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M A G A Z I N E WINTER 2015
MONEY® Media Contact: James Dean, Editor & President Kennon S. Vaughan, Artistic Director Ian R. Whiting, CD, CFP, CLU, CH.F.C., FLMI(FS), ACS, AIAA, AALU, LSSWB Senior Editor/Writer Inquiries: +1 416 360 0000 james@money.ca Mailing Address: Head Office 7181 Woodbine Ave., Suite 226 Markham, ON L3R 1A3 Regular Features Best Rate Around pg. 8 Media Release pg. 19 Mutual Fund Review pg. 25 The Social Currency pg. 46 The Advisors Channel pg. 51 Advertisers Index Scott Insurance Services GICRates.ca Private Investment Club Coin/Stamp News TheMortgageCentre TravelInsure.ca Franchise Rainmaker Gordon Pape Newsletter Reputation.ca Penthouses.com
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TA B L E O F C O N T E N T S GICs, RRSPs and TFSAs – what make sense for you ~ Ian R. Whiting, Senior Editor, Money Magazine - pg. 4 A structured way to review your portfolio ~ Steve Nyvik - pg. 7
More Than Retirement Planning ~ Becky Wong - pg. 30 Live Like You Are Dying! ~ Carey-Ann Oestreicher - pg. 31
And the winner is ........ ~ Ian R. Whiting, Senior Editor, Money Magazine - pg. 9
Mortgage Investments – Would you like to earn 8% fixed interest every year? ~ Peter Lantos - pg. 33
Moving Target James Dean - pg. 10
Family Tax Savings You Don’t Want To Miss ~ Dean Paley - pg. 35
Confessions of a CFP: You may need an online bank ~ Tahnya Kristina - pg. 11
RRSP loan strategy for generating a down payment on your first home ~ Lachman Balani - pg. 36
RRSP Season – again? ~ Pat Bolland - pg. 12 Make Love, Not Debt: How to Do Valentine’s Day without Going Broke ~ Tom Drake - pg. 14 Why You Should Contribute this RRSP Season ~ Jim Yih - pg. 16 Financial literacy and investment ~ Don Shaughnessy - pg. 17 Economy in 2015: good for buying a home ~ Guy Ward - pg. 20 The Holidays are Over, Let’s Split! ~ Debbie Hartzman, CFP, CLU, CDFA - pg. 22 Lower gas prices can mean really big TFSA savings! ~ Marvin Spooner - pg. 23 When Respect Matters ~ Mark Borkowski - pg. 26 12 Small Steps to Improve Your Finances ~ Tammy Johnston - pg. 27 The 2-Letter 4-Letter Word ~ Robert Gignac - pg. 29
Let’s retire the word Retirement ~ Jonathan Chevreau - pg. 37 Taxes Taxes Taxes… ~ Frank Flynn - pg. 38 Succession Planning – A Storm is Coming ~ Greg Powell - pg. 40 Leading a company through market cycles ~ Blair MacDougall - pg. 41 Entrepreneurs Should Put Themselves in Investors’ Shoes ~ Richard Crenian - pg. 42 How Much Life Insurance Do You Need Anyway? ~ Jim Ruta - pg. 43 Kick Start Your Life Today ~ Anita Saulite - pg. 45 Financial Literacy in Schools ~ Kyle Prevost - pg. 47 Noise, Financial Literacy and “A Plan” ~ Scot Blythe - pg. 48 Will That be Credit Card, Debit Card or Cell Phone? ~ Gerald Trites - pg. 49 Your Family Finances: No Trivial Pursuit ~ Cynthia Kett - pg. 50
MONEY® RRSP SEASON
GICs, RRSPs and TFSAs – what make sense for you? Written by Ian R. Whiting, Senior Editor, Money Magazine
www.RRSPSeason.ca As usual for this time of year, financial institutions across Canada are trying to find a way to separate you from your money – not actually stealing it but rather asking you to give it them (lend) in return for some interest over some period you select. There are traditional GICs that pay a fixed rate for each year in the term you choose. There are “rate-riser” GICs where the nominal annual rate increases each year – usually contained in 3-year versions. Some are cashable before maturity, others are locked-in (unless you happen to die of course). Some companies issue and promote index-linked or equity-linked GICs and even use words such as “risk-free” to try and confound potential purchasers. The traditional parts of the banking system (banks, trust companies, credit unions and caisse-populaires) generally restrict their offerings to those with maturities of 5 years and less. The only reason being that they can then promote “your capital is fully guaranteed or protected” by deposit insurance through CDIC (Canadian Deposit Insurance Corporation) or the CUDIC (Credit Union Deposit Insurance Corporation) or some other provincial or territorial equivalent body. All true, of course, but what does that really mean to you and I? Nothing, quite frankly. On the insurance side of the fence, these same products are available but terms can (if you so choose) stretch up to 20 years and are also protected to similar limits by ASSURIS – the insurance industry equivalent to CDIC and CUDIC coverage. GIC ladders are increasingly popular as people are reluctant to lock in large sums for a single term since no-one is able to predict future rates – and if rates go up, everyone wants in! 4 - MONEY® Magazine • WINTER 2015
A ladder works quite simply. You divide your investment into say 10 equal pieces. With 1/10th, you purchase 1 year GIC, with 1/10th you purchase a 2-year GIC – then repeat until all 10 pieces are used. You now have 1/10th of your money coming due every year so you can catch rising rates and are protected from dropping rates. As each matures, you then just buy 10-year GICs. Do this with each years’ deposit to your RRSP and TFSA, and in a short time, you have a well-balanced GIC portfolio. No doubt you have heard or read about Equity- or Index-linked GICs. Many financial institutions market variations of these products. The intention is to provide the guaranteed return of your principal and give you the potential of higher returns based on some external equity fund or market index. There are no options for early withdrawal. Let’s visit with Sarah and Lee. They are making plans for their annual contributions and are frustrated with the choices available for several reasons. This product is not always available. Many institutions only offer these products during “RRSP Season”. In addition, sales of new issues are sometimes suspended because of periods of poor market performance. Limited choice of terms. Usually these products are only offered for a 3 or 5 year term. If Lee and Sarah want a different term, they are out of luck. Limited choice of equity or index links. The company offering the product makes the investment choice. All issues have a maximum rate of return that they will pay – a cap on returns. Clients are in a take-it or leave-it position. Lee and Sarah are looking for greater choice and control over their investment, both in duration and the investment performance portion of the GIC. They are looking for a better way to invest and get the best of both worlds. There is good news for
them – it can be done and without the restrictions of the other products. Lee and Sarah, together with their financial advisor designed their own equity-linked GIC with no restrictions, full flexibility and no cap on returns. First, they choose their own term. In most cases, a longer term – say 5 to 7 years at least, is preferable. Time is their friend since it gives the equity portion of their investment a higher probability of good returns. A term of 10 years or more is even better! Next, they buy a plain, regular, off-theshelf redeemable GIC to guarantee their full principal. After discussing things, they decide a 7-year term is appropriate and they have $75,000 to in their current plans. After pushing a few buttons on a financial calculator and knowing the 7-year GIC rate is 4%, they need to deposit $56,993 today so it will be worth $75,000 in 7 years. Finally, they choose their equity investment. With just over $18,000 left to invest in equities, they now consult their advisor for an appropriate solution. They can use mutual funds, segregated funds, Index funds, ETFs or individual stocks or bonds. Their advisor will have them complete a Risk Tolerance questionnaire to determine appropriate choices. This will be their profit with no cap! Sarah and Lee are happy to have control of their investment with no upside limits and no restrictions on liquidity or withdrawal. Shouldn’t you take control of your choices? Don’t try and make your decisions in a vacuum. A well-qualified advisor is your friend – particularly one has access to broker-direct services throughout both the traditional and insurance-industry GIC product line. Check with the Money Magazine, Fall 2014 issue and you can see that sometimes using a deposit broker can increase yields on traditional GICs by up to 40%!
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A structured way to
review your portfolio Written by Steve Nyvik, BBA, MBA, CIM, CFP, R.F.P.,
FreePortfolioReview.ca With my car, if I forget to change the oil, the check engine light comes on after 10,000 km. Unfortunately there’s no “check portfolio” light that forces us to do a critical review of our portfolio on a periodic basis. Over time, interest rates move, the stock market marches on, and developments occur pushing some companies to cheap or expensive levels and some developments that might adversely impact long term profitability. Here’s a simplified checklist to help you review your portfolio and make sure it is properly allocated and geared towards getting you the growth you need at a reasonable level of risk. A) Common Stocks 1) What’s the percentage of common stocks to the overall portfolio? ·
This is something I would compare to one’s Equity Target and consider if one should be above or below that target at this time.
2) Managing company risk: · How many do we have? (If less than 20 stocks we probably have too much company risk.) · Do we have any stock positions that are twice or more of the average position? · Do we have stocks that are not in quality businesses (are any having operating issues and do those issues impact the long term desirableness of the holding?) · Do small company stocks (Market cap under $500 Million) represent more than 20% of stocks · Do we have any stocks that have a high level of debt (low financial strength)
3) Managing industry risk: · Do we have more than 20% of stocks in any one industry? 4) Managing future returns As a value investor, I’m looking for stocks of: · Quality product or service · Great businesses with competitive advantages so that I know earnings are sustainable into the future · Financially strong (so they can survive when the industry or economy experiences a downturn · Have a good earnings yield (EPS / Market Price); ideally at least 8% · Have a good dividend yield; ideally at least 3% B) Preferred shares These type of investments are like long term loans with a non-guaranteed dividend and no return of capital. So I look at these as follows: · Are we invested with any company that is not a high quality “borrower” – there should be no question that they can pay us income · Are we getting a good income yield? · What are the features of the preferred share and if I paid more than $25 par, how long must I hold them to avoid a loss should they get called? C) Individual Bonds These are loans so we need to consider the creditworthiness of the borrowers to gauge the risk of non-payment of interest and return of principal on maturity. We also want to be paid a good interest yield and we also need to factor in the potential gain or loss on maturity of the “loan”.
D) Bond Pools For the bond pools, we need to understand what kind of “loans” we are investing in, how risk is managed and how the portfolio is managed. We also might want to know about the portfolio yield net of expenses, the portfolio distribution yield (“dividend yield”) and the portfolio Net Asset Value compared to the market price per share. E) Cash and Cash Equivalents Here we want to know what are your cash needs are for the next year and set aside this amount in something liquid earning you some interest. We also want to have an Emergency Fund set up for meeting any unanticipated expenses. F) Mutual Funds How are the managers doing relative to their benchmark? You might also see if your advisor put you in Deferred Sales Charge funds option which is a potentially expensive way to buy funds. Personal Developments Has anything changed in your life or your family members that might impact needs from your portfolio? As a financial planner, I also review risk management items to manage the financial impact of the death, disability, or sickness of the breadwinner, as well as property loss, theft or damage, and liability claims. Summary If you don’t manage your financial “garden” and do some weeding, you need to hire a professional “gardener”. This is part of what I do as well as provide financial planning advice and service which is included in the cost. MONEY® Magazine • WINTER 2015 - 7
MONEY® MAGAZINE
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And the winner is ........ Written by Ian R. Whiting, Senior Editor, Money Magazine
While reading our last issue, an advertisement caught my eye – The Great Canadian Sales Competition. So, I did a bit of digging to learn more and satisfy my curiosity. I was pleasantly surprised! So what has this got to do with our RRSP issue? Surprisingly quite a bit ... but I digress. The brain-child of the folks at the Sales Talent Agency – a specialty recruitment firm with offices across Canada – the idea is to showcase a career in sales to everyone attending any post-secondary educational institution in Canada. Some people have the attitude: “well, if all else fails, I can go and sell something.” I have never subscribed to that philosophy but I see it regularly. This competition is designed to counter that out-dated image by demonstrating the outstanding opportunities and rewards for committed sales professionals. Students compete first at a local level and then move towards national status. The experience allows people to get a fuller understanding of how businesses
operate and the critical role of sales for success of each enterprise – except government. As explained to me by Jamie Scarborough, one of the principals at Sales Talent Agency, as part of the program, students are exposed to the entire sales and marketing process to learn how sales drive business profits. Major sponsors include such wellknown businesses such as Google, Dell and Facebook and more than 20 universities and colleges have a formal process for involving students – and age it not the issue! Any student at any post-secondary institution can enter. Everyone has the opportunity to learn, to practice and then master the skills and abilities necessary for success in a sales career – any sales career. The Grand Prize of $5,000 certainly doesn’t hurt either! So what does this have to do with RRSPs? When people are better informed about how businesses operate and how businesses generate income and then profits, the people
are more informed and as a result make better decisions for themselves and their families. Elsewhere in this edition, particularly in articles by Steve Nyvik and Don Shaughnessy, you will hear their views on being properly informed and how to take control and responsibility for your own investment decisions. People in The Great Canadian Sales Competition will have a big step-up in furthering their own financial literacy. Regular readers of Money Magazine and www.Money.ca are already familiar with our commitment to helping Canadians better educate themselves about all things financial. The work being done by the Sales Talent Agency is a perfect dove-tail and we are proud to be able to support them and all of the competition entrants. If you are a student, use this outstanding opportunity to learn about great career opportunities while expanding your practical knowledge about the Canadian economy.
MONEY® Magazine • WINTER 2015 - 9
MONEY®
MONEY®
Moving TARGET Written by James Dean
Big international business or small local business - customers are at a premium and always considered a moving target. Know your client, know your customer and know your Canadian financial marketplace. So what went wrong with the biggest North American big box mall maneuver ever? Target came in like a lion and left like a lamb. This was the biggest, and apparently the best, attempt to dominate an already vibrant retail market in Canada with one fell swoop. Like a powerful army with skilled and experienced generals alongside the most up-to-date equipment and technology. This massive show of force was readied to fight both established Canadian giants, known rivals and opposition forces with less time, money, patience and planning than required. It’s been less than 2 years; don’t they know most businesses fail in the first two years. It’s unfortunate but we did call them through our sales department at MONEY® to do business. And none was to be found, hard to reach, no call back from Target head office lead them to a self serving, American style of advertising and marketing, and evidently to their demise. Coming to Canada in a big way you need the support of ‘friendlies’, allies and ground troupes that know, understand and consistently work with Canadian’s as a different breed. Canadian’s love American football, baseball, Elvis, Marilyn Monroe and Mickey Mouse. But not everything made in the U.S. is a sure fire hit in Canada. Even the Excited States of America and other strong foreign brands will be surprised about our harsh land and simple, loyal people.
10 - MONEY® Magazine • WINTER 2015
It’s not so easy to be successful in anything, anywhere. There are some basics that we can all learn whether you are a well-branded box mall retailer or a mom and pop location. Know your local Canadian and they will tell you for free, over coffee, what ever you want to know. It’s always a good idea to get advice. Good local advice and knowledge is usually proven to be wise and helpful to most foreign travelers and businesses. Enough said there was always good, smart and local advice a bound but it wasn’t asked for nor taken. Heads will roll for this failure and retreat at the bunker and command centre in Minnesota. How embarrassing! And at what cost to the giant retailer and the Canadian government that would allow such a thing. The next time a politician talks about jobs, jobs, jobs. Ask them how many jobs, if they are low paying, without benefits, part-time and how long will these jobs be around. I understand the world is a small place after all, and they always said there would be more of a global economy, but this is indeed a strange story that takes place over 2 years and winds down in another year or so. It may be studied in accounting and business courses in Canada over the next 10 years. Target moving leaves many Canadian’s out of work and with more questions than answers for now; like why and how could this happen and who really is culpable for this now North American business decisiondisaster. The Canadian headquarters in Mississauga, Ontario where 800 mostly full time American’s and Canadian’s worked is now on a skeleton staff with most of them in contingency roles
helping to liquidate and wind down the companies affairs with a road map to exit Canada faster than they came in. Target Corporation announced Jan. 15 that it was pulling out of Canada, less than two years after opening its first stores. Instead of turning a profit within a year as expected, the company has lost $7-billion. It was supposed to be the Minneapolisbased discount retailer’s first international expansion attempt. Canadian stores were run through a wholly owned, indirect subsidiary called Target Canada Co. The Canadian subsidiary will be filing for bankruptcy in Canada or commonly known as Chapter 11 in the U.S. Target is to present a motion to the court in early February asking for approval to appoint a joint venture of liquidation companies to sell off the contents of its 133 stores across Canada. According to the court documents, notices of termination have been sent to the vast majority of 17,600 employees – almost half of who work at Target stores and offices in Ontario. The head office in Mississauga is being operated with a reduced team focused on winding down the business in an orderly fashion. The liquidation is to be completed no later than May 15, 2015 but sales at some stores are expected to be finished as early as the end of March, according to the documents. A few bargains will exist for consumers and liquidators over the next few months. The usual suspects and giant retailers are ready to celebrate and some of them spinning offers of more part-time and low paying jobs with few benefits and no guarantees.
Confessions of a CFP:
You may need an online bank
RRSP SEASON
MONEY®
Written by Tahnya Kristina, CFP www.tahnyakristina.com
You may need an online bank this RRSP season. I probably shouldn’t be telling you this because I’m a financial planner and in order to keep my job I need people to invest their money with me, but it’s true. Before you completely dismiss the idea of banking online due to your fear of the internet, cyber space and anything online, just take a few minutes and read all about the benefits of having an online bank. Online banks go against everything I believe in when it comes to my professional life, but as an everyday consumer – who needs to invest in her RSP before the deadline – I have to tell you I’m a big fan. The RSP deadline is March 2 – where will you be? Hopefully you won’t be in line at your bank. As the RSP deadline quickly approaches, Canadians are calling their financial planners and visiting their banks to find the best possible rate for their RRSP contributions. What if you didn’t have to go through the trouble of spending your lunch hour waiting in line at your bank and what if you didn’t have to sneak out of work early to make it to your bank before they close? With online banks you can literally bank anywhere, anytime. Even though the market closes at 4 p.m. and some banks close at 8 p.m. online banks are at your service 24 hours a day, 7 days a week. That’s the first major advantage of using an online bank for your RRSP contribution – it’s convenient.
You don’t have time to make an appointment Tangerine is a financial institution whose mission is to help clients live better lives, they aim to provide Canadians with the ability to bank where they want, how they want and when they want. Joe Snyder, Product Analyst, Tangerine Investments says “For the typical Canadian, the reality is that most of their banking needs can be done online, and better yet, on a mobile app. (But) there are some clients whose needs probably require that face-to-face interaction due to a certain amount of complexity.” With an online bank you can access your accounts and perform transactions from absolutely anywhere at any time. This is especially convenient for people who work shifts or irregular hours. With an online bank there’s no need to rearrange your schedule, all you have to do is tap on your mobile phone or click on your computer. “I think the idea of having to physically fill out paperwork and visit a bank branch is one that will soon be outdated. That being said, many Canadians also have decadesold relationships with their bank and feel a certain degree of loyalty to their primary financial institution.” says Snyder. You want the best possible interest rate Superior interest rates is the main reason why I recommend online banks to my clients (don’t tell my employer) and it’s the second major advantage of having an online bank. When
clients make an appointment with me they don’t always want my expert investment advice, sometimes they just want a good interest rate. Andrew Schrage is an online entrepreneur and owner of the popular personal finance website Money Crashers.com. According to Schrage, online banking does have several advantages. “(You) can save time over having to make trips to a traditional bank, there’s easier access to your accounts, and you might be able to find better interest rates as well.” Are you convinced? Two major reasons why not all Canadians have accounts with an online bank are lack of personal service and fear of cyber space, but Tangerine is overcoming those fears one client at a time. “I think the reality is that Canadians have indeed embraced online banking, as online functionality and mobile platforms continue to improve.” Today Tangerine proudly serves almost 2 million clients across Canada with over 500,000 downloads of Tangerine’s mobile banking app. When making your RRSP contribution this year keep in mind it doesn’t have to be all or nothing. Just because you love your financial planner doesn’t mean you can’t also have an online bank and just because you made your RRSP contribution online to get the best interest rate doesn’t mean you still can’t have other accounts with another bank – or several other banks for that matter. MONEY® Magazine • WINTER 2015 - 11
MONEY® RRSP SEASON
RRSP Season – AGAIN? Written by Pat Bolland
www.RRSPSeason.ca
RRSP season is almost upon us! We’ve been told time and again that we need to make a contribution to save for our future. The hard part is not so much making the contribution as deciding where to put it.
Sure, if you hold bonds until they mature you’ll get your capital back plus any interest they’ve paid, but the wait is the problem. Government bonds may be the safest place to invest but they pay the poorest rates.
Early in my media career it was mandated that I take an arms-length approach to investing. If I mentioned a stock on air it was thought that the media attention could move the stock price. It didn’t happen, or at least not that often, but it did force me to invest differently. I’m not a financial planner, but personally I figure that my best investment is simply not letting the government take my money away from me. My return, in that context, is based on my tax rate.
To get any kind of return, an investor is faced with taking on more risk. That risk is manageable, but requires expertise and the returns may be only slightly better than marginal. If an investor is willing to take on even a bit of risk, then the stock market is the place to look. Over the past year, global markets were up 2.1% as measured by the Dow Jones Global Index. That’s hardly robust and the range was very broad: The Merval (Argentina) was up 59%, the Russian Trading System Index was down 45% (both in US$ terms). Closer to home, over the past 5 years the S&P/TSX Composite faired OK at up 23%, but underperformed the US’s S&P 500 which was up almost 80%!
If I’m taxed at 18 percent, then I ‘earn’ 18 percent by saving on taxes, even for a small contribution. 18 percent is almost twice the result for the Canadian stock market did in 2014! The trick is to try to keep that, maybe to grow it. The simplest solution is to put ones money in the bank. You earn next to nothing, but you know that it’ll be there when you need it. Pretty lame. The next best solution is to earn some interest. That would mean investing in the bond market. Over the past 3 decades that’s proven to be a good idea as interest rates generally declined; as rates fall, bond values go up. The problem now is that interest rates are near historic lows. If rates go up from here, then bond prices will go down. 12 - MONEY® Magazine • WINTER 2015
For 2015 it’d be easy to make recommendations, and many do. What’s lost on many investors is that those recommendations are dynamic – they change over time! For example, the oil and gas sector has been hurting as oil prices have declined significantly from a year ago, and can go lower, but there’s a point at which the stocks themselves start to represent some very real value. Here’s where I throw in the towel! In my early media days I put my money into mutual funds. They were
diversified globally and across sectors, plus professionally managed. Over time I realized that many, no … most, fund managers didn’t beat their benchmark indices. If the Dow Jones was up 10% then the large-cap American fund in which I was invested, often wasn’t! That hurt! I expected more! Some of these managers I knew and respected, but the markets were beating them! I was so disappointed that I took things into my own hands I bought some ETFs (Exchange Traded Funds) that tracked their indices in sort of a ‘If-you-can’tbeat-‘em-join-’em’ approach. I bought some blue-chip stocks and harvested dividends. That was fine until the market corrected. The blue-chips collapsed and the indices screamed lower. I’ve come to realize that the biggest service that a professional manager can give is giving decent growth while protecting capital when things go sour. They call it upside and downside capture. If the market is up 100, how much did the manager get? More than 90 percent of that? If it’s down, how much is the manager down? I’m back to using mutual funds a lot, stock and bond. The markets are sure to be volatile as interest rates change and the economy lurches forward. I need someone to watch-over my investments. Do I make the most money? No. Do I care? No? I’m looking to keep most of what I’ve kept from the tax man … maybe grow it.
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MONEY® PERSONAL FINANCES
Make Love, Not Debt:
How to Do Valentine’s Day without Going Broke Written by Tom Drake
One of the biggest days of the year for spending money is Valentine’s Day. Every year it seems as though you are expected to spend more and more. However, it doesn’t have to be that way. Like so many things in life, it’s the thought that counts. As you put together your plan of action for Valentine’s Day, here are a few ideas that can help you save money — but still hit it out of the park. Don’t Do Things on Valentine’s Day Everything costs more when you try to make it happen on Valentine’s Day. Flowers (especially roses) can cost twice as much when you buy them immediately before or after the main day. Instead, consider buying flowers 14 - MONEY® Magazine • WINTER 2015
two weeks before. It’s also worth noting that some restaurant “specials” and other services actually charge more on Valentine’s Day. Trying to make a special day of it on the exact date can be an expensive proposition. Plus, if you don’t make reservations early enough, you might find yourself unable to fulfill your plan anyway. Often, Valentine’s Day itself is on an inconvenient day. You can have your celebration on a different day, avoid crowds and save money. Consider having your Valentine’s Day celebration two weeks before. You’ll have better access to different services, from restaurants to flowers to helicopter tours, and you might not need to pay as much.
Take the Day Off and Celebrate in the Afternoon If you want to do something on Valentine’s Day itself, you can save money by taking the day off and celebrating in the morning and afternoon. This can save you money in a number of ways: Save Money on a Babysitter: If you have children, you will need to pay a babysitter while you go out. However, if your kids are normally in daycare or school, there is no need to hire a babysitter. If you celebrate during the morning or afternoon, you won’t have to pay extra, since your kids will just have their usual after school care.
MONEY® Save Money on Your Meal: You can also save money on your meal. It usually costs less to eat out for lunch than for dinner. Or you can even go out for a special breakfast, which is likely to cost even less than a nice lunch. Not only are the entrées cheaper, but the tip you leave will be smaller, too. You can have a dining out experience without paying the higher cost for dinner. Save Money on Movies and Other Activities: You can also save when it comes to your activities. Matinées often cost less than an evening movie. Plus you are likely to have fewer people in the theater, so the experience is more pleasant. And, if you go to the movie after you’ve eaten breakfast or lunch, you won’t feel the need to buy concessions, saving you even more. Some museums and other locations offer special discounts if you go on certain days or at times that are “off peak.” Consider that in your planning. As you can see, you can save a large amount of money on your day out, just by going at a different time of day. Think outside the box when it comes to the time of your date. Plus, taking the day off work to have your celebration earlier adds another layer of fun to your Valentine’s Day. Have a Nice Evening In You don’t have to go out to have a good Valentine’s Day. If you really want to save, have an evening in. Choose a movie you both like, and that you think would be romantic. Cook dinner together. Make it special with flowers and candles. You can create a nice atmosphere without breaking the bank, and without leaving home. If you have friends or relatives nearby, see if they are willing to take your kids. You can even arrange a swap. You can watch their kids while they celebrate Valentine’s Day, and then they can watch yours in turn. It’s a good way to save money and still have a romantic evening.
Save Money on Gifts If you exchange gifts on Valentine’s Day, things can get expensive. Saving money on gifts means that you will have to be especially creative. The first thing you can do is look for discounts on experiences. Consider checking with daily deal sites, or other online sources for discounted certificates to the spa or some other experience. That way, you save a little money, and you can offer something unique and thoughtful. You can also save on gifts by doing a homemade Valentine’s Day. If your partner agrees, you can put a price limit on buying supplies, and then make each other interesting and thoughtful gifts. This is a fun creative exercise that really gets you to think about what would
Are You On The Sam Page e ? be truly meaningful, rather than just buying another piece of jewelry that is likely to sit in a drawer, or a box of chocolates that is eaten all too quickly. Sometimes, saving money on gifts is more about planning ahead. Rather than rushing to buy something in the days leading up to Valentine’s Day, be on the lookout throughout the year. That way when something goes on sale, or you see you can get it for a good price, you are ready. You can get it, hide it and then give it on Valentine’s Day. Planning ahead is one of the best ways to save money, no matter what you are buying, or why you are
buying it. That’s because you have time to look for the best deal. When you are rushed, you are at the mercy of whatever price is being charged at the time. Save Money on Valentine’s Day Trips Planning ahead works for big gifts, like trips and special experiences as well. If you book a trip ahead of time, you are likely to get a better deal. If you want to do a Valentine’s Day trip, book it well in advance, and look for special discounts on your travel dates. It’s also possible to use loyalty points. If you are going to cash in loyalty points or credit card rewards, your Valentine’s Day trip is a good time to do it. You won’t have to spend extra, and you can make it nice. You just have to be aware of the possibility of blackout dates. When planning trips, you might do better to avoid planning it over Valentine’s Day itself. In fact, you might be able to get a better deal if you do a four-day weekend getaway before or after Valentine’s Day, than you would be able to find if you did a two-day stay on Valentine’s Day. Shop around for rates before and after, and look for discounts. Figure out how you can combine credit rewards and loyalty points for better effect. You might be surprised at how much you can save on a Valentine’s Day trip with this approach. Are You On the Same Page? The best thing you can do, though, is make sure that you and your partner are on the same page for Valentine’s Day. If you have been talking about money, and you both recognize that things are tight, you are likely to be on the same page, and there won’t be disappointment about your efforts to save. Talk about your expectations, and make a plan that works for both of you. When you’re on the same page with money and with Valentine’s Day, you will be less likely to overspend. Tom Drake is a financial analyst and personal finance blogger living in Edmonton, Alberta. He writes at www.CanadianFinanceBlog.com and www.BalanceJunkie.com. MONEY® Magazine • WINTER 2015 - 15
MONEY® RRSP SEASON
Why You Should Contribute this RRSP Season Written by Jim Yih
www.RRSPSeason.ca Now that it’s RRSP season, it’s time to dust off your finances and see if you can boost your retirement nest egg, and get a tax deduction as well. Here’s what you need to know about RRSPs. RRSP: The Basics If you have Earned Income, a Social Insurance Number and are 70 or under, it’s possible to contribute to an RRSP. RRSP season is the first 60 days of the year when it’s possible to make a contribution and apply the tax deduction to the previous year. You can still lower your previous year’s tax bill -and improve your retirement portfolio -- as long as you are within that 60 day time threshold. How much can you contribute? The contribution for the year is the lower of 18% of your Earned Income from the previous year or the maximum annual contribution limit for the taxation year (less any companysponsored pension plan contributions). For income from 2014, the maximum contribution is $24,930. One of the great things about the RRSP is that you have the ability to carry forward unused contribution room. For most taxpayers, the easiest way to find your RRSP limit is to look for your CRA Notice of Assessment. When your tax return is processed, Canada Revenue Agency sends this to you each year. How the RRSP Can Benefit You Not only do you receive a tax deduction for your contributions you also benefit by growing your wealth over time, making for a happier retirement. Over the long-term, tax deferred compounding really helps your RRSP grow faster. In your RRSP, you can hold any number of investments, including stocks, bonds, and various funds. If you consistently invest money, the magic of tax deferred compounding means 16 - MONEY® Magazine • WINTER 2015
your nest egg grows better over time, resulting in a larger portfolio in the end.
around and take that money out again for use in your down payment.
Defer the tax deduction
So, you have a tax benefit, just for knowing about this little trick.
Another great feature of the RRSP is the fact that it’s possible for you to defer your tax deduction if you wish. If you know that you will be in a higher tax bracket next year, or the year after, you can make your contribution this year, pay tax as usual, and “save” the deduction for a time when your higher tax bracket means that you benefit more. And, in the meantime, your investment continues to grow taxdeferred. Other uses of the RRSP Finally, it’s possible to use your RRSP to achieve other financial goals. If you have been saving up to buy your first home, your RRSP can be used in your strategy. Say you’ve been saving up, and you have $25,000 to use as a down payment on a home. You also have $20,000 in unused RRSP contribution room. You can take part of that chunk of capital you have saved up and use it to fill up your contribution room. Now, you have a tax deduction. Because you can use money from your RRSP penalty to buy your first home, you can turn
It’s also possible to use your RRSP to give yourself a student loan. You can borrow up to $20,000 to pay for qualifying education, but you have to pay it back over 10 years. Still, it’s better to borrow from yourself -- and pay yourself back -- than it is to pay interest to someone else. Before RRSP season comes to a close, evaluate your situation and determine whether or not it makes sense for you to employ a new strategy. RRSPs may not be for everyone but it still remains the best tool for retirement savings because of its powerful tax benefits. Jim Yih is a best-selling author, fee-only financial advisor, a professional speaker and the founder of the award winning blog www.RetireHappy.ca. You can find him on twitter @jimyih.
Financial literacy and investment
FINANCIAL LITERACY
MONEY®
Written by Don Shaughnessy
For many people the financial literacy required to invest is a low hurdle. Some writers think it is a simple do-it-yourself project and at much lower cost. Fine value if true. Investing in stocks is among the most talked about subjects on the planet. There are hundreds of books available in any bookstore. Amazon.com lists more than 3,000. Despite the supply of information, investing remains among the least understood subjects. The result is that few who manage their own investments do well. Will financial literacy help? Financial literacy is common sense but includes uncommon knowledge and faces many diversions. Notice facts and how you communicate them, your personal biases and strengths, who you should listen to, and what are they professing to tell you. Consider four aspects: •
Investing literacy requires expertise in the language of finance and business.
•
All financial affairs require personal skills - patience, discipline, curiosity and a sense of time.
•
There is noise. Pundits provide
drama, but do not help anyone learn. •
Academic experts look for a general model.
The Language If you wish to invest in the stock market, you must at least be conversant with accounting, the language of business. Financial statements are stylized and highly condensed descriptions of a business and its results. If you cannot understand the language, you cannot draw meaning from a financial statement and as a result will know too little for a good decision. The same goes for debt, pensions, insurance and more. If your language does not include the words, you cannot hold the thought. Learn the vocabulary, grammar and syntax of money. Be careful, financial statements are past-oriented, and all investment relates to the future. Some businesses have a big future, others less. Dominant businesses can go away. In 1899, The American Ice Company sold more than 4,000,000 tons of natural ice in the American northeast. At its peak, the ice industry employed
90,000 people. By the early 1900s, manufactured ice began to replace natural ice. Time to sell. Before investing, ask questions. Is it a good business now and can it remain so? Is the share price/value ratio low? Is the business too reliant on one customer, one person or one product? Personal skills No matter your skill in finding suitable investments, the proof will be in the future. Nothing happens without time and preferably lots of it. Understanding time is an important part of financial literacy. Suppose you are a supremely skilled investor and could beat the S&P 500 by half. According to MoneyChimp’s Compound Annual Growth Rate Calculator, from 1 January 1871 to December 31st, 2013 with dividends included, the S&P 500 made 9.07%. You would need 13.5%. An ambitious goal, but not unprecedented. If you begin with $100,000, (or save $14,000 per year,) in 30 years you will have about $4.5 million. Pretax! About $1.8 million if taxes are 25% of profits annually. Good enough or not? MONEY® Magazine • WINTER 2015 - 17
MONEY® If not, could you fix it? Take longer. In 40 years, you would have $16 million and $5 million after tax. After 50 years, $56 million and $12 million respectively. Notice the tax effect. Learn how to minimize that. How did Warren Buffet build more than $60 billion? Three ways. He made a higher yield, was very tax-sensitive and spent longer than 50 years. If you make 25% for 60 years, your $100,000 would be $65 billion just like Warren.
In 1984 at Columbia Business School, Buffett addressed his method. The speech has become an essay “The Superinvestors of Graham and Doddsville.” He includes examples of investors who have done better than the markets for long periods. His thesis is that superinvestors search for discrepancies between the value of a business and value as expressed by the market value of its securities. Financial literacy need not be complicated.
Do pundits help?
If many managers have outperformed the market by wide margins, for long periods and if the market is truly efficient, there is a problem. Results should tend to revert to the mean, but they do not. Buffet and others have said that models are not important to their decisions. Superinvestors mostly ignore academics.
Does Jim Kramer help you understand investing? Is his information important for an investor or for a trader? There is a difference. Are dramatic current events important? The information could be worth something if you knew context. How and why did the commentator select the material? Better if you knew their method matched yours. Absent that knowledge, it is just noise. Information is time consuming and tedious to find and assess. It is quickly out dated. Commentators must rely on short-term, simple events. Drama affects emotion and that is bad. Shortterm is chaotic. Chaos contributes to volatility but adds nothing to the underlying substance. Day to day activity is like static on an AM radio. The signal within is what matters. If you focus on the static, you will miss reality. Part of financial literacy is learning that there is no drama in deep underlying structures. Boring even. Academics are looking for a model for markets and economies. A part of popular investment literacy includes the idea of efficient markets and modern portfolio theory. Recognize that these are theories, or maybe better, they are ways to describe complicated events. They are not facts. The efficient market theory has existed for a long time and its researchers hold several Noble Prizes. Not important. If the statistics are irrelevant for a real investment decision or if the statistics ignore contradictory observed information, then you could reasonably consider that there is more to know than the academics would have you believe. Literacy is about breadth as well as depth. Do what works.
18 - MONEY® Magazine • WINTER 2015
Coincidently, academics ignore superinvestors. Just lucky they say. Hear superinvestor Seth Klarman, “Buffet’s argument has never, to my knowledge, been addressed by the efficient-market theorists; they evidently prefer to continue to prove in theory what has been refuted in practice.” So what should the average literate investor do? Define your own success. What other people do matters not to you. If you need to accumulate $1,000,000, then building a portfolio of $1,000,000 is success regardless of whether it beat the market or not. Understand compound growth. Learn the Rule of 72. The approximate time to double capital is 72 divided by the interest rate. At 8% growth, money doubles in 9 years. Notice that the last double adds as much as all the doubles before it. Be sure you leave time in your plan for that last double. Starting early with less money is more effective than starting later with more. Understand capital and yield. Capital consists of more than money. Time, skill, effort, access to investments, risk tolerance, tax position and about thirty other factors will shape your future portfolio. The market pays you for investing money and other things. For example, if you demand liquidity, the market pays less. A 5-year term deposit pays more than one of 30-days. People pay for guaranteed use of money. It is
not enough to know how the various securities behave; you must know what capital(s) you have to offer and those you do not. Find investments that reward your particular inputs. Understand specific products. Sometimes a security inside a different wrapper behaves differently. A bond inside a tax-free savings account will yield, after taxes, close to double. Be careful of Registered Retirement Savings Plans. Capital gains and dividends lose their tax preferences and could be better owned elsewhere. Use advisors to fill in your knowledge gaps. Fund managers may be able to fill in research, analysis, record keeping and reporting parts. An advisor could fill in the personal skill shortfalls. Have you considered and weighted the pieces well? Discipline fails sometimes and an advisor can be your money conscience. Be aware of, but not focused on, the academics. Again, Warren Buffett, “To invest successfully, you need not understand beta, efficient markets, modern portfolio theory, option pricing or emerging markets. You may, in fact, be better off knowing nothing of these.” Learn about risk. Not academic variability but the chance of loss over a long time. Catastrophic loss like premature death or disability. Systemic risks like government activity. Know your tolerance, your exposure and your capacity to accept risk. Learn about yourself. Emotions harm outcomes. Seth Klarman has said that a value investor must be long on patience. Avoid the hype, the complexity and the mystery in the market. Take your time. Controlling discipline, impatience, greed and fear are crucial for success. Don’t look at results too often. Ups and down days are about equal in number, but as Khaneman and Taversky point out, losses hurt emotionally more than gains feel good. You can be a competent money manager, but not without thorough personal assessment and considerable time and study. It is not something everyone can be good at or will want to do. Decide how you will do it as part of your goal assessment process.
MONEY® MAGAZINE
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MONEY® MORTGAGES
Economy in 2015
good for buying a home Written by Guy Ward
The outlook for the Canadian economy in 2015 in general, is looking rosy. As you know, we are, for the most part, influenced by the U.S. economy. Economic recovery in the US is growing at the consumer level and demand for goods will pull many other countries along with it, including Canada. Since important sectors of the Canadian economy are connected to activity in the oil patch, and oil prices have fallen sharply, the Bank of Canada and economists are weighing the potential risks to Canada’s growth this year. The recent plunge in oil prices may temper activity in housing next year, especially in western provinces. “The effect of lower oil prices on Canada’s housing markets is something of a wild card at the moment,” CREA’s chief economist Gregory Klump said in an interview with CBC News. “It’s not clear how far oil prices may drop or for how long they’ll stay down. How that plays out may affect the outlook for interest rates, job growth, consumer confidence and sentiment about making major purchases.” While the turmoil in the oil patch is expected to last a while, many of the economists and strategists at Canada’s Big Six banks see the falling Canadian dollar, coupled with U.S. demand for Canadian exports, as a way of offsetting the negative effects of lower oil prices. The expectations 20 - MONEY® Magazine • WINTER 2015
for Canadian GDP growth have been trimmed, which means that it’s unlikely we’ll see the Bank of Canada increase the overnight rate in the first quarter of 2015, with some economists not expecting an increase until later in the year. When the prime rate does start to rise, the rate would likely inch up a quarterpercentage point at a time, making the coming increases relatively easy to manage. For the real estate sector in Canada, the market will be steady. The Canada Mortgage and Housing Corporation (CMHC) says it expects housing starts and MLS Listings in 2015 to be about the same as they were this year, and in line with economic and demographic trends. Also, the Canadian Real Estate Association (CREA) has revised its forecast. With low mortgage rates sticking around for awhile and stronger than expected sales activity in 2014, the association predicts that sales activity will increase in 2015. Because Canadian exports, job growth and incomes are expected to improve, the housing market will see increased activity, especially in areas where demand was soft in 2014. A report released in November, 2014 by the Canadian Association of Mortgage Professionals (CAMP) maintains that the residential mortgage market is strong and growth will be steady.
CAMP also reports that mortgage credit growth for the past five years has been steady at 6.2%. For the past two years, growth has been steady at 5.2%. It cites a few key factors that suggest that 2015 will be more of the same. Canadians will continue to move away from communities with low-cost housing to communities that offer more job opportunities. Resale market activity is widely anticipated to stay close to current levels in 2015 and 2016. Low interest rates will continue to allow mortgage holders to repay their mortgages through lump-sum payments and to regularly pay more than they are required to, based on their amortization schedules. With all that said, timing the market is difficult. Usually consumers will take a look at their personal finances and then decide if they can afford to buy a house, move up to a larger house, or downsize to a smaller home. However, Canadian consumers are also paying down their debt before the Bank of Canada starts to push up its interest rate. Happy New Year! Guy Ward is a Mortgage Broker in Calgary, Alberta with TMG (The Mortgage Group Alberta) and can be contacted at GUYTHEMORTGAGEGUY.COM
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MONEY® DIVORCE
The Holidays are Over, Let’s Split! Written by Debbie Hartzman, CFP, CLU, CDFA
As the cold gets colder and bills pile up, those of us who help families going through separation and divorce get extremely busy. With the holidays over and expectations not met, plans start to evolve to make the move towards a marital adjustment. Although this isn’t something people plan or look forward to, when they make the vow, “until death do us part”, statistics show this scenario to be an all too common occurrence. From the perspective of a Certified Divorce Financial Analyst, there are a few good tips of which people should be aware. Aside from the issue of children, custody and access, the financial implications of a split can be the most devastating effect today and into the future. It is no surprise to those of us who help people who feel that Family Law is flawed and doesn’t always deliver the intended or best results for all those involved. In every relationship there is usually one person who has emotionally left the relationship long before the other person even realizes this has happened. This means it is not unusual to have both partners in different places at the same time. Here are a few tips if you find yourself heading down this road: 1) Divorcing couples must take ownership of their divorce and what their family’s unique situation requires. 2) Take the time to understand the process and how it works. Shop for the professionals you require to make the best of the situation. This can include a mediator, financial analyst, child co-ordinator, therapist, business valuator, pension valuator or a home appraiser. The most important thing to understand is the various ways you can arrive at a settlement. Make sure you hire the right lawyer to take you 22 - MONEY® Magazine • WINTER 2015
down your intended path. Don’t hire a litigator if you are a candidate for mediation. It will only increase cost and frustration. 3) Accept that divorce is not simply a legal issue, but an emotional issue that wreaks havoc on our lives, finances and relationships. If you deal with the situation as a business relationship, you will be more successful in coming out with a satisfactory solution. Making financial decisions out of anger, spite, sorrow, guilt or any such thing is a recipe for disaster and regret. 4) Tax implications and future values of
8) Keep a diary of dates and times of emails and texts in case you require them for future reference. 9) Don’t agree to separating assets on a one-of basis. 10) Try to work with one another, not against each other. Come to an agreement on what you can and leave the professionals to help with the issues that are harder to resolve. 11) Resolve to get organized. The more you are on top of your information, the less cost is involved for professionals. They can be more efficient and spend their time working through possible scenarios that will serve you better in the long run. Tough as it is to work through things, it is worth it. Once on the other side, most people are much happier, however the emotional pain can make it extremely hard to move forward. Holding on to negative emotions leads to stress and depression which can add to serious health issues.
assets are something else that requires particular attention. Working with a financial professional that understands property division can elevate issues that otherwise might not otherwise appear until too late. 5) If possible, it is wise to make copies all financial documents that you can get your hands on and store them in a safe place, with someone you trust. 6) If you have joint lines of credit or credit cards, make the issuers aware of the situation. This doesn’t get you off the hook, it just documents dates. 7) Open a separate bank account immediately and start depositing your pay into this account.
A healthy support network of family and friends is most important at this time in your life. The best way to move forward is to keep your eyes firmly fixed on the future. Know that no matter how bad things seem in any given moment, you will get through it. Focus on the big picture. Someday, this will all be behind you. Keeping your divorce resolutions will lay the groundwork for a financially secure future and a stable foundation for your life going forward. Debbie is a Certified Divorce Financial Analyst who works with clients to find the fairest and quickest financial solution. She is the author of “Divorce Is Not Easy, But It Can Be Fair”.
MONEY®
TFSA
Lower gas prices can mean
really big TFSA savings! Written by Marvin Spooner
Many Canadians have grown accustomed to low mortgage rates and strong residential pricing, and now the price of gasoline is leaving a few more bucks in our pockets. Don’t get too comfortable, because history teaches us that none of this is sustainable. It is circumstances like the present that make seasoned money managers anxious. While neophytes are happy to carelessly bathe in the sunshine, experts are usually getting ready for the next storm. What can you do? With lower gasoline prices providing some extra cash flow why not use the cash to bolster your savings? One cloud on the horizon has been getting some attention recently. The massive global financial stimulus that has caused interest rates to remain low for so long has had a predictable impact on our collective behaviour. Canadians have borrowed money like there’s no tomorrow. According to data from Statistics Canada, our total borrowing has been on a steady incline since 1990, while servicing the debt has been eating away at our disposable income. Sure, we tightened our belts some during the financial crisis, but the temptation to borrow at low rates has just been too much to overcome.
It is difficult to save money, when so little income is disposable. And some financial advisers would recommend that it doesn’t make a whole bunch of sense to save money at all when you owe money. It makes far more financial sense to pay down your debt. Based on numbers alone, this is sound advice. But our behaviour is seldom governed by numbers alone – we are indeed a complex species. For example, contributing to your RRSP provides a tax savings in the same year your contribute right? So where does it go? A strictly numbers analysis espousing the merits of RRSPs would certainly factor in those savings to illustrate how effective they are at growing your wealth, but I am inclined to agree with the Wealthy Barber (David Chilton) who frequently points out (and I am paraphrasing here) that those dollars you supposedly ‘saved’ were most probably squandered, not saved. If the tax savings were indeed invested, then it is true that one’s net worth might grow. However the iPhone, piece of furniture or other consumer item bought with that tax refund hardly qualifies as savings now does it?
Does it make any sense at all to save when wallowing in debt? I would argue most emphatically YES! According to an IPSOS Reid poll published in October: “The average working Canadian believes they would need $45,609 in savings to sustain themselves for a year should they be off work due to illness.” From where would this money come? In real life, a portion of it would be required for food and lodging yet some of it will be needed just to pay the mortgage or rent. I’d bet that the average Canadian polled would no doubt have seriously underestimated the amount needed on which to live while not working (for whatever reason). In the same poll roughly 68% admitted to having some or lots of debt – suggesting that 1/3rd of Canadians have none? Pardon me if I suspect that a good percentage of those polled might also have been too embarrassed to answer candidly even if their responses remained anonymous – we are Canadians after all and loathe to taint our conservative image. Now is an ideal time to bump up your savings! Where will the extra cash come from to begin a more aggressive savings program? Let’s start at the gas pump. We all feel a bit of relief simply watching the price of gasoline come down when fueling, but has anyone really considered how much they might now be pocketing because of lower energy prices? In April of 2014 Canadians were paying a nearrecord $1.50 per litre. Just 6 months ago the price of gasoline in Toronto was $139.9 cents a litre and today (I am writing this on December 10) it is $103.9 cents. That’s a whopping 25% decrease. If a motorist was spending $50 in after-tax dollars a week and the price of gas simply stays at $103.9 the cost savings are $12.50 a week which is equivalent to $650 of annual savings requiring about $1000 of your pretax income. If there is more than one vehicle in a family? Let’s keep it simple MONEY® Magazine • WINTER 2015 - 23
MONEY®
and assume $1000 in annual family savings simply from the lower gasoline price. Never mind that other energy costs (heating) and transportation costs (flights) will also create savings. What if you simply invested that amount every year and earned a rate of return on it? It will grow to a handsome sum. Unfortunately, you will have to pay taxes on those returns but more about that later. Of course it’s unreasonable to expect gas prices to remain at these levels or fall lower. It is also not wise to anticipate more generous rates of return. In point of fact, it is foolhardy to expect or anticipate anything at all. Returns will be what they will be, and gas prices are determined by market forces that the experts have trouble understanding. Does the uncertainty we must live with mean that savings might just as well be spent on the fly? As I tell students studying to be financial planners; one must start somewhere and there are two things worth acknowledging up
front: 1) The power of compounding (letting money earn money by investing it) is very real, as evidenced by the table. 24 - MONEY® Magazine • WINTER 2015
2) It makes sense to have a cushion in the event of a loss of income, the desire to pay down some debt, make a purchase or just retire. Yes it makes more financial sense to have no debt at all, but the majority of Canadians will borrow for those things they want now rather than later, like a home or car. If you must borrow, why not save as well? Fortunately we have been gifted the perfect savings vehicle. The Tax Free Savings Account introduced in 2009 has advantages that make it an ideal place to park money you are saving at the gas pump. The returns you earn in the account are tax-free. With GIC rates as low as they are, you might be inclined to say ‘so big deal?’ But any financial adviser over 45 years of age (I admit, there aren’t many) can tell you that low interest rates are temporary, and besides you can and will earn better returns over the longer term in equity mutual funds just as an example. Of course there are limits (see table) to what you are allowed to contribute,
but best of all they are cumulative. In other words, if you haven’t contributed your limit since 2009, you can ‘catch up’ at any time. Including 2014, you have
a right to have put up to $31,000 into the account. Also the contribution limit rises (is indexed) over time with the rate of inflation. Perhaps most important, you can withdraw money from the account tax-free. Your contributions were already taxed (there’s no tax deduction when contributing like when you put funds into an RRSP), and the investment returns are all yours to keep. Using your TFSA means that won’t have to pay those taxes and the effects of compounding aren’t diminished. To top it off, you are allowed to replace any money you’ve withdrawn in following years. The seasoned money manager will want some flexibility in the event that he is blindsided. With your TFSA savings you too will enjoy more flexibility. If interest rates are higher when you renegotiate your mortgage, taking money out of your TFSA to reduce the principal amount might help reduce your monthly payments to affordable levels. Should the economy take a turn for the worse over the next several years and you lose your job, then you’ll have some extra cash available to retire debt and help with living expenses. For younger Canadians saving money at the gas pump? Investing the extra cash flow in your TFSA account will certainly help towards building a healthy deposit for your first home. ·
Don’t squander the cash you are saving thanks to low energy prices.
·
Your TSFA if you have one, allows you to invest those savings and the returns you earn are tax free.
·
If you don’t have a TFSA, then get one.
·
Be sure to use only qualified investments and do not overcontribute. The penalties are severe.
·
Money earned on your investments is tax-free.
·
Take out cash when you need it, and put it back when you can.
·
When you retire, money withdrawn from your TFSA does not count as taxable income.
MONEY® MAGAZINE
MUTUAL FUND REVIEW December 2014
Asset Growth ($)
Asset Growth (as a % of starting assets) Net Sales ($)
Net Sales (as a % of starting assets) Performance (Fund Category Averages)
Starting assets (November 30, 2014) + Net sales +/- Estimated market effect = Ending assets (June 30, 2014)
$925.6 Bil. $1.3 Bil. -$2.8 Bil. (-0.3%) $924.1 Bil.
Top 3 Categories
Bottom 3 Categories
Global Equity Balanced: $2.228 Bil. Global Neutral Balanced: $1.091 Bil. Canadian Fixed Income: $502 million Alternative Strategies: 135.2% Global Equity Balanced: 6.1% Sector Equity: 3.0% Global Neutral Balanced: $1.410 Bil. Canadian Equity: $621 million Cdn. Fixed Income Balanced: $541 million Alternative Strategies: 132.4% Misc.– Undisclosed Holdings: 3.0% Energy Equity: 2.5% Greater China Equity: 2.2% Precious Metals Equity: 2.2% U.S. Small/Mid Cap Equity: 2.0%
International Equity: -$1.896 Bil. Cdn. Neutral Balanced: -$1.088 Bil. Cdn. Equity Balanced: -$569 million International Equity: -13.2% Geographic Equity: -7.9% Miscellaneous – Other: -6.5% International Equity: -$1.538 Bil. Canadian Money Market: -$582 million Canadian Equity Balanced: -$290 million International Equity: -10.7% U.S. Money Market: -5.4% Miscellaneous – Other: -4.9% Energy Equity: -3.8% Emerging Markets Equity: -3.7% Natural Resources Equity: -2.8%
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MONEY®
MONEY®
When
Respect Matters
Written by Mark Borkowski Just as there is a growing lack of respect in society as a whole, respect plays an ever-increasing role in business. In a world of ever shrinking margins, gone are the days of the quick sale and one-time customer. Securing repeat business is your future. Lasting relationships are based on respect, and business relationships are no different. Some people will argue that you don’t have to respect someone do business with them. Perhaps. But the lack of respect will erode your relationship over time like rust biding its time on the underbelly of your car.
take the time to listen to them before offering a solution to a problem we know nothing or little about. It also requires that the solution fit the needs and not the other way around. Hard selling has no place in a respectful relationship. Since customers need to understand and relate to what we are saying, the onus is on us to make sure our communication is crystal clear. When questions are asked, we need to have a good answer and verify that the answer actually puts the question to rest. Customers also need to know details about our solutions, which mean
power of respect is to look at how you react when you do not get any respect. When people are shown disrespect, it causes them to be defensive; your whole demeanor is guarded. When that happens the relationship is no longer as open and straightforward as it should be, and that can understandably lead to a holding back on the full level of service that is normally offered in a relationship where one’s own value is fully respected. A lack of respect can cause less dialogue to take place, since why would you want to spend any more time talking to a disrespectful
The kind of respect that will strengthen your relationships has to do with respecting your customers, their customers and yourself. When you respect your customers you respect their time, and that respect is manifested by your actions: showing up on time, calling ahead if you are going to be a few minutes late, returning all messages (voice and e-mail) and in a prompt time frame. Yes I know this is simple, but these are things that are lacking in business just the same, and demonstrating a lack of respect.
that we need to know every last detail about them first. Product knowledge demonstrates respect for customers and for their customers who also benefit.
person than you need to? With less dialogue to feed a healthy relationship, relationships starve. A lack of respect shuts down the very communication needed to build long-term relationships. Respect, on the other hand, creates open dialogue. Effective, two-way communication builds trust, and the more trust you have, the easier it is to move any relationship forward. Simply put, respect is the seed of trust. I trust, with respect, that you will put it to practice.
Respecting someone’s time also means giving him or her full value for his or her time. The more people value the time spent with you, the more time they will spend with you. Every conversation that provides value has the power to move the relationship forward. Respect for customers is also about respecting their needs, which requires that we
It is harder to keep such commitments to others when we don’t keep the commitments we make with ourselves. When each of us commits to doing something the act of following through shows respect for ourselves, and makes the ability to keep commitments to others a simple matter of routine. Perhaps the easiest way to see the
26 - MONEY® Magazine • WINTER 2015
We demonstrate our respect for our customers’ customers by making sure that we stand behind everything we offer and provide excellent service, because our ability to make our customers more effective and efficient ultimately benefits their customers as well. Commitments on any level need to be honored without hesitation.
Mark Borkowski is president of Toronto based Mercantile Mergers & Acquisitions Corporation. Mercantile specializes in the sale of privately owned companies to large strategic and private equity buyers. He can be contacted at: mark@mercantilema.com or mercantilemergersacquisitions.com.
PERSONAL FINANCES
MONEY®
12 Small Steps to
Improve Your Finances Written by Tammy Johnston
Improving your financial life is a major New Year’s resolution. The concept can be overwhelming, but not necessarily. A small start makes a major impact by the end of the year. Here are twelve things you can adopt over the next year to positively change your money situation. January
May
September
Cut back on eating/drinking out. If you want to get your finances and your physique in better shape, one of the best things you can do is reduce the money you spend eating out and buying coffees and other drinks. Commit to cooking one more night a week and packing one more lunch a week. You’ll be surprised at the savings.
Grow some of your own food. Planter gardening, tower/window/vertical gardening and regular outdoor gardening are all things that anyone of us can do. Being able to grow some of you own healthy produce cuts your grocery bill and make you feel great.
If you have school-aged kids, contribute as much as you can to an RESP to take advantage of all available grants from the government (federal and provincial). If your kids are old enough to have part time jobs, they can contribute as well.
June
October
Walk, bike, or take transit whenever possible. The weather is beautiful and we want to be outsider and active. Using your own physical power to get around saves you gas money and boosts your mood and fitness.
Consider a bulk cooking day with a group of friends. Pick a Saturday, you all go shopping in the morning for the necessary ingredients and then spend the day making a pile of meals for your family. It saves you time, it saves you money, and makes cooking fun when you are sharing laughs, recipes, and effort with your friends.
February Get into the habit of asking yourself BEFORE YOU BUY ANYTHING “Do I really need this?” All of us have items in our homes on which we spent hard earned money and never wear or use. This one question alone will drastically cut your impulse spending. March Start saving for Christmas now. Write up a list of for whom you want to buy and how much you can afford to spend. Set up a separate savings account (one that has no fees and actually pays you some interest) and start putting a small amount in with every pay-cheque. April File your taxes and have a plan for your refund. Use a portion (I suggest 25%) for something fun and the remainder for something that will improve your net worth. You could pay down a debt (pick the highest interest rate debt) and/or invest for your future in your RRSP or TFSA.
July Consider a ‘Staycation”. There are many fabulous activities and great sites to see in your own city. Check them out, get to know your home town better, and save yourself money and stress. August Take the extra money that is now on your pay-cheque (if you finished paying your CPP and EI premiums at the end of June) and put it towards paying down debt and/or investing in your RRSP or TFSA. You lived on the smaller amount for six months, by pretending it is still gone you quickly and invisibly build your wealth.
November Get your Christmas shopping done. Go with a list, go before it is busy, and go before you are rushed and willing to spend too much money just to get it over with. December Stay out of the malls, stay off internet shopping sites, and consciously choose how you want to spend your time. December can be a highly stressful and expensive month because of all the outside expectations. Slow down and decide on what you want and how you want to celebrate.
MONEY® Magazine • WINTER 2015 - 27
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The
PERSONAL FINANCES
MONEY®
2-Letter 4-Letter Word Written by Robert Gignac
One of the things that I love about my job is that I get to have interesting and passionate conversations with Canadians regarding money, personal finance and fiscal responsibility. We all have a relationship with money – sometimes it is a good relationship – sometimes not. I spoke at an event in Calgary recently and during the Q&A portion a guest asked the following question: “What is the one biggest thing I can do to improve my financial situation?” Now, I’m a firm believer that there is no single thing we do that makes us financially successful – it’s the successful repetition of a variety of little things, done over and over and over that make us successful. I could tell from the way the question was phrased and the rather emphatic index finger in the air as they asked the question – they were looking for “one thing”. While the silence seemed to hang in the air, an audience of 250+ waited for the answer. I took a sip of water from the glass on the table and hoped they were going to be happy with what I had to say: “There is no one “biggest” thing you can do – but – if you’ll humor me for moment – I’ll share with you what I think the one biggest word is? How’s that?” There was some laughing from the audience; the question-asker nodded their agreement. I’ll attempt to replicate in writing what happened (I wish I had recorded this... *smile*). “Now, we’re all adults here tonight and that’s a good thing, because I need to talk to you adult to adult. I suggested that there is one big word and I’m working up the courage to tell you what it is. Why do I need courage? Well, because people think it’s a 4-letter word and 4-letter words carry emotion with them, some people don’t like them, some people think
we shouldn’t say them, some people think they are crass and vulgar. Sometimes however, there is just no better way to get a point across – so if we’re okay with this – last chance – I’ll share it.” There was more laughter, a few shouts of “yes!”, so I continued.
NO “Ok, here we go… to be honest, this is the
first time I’ve ever done this in front of an audience – so I’m a bit nervous. In fact, it might be easier if we do it as a cheer, all as a group. I’m going to say a letter, you repeat it back for me… here we go… give me a “N” (“N” yelled back from the crowd…), give me an “O” (“O” yelled back from the crowd - What does that spell? “NO” Say it louder... “NO!”. Ok, we’re done.” There was more laughter, a few shouts of “what?”, so I continued. “The biggest word that will allow you to create a successful financial future for yourself and your family is simply “NO”. For far too many people today the word “NO” is a four-letter word.
For many it’s politically incorrect to say. Our governments seem unable to say it to special interest groups. Your relatives who want you to help them out financially will be upset when you use it. Some of you in the room this evening have children who have never heard the word because someone told you that you’ll destroy their self-esteem if they hear it. Since some of you have never heard it – I’ll say is slowly with a bit of a drawl for you… “Noooooooooooo”. It’s a word that can set you free. It’s liberating. Think about it… Should I buy a new car? No. Should we spend $40,000 on a granite kitchen? No. Dad – can you buy me the new Psycho Killer 4 video game? No. Should I spend $30/week on Mocha-Frappa-Lattes? No. The more often you say the word “NO” the more successful you will be financially.” It’s not uncommon to have champagne tastes and a beer budget – hey, I’ve been there. But as I’ve matured (hopefully…) I like to think I’m trying to embody the following concept – “Live today like others don’t want to, so tomorrow you can live like others won’t be able to”. The word “NO” requires practice, discipline and ability to withstand people close to you saying “What do you mean by “NO”?” I can assure of this though – when you make the effort to say “NO” more often today, you’ll have taken the first and biggest step to a better financial future tomorrow. 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 • WINTER 2015 - 29
MONEY® FINANCIAL PLANNING
More Than Retirement Planning Written by Becky Wong, B.Comm (Hons), CFP, FMA
www.RRSPSeason.ca
It comes as no surprise to hear Canadians are living longer and longer. The average Canadian’s life expectancy at birth is now 81.7, up from 57 in 1921 according to a July 2014 from Statistics Canada. There are more centenarians than ever before. Gerontologists believe age 120 may be the maximum, though there are cases of some people living longer. What does this all mean to us physically, mentally, financially? Let’s consider our “normal age of retirement” to still be age 65. If you do live to 105, that is another 40 years of living while potentially not actively working. From where will the money come? Should we not spend more time in retirement planning than what most of us do? According to Standard Life of Canada’s quarterly report, they used the following formula for a longer retirement: 3 x I + P In other words, INCOME x INVESTMENT x IDEAS + PLANNING. Apparently this is the formula that can help us move towards an enjoyable longer retirement. Let’s have a closer look. Consider what your sources of income will be during retirement. There are several, such as: ·
Registered pension plan (from your employer)
·
Canada/Quebec pension plan
30 - MONEY® Magazine • WINTER 2015
·
Old Age Security
·
Guaranteed Income Supplement
·
Registered retirement savings plans
·
Foreign pension plans
·
Annuity
·
Home Equity (reverse mortgage)
·
Salary for work continuation or part-time work
·
Inheritance
·
Tax free savings plans
It’s important to think about your investments today! Are you putting enough aside? If so, are they allocated in the correct asset classes? Are you properly diversified? Are you taking advantage of global opportunities as they become available? Are you utilizing tax efficient investment vehicles to minimize taxes as much as you can? Do you have liquidity in the event of an emergency? Whenever I teach about retirement, I always ask each of the students what “retirement” means to them individually? What are your hopes and goals during retirement? Each of you will have your own idea as to what retirement means to you. Is it to travel more? Is it to do volunteer work versus “having to work”? Is it to move to another country where the cost of
living is much lower than, in my case, British Columbia? As a couple, will your sources of income drop significantly should one of you predecease the other or perhaps having to use “retirement funds” for medical expenses. Hopefully, we can see that retirement isn’t a single facet of just having enough money. It is quite multi-faceted because we all have different ideas of those next 30-40 years once we have finished working. In essence, all of us want to have the choice to play, to work or to learn. To make retirement a reality takes planning and discipline and patience. This is much easier when investors decide to work with a financial advisor. According to the 2014 Fidelity Retirement Survey Report, pre-retirees and retirees who work with a financial advisor are more confident and more likely to achieve their desired retirement lifestyle than those who do not. Did you know that of retirees who have an advisor…. 71% have the type of retirement they wanted? Of retirees who do not have an advisor, only …. 53% have the type of retirement they desired. As we enter into another “RRSP season”, are you working with a trusted advisor to help guide you towards an enjoyable longer retirement?
MONEY®
MONEY®
Live
Like You Are Dying! Written by Carey-Ann Oestreicher
YOU and YOUR LIFE®
Each day we live, we are one step closer to death. This is not meant to scare you. It is just a fact. In developed countries, people live on average just over 24,000 days. Although we all know that we are born to eventually die, it can still feel like the world stops for a while when the threat or fear of death to you or someone you love comes knocking at your door. My family recently received news that I took my breath away for a while. I didn’t know how to fix this and there is really no way I can, so I am just there to love and support. This story impacts me each day, but it really belongs to my Dad. He has agreed not only to share his story, but to write it himself for you. I am honoured to share with you my Dad’s journey. I couldn’t be more proud of you, Dad. Written by my Dad: This journey started with shortness of breath but having a cold, hard winter, I chalked it up to lack of exercise. Each week, the shortness of breath kept worsening which brought me to my doctor. I had a chest x-ray which showed something, then a CAT scan. My doctor called me to come to his office after hours. I brought my wife with me – I couldn’t have kept her home if I wanted to. I needed her support and she knew that. The doctor reported that my scans and x-rays showed a sizable growth on my right lung, which also appears on the left kidney and liver. Probably cancer, but the only way to know with certainty was to go in for a biopsy. My doctor
set up with Victoria Hospital in London. After consultation with a doctor there, a bronchoscopy occurred followed by another appointment. The results – it was as suspected, cancer. I was diagnosed with inoperable, extensive small cell lung cancer that had spread to my liver and kidneys. This is the second most aggressive kind of cancer because it spreads quickly and often any noticeable symptoms don’t occur until it is in full force upon you. I then met with a doctor in oncologychemotherapy at London Regional Cancer Program – who started chemotherapy on me the very next morning. This is the path I am currently on for the next four months. At the end of which, I’ll receive radiation therapy. I have had some time to reflect a bit on things. My first thought when the family doctor told me his suspicion was one of despair. That feeling soon left me as my wife and I started on our journey with this disease. My biggest concern was that I did not want this information to get to my children and their spouses until I knew for certain. After all, young families have enough to worry about. As it turned out they all handled it like troopers. This still left me with some real concerns for my wife. She has been dealing with a daughter who suffered a brain injury nearly two years ago and is still trying to recover. Also, my wife’s mother – dementia has set in very quickly on her. My wife and her siblings are working on getting her into assisted living. This is not easy when dealing with a person who has lost their sense of rationality. Now, I put my health problem on my wife – I feel for her. She has handled the pressure admirably as she has walked every step with me. My children
and their spouses have also been there for me, offering their help constantly. Even my grandchildren help me – not in a physical way but by being my grandchildren, they bring so much joy. As we go through this I find myself: 1)
Appreciating my wife more than I ever have. She is my “rock.”
2)
Realizing how much my children and their spouses care for me, offering their help in so many ways.
3)
Not getting too excited if things are not perfect in my yard or home.
4)
More thankful for each day, especially when I feel good.
5)
Very appreciative of the cancer care system, workers and volunteers we have in this province. They are tops.
6)
Enjoying each day more and trying not to concern myself about tomorrow as much. Taking one day at a time and finding some joy in each one.
7)
Allowing myself more to “flow” with life rather than trying to control it.
8)
I look around me and see many people who seem to be in a worse situation than me. I do not think of myself as a victim.
Carey-Ann Oestreicher, Chief Engagement Officer for Potential Unlimited, works with individuals and companies to help them reach their full potential.
MONEY® Magazine • WINTER 2015 - 31
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Mortgage Investments – Would you like to earn 8% fixed interest every year?
INVESTMENTS
MONEY®
Written by Peter Lantos, B.Comm, RHU, EPC The markets are once again on a wild roller-coaster ride since early December 2014. Are you satisfied with the overall performance of your investments since the crash of 2008-09? Many investors have lost trust and confidence and they are confused and skeptical. They are looking for safety 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 GICs; Greater Stability than the volatility of the stock market and mutual funds; Cash flow to provide a steady stream of monthly income; and Simplicity and Transparency offering easy-to-understand investments with no MERs or hidden fees Is there really a low-risk incomeproducing investment that can return 8% fixed interest every year for the entire term of the investment … with security and collateral … and interest paid every month? The answer is Yes! Canada’s large financial institutions,
multi-billion dollar pension plans and wealthy individual investors have been diversifying their investment portfolios in mortgages for decades. Now you can too! Can I really earn return 8% fixed interest every year for the entire term of the investment? Yes you can! And in addition to the 8% fixed return, many of our AAA commercial developers also pay a contractual end-of-term Bonus of up to 4% per annum at the end-of the-term of the mortgage. A Mortgage Investment (commercial mortgage) provides collateral for investors against a real asset and is secured against the land and property. A contractual agreement (a Mortgage) is created between the investors (the Lender) and the developer (the Borrower). The Borrower must pay the Lender on a fixed schedule at a pre-determined interest rate for a set period of time. The Mortgage is secured by the land and real property owned by the borrower. How safe is a Mortgage Investment? What are the risks? Like all investment vehicles risk is present. The companies and developers (and the advisors/ agents) with whom we deal with must follow a stringent due diligence process to determine and evaluate if a project
is worthy of presenting to qualified and suitable clients/investors. Many precautionary measures are taken to mitigate risk, including full project appraisals performed by independent and professional appraisers. It is also compulsory for each project to have a funded interest reserve (for the security of investors). A mortgage is a contract and varies from company to company with several nuances. Subsequently, it is critical that before you invest, you deal with an advisor who is giving you unbiased and objective expert advice about the various developers and projects. Your money should be invested only with highly reputable AAA developers who can demonstrate a lengthy and solid track record of on-time and on-budget project completions in AAA locations. Safety of your investment is our prime objective. You can transfer (on a roll-over basis) 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. There are numerous advantages and benefits with Mortgage Investments to help you diversify your overall portfolio:
MONEY® Magazine • WINTER 2015 - 33
MONEY® REITs vs MICs vs Mortgage Investments (MIs) REITs: are traded on major stock exchanges and invest directly in real estate MICs: investors pool their money to buy shares of several private mortgages MIs: investors pool their money to invest in a single commercial mortgage. Each investor has the choice of which project(s) he/she wishes to invest.
Investors have security via the collateral of the land and property. MIs are a contractual debt and not vulnerable to the fluctuations that can occur with investing directly in real estate. Why have I never heard of Mortgage Investments? Advisors who are licensed to sell mutual funds stocks, or bonds, either as an independent advisor or as a captive agent, are not permitted to sell Mortgage Investments to their clients.
There may be no compensation for these advisors by referring you to a licensed Mortgage Advisor or Agent. PETER LANTOS MORTGAGE INVESTMENTS peter@PeterLantos.com ….. 226 721 0883 ….. www.PeterLantos.com Note: Regulations, qualifications, exemption, and minimum investments vary by province. In the Provinces of Ontario and Nova Scotia, these investment transactions must be closed by a qualified licensed Mortgage Advisor.
Benefits
REITs
MICs
MIs
Principal is secured by a 1st or 2nd mortgage
x
x
Fixed 8% annual interest rate
x
x
Fixed term (3 year average)
x
x
Fixed interest payments monthly (or quarterly) to maturity
x
x
Choice of individual project(s)
x
x
MERs or other fees
x
Low volatility
x
Invest Like the Banks with Security and Collateral
x
x
Must be an Accredited Investor
x
x
If it doesn’t sizzle SEND IT BACK.
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34 - MONEY® Magazine • WINTER 2015
MONEY®
TAX
Family Tax Savings You Don’t Want To Miss
Written by Dean Paley
My wife and I had some friends over for dinner recently and the conversation turned to family. Our friends were telling us how well their youngest daughter was doing in gymnastics and the progress their oldest boy was making in hockey. To keep the conversation going, we boasted about our two kids in university. The conversation got me thinking about income taxes (again!) and how many families miss a number of tax saving opportunities. Child Fitness Tax Credit You can claim up to $500 per child toward the cost of fitness programs. To qualify, the child must be under 16 years and the program must be eight consecutive weeks (or 5 consecutive days for a day camp), be supervised, and require physical activity. Children’s Arts Tax Credit The children’s arts program is another credit you can claim up to $500 per child for fees related to of the cost of qualifying programs. Now might be a good opportunity to search the house for those receipts or contact the provider for the fitness or arts credit receipts.
Tuition & Education If you or your spouse attended a postsecondary institution, you may be able to claim the tuition and education amounts. The institution will issue tax slips allowing you to claim these credits. If your child attended a post-secondary institution, they are entitled to claim these credits. However, they may also transfer a portion of the amount to a parent which may be used to offset your own tax bill! Medical Expenses Many of us have access to private health insurance through our employers. But did you know that more and more employers are downloading the direct cost to their employees and scaling back the amount the plan covers? Medical expenses will include those premiums you pay for health insurance and will be reported on your T4 in addition to any amounts you pay out-of-pocket. If you travel during the year and purchased travel medical insurance, those costs can also be claimed. Some strategies that you may use when claiming medical expenses include grouping family expenses together
(i.e. spouse and dependent children) and claiming the expense on the lower income spouse. Medical expenses can be claimed for any consecutive 12-month period ending in the tax year. This may be helpful when you had high expenses at the end of 2013 and the beginning of 2014 but would not have otherwise have been able to use the credit. Disability Credit The disability tax credit is another credit that is often missed. This credit must be applied for and does require your doctor to complete a form. The credit is generous as it is worth about $1,500 is tax savings. Caregiver Amount The last credit is the family caregiver tax credit. The person must be dependent on you due to mental or physical impairment or be a parent or grandparent born before 1948. Their income must also be below $19,824. As you start receiving those T3’s, T4’s and T5’s, start thinking about some of the above items to see if you might qualify for some additional tax benefits.
MONEY® Magazine • WINTER 2015 - 35
MONEY® RRSP SEASON
RRSP loan strategy
for generating a down payment on your first home Written by Lachman Balani
As an example, let us use a couple, John and Jane, who want to buy their first home sometime in 2015, say in June or July, taking advantage of the first time Home Buyer’s Plan (HBP). To make the illustration simple, both are making $55,000 each, which puts them in the 31.15% tax bracket in Ontario. Jane has RRSPs worth $5,000 and John has RRSPs of $4,000 for a total of $9,000, but between the two they still have contribution room worth $45,000. They wish to buy a home worth $500,000 with a 5% down payment, or $25,000, and mortgage broker has given them the pre-approval. Their monthly payment will be about $2,291 for a 25 year amortization on $489,962. ($500,000 - $25,000 + $14,962, this last amount being the CMHC mortgage default insurance). As noted, they have $9,000 in RRSPs from past years but do not have the requisite amount of $16,000 to put into an RRSP now so that they can withdraw it 90 days later (the minimum time an investment has to be in an RRSP to be eligible for the HBP) to use as down payment. Enter the RRSP loan. John and Jane take two RRSP loans for $8,000 each and choose to repay it over a period of ten years. The monthly payment for this is approximately $88 per person based on a loan rate of prime +2.75% or 5.75% currently. This is a very affordable monthly payment for a person making $55,000 per year. By paying such a low sum for the RRSP loan, they will also have ample money to cover their mortgage. At this stage it is best to invest the $16,000 they have borrowed into a high interest savings account or a 90 day GIC so as to preserve the capital. Once the obligatory holding period of 90 days is over (say by sometime in April or May if they take the loan now in January or February), they can withdraw this $16,000 (even if the loan has not been paid off) from their RRSP and add it to 36 - MONEY® Magazine • WINTER 2015
the $9,000 they already have for a total of $25,000 down payment on their home. All this money is available to both John and Jane tax and interest free in accordance with the government’s first time HBP rules. It is important to stress here that after the RRSP funds of $16,000 are withdrawn, the couple is obligated to continue paying at least the minimum of $176 per month to pay off the RRSP loan. They can of course choose to pay it off sooner as well with no penalty as RRSP loans are open loans much like car loans. Another extremely important added benefit to this strategy is that John and Jane can deduct this $16,000 from their income and get 31.15% back in tax returns when they file their taxes. This is a total of $4,984 which they will get back from the government in May that can be used towards the closing costs of their home, when they move in June or July. Closing costs usually average 1.5% of the mortgage and includes lawyer’s fees, appraisal costs, title insurance, land transfer taxes and more.
Please also note that funds withdrawn from an RRSP under the HBP has to be replaced starting two years after the purchase of the home and has to be made in 15 equal installments annually. In this case, Jane, who has contributed $13,000, has to repay a minimum of $866.67 per year after two years of moving into the home failing which that same amount will be added to her annual income for tax purposes. The same rules apply in John’s case, whose amount is $800 per year since he contributed $12,000. This is an extremely lucrative strategy, which not only helps John and Jane to get the extra money needed for their down payment, but also generates a tax refund that they can use towards their closing costs or to buy furniture or whatever else they may choose to do with it. To customize this strategy to suit your personal situation, please contact a financial advisor and/or mortgage agent or you may contact me at lbalani2000@gmail or at 416-902-3580.
Let’s retire the word Retirement
FINANCIAL PLANNING
MONEY®
Written by Jonathan Chevreau
This magazine, like its sister web site and competitors, is devoted to the topic of money. That’s an obvious statement but stay with me. We all need money to live, both in the present and the future. This basic fact has created the entire industry dedicated to the notion of saving for a rainy day so we’ll have enough money both for today’s needs as well as tomorrow’s. And the week after, the year after that and so on, bringing us ultimately to the concept of Retirement. Retirement is the greatest marketing bonanza ever conceived for the financial industry. If a mutual fund company, bank, trust company, credit union, caisse-populaire, insurance firm or ETF maker runs an ad, what is the major concept behind its marketing? Typically, it features a mature couple frolicking on a beach or golf course, care-free, active, smiling, still in love and doing nothing that resembles work. I don’t know when work acquired such a bad reputation but I’d venture to say that in Canada, this phenomenon started to gather steam when London Life popularized its Freedom 55 campaign. Never mind that only a fortunate few government employees with indexed Defined Benefit pensions retire by 55, the catchphrase grabbed the public imagination. It seems to have succeeded in planting the idea that “Work” is a bad thing and “Freedom” from work is the ultimate good that must be pursued -- even if it means sacrificing the present for the future during the 30 prime years of a typical working career (age 25 to 55). In 2008 (yeah, bad timing!), I had a brainstorm and came up with a phrase I felt would better capture the zeitgeist of saving, investing and life purpose. As summer approached, I was thinking of America’s Independence Day, which falls on July 4th. I stumbled on the
idea that Financial Independence is really what the financial industry is selling, but the phrase takes two words and has seven syllables compared to Retirement, which takes just three syllables to articulate. So I contracted the phrase Financial Independence into a single new word: Findependence (with a more manageable four syllables). It was a short leap to add an F in front of Independence Day to create Findependence Day. Thus was born my book of that name, published later that year and in a U.S. edition in 2013. Three websites followed (starting with www.findependenceday.com) but the phrase has yet to displace Retirement. One problem with selling Retirement to the young is that old age seems impossibly far away. If you’re a millennial entering the workforce, retirement is perceived as something far in the future, one step before the equally remote prospect of death. But “Findependence” is a goal that can be achieved not 30 or 40 years from now but in just 10 or 15 years. It’s not unreasonable for a 25-year-old taking their first steps on the career ladder to set a goal of Financial Independence by age 40. Indeed, on my Financial Independence Hub are posts written by two millennials who declared just that: they intend to be debt-free by their mid 30s, after which they will work not because they are compelled to financially, but because they want to. Does that mean “early retirement” for them? No, because Findependence is not synonymous with Retirement. Search the term on Wikipedia and you’ll find an entry that’s simple to grasp: financial independence is the state of being able to have enough wealth to live “without having to work actively for basic necessities.”
If you are Findependent, your assets generate more income than your expenses. Note Findependence is not correlated with age. If you have modest means and are frugal enough to build a nest egg in 10 or 15 years, you may be “findependent” by 40. But if you’re a high-earning big spender requiring hundreds of thousands of dollars of income each year, findependence may not be in your grasp even by the traditional retirement age of 65. You can see why people confuse the terms since government pensions like CPP and OAS don’t begin until one’s early or mid 60s. But if your needs are modest, you can establish “early findependence” solely with a portfolio of dividend-paying stocks, perhaps supplemented by part-time work. It seems likely that few boomers will embrace the “full-stop” retirement of their parents. The latter may have enjoyed a quarter century of golf, reading and daytime TV but most boomers will embrace a semiretirement funded by modest pensions and investment income supplemented by part-time employment income or consulting work. Some may have royalties from literary or musical creations, licensing fees from entrepreneurial ventures, fees from serving as corporate directors and other income. Jonathan Chevreau is the author of “Findependence Day” and the ebook” A Novel Approach to Financial Independence”. He recently launched the Financial Independence Hub and can be reached at jonathan@ findependenceday.com. He also writes for the Financial Post, Motley Fool Canada, MoneySense and Investored.ca.
MONEY® Magazine • WINTER 2015 - 37
MONEY®
TAX
Taxes Taxes Taxes… Written by Frank Flynn
Having spent more than a decade as a Senior Collections Enforcement Officer for Canada Revenue Agency, I got a firsthand look at some of the perceptions of Government and taxes. Admittedly in my role as a Tax Collector, I was dealing with a very specific subset of individuals and their corporate enterprises i.e. folks that owed the Federal Government, money. In my role as a complex case collections officer, I typically handled high dollar balance accounts where the unpaid tax revenue had been on the books for months and very often, years. Believe it or not, for the most part, tax collectors aren’t looking to unreasonably hassle taxpayers. Of course there are exceptions to which one could point. From time to time we see horror stories in the media about how one taxpayer or another is given a raw deal and so forth. Truth be told, these cases are the exception and not the norm. And yes there are systemic problems with holding CRA personnel accountable when they step offside. But overall, as far as western industrial democracies go, Canada has an exceptional system of tax administration and enforcement. Although the spectrum of clientele that I dealt with as a collections officer was as varied and diverse as Canadian society itself, there were commonalities that speak to a certain mindset that I believe lay at the foundation of Canadian attitudes. I now operate a niche tax consultancy providing consulting services in the area of CRA collections policy, procedures and 38 - MONEY® Magazine • WINTER 2015
protocols; as well as writing applications for relief from penalty and interest on tax liabilities. Needless to say, all of my clients are people or companies with tax debts. This is where my observations about Canadian’s attitudes toward Government and taxation come into focus. I never cease to be amazed by the number of people I’ve encountered both as a CRA staffer and as a consultant, who have a deeply ingrained belief that the Federal Government owes them something. It’s incredible to me the number of folks I encounter who neither file tax returns nor pay taxes - sometimes for years but yet somehow have constructed a narrative of the circumstances where they play the role of victim. “…Ya know Frank, the collections guy is such a jerk, he kept going on and on about the $186,000 I owe. He just doesn’t get it that my kids’ private school tuition fees have really gone up!” or “I know I owe $74,000 but I told them I’d give them $150.00 a month. What’s their problem?” or “I haven’t filed for 8 years and they’re really coming down heavy on me. Why are they being so hardline?” No, I’m not exaggerating. These are literally the kinds of conversations I have - regularly. If my amazement about these kinds of statements doesn’t make sense to you, you’re probably one of the people this article is about. I’m not sure how or when it happened, but somewhere along the way, we as
a society seem to have picked up the idea that the Government is some benevolent, nurturing, mother figure. It isn’t. We entrust governments to administer public facilities and services. Facilities and services that need to be paid for through tax-dollars. We have - for better or worse - a tax system to which we are all subject. The government doesn’t owe you a break or a tax holiday. The tax system in its best incarnation is a level playing field. It is the responsibility of tax collectors to work toward ensuring said level playing field. I spent nearly 12 years as a tax collector. I can honestly tell you, getting that job wasn’t the fulfillment of a lifelong childhood dream. Sure there’s the glitz and glamour of being a Federal civil servant but believe me, confronting people for tax money isn’t as thrilling as it seems. If you haven’t filed tax returns or you have a huge tax liability, don’t make the collections officer’s job more difficult than it already is. They don’t want to bear witness to your massive sense of entitlement or victimhood. Be straightforward and honest and you may find yourself surprised by how much latitude you are given. Give them a sob story, blame others or the government itself, and you place yourself at peril of being the target of some very serious trouble. Frank Flynn operates Taxpayer Relief Letters, serving Canadian taxpayers, their lawyers, and their accountants, from coast to coast to coast. www.taxpayerreliefletters.ca
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‘THE INCOME INVESTOR’ 1
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B u i l d i n g
W e a l t h
THE INCOME INVESTOR
Volume 12, Number 14
I N
T H I S
Issue #1414
THE NEW NORMAL
I S S U E
The new normal
1
REITS are a special breed
2
Go West
3
July Top Picks: iShares J.P. Morgan Emerging Markets Bond ETF, Amica Mature Lifestyles, Talisman Energy
4
July updates: Canexus Corp., Freehold Royalties, Just Energy Group
7
Housekeeping
8
Editor and Publisher: Gordon Pape Associate Editor: Deanne Gage Circulation Director: Kim Pape-Green Customer Service: Katya Schmied, Terri Hooper Copyright 201 2014 by Gordon Pape Enterprises Ltd.
July 31, 2014
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.
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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 income trusts, 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.
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‘The Internet Wealth Builder’ Now you can join the select club of IWB members for one year for only $174.95 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 Irwin Michael, Tom Slee, Glenn Rogers and Gordon Pape. • Access to a password-protected Member Section of the Buildingwealth.ca website. See our full list of recommendations, 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
I N
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?
1
Russian turmoil hits Europe
2
Gavin Graham’s updates: Home Capital Group, Copa Holdings, BMO Asian Growth and Income Fund, Templeton Frontier Markets Corporate Class A Units
4
Gordon Pape’s updates: AT&T, ArcelorMittal, Google, iShares Japan Fundamental Index ETF, iShares Gold Bullion ETF
6
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
7
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
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
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MONEY® SUCCESSION PLANNING
Succession Planning –
A Storm is Coming Written by Greg Powell, CD, B.A., CFP, CHS, EPC
The enemy attacks on two occasions: a) when you’re ready, and b) when you’re not. In the military, we create succession plans upon receiving a position of leadership. Within days of shaking out your team and understanding individual strengths and weaknesses you had to decide an order of replacement. The reality was that if you were ‘taken out’, then your role was passed immediately onto your 2ic (second in charge) to carry on. If the 2ic died it went to their 3ic understudy and so on. The continuity of a chain of command ensures survival and seamless operations under difficult situations. It wasn’t a luxury, this chain had to be identified and developed. From the regiment’s Commanding Officer to the Cooks; key positions were always responsible for identifying and training an understudy. I believe succession planning will be a significant challenge every industry will face in the coming years. The babyboomers will be leaving careers, and with them will go the accumulated knowledge and practices of many years. To ensure we survive and operate seamlessly we too need to be grooming our 2ic. In the past, I randomly polled some managers and leaders about what they would do if key people left suddenly the business. All too often, the answer came, “When you get right down to it, we really have no plan”, or “I guess everyone would have to share the load and work harder until the right person was found”. It’s been said that employees and contractors bring in the business but managers and owners build it. That being said, everyone is replaceable. While the decision may not lie entirely with you, I bet you’d prefer to have intelligent input for this inevitable situation. 40 - MONEY® Magazine • WINTER 2015
Identify candidates early; during employee and contractor selection, let them know there are management opportunities within your company for good candidates. Have a candidate pool from which to choose. Enjoy the opportunity to choose a great manager candidate from several good ones. Having your business be known as a place to grow. Cultivate leadership talent that is complimentary of your culture and professionalism. There is nothing wrong with having many great leaders originating from your business to take other positions within the company and industry. Build a legacy bigger than yourself and your branch. In the military, the chances of getting ‘taken out’ were a reality. For you, we’re not talking death necessarily; but what about retirement, an opportunity for your spouse that requires a move to another city or a long-term disability or illness in your family? What does the ideal candidate look like? Create a ‘shopping list’ of attributes and accomplishments that may include individuals who are good mentors, possess recruiting skills, high energy, common sense, industry qualifications, designations and achievements, community involvement, etc. Perhaps ask a trusted colleague what core competencies they think would make a good successor for you or a needed talent set for your business. Listen to them, their objectivity to the situation could be, well, enlightening… Your successor doesn’t have to be a clone of you. Don’t take this personally. Everything you brought to the table got your business or office to where it is today, however the next leap forward may require a different paradigm. Be open to this. Start looking in your own backyard first; your business or branch, your present management team, your peers or talk to the next of level management in
your company (chances are this person is already a couple steps ahead of you on this matter). These people are familiar with the systems and cultures this person will be entering into from a perspective outside your own. If these resources don’t generate at least three to five good prospects then start looking elsewhere. Does everyone in your personal and professional world know you are looking for a prodigy or successor? If not, book some coffee chats with colleagues and possible centres of influence. If you find someone that fits the bill but you (or the candidate) wants to wait until they are completely ready to take the next position here’s a suggestion; rethink that. They will never be completely ready for the next step. Do you remember your first few months as a new manager or business owner? No matter how much you knew going into the new role, it was still like drinking from a fire hose. And if you strive for more in your career likely you are still learning concepts, methods and strategies that will improve your skills. Therefore if the person who hired you waited until they thought you were completely ready to take that new role you’d probably still be waiting where you were. The need for succession planning happens on two occasions: a) when you are ready, and b) when you you’re not. Pick the first one. Lead from the front. Greg Powell is a Financial Centre Manager in BC, Past President of GAMA International and a former member of the Canadian Forces. Greg can be reached at gregory.powell@sunlife.com . The views of the author do not necessarily reflect those of Sun Life Financial.
MONEY®
MONEY®
Leading a company through market cycles
Written by Blair MacDougall
Those of us who work in business or are business owners should be well aware of the economy’s natural bear and bull cycles. It can be argued that in today’s modern economy, with its built-in fail-safes and government oversight, the large boom and bust periods of previous centuries are a thing of the past. However, as Brian Domitrovic writes in a wonderful Forbes article and as evidenced by the Great Recession, the modern economic era is still susceptible to market cycles. That means that it remains pretty important for company leaders and business owners to intelligently plan ahead for when markets pull back and demand weakens. I work in the offshore oil and gas industry and lead an energy services company that provides experienced engineers and personnel to oil and gas producers. The oil and gas industry is one industry that in particular experiences boom and bust periods. In fact, many will argue that with the drop in oil prices experienced over the past several months, the oil and gas industry is currently in a bust-type market. There is little doubt that the lower oil and gas prices have had its effect on a range of oil and gas producers, particularly when it comes to revenue expectations coming into 2015. (Tangentially, there’s a reason why I think the current price climate is for the short-term, as I explain in a recent article “Current Slump in Oil Prices a Short-Term Situation, Says WESI’s Blair MacDougall”.) However, the point is that successful leaders, regardless if we’re speaking
about the oil and gas industry or some other market, must financially plan ahead for when economic conditions become more challenging. It’s an essential part of smart business management. Companies which survive downturns in the economy can emerge much stronger on the other side.
markets, is the fact that technology has made enormous strides in allowing oil and gas operators to do more for less. Compared to ten or even five years ago, our ability to discover and successfully drill offshore oil patches for equal or less cost has improved dramatically. This is evidenced in part with the oversupply currently being seen.
In my line of work, when a challenging price environment begins, one of the most difficult things to do is parse out the emotions surrounding the change in economic condition versus the reality. As has been the case in bear markets in the past, there’s a difference between reactionary emotions and what’s really happening in the industry.
One of the more imaginative offshore drilling technologies that I’ve read about over the past several years is a development called a reservoir robot or resbot for short. Those who work in the offshore industry know that one of the more difficult and costly things to do is manage an oil reservoir. What’s even more difficult is accurately measuring reservoir conditions and what may be causing damage to it.
For example, after experiencing a number of market cycles over the past twenty years in the oil and gas industry, it’s evident that when most large oil and gas producers begin exploration or production projects, they map these projects out under long-term time tables. Given these producers’ fairly large financial resources and given the long-term time-line of their projects, a momentary drop in price is a consideration, but not necessarily a condemnation, on a long-term project path. That’s not to say that mid to smaller oil and gas producers are not affected by a drop in oil and gas prices – of course they are. But, headlines that exaggerate and make it appear that all or most oil production will stop until prices rise once more are false. One other thing I like to keep in mind, and again this is specific to my industry but hopefully it can translate to other
Nano technology has moved into a wide range of industries. Reservoir robots are Nano-sized robots that can enter the rock pores of a reservoir and measure the reservoir’s conditions. The technology is being produced by Saudi Aramco and I really look forward to seeing what will happen in the future with these resbots. Either way, maintaining an eye on technology and how it can positively affect production and budget costs is in my mind essential. In the end, from my experience, being able to adequately prepare a business for economic downturns comes from a deep understanding of the fundamentals of one’s industry and, moreover, an ability to separate media commentary from what’s really happening on the ground.
MONEY® Magazine • WINTER 2015 - 41
MONEY® REAL ESTATE
Entrepreneurs
Should Put Themselves in Investors’ Shoes Written by Richard Crenian
At ReDev Properties Ltd., we invest in commercial real estate properties. A lot of our work goes into selecting properties that are in a position to increase in value. However, we know that our business starts and ends with our investors – building value for our investors is a hallmark of ReDev Properties, as is attracting new investors to our real estate opportunities. To attract investors, I think you have to have an understanding of how an investor thinks. As asset managers, we look at properties that aren’t maximizing their income potential and work to increase their value. Investors, much like asset managers, want to know how to get as much return out of an investment as possible. But, there are nuances to an investor’s thought process may not be apparent to entrepreneurs, especially new entrepreneurs. The following are a few tips that will help you as an entrepreneur build a narrative that will speak to investors in a way that makes sense to them. Illustrate value Smart investors want value. Entrepreneurs oftentimes focus too much on marketing or plans for expansion in the distant future. Consequently, they lose the interest of their potential investors. The first question savvy investors want answered is: ‘How are you making me money?’” Business expectations for the future and marketing-type materials can be a part of your investment proposal. However, the main point of an investment proposal should be an explanation of your core business model and how it creates value. Manage expectations Although this is oversimplifying the picture, there often are two types of investors: investors who want to assume a lot of risk with the possibility of a major payoff and investors 42 - MONEY® Magazine • WINTER 2015
who want to assume as little risk as possible, with the idea of gradually acquiring wealth. As a lifelong proponent of “turtle investing”, I believe in secure investments that give investors a high probability of acquiring wealth gradually. My relationship with investors makes that fact very clear: I’m upfront with investors in explaining to them that investing with ReDev Properties is not going to make them money overnight. It’s important to be realistic and honest here in order to manage investment expectations. The market is inherently unpredictable, and fast returns are possible. For example if you had invested in Volkswagen immediately before their buy-out by Porsche in 2008, you could have made a lot of money very quickly. People without a firm understanding of the market are often tempted by “lightning strike” gains like this. However, many achieving investors, including Warren Buffet, favor a more conservative, long-term investment approach. At ReDev, we are advocates of that exact same investment model and we invest in properties that have already proven themselves to be winners, and have never lost investors’ money. If you can offer fast returns, make sure your data illustrates to investors you’re not running a get-rich-quick scheme. Believe me, they are going to scrutinize that data before deciding to give you their money. At the end of the day, you also need to be clear about the time frame in which you expect to see results. Without a realistic time frame that is supported by data, you lose all credibility. Making a good impression is half the battle with investors. If you are working with investors online, make your website a professional and informative one. However, the power of perception is best applied to the big
picture. Maintaining a great reputation is a must. If you’re seen as an honest businessperson and are running a company that consistently makes money, investors will come to you. The names “Richard Crenian” and ReDev Properties I believe mean something to investors in my market, and that’s because we’ve worked hard to build our reputations. If you’re just getting started in a market and in need of seed money, you should make sure to project decisiveness and confidence. Demonstrating competence isn’t enough: investors are trusting you with their money. You must demonstrate mastery within your industry. And remember: while perception is valuable to get your foot in the door, at the end of the day investors are interested in the facts and figures that prove you can make them money. Lastly, assume investors know the market My final tip seems self-evident, but it is extremely valuable because it’s one people often oversee. Many entrepreneurs are so confident about their product that they forget investors within a given niche are nearly as informed as they are. Savvy investors are aware of what’s going on in the market today and are very conscious of where the market is heading. Investors today also have more options than ever before. You are simply one of many competitors and your job is to make your company the best option. Much of that work is done “behind the scenes” in the process of creating a successful company. However, a presentation must also be tailored to how the financial markets are looking. If the market for your product or service is projected to grow, communicate that to your audience. If the market for your product or service is on a downswing, communicate why your company is different – and as always, have the numbers to back it up.
How Much Life Insurance Do You Need Anyway? (It’s not as complicated or expensive as you think)
INSURANCE
MONEY®
Written by Jim Ruta Few of us like to talk about death. It’s just one of the reasons that the topic of personal life insurance doesn’t come up every day. Yet, every day Canadian families are affected by the life insurance they own and the life insurance they do not. In the first case, lives and lifestyles can continue despite the terrible personal loss. In the second, family devastation is compounded by financial loss and dreams die with the dreamer. It’s not pretty.
You need life insurance when disaster strikes or is obviously imminent. Of course, this is like trying to buy fire insurance for your house when your have those darned “oily rags” smouldering in the basement. The time to buy fire insurance is when the house is safe. Likewise, you can only buy life insurance when you are healthy. That means, when you don’t “need” life insurance, that’s the best time to apply.
It’s also not necessary. Life insurance protects families.
So how much do you apply for anyway? While there are many complicated financial planning strategies and life insurance calculators, several rules of thumb can make the process a lot easier and more understandable anyway. Here’s what I mean.
Unfortunately though, according to recent Canadian industry studies, never in recorded history have so few Canadians owned an individual life insurance policy. Group life insurance coverage has fallen too. The result is that many families are unknowingly on the brink economic disaster brought on by a premature death. (Aren’t they all?) Sadly, it happens every day. But, you can take control of your life insurance portfolio and make sure your family is protected “no matter what”. Let’s be honest, life insurance is like a lottery you don’t want to “win”. But, the peace of mind that comes from knowing if the worst happens (and you do), money won’t stand in the way of family lifestyle recovery. It turns out that life insurance is a character product. The more character you have, the more life insurance you will own because the safety and satisfaction of someone else means as much to you as yours does. Character is demonstrated by your ability to exchange enjoyment today (from the money you pay) for the satisfaction of knowing those who matter most to you will have the financial support they need in the worst of times. Life insurance is a lot like a parachute. If you need a parachute and you don’t have a parachute, you’ll never need it again. One last key point about buying life insurance before we get to how much. This is very important. You can only buy life insurance when you don’t need it because when you need it, no one will sell it to you. It’s what makes it so hard to sell and harder to buy. You really have to understand this critical issue.
Professional associations have recommended for years that their members buy between 7 and 10 times their net income after expenses, but before taxes, to protect their families. The higher the multiple the more secure you can your family can be. Over the years, we’ve discovered that even with the most sophisticated financial planning software, it’s amazing how many times an analysis comes up with a number in this range. It’s worth a look. Remember, regardless of how much life insurance you own, you will likely be wrong. If you buy a larger amount considering what you might need as your income and needs grow in the future, and you die soon, you might have “too much”. On the other hand, if you buy just what you need today, don’t update and then die years from now, you may have “too little”. The question for you is “Do you want to be wrong to your family’s benefit or to their detriment?” The choice is yours. The biggest life insurance need any family has is replacing family income – the 7 to 10 times factor. To that amount, you can add repayment of all outstanding debts like mortgages and car loans, final expenses, unfunded educational expectations for the kids, charitable donations and other special needs. Honestly, term insurance is so inexpensive for most people that adding $200,000 or so extra to cover the dreams you have or needs you think important won’t break
the bank. It is life insurance after all – it insures the life you had planned can carry on. Another way to handle the survivors’ income calculation is to figure that your family will need about $1,000,000 of life insurance to replace each $30,000 to $50,000 of family income needs. Remember though, even at $30,000 per million, your family will have to be in the financial markets somehow to get that sort of return on the life insurance nest egg they’ll have to invest to produce income. Expecting less and buying more can make their lives easier and more secure. By the way, your survivors will need about 70% of their current income to continue their lifestyle. Again, you decide how much you want for them. So, despite all the complications that can figure into the life insurance calculation, it’s simple. Some easy math can and a call to your insurance advisor (or the advisor or a friend) can dramatically improve your family’s peace of mind and your quality of life. Get an advisor to review your life insurance portfolio and then protect your family. One last thing, the right amount of life insurance in your situation is much more important that the type of policy you buy. Always buy the amount you need before you consider the kind. Insurance is like cars. You can pay a little or a lot. It all depends how you want to arrive. When you have limited resources, buy the most you can buy first. You can always improve the quality later. Jim Ruta, BA, RHU, EPC, is a veteran life insurance industry consultant, speaker, writer and media commentator. Starting in the life insurance business at age 22, he led one of Canada’s largest insurance agencies by age 40. He has been consulting to top advisors and companies since 1999. Jim has been featured around the world including the Million Dollar Round Table Main Platform and has several best-selling consumer and advisor books to his credit. He is Managing Partner of Austin, Texas based InforcePRO.com Software, a life insurance policy service system and lives in Burlington, Ontario.
MONEY® Magazine • WINTER 2015 - 43
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Kick Start Your Life Today Written by Anita Saulite Over the past few years, I have had my feet on the streets talking to people about their lives and how to engage in better conversations about money. Is it money first, life second or life first and money second? Many people have told me that they are overwhelmed by the amount of information, choice and advice on personal finance. Many of us have tuned out because we don’t know where to start or no one is having the right conversations with us. We ignore well-meaning advice or coaching on how to make things right because there are so many varying opinions on what to do. Our conundrum is that we crave financial security and wellbeing, yet no one is reaching us in a way that captures are hearts and minds. Many of us feel our money is not working for us. Incomes are not growing. Wage increases are non-existent. The cost of living is rising. Home ownership may become increasingly out of reach. Personal debt is at an all-time high. Some of us may be worth more but we are borrowing and spending more. But when we turn the conversation on its head and start talking about what really matters to people, finding joy and meaning right here, right now, many tune back in. The reality is that what we do with our money every day, matters, and could have long-term implications for our financial security. Every day, we are making trade-offs with our money. Competition for our money continues to grow. We search for happiness. Researchers tell us that how we spend our money can increase our levels of happiness. Researchers are conflicted about whether money can buy happiness. Some believe that more is not better and that there is a satiation point of happiness based on a maximum household income of $75,000. Some believe that there is a direct correlation between higher income and happiness – more money means more happiness. But this can’t be the driving force in our lives if we want to live mindfully and well. What we do know statistically is that people who have more money tend to live longer lives because they are able to afford better nutrition, have less anxiety, more time for friends and family – all things that contribute to contentment.
Living with intent and purpose creates meaning in our lives, and this creates joy. We need to connect the idea of living a joyful existence with our money. Bad money habits can creep up on all of us and they don’t happen overnight. There are plenty of examples: overspending, not saving enough, carrying interest on our credit cards, impulse shopping. These wealth-sabotaging behaviours reflect short term thinking and reveals a lack of, planning and purpose. When we have a clear vision for ourselves, our money naturally finds a positive direction. Every day we make financial decisions guided by our subconscious. We are not mindful or fully aware. We just do it. We often don’t make decisions based in conscious choice, where we actually think about the situation, options and outcomes for a while before we act. Why? Researchers tell us we are so conditioned by our subconscious that it‘s like being on autopilot. Unless we replace our bad money habits with better strategies or approaches, we continue to be guided by old paradigms that might not be working for us. Now might be a good time to really look at our money to see whether it has intent and purpose. Consider these five healthy habits to get your money working for you. 1. Create a Life Plan. A life plan is a series of short and long term goals that will guide you get where you want to go in life. Goals must be comprehensive: specific, measurable, attainable, realistic and timely. Clarity in our lives comes from having direction, and finding joy in what we do. Goals help promote peace of mind because they keep us focused on what matters to us. It’s amazing to see how bad money habits can slowly vanish once we attach to our goals and our money takes on greater meaning and purpose. 2. Think Long Term. Look ahead. We live in a culture of conspicuous consumption and instant gratification. Spending our money today without thought about the needs or goals of tomorrow is short term thinking. Your future self will thank you for taking a long term view
of your personal finances. Millennial workers who are saving for their retirement will understand this. 3. Get Informed. You don’t need to become an economist or an expert in personal finance, but you do need to become financially literate and money savvy. Understand the broader picture of how money works and common terms and concepts such as compounding interest and the time value of money which helps you grow your money and reach your goals sooner. 4. Engage in Mindful Decision Making. Each time you reach into your wallet to spend, think about what you are doing. Check in with yourself to make sure you are spending on goal-related pursuits. You may have to make trade-offs in how you spend your money but that’s okay. Just be mindful of how and when you spend money, and if you find yourself engaging in mindless spending, stop. 5. Make the Right Trade-Offs. Money is a finite resource and tool. Make trade-offs with your money that will increase your financial security and long term financial health. Remember, the choices we make today could have impact on our tomorrow. By creating a Life Plan and taking a goalcentred approach to life, our personal finances will find greater clarity and meaning. We will spend our money less on things that have relatively little importance or value and direct our hard-earned money towards our goals to create intent, meaning and joy to our lives. It’s that simple. Really! Anita Saulite, Financial Consultant, is the author of “Food For Thought: The Joy of Living a Delicious & Nutritious Financial Life”. Her message of mindful balance seeks to influence and lead the industry in change by using humour and culinary metaphors in how we approach personal finance. With good sense and engaging stories, she leads us through a natural evolution from managing our money day-to-day to investment to financial and life planning. Starting today.
MONEY® Magazine • WINTER 2015 - 45
MONEY® MAGAZINE
THE SOCIAL CURRENCY
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Financial Literacy in Schools
FINANCIAL LITERACY
MONEY®
Written by Kyle Prevost
“Why don’t we learn about this money stuff in school? It’s so important and impacts our entire life yet we were never taught anything about it!”
CanadianFinancialLiteracy.ca
Sentiments like those expressed above are quite common when I initially talk to people and they find out I’m a high school business teacher as well as a personal finance geek. It seems that it’s pretty well established that we need to do a better job of raising financial literacy rates in Canada. If you aren’t already convinced about the importance of teaching personal finance, go ahead and take a look at our record personal debt levels, the amount of RRSP contribution room that never gets used, and/or the number of payday loan locations you pass on your way to work every day. Poll after poll says a majority of Canadians want personal finance concepts taught in our schools, so why are we seeing so little in the way of results? The current status of personal finance education (or lack thereof) is the result of many bureaucratic problems coalescing and creating a perfect storm of incompetence. Some detractors of teaching personal finance in school claim that students are too young to really make use of the information; consequently, there’s no rush to get it into curricula. My response is generally, “Wait, so let me get this straight. Students can make use of a body of knowledge that includes the War of 1812, mitochondria, covalent bonds, and quadratic equations – but learning about interest rates and investment options isn’t relevant?” If students don’t initially engage with the topic of personal finance then simply do what good teachers in every subject area do – teach it better and with more enthusiasm!
While there is some small degree of momentum building around the idea of financial literacy in several provinces, the current approach is misguided at best and most likely just convoluted political messaging that doesn’t mean very much. Provincial curricula across Canada seem eager to embrace educational strategies that are often defined by the words “layering”, “infusing” and/or “weaving”. Usually the “what” that is being layered, infused and/or weaved is some vaguely defined idea that will be included in hardto-define ways throughout many subject areas and grade levels. I strongly disagree with this layering/ infusing/weaving approach to raising financial literacy rates. The biggest problem with this strategy is that when teachers hear that something is being layered/infused/weaved into the curriculum they teach, what they translate this to mean is that someone will be adding material to a course of which they already can’t get to the end. It doesn’t matter how you spin it, when teachers are already “weaving” in concepts such as cultural awareness, respect, literacy, numeracy, sustainability, aboriginal perspectives, technology, equality, collaboration, team-building techniques, and inquiry mindsets (just to name a few), personal finance will inevitably get lost in the shuffle. The other major problem with the theory that your English teacher can help teach personal finance (neither a borrower nor lender be?) is that there simply isn’t enough subject area expertise out there within the current teaching ranks for the layering/infusing/weaving approach to work. The fact is that it is tough to find a group of people less qualified to educate others about personal finance than teachers. We have some of the most secure jobs in the world, are guaranteed to fit on a certain pay grid our whole life, have excellent defined benefit pension plans (meaning we can spend
every nickel we make and still have a more comfortable retirement than most Canadians) and our unions take care of all of many of our insurance needs. On top of all this, many faculties of education across Canada do not allow economics majors in; consequently, there is no real opportunity for people who want to become teachers to attain a high level of financial literacy. What we need in order to truly commit to raising financial literacy rates is one course in each province (likely at the grade 11 or 12 level) that would focus exclusively on personal finance. Resources and professional development could be tightly focused on a group of teachers that would specialize in these areas. The development of these resources would benefit from a partnership with impartial 3rd parties such as the Provincial Securities Commissions instead of the current method of having the very corporations (major banks and insurance companies) that most benefit from Canadians’ financial illiteracy, producing the vast majority of the materials ending up in our classrooms. Talk about asking the fox to guard the henhouse! Ideally, after several years of developing some teaching expertise, experimenting with and refining personal finance curricula across Canada and ultimately reaching some consensus on what best practice regarding teaching financial literacy is, we could take the step of making personal finance courses mandatory in each province. While raising financial literacy levels might seem like an extreme goal to many administrators and bureaucrats currently in the world of education, it would be a true leap forward in terms of allowing Canadians to live higher standards of living throughout their life and to make better democratic decisions surrounding personal finance issues.
MONEY® Magazine • WINTER 2015 - 47
MONEY® FINANCIAL LITERACY
Noise, Financial Literacy and “A Plan” Written by Scot Blythe
Popular wisdom does not work for most investors - and a lot of it is dead wrong. I know because I’ve been reporting on investing for two decades and I’ve seen and heard it all. My job was – still is – to show investing can work. Yet, investors make the same mistakes time and again. Sometimes, investors buy too high and sell too cheap. Sometimes, they don’t buy at all. They chase returns; they panic. They react. They react to the gyrations of the market. But they can’t control markets. Investors can only control their own behaviour. That calls for a radical approach: a rethinking of what is meant by investment basics. Simplicity should be the watchword. But too many moving parts lead to too many mishaps. There are thousands of investment products out there. For most investors, a handful will suffice. Otherwise, there is a real danger of over-diversifying -- of duplicating investments -- and thus diluting returns. Indeed, many investors could accomplish their aims with a single balanced fund that offers access to bonds for stability and stocks for growth. For the sake of simplicity, four funds may be enough for most Canadians. A fixed income fund will provide a buffer in volatile markets and offer 48 - MONEY® Magazine • WINTER 2015
regular payments in retirement. The other three funds would buy Canadian, U.S. and international stocks to provide diversified equity exposure. That’s one reason to resist the temptation to invest in a particular sector such as oil or commodities. All trends eventually come to an end. The 1990s were a time to invest in technology. Commodities were the market mover in the 2000s, especially in Canada. It’s hard to tell what the dominant trend is now. A broad-based portfolio eliminates the need to think about it. It also focuses attention on what matters most: the return on the portfolio as a whole. If you look at the annual reports, many of Canada’s largest pension funds target a return of 4% over inflation. In some years, they will do better. In other years they won’t. These are very sophisticated organizations. In my experience, it pays to follow their lead and be cautious about what the market can deliver. After-tax return is what counts for the investor. But don’t let it drive the portfolio. Tax minimization makes eminent good sense. But some investments may not withstand scrutiny. Tax changes in 2006 have wiped out the once-popular income trust sector. In two decades of financial reporting, I’ve seen fads and crazes, booms and busts, success and failure. I’ve written about very complicated investments. However, investing need not be complicated for the average Canadian. But there’s often too much information to process, too many fears to overcome and not enough financial literacy for investors to feel they are investing wisely. Investors hear that falling oil prices mean some Canadians could lose their jobs. They know rising interest rates could mean the difference between home ownership and renting – or moving in with parents. These
are legitimate concerns. Others are less founded. Many investors, burned by the 2008-9 financial crisis, have stayed on the sidelines, opting for safety. They are afraid of a repeat of the Great Depression – though that doesn’t stop them from piling up record levels of household debt. These issues are compounded by the relentless reporting by the media on the daily ups and downs of the market – movements that in the long run that don’t really matter. There is too much noise in most business reporting. And people cling to conventional wisdom – or habits that don’t serve their own best interest. In retirement, most low-income couples will do just fine, thanks to government pensions. But large sections of the population still need to save and invest to prosper. That includes people without defined benefit pensions. It includes seniors seeing young people struggling to launch their careers and balance their debt. What they need is a plan. Four letters. Simple but hard to accomplish. Investors can devise a plan themselves or create one with a financial advisor. The plan is the foundation for everything – and blocks out the noise and unwarranted fears. A plan should set out what you have and what you need, what you can risk and what returns you can reasonably expect. There is no one plan for all. It has to be tailored to your personal circumstances, such as current savings, your aspirations, such as how and when you plan to retire and leave room for contingencies. Most Canadians do not have a plan. Maybe the future will take care of itself? But, remember, the future is now. Scot Blythe is an award-winning financial journalist.
PERSONAL FINANCES
MONEY®
Will That be Credit Card, Debit Card
or Cell Phone?
Written by Gerald Trites, FCA, CPA The recent launch of Apple Pay, featuring the use of smart phones for paying at the cash register rather than credit or debit cards, has drawn attention to this method of payment. It’s not the first such system. Google launched their Google Wallet two years ago, Paypal has had a mobile payment system in place for some time, and there are numerous other less prominent systems. Anything Apple does, it does with flair and panache and is bound to draw attention. However, since mobile payments using phones have been around for years and haven’t broken into the mainstream, there is a question of whether Apple can break through the barriers that seem to have plagued the technology. There are several barriers, a major one being the extent to which merchants support it. Mobile systems using cell phones use a technology called Near Field Communications (NFC) and while NFC capable terminals are growing in usage, they still are not ubiquitous. And not all are capable of processing cell phone payments. So there is an investment required by merchants and understandably they are reluctant to jump in unless they see a reasonable prospect of a positive return on their investment. On the other hand, interestingly enough, NFC terminals are spreading in usage not because of the prospect of using phones but because credit and debit cards that use the technology
are becoming more common. And people prefer that to the old swipe/ insert techniques. Another barrier is the availability of phones that support the service. In the case of iPhones, only iPhone6 supports the use of Apple Pay. Most users are still on iPhone5 or lower and it will take some time before they move up. Phones do offer up an advantage in security,
especially with Apple Pay. Most traditional payment systems require the use of passwords or four digit pins, an authentication system that is proven to be less than fully effective. Biometrics are much better and Apple Pay uses fingerprints to authorize purchases. So you don’t have to remember a number and nobody can copy your fingerprint. At least it’s very difficult to get it right. Credit card fraud has become such an enormous problem that some serious efforts to improve security are needed. The smart phone systems still make use of credit and debit cards but that happens in the background under the protection of another layer of security. There is an intuitive appeal to using
phones to pay for goods. But there are also intuitive fears associated with the idea. For example, what if you lose your phone? People worry about that but they also worry about losing their wallet. Another concern is that the phones depend on battery power and if the power runs out there is no way to buy anything, unless you resort to one of the more traditional systems, which could always be kept in reserve as a backup. And with the systems other than Apple Pay, cell phone service is required in order to make a payment, and that may be problematic in some cases. So the use of phones for payment is not likely to become the sole
method of payment one would rely on any time soon. To further complicate the positioning of phones in the payment space, the movement of debit and credit cards into using NFC and even in some cases biometric authentication, neutralizes some of the apparent advantages of using phones. Cards are light and compact and easy to carry around, and will likely remain a serious competitor to phones for the foreseeable future.
MONEY® Magazine • WINTER 2015 - 49
MONEY® PERSONAL FINANCES
Your family finances:
No “trivial pursuit” Written by Cynthia Kett
Are board and other group games part of your holiday gatherings? They can be fun to play, but perhaps they can teach us financial planning concepts, too. How, you ask? Jenga Imagine a Jenga tower as a 3-dimensional model of a bank account. You make “withdrawals” by removing blocks and build it up by adding them. Should you impulsively remove a block or should you be more strategic about it? Removing blocks makes the tower less stable, just as withdrawing cash from a bank account weakens it. At what point do the withdrawals, both of blocks and cash, cause the tower or your bank account to collapse? Would You Rather? “Would You Rather” can be a hilarious party game involving choices between two, often ridiculous alternatives. You can never answer with “both” or “neither”. In financial planning, the choices are real. I like to say that unfortunately (or fortunately), most of us can’t have everything we want. We have to make choices because we have limited resources. Would you rather stay in your own home or downsize and retire early? Would you rather enroll your children in private school or go on annual family vacations? You’ll have your own examples. People run into money problems when they don’t make choices; they try to have it all when they can’t afford to do so. We can teach our children about money in similar ways. If they receive gift money, they may be allowed to choose how to spend that money. You might ask them, would you rather have this item now or save for a more expensive item later? 50 - MONEY® Magazine • WINTER 2015
Monopoly
Trivial Pursuit
A well-loved real estate game whose origins are reputed to date back to 1903. At an adult’s level, you understand that rents and purchase prices increase as you move into more desirable neighborhoods. You can access equity in properties that you own by mortgaging them. However, if you wish to sell them, you must repay the mortgages before pocketing the remainder. You soon learn that unexpected taxes and costs can arise and that you need to set aside money for them.
In this game, you demonstrate your knowledge in 6 different subject areas. You win by answering a final question. In your financial affairs, you “win” by being knowledgeable about: cash management; income taxes; investments; insurance; estate planning and other financial matters. You apply that knowledge in order to achieve your financial goals. If you don’t know all the answers, you learn from others, such as financial professionals, who do. You can pass on your knowledge to your children, based on what’s appropriate for their ages.
At a child’s level of understanding, you know that you have a certain amount of money to start the game and that you use that money to buy and build on properties and to pay rent when you land on someone else’s property. You earn money by selling properties or by charging rent to other players. You soon learn that you’d rather collect money from others than pay it to them. You’re out of the game when you run out of money.
Summary Adopting a gaming perspective can make financial planning less daunting. Whenever possible, involve your children in your family finances. It’ll be beneficial for all of you!
1.
Jenga – think before you remove; rebuild methodically.
2.
Would You Rather – choose: it’s not always easy, but more so than finding yourself in debt.
3.
Monopoly – don’t buy more real estate than you can afford; prepare for unexpected expenses.
4.
Chess – plan for today and for tomorrow.
5.
Trivial Pursuit – learn about all areas of financial planning; seek independent, professional advice when appropriate.
Chess Chess requires a little more thought to play successfully. You need to think not only of your next move, but of a few moves ahead. As adults, this would be akin to not just making it to the next pay cheque, but to setting aside a little each pay for future financial goals: a vacation, a down payment on a home or for retirement. Children can be taught the same discipline through regular allowances. Paying children allowances can be helpful to both children and their parents. Children will learn how to manage their own money and parents can set limits on children’s discretionary spending. If your son or daughter asks you for something that they want, but don’t really need, you can simply say – do you have enough money saved up for it?
Cynthia J. Kett CPA, CA, CGA, RFP, CFP, TEP FELLOW OF FPSC™ distinction
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