MONEY® Magazine - Fall 2014 by MONEY®

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M A G A Z I N E THE BIG BANKS & GIC

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REVEALED SEE HOW CANADIAN BANKS RAKE IN BILLIONS QUARTERLY!

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FALL 2014

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pg. 15 pg. 20 pg. 25 pg. 47 pg. 2 pg. 6 pg. 11 pg. 22 pg. 28 pg. 31 pg. 35 pg. 46 pg. 48

Canada’s Banks are Raking in Billions Peter Lantos - Pg. 4 Do you know the truth behind the GIC market in Canada? Ian R. Whiting - Pg. 8 5 Keys to Sustaining Life Income Brian Weatherdon - Pg. 10 9 Practical Questions for Finding the Right Franchise or Why walk through a Minefield when you can go around it? Joe White - Pg. 12 SEVEN HABITS of a Happy Retirement Jim Yih - Pg. 14 A solution to refinancing if you don’t qualify in the traditional way Guy Ward - Pg. 16 Book Review: The Wills Lawyers - Their stories of money, inheritance, greed, families and betrayal Ian R. Whiting - Pg. 17 Exchange-Traded Funds Are Not Perfect Gail Bebee - Pg. 18 Why Investors LOVE Naturally Fancy Color Diamonds - Pg. 19 Has Modern Portfolio Theory (MPT) outlived its’ usefulness? Ian R. Whiting - Pg. 21 How to Enjoy the Holidays Without Breaking the Bank Tom Drake - Pg. 23 Internet of Things A New Security and Privacy Threat Gerald Trites - Pg. 24 Invest like a Venture Capitalist Steve Nyvik - Pg. 26

It’s Possible Robert M. Gignac - Pg. 27 Legacy - A Gift to Your Family Richard Atkinson - Pg. 29 Paper Money Laurie Lee - Pg. 30 Protect Yourself: A Primer on Financial Abuse and Fraud Against Senior Investors Ken Kivenko - Pg. 32 Spare Change Tammy Johnston - Pg. 33 Take Charge of your money in six weeks. Anita Saulite - Pg. 34 That generation that Just Can’t Seem to Say NO Melanie Gillis - Pg. 36 Understanding the Obstacles when setting up an RDSP Debbie Hartzman - Pg. 38 Will I Ever Be Able To Retire? Cynthia Kett - Pg. 39 Are You Getting The Full Amount of LIFE INSURANCE That You Are Paying For? Ami Maishlish - Pg. 40 Another Unique Milestone for the Edmonton Market Richard Crenian - Pg. 42 Why so much ado about interest rates? Malvin Spooner - Pg. 43 Sales Effectiveness Means Nurturing Right Habits and Behaviors Trindent Consulting - Pg. 45

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Canada’s Banks are RAKING IN

BILLIONS Written by Peter Lantos

Half of Canadian workers live paycheque to paycheque. Interest rates remain at an all time low. Yet Canadian banks are earning billions in profits every quarter. What is wrong with this picture?

MONEY® Magazine - FALL 2014 - pg. 4

anada’s economy has continued to sputter along for the last several years. Our real unemployment rate remains high. Job creation is sluggish. Our loonie is in a downward spiral. The average Canadian’s debt level continues to increase year over year. Retailers are struggling. Manufacturing is disappearing. Half of Canadian workers live paycheque to paycheque. Interest rates remain at an all time low. Yet Canadian banks are earning billions profits every quarter. What is wrong with this picture? The five biggest Canadian banks — BMO, CIBC, RBC, Scotia and TD — earned unadjusted profits totalling $7.37 billion in the 2nd quarter of 2014. That works out to about $80 million in profit (not revenue) per day! In the fiscal year of 2013, Canada’s big five banks delivered a total profit of $29.4-billion … an increase of 5% over 2012, despite the weak economy. So why are the Bay Street banks raking in these huge profits while most Canadians and small Main Street businesses are being pinched and squeezed from every direction? Do you believe the banks are looking after your best interests or their own? Banks are just like any other business; they need to grow revenue and profits to survive and to continue operating. But at what cost to its customers? In a television interview just a few months before his retirement, Gord Nixon, chief executive of Royal Bank of Canada, clearly stated that the RBC Board of Directors’ #1 priority was to provide value to its shareholders. Hmmm … what about providing value for their customers? Surprisingly, Business News Network reported (08-26-14) that “The stock market reaction to the latest batch of Canadian bank earnings suggests solid profits aren’t enough to excite investors any more, a sign that lenders must now demonstrate they can deliver sizable growth to extend their rallies”. One can only wonder how much more shareholder value the banks can provide and to the detriment of what for its customers and employees? Maclean’s Magazine reported (May 28,2014) in their article titled “The fee free-for-all at Canada’s banks” that

Let’s take a look at the profits of Canada’s top 5 banks …

Profits Q2 2014 RBC $2.37 Billion TD $2.11 Billion Scotia $1.80 Billion BMO $1.13 Billion CIBC $921 Million “Sometime soon, possibly this year, TD and RBC will each see their total assets on their balance sheets cross the $1 trillion threshold, having roughly tripled in size in a decade. (Just four U.S. banks in the giant American economy have crossed into 13-digit territory).” How Do The Big Canadian Banks Earn So Much Profit? Banks earn most of their money in three ways. First, a large percentage of their revenue comes from accepting deposits from consumers and then lending that money to individuals and businesses at much higher rates than they pay the depositors. Banks also make money by charging a wide variety of fees. And banks earn returns on investments they make. So let’s explore each of these briefly.

to as much as 20% for those loans and credit card debts. You earn $625 and the bank earns thousands.

2. Bank Fees … Banks charge monthly service fees for almost everything; maintaining your account(s), ATM fees, application fees for obtaining loans, penalties for overdrawing, NSF cheques, and on and on. While none of these fees are very large, multiply these fees by 3 to 5 Million customers per bank and the numbers add up amazingly fast. 3. Investments … As most businesses do, banks attempt to maximize profits by making their own investments in hope of earning good returns. However, banks must keep a certain amount of deposits liquid at all times and then primarily invest in loans. Any other venture must be very low-risk.

1. Deposits … The money you deposit

Are Canadian Banks Greedy?

into various accounts is what funds the multitude of loans that banks offer. From mortgages to personal loans, the bank borrows money from your account, lends it to someone else, collects interest on it and then returns a small portion of that interest to you. So how does a bank profit from interest they collect and pay you interest too? Let’s say your savings account of $50,000 pays you 1.25% or $625 annual interest. Your bank turns around and loans out your $50,000 for part of a mortgage, car loan or credit cards debt plus more from other depositors, and in turn earns several thousands of dollars in interest payments because they charge anywhere from 3%

Greed (and dare we say even corruption) dominates on Wall Street and Bay Street. Not much has been resolved since the crash of 2008 and the taxpayer’s bailout of several large American financial institutions that were “too big to fail”. Many gurus, including Warren Buffett, predict that we can expect another crisis, perhaps even worse than the one we saw in 2008. On the surface, Canadian banks appear to be much safer than their US counterparts. However, our banks benefit from significant privileges, such as deposit insurance and access to Bank of Canada funding … all supported by taxpayer money. Consequently, Ottawa could demand that Canadian banks use

MONEY® Magazine - FALL 2014 - pg. 5

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their capital to meet their clients’ needs first. According to a study by Senior Economist David Macdonald, support for Canadian banks reached $114 billion at its peak. “At some point during the crisis, three of Canada’s banks - CIBC, BMO, and Scotiabank - were completely under water, with government support exceeding the market value of the company,” says Macdonald. “Without government support, Canadian banks would have been in serious trouble.” “The federal government claims it was offering the banks ‘liquidity support’ but it looks an awful lot like a bailout to me,” says Macdonald. “Whatever you call it, Canadian government aid for the country’s biggest banks was far more indispensable than the official line would suggest.” Thirteen giant banks conspired to manipulate the LIBOR rate - a major world interest rate, which is the benchmark interest rate for $360 TRILLION in financial instruments around the world. Hundreds of traders were involved in conspiring to submit false reports to gain profits for their trading positions. The LIBOR conspiracy led Bloomberg to ask: “If Barclays would lie about its borrowing costs, what else would it lie about? The most important asset any bank has is trust -especially when it comes to the figures on its own financial statements.” Forbes questions the integrity of the entire banking sector, arguing that the poor financial performance of big banks in recent years clearly shows they are not pursuing the interests of shareholders and customers. “It doesn’t take long to figure out that the banks are being run for the benefit of the executives and traders.” While the Canadian economy continues to sputter, Canada’s six largest banks handed out $10.3 billion in

employee bonuses for 2012, ranging from small sums for retail employees to millions of dollars for top executives. That’s up about 8.7 per cent from the $9.47 billion the banks handed out in 2011. All banks deal in proprietary products; i.e. their advisors “push” their own products, sometimes without regard for whether that product is suitable for your specific needs or not and whether a better suited product may be available elsewhere. The banks are a big business and their #1 priority is loyalty to their shareholders. The banks are constantly trying to up-sell and cross-sell various products and services to you on a daily basis. Despite the fact that it is illegal, banks are also actively engaged in tied-selling; offering you a lower rate if you give them other accounts or investments; or a better mortgage rate if you move your other business to them. If you are tired of the various tactics and being nickel and dimed by the banks, perhaps you should take a look at a few Credit Unions in your area. The main difference between banks and credit unions is ownership. Credit unions are not-for-profit organisations owned by their customers (who are called ‘members’) vs the shareholder-first, billion dollar profits of the big banks. Are Credit Unions always better than the banks? Of course not, but they are gaining ground on the banks and are worth a look. There is no question that Canadian banks play a vital role; locally, provincially, nationally and internationally. Without the banks, our economy could simply not function efficiently or effectively. But are the banks getting too big and simply going too far to gain market share and profits at the expense of their own customers?

“Net Income” as stated in their annual reports?

BMO CIBC RBC Scotia TD

2012

2011

2010 2009 2008

$4.1 $3.3 $7.6 $6.5 $7.0

$3.1 $2.7 $7.0 $5.3 $6.4

$2.8 $2.2 $5.2 $4.2 $5.2

$1.8 $1.9 $3.9 $3.5 $4.6

MONEY® Magazine - FALL 2014 - pg. 7

$2.0 ($2.1) $4.6 $3.1 $3.8

Do you know the TRUTH behind the GIC market in Canada? Written by Ian R. Whiting, Staff and Contributing Editor

ack in the latter part of 2012 and into 2013, the Federal Government began investigations into pricing, yields and distribution challenges with GICs. As you would expect, there were many submissions from the major banks plus trust companies, credit unions and caisse populaires – there were a few independent submissions including one from IFDS – International Financial Data Services Canada – although most readers will never have heard of these folks. They are a behind the scenes operator who service over 50 financial clients – including Canada’s largest banks, insurance

companies and global mutual fund companies. Their systems also run global investment back offices in Europe, the Middle East and Asia. IFDS is a joint venture between global financial technology leaders DST Systems and State Street Bank.

report. It is of particular note that of the total deposits of $2.439 Trillion dollars – only $224 Billion comes through third-party dealers – in other words, independent financial advisors and smaller DTIs.

The main focus of IFDS’ report was the difference between large and small deposit taking institutions (DTIs), their respective roles in the markets, costs that impact both groups and the impact on consumers and the rates and services they receive. Interesting reading to be sure!

The next graphic gives a clearer picture of the various

Less than 10% of the total market, but an important part none-the-less.

To give you a sense of the size of the market, here is an excerpt from the IFDS MONEY® Magazine - FALL 2014 - pg. 8

parts of the GIC market and their relative contributions. As part of this information on segment contributions, more questions were raised – from what source(s) does the consumer receive the best rates – or are the rates the same across all channels? Some readers may be aware of a quoting/processing service available through

CANNEX. They are also a wonderful source of information on pricing and its’ variables. This very colourful graph shows the rate spread above offerings through the main channels. As you can see, third-party distribution rates are consistently higher than direct offerings – but the public does not seem to be aware of this fact!

want the competition – pure and simple – it is profit motive. Major DTIs have engaged in a variety of anti-competition practices including restricting access by third-party dealers to their products and also not distributing products created by the small dealers. Fairness to Canadian consumers? Large financial institutions, particularly the banks, hate regulation and anything that they perceive could have a negative impact on their earnings (or executive bonuses). They want unfettered access to the markets for themselves yet still want to be able to squeeze out competitors – all to the detriment of consumers. Here is the problem statement from the initial pages of the IFDS report. See for yourself how this plays out for consumers. Is a restricted market good for consumers or the large DTIs? Which entity should receive the benefits? My position, always the consumer and while I am not in favour of creating red-tape, but if the large DTIs don’t change voluntarily, then rules or financial penalties via our taxation system, need to be implemented. Again, from the IFDS report...

As you can see, the rate spread at various intervals has been greater than 1.8% per year. When current rates are less than 2.00% in many instances, this gap that favours third-party distribution is an opportunity for these distributors including independent advisors. So why is this such a big secret? Major DTIs don’t

Are these results bad for the large DTIs? Are they good for consumers? Can they be good for both parties? A final excerpt from IFDS’ report... Can you afford to accept 40% less on your rate of return by buying in-house from DTIs? Are third-party dealers and independent advisors a better alternative? You be the judge!

MONEY® Magazine - FALL 2014 - pg. 9

Keys

to Sustaining Life Income Written by Brian Weatherdon

voiding the painful heartbreak and worry of lost wealth in senior years is vital to us all. Life doesn’t end and bills don’t stop if you run out of money. I felt such loss among friends when I was a Christian pastor until 1995. Since then I’ve identified and shared five primary keys or “Life Income Mandates” to confidently sustain ongoing income for life.

In outlining these mandates I purposely leave discussion and implementing these mandates to you and your advisor. I’m not saying which securities or funds you’d specifically own. As you grasp these mandates, these keys, consider how you will move forward on your own or with a certified advisor to guide your way.

Dividend Income and Growth

You’ve heard of “widows’ and orphans’ stocks”. Such a phrase refers to investments that generally show high net earnings. Part of the earnings is paid as dividends to the owners. Remaining earnings continue to build the business and its value. Perhaps you’ll think of financial, energy or other firms that are renowned for rising earnings and paying strong dividends. You can also find managed funds which accomplish

similarly, perhaps with a wider international perspective, even with an all-cap (all-size) strategy. If results over time can offer 6% to 10% or more, would this help you face the future with greater confidence? You need life income. Rising dividend income can help!

Real Estate Income

You’ve heard they’re not making any more real estate. Other than your home, do you own any income-paying real estate? Someone recently declared they turned $3M into $50M with real estate, but more often, land itself may grow nearer the rate of inflation. So ideally what you want is to focus on “income generation” from four particular kinds of real estate: (i) residential rental, (ii) commercial industrial, (iii) commercial retail, (iv) commercial office. Owning just one sector would risk occasional and sizable losses. Focusing on just one country or region holds risks that we can reduce with international exposure. If you use a fund or pool which diversifies sectors and geography, you can over many time periods find results of 6% to 8% or more, helping secure your wealth and lifelong income planning.

Infrastructure Income

Toll bridges and highways, airports and shipping terminals, pipelines and energy transmission, hospital parking, plus in some countries even prisons, water treatment and certainly global telecommunications all produce regular income. What blends these and many other forms of infrastructure is that they pay income to the ultimate owners. We’re told this is a $20 Trillion sector worldwide today, needing $20 Trillion refurbishment and $20 Trillion further development. In our lifetimes this may become $60 Trillion of globally diversified projects that pay rising income to the owners. Overall risk of a well diversified infrastructure mandate may range near ¼ of the stock market, yet pay what you’d expect from real estate and dividends. (More at: http://guaranteedincome4life. ca/blog/infrastructure-income-helpssecure-income/)

Fixed Income

Gone are the 1980s/1990s when bonds could pay double-digit income. 30year bonds near 3% will pay zero after inflation – minus the capital losses when interest rates rise. Key risk here

MONEY® Magazine - FALL 2014 - pg. 10

is running out of money, collapsing your entire wealth! With fixed-income at rock-bottom rates, will you seek higher coupon from corporate bonds? …from foreign governments? …from “high-risk” entities with lower investment ratings? Some strategic teams can combine these strategies to sustain good income while reducing many layers of risks in today’s fixed-income markets.

Life Pay-out Annuities

My own opinion is that Life Annuity strategies work best in our 70s when “mortality credits” can best supplement your income and guarantee it to age 150! An insurance-licensed advisor can review this and other insured strategies that support your income when you need it most. This 5th mandate further moderates any risk in the above keys, and can offer 100% guarantee that you will never outlive your income. An oftmissed bonus is that the Life Annuity can pay beyond death of the annuitant, continuing the high income stream for example to spouse, children, or one’s chosen charity.

Power of 5 Life Income Mandates Each mandate holds risks, yet together these confidently support life income. With professional advice you will gain clear and specific insight to implement these strategies uniquely for your own personal needs. I developed this approach over the past 15 years and it is also now being used by various national and industry pension funds. There is no vast secret to these mandates. If you look back 100 years or go forward 50 years, I’m confident you too will prove that these Life Income Mandates reduce the risks of outliving wealth. Designed for personal needs and circumstances, our approach will truly guarantee an income for life.

Brian Weatherdon, MA, CFP, CLU, CPCA, of Sovereign Wealth Management Inc., is a financial advisor representing Freedom 55 Financial, a division of London Life Insurance Company and a range of financial companies. He can be reached at 905-637-3500, ext. 223, or by email to brian@ sovereignwealth.ca. Further educational resources atwww.GuaranteedIncome4Life.ca. The information provided is general in nature, and should not be relied upon as a substitute for advice in any specific situation. For specific situations, advice should be obtained from the appropriate legal, accounting, tax or other professional advisors. The views expressed are those of the author and not necessarily those of the issuer of any financial products for which the author may act as a distributor.

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Volume 12, Number 14

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Issue #1414

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The new normal

REITS are a special breed

Go West

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

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

Housekeeping

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

July 31, 2014

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

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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. EXCLUSIVE MONEY® CANADA LIMITED OFFER!!!

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

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

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

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

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

Cash or canned goods?

Russian turmoil hits Europe

• Special bulletins when major events occur.

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

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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%.

• Top investment experts like Irwin Michael, Tom Slee, Glenn Rogers and Gordon Pape.

Members’ Corner: Cash in Chou Funds

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

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

At least one big financial firm, Goldman Sachs, believes that this could be the real thing. If not, it will hit soon. In a research report, the influential Wall Street company downgraded its short-term (three month) rating on stocks to neutral. The research team was also negative on bonds, which it said could be heading for a sell-off that would impact the stock market. "We are concerned that a sell-off in government bonds will lead to a temporary sell-off in equities in line with what we saw last summer, though the magnitude is likely to be smaller as the need for bond yields to correct is lower than it was back then," the Goldman Sachs team said. In reaction, RBC Capital Markets commented that the analysis means “cash and canned goods are the only compelling investment options”.

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Goldman Sachs still believes that stocks are the best place for money over the next 12 months “by a wide margin”, predicting a gain of 10.5% for the S&P 500. But the near-term outlook is for a return of just 1.8% between now and the end of October. So what are we to do with this forecast? If we assume Goldman Sachs is right, the instinctive reaction would be to sell all stocks and bonds and sit in cash (canned goods are much less practical). But that would be both irrational and very expensive. All the sales would attract brokerage commissions, as would the repurchase later. Moreover, selling would trigger capital gains, creating a hefty tax burden for next year.

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

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9 Practical Questions for Finding the Right Franchise

Why walk through a Minefield when you can go around it?

Written by Joe White

he day has come, or even more likely it has been forced upon you because of an employment change, and you decide to venture into the world of entrepreneurship. You know lots of people run businesses and they seem to be doing okay. You say to yourself, “I believe I can do that, I have the background and knowledge to run my own business. I have watched my employers make money on my hard work. If I did run my own business I would never have these gaps in employment going from job to job and contract to contract along with the shrinking salary base. I could control my own life and destiny and manage my time the way I want, and be free of the corporate politics. I can do it!”

to uproot my family, I am going to be making less money,” or even worse you may be facing the hidden prejudice of ageism.

Your thoughts turn to starting a business from scratch. It sounds perfect, but you soon realize that this may be too much to handle and more than you thought. Your questions move to funding, marketing, sales, location, product, technology, customer service, staffing, surviving, and much more. You become overwhelmed and the dream fades yet again. You decide to move back into seeking employment and the hard realities of finding employment that pays you what you are worth, starts to bite. “My resume is incomplete, my skills are not what the employers are looking for, I do not want

These are the common circumstances that most people face when they start looking for a franchise business. They start with the list and make assumptions based on preconceived ideas that may not be valid. Are they missing the right opportunity? The problem is that they started in the wrong place. They look at list and try to fit themselves into the list. They have already given up the search agenda to a list and this represents the biggest mistake people make when investigating franchises. Let me share where you need to start.

Then you ask yourself why not explore what the franchise world has to offer. You know it allows you to have all the freedom you wanted in business ownership but the support that you will so desperately need to build a business. You begin the search on line and are overwhelmed and not sure where to start because there are so many choices and so many types of franchises. What is right, and how do I know this will work for me? This is your first foray into looking for a franchise so what do you need to do?

MONEY® Magazine - FALL 2014 - pg. 12

It starts with you!

Here are 9 practical questions to use when looking for your perfect franchise business.

1. Why are you exploring owning

a franchise? It could be for any number of reasons from replacing income to adding income, to helping a family member, to gaining control, to having fun, to proving it to yourself that you can do this. Look at Tim Leiweke of MLSE who at age of 57 feels the need to prove he can run his own business. Find your reason.

2. What Financial return will my

Business have to deliver and when? Know your income expectations and be realistic, after all you are starting a business. Is it part of your financial and retirement plans? How much time are you going to commit to the business? Will your family be involved and will you be building equity. How much real time do you have before the business must make money? When do you want to start?

3. How much can you afford to invest?

You need to be painfully honest. You may have to forgo some things in the short term to get to where you want

to be long-term. What financing vehicles are available for you to use? How will you sustain your base financial needs during the business ramp up? The key to failure in any business is to be underfunded. If you run your business looking behind you for money you will never go forward. Do these parts carefully and with deep thought and you will be properly grounded in the final outcome.

4. What activities do you want to be

doing long-term in your business? If you are a financial wizard and love to work with numbers and analyse, you probably should avoid things with a high direct sales content. Look at your past and determine what you were really happy doing at work and this should provide the clues to your long term role in your company. The chances of success will go up greatly if you are doing the things you love to do. How are you going to manage having someone doing the things you do not like to do? Starting a business takes time money and personal commitment and sacrifice so you better make sure you love getting out of bed to go do it. Remember it is your business to run and grow.

5. What are the different types of

franchise categories that interest you? Do you like retail and the idea of only a single or multiple unit business? What about food and do you want family dining or a quick-serve restaurant or a specialty food store? What about business to business or home service or automotive franchise systems? What about something totally unique? Learn the elements of these models and start to plug yourself into them financially and emotionally.

6. With what type of Franchisor do you want to partner? Do you want the newest, hottest trend or should you seek out the more established or emerging concepts? This is really a measure of your risk tolerance.

7. What do you need know about the

support and train you? How will they help you market the business? What is the technology involved? Will they Mentor you? What is the reputation of the company? Will the business continue to evolve? Will they select you or sell you a franchise? How will you be certain they will deliver? Get prepared for your due diligence now.

8. Who will you seek as advisors

to help me in your Investigation process? Will you use an independent advisor to assist you and what are his or her qualifications and experience in franchising or will you do this on my own? Do you need a franchise lawyer? What is the right business structure that will allow maximum profitability and protect your personal wealth? Who will help you with the business plan? Who will be your accountant? From whom among friends and family will you seek advice and why, what expertise are they bringing that you need to hear. Now you can look at your List and can narrow your decision and pick the franchise categories that fit the criteria that you have created. You are now in control of the program. In the end it comes to this last important question when you finally are making that decision to strap on the boots of entrepreneurialism through franchise ownership.

9. Can you see yourself running,

building, succeeding and enjoying running your business? If the answer is yes, do not let fear hold you back from your goal of business ownership. You have done the research you are ready to begin. Make sure your search is complete and the decision to move forward will be easier if it is well planned.

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

“Success through knowledge”

franchisor? How will they help you build your business? How will they

MONEY® Magazine - FALL 2014 - pg. 13

SEVEN HABITS of a Happy Retirement

Written by Jim Yih

So often, questions about retirement centre around money. While money is definitely a key factor in retirement planning, it is only one piece of a much bigger picture. I’ve talked to a lot of retirees in my career and, when it comes to those who are truly enjoying their “golden years”, I’ve noticed that there are similarities in the ways they have approached retirement and most interestingly, most of their success is not all about the money! Here’s my list of seven habits that are key to a happy retirement.

Stay Busy

The happiest retirees I meet tend to be the busiest. I’m sure you can think of many retirees today that are busier in retirement than before they retired. Rather than sitting around wondering how to fill all those hours between breakfast and dinner that used to be taken up with working, happy retirees spend their days doing the things they love to do. Whether those things are home-based such as cooking, reading, crafting or gardening or based outside the home such as spending time with friends or traveling doesn’t really matter. Staying busy gives a purpose to each day and gives you things to look forward to.

Develop a Healthy Lifestyle

Many studies have shown that the human body is better able to repair and maintain itself when you keep it well conditioned through good nutrition and regular exercise. This is especially important for retirees. A lot of age related problems such as muscle loss, deteriorating bone density and declining strength and flexibility can be combated through regular exercise and it’s also been shown that exercising boosts your mood.

Whether it’s walking, cycling, yoga

80% Routine and 20% Impulse

Routine becomes increasingly important you age and move further into retirement. Routine gives structure and simple habits such as a weekly club meeting or a monthly dinner date with friends can make retirement more enjoyable. Routines and structure give you things to look forward to. As important as routine is to retirement, it is also important to step outside of that routine and try new experiences. Spontaneity adds an element of fun to life and, if retirement is a reward for decades of hard work, it’s only fair to incorporate a healthy dose of fun into the mix.

Talk to People Every Day

Often, one of the biggest challenges for new retirees is leaving behind a busy work environment filled with opportunities for social interaction. Human beings are social by nature and even the most introverted person needs the energy boost that comes from interacting and talking with others. For some, it can be hard to build a social network in retirement but whether you’re chatting in person, over the phone or via the internet, it’s important to find a way to interact regularly with others.

Volunteer and Give Back

The beauty of volunteering is that it is often just as rewarding for the volunteer as it is for the organization that you are helping. Whether you have time once a month or several times a week, chances are there’s a volunteer opportunity that’s perfect for you in your local area. Volunteering can be an opportunity to share your expertise or to learn new skills and it often provides the added benefits of exercise and social interaction that are so important to good health in retirement.

Live Within Your Means

Financial stress can be debilitating. It can be especially hard in retirement when taking on a part-time job to relieve the pressure may not be an option. A key component of good retirement planning is to establish how much money you will have coming in each month and a key component of good retirement living is not to spend more than that amount. This is especially important in the early years of retirement when investment and savings accounts look extremely healthy.

Automate Your Income

Managing income or paying bills automatic, can be powerful because it takes the responsibility for remembering out of your hands. It also helps ensure that your financial goals don’t get derailed by a poor memory, a great opportunity or a bargain that was just too good to pass up. Automating income in retirement allows you to create a regular income stream that meets your needs and it reduces the risk that you will spend more than you planned to without realizing. In the same way that each of us is an individual, so each person’s experience of retirement is an individual one. What makes retirement happy may vary dramatically from person to person but I believe each of these habits can definitely make our retirement years more enjoyable and more rewarding.

or something else altogether, even a small amount of activity every day can make a huge difference.

Jim Yih is a best selling author, fee only financial advisor, a professional speaker and the founder of the award winning blog RetireHappy.ca. You can find him on twitter @jimyih.

MONEY® Magazine - FALL 2014 - pg. 14

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Stock Update

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Innovation for Financial Services Montréal, October 16 & 17, 2014 Palais des congrès de Montréal November 16-22, 2014 is Financial Planning Week Across Canada Now in its sixth year and an integral part of Financial Literacy Month, Financial Planning Week is part of an ongoing effort by Financial Planning Standards Council (FPSC) and the Institut québécois de planification financière (IQPF) to raise awareness of financial planning as fundamental to the financial well-being of Canadians.

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A solution to refinancing if you don’t qualify in the traditional way

ew mortgage rules have definitely had an impact on new home buyers, but those with an existing first mortgage who want to refinance might be in for a surprise. At renewal time, you have the option of increasing your mortgage to consolidate debts, for example, or for home improvements or keep the mortgage amount the same and continue to pay it down. In both cases, it’s best to shop around to see if there is a better rate or a better mortgage product. Lifestyle goals often change and your current mortgage, as is, may not be suitable anymore. But here’s the challenge – if you switch lenders for a better rate, or if you want to change the amortization or refinance with your current lender, then you must re-qualify. There are two ways you can help give yourself the best opportunity to qualify – don’t have excess debt and have equity.

Written by Guy Ward •

Here are few scenarios you may find yourself in when deciding to switch lenders or refinance: • Switching lenders to take advantage of a better rate. • Most lenders will take your mortgage as-is as long as it’s not tied to a line of credit and there are no increased risks, meaning, no changes in amortization or increases in the amount of the mortgage. But, if it means your housing expenses or gross debt service increases to higher than 39%, then you may only be able to stay with your current lender. You’re potentially stuck with the term and rates. • Penalties can be high. • You opted for a relatively-high fixed rate and you’re two years into the mortgage and rates have come down substantially. You want to break your mortgage and get a new one but the penalties are high. • New ratios will impact your ability to get approved. • The mortgage rules changed the qualifying ratios that traditional lenders use. So, if you are carrying a high debt load, then you may not qualify. • Your line of credit and changing your lender. • Rules for home equity lines of credit (HELOCS) have changed dramatically. No longer can you borrow up to 80% loanto-value (LTV). The max amount you can access as a revolving line is 65% LTV. • Thinking about refinancing to consolidate debt? • Think again. Your insured mortgage can’t be more than 80% LTV. If you don’t have a lot of equity yet, it may not happen.

MONEY® Magazine - FALL 2014 - pg. 16

Despite these scenarios, there are solutions. For example, breaking your mortgage for a lower interest rate may save you money over time and may be worth it. Also, if you have substantial equity in your home, getting a HELOC may be a good way to access funds to pay off debts. Each client has different needs and different financial goals. Yours is a unique situation and needs a tailored solution. A broker can help. Professional mortgage brokers have access to traditional and alternative lenders – some with less stringent qualification guidelines.

Guy Ward is a Mortgage Broker in Calgary, Alberta with TMG (The Mortgage Group Alberta). WWW.GUYTHEMORTGAGEGUY.COM

Book Review

If you love or hate your family... Read this book!

THE WILLS LAWYERS Their stories of money, inheritance, greed, families and betrayal Written by Ian R. Whiting, Senior Editor

Available at:

www.thewillslawyers.com

arry Fish and Lex Kotzer have done all Canadians a great service with this book – and there is a touch of humour amongst the angst and situations revealed. The vignettes are easy to read and understand – they speak the truth about families in time of loss. All of the situations are actual cases with names changed to protect the “guilty” – and that makes them all the more memorable. #10 – “Goin’ out in style” – brought to mind some of my own experiences with people who “put on the Ritz” at someone else’s expense and the truth is never known outside a tight family circle. Keeping up an image gets more expensive all the time! “I fought back” brings the truth about the effects of financial abuse of the elderly – usually parents. Physical and emotional abuse are usually noticed by others but financial abuse can hide for decades. Readers need to be aware of the horrendous cost (other than financial) to the victims of financial abuse. And several stories here make the point very well. The “Un-will-ing” narrative caused me to laugh out loud at the thought of Clement using his will to make some excellent points with in-laws and so-called friends – it was perfect! “Wills as a weapon” has a similar tone and story – wills can become messages from the hereafter MONEY® Magazine - FALL 2014 - pg. 17

to the living and sometimes the lessons are bitter. Living Wills or Substitute Decision Agreements or Representation Agreements – a rose by any other name – a critical part of the estate planning process don’t escape this review. “I heard my mother’s words” is a poignant story that regrettably is repeated daily in thousands of hospitals across Canada – if this doesn’t cause you to think and then quickly act, it is hard to image what will. “The first wife” brought the laughter back – maybe a lot of truth in this one! “The Hospital visit” evoked another round of chuckles – and you can see it happening which makes it even better! And “The last wish” has the perfect timing you can sense was coming! “The code” was a tough one to read – the impact on children is beyond words and I have had the same reaction working with clients in this type of situation. In short – every lawyer and notary that handles Wills and Estates needs to read this book – objectively. The same applies to financial advisors – everyone needs to be aware of the issues that can and do arise and take appropriate steps to help their clients avoid such situations. Bankers are also advised to set aside some built-in prejudices and learn more about helping their clients too!

EXCHANGE-TRADED FUNDS ARE NOT PERFECT!

ou’ve likely heard the pitch: Exchange-traded funds are cheaper and deliver better returns than most activelymanaged mutual funds, so stop buying mutual funds and just invest in a portfolio of index ETFs. While ETFs have much to commend, they are by no means perfect. In my view, the less positive aspects of ETFs have not received the attention they deserve. In the spirit of improving your ETF decision-making, the following list highlights some of these.

By GAIL BEBEE the S&P 500 Index. As such, ETF investing gained the reputation of being quick and easy. Today, the definition is much broader. An ETF is an investment fund that trades on a stock exchange. The ETF choice is huge with more than 1,500 ETFs listed on Canadian and U.S. stock exchanges and new funds popping up regularly. Similar funds are available from more than one sponsor. Management expense ratios vary significantly among ETFs with similar objectives. There are ETFs that inhabit every sort of investing niche, even exotic strategies such as alternative, leveraged and inverse returns investing. Some funds are actively managed and do not track an index. ETF funds of funds are available.

1. ETFs are marketdriven financial products.

There is much for an investor to consider when shopping for an ETF.

Like mutual fund companies, ETFs manufacturers market their products and follow the laws of supply and demand. They regularly issue new products which pander to the latest investing trends and close down duds. To wit, more than 140 exchangetraded products hit the US market in 2013 and 65 funds were terminated.

3. An ETF will not deliver the same returns as its benchmark index.

Sifting out the marketing buzz is part of the investing process, be it ETFs or any other type of investment.

2. Choosing the right ETFs to create a portfolio to meet your goals requires time and effort. As originally conceived in the early 1990s, an ETF was a passively managed fund that traded on a stock exchange and sought to replicate the returns of a well-known benchmark index such as

For a variety of reasons including fund expenses, taxes, exchange rates and methodology for replicating a benchmark index, an ETF’s performance will be less than its reference index. Small deviations are to be expected, but relatively large tracking errors, especially compared with similar ETFs, are a warning sign that something is amiss with management of the fund.

4. ETFs are only as liquid as the underlying assets. Liquidity is touted as one of the benefits of using ETFs. However, an ETF is only as liquid as its underlying assets. If one or more constituents of an ETF’s benchmark index rarely trade, the ETF could

have liquidity issues. An illiquid ETF has a higher bidask spread and may trade significantly above or below its net asset value (NAV). These situations can result in lower profits – for example, if the ETF purchase price is above its NAV, a buyer is overpaying for the assets she is buying.

5. An ETF is a slave to the index it tracks. The assets inside an index ETF are rigidly defined by whatever index it tracks. Depending on the index, this design can be a recipe for undesirable results. For example, when BlackBerry stock fell 26 per cent on June 28, 2013, the S&P/TSX Capped Information Technology Index Fund, which at the time consisted of almost 20 per cent BlackBerry shares, dropped 8 per cent. Understanding how an ETF is constructed must be part of ETF research before purchasing.

6. You will own some investments that you don’t like. An index ETF owns shares of all the assets in the index it tracks, even ones you may not want to own. A nuclear energy opponent will own a piece of uranium miner and nuclear industry supplier Cameco if you buy an ETF that tracks the S&P/TSX 60 Index. That same index includes shares of SNCLavalin Group Inc., a company that some might consider a poor investment because of allegations of corruption. There is no easy way to get around this issue. While all the holdings of an ETF may be acceptable when you buy, this could change in the future because of the fund’s design.

MONEY® Magazine - FALL 2014 - pg. 18

7. Commissions will eat into your profits. Everyone gets paid for their work. Buying or selling an ETF usually involves a commission. These costs lower your returns and are a major profit drag on smaller-sized purchases. Lower-cost discount brokers and dividend reinvesting can reduce the commission hit. Some online brokers offer a lineup of commission-free ETFs. However, the selection is limited and minimum purchase and holding requirements may apply. Don’t let the fact that an ETF is commission-free drive your purchase decision. You might save a few bucks, but are unlikely to make the best choices. Remember, there is no such thing as a free lunch.

8. There is an art to buying and selling ETFs. Pricing anomalies can occur in the ETF trading world. For example: • At the beginning and end of the trading day, ETF prices may vary from underlying NAVs. • In times of market turmoil, an ETF’s prices may be more volatile than its underlying index. • Thinly traded ETFs can have large bid-ask spreads. • You must learn how to buy and sell ETFs, to avoid overpaying in such situations. Here are some of the basic rules of ETF trading. 1. Always use limit orders. 2. Do not trade in the first and last minutes of the trading day. 3. Trade an ETF when the market for its underlying assets is open.

WHY INVESTORS

LOVE

NATURAL FANCY COLOR DIAMONDS T

oday’s investor is looking to diversify their portfolio with alternative hard assets as a way to protect and grow their wealth. Many have turned to color diamonds for the multiple benefits this investment has to offer. Natural fancy color diamonds are exceedingly rare. It is this rarity, paired with increasing worldwide demand particularly in emerging economies, that continues to make this a very exciting market. Of the millions of carats of white diamonds mined each year, only one in ten thousand will be considered a natural fancy color diamond, but this does not mean it will be of investment quality. In fact, the quest for a high-end quality color diamond is much more challenging. To add, many mines are closing due to depleted diamond finds and that means even fewer will be coming to market. In the last decade the global media has cast attention to record breaking coloured diamond auctions. These sales of stunning multi-million dollar coloured diamonds further demonstrates the desire of the high net worth investor to own and invest in this market. In fact,

smaller investors are now looking at $20,000 investments and up, for part of their children’s education funding or as part of their retirement strategy. “Due to ever increasing demand, we have seen certain vivid yellow diamonds appreciate 35% per annum.” says Jeremy Wiseman, Vice President of Guildhall Diamonds Inc. “VS Pink diamonds are also currently on most collectors wanted lists for their unparalleled beauty and consistent gains” Wiseman adds. Color diamonds are an easy investment to make. No maintenance, no monthly fees, no ongoing commissions and no bureaucracy. They can be stored in a home safe or safety deposit box, or made into a custom piece of jewelry to be worn and enjoyed. They are portable and insurable, and most importantly, rare. These qualities make color diamonds a wise addition to many investors’ portfolio. To enjoy the best increases in value, potential buyers need to purchase diamonds that are considered “investment-grade”. When searching for a color diamond that meets investment criteria, the field narrows significantly.

MONEY® Magazine - FALL 2014 - pg. 19

As one of the leading investment firms, Guildhall Diamonds Inc. assists their clients to purchase only the finest investment-grade color diamonds. “Our mandate is to only seek out and acquire the most special investment-grade natural, fancy color diamonds available. This takes away the guess work that most people experience when buying on their own. Our clients have come to rely on us when building their collections” says Wiseman. In today’s investment market, with potential stock and real estate bubbles looming, a hard asset such as color diamonds is an attractive alternative. Whether it is for pure luxury or multigenerational wealth, owning one is a beautiful choice for today’s investor. Visit the collection at: www.guildhalldiamonds.com 100 Allstate Pkwy, Suite 301 Markham, ON

1-866-274-9570 | 905-305-8422

MONEY® MAGAZINE

MEDIA RELEASE For Immediate Release

Guildhall Diamonds Inc. Announces Upcoming Investing Seminar November 8, 2014 Toronto, Ontario – October 10, 2014 – Guildhall will be hosting their hard asset seminar on Saturday, November 8th to help investors learn more about natural fancy color diamonds. The seminar will include the fundamentals of color diamond investing and the necessary steps on how to select an investment-grade natural fancy color diamond.

Date: Saturday November 8th Time: Registration 10:45 AM Seminar 11 AM to 2 PM Location: The Delta Hotel & Conference Center 6750 Mississauga Rd, Mississauga North Studio 1 Free Parking and Complimentary Refreshments Attendees must register in advance to

The Guildhall collection features a wide variety of Yellow, Pink, Blue and Green diamonds. Each diamond is of the finest color, cut, and clarity grade. GIA Grading Reports are provided with each diamond and independent appraisals. Guildhall Diamonds Inc. specializes in catering to the needs of both the diamond investor as well as the discerning individual looking for the unique beauty of color diamonds. With access to unparalleled resources and expertise, Guildhall Diamonds is a trusted partner to global investors and collectors alike.

Comprehensive reserve a seat. Seating is limited. information on how to For more information, or to reserve seats call buy premium investmentgrade natural fancy color 1-866-274-9570 or 905-305-8422 or register diamonds is difficult to online at: find. That is why Guildhall http://www.guildhalldiamonds.com/ offers these seminars to media-events/seminar/ collectors and first-time buyers looking for an Guildhall Diamonds alternative asset class. sources and supplies Each attendee will receive exclusive beautiful and investment-grade natural fancy a free investor information guide about natural fancy color diamonds available worldwide. The corporation color diamonds to keep for reference. serves its clientele with a recognized dedication to excellence and attention to detail by offering a boutique handpicked collection of investment-grade color diamonds. For more information please visit:

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“Appreciation for the quality of these color diamonds is key, because this is how investors will be able to realize returns. Our seminars have been tremendously successful over the past few years because we provide the necessary information for first time investors.” says Paul Wiseman, President Guildhall Diamonds Inc.

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Robert Para VP Marketing – Guildhall Wealth Management Inc. Tel: 905-305-8422|866-274-9570 Email: robertp@guildhalldiamonds.com

MediaRelease.ca

Has

Modern Portfolio Theory (MPT)

outlived its’ usefulness Written by Ian R. Whiting, Senior and Contributing Editor

n the early 1950s, Dr. Harry Markowitz was awarded the Nobel Prize in Economics for his work in defining the relative relationship between risk and reward when analysing investments. Considering that he did all of this work without the benefit of modern computers, this was truly groundbreaking research – and up until recently, has stood the test of time. MPT evolved into a resulting concept of plotting investment portfolios along an “Efficient Frontier” based on Harry’s formulae. The theory is that each point on the curve of the Efficient Frontier represents the greatest potential return for a given level of risk acceptance. However, is it still valid today? I am not going to go all mathematical on everyone – I assure you – but the relationships charted and modeled by Dr. Harry were from the late 1940s and early 1950s. I think we can all agree that the economic environment today is vastly different in size, scope, volume of transactions, new products, regulation, more exchanges and other factors such as the use of arbitrage to name but one. While I still believe there is a correlation between risk and reward, I am having increasing doubts that this relationship can be accurately modeled any longer. Again, to avoid going into crazy formulas few would even try to follow, I decided to examine how some very large portfolios are being managed – such as the Canada

Pension Plan, the Ontario Municipal Employees Retirement System (OMERS) and the Harvard University Endowment Funds. All of the data for these funds is publicly available – very easily too – and all make very interesting reading. To quote from the OMERS website: Investing Globally - “Our goal is to diversify OMERS assets on a global basis to capture investment returns from economies that move on a different cycle than the Canadian economy and to reduce the home market bias of “too many eggs in one basket” (recognizing that Canada is less than 3% of world investment markets).” http://www.omers.ca/investments/ about_OMERS_worldwide.aspx Their investment report goes on to say “In order to satisfy its obligations and secure the pension promise, OMERS has implemented prudent and evidencebased investment strategies in public and private markets that target positive absolute returns.” The CPP Investment Board (CPPIB) 2014 Report states: “Our distinctive investment strategy, known as the Total Portfolio Approach, ensures that we can maintain – or deliberately change – targeted risk exposures across the entire portfolio….” http://viewer.zmags.com/ publication/37dab3ed#/37dab3ed/2 The Harvard Management Company (HMC) report for 2014 includes the MONEY® Magazine - FALL 2014 - pg. 21

statement: “The Policy Portfolio differs from a traditional stock/bond portfolio, including allocations to less-traditional and less-liquid asset categories, such as private equity, real estate, and absolute return strategies.” http://www.hmc. harvard.edu/investment-management/ policy_portfolio.html All of HMC’s investment decisions also follow the United Nations Principles for Responsible Investment (Socially Responsible Investing in other words).

None of the reports mention a single thing about MPT. So, I decided to take their portfolios and plug them into an Efficient Frontier calculator – guess what? None of the portfolios from these wellknown, and arguably leading, investment management teams fit anywhere close to the EF curve! The largest distance, interestingly, was HMC. This is a blog – not a research paper to be sure – so I won’t bother including the graphs and numbers. To really understand this you need to do your own research and analysis – don’t take anyone’s word for it – you need to take personal responsibility in the management of your investments. But don’t let an advisor push a bunch of graphs and numbers under your nose and quote MPT and the Efficient Frontier – they are both more than 60-years old and they do not take into account the realities of markets in 2014 and beyond!

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How to Enjoy the Holidays

Without Breaking the Bank Written by Tom Drake

s we move into the holiday season, it’s common to feel a little financial stress — or a lot of financial stress. There always seem to be a lot of spending during the holiday season. Parties, presents, and more place demands on our pocketbooks. The good news is that you don’t have to break the bank to enjoy the holidays. Here are some tips to spend less:

Plan Ahead No matter what spending event is coming up, one of the best things you can do is to plan ahead. Start early to set aside money for use during the holiday season. The earlier you start, the better off you will be. If you really want to stay ahead of the game, start a holiday account and put money in it each month. If you know that you are going to need about $1,000 to get through the holiday season, set aside $100 a month from January to October. Then, when the holiday season starts, you’ll already have the money you need, and you won’t have to worry about getting into debt for the holiday season. This planning ahead can also take the form of buying what you can throughout the year. Rather than trying to buy presents all at once, keep in mind what your loved ones are likely to enjoy. When you see it on sale, you can buy it while it costs less. Buy decorations for next year during the Boxing Day sales, when everything is cheaper. As long as you have a place to store these items, it makes sense to plan ahead and save money, rather than rushing around during the holiday season.

Get Creative About Saving You can also get creative about how you save money. Too often, we get caught up in the way we’re “supposed” to celebrate the holidays, and we forget that we can do what works for us. However, you don’t have to celebrate holidays the way you are told to by society. You can get creative about the way you celebrate. Here are some great ways creatively save money during the holiday season: • Gifts: Rather than giving things, consider organizing gift-giving around other principles. Have a “homemade” gift exchange, in which everyone makes something to provide during the holidays. It’s also possible to draw names out of a hat, and have all involved get a gift for one person, rather than trying to buy gifts for everyone.

jar or bowl filled with pine-cones can be a simple decoration that costs very little. The Internet is full of attractive DIY decor ideas that cost practically nothing. Once you step back, and realize that you don’t have to turn the holidays into a costly observance dictated by what’s “normal”, you might be surprised at how little things can cost.

Talking to Your Loved Ones In some cases, your determination to save money can cause a little stress in your relationships with loved ones. In most cases, though, this can be got around by being straightforward. Offer your alternatives to the “normal” way of doing things, suggesting that you shake things up and start new traditions. Talking about your family’s desire to be less material, and to focus more on building relationships with loved ones, and making the holidays less stressful, might even spark an interest in others to take a step back and change the way they approach the holidays. Be honest about how you are changing the focus for your family, and do so without being condescending, and there is a good chance that others will understand and respect your decision.

• Food: Consider putting together potluck holiday dinners. Everyone can bring items to share, rather than relying on one person to host everything. That eases the financial burden on everyone involved. For more expensive entrées, such as meat and drinks, it’s possible to make assignments to more than one person. A holiday party can be a lot of fun when you use a potluck approach. Tom Drake is a financial analyst and personal finance blogger living in Edmonton, Alberta. • Decor: You don’t have to buy He writes at CanadianFinanceBlog.com all of your decorations. You and BalanceJunkie.com. can make some of your decor on your own — and it doesn’t have to be expensive. You can even use items found in nature. A glass

MONEY® Magazine - FALL 2014 - pg. 23

Internet of Things A New Security and Privacy Threat Written by Gerald Trites

he growing trend towards smart appliances and other things is raising many concerns about security and privacy. We are seeing many things being connected to the internet, including cars, home security systems, refrigerators, ovens, wristwatches, clothing, furnaces – the list goes on. Many of these items connect through the internet using the central modem located in a home. While some of the latest modems have relatively advanced security, many of the older ones, have little or none. If they have any security, it is often very poor. That’s not the entire scope of the issue. Most security systems rely on passwords, which unfortunately is known to be a poor way to provide protection from intrusion, but remains the most common method by far. Many organizations are now stressing the importance of developing passwords that are complex, containing letters, numbers, characters, capitals and lower case, etc. These passwords are hard to guess, but also virtually impossible to remember, which means most people do not use them. And if they do, it’s with the help of a password management system, which stores passwords for particular purposes. They often represent a security vulnerability in themselves. To make matters worse, the things being connected often make use of a simple passcode. Most home security systems, for example, employ an eight digit passcode to gain entry into the home. Some of the devices will accept short passwords like 1234. These are obviously very easy for a hacker to guess. And they have sophisticated software to help them with these and bigger challenges. A recent HP report1 expressed concern in several areas after doing a study of numerous “things”: 1

• 80% of the devices record private information, like name, address, credit card information, etc. • 70% do not include encryption of the data being transmitted. • 60% of the web interfaces are insecure, using, for example, clear text to transmit credentials. • 60% of the downloads of software updates are not encrypted. • 80% allow very simple passwords or passcodes. The devices also often include the classic “back doors” still found in some insecure computer systems. These usually relate to access protocols set up for vendor or

support purposes. For example, some common systems have a user ID called admin and the default password for that ID is admin as well. Since this is widely known, it leaves a very simple way for an intruder to gain entry. In fact, for many modems in common use, the default password is “admin”. There are other classic openings for hackers as well. For people who use smart devices, which is rapidly becoming most of us, the first layer of defence is awareness of the threats and how they might be exploited. This leads to the observation that when purchasing such a device, it is good to look into the security that the device contains. Purchasing the brand with the best security may save a lot of trouble down the road. Also, information that is not mandatory should not be stored on these devices. If it isn’t there it can’t be stolen.

And then there are the usual password management techniques – change them frequently, use different passwords for the different devices, employ security software when possible, watch for signs of intrusion, etc. New authentication techniques to enhance security are becoming more available and should become more visible in the near future. Many commercial and governmental organizations use them now, but we can expect them to become more common for homeowners and everyday consumers. These include biometrics – e.g. fingerprint or palmprint pads to gain access, retinal scans, face recognition and others. They also include token passwords that change continually,

and that can only be activated with a device, such as a keychain fob, that is synchronized with the device, such as a home security system. Advances in “thing” security need to be monitored and kept up to date where possible. This should be an aspect of purchasing devices that is front and center. It should also be a service that quality vendors would offer their customers. The security vulnerabilities around the internet of things is very real and growing. As new products come on the market, they will often be marketed with little or no security. Gradually this can be expected to improve, but in the meantime, the exposure of people using internet connected things will be very high.

Be aware. Be safe.

http://h30499.www3.hp.com/t5/Fortify-Application-Security/HP-Study-Reveals-70-Percent-of-Internet-of-Things-Devices/ba-p/6556284#.VBwZOkuWs0s

MONEY® Magazine - FALL 2014 - pg. 24

MONEY® MAGAZINE

MUTUAL FUND REVIEW August 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 (July 31, 2014) + Net sales +/- Estimated market effect = Ending assets (August 31, 2014)

$897.8 billion $4.0 billion $13.2 billion (1.0%) $915.0 billion

Top 3 Categories

Bottom 3 Categories

Global Neutral Balanced: $3.674 billion Cdn. Div. & Income Equity: $1.933 billion Canadian Neutral Balanced: $1.854 billion Canadian Synthetic Money Market: 7.0% Sector Equity: 4.4% Global Fixed Income: 4.3% Global Neutral Balanced: $1.503 billion Cdn. Fixed Income Balanced: $1.092 billion Canadian Neutral Balanced: $514 million Canadian Synthetic Money Market: 6.9% Alternative Strategies: 3.1% Global Fixed Income: 2.2% U.S. Small/Mid Cap Equity: 4.2% U.S. Equity: 3.6% Energy Equity: 3.6%

European Equity: -$74 million International Equity: -$62 million Cdn. Short Term Fixed Income: -$51 million Misc. – Undisclosed Holdings: -57.1% Miscellaneous – Other: -6.3% Commodity: -2.8% Canadian Focused Equity: -$139 million International Equity: -$110 million Cdn. Small/Mid Cap Equity: -$73 million European Equity: -1.8% Geographic Equity: -1.8% 2015 Target Date Portfolio: -1.5% U.S. Money Market: 0.0% Canadian Synthetic Money Market: 0.0% Canadian Money Market: 0.0%

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

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Invest like a

n helping clients invest, on more than one occasion, I’ve seen where someone has expressed a real desire for higher growth investments as opposed to more “pension-like” bluechip large company dividend payors. Inevitably, the conversation turns toward smaller companies. It is true that smaller companies tend to have higher earnings yields than larger companies – and hence more value. As well, smaller companies tend to have higher earnings growth. But they may not have a strong competitive advantage, may not have a strong balance sheet, and they may be much more vulnerable to changes in their industry or the overall economy. It is no wonder than when the stock market corrects, small companies tend to drop several times more – possibly up to a staggering 75% assuming that they’re even able to survive. This deadly volatility is what keeps most of my retired clients away from small companies. They just don’t need the small company volatility and are happy with more stable income payers. But assuming you’re someone who has that hunger to get involved in companies that have the ability to double or possibly become a ten-bagger, let’s try and look at the kind of investment parameters that a venture capitalist might use so as not to lose their shirt.

Capitalist Venture Rule #1: Never bet the farm Limit your smaller companies exposure to say no more than 10% to 20% of your total portfolio. So let’s say we have a portfolio worth $500,000. Depending on your situation and tolerance for risk, that might mean we limit your small company exposure to $50,000 to $100,000. Let’s say we’ll invest $50,000 now.

Rule #5: Stay away from highly debt-ridden businesses Debt = death. This is one of the top reasons why a small business crumbles and goes into bankruptcy. So limit debt to 20% of total capitalization.

Rule #6: It’s about earnings Seek a company with a good earnings yield (= EPS / market price) where the earnings are stable and growing. Given enough time, the stock price will eventually follow earnings.

Rule #2: Never bet on just one crop

Rule #7: Quality is just as important

For the money to be allocated to small companies, search for at least 10 businesses. For each business we are to invest in, we should make equal dollar bets. So that would mean $5,000 for each business. And for those 10 businesses, we should try to have them invested in different industries. Let’s say no more than two businesses in the same industry.

Look for a business that makes a great product and sells it at a fair price for which it is able to make a good profit. Think about potential competition and any competitive advantages it might have.

Rule #3: Always have cash reserves As the stock market can correct at any time and small company stock prices can move violently, even without any public news, we’ll keep the other $50,000 cash as cash to be opportunistic to take advantage when a good business goes on sale (assuming the business is still a quality business). So, if a stock drops by 50%, then we’ll top up that stock back up to a $5,000 position. (Always keep in mind that if it is a broken company, we don’t want to put good money into a bad business).

Rule #4: Take Profits If a stock doubles and is still a good business, then let’s sell half that $10,000 valued position and bring it back to a $5,000 position. Think, we don’t have a real profit until we sell something. MONEY® Magazine - FALL 2014 - pg. 26

Rule #8: Cash in the bank Seek businesses that have cash in the bank and need not have to borrow for normal operations.

Rule #9: Stay away from management that uses the company like an ATM machine We want to have management make decisions that are in the best interests of shareholders as opposed to lining their pockets with high salaries, high bonuses, and excessive grants of stocks and options.

Rule #10: Do your homework Lastly, do your homework and stay on top of developments of those companies. So read their news releases, read their quarterly and annual reports, read their MD&A and Annual Information Form, listen to conference calls, and watch their stock price – at least weekly.

Summary Hopefully these rules will keep you out of trouble and get in the black!

It’s Possible! Written by Robert M. Gignac

was recently in Timmins, Ontario to deliver a program called “Your Richly Imagined Future” that focuses on the multiple topics of personal finance, motivation, goal setting and creating a healthy relationship with money. One of the attendees (approximately 30 years old by my guess…) said to me: “Robert, this “Richly Imagined Future Stuff” is all well and good for you, and maybe some of the others here tonight – but this can never happen for me”. I was a bit puzzled, so I decided to resort to the best question ever asked by a four year old – “Why?” The reply was a rambling 90 seconds about lack of opportunity, education, family history and insufficient income – and ended with the comment – “that’s why!” As a speaker/educator/inspirer (ok, I aspire to the last one…) in the areas of personal finance and motivation – the concept of “this can never happen for me” was hard to fathom. I asked if they remembered a slide from midway through the presentation that read: “The quality of your life is determined by the quality of the decisions you make, which are determined by the quality of the questions you ask, which is determined by the quality of your education” - Brad Sugars They acknowledged they did – but added – “But I didn’t go to university or college”, to which I replied “Perfect! That’s means you’ll have fewer things to unlearn…”. Books, classes, CDs, DVDs, webinars, seminars – all contribute to our education. We spent the next 10 minutes discussing the fact that there are plenty of people who are financially successful who have never set foot in college or university, and that “education” refers

to what we learn – not where we learn it. Their smile indicated I had struck a nerve – probably because somebody in their past mistakenly told them that school was the only place to get an education. The next 20 minutes was a delightful conversation that focused on three questions that I believe are key to making ourselves successful with our personal finances.

What do you believe? Henry Ford was once quoted as saying – “If you believe you can, or if you believe you can’t – you’re right”. Our beliefs about money are much the same. If you believe you can be successful with money – odds are good you will. If you believe the odds are stacked against you – it’s likely you will not become successful. Please don’t read “But Robert said it would be easy…” into this discussion. As human beings, it’s not that we believe everything we see, but that we tend to see everything we believe. If we feel that we cannot become successful with our finances, everything we see tells us that can’t be. When we see others who are successful, it’s not because they are necessarily smarter or better than we are – it’s often due the application of their talent and their belief in the fact that they will be successful.

What do you expect? As we gaze into life’s crystal ball, ponder the statement – “be careful what you wish for, you might just get it.” It’s no surprise that financially successful people tend to be those who had the expectation that they would be – then took the steps to educate themselves about the topic, surround themselves with like-minded people and are not afraid to ask for help in the areas where they lack expertise. Meanwhile, people

MONEY® Magazine - FALL 2014 - pg. 27

who expect that life is going to be filled with negative experiences are usually not disappointed.

Do you Spend or Invest? Our money (and our time…) can either be spent or invested. When we spend, we may get experiences (or goods) in exchange – but in either case we have less money or less time at the end of the transaction. When we invest our money or our time – we increase both the opportunity to learn and the opportunity to earn. Investing in ourselves (for example, reading the magazine you are holding…) increases our knowledge, exposes new opportunities and can fill the missing gaps in our education. Step one – increase our education. Step two – ask good questions. Step three – make better decisions. I’m not 100% sure that during our time together I had changed anything about their way of thinking about money and their relationship with it. But when the conversation was over, we shook hands, and they said “So you really think it’s possible I can create a better financial future for myself?”. I said “Absolutely!” and of that I am 100% sure. 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 2014 – Rich is a State of Mind

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LEGACY

A Gift to Your Family Written by Richard Atkinson, MBA

ow many times have you wondered about your distant past? From where did your family originate? Who was your great grandfather or great grandmother? Are you related to royalty, a famous explorer or revolutionary scientist? It is a wonderful gesture to leave a gift of family history to the ones you love. Now is the time to record your knowledge about yourself, your mother, father, brothers, sisters, aunts, uncles, cousins and other family members – to record your knowledge of each one, where you and the others were born, who you and they are or were, including occupations, hobbies and interests. Also, list very crucial information about your family’s medical history, facts which may be life saving for your children or grandchildren. It is amazing how much information each of us has about our families and how deeply this information will be treasured. Several years ago I met a retiree named George. As it was Christmas time, we talked about the holidays including gifts that meant a great deal to us. George told me of a gift he was creating for his son. He hoped his gift would be one his son will remember and treasure for years to come. George recently purchased a small voice recorder, which he carries with him and as he recalls things about his past or facts involving

his family, he records his thoughts. He said over the past two months prior to our meeting, he has recorded family information, including names, birthdates, deaths, marriages and remembrances and stories he heard from his parents and family members. At the time of our meeting George had filled four tapes and was amazed what he remembered at the oddest times. For example, when driving in the country, George saw a barn. It was similar to his father’s barn just outside of Regina, Saskatchewan. As he drove past, he remembered the time he and his pals got caught smoking behind the barn. He said he broke into a laugh and promptly grabbed his tape recorder and recorded the smoking incident. At the same time, he recorded other farm related stories that came to mind. In his desire to leave his son as detailed a picture of the past as possible, George contacted several relatives to fill-in some of the blanks. George then researched his roots using websites and genealogical societies. He found his on-line detective work yielded a significant amount of information and the cost, other than his time, was little or nothing. George found the two websites: www.ancestry. ca and www.yourfolks.com as useful starting points. He contacted the Family History library, a nondenominational center, run by the Mormon Church in

MONEY® Magazine - FALL 2014 - pg. 29

Salt Lake City, Utah for family information. When asked what he thought his son’s reaction would be to his gift, George answered, “Knowing my son, he will be thrilled!” When I walked away from my meeting with George, I felt uplifted and inspired. I thought, “What a wonderful, priceless gift. So special, unique and thoughtful.” What is going to be the gift you give to your family? Here are some topics you may wish to consider as a living memory for your loved ones: • A listing and description of your values and beliefs • Things learned from grandparents, parents, children, spouse and others • What you are grateful for • Hopes for the future • Important events in your life and the lives of your relatives • Things you regret not doing • Your happiest times • Lessons learned the hard way • The importance of religion “What you leave behind is not what is engraved in stone monuments, but what is woven into the lives of others.” Perilles (Greek statesman of Athens who died in 429 B.C.) “A man (or woman) cannot leave a better legacy to the world than a well-educated family.” Thomas Scott.

Paper Money Written by Laurie Lee

t a very young age, I would accompany my mother to the bank with the crazy parking lot. I would watch my mom hand over two pieces of paper (paycheques) to the bank teller. I was always in awe of how important those two pieces of paper were to our family. The teller would then transfer money to a savings account for insurances at my mother’s request. After that the teller would then count out a large stack of money back to my mom. Now we were off! Our first stop was to the Hydro building were we waited in line again, and my mom took out several of the colourful bills and handed them to the clerk who took her money and gave her a piece of paper with a big blue stamp on it in exchange. After that there were many other stops to go to pay our bills, and then finally grocery shopping. By the end of the day the large colourful pile of paper money was almost gone. Yes, those trips were full of running errands and paying bills and very little fun for me as a young child, but those days taught me an important lesson on the value of money. I would see how hard both my parents worked, shift work, early mornings and I would witness cash being exchanged back and forth in everyday transactions. Credit cards were not even heard of, if you needed extra money you went to apply for a loan at the bank in hopes that you might be approved. Fast forward thirty years… Any parent in today’s society can tell the one large draw-back to using their debit or credit card is the total disconnect for children when it comes to the concept of from where does money come. It’s not their fault! Most children do not see money on a daily basis. They are not witnessing the regular use of paper money. It is rare to go into a bank and

see a teller, and in any store it is rare for them to see the clerk count back change and if they do it is with the use of the cash register calculating the transaction for them. Gone are the days of a cash only society. Now we can transfer money from one bank to another, pay bills on line, send E-transfers and shop on-line for everything imaginable all before our morning cup of coffee. But are we better off? Are our children better off? Do they actually understand the value of money? This was brought home to me when I was telling my youngest daughter that we needed to wait for payday to purchase an item. She looked at me like I was really forgetful and silly. She went to my purse pulled out the debit card, and proudly said just use this mom, you put it in the bank machine and every time money comes out, just like MAGIC. That really hit home to me how important it is for our children to see and use cash. So how do we teach our children to value money, when the majority of all transactions are done on-line or with debit and credit cards with endless reward promotions? In order to teach a lesson, we need to take action. Here is an easy first step: start by taking out some cash for the family fund. Yes take out a set amount of cash every pay day, bring your child to the bank with you and, what the heck, go and stand in the line-up rather than just using the bank machine. So take the time, now let your child ask for the money in different denominations. Take this money home and put it in a glass jar labelled Family Fun. Now over the next two weeks when the kids ask to go swimming, or to the movies or for ice cream, take the money out of the jar. Do not use your plastic cards for any of these purchases. Let them pay with the money and return the change back to the jar. Why? Because MONEY® Magazine - FALL 2014 - pg. 30

your time spent on teaching this life lesson to your child will be priceless in their future. We all want our children to grow up being honest, competent, highly functioning adults, not living off mom and dad. This simple little habit will help the next generation value money. The next step is for them to manage their own money. I am often asked what I recommend when it comes to allowances for children. I have always told my children starting at a young age, mom and dad will provide for your NEEDS. Your allowance that you have earned, (not from cleaning their room, that is expected) is for your WANTS. It is so beneficial to teach children the difference between these very opposing terms. By giving children an allowance you are allowing them to learn to manage their personal finances. They can easily learn to save up for larger items, learn to give donations, learn the value of every coin. Allow them to spend it all in one day and then have nothing left for the remainder of the time till next allowance. Allow them to save up for that special something that you perceive as just another toy. We all learn by making mistakes, that means we are in fact trying. Start this lesson early and you can avoid dealing with a 19 year-old, who has racked up their first credit card debt that was being promoted on campus that has a 29.99% interest rate. Teach this life lesson NOW, before the student loans, before the credit cards, before the DEBT…that is priceless! www.goodcents.ca

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Protect Yourself:

A Primer on Financial Abuse and Fraud Against Senior Investors Written by Ken Kivenko

designed to prey upon seniors’ fears. Some of these seminars may pitch investments that may be unsuitable.

enior financial abuse and fraud continues to be one of the most prevalent and “lucrative” enterprises in Canada. Approximately 30-35 % of all complaints received by regulators involve seniors. I suspect the elderly statistics are distorted as it’s my experience that the elderly are usually reluctant to formally complain for many reasons. Seniors often avoid publicity or litigation due to the embarrassment of having been bilked. They may unduly blame themselves for losses, are reluctant or unable to formulate a complaint or unaware that something is amiss. A 2007 Canadian Securities Administrators Investor Study: Understanding the Social Impact of Investment Fraud, estimates that over one million adult Canadians have been the victim of investment fraud. The study shows it is a common occurrence in the lives of many Canadians, with almost one-in-20 having been victimized. 1. Check registration: Engage with registered dealers and advisors with good reputations. 2. Don’t fall for investments that promise “guaranteed” or exceptionally high returns: If an investment seems too good to be true, it probably is.

3. Avoid investments that are advertised as “risk free”: All investments have risk. As a general rule, the greater the potential return, the greater your risk of losing money. 4. Don’t be rushed into an investment by high pressure sales tactics: Always take the time to evaluate and understand an investment before purchase. Always be leery of “once in a lifetime” opportunities, or investments that are only available “for a limited time.” 5. Be wary of inflated titles: A few advisors may use inflated titles to market themselves such as Vice President and the like. Too often, these are meaningless. Don’t be lulled into complacency or be intimidated by the titles. 6. Be wary of professional designations: Some advisors may use professional designations to market themselves as retirement or senior specialists. While most professional designations require rigorous study or extensive education or experience, some may be relatively easy to attain, and may even be available to individuals with no experience. 7. Avoid “free lunch” financial seminars for seniors: These seminars may be carefully scripted sales presentations MONEY® Magazine - FALL 2014 - pg. 32

8. Make sure that you clearly communicate your investment objectives to your advisor: Don’t let them steer you into investments that are not in line with your investment objectives or time horizon. Seniors typically live on fixed incomes and need conservative low risk, incomesupplementing investments. Most importantly, closely review any document you are asked to sign, especially those with “investment objectives” and/or “risk tolerance” information about you. 9. Never sign a blank or incomplete document: Always take the time to review documents you are asked to sign, and ensure the document is filled out completely. 10. Never give cash to a financial or securities professional: When making an investment, use a method of payment that can easily be tracked. Make payments only to the registered dealer, NEVER to an individual. 11. Avoid any personal financial dealings with your advisor: You are not a bank so don’t start lending out money. 12. Get a second opinion: If you have questions about an investment and the advisor fails to fully or satisfactorily explain things, consult a different financial professional. 13. Ask questions: Some advisors may use language or jargon with which you may be unfamiliar. If you don’t understand something, ask for a clear explanation. 14. Don’t be afraid to contact your provincial securities regulator: Every province has a Commission/agency

devoted to protecting people financial abuse and fraud. Contact your provincial securities regulator if you suspect you’ve been targeted as part of a financial scam or cheated in some way.

Spare Change

The following are the most basic questions that seniors, and investors in general, should ask when facing the decision to make an investment:

Written by Tammy Johnston (www.thefinancialguides.com)

• Do you have a fiduciary duty to me? • Can you explain the investment to me without using industry terms or jargon? • What risks are associated with the investment/program? • What are the investment cost in terms of commissions and fees? • Are there additional or ongoing fees? • Are there surrender charges associated with this investment? • What happens if I decide to sell or cash in my investment? • What are the pros and cons of this product re taxation? • Why is this investment suitable for me? • What type of reports will I receive and how frequently? • How easy is it to sell or convert the investment to cash if I need money quickly? • What happens if I have a complaint? If the salesperson can’t or won’t answer your questions in writing and to your satisfaction, the investment may not be right for you. Ask questions and stay informed about your investments. Seek help if you believe you are being targeted or have been a victim of financial fraud or abuse. Some light reading to protect your assets: • Understand Investment Jargon The Steadyhand Investment Dictionary http://steadyhand.com/ forms/2014/03/07/steadyhand%20dictionary.pdf • Pursuit of a Financial Advisor Field Guide - v13 A MUST read for retail investors. • http://www.napfa.org/UserFiles/File/ FinancialAdvisorFieldGuidev13.pdf • The Responsible Investor http://faircanada.ca/wpcontent/uploads/2011/03/The-Responsible-InvestorMoneySaver.pdf • Is Your Advisor to Blame? Things to consider when filing a complaint. http://www.robertson-devir.com/pdf/ Is%20Your%20Advisor%20to%20Blame.pdf • Financial Fraud and Abuse Against Seniors | SecuritiesLawFirms.com http://www.securitieslawfirms. com/resources/securities/fiduciary-responsibility/ financial-fraud-seniors.htm

onsumer debt has become a huge and growing problem in our society today. Access to credit cards, the use of debit cards and the constant media push of buy now and pay later has enslaved the average North American household. I’m a major fan of having fun and enjoying the good things in life and the results of our hard work. But in order to achieve the healthy balance of enjoying life now and looking after the future and our responsibilities we need to try something different. The first step is to set a goal for something you want. A new, big, flat screen TV; a winter vacation; a makeover for a room in your house; work on the car, etc. Whatever that you want. The second is to put yourself on a cash diet for all your incidentals like coffee, eating out, gas, and any other small purchases. At the beginning of the week go to the ‘instabroke’ machine aka ATM or even go into the bank and speak to a real live teller, and take out your weekly allotment of cash. After that leave your plastic, debit, and credit cards in your wallet, or better yet, leave them at home. You can’t use them if they aren’t easily accessible. Third, pay for everything using only bills. At the end of the day put all your change into a jar you have labeled with a picture of your future purchase. If your dream is to go to Hawaii, get a 52 inch plasma TV, get a new mountain bike or anything else that puts your heart all a flutter. Put a picture on the jar and let the spare change add up. Twoonies, Loonies, Quarters, Dimes, and Nickels add up very quickly when we aren’t paying attention. Once a month add up the money in the jar and see just how much you are putting away. If you wish, you can then deposit this money back into a separate bank savings account (one that doesn’t charge you fees and pays you at least a small amount of interest and doesn’t have a minimal balance required in order to earn interest) so that your money is safe and growing at least a teeny bit. In a very short period of time you will find this very simple, painless act of saving fun and enjoyable. For added motivation you might want to create a chart (example: a thermometer) that shows your financial progress towards your goal. It is amazing how excited you can get just seeing yourself getting closer to your reward. Start today and see how quickly you can go from squirreling spare change away to enjoying the fruits of efforts. “If saving money is wrong, I don’t want to be right.”

MONEY® Magazine - FALL 2014 - pg. 33

William Shatner

TAKE CHARGE of your money in six weeks. Written by Anita Saulite

Follow This Money Do Checklist Money matters don’t need to be unmanageable or headache inducing. Most of us are time starved in that we have demanding lives, careers and families that consume most of our energy and calories. There is little desire or hours in the day to spare worrying about our personal finances and how to remove the guesswork and worry. But the reality is it is easier than we may think.

Most of us want to get more out of our life and money but may not know where to start. It can be daunting. Confidence comes from knowing where you are going in life, having good money habits and being in control of your destination. In order to focus on the bigger picture and what really matters to you, the best and easiest way is to get your personal finances on track is to achieve a monthly routine. It’s no different than having a daily and weekly routine for yourself. Keep your life moving in the direction you want, supported by a good plan, will keep you focused on achieving your personal and financial goals! Live your best life today. Here’s how to change

your life in 6 weeks by following The Money Do Checklist. Tackle one Money Do Checklist item every week for the next 6 weeks. You will feel empowered and in control of your life. You will worry less and increase your financial security. It’s that easy. Focus on your weekly accomplishments and highlight them as opposed to what you still have left to do. Surely this could have been called an Accomplishment List instead...a Money Do Checklist will keep us focused and on track to betterment in just 6 weeks. Take the challenge and make the Money Do Checklist work for you. Tick the box or scratch the item off your list. It’s as easy as 1, 2, 3...

• Set 2-3 personal goals. Take stock of your life. Map out your future by defining a series of short term personal

goals. Create an action plan for success that includes a timeline and mini steps to get you to where you want to go. Save money for goal related pursuits and you will reach your goals faster.

• Create a spending plan. You have heard it 1,001 times before. But, if you can’t stand the money in/money out

cycle then now is the time to take the guess work out of your money. Life adds up and if you want to reach your goals in time, you will want to rein in your spending.

• Reduce debt. Over spending is easy to do, but carrying larger amounts of debt and paying too much interest could be weighing you down. Pay down any non-mortgage debt you have to simplify the payables. A debt consolidation loan is one option to address high credit card debt. Reducing and eliminating debt will help you reach your goals sooner.

• Consolidate your accounts. Do you really need 3+ credit cards in your wallet? Keeping track of balances and

transactions may be too much for you. Consolidating your accounts will make it easier to keep track of where your money goes.

• Put your saving strategy & bill payments on auto pilot. We all know it, but saving money each month is

saving for the future. Just know, savings are what you pay yourself, and if you want to secure your golden years and worry less, then pay yourself first. Set up automatic bill payments. You will never miss a bill and worry less about being late with payments. Set it and forget it.

• Review and update your policies. Make time to read and review your coverage on all policies (home, life, auto) so there are no surprises. Disability benefits have changed – do you know your coverage? Comparison shopping can be done each year, even if you are happy with your insurer. Do you have a will? Have your family circumstances changed?

You can’t boil the ocean, but what you can do is to focus on some very tangible and easy to implement strategies on the Money Do Checklist that will enhance your financial security. You will worry less and find the time to focus on what really matters – living your best life today. This is simply good living. MONEY® Magazine - FALL 2014 - pg. 34

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BABY BOOMERS

The Generation That

Just Can’t Seem to Say NO Written by Melanie Gillis, CFP

orn in 1964, the last of the Baby Boomers are entering their 50s this year. For the first time, Statistics Canada reports there are more people in the 55-64 age group than in the 15-24 age group. As Boomers dream of leaving the workforce to make room for the next generation, they find themselves in a unique situation. Many are still supporting adult children now in their 20’s wondering when they will finally be free of their parenting responsibilities,

only to realise their own parents are aging and showing signs of needing care themselves. No wonder Boomers feel squeezed. This demographic has earned the title of the Sandwich Generation. The impact on family finances when caring for multiple generations are many, including pressure to keep working, coupled with the need to take extra time off to help aging parents. The Sandwich Generation is being forced to choose MONEY® Magazine - FALL 2014 - pg. 36

between working longer than they had planned to meet their retirement goals or leave the workforce early to care for an aging parent therefore jeopardizing their own retirement. This will cause much hardship and require that tough choices be made. Most parents want their kids to become successful, self-sufficient adults. Parents frequently help adult children with one or more of the following: Post Secondary Education; live at home

after university; weddings; or down payment on home. The cost for today’s 20-30 something’s coming of age is running between $100,000 – $200,000. Surprised? Let’s break those costs down, four years post secondary education, $48,000. Followed by a wedding. The typical Canadian wedding these days runs around $35,000. The newlywed couple will want to purchase a home, with the average cost of a Canadian home running in excess of $400,000 a 10% down payment will cost your little darling’s $40,000. Top off the whole sweet deal with a trip to Disney World for the whole family once the grandchildren arrive, $15,000 – $25,000. More and more adult children are relying, at least in part for financial assistance from their parents. How much can /should parents help out?

When is it time to get help? Missed appointments, loss of a drivers license, mixing up medications, inability to understand their finances, are good indicators your parent needs at least some supervised care. The most important indicator is when the family caregiver’s quality of life and other family relationships begin to suffer. In my opinion, more focus attention needs to be directed to the caregiver. I predict that in the next decade the next big movement of our time will be the issue of care for the caregivers. For the Sandwich Generation, care giving should be a “team” sport, with kids taking on some care responsibility for aging parents. These grandchildren can contribute much in the way of time

As a CFP and advisor to both middle class and wealthy clients for the past 20 years, I have found ample opportunities to question the wisdom of parents who dip into their savings every time their child hits a rough patch or sticks their hand out. While it can be difficult to watch our children struggle, teaching children to fly solo is an important part of growing up. Just as your little darlings begin to fly the coop, you turn around and find your parents are beginning to fail in one or more important areas of their lives. It seems as though every time you speak to your parent you are hearing about a recent; loss of memory, a fender bender or a fall. Your once socially active parent no longer leaves the home and the pantry is bare. Taking on the responsibilities of caring for them can be a drain on resources. Initially they may need very little assistance but over time their needs and the costs of these needs begin to increase, sometimes at a dramatic rate.

offering companionship, preparation of light meals and act as chauffer taking their Grandparent to appointments, shopping etc. Interestingly, the amount of time, of both adult children and aging parents, will need some form of support is about 10 years. In the case of an adult child, by their early 30’s they are generally launched and on their way, both child and parent can celebrate their coming of age. With an aging parent, they will require more support as time goes on. The typical elderly Canadian may live up to 10 years after the onset of one chronic illness.

Time / Care Continuum. Reprinted from Financial Care for Your Aging Parent

What can you do? Five Steps to Multi Family Financial Success

Know your Financial Independence number. How much will you need to support yourself during retirement? Without a solid financial plan ....it is easy to overspend on kids, parents or both. Know your limits. Educate your family members. It is Important for the Sandwich Generation to have THE MONEY TALK with: 1) each other 2) their children & 3) their own parents. Don’t overlook the importance of budgeting. Keep track of out of pocket expenses related to kids & parents – reimburse yourself from your parents account where possible, or ask siblings for help. Adult children still living at home after graduation, give them the incentive they need to move on by charging them rent. Know your resources – there are many sources of funds for both students and the elderly. Make yourself familiar with what is available. Check Federal, Provincial and regional web sites. You will find they offer extensive tools for students, young underemployed adults and elder care.

MONEY® Magazine - FALL 2014 - pg. 37

The value of advice. A good financial planner helps clients make wise decisions beyond what investments to buy. Advice such as when is it time to help, how much and when to say NO. As an objective bystander they are in a good position to inform clients of the impact of financially helping multiple generations We need to keep in mind money does not solve all problems. Only love comes close to doing that. We understand the sense of responsibility we feel towards our aging parents to ensure their final years are comfortable, safe and full of family love. For adult children, a common mistake parents make is doing too much. Sometimes there is no substitute for just saying NO.

RDSP Understanding the Obstacles when setting up an

Written by Debbie Hartzman, CFP, CLU, CDFA, TEP

y last article provided an overview of the Federal RDSP (Registered Disability Savings Plan) program. I will now take a closer look into issues that are important to understand when setting up these accounts. A recent study cited four main issues with the lack of uptake for the RDSP:

1. The issue of legal capacity and representation;

2. A lack of awareness and

understanding of the RDSP program;

3. Issues related to the RDSP

programs withdrawal rules; and

4. Administrative issues that make the program overly complex for qualifying individuals.

It is important that families with disabled members work with an advisor that understands the complexity of such plans.

The Beneficiary This is the person for whom the plan is intended to benefit. The issue of legal capacity is important for many reasons as it speaks to who can set up the plan and how much will be received in the way of benefit. Since a person with limited capacity would earn less, it would be most beneficial if they were able to set the plan up in their own name, however the limited capacity poses a problem when it comes time for withdrawal. The Federal Government is studying

an amendment to the Income Tax Act, that would allow a form to “authorise” the appointment of a person related to, or in a trusting relationship with the beneficiary to be a joint plan holder of the RDSP. This relationship would have to be confirmed by a third party to eliminate any potential abuse.

Issues of Awareness and Understanding In order to establish an RDSP, an individual must have first obtained a Registered Disability Certificate. The main issue with this, is “who is responsible for identifying an individual” that may be eligible for an RDSP. With privacy issues first and foremost, a financial institution may not be aware of the circumstances in a family with a disabled member. This means that professionals such as doctors, social workers, and community living representatives may be the one’s responsible for suggesting that a DTC certificate is obtained. Then is falls back to the individual’s family to find an institution and advisor that can understands and can assist. A Certified Financial Planner who does an appropriate interview and has knowledge of how an RDSP can benefit a disabled family member may be the best source for assistance. It is not just the act of setting up an account that is important, but the planning issues of deciding how and when to fund it are critical to ensuring the beneficiary is secure in their financial future.

MONEY® Magazine - FALL 2014 - pg. 38

Issues in Relation to the Withdrawal Rules Due to lack of understanding and limited advice available about RDSPs, some qualifying individuals have actually opted not to establish plans. The 10 year waiting period for accessing funds may decrease the ultimate usefulness of an RDSP. The Government is now in the process of looking at reducing this waiting period. At present, you should note that exceptions are granted when the life expectancy is deemed to be reduced.

Issues relating to Administrative Requirement The starting point of requiring a Disability Tax Certificate can be an administrative challenge. Medical practitioners hate paperwork and do not look forward to filling it out. In some cases, if the paperwork is not completed properly the results can mean eligibility is denied and consequently, the person is also not eligible for an RDSP. In summary, it is the Government’s goal to eliminate as many of these obstacles as possible, however we all know that this will still take time. In the interim, working with a Certified Financial Planner who understands the benefits and obstacles can greatly increase the probability of success of such a plan. If you have any questions or concern about RDSPs, please feel free to contact me at dhartzman@pro-invest.ca.

WILL I EVER BE ABLE TO RETIRE? Written by Cynthia Kett

Congratulations! You have no debt! However, will you be able to afford a comfortable retirement?

he secret is to not only be able to afford your current lifestyle, but to accumulate enough in savings and investments to fund your retirement lifestyle, too.

CPP and OAS incomes, so withdrawals from registered plans and taxable investment income will be taxed at their average tax rates;

6. Net after-tax CPP and OAS will provide additional cash

One of the first questions many clients ask is: “How much will I need to save to be able to retire?” The answer, of course, is: “That depends. How much would you like to spend?”

flow to the retirees (the assumed average tax rates include the OAS repayment amount).

Let’s look at some examples. Let’s say that Retiree A would like to spend $35,000/year in 2015 dollars and that Retiree B would like to spend 3 x that amount or $105,000/year in 2015 dollars. They would both like their future spending to be adjusted for 3% annual inflation.

Retiree B will need to accumulate more than 3 x the retirement savings that Retiree A will need to spend 3 x the amount during retirement. This is so because Retiree B will be in a higher income and tax bracket than Retiree A.

More assumptions include:

Living simply can really pay off with respect to retirement planning! Retiree B will need to accumulate 3.8 x the amount that Retiree A will need in a Registered Account. (Most of us don’t have employer pensions.)

1. The pre-tax rate of return on their investments will be 5% (balanced portfolios);

2. They will both retire on January 1, 2015 at age 65 and live to January 1, 2045 (age 95);

Alternatively, B will need about 3.3 x the amount that A needs in a Non-Registered Account. An added bonus: If you can reduce your spending now, you’ll be able to save more and perhaps retire sooner than expected!

3. They must withdraw enough from their investment portfolios each year to net their desired after-tax spending amounts;

4. Retiree A pays an average tax rate of 30% per year and Retiree B pays an average tax rate of 45% per year;

5. Their personal tax credits will offset the tax on their

Conclusion

Cynthia J. Kett, CPA, CA, CGA, RFP, CFP, TEP FELLOW OF FPSC™ (With assistance from Wesley Lindsay, BAS, CFP.)

Non-Registered Account Example #2A - (30% tax rate)

Non-Registered Account Example #2B - (45% tax rate) Beginning Account Balance

Non-registered accounts generate 5%

Beginning Account Balance

Annual Withdrawal

Tax-Paid Spending

2015

980,000

(35,000)

35,000

2015

3,264,000

(105,000)

105,000

added to the capital

2025

899,273

(47,037)

47,037

2025

2,888,818

(141,111)

141,111

amount.

2035

619,249

(63,214)

63,214

2035

1,917,837

(189,642)

189,642

2045

954

2045

684

Annual Withdrawal

Tax-Paid Spending

taxable interest. The after-tax income is

Account balances are after-tax amounts. All withdrawals are

Registered Account - Example #1A Beginning Account Balance

Annual Withdrawal

tax-free withdrawals of

Registered Account - Example #1B

Spending After 30% Tax

Beginning Account Balance

Annual Withdrawal

Spending After 45% Tax

2015

1,151,000

(50,000)

35,000

2015

4,394,000

(190,909)

105,000

2025

1,126,790

(67,196)

47,037

2025

4,301,104

(256,566)

141,111

2035

830,081

(90,306)

63,214

2035

3,167,471

(344,803)

189,642

2045

1,021

2045

755

MONEY® Magazine - FALL 2014 - pg. 39

capital. Example #2B spending is 3 times the amount of Example #2A spending. Spending is adjusted for 3% inflation.

Are You Getting The Full Amount of

LIFE INSURANCE That You Are Paying For? Written by Ami Maishlish

TIPS TO TAKE ADVANTAGE OF AND TRAPS TO AVOID. Tip:

If you are under 40 years of age, in generally good health and have recently purchased term life insurance or are in the process of doing so, and particularly if the amount of coverage under consideration is under $1,000,000, you will want to read this as there is a good probability that the premium amount that you were quoted, and without adding a single penny, could purchase more coverage on the identical insurance plan, from the same life insurance company, and without change in the underwriting class. For example, the same non-smoker male, in the “Standard”/”Regular” underwriting class could purchase more than twice the coverage amount under the very same 10-year term life insurance policy, rated on the same “Standard”/”Regular” underwriting class, and from the very same large, established, safe and very well-known life insurance company without incurring a single penny in added premium costs. Depending on the specifics of the case, the amounts of coverage for which you are paying but are not necessarily receiving could be from as low as only a few dollars to tens of thousands of dollars and even hundreds of thousands of dollars. Now, some insurance agents may react to the above to say that this is impossible since insurance companies are not charities and they don’t just give out free insurance. While it is true that insurance companies are not charities and they are not in the business of doling out free insurance, the opportunities for consumers to obtain more coverage for the same premium costs without any change in plan, insurance company or underwriting class do exist and are available. This is provided, of

course, that the agent is knowledgeable, is looking out for your best interests and has cared to be properly equipped with the LifeGuide Professional life insurance quotations, comparisons and research resource, the only independent multiple company life insurance resource with the built-in capability to maximize the amount of insurance coverage that you, the consumer would receive for your life insurance premium.

Trap:

Electing to pay life insurance premiums monthly instead of yearly. Do you know what the effective financing rate is to finance your life insurance premiums monthly instead of yearly? Well (or perhaps that’s not such a good word to start the sentence), the effective rate to finance life insurance premiums in monthly payments rather than pay these annually is a whopping 18.594%. Moreover, since life insurance premiums are normally paid with after-tax dollars, the real effective financing rate in terms of earned money could be as much higher. How much more? The resource at http://www.taxtips.ca/taxrates/ on.htm for example lists the marginal tax rates for the Province of Ontario. To calculate your real effective financing rate in terms of earned income, use the formula: 18.594 divided by the result of ((100-your marginal tax rate) divided by 100). For example if you are fortunate enough from an earned income perspective to be in the 49.53% marginal tax bracket, the formula would be 18.594/((10049.53)/100)=18.594/(50.47/100)= a whopping 36.84%. Bottom line: Depending on your marginal tax bracket, the actual effective financing rate to

MONEY® Magazine - FALL 2014 - pg. 40

finance life insurance premiums monthly instead of paying annually will range from a low of 18.594% if you have no taxable income to as high as 36.84% if you are an Ontario resident in the highest taxable earnings bracket. This is often misunderstood and mistakenly thought to be 8% rather than 18.594% net of tax. Let’s take a look at an example: Most life insurance companies use a factor of 0.09 to load the financing cost to pay life insurance premiums monthly instead of annually, so let’s look at an annual premium of $1,000. When the factor of 0.09 is applied the monthly installment amount calculates to $1,000 X 0.09 = $90. So those who may not be well versed in loan loads and calculations will say “$90 X 12 = $1,080, therefore the cost to finance the $1,000 of premium is $80 and that’s 8%”. That logic would be true if no payments were made until the end of the year and then a single payment of $1,080 would be made at the end of the month. However, this is not the case and therefore the logic that arrives at the 8% result is false.

The actual facts are: a. insurance premiums are payable “in advance”, meaning at the beginning of each period. Therefore, the first $90 is paid at the beginning of the first month, a “down payment” if you wish, and the amount being financed is not the $1,000 but $1,000-$90=910 b. the 12th monthly instalment payment is made at the beginning of the 12th period of the financing is not 12 months but 11 months. c. the payments are equal installments of $90 each, blended principal and interest. If you plug in a loan of $910, to be amortized over 11 months the schedule would require an effective financing cost rate of $18.594% to produce a monthly installment amount of $90 over each of the 11 months. Therefore, if at all possible, budget to pay your life insurance premiums annually rather than monthly. There is usually no good reason to bind yourself into an expensive 18.594% financing cost rate! month, therefore, the

Trap:

“Age Nearest”: “Age Nearest” is your age at your closest birthday. So, if you are 35 years old and your 36th birthday will come in five and a half months, your “age nearest” is 36. Most life insurance companies use “age nearest” to determine your “insurance age” and based on that, your cost for life insurance. The first tip to combat this trap is to know that most insurance companies will permit you to back-date your policy date to “conserve age” – to preserve your actual age even if you are deemed to be a year older by “age nearest”. Most will allow 30-60 days without much of a hassle but you have to request the backdating. Caring agents who act in your best interests are likely equipped with software that

will alert them when there is an opportunity to conserve age by backdating the policy date, and will point this out to you. Depending on the size and type of policy and on your age, the difference in premium cost attributed to a single year of age difference could be substantial and could accumulate to an even more substantial amount over the life of the policy. Nearly no life insurance site on the internet will alert you of the possibility to conserve actual age when you go to these sites to obtain quotes, so be careful. There is no good reason to pay more or get less for your money. The above are a small sampling of Traps that can chew away on your wallet and Tips to navigate to the most for your money. More to come in an upcoming column. In the meantime, if you are currently shopping for life insurance or have recently purchased life insurance consult with a LifeGuideequipped independent broker. Independent brokers who equip themselves with LifeGuide do so because they are committed to serve the best interest of their clients. They recognize that your best interest also their best interest and have therefore invested in acquiring the necessary life insurance knowledge and in equipping themselves with the best life insurance research, quotation and comparison tools available. “By Ami Maishlish, life insurance researcher, consumer rights advocate, and designer of the LifeGuide Professional Life Insurance software which is used by thousands of professional consumer-interest oriented life insurance advisors across Canada.”

MONEY® Magazine - FALL 2014 - pg. 41

EDMONTON

Another Unique Milestone for the Edmonton Market

Written by Richard Crenian

urmurs that the hot Canadian real estate market is heading for a correction have been stirring around media sources for a while now. But, despite all the background noise, the real estate market, both residential and commercial, in major Canadian hubs like Toronto, Vancouver and Calgary remains fairly bustling, with positive valuations and strong demand. Of course, this is not to say that the Canadian real estate market will continually enjoy high values, nor does it mean that the cyclical nature of real estate has somehow magically disappeared. It simply means that there is a tendency for some of us in real estate to bet against a market that shows little sign of cooling. This is a natural human reaction and I think it’s important to step back occasionally and understand that those who are cautious and even pessimistic – i.e. those who are counting the days when the bubble will burst – play a part in the greater investment picture. Here’s the thing – if the real estate market continues to produce clearly positive signs of growth and investment, then these positive signs should continue to be considered. For example, take a look at some of the recent, more newsworthy items coming out of Edmonton’s real estate market. Early in September, the city’s residential market enjoyed what I think is a clearly positive milestone. On September 5th, it was reported by the Edmonton Journal that a condo in Edmonton, in a new construction called Symphony Tower, sold for $2.625 million, a value that in fact broke the MLS record for the city. This is a significant milestone, not simply because of the price that the condo unit sold for, but because it speaks of the continued high level of investment and development the city of Edmonton is enjoying. After all, this condominium is to be located in a completely brand-new development.

MONEY® Magazine - FALL 2014 - pg. 42

Willingness on the part of buyers to pay high values for real estate assets coupled with investors excited in the development opportunity of new constructions are two extremely positive points. Consider also the continued resurgence of Edmonton’s downtown area. Developers remain upbeat about their prospects for major commercial projects downtown, such as the Edmonton Arena District. Whether these proposed project plans actually come to fruition is a different story. But, once again, the important point is that these new development proposals speak to the fact that investor sentiment in the city, and indeed in many other areas of the country, remains positive. ReDeV Properties Ltd, a commercial real estate management company that I formed in 2001, serves as a facilitator allowing individuals to invest in Canadian real estate assets. Forming ReDev and leading the company for the past nearly 15 years has reinforced in my mind what is essential for individual investors. For an investor who is considering putting their assets toward a real estate property or, similarly, an investor who is considering investing their money with an asset management company like ReDeV Properties Ltd, I always caution that investment choice needs to be an individual one. More specifically, it needs to be based on two investing essentials: one, completing an adequate amount of due diligence, so that individuals really know and understand the kind of investments they are putting their money into. Second, investment decisions for individual investors have to come from what they feel comfortable with. Both of these are key guiding principles that in my opinion need to be on the mind of investors and should be regularly reinforced by those who facilitate investments for others.

Why so much ado about

interest rates? Written by Malvin Spooner

hy the popularity of shorterterm interest-bearing securities among Canadians, in particular GIC investments? In fact, we in Canada are not the only investors who seem satisfied investing our money knowing that the rate-of-return might just barely cover the rate of price inflation, with a significant risk of actually losing money if inflation should rise even modestly. And it is not just people who are content with the arrangement between ourselves and the borrowers of our money – banks, insurance companies and credit unions alike – corporations have been hoarding cash since the Financial Crisis too. This past summer, Statistics Canada reminded us that corporations in Canada continued to grow their cash hoard rather than invest the funds in their businesses. Of course, like people, companies don’t actually hold cash, but rather invest the money in low risk short-term interest bearing securities, often in Government of Canada T-bills and bonds, as well as commercial paper offered by financial institutions. At the end of the second quarter of 2008, corporations held $373.4 billion in cash balances (Statistics Canada November 17th, 2009 study: Indebtedness and liquidity of non-financial corporations). By the first quarter of this (2014) year the number had grown to a whopping $629.7-billion. So why the stubborn tendency to tolerate a near-zero rate-of-return?

yourself, what rate-of-return would make you happy if there was essentially no risk (default, volatility) to speak of and no price inflation. Whatever you buy today, will in theory cost you the same price next year and every year after that. Most agree that the very long-term real rate of interest is somewhere between 2% and 4%. However, you can easily see from the graph that the real rate of return provided by Government of Canada (as low risk as you can find) long-term real return bonds over the past ten years has been driven down since the Financial Crisis, as all governmental central banks strove to fight disinflation by dampening the general level of interest rates. Has the return we expect from lending our funds really adjusted downward, or is it that the availability of securities providing the returns we normally demand has changed? My guess is most folks would agree that the adage ‘once burned, twice shy’ aptly summarizes our tendency to be biased by recent experience. It is human nature to be sensitive to bad or good things that have just happened and to oftentimes unreasonably expect them to continue. Also, we are confronted by a lack of options. Securities available to us are not promising the rates-of-return we want, given the amount of risk we are prepared to stomach. In fact, a quick look at one of many highdividend oriented ETF’s, the iShares Core S&P/TSX Composite High Dividend

There are at least two factors at work in my estimation. One has to do with the economics of interest rates in the current environment, another with human nature and demographics.

Index ETF suggests that a collection of dividend paying stocks yielded 4.31% (as of October 2, 2014) over the past (trailing) 12 months. As a bonus, the tax treatment of dividends is more generous than it is for interest income. Indeed the stock market has done perhaps too well over the last few years, but judging by the massive dollars invested in shortterm securities those equity returns have not been earned by everyday people. The issue is people just don’t seem to want the volatility that comes investing in stocks; even when the selection of stocks is less risky than the overall stock market. A real return with some risk is less attractive than no return at all, and it has been like this for quite awhile now. The second ingredient to interest rate levels is inflation expectations. Source: Bank of Canada Admittedly, we haven’t seen a whole bunch of price inflation have we? Central bank policy around the world has been more interested in creating some inflation, fearing that disinflation would prove devastating to our economic welfare. These efforts are in fact evidenced by the historically low level of administered interest rates we have. If our collective expectations concerning future price inflation are significantly different from what we are experiencing then our behaviour will reflect it. Could it be that the extraordinarily high commitment to GIC’s and equivalents is that Canadians, and Americans are doing it too, are content to simply keep their money (even at the risk of a small loss) intact until rates of inflation and returns get back to levels they think they can believe in? The third important determinant of interest rate levels is our toleration for risk, and it exists in many different forms. Our appreciation for the risk of default was certainly modified during the Financial Crisis; and in short order we were willing to tolerate none of it. But this intolerance has become very sticky at the individual

First of all, what is an interest rate? It embodies three important expectations-related factors: Real returns, inflation and risk. We all are reluctant to part with our cash unless we’re able to earn what economists call a ‘real’ return. Ask

MONEY® Magazine - FALL 2014 - pg. 43

level and at the corporate level. This might have more to do with demographics than anything else. Younger people are quite surprised to learn that real interest rates got as high as 6% – 9% during the mid-1980′s, and during the 90′s and up to the turn of the millennium ranged around the 4% level. (Source: I was there!) There is a large proportion Canadians who lived through those times. According to Statistics Canada there is roughly an equal number of young people as there are older people. Half of us in Canada might consider those times ancient history (or have no interest at all in history), and the other half feel as if it was just yesterday that mortgage rates were in the double digits. These more seasoned citizens look at the rates of return offered by the bond market and similar investment vehicles and say to themselves: “Hey, if I buy a longer term bond, I’m earning next to nothing anyway, so I’ll just put money into shorter term GIC’s and term deposits that are effectively earning nothing and avoid the risk of having my money tied up.” Having experienced periods of rising inflation and higher real rates, they (and yes, I’m a member of that distinguished group) are inclined to wait until more generous returns come back – if they ever do come back. And don’t forget, these same folks might actually have to spend their savings sooner rather than later suggesting that any risk of a big loss in the stock or bond market is simply untenable. Most people when they think of Canada bonds, immediately think of Canada Savings Bonds. They are not the same at all. Normal Government of Canada bonds, held in mutual funds and pension plans for example, rise and fall in value as interest rates change. Although we’ve been through a very long stretch of falling interest rates, which made bond prices steadily go up in value, there have been and will be periods when interest rates rise and people lose money in bonds. It is smart to learn how the time value of money works and how and why bonds can make or lose money. There is a plethora of online videos that can help you understand bond valuation and the investment in your time to learn bond dynamics is well worth the minimal effort.

The yield curve is simply a plot of interest rates corresponding to varying maturities at a point in time. Ordinarily, we expect to earn higher returns the longer our money is lent to someone else. GIC rates are lower when the hold period is 3 months than they are when your money is tied up for 3 years. The same should be true for bonds. But consider where we’ve come from: The graph shows the yield curves for US Treasury bonds as of October 2007 compared to the same today. The 2007 yield curve reflects the uncertainty at that time about, well almost everything. We didn’t know if we should accept lower rates for shorter investments or high rates for longer term bonds so the curve was somewhat flattish. What would inflation be? Which financial institution would be solvent? Would the US government even be solvent? Many questions but few answers in the midst of the financial turmoil. The more current yield curve reflects today’s reality. The only interest rates we can earn in the short-term are hovering close to zero, and since longerterm risk-free bonds are paying us barely one percent over inflation why assume the added risk. If interest rates do rise from these low levels, then you will certainly lose money owning the longer-term bonds.

MONEY® Magazine - FALL 2014 - pg. 44

In a nutshell, people are doing what they should be doing. Waiting! A side-effect of this behaviour is that our willingness to tolerate no return for lots of safety has stalled the return to financial market normality. By stubbornly remaining in GIC’s, term deposits and money market funds we are inadvertently delaying what we desire – a decent return for taking some risk. It’s only when money moves freely and to a large extent greedily that financial markets function properly. This presents quite a conundrum for policy makers around the world, who’ve been praying that businesses invest in business instead of hoarding their cash, and people begin spending more and taking on more risk by investing their savings in more diverse ways. There are many pundits who have suddenly jumped on the bandwagon predicting a stock market meltdown and impending bond market rout. If they are right and this happens then we might finally get what we want after-thefact; returns that compensate us fairly for inflation and risk. In fact the stock market is suffering of late, and a shift (or rather, twist) in the yield curve is already causing some havoc for bond managers. The longer-term rates have declined rather than risen as expected, and mid-term bond yields have surprisingly risen – causing grief even for gurus like Bill Gross, who co-founded PIMCO and until recently managed one of the world’s largest bond portfolios. If investors have done the right thing, what should they be doing next? Over my own lengthy career I’ve found that at some point it is important to combat inertia and begin moving in a different strategic direction. As stock prices adjust downwards, take advantage of what happens. The dividends paid on the increasingly lower stock prices become more attractive quickly, and remember they are taxed at preferential rates. The world economy may continue to grow at only a snail’s pace, so why not test the waters so to speak and begin putting some funds into longerterm interest-earning bonds. If inflation does creep up and interest rates increase some, then put even more funds to work at the higher yields. The longer you earn nothing, the poorer you get.

Sales Effectiveness Means Nurturing Right Habits and Behaviors

very part of a business, whether it’s the accounting team or customer service or human resources, has its function and plays its role in promoting company success. But, when we consider the topic of how businesses generate revenue, in most cases the focus turns to a company’s sales team(s). After all, for many companies the sales teams play a fundamental role in driving business revenue and, in short, in keeping the lights on. But, simply keeping the lights on shouldn’t be a goal that companies strive for. Nor should businesses have to accept mediocre or less than stellar results from its sales. Since our founding, Trindent Consulting has made it a goal to serve as a knowledge and consulting resource for companies looking to strengthen their sales performance. Naturally, the effectiveness of individual members on a sales team plays a large part in a given company’s sales performance. But, with that said, Trindent’s consulting incorporates a much more holistic and team-centred approach toward performance improvement. Why don’t we explain what exactly that means. In the sales-based consulting campaigns that Trindent Consulting has completed, a primary point in our performance improvement methodology involves the strength of the sales team’s information tracking ability. A team’s ability to accurately track its sales results and qualify sales visits, and to do this in a way that is effective and time conservative, plays a vital role in boosting sales

TRINDENT CONSULTING

results. After all, a sales team that is strategically blind, that doesn’t know and can’t accurately record the performance of past sales targets, and has difficulty planning and executing its sales objectives is not going to enjoy strong results. Our campaigns work to address this issue. In a hands-on approach, Trindent’s consultants work to successfully develop and incorporate new processes that allow for the planning and executing of sales targets, and perhaps more importantly, enable the effective tracking and analyzing of sales data. Trindent Consulting’s engagements, in short, give a way for sales teams to find renewed clarity and organization in the informational points it receives. Across the board, regardless if a given engagement is sales-based or not, Trindent Consulting’s methodology places high importance on active management. Active managers, among other things, are those who provide clear expectations for their staff, who create and take advantage of effective communication systems, and who, above all, actively work to enforce new processes in their staff to continually drive performance. Active managers are nothing less than essential when working to improve sales performance. Why? Because active managers are those who have the skills to successfully incorporate improved habits and behaviors in their sales teams to drive performance and growth. Improved habits and behaviors are the backbone to performance. Incorporating new and better informational tracking processes in sales is one thing. But,

MONEY® Magazine - FALL 2014 - pg. 45

reinforcing and sustaining these improved processes entirely depends on better team habits and behaviors. All of which hinges on active management. To offer more specifics to the discussion, consider one sales-performance-based engagement that Trindent Consulting accomplished several years ago. An international footwear and apparel company was experiencing frustration related to its sales force. The company was frustrated with lower rates of sales, coupled with increased product returns and product markdowns. The retail company engaged Trindent to reverse this downward trend. In response, Trindent’s consultants began a campaign that focused on both elevating and clarifying sales force knowledge. Trindent installed performance dashboards, so that sales teams could gain a clearer idea of high and low selling points. Trindent also created improved sales planning tools and initiated weekly sales meetings between sales managers and reps to increase communication and allow for true active management. Improvements like these worked, and the consulting campaign generated a 17% increase in sell-through rates, among other positive statistics. In the end, companies looking for ways to improve their sales performance should remember two things: one, the ability of its sales teams to accurately track, organize and learn from its sales data; second, whether or not its sales team has the right behaviors and habits to incorporate new and better processes. Weakness in either of these points can and will affect sales performance.

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