illinois, Massachusetts and Hawaii. As a group, people have two choices.
1. Make an effort to re-educate the delusional resource 2. Let the system burn and rebuild later.
Choice 2) has difficulties, like how do you stand outside the burning economy. Or maybe your children will have to deal with it. Neither is comfortable.
His law says,
In the US, there are people who are becoming less inclined to play along. Tax refugees from California, New Jersey and New York are to be found in Texas, Florida and Tennessee. That makes the low rate states stronger and the high rate states weaker.
takers, or
Choice 1) is clearly the more difficult. How do you explain reality to people who do not want to listen? Thomas Paine wrote, “To argue with a person who has renounced the use of reason is like administering medicine to the dead.”
In homage to Herb Stein’s law, something will happen. People cannot have something for nothing forever.
Choice 2 is the default. With elections looming in North America, it might make sense to find some candidates who have an idea of minimizing the eventual fire. There are others who are providing gasoline cans. Follow on Twitter @DonShaughnessy or Contact: don@ moneyfyi.com Don Shaughnessy is a retired partner in an international public accounting firm and is now with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.
MONEY® Magazine • Issue 3 • 2015 - 21
MONEY®
By Joe White
Why Owning a Franchise Business May be Your Best Retirement Plan I had the privilege of placing a 52 year old still employed individual into a franchise business. He will be able to run this business while he is still employed with a small manufacturing company.
greater percentage (72%) of pre-retirees age 50+ say they want to keep working after they retire, and in the near future it will become increasingly unusual for retirees not to work. (Merrill Lynch Retirement Study 2014)
When we started talking, his concerns were about the future and what his retirement might look like.
This is of course provided they can find jobs that pay enough and are flexible enough to allow them time to enjoy a slower lifestyle. This is the larger challenge. Even more interesting is how to improve your financial situation while you are in your retirement years. (A seldom thought of idea)
He had some retirement funds and had little expectations for the government pension plans to provide a meaningful income. His company did not have a retirement plan. He was carrying a mid-sized mortgage and had gone through a costly divorce. He had watched his saving drain from putting three kids through university and was concerned about his aging parents and how his employer was going to compete and maintain his job in the face of ever-changing technology. He had dreamed about a freedom 55 retirement and he knew that was not going to happen. He also knew he needed to be prepared to live well into his 80’s and beyond. He was terrified of the future and what it might hold. He may only have a few more years to work and knew that finding work when you are over 50 was tough. He felt his financial planner had done a less than a stellar job in managing his investments. The situation was not dire but heading in that direction. He needed to recover and it had to be soon if he was going to get the income he would need to retire comfortably with a life style he could enjoy. He also wanted to make a difference in others’ lives. This is not an uncommon situation and it is best summarized by these four realities.
1. Increasing life expectancy, has produced a retirement that can last 20 years or more.
2. Elimination of pensions for most workers, has shifted the burden for funding retirement from employers to retirees.
3. Recent economic uncertainty, which has been a
wake-up call for many people that it is not financially sustainable to retire without some income.
4. Re-visioning of later life, has this generations seeking greater purpose, stimulation, social engagement, and fulfillment in retirement.
Retirement used to mean the end of work. But now we’re at a tipping point: a majority of people will be continuing to work after they retire — often in new and different ways. Nearly half (47%) of today’s retirees say they either have worked or plan to work during their retirement. But an even 22 - MONEY® Magazine • Issue 3 • 2015
One Solution is to create your own exit strategy from employment. Business ownership might be one of these options. Owning a Franchise business while you have income might just be one of your best option. Here are some of the reasons why:
• Income is still coming in while the business is growing • You are managing a manager • You may exit your job with your business producing revenue
• You may exit on your terms • You employ others • You use all the skills you have learned over your many
years of employment You will not need to seek employment Franchises are easier to fund You will be in control You will have a business that will require minimal attention and the Freedom to enjoy a retirement you originally dreamed of. • You will have an asset that you can sell • Franchising brings a plug and play approach to business ownership so it easy to start. • You may actually improve your financial position in your retirement years (ask your financial planner to do that)
• • • •
These are the reason why the individual I recently placed said this, “I now, for the first time, feel I have a real plan for my future that I can control. I can have the retirement I want, in fact an even better and more stimulating one.” 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”
MONEY® Canada Limited By James Dean
CANNEX – Company Profile A Canadian Success Story. MONEY® is always looking for the inside scoop and somehow our namesake opens doors and allows us to ask the right questions and press all the right buttons.
Alex Melvin is the President of Cannex and graciously invited us in for a personal tour and interview at their head office in Toronto. The MONEY video interview is a ‘must watch’ and available on MONEY.CA/ Video/. Lowell Aronoff is a partner and the CEO of Cannex who also gave us great insight to the humble beginnings of this great Canadian business success story.
MONEY® was excited to set up an interview with Cannex Exchanges Limited for many reasons and primarily to get what the people wanted. And at the same time allow this smart, niche Canadian company to show off their wares. For the sake of our own agenda we knew this great company had something big and important to share and MONEY® Magazine would be the ones to break the bigger story and make it newsworthy. The shipping magnate Onasis once said ‘information is the greatest commodity’ and so useable and well-interpreted data may be even more valuable.
Cannex is all about the data. Most Canadians rarely stop to think about how financial decisions are made and monies and investments may be placed with so many variables it is hard to retain what the focus is and what it should really be. Raw data is nothing and nothing meaningful until the numbers are plugged in to the right type of system, formula, calculation and intuitive questioning that will make sense and can pay dividends The outcome of raw data should be a clear picture, explanation and answer. A verifiable thing and as close to a scientific method and calculation as possible short of proven. There are many numbers involved and more complex investment schemes and still a larger amount of combined and specific calculations that only some experts know what they mean. Generally Cannnex gets, collects and hosts the most up to date data and information on many of the most used and beloved products and services in the Canadian financial services industry.
The distributors, advisor channel, brokers, big business, back offices and financial institutions all want, need, and can’t live without their data, numbers, transactions, portfolios and clients money. ‘Cannex Annuity Exchanges’ started the ball rolling way back when; a relatively boring and unassuming company. CannexWho under new management brought sexy back with is CANNEX? a new name and more and more products and services to packageCANNEX and sell to more types of clients. compiles dataand andvaried calculations about a variety of financial products and makes that information Big, small and medium sized financial companiesavailable all financial through a central exchange. wantingtothe sameservice thing;providers raw data and on an overwhelming is an independent and privately heldup company amount CANNEX of products. Good, regular and most to date with operations in the at U.S.aand Canada. Noprice financial data with a high accuracy reasonable point made Cannnex a solid reliable institutionExchanges holds any shares in theand company, andinformation no partner CANNEX for data.employee At the same time this darling or shareholder receives anycompany income becamefrom a major player in theproducts. industry and with little or no the sale of financial competition.
The Products and Services - away from the general public Cannex Who provides data that runs through thousands of isthe CANNEX? websites and hundreds portfolio systems that represents trillions of dollarscompiles in the balance. These include: CANNEX data and calculations about a variety
• • • • • • • • •
of financial products and makes that information available
Mutual Funds to financial service providers through a central exchange. CANNEX is Funds an independent and privately held company Segregated with operations in the U.S. Certificates and Canada. No financial Guaranteed Investment
institution holds any shares in the company, and no
Mortgage CANNEXRates employee or shareholder receives any income from the sale of financial products. Loan Rates
Chequing/Savings Account Bank Account Rates Prime Rates
RIF’s Annuities
Simply reliable data ™
End of Day Stock Feeds - TSX - New York American Stock Exchange - NASDAQ.
Corporate Headquarters CANNEX Financial Exchanges Limited 1200 Bay Street, Suite 1001 Toronto, Ontario Canada M5R 2A5 Toll Free: (800) 387-1269 Phone: (416) 926-0882 Fax: (416) 926-0706
Simply reliable17087_05/14CAN data ™ Corporate Headquarters
CANNEX Financial Exchanges Limited www.cannex.com
1200 Bay Street, Suite 1001 © 2014 CANNEX Financial Exchanges Limited. All rights reserved. Toronto, Ontario MONEY® Magazine • Issue 3 • 2015 Canada- 23 M5R 2A5
MONEY®
By Tammy Johnston
The Most Wonderful Time of the Year
I always view September as a second new year. The kids are going back to school, the hustle and bustle of the summer holidays are passed, and life is returning to normal. Now is the time that we set up our routines that will help us make it through to next July and hopefully for the rest of our lives. One long term thought that stands out at the beginning of the fall season is financially preparing for post secondary education.
As little as $25 per month or any lump sum over $100. I have clients that do monthly contributions and top that up with birthday and Christmas money, gifts from friends and family, and money from the kid’s summer jobs. Also, you choose how you want to invest and can change your investment choices depending on your needs and the age of the child. The closer they are to needing the money for school the lower risk you want to take.
Being the proud mother of a beautiful twelve year old girl I can attest to the fact that she is growing up faster than I thought possible. Before I know it, and definitely before I am ready for it, my Princess will be heading off to college or university. With this simple fact in mind, I make sure that I am putting money aside for her Registered Education Savings Plan.
The rules for what qualifies for post-secondary education has also opened up quite a bit over the years. University, college, technical programs, and apprenticeship programs all fall under acceptable post-secondary programs. Your child can go to school immediately after graduating high school or take a year or two off to work, travel, or mature before they have to start college and it is all good. So you don’t need to worry if your kid isn’t quite ready to settle down into a career path right away.
When planning for a child’s future university or college needs you have a few options. I’m partial to RESPs for a number of reasons. The biggest and best reason is the Canada Education Savings Grant. For every dollar I contribute to my daughter’s RESP, the federal government contributes 20% to a maximum of $500 every year directly into her plan. Depending on your household income you might qualify for up to 40% in total through additional grants. You can’t beat having “free” money put into your investment to grow. Another reason I like RESPs is because of the flexibility. You can choose how much you can and want to invest. 24 - MONEY® Magazine • Issue 3 • 2015
Like with all investing, time is on your side. The sooner you start the more your money can grow before needing to pay for tuition, books, and other school associated costs. So get in the game and get time and money working together to get your kids the education they want and need without it breaking the bank of Mom and Dad. “The school is the last expenditure upon which America should economize.” Franklin D Roosevelt www.thefinancialguides.com
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MONEY®
By Kenmar Associates
ALERT: Emerging Threats to your Financial health Most of you should be familiar with the threats posed by fraudsters, scammers and Ponzi schemers. You should also be familiar with issues of bad advice- unsuitable investments, excessive leveraging, account churning, high fee products and unauthorized trading. Operational tricks include the signing of blank forms, misleading risk disclosure, adulteration of documents, signature forgery and low ball offers on complaint resolution. But new threats to your nest egg are emerging. Here are a few you should be aware of: Fee up or Get Out: A number of bank-owned brokers are telling clients to convert to fee-based accounts or transfer out. In many cases, particularly for seniors, such accounts are not suitable or in the client’s best interests. Hopefully, IIROC will jump all over this forced migration and client exploitation. When they transfer to another dealer, they are also hit with an account transfer fee! Reverse churning: Don’t fall asleep at the Wheel: This is serious and growing problem in Canada. The move to fee- based accounts has been accelerated by CRM2 and other attempts at regulatory reform. If you don’t trade a lot, such accounts may be more expensive than operating on a transaction basis i.e. you are being charged for inactivity , “reverse churned”. We have asked IIROC to step up surveillance of brokers but we’re not sure if they will. Read this article for a deeper understanding of the issue. http://www.burr.com/NewsResources/Resources/~/ media/3F3F6C251A1B4E09A67F51A88713AEDF.ashx and ask lots of questions every time you see a fee charged to your account. Pension commutation: We are hearing of cases where advisors have convinced clients to commute their company pensions. People who change jobs or retire and are in a defined benefit (DB) pension plan get to choose whether to leave their benefits in the pension plan of their former employer, take a cash payment, transfer to new employer’s plan or transfer the commuted value to their individual locked-in registered plan. Fee-greedy “advisors” exploit this situation and recommend taking the commuted value and investing with them .Higher returns and/or reduced taxes are promised. A recent case involved a number of railway retirees being sold risky investments and incurring significant losses. Victims cashed out their CN pension after hearing a presentation by dealer representatives. Updated Financial Advisor Warning signs: There are some warning signs that should put you on alert about the qualifications or integrity of a supposed financial advisor 26 - MONEY® Magazine • Issue 3 • 2015
you’re thinking of dealing with. For example: 1. Dual licensed “advisors”: They suggest liquidating all or a substantial part of your portfolio and putting the proceeds into a single product (often an annuity, on which they receive a generous commission).Following on from the above, they push a single type of investment and don’t seem to be interested in exploring your needs and personal risk preferences. We are seeing a growing number of cases involving the redemption of mutual funds to buy Segregated funds, an insurance product with more attractive sales commissions and less compliance constraints. This is known as regulatory arbitrage. 2. Opaque fee disclosure: The “advisor” refuses to detail their fees or tell you how they earn their money (i.e., whether they get bonuses or commissions for selling specific products to you). 3. Off Book transactions: They ask you to make a cheque out to them rather than an organization or institution in which you want to invest. Rarely works out well. Avoid. 4. Personal financial dealing: They ask you to make a loan to them or to sign a loan guarantee. Don’t – keep the relationship as client-advisor and nothing more.. 5. “Free lunch Seminars”: If you’re attending or following up on a “Free lunch” seminar, even though there’s a 50% chance it’s not a scam, remember that it is a sales pitch - either for the services of the organizer or for a particular product. The meals are getting more enticing and are now being held at upscale restaurants or country clubs. Somebody pays for the food and you can bet your bottom dollar that, ultimately, it will be you. There are no Free lunches in investing. Attend at your own peril. Attended a “Free lunch “ seminar? Use this handy checklist to let us know what transpired. Misleading assertions of Best interests duty: Read the Small Investor Protection Association Report “Lack of Truth in Advertising ...” - This report shows the extent of Bay Street deception – the plain fact is that “advisors” work to the lowly suitability standard which does not require them to act in your best interests. Advisors as executors: The Investment Industry Regulatory Organization of Canada is proposing to allow brokers to act as executors for client estates. The conflicts of interest and competency issues here are enormous.
MONEY® Canada Limited
Think 3 times before naming your broker as an executor for your hard-earned savings and then think again. We continue to strenuously argue against this threat but so far we are unsuccessful. IIROC is silent on succession of the E/T by force majeure. If a Trust Co. is contracted to act as executor for an estate, it is the Trust Co. rather than a specific individual that is contracted. The executor arrangement would transcend the demise/dismissal/ incapacitation of the employee. IIROC does not deal with such an eventuality. Equity Crowdfunding is coming: Hold on to your hats and money. Securities regulators are approving this ultra risky investment” opportunity “for sale to Main Street” – a process normally reserved for more sophisticated and affluent investors. Read this Globe and Mail article “Is crowdfunding the new tech bubble? Or just a good oldfashioned junk bond?” http://www.theglobeandmail.com/ report-on-business/small-business/sb-digital/innovation/ is-crowdfunding-the-new-tech-bubble-or-just-a-goodold-fashioned-junk-bond/article23823686/ and our blog at canadianfundwatch.com. Look up what happened to Labour Sponsored Funds for an idea of what could happen to you if you invest in Equity Crowdfunding .AND don’t forget the ongoing threat of internet fraud. Marijuana Industry Investments: Medical marijuana is becoming legal in Canada. The legalization of this once prohibited substance is generating headlines and great interest across the country which, in turn, has grabbed the attention of investors looking to capitalize on the high potential of this new legal market. Many promoters have seized upon this to market and sell investments in the marijuana industry, including investments in companies that provide products and services to the marijuana industry such as vaporizers, hydroponic supplies, lighting systems, and security systems. But as is the case with any headline-generating topic, scam artists also recognize an opportunity to capitalize. Many of these companies are micro-cap companies selling low-priced securities which typically are highly speculative and carry a high degree of risk for investors. Securities regulators already are seeing “pump and dump” scams, typical of micro-cap offerings. Fraudsters lure investors with aggressive, optimistic, and potentially false and misleading information designed to create unwarranted demand for shares of a small, thinly traded company with little or no history of financial success (the “pump”). Once share prices and volumes peak, scammers behind the ploy sell their shares at a profit, leaving investors with worthless stock (the “dump”). Investors should think carefully and do their due diligence before jumping into any marijuana-related investment. http://www.nasaa.org/3752/top-investor-threats/ Read also https://www.securities-administrators.ca/aboutcsa. aspx?id=1241
References to investment awards in mutual fund advertising, The widespread practice of touting investment industry awards in mutual fund advertising must stop, suggests a new report from the Ontario Securities Commission (OSC).That directive is contained in the July 2015 issue of the Investment Funds Practitioner, which is published by the OSC’s Investment Funds and Structured Products Branch. The primary issue is the subjective aspect of these investment industry awards. The mutual fund rules generally do not allow the use of performance ratings that include a subjective component in mutual fund advertising. Although the current rules do allow funds to use ratings and rankings from “fund rating entities,” there’s concern that investment industry awards, even those given out by rating entities, have a subjective element to them that disqualifies them from use in regulated sales communications. These ads can lead to mis-selling and investor complaints. Concentrate on hard facts by reading the Prospectus and Management Report of Fund Performance. Treat these awards the same as Oscars . Investor Alert: Beware of False or Exaggerated Credentials Before investing, investors should verify that any person who tries to sell them an investment product or service is properly licensed or registered and should not make investment decisions based solely on assertions regarding the person’s credentials or professional experience, including claims found on the Internet or in traditional media sources. “Seniors Specialist” is a common misleading designation. Read Financial advisors – putting titles in context when selecting an advisor https://www.osc. gov.on.ca/documents/en/Investors/inv_news_20150629_ financial-advisors.pdf Please contact us if you discover new threats. Be aware. CAVEAT EMPTOR. Remember, it’s YOUR money. Kenmar Associates www.canadianfundwatch.com DISCLAIMER Information contained herein is obtained from sources believed to be reliable, but the accuracy is not guaranteed. The material does not constitute a recommendation to buy, hold or sell. The purpose of this Document is to alert complainants about what they may face when interviewed by an investigator. It is not intended to provide legal, investment, accounting or tax advice and should not be relied upon in that regard. If legal or investment advice or other professional assistance is needed, the services of a competent professional should be obtained.
MONEY® Magazine • Issue 3 • 2015 - 27
MONEY®
By Scot Blythe
Panic,
Planning and Persistence The expression used to be sell in May and go away. After all, nothing ever happened in the summer because trading volumes were too light. Not this year. There was excitement. Global stock markets sustained a correction – they were off by 10% since their recent peaks. Of course, if you were fully invested in stocks, a 10% loss might cause some consternation – okay, teeth gnashing and worries about abject poverty. It shouldn't, for a number of reasons. You should never be entirely invested in stocks. Bonds are there as a portfolio anchor, and indeed, in the 2000s, U.S. bonds matched the performance of U.S. stocks. No one should expect that scenario to repeat, but bonds do have a reassuring stability in times of doubt. Beyond that, it's too early to tell how long this correction will last. It could be a month, or it could be years. If it was just temporary, that's a lot of bother for nothing. And if the correction lasts longer, you'll never know the correct reentry point. It's easy to slip into panic. But – and this is a major investor trap – we tend to view the present against the past. This despite the warning label attached to mutual funds that the past is not a predictor of the future. Yet, that doesn't stop stock gurus from asking investors to switch horses halfway through the race. This is amplified by financial commentators recommending safe havens. But investing is to like getting an entirely new wardrobe every year and picking out the appropriate colours for fall. It's about building a durable portfolio. Which does not mean you shouldn’t re-evaluate your holdings from time to time. But you should only make changes if you investment goals have shifted, or if an investment isn't working out the way it should. Now is not the time to panic. To put this in perspective, we've had a six-year bull market – one of the longest in history. Perhaps a pause is due. But only a pause. Growth may be slower, but it hasn't stopped altogether. And yet, for example, investors in one week pulled more money from emerging markets than they did during the currency crises of the late 1990s. Is it 1998 all over again? Hard to tell. And not worth worrying about if you have a plan.
28 - MONEY® Magazine • Issue 3 • 2015
As I've said before, most investors don't have a plan. A plan helps cut through the financial noise, and it simplifies a process that investors frequently make to complicated. It also provides a check on return expectations – a mitigates the risk of making a bad investment. So, if you're about to panic, it's too late. You will be crystallizing a loss – or losing an opportunity. Investors do it all the time. The U.S. research firm Dalbar reports that fund investors have averaged returns of 3.8% over the past 30 years. That compares to an S&P 500 return of 11%. There is a price to not staying the course. Of course, it does look like the Chinese wall of stocks is collapsing. Yet China accounts for only about 5% of global stocks. And the commodities recession is not good for emerging markets – nor for Canada either. Yet, as one commentator put, for once the U.S economy is ahead of the stock market – which it has not been since 2009. The last thing you should do as in investor is secondguess yourself. If you are going to avoid panic, you need a plan. Actually, you need two plans. The first is an investment plan that sets out what you will invest in, and how long you will invest. The second plan is your financial plan. That sets out what role your investments will play in growing and sustaining your net worth. With the two of them you can establish you risk tolerance. The investment plan, in some sense, tells you what you could earn. The financial plan will tell you what you can't afford to lose. For both plans to work, you have to turn to the opposite of panic: persistence. It can take a while to truly reap the rewards of an investment strategy. For example, if you had invested in the S&P 500 in 1998, you would still be showing a loss in 2008, and with the financial collapse in 2009, that losing streak would have continued until 2010. That's 12 years of losses. But if you'd held on till 2013, you would have gotten your money back. (Actually, you would have gotten it back quicker if you reinvested the dividends.) Persistence should be part of your plan. But, according to the Dalbar study, the average holding period for an investor is 3.3 years. In stock market terms, that's barely enough to plant the seeds. Scot Blythe, Editor/Writer Financial Services & Public Policy
Gordon Pape Enterprises Ltd.
‘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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T H I S
Issue #1414
I S S U E
The new normal
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REITS are a special breed
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Go West
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July Top Picks: iShares J.P. Morgan Emerging Markets Bond ETF, Amica Mature Lifestyles, Talisman Energy
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July updates: Canexus Corp., Freehold Royalties, Just Energy Group
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Housekeeping
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Editor and Publisher: Gordon Pape Associate Editor: Deanne Gage Circulation Director: Kim Pape-Green Customer Service: Katya Schmied, Terri Hooper Copyright 2014 by Gordon Pape Enterprises Ltd.
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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Internet Wealth Builder – August 5, 2014
Volume 19, Number 28
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T H I S
Issue #21428
I S S U E
August 5, 2014
CASH OR CANNED GOODS? By Gordon Pape, Editor and Publisher
Cash or canned goods?
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Russian turmoil hits Europe
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Gavin Graham’s updates: Home Capital Group, Copa Holdings, BMO Asian Growth and Income Fund, Templeton Frontier Markets Corporate Class A Units
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Gordon Pape’s updates: AT&T, ArcelorMittal, Google, iShares Japan Fundamental Index ETF, iShares Gold Bullion ETF
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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
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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
W E A L T H
Internet Wealth Builder
Editor and Publisher: Gordon Pape Circulation Director: Kim Pape-Green Customer Service: Katya Schmied, Terri Hooper Copyright 2014 by Gordon Pape Enterprises Ltd.
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.
Reprint permissions: Contact customer service: Mail: 16715-12 Yonge St Suite 181 Newmarket ON L3X 1X4 Email: customer.service@buildingwealth.ca
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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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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Building Wealth’s The Internet Wealth Builder is published weekly by Gordon Pape Enterprises Ltd. All rights reserved.
MONEY®
By Erik Mitchell
Diversification with Real Estate
Everyone has their pet peeves and today I am going to write about one of mine. And it all centers around the word diversification.
If all of your investments are in the stock market, and more specifically mutual funds, how in the world can the financial industry tell you that they are diversifying your portfolio?
My brother and I have been full time real estate investors for the past 7+ years now and over this time period we have witnessed our real estate investments flourish…and at the same time we experienced the stock market crash of 2008 and the subsequent recovery over the last 6 years.
When the market crashed, those that had all their money “diversified” in the market lost, and they lost big.
And the biggest lesson people should have taken (but many didn’t) from the crash of 2008 was the immense importance of diversification within your investment portfolio. So what exactly is diversification? Well, this is what Google had to say, “In finance, diversification means reducing non-systematic risk by investing in a variety of assets.” Ok so reducing risk by investing in a variety of assets. Sounds simple enough and it makes a LOT of sense to me. And this is why it is such a pet peeve of mine. How can such a simple concept get so twisted by the financial industry?
While those individuals that had true diversification made out much better. So what is true diversification? Well it’s having your money invested in more than one asset. You see a mutual fund is a mutual fund is a mutual fund and by design they follow the ups and downs of the stock market. You can invest in one mutual fund or ten of them but at the end of the day you are still investing in the exact same asset. With real estate, it is a completely different asset and its value has very little to do with the volatility of the stock market. Now deciding on how to find and invest in a real estate investment is another story all together but the point here is by having some of your money in real estate and some in the market you provide yourself with true diversification and the ability to limit the risk of your investment portfolio.
Let me give you a real life example of how this works: Person A – $200,000 Investment Portfolio
Person B - $200,000 Investment Portfolio
Invests $100,000 in Mutual Fund A Invests $100,000 in Mutual Fund F
Invests $100,000 in Mutual Fund A Invests $100,000 in Syndicated Mortgage Investment
When all is going well with the market this diversification isn’t as big of a deal because all the assets are making money. But say this example was before the crash of 2008 (or before the next stock market crash). What would the results look like. People lost between 20%-40% of their investments through the 2008 market crash so let’s use a 20% loss for this example. While your Syndicated Mortgage Investment is making a fixed 8%. Person A - $80,000 in Mutual Fund A Person B - $80,000 in Mutual Fund B - $80,000 in Mutual Fund B Person B - $108,000 in Syndicated Mortgage =$160,000 Portfolio Value = $188,000 Portfolio Value As you can see Person B has an additional $28,000 because of the fact that they diversified their investment portfolio. I know this is a simple example and there are a TON of variables at play, but I just wanted to show you why it drives me crazy when the financial industry advertises and talks about diversifying your investment portfolio by investing in different mutual funds. 30 - MONEY® Magazine • Issue 3 • 2015
Ultimately there are a variety of ways to invest in real estate, how you want to go about doing so is up to you. If you would like to learn more about the best ways to diversify your portfolio with real estate you can request a free information package at erikmitchell.ca Erik Mitchell - Mortgage Agent FDS Broker Services FSCO License #12367
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MONEY® Canada Limited
Tahnya Kristina, CFP
Things You Need to Know About Buying Your First Home
With interest rates at a historical low now may be the perfect time to buy your first home. However buying a home is a big investment and a big expense. It’s most likely the biggest purchase you’ll ever make in your life. If you’re in the market to buy a new home keep these nine things in mind to ensure you get a good deal on your mortgage as well as pay a fair price for your home. Always get a pre-approval from your bank
As a financial planner this is always where I advise clients to start the home buying process. Visit your local bank branch, talk to a mortgage specialist and ask for a preapproval. This will give you an idea of the mortgage loan amount that the bank will approve and it gives you a starting point to begin the shopping process. A real estate agent can work wonders
When buying your first home a good place to find local listings is via MLS.com. You’ll be able to get an idea of the homes available in your preferred neighbourhood within the price range of the mortgage pre-approval from your bank. However working with a real estate agent can greatly speed up the process. Very often they get the inside scoop about new properties coming onto the market. Only counter offer if you’re sure
Sometimes your first offer is not accepted by the seller,
don’t worry this is normal. It doesn’t mean you can’t buy the house, all it means is the transaction is now open for negotiation. Talk to your real estate agent and decide if you want to make a counter offer. Don’t overbid for a home just because you want it, trust me there are other homes out there. Always negotiate the interest rate and fees
A lot of people walk in to their bank, apply for a mortgage and accept the conditions as is. This is a huge mistake – trust me I know. Everything is negotiable when it comes to mortgages from the interest rate to the inspection and notary fees. You’ll never know unless you ask. Shop around for home insurance
Owning a home comes with responsibility and it’s always better to be safe than sorry. I’m sure you don’t want to move in to your new home and have to pay hundreds of thousands of dollars in additional expenses when an unfortunate event happens such as a theft, fire or flood. When it comes to buying your first home keep these tips in mind to help make the process as simple as possible. Don’t forget to always ask questions, because the more information you have the better the decision making process will be. tahnyakristina.com
MONEY® Magazine • Issue 3 • 2015 - 31
MONEY®
J.D. Power Reports
Retail Banks in Canada
LOSING TOUCH with Customers as Profits Climb and
Satisfaction Declines
TD Canada Trust, for a 10th Consecutive Year, and Tangerine, for a Fourth Consecutive Year, Rank Highest In Customer Satisfaction with Retail Banks in Canada in Their Respective Segments TORONTO: July 30, 2015 — While retail banks in Canada have achieved record profits, they may be losing touch with their customers, as satisfaction has declined due to high fees and an actual or perceived reduction in the number of services, according to the J.D. Power 2015 Canadian Retail Banking Satisfaction StudySM released today. The study, now in its 10th year, measures customer satisfaction with retail banks in two segments: Big 5 Banks[1] and Midsize Banks. In both segments, customer satisfaction is measured in seven factors (listed in order of importance): product; self-service; personal service; facilities; communication; financial advisor; and problem resolution. Satisfaction is calculated on a 1,000-point scale. Record profits for retail banks in Canada are being achieved at the expense of customer satisfaction as customers report increased fees and reduced levels of service in the branch and on the phone. As a result, overall satisfaction in the Big 5 Banks segment averages 737, down 12 points from 2014, while satisfaction in the Midsize Banks segment is 759, down 7 points. “When a retail bank increases fees and trims back on its core services to customers for the sake of increasing profits, they may be losing touch with one of the most important aspects of their business survival—the customer,” said Jim Miller, senior director of the banking practice at J.D. Power. “Retail banks that make their shortterm earnings at the expense of their customers are trading long-term customer loyalty for short-term profits. Customers will wait only so long in line at a branch or on the phone to handle a transaction or resolve a problem, especially when they are already unhappy with high fees. Banks that don’t provide enough value for what their customers are 32 - MONEY® Magazine • Issue 3 • 2015
paying are likely to find their customers switching to lowcost competitors, some of which provide great customer service.” In the Big 5 Banks segment, 46 per cent of customers indicate paying a monthly maintenance fee for their chequing account, compared with 40 per cent in 2014, with the average fee increasing year over year to $13.15 from $12.18. Among Midsize Banks, 25 per cent of customers pay a monthly maintenance fee in 2015, compared with 27 per cent in 2014, with the average fee increasing to $10.21 from $9.70. Customer satisfaction with fairness of fees has declined among Big 5 Bank customers while remaining flat among Midsize Bank customers. Big 5 Bank customers rate the fairness of chequing fees attribute 6.5 on a 10-point scale, compared with 6.7 in 2014. In contrast, customers of Midsize Banks, which often charge lower fees, rate fairness of fees 7.8. In-branch and phone wait times have increased from 2014. Industry wide, the average wait time to see a teller in a branch has increased to 5.7 minutes from 3.8 minutes in 2014, and the average wait time to talk to a live phone rep has increased to 6.5 minutes from 3.7 minutes. KEY FINDINGS
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Customer satisfaction has an impact on their loyalty. Among Big 5 Bank customers who are dissatisfied, 9 per cent say they “definitely will or probably will” switch banks in the next 12 months, compared with 7 per cent in 2014. Midsize Banks have had a smaller increase, to 10 per cent from 9 per cent in 2014.
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Problem incidence has declined slightly year over year at Big 5 Banks (13 per cent vs. 14 per cent, respectively) and Midsize Banks (10 per cent vs. 11 per cent). Satisfaction with problem resolution at Big 5 Banks declines by 33 points to 633 in 2015,
MONEY® Canada Limited
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and declines by 62 points to 586 at Midsize Banks.
Media Relations Contacts
While Midsize Bank customers experience fewer problems, they are less satisfied with problem resolution than Big 5 Bank customers. The decline in problem resolution satisfaction is due to fewer problems being resolved, and among the issues that are resolved, fewer are taken care of in one contact and in one day compared to 2014.
Beth Daniher; Cohn & Wolfe; Toronto, Canada; 647-259-3279; beth.daniher@cohnwolfe.ca
Study Rankings TD Canada Trust ranks highest in overall customer satisfaction among Big 5 Banks for a 10th consecutive year, achieving a score of 746. TD Canada Trust performs well in all seven factors, particularly in facilities. Among Midsize Banks, Tangerine, formerly known as ING Direct Canada, ranks highest in overall customer satisfaction with a score of 811 for a fourth consecutive year. Tangerine performs particularly well in product, personal service, self-service and communication. The 2015 Canadian Retail Banking Customer Satisfaction Study is based on responses from more than 14,000 customers who use a primary financial institution for personal banking. The study includes the largest financial institutions in Canada and was fielded from April 2015 through May 2015.
Gal Wilder; Cohn & Wolfe; Toronto, Canada; 647-259-3261; gal.wilder@cohnwolfe.ca John Tews; J.D. Power; Troy, Mich; 248-312-4119; media.relations@jdpa.com About J.D. Power and Advertising/Promotional Rules www.jdpower.com/about-us/press-release-info About McGraw Hill Financial www.mhfi.com Please click here to unsubscribe from the receipt of future commercial electronic messages. The information in this email is confidential. It is intended solely for the addressee. If you are not the intended recipient, please notify us immediately and delete this |email from your system. Any unauthorized use, disclosure or reproduction of this email is prohibited. 1] Big 5 Banks are the largest five banks in Canada (BMO, CIBC, RBC Royal Bank, Scotiabank, and TD Canada Trust); Midsize banks include all other banks in Canada with the exception of credit unions.
Overall Customer Satisfaction Index Rankings
(Based on a 1,000-point scale)
Big 5 Banks
Midsize Banks
TD Canada Trust 746
Tangerine 811
RBC Royal Bank
President’s Choice Financial
738
771
Scotiabank 737
ATB Financial 761
Big 5 Banks Average
737
Midsize Banks Average
759
CIBC 732
National Bank of Canada
747
BMO Bank of Montreal
Laurentian Bank of Canada
728
HSBC Bank Canada
716
727
Note: Included in the study but not ranked due to small sample are Alterna Bank and Manulife Bank.
MONEY® Magazine • Issue 3 • 2015 - 33
MONEY®
By Peter Lantos
Mutual Funds vs. Mortgage Investments Do you feel comfortable with the daily volatility of the equities markets? Do you really know where your hard earned money is invested in mutual funds? Do you really know how much you pay in fees every year? Forbes Business Magazine – November 2014 “The average investor in a blend of equities and fixedincome mutual funds has garnered only a 2.6% net annualized rate of return for the 10-year time period ending Dec. 31, 2013. The investment industry produces colossal amounts of analytical data and spends hundreds of millions of dollars in advertising each year … yet they still manage to produce mediocre results for the average investor! Mutual funds, segregated funds, hedge funds, ETFs, puts, calls, options, futures, T Class, PPNs, derivatives, margins, correlation, standard deviation, Monte Carlo simulations, etc. – most investors have minimal knowledge of these terms or products … yet they continue to invest billions each year! There are 16,632 distinct mutual funds available in Canada; 35,819 total funds and clones; 415 fund companies; and 2,090 fund managers (Fund Library: June 17, 2015) … yet only a small percentage of these funds have managed to outperform the TSX Composite Index. Why do Canadians continue to pay among the highest mutual fund MER fees in the entire world? Most investors are not even aware of the fees they pay and certainly the advisors and fund companies do not go out of their way to make it consumer friendly or easily understandable. And to put salt on the wound, MER fees still have to be paid even when your funds are not performing or in the negative. MoneySense Magazine – November 2013
“Between 2008 and 2012, only 9.84% of Canadian equity fund managers beat the S&P/TSX Composite Index.” Mutual funds are an important component of one’s portfolio. I am not against mutual funds. I am however against advisors and financial institutions who tell you to invest most of your portfolio into mutual funds because that is the only investment they are licensed to discuss and sell and 34 - MONEY® Magazine • Issue 3 • 2015
get compensated for. For many years investors have been led to believe that their investments should be divided between equities for growth and bonds for security and income. With daily volatility in the markets and record low yields and interest rates, many astute investors are starting to question this strategy and their investment mix. Many investors today are looking for security to grow and preserve their capital. But they also would like to earn a modest return and a steady monthly income stream without putting their hard earned life savings at further risk. Canadians would desperately like to get off the investment roller coaster and are eagerly looking for:
• • • •
Secure Investments that provide more than the meager returns from money market funds and GIC’s; Greater Stability than the volatility of the stock market and mutual funds (and segregated funds); Cash flow to provide a steady stream of monthly or quarterly income; and Simplicity and Transparency offering easy-tounderstand investments with no MERs or hidden fees.
What if there was an income-producing investment that can return 9% fixed interest every year … with security and collateral … and interest paid every month or quarter? Canada’s large financial institutions, multi-billion dollar pension plans and wealthy individual investors have been diversifying their investment portfolios in real estate and commercial mortgages for decades. Now you too can Invest Like the Banks … with collateral and security against the land and property. Like all investment vehicles, an element of risk is present. A mortgage is a contract and it varies from company to company with several major differences. Subsequently, it is critical that before you invest your hard earned funds, you deal with an advisor who is not captive or exclusive to just a single company, but is providing you with unbiased advice and expertise and works with several different companies. Safety of your principal is the prime objective.
MONEY® Canada Limited
There are numerous benefits with Mortgage Investments to help you diversify your overall portfolio:
GICs
Mutual Funds & Segregated Funds
Mortgage Investments
Principal secured by up to $100K by CDIC
x
x
Principal secured by a 2 mortgage
x
x
Invest in a real tangible asset
x
x
Fixed interest rate of 9% per year
x
x
Fixed term of 3 years (GICs may be fixed between 1 to 10 yrs)
x
Fixed monthly or quarterly interest payments
x
x
Fixed security against the land and property
x
x
Fixed contractual mortgage terms and conditions
x
x
Low volatility
x
MERs and other fees
x
x
Invest Like the Banks with security and collateral
x
x
1.5% to 2.5%
+/-?
9%
Benefits
nd
.
Annualized returns
Note: we have simplified the Mutual Fund / Segregated Fund MER calculations for simplicity of illustration
End of Year
$100,000 Investment
Mortgage Inv. Annual Fees
1
$109,000
$0
2
$118,000
$0
3
$127,000
$0
4
$136,000
$0
5
$145,000
$0
6
$154,000
$0
7
$163,000
$0
8
$172,000
$0
9
$181,000
$0
10
$190,000
$0 _______
TOTAL Fees NET Returns
$0
$90,000
The world and the economy are not the same as they were even just a few years ago. Thanks to the internet and social media, we live in a global economy where a single event, or even a rumour, on the other side of the world can send the markets trembling. Market volatility is here to stay! So why continue to ride the ups and downs of the same old mutual fund roller coaster? It is easy to Invest Like the Banks … with collateral, security, and solid returns … and diversify a portion of your under-performing RRSPs, TFSAs, RRIFs, LIFs and LIRAs to a secure Mortgage Investment. Of course you may also invest with cash or unregistered funds. In closing, let’s take a look at the MER fees you would pay each year over a 10 year period on a $100,000 initial investment, assuming 9% simple growth each year and a 2.5% MER (industry average) ….. Note: Mortgage Investments are regulated by FSCO (Financial Services Commission of Ontario) under the Mortgage Brokerages, Lenders, and Administrators Act, 2006. Peter Lantos Mortgage Investments is licensed to provide advice for the Province of Ontario only.
Disclosure: Peter Lantos is a licensed mortgage agent (FSCO Lic #M13000423), not an investment dealer. Landmark Capital Ltd. (FSCO Lic #12493) is the lead mortgage brokerage. MONEY® Magazine • Issue 3 • 2015 - 35
MONEY®
By Frank Flynn
TAXES:
Great Politics Isn’t Always Great Policy… and Vice Versa I started with CRA as a tax collector in 1992 shortly after the introduction of the GST. The Conservative government under Brian Mulroney had introduced the tax just before a federal election. You may recall the Conservatives were soundly trounced and thrown out of office. For years afterward I laughed every time I heard the Liberals crowing about how they balanced the books. Sure, technically they did, but mostly with GST revenue that flooded in thanks to the Conservatives. Remember when Liberal leader Jean Chretien promised to axe the GST? Once he got a look at the GST loot pouring in, yeah, well, don’t hold your breath waiting for cancellation of that tax. Ironically, against the advice of credible economists, the Conservatives under Stephen Harper later cut the GST from 7% to 5%. Why, you ask? Easy - same as Chretien’s Liberals before them, they were buying votes with promised tax policies.
cuts would be like trying to jumpstart a 747 with a flashlight battery. And yet, his one-time Conservative protégé Stephen Harper now maintains that tax cuts are the best answer to a sluggish economy. Evidently Stephen Harper thinks there are votes to be had in broad-based consumer tax cuts; why else would he have gone against what even very conservative economists were telling him? Conversely, NDP leader Tom Mulcair and to a lesser extent Liberal leader Justin Trudeau appear to think that promising targeted taxation of wealthier individuals is going to yield the highest number of sympathetic middle class voters to deliver them to power. Of course Liberal and NDP social program promises come with a cost. Look for the cost to be buried somewhere deep in our Tax Acts.
Liberals, Conservatives, NDP… all parties construct tax policy around what they perceive to be good politics.
Liberals, Conservatives, NDP… all parties construct tax policy around what they perceive to be good politics. Politicians of all stripes use tax policy as a means of leveraging their electoral chances with whatever constituency they think will yield the highest voter turnout. Of course the great lie in it is that their respective policies are all touted as being the highest fiscal wisdom.
Even amongst like-minded partisans, political winds often divide prevailing ideas on taxation. The best example of such a dynamic was Reformer Preston Manning making the statement that trying to stimulate the economy with tax 36 - MONEY® Magazine • Issue 3 • 2015
The GST was great for Canada’s books but politically disastrous for the Conservatives. Cuts to the Goods and Services Taxation rate may have been great politics for the Conservatives, but no serious economist thinks it was good for Canada’s books. This is the binary dynamic of tax policy versus politics. Good policy isn’t always good politics, and vice versa. Taxation now more than ever amounts to a quid pro quo proposition between political aspirants and their constituencies. We live in an era where there’s no longer any artifice about tax policy or how tax revenues and our economy are managed. Where ‘ere the voter winds blow, expect tax policy to follow.
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MONEY® Canada Limited Written by Tom Drake
Guaranteed Investment Certificates:
Are GICs Risk Free? One of the most interesting, and safest, investments that Canadians have access to is the GIC. With a GIC, you invest your principal at a set rate of return. You receive the same interest yield, regardless of what is happening in the markets. Because of their safety and stability, GICs are popular among those who lived on fixed incomes. They are desirable during retirement because the offer a regular source of income. Guaranteed Investment Certificates are generally considered to be risk free investments. It’s important to understand, though, that no investment is completely without risks. This includes generally safe investments like GICs. While GICs can be a great part of any investment portfolio and long-term plan, there are some risks that you need to be aware of. Understanding the risks involved can help you reduce those risks over time. What You Should Know about GICs and Risk Since your principal is guaranteed, and your interest rate is often also guaranteed, there is not much of a risk premium involved. You don’t have to worry about losing your principal, and you can expect to see the same return, no matter what is happening in the markets. Of course, one of the rules of investing is that the greater the risk you take, the greater your potential returns. The relatively low-risk nature of GICs means that the gains you can expect are lower since the risk is lower. So, instead of perhaps seeing a 6% to 7% gain on your investment, as you might see in the stock market, you might only see a 1.5% return on your GIC. While you are insulated against capital losses (that bigger stock market potential also comes with the risk that you will lose some, or all, of your principal) with a GIC, your gains won’t have nearly the potential. As a result of these lower yields, GICs aren’t very good when it comes to wealth building. They can preserve your capital, especially if you have a lot of it and just want to
generate income through interest returns, but if you rely on GICs to build your retirement portfolio, you run the risk that your money won’t grow at a fast enough rate to provide you with a comfortable retirement. Additionally, while this low interest may be guaranteed, it’s not guaranteed to beat inflation. If your GIC is providing a 1.5% interest rate but the annual inflation rate is 3%, then your real inflation-adjusted rate of return is -1.5%. This means that you are losing money in real terms. Over time, this erosion in your buying power can make a big difference in the size of your nest egg. You can increase your return by getting the best interest rate possible on your GIC. This involves not only looking at what is offered among banks and credit unions, but also ask your banker for a better rate. Like many other bank rates, these can be negotiable. You can also use a laddering technique. This means that you buy GICs of different lengths (since longer terms come with higher rates). Every time a GIC expires, you reinvest the money into the longest possible term. A proper GIC ladder allows you to take advantage of increasing interest rates, while still locking in higher rates. There is also a tax liability that needs to be accounted for. Interest on GICs is fully taxable at your marginal tax rate. Because of this, you should consider holding any GICs in a RRSP or TFSA to shelter the gains until you withdraw the money. In the example above, tax could remove at least 0.5% of your return, now leaving you with a real rate of return of -2% after adjusting for inflation. You can see how that can be problematic over time. A shelter can defer the taxes, giving your money a chance to grow more efficiently. However, you will have to pay taxes eventually. While a GIC can add to a diversified portfolio as a source of fixed income, be aware of the steps you can take to reduce the chance of losing money in real terms. Make sure you get the best rate possible and shelter your income from taxes, and include GICs in a wider portfolio composition that includes assets with better returns. MONEY® Magazine • Issue 3 • 2015 - 39
MONEY®
Written by Jim Yih
7 Causes of Financial Stress In the medical industry, a pandemic is described as a widespread outbreak of an infectious disease over a wide geographical area. In the financial world, I think we have a serious pandemic that is causing people to have serious financial problems and stress. A lot of people are stressed and one of the biggest causes of that stress comes from money. So what’s causing all this financial stress? Here are some major contributors to financial stress 1. High debt levels.
Financial Stress - Debt levels are rising faster than both incomes and assets. Never has it been easier to access debt in all forms – lines of credit, mortgages, credit cards. You can now buy pretty much anything without having cash. Debt has created a lot of the economic problems we face today and was the biggest factor in the world financial crisis in 2007. The debt problem has been fueled by consumerism and consumption. In 2005, a national Symposium in Financial Capability suggested that Canadians spend 25% more than their income. We no longer practice delayed gratification. Instead we practice delayed consequence. We have become our worst enemies because we’ve been programmed to spend even if it means spending money we don’t have. 2. Low savings rates
Savings rates have been steadily declining since a peak in the early 80’s when it was almost 18%. Today savings is pretty much non-existent hovering around 2% to 5%. This is far from what we need to save to be financially secure in the future. This is a real serious problem because our financial future both on a macro level and a micro level is largely dependent on how much we save today. Unfortunately the real consequence of a low savings rate has yet to be seen. 3. Volatile Stock markets
For most of the 1990’s wealth was created by the stock market as we experienced one of the strongest and longest financial booms in history. Unfortunately, stock markets do not move in a straight line and they experience cycles just like anything else. For most investors, the decade from 2000 to 2010 was not very prosperous. In fact, for many, the stock market has destroyed wealth as opposed to create it due to some major bear markets. 4. Real estate won’t be our financial saviour
Not only has the stock markets contributed to the ups and downs of financial stability but so has real estate. Anyone who owned real estate in the financial boom loved their investment. It was a period of time I call ‘stupid money’. Stupid money exists when money can be made without any effort. You can sit and do nothing and make money. Real Estate booms create stupid money. The problem with every real estate boom is some people become over leveraged and over extended. When the boom stops, slows down or experiences a correction, that’s when problems hit. Because real estate is largely leveraged (which means you 40 - MONEY® Magazine • Issue 3 • 2015
don’t pay cash but you borrow lots of money to buy real estate), period after booms can create massive problems like the financial crisis in the late 2000’s. 5. Demographics means more fear
The baby boomers have been a huge demographic force that have shaped social and economic patterns since the day they were born. These baby boomers are now getting serious about retirement as it is happening in the next 5 to 15 years. This is serious stuff because the closer you get to retirement, money and finances become really relevant and as a result really stressful. Retirement is supposed to be the best years of our lives but instead, it is stressing people out because of lack of planning, fewer pension plans, low savings rates, high debt levels and fear about the foundation of government benefits. 6. Financial market place is increasingly complex
There is more information, products, choice and confusion in the financial industry. Go to the bookstore and you will find hundreds of books on money. Go to Amazon.com and search on money and you will find over 70,000 titles. Google the phrase ‘personal finance’ and you will find 78,400,000 results in 0.1 seconds. Go to YouTube and type in retirement and you will find 7,500 videos including my own. There is a ridiculous amount of information on the topic. Here’s the problem more information is not always a good thing. The challenge we all face with too much information is that there is so much conflicting information out there. Part of that confusion stems from the fact there is more opinions and less fact. Anyone can now wallpost, twitter or blog about anything. To compound the problem, we also have more financial products than ever and more choice has paralyzed us from making important decisions about money. Too many people have placed too much control and trust in the hands of financial advisors and stockbrokers and product sellers. Money fraud is big business and too many people are losing too much of their hard earned dollars to ponzi schemes, pyramid programs and shysters. Not only is it hard to know what information to trust but it has also become difficult to know whom to trust. 7. No formal education on money
Who’s teaching you about money? Herein lies the root of the problem. There is little formal financial education in the school system. There is very little offered in the workplace. So many people have to learn from friends or family but that creates it’s own set of problems because many of them don’t have the knowledge, ability or resources to teach others about money. Research has found that 42% of adult Canadians lack the basic literacy and life skills to cope with the demands of our knowledge society and economy. There is a cure for financial stress Financial stress is all too common in our society and we need to do something about it. The starting point is a little knowledge but true success comes from action. It comes from taking control of your financial affairs and developing good financial habits.
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Join us at the exquisite Marlowe Restaurant on September 9th for The Financial Show - Kick Off - Launch and Party. The Financial Show was meant to be on television and destined to be powered by You and Your Money. The Financial Show is the definitive and ongoing answer to the age old question and concern "Show Me The Money". MONEY is a big important and meaningful subject matter and worthy of a television show dedicated to personal finance and financial literacy. Money Canada Limited has created top, newsworthy, financial content online, in print and on video. MONEY goes one step further to attain television prowess. For the first time The Financial Show will be on television doing what Canadian financial consumers want and need most by creating, developing and producing a high level of news, insight and information that makes sense and pays dividends. The Financial Show has already garnered a set of perfect time slots that is aimed toward acquiring even more loyal and interested watchers who want to know more. In conjunction with The Real Estate Channel - Rogers Channel 260 in the GTA and Golden Horse Shoe area. MONEY is proud to produce The Financial Show for television and have it aired on the one 24/7 Specialty Channel known as RealEstateChannel.ca that is dedicated to Real Estate. Watch Listen and Learn more about The Financial Show and You and Your Money at 10:00 am or 6:00 pm available each and every day moving forward.
MONEY is always looking for the best financial news, reviews, interviews available and we will go to great lengths to reach out to great sources, authority figures and good smart business that help make, save and preserve more of your hard earned wealth. You are the star of The Financial Show - and we encourage you to get on TV with a business profile or a create a fantastic commercial that sells your exact target market.
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Advertise, market, contribute or collaborate with MONEY and The Financial Show for all the right reasons. 416-360-0000 1-800-789-1011.ca realestatechannel.ca And next month we will be on all provincial channels....for now we can say we are on in all these province through these network check time for local availability...
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THE SOCIAL CURRENCY
MONEY® MAGAZINE
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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MONEY® Canada Limited Pamela Greiner-Labelle
The Business Exchange specializes in lead generation in the franchise and business opportunity industry, in print and online.
Pamela Greiner-Labelle, 43. “Dream as if you’ll live forever, live as if you’ll die tomorrow.” Pamela Labelle, has seventeen years’ experience in publishing The Business Exchange magazine, an online portal and producing the Business, Franchise & Investment Expo & Conference. All are dedicated to connecting buyers and sellers of business and franchise opportunities. She has been married, has 2 wonderful children, and survived breast cancer and divorce. Pamela had a lot of financial success early in her career and later had some life altering experiences and as a result how she defines success today looks radically different than her vision from fifteen years. Pamela appreciates that how we define success will differ from person to person and from moment-to-moment but some simple principal will apply across the board if one wants to achieve success in many aspects of our lives including business, relationships and family. Success is for everyone and may look very different to different people. Pamela, is known for her aggressive no nonsense and innovative approach to business and for her marketing skills that produce the best results in the publishing and franchise industry. Pamela may appear to be soft spoken, but make no mistake she is a very strong woman both personally and professionally. Pamela has put a lot of thought into what success looks like. Is it lots of money in the bank? Is it a beautiful house? Exotic vacations? Nice cars? Is it all about being a great mom and wife? Can women really have it all? Can we cultivate great relationships and build strong businesses at the same time? How do entrepreneurs define success in 2015?
Founded by Pamela Labelle, the first issue of The Business Exchange came out in Toronto on November 1998. Frustrated with her search due to the lack of selection and brief descriptions of the classifieds, she started looking for a publication that specialized in businesses for sale. In her search she found nothing existed. There was suddenly a great opportunity staring at her in the face, and hence the idea of The Business Exchange was born. Today The Business Exchange is a successful magazine that connects buyers and sellers of established businesses for sale, franchises for sale and business opportunities. Due to the great success of The Business Exchange in Canada, and a huge demand from our readers to have a similar publication in other cities, we have expanded into New York City, New Jersey and Connecticut. We also publish The Commercial Exchange, a commercial real estate magazine for investors to buy or lease properties in Ontario. The Business Exchange in Canada can be found online at www.BusinessExchange.ca and in the United States at www.BusinessExchangeUSA.com. The Commercial Exchange can be found online at www. CommercialExchange.biz. All the listings in print can be found online in our searchable database, making it easier for business buyers to quickly find what they are looking. The Business Exchange is dedicated to being a great resource for entrepreneurs who are passionate about finding their perfect business opportunity.
www.BusinessExchange.ca MONEY® Magazine • Issue 3 • 2015 - 43
MONEY®
By Charles Ticker
PREVENTING NASTY
SIBLING ESTATE
FIGHTS
The Smothers Brothers had a hugely successful television show. Everyone remembers their most famous routine when Tommy would complain to his brother Dick: “Mom always liked you best!”
I recall speaking at an event with approximately 100 people in attendance. I asked the attendees how many had siblings. Almost every hand went up. I then asked “who can’t stand their sibling?” I was amazed that about 10 hands remained up. If you are involved in an estate fight with your sibling rest assured that you are not alone. More and more sibling estate fights are filling the Court dockets and as a result, more and more estates are being eaten up by legal fees. I recall a case I had where I was acting for an elderly mother. She had signed various Powers of Attorney to her three daughters. She would make a new one whenever she wanted help from one or the other. The mom could be manipulative – the daughters did not get along and mom played off that. I was in Court one day on that case when the Judge asked the lawyers involved: “How far are the parties apart? Is it millions or hundreds of thousands of dollars? One lawyer answered “hundreds of thousands of dollars your Honour.” The Judge looked at the litigants and replied “well, the lawyers will eat that up soon enough.” Estate fights are not just over Wills any longer. We are seeing fights over mom and dad’s estate while the parents are still alive- adult children fighting over who should be making financial or personal care decisions for mom or dad while they are still alive. Estate Court fights are expensive not only financially 44 - MONEY® Magazine • Issue 3 • 2015
but emotionally as well. So what can be done to prevent ugly estate fights? While even the best estate planning cannot guarantee that an estate fight between siblings can be avoided, there are certain steps that can be taken to prevent sibling estate fights.
1. Make sure that your Will and Powers and Attorney
are up to date. Use a professional to prepare a Will preferably a lawyer that does a lot work in the estates area.
2. Will kits should be avoided. However, as a litigator I
certainly love Will kits. Why? Because they bring in lots of business. People think that doing a Will is so simple that anyone can do it. Pick up a kit for $29.95, fill in the blanks and presto, you have a Will! The fact is that many people mess up when making their own Wills. They may not comply with the rules of formal execution of Wills (in Ontario the testator or the person making the Will must sign in the presence of two witnesses who are not beneficiaries or spouses of beneficiaries.). People acting on their own sometimes use the wrong witnesses or the wrong number of witness or they have people sign in the wrong spot.
3. Disinheriting a child or leaving unequal gifts. Anytime
a child is left out of a Will or receives less than his siblings, the seeds are planted for an expensive will challenge in Court. Quite often the litigation is not over the difference in the size of the gifts but rather, the unhappy beneficiary is looking for a reason why he was treated differently from his siblings. The different treatment in the Will is interpreted by the child as a statement by the parent that the child receiving less is not as loved as his sibling. That rejection stirs up deep emotions that drive the sibling estate litigation.
MONEY® Canada Limited
4. Making all your children Co-Executors. Take the
situation where there is a family with four children. Because Mom and Dad watched the Smothers Brothers’ show, they don’t want to pick favorites, so they name all four children as executors even though they know that the children do not get along. Executors have to be unanimous in their decisions in the administration of the estate. If they don’t get along, the estate administration can become deadlocked and litigation can often result. One way around this is to have a majority rules clause in the Will so that a majority of the executors can make decisions.
5. Sweating the small stuff. Some of the biggest fights
can take place over little stuff like China and furniture or other house contents. A lot of people put a provision in their Will that they want to divide all that stuff equally between their children. That creates a situation ripe for a dispute. What does equal mean? Rather than say equal, it is better to have the personal items divided as the children agree or failing agreement the executor should have the power to sell and split the proceeds.
6. Lack of communication. A lot of estate fights are as
a result of lack of communication. This is particularly the case when creating a succession plan for the family business or cottage. Most parents do not feel comfortable having the difficult conversation with their children concerning their succession plan. They put off the discussion and leave a Will that provides little insight as to their intentions. Having the dialogue with your children while you are alive can identify and deal with issues before they turn into nasty estate fights. It can be helpful to hire an estate lawyer or a mediator to chair and to facilitate the discussions. This can result in a formal family agreement as to how certain emotional assets such as the cottage are to be dealt with.
In summary, if you want to prevent a nasty expensive estate fight, make sure you have an up to date estate plan, discuss the plan with your children and use professional advisors with expertise not only in estate planning but in dealing with estate disputes.
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MONEY® Magazine • Issue 3 • 2015 - 45
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MONEY®
Jim Ruta, BA, RHU, EPC
Life Insurance for Your K
The surprising reasons you
I mean, what could possibly be more scandalous than that?” Life insurance agents often hear comments like this from their clients when the topic of life insurance for children comes up. Frankly, many life insurance agents feel the same way and would never even bring up the topic with you. Yours may be one of them. Some advisors even suggest that since direct child-rearing expenses end at that terrible time, there is no loss of any kind to consider insuring. (To me, that’s scandalous.) On a superficial level, there is some sense to the idea. I guess that’s why it lives on. The trouble with this perspective is that it looks at the opportunity from the wrong angle. Considering life insurance for children as a matter of profit is just wrong. History proves that the loss of a child is one of or the most traumatic experiences a family can ever experience. There is little discussion about it. But, that’s one of the biggest reasons life insurance can make a whole lot of sense for many consumers. First, properly insuring the parents has to come first. Not much question about this either. The loss of a major part of the family income can put as family in a hole from which they may not escape for generations. Parental life insurance has to come first.
A life insurance policy planned as a reasonable percentage of family income – say 6 months, allows a family the time to heal without undue financial pressure. Mortgage and car payments, unusual expenses, family counselling and dayto-day living expenses are covered by life policy proceeds so everyone can take some time to deal with their grief. Speaking directly with a family like this recently, I know their insurance made a big difference in their recovery process.
But, after that, prudent families consider the potential impact on the income earners of the loss of someone as important as a child. Such trauma puts most families into a tailspin that takes many months from which to recover. There’s where life insurance can come in.
After financing a reasonable family recovery, it turns out that there are other sensible reasons to purchase life insurance for kids that have nothing to do with undue profit from the untimely loss of a child. Here are just a few you may want to consider:
48 - MONEY® Magazine • Issue 3 • 2015
MONEY® Canada Limited
Kids? Good Idea or Bad?
u might have this all wrong
“Eighth Wonder of the World” – Compound Interest. An investment in a traditional whole life policy can mean a wonderful nest egg for your child (or grandchild) later in life and a great return on your investment when kept intact. All of this is due to compounding of the internal rate of return on these policies. 3. Qualifying for life insurance is changing too. Standards to purchase are getting higher and with advances in technology, getting insurance may be even more of a problem in the future. Today’s small impairments might prohibit purchase altogether in the future. Buying today can mean you buy an adult’s policy for your child that they will never have to give up unless they choose to. Locking in a child’s basic coverage can be an amazing gift for the future.
1. Life insurance products are changing. Dramatically. International accounting standards, low interest rates, income tax regulations and volatile stock markets mean that traditional whole life policies often used for children are disappearing. Returns that our parents counted on years ago are being replaced with much lower ones to account for today’s economic reality. The policy that the wealthy use today as an asset class looks to be on the way out. Buying today means your child can still benefit from some of the of the traditional policy values at current rates that we may never see again. 2. Having that traditional whole life policy early means that your child will benefit from what Albert Einstein called the
4. Today, you can also guarantee your child’s right to the future purchase of more life insurance when needed. So, even if new purchase standards jump, your children can protect their families later on when they have them. It’s an advantage you can only secure while it’s available. So, if you’ve dismissed the possibility of life insurance for your children in the past, I hope you now may want to reconsider. It’s not a scandalous idea at all. Look at it instead as a prudent investment in your child’s and your family’s future financial security. You’ll only ever wish you had bought more. Jim Ruta - August 28, 2015
MONEY® Magazine • Issue 3 • 2015 - 49
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