MONEY® Magazine (Canada) by MONEY®

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The

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FINANCIAL LITERACY Issue

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2013 Mercedes-Benz Canada Inc. 2014 CLA 250 with optional Sport Package and optional Bi-Xenon Headlamps shown above, National MSRP $36,350. **Total price of $36,565 includes MSRP of CLA 250 base model of $33,900, freight/PDI of up to $2,075, dealer admin fee o r-conditioning levy of $100, EHF tires, filters, batteries of $29.70, PPSA up to $59.15 and OMVIC fee of $5. *Lease and finance offers based on the new 2014 CLA 250 available only through Mercedes-Benz Financial Services on approved credit for a limited time. Lease example based o er month for 36 months. Down payment or equivalent trade of $4,344 plus security deposit of $500 and applicable taxes due at lease inception. MSRP starting at $33,900. Lease APR of 4.9% applies. Total obligation is $20,195. 18,000 km/year allowance ($0.20/km for excess kilo pplies). Finance example is based on a 60-month term with a finance APR of 2.9% and an MSRP of $33,900. Monthly payment is $578 (excluding taxes) with $4,344 down payment or equivalent trade in. Cost of borrowing is $2,431 for a total obligation of $38,936. Vehicle license, insuran gistration are extra. Dealer may lease or finance for less. Offers may change without notice and cannot be combined with any other offers. See your authorized Mercedes-Benz dealer for details or call the Mercedes-Benz Customer Relations Centre at 1-800-387-0100. Offer ends October 31

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www.claunleash.ca / #unleash #cla ÂŠ 2013 Mercedes-Benz Canada Inc. 2014 CLA 250 with optional Sport Package and optional Bi-Xenon Headlamps shown above, National MSRP $36,350. **Total price of $36,565 includes MSRP of CLA 250 base model of $33,900, freight/PDI of up to $2,075, dealer admin fee of $395,air-conditioning levy of $100, EHF tires, filters, batteries of $29.70, PPSA up to $59.15 and OMVIC fee of $5. *Lease and finance offers based on the new 2014 CLA 250 available only through Mercedes-Benz Financial Services on approved credit for a limited time. Lease example based on $428 per month for 36 months. Down payment or equivalent trade of $4,344 plus security deposit of $500 and applicable taxes due at lease inception. MSRP starting at $33,900. Lease APR of 4.9% applies. Total obligation is $20,195. 18,000 km/ year allowance ($0.20/km for excess kilometres applies). Finance example is based on a 60-month term with a finance APR of 2.9% and an MSRP of $33,900. Monthly payment is $578 (excluding taxes) with $4,344 down payment or equivalent trade in. Cost of borrowing is $2,431 for a total obligation of $38,936. Vehicle license, insurance, and registration are extra. Dealer may lease or finance for less. Offers may change without notice and cannot be combined with any other offers. See your authorized Mercedes-Benz dealer for details or call the Mercedes-Benz Customer Relations Centre at 1-800-387-0100. Offer ends October 31, 2013.

13-09-30 6:

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Canadian Currency – a Centimental Journey! Written by James Dean, Publisher and Ian R. Whiting, Senior Editor - pg. 4 A penny for your thoughts Written by James Dean, Publisher and Ian R. Whiting, Senior Editor - pg. 7 FundSERV - A Canadian Success Story Written by Gerald Trites - pg. 9

A G A

Do You Know What POOR Means? Written by Don Shaughnessy - pg. 23 Your Mortgage Broker and You! Written by Guy Ward - pg. 24 Using the RRSP’s Home Buyers’ Plan Written by Camillo Lento, Lakehead University - pg. 27

Contact: James Dean, Editor & President Kennon S. Vaughan, Artistic Director Ian R. Whiting CD, CFP, CLU, CH.F.C., FLMI(FS), ACS, AIAA, AALU, LSSWB Senior Editor/Writer

Remembrance Day November 11, 2013

Precious Metals Exchange - Is gold really golden? - Written by Ian R. Whiting, Senior editor and James Dean, Publisher www.preciousmetalsexchange.ca - pg. 12

Fire hose or Faucet? Written by Jim Ruta - pg. 30

CANADIAN BIG BANKS - Are they really serving the needs of Canadians? Written by Ian R. Whiting, Senior Editor and James Dean, Publisher - pg. 14

Should You Contribute to Your RRSP? Written by Ryan Wall - pg. 32

How to survive a layoff Written by Mark Borkowski - pg. 22

Regular Features Best Rate Around Mutual Fund Review Media Release The MONEY® Book The Social Currency

pg. 6 pg. 11 pg. 25 pg. 28 pg. 36

The Advisors Channel

pg. 39

Plan Now for a Year-End Investment Review Written by Guy Conger - pg. 30

November is Financial Literacy Month Written by Desmond Jordan and James Dean - The MONEY® School - pg. 19

T S

Enquiries: +1 416 360 0000 || james@money.ca

Corporate Tax Squeeze Written by Trevor Parry - pg. 10

The 7 Biggest Estate Planning Blunders to Avoid - Written by Ed Olkovich - pg. 17

It’s time to lock in your mortgage rate…ASAP! Written by M. Spooner - pg. 29

MONEY® Media

Inheritances – a relic of the past? Written by Ian R. Whiting, Senior Editor pg. 16

2013

Shopping is NOT a Sport Written by Tammy Johnston - pg. 32

The Present, Past and Future of Money Idioms, Famous Quotes and DoubleEntendres Written by Richard Kiernicki - pg. 33 How the US Federal Reserve’s decisions affect you - Written by Michael Kavanagh - pg. 34 The Clock is Ticking Written by Robert Gignac - pg. 35 What to Do With Your Year-end Bonus? Written by Tahnya Kristina - pg. 38

Mailing Address: Head Office 7181 Woodbine Ave., Suite 226 Markham, ON L3R 1A3

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MONEY.CA MONEY® Magazine - Fall 2013 - 3

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June of 1685, the first issue of “card money” took place – printed on playing-card stock.

ho doesn’t like currency – at least the part about having some it! We have an interesting path to trace – from animal pelts, through some coins via Spain and France, our own early bank notes through to the latest polymer versions and increasing use of coinage replacing some bills.

Into the early 1700s, copper coins were introduced but many merchants weren’t fond of them and continued to allow certain customers to purchase goods based on their own credit. Not having a standard currency across all of the colonies in North America was a challenge particularly for developing trade.

Canadian Currency – a Written by James Dean, Publisher

Going back to the 1600s, beaver pelts were the currency of choice – despite their relative bulk. Grains and other types of animal skins were also used in certain areas. Given issues of weight and bulk, wampum (strings of shells and beads) became legal tender particularly along the east coast of North America. This seemed to work quite well for a while but by June of 1685, the first issue of “card money” took place – printed on playingcard stock. Counterfeiting was born as the cards were quite easy to copy.

Denominations of 25 cents – called “shinplasters”.

4 - MONEY® Magazine - Fall 2013

Into the 19th Century we came, and in 1817, the Montreal Bank (forerunner of the Bank of Montreal), issued the first Canadian bank notes. Other banks soon followed suit. The notes were well received and became the main means of payment in British North America. The Dominion of Canada issued $1 and $2 notes in 1870. $500 and $1,000 notes followed in 1871 and $50 and $100 notes in 1872. A $4 denomination was added in 1882. Bank notes were also issued in denominations of 25 cents – called “shinplasters” as shown below. Provinces and Territories got into the bank note business as well – printing a wide variety of very colourful notes until the Bank of Canada put an end to that creativity.

MONEY

By 1854 and continuing through 1914, the new Dominion of Canada had its currency based on the “gold standard”. The value of the Canadian dollar was fixed in terms of gold and quite interestingly, was valued at par with the U.S. currency. Both U.S. and British gold coins are legal tender in Canada. A very strange situation evolved in July of 1864, the U.S. greenback sinks to less than 36 cents (Canadian), an all-time peak for the Canadian dollar. It subsequently recovers through the decade and the currencies trade around par until the outbreak of the First World War. After World War II and the ending of the Korean Conflict, the Canadian dollar depreciates. The Federal Government cancels fixed parity, putting it at odds with the International Monetary

By 1979 our dollar is down to $ .84 U.S. and by August of 1981, the Bank of Canada rate exceeded 21%. By 1982, our dollar traded below 77 cents U.S. Commodity prices go into freefall in the mid-1980s and by early 1986, our currency reached a low of $.6913 versus the greenback. Canadians were not a happy group, with the exception of all of the exporting industries! After increasing to about $.86 U.S. at the end of the decade, we dropped again to only $.6311 by 1998 as a consequence of the financial crisis in emerging markets such as Russia and Latin America. Into the 21st Century and we fall again hitting a record low of $ .6198 on January the 18th, 2002. By 2006, the loonie bounces over $.90 cents prompting calls for fixed parity (again). After some more ups and downs, our dollar hit $ .94 versus the U.S. dollar

a Centimental Journey!

r and Ian R. Whiting, Senior Editor

Fund but the currency appreciates! By August of 1957, the Canadian currency hit a peak value of $1.06 U.S. In early May of 1962, our Federal Government establishes a new “par value” against the U.S. dollar of $ .925 with a fluctuation range of 1%. May of 1970 rolls around and good heavens – we have Government budget surpluses! As a result, they allow the currency to float but inflation begins to rise as a result of this decision. In April of 1964, the Canuck-buck hit a high of $1.04 U.S. The strength sparked fear about Canada’s export industries at a time when the unemployment rate was already high as some of the Zoomers and early Boomers will readily recall. The Zs and Bs all remember November 15th, 1976 – the Parti Québécois is elected, causing markets to “make a major reassessment of the Canadian dollar’s prospects.” At the same time, commodity prices began to slide and inflation growth accelerated. In the late 1970s and early 1980s, Canadians had to deal with our loving Federal Government of the day and their unique creation called the Anti-Inflation Board.

on May 31st, 2007. It reached parity in September. That fall the loonie hit its modern-day, intra-day high of $1.10 U.S. and hit its highest closing price of $1.08 U.S. on Nov. 6, 2007. The remainder of 2007 and 2008 saw some erratic movement and by mid-2008, we were below parity with our southern neighbors. After the economic and financial crisis of 2008 and early 2009, we hit a recent low of 76 cents in early March of 2009 before we began a rapid climb against a basket of international currencies reaching parity again in early April of 2010. Since then, the values have remained reasonably close to the U.S. dollars. For the future – talk to some currency traders! With courtesy to: http://www.theglobeandmail.com/report-onbusiness/economy/a-brief-history-of-the-canadiandollar/article1366590/ Wikipedia The Bank of Canada

MONEY® Magazine - Fall 2013 - 5

BEST RATE AROUND® MONEY

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Precious Metals Gold

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Silver $22.51 - CAN PER OZ

Platinum

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Crude Prices

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US $100.81

Canadian $ 1 ------------------> US $ 0.9723 www.thecanadiandollar.ca www.theamericandollar.ca

Stock Update

INVESTMENT MARKETPLACE

- $8.21 BlackBerry Ltd. saw its shares rise towards $8.50 following a report in the Wall Street Journal that Chinese PC maker Lenovo is considering making a bid for the troubled smartphone maker.

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6 - MONEY® Magazine - Fall 2013

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MONEY

o paraphrase Stephen Hawking – a Brief History of Time via the Canadian penny: and an interesting history it is! The first Canadian penny was minted in 1858 and it was 1 inch in diameter and weighed about .160 ounces – slightly smaller than our current Loonie. These cents were originally issued to bring some kind of order to the Canadian monetary system, which, until 1858, relied on a mix of British and New France coinage together with British

(now Ontario and Quebec), New Brunswick and Nova Scotia upon Confederation in 1867. New Brunswick and Nova Scotia had issued their own coinage prior to that date, with British Columbia, Prince Edward Island and Newfoundland continuing to issue their own “pennies” until they joined Confederation. The coin was then reduced to its current size to match the size of the American penny.

A penny for your thoughts Written by James Dean, Publisher and Ian R. Whiting, Senior Editor

bank and commercial tokens (francophones calling them sous, a slang term that survives today), some U.S. currency and Spanish milled dollars. The original production details were chosen with the intention that they could double as measuring tools – two uses for the price of one! However, their light weight compared to other bank and merchant halfpenny tokens readily available at the time hindered their wide acceptance. Some of the coins were even sold at a 20% discount and were inherited by the Dominion of Canada government in 1867. Fresh production of new pennies (with the weight increased to .200 oz) was not required until 1876. The large one-cent coins of 1858–1920 were significantly larger than modern ones and have a diameter that is a little larger than the modern 25¢ piece. The first Canadian one cent coin was struck in 1858 by the Royal Mint of Great Britain. After Confederation, these coins were struck on the planchet or blank used for the British halfpenny and were roughly the same value. Pennies were issued only sporadically in the latter part of the 19th century. They were used in the Province of Canada

The face (obverse) of the Dominion of Canada penny and subsequently the Bank of Canada currency, has always been the reigning sovereign while the reverse, with one exception in 1967, has displayed either one or two maple leaves. According to current records, approximately 35 billion pennies have been produced since the Royal Canadian Mint first opened its doors in 1908. One of the driving forces to eliminate the penny in 2012 was the simple fact it was costing Canadian tax-payers 1.6 cents to produce each penny and this in spite of switching to a steel coin with a touch of nickel and copper plating. The Royal Canadian Mint is in the process of melting down as many pennies as possible in order to recover the value from the metals used in their manufacture. With courtesy to:

• Wikipedia • Rick’s Canadian Pennies Collection • http://www.bing.com/images/search?q=Picture+of+Cana dian+Penny&qpvt=Picture+of+Canadian+Penny&FORM=I QFRML

MONEY® Magazine - Fall 2013 - 7

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ased at the Exchange Tower on King Street in Toronto, FundSERV was founded in 1993, and hasn’t looked back since then. Headed up by CEO, Brian Gore, the private

STP essentially involves enabling the processing to take place from conceptualization to settlement by electronic means without human intervention. At least this is the ideal. Various

FundSERV

A Canadian Success Story Written by Gerald Trites, FCA, CPA

company offers a sophisticated online infrastructure for processing investment transactions. As their website states, “we are an online hub that electronically connects fund companies, distributors and intermediaries, enabling them to buy, sell and transfer investment funds amongst each other.” Most recent estimates put the number of clients at about 700. They process approximately 150,000 daily network transactions – and provide online access to over 35,000 investment fund products. The FundSERV business model is a relatively modest one in that it is based on a cost recovery model, which means that their customers receive a rebate each year based on company results. The significance of FundSERV is that it offers a means to achieve straight-through processing (STP) for fund transactions. STP has been a goal of several sectors in the investment industry in recent years. The concept grew out of the rather disjointed nature of the industry in that the processing chain for transactions has been poorly connected, with various different computer systems to deal with and, importantly, a lack of data standards across the chain. This led to a lot of inefficiency.

groups have achieved it to different levels. The STP movement has grown rapidly within the industry, particularly with addressing the standards issue. Recently standards have been agreed upon, based on the use of XML (eXtensible Markup Language) for representing data. This was a long time coming, and will be a major breakthrough for the industry. XML is a major internationally recognized standard for representing data, therefore making data transfer between systems more feasible and efficient. FundSERV doesn’t use XML as yet, but is geared up to adopt it when the new standard for STP is implemented. Any companies or organizations that trade in mutual funds can use the service. There is little direct competition in Canada, although there are several other organizations in North America that offer similar services, although not necessarily the same level of technology capability. FundSERV is a Canadian success story, enhancing and serving the Canadian investment community. It represents state of the art technological innovation of the type we need in Canada. Hopefully they are blazing a trail for others to follow. MONEY® Magazine - Fall 2013 - 9

MONEY

ll G7 countries have struggled with managing their fiscal house and a variety of policy tools have been employed with varying degrees of success. Europe has adopted a program of austerity which is starting to show results. The Americans have opted for monetary alchemy and tax increases which have seen both burgeoning mega debt and political dysfunction as the rules of the day. Canada has opted for a middle strategy. While some cuts have been made, largely through attrition rather than program rollbacks, tax policy has become a central element of the Harper government’s action plan. It has been a central tenant of both Conservative and Liberal tax policies that low corporate tax rates encourage business. While this seems a straight forward approach it has generated unintended consequences. Those on the left argue that preferential tax rates for small business merely perpetuate small businesses. I am begrudgingly inclined to agree with them. Companies will adopt byzantine structures and jump through accounting hoops to avoid paying higher taxes. In addition to these inefficiencies, low corporate taxation

base.The last three federal budgets have seen further evidence of this squeeze on the use of corporations. The 2011 budget proposed changes to past service funding for Individual Pension Plans (although this was not passed into law). The 2012 budget announced the intention to rewrite the “exempt” test that governs permanent life insurance policies and the 2013 budget saw several actions all directed at forcing money out of corporations. The re-characterization rules are no doubt the first step in a policy that will effectively end the use of corporate class funds while the prohibition of the 10/8 strategy is a shot across the bow of aggressive insurance based planning. The most notable change to the taxation of noneligible dividends will effectively end the “all dividend” compensation strategy that was taking hold across the country. Dividends were becoming, for many, the preferred means of compensation for in addition to avoiding the requirement to contribute to the Canada Pension Plan, sizable tax savings were possible. It is my contention that very few people actually saved money, but instead rapacious personal spending was

Corporate Tax Squeeze Written by Trevor Parry

has encouraged the growth in corporate savings at almost every level. The investment and insurance industries are well aware of the growth in saving within corporations, for indeed almost all new products and associated strategies for the last twenty years have been aimed at enhancing deferral through the elimination of distributions which would attract punitive rates of taxation on passive income or through the re-characterization of that income into more tax friendly streams, such as capital gains. The exempt life insurance policy, the corporate class mutual fund, and the pre-paid forward contract are all examples of this strategy made manifest in product form. The Harper government has decided to begin a methodical and pronounced assault on these strategies and products. This is smart political calculus. They have not severed their ties to the business community, but gently applied pressure to see some of the more egregious deferrals. In this manner, they avoid the protests that would be associated with more bold policy actions such as reforming civil servants pensions and claims by the press that they were in the pockets of the rich if they embarked on tax reform which would flatten rates and broaden the tax

encouraged. Mr. Flaherty, no doubt seeing the drop in both tax revenue and CPP contributions, realised that too many people were gaming the system. He thus reduced the gross up associated with these dividends. The result is that $2.2 billion in tax revenue will be generated in 2014. Only in Ontario and Nova Scotia is there a small benefit to preferring dividends to income and the governments of those provinces will no doubt move to end that preference. Planning will therefore have to change to meet this more aggressive policy environment. Clearly this will go beyond simple corporate tax planning as promises to tax testamentary trusts at the highest marginal rates can be seen as nothing more than a bald faced assault on the middle class. Planners must therefore be cognisant of these trends in tax policy and seek to minimize exposure of client assets to peril. Perhaps an expansion in the use of registered plans, such as the IPP, will go some of the way to both protecting retirement plans and maintaining deferral. Nonetheless the days of the indefinite deferral of taxation by using a corporate structure are coming to an end. Entrepreneurs must seek new options or be prepared to pay considerably higher tax bills. www.individualpensionplan.org

10 - MONEY® Magazine - Fall 2013

MONEY®

MUTUAL FUND REVIEW

September 2013

Starting assets (August 31, 2013) + Net sales +/- Estimated market effect = Ending assets (September 30, 2013)

M A G A Z I N E

$750.8 billion $2.4 billion $8.3 billion (1.1%) $761.5 billion

Top 3 Categories

Bottom 3 Categories

Asset Growth ($)

Misc. – Income & Real Prop.: $4.593 billion Global Neutral Balanced: $2.978 billion Cdn. Div. & Income Equity: $1.380 billion

Misc. – Geographic Equity: -$4.249 billion Canadian Fixed Income: -$884 million Cdn. Long Term Fixed Income: -$381 million

Asset Growth (as a % of starting assets)

Misc. – Income & Real Prop.: 6,801.8% Preferred Share Fixed Income: 424.8% Commodity: 166.7%

Misc. – Geographic Equity: -94.4% Miscellaneous – Other: -80.5% Miscellaneous – Sector Equity: -42.5%

Net Sales ($)

Global Neutral Balanced: $1.506 billion Cdn. Div. & Income Equity: $1.007 billion U.S. Equity: $957 million

International Equity: -$1.684 billion Cdn. Long Term Fixed Income: -$759 million Canadian Fixed Income: -$554 million

Net Sales (as a % of starting assets)

Preferred Share Fixed Income: 424.4% Misc. – Income & Real Prop.: 233.8% Alternative Strategies: 5.1%

Cdn. Long Term Fixed Income: -37.2% International Equity: -14.7% 2015 Target Date Portfolio: -5.1%

Performance (Fund Category Averages)

Japanese Equity: 6.8% Asia Pacific Equity: 5.3% Emerging Markets: 4.4%

Precious Metals Equity: -10.6% Retail Venture Capital: -0.9% Cdn. Inflation Protected Fixed Income: -0.3%

ALL THE INFORMATION AND SERVICES YOU NEED MUTUALFUNDINDUSTRY.CA - Total mutual fund assets under management (AUM) for September 2013 were $940.4 billion, compared to $926.0 billion in the previous month; an increase of $14.4 billion, or 1.6%. Since September 2012, total mutual fund assets have increased by $113.2 billion, or 13.7%. Total net sales for September were $1.46 billion, and were up compared to net sales of $939.6 million for the previous month, and were lower compared to net sales of $1.72 billion last September. TOP10MUTUALFUNDS.CA - Top 10 Funds is an inter-active no nonsense web-enabled feature of MutualFund.ca that is purposely designed to attract and retain the attention of all necessary participants investors, advisors and the fundcos. The Top 10 Funds simply defines, explains and demonstrates the Mutual Fund Market with the Mutual Fund Chart that depicts the best and worst. MUTUALFUNDADVISORS.CA - Attracts and retains the attention of independent mutual fund representatives and dealers Canada wide in several ways. Back Office point of sale naturally presents information at a critical and captive decision making time and precisely toward the highly coveted advisor channel. “Mutual Fund Advisors” is ranked number one on yahoo, google, bing and youtube and speaks directly to and has credibility with thousands of important non-bank, licensed professionals. MUTUALFUNDINVESTORS.CA - Mutual Fund Investors and Shareholders have all of the benefits and advantages as stockholders; there are many intricate details in being a stock or mutual fund shareholder and investor. Mutual Fund Investors have many rights, responsibilities and obligations.

Canadian Mutual Fund Investors have become aware of many independent problems, issues and scandals that have forged investors to be even more aware and the advent of the Internet makes these savvy mutual fund investors a demanding group with a 940 billion dollar mutual fund market. MUTUALFUNDCATEGORY.CA AND MUTUALFUNDASSETCLASSES.CA Top 10 Funds, 52 Categories, 10 Asset Classes. Mutual Funds in Canada every year there are nearly 100 mutual fund companies, investment companies and money management firms serving up thousands of individual, varied and alternative investments. Which one to pick? After all it is diversification – which ones to pick? BESTMUTUALFUND.CA For the second year in a row Fidelity Investments Canada has won the prestigious “Advisors Choice” Investment company of the year according to this years Morningstar’s Canadian Investment Awards. MUTUALFUNDSNEWSLETTER.CA Mutual Funds in Canada - Don McGrath of Investment Financial Group Inc. celebrates 35 years in business as a pioneering independent mutual fund dealer in Ontario selling quality Canadian Mutual Funds to individuals and small business. MUTUALFUNDSMAGAZINE.CA - The Wealthy Barber best selling Author and Dragons Den media personality Dave Chilton, Mutual Fund Expert - Gordon Pape and Michael Lee-Chin upcoming interviews in early 2014 in the RRSP Season edition of Money Magazine.

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MONEY

he Gatlin Brothers released a song many years ago and the opening line includes the words “everything that glitters, is not gold.” For probably everyone who is north of about age 45, this statement is nothing new. For some of the younger Gen-X, Gen-Y and certainly the Millennials, this is likely to be a statement that isn’t well understood, if at all.

A few interesting facts about this wondrous metal: • Gold is so rare that the world pours more steel in an hour than it has poured gold since the beginning of recorded history.

Gold has had a mystique throughout history. Rare. Rich colour. Malleable. Doesn’t corrode. Unique. Of great value. A sign of wealth. Prestige. Influence. Creator of delusions of grandeur. Of entitlement. Greed. Mysterious. Mesmerizing. Hypnotic.

• Gold is so pliable that it can be made

We are reminded of a quote from cartoon writer Johnny Hart: “He who has the gold makes the rules.” Not quite the golden rule of our youth, but certainly an interesting twist! Philosophy aside, gold has been a gift (or burden) for mankind for centuries and in every instance has been a measure of stability and of substance. So let’s visit some thoughts and commentary about the place for gold in

• Gold has been discovered on every continent on earth. into sewing thread. An ounce of gold can be stretched over 50 miles.

• Gold is edible (and drinkable). Some Asian countries put gold in fruit, jelly snacks, coffee and tea. Since at least the 1500s, Europeans have been putting gold leaf in bottles of liquor such as Danziger Goldwasser and Goldschlager.

• Gold and copper were the first metals to be discovered by humans around 5000 B.C. and are the only two non-white-coloured metals. The first gold coins of the Grecian age were struck in Lydia around 700 BC.

Precious Metals Exchange

Is gold really golden? Written by Ian R. Whiting, Senior editor and James Dean, Publisher

www.preciousmetalsexchange.ca

today’s economic climate. Today: Even optimistic gold bugs concede that the price will likely hover just under $1,300 in the short-term, as Investors worldwide sour on the idea of turning to the so-called safe haven metal that has been wildly unpredictable of late. Gold fell below $1,200 in June – the lowest it’s been in three years – after starting 2013 at nearly $1,700. “Its performance has been a non-event,” said disappointed long-time gold bug John Ing, president of Maison Placements Canada. “It just hasn’t arrived at the show” this year despite the political instability caused by the U.S. government shutdown and the sinking greenback – all factors that normally boost bullion, he said. Gold traditionally moves in the opposite direction of the U.S. dollar, and tends to get more buyers in times of war and economic upheaval. Since it hasn’t gained during the shutdown, bullion watchers are bracing for another potential drop when an expected settlement is reached by U.S. lawmakers – and a flight to safety isn’t necessary. Aristotle - “Yellow-coloured objects appear to be gold” Analysts believe that the global demand for gold will pick up in the next few weeks in India during Diwali and the Indian wedding season, when golden gifts are standard. 12 - MONEY® Magazine - Fall 2013

• From an earlier preference in using silver, European economies re-established the minting of gold as coinage during the thirteenth and fourteenth centuries. How to own it: Modern bullion coins for investment or collector purposes do not require good mechanical wear properties; they are typically fine gold at 24k. The American Gold Eagle and the British Gold Sovereign continue to be minted in 22k metal in historical tradition along with the South African Krugerand, first released in 1967. The special issue Canadian Gold Maple Leaf coin contains the highest purity gold of any bullion coin, at 99.999% or 0.99999, while the popular

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issue Canadian Gold Maple Leaf coin has a purity of 99.99%. “A man that hoards up riches and enjoys them not, is like an ass that carries gold and eats thistles.” — Richard Burton Opinion: Most analysts agree that a well-balanced portfolio should allot a certain amount, somewhere between 5-15%, to gold, depending on your outlook for the economy in the near, mid- and long-term. One decision you need to make is how to allocate this portion amongst the several options for owning gold. You can invest in the physical yellow metal, buy gold mining equities or buy gold ETFs. The Advantages of Gold Stocks Market diversification: Gold equities don’t necessarily move in lockstep with the commodity. For various market-related reasons, the stock of Barrick (TSX: ABX) or Agnico-Eagle Mines (TSX: AEM) might be over- or under-valued in relation to what the price of gold is actually doing. This may be disappointing when bullion is rising to new highs, but it can also counteract the effects of weaker gold prices when it drops in price. During the Great Depression, gold stocks soared, even when physical gold became illegal to own privately. Asset diversification: Many gold producers, such as BHP Billiton, also produce a significant number of other precious and more common metals. This capability can also provide some cushion to the stock and hedge against gold prices. It also means, however, that the stock will be open to risks coming from other directions related to those metals too. Liquidity: Stocks can be relatively easy to buy and sell. If you need to sell on the open market, it’s much easier than having to find and contact a local bullion dealer. Disadvantages to Owning Gold Stocks Broad Market cycles: It’s hard to say which would be the more potential victim of gold speculation, bullion or the stocks. But gold equities will also get caught up in general market forces such as bull and bear cycles that may not affect gold prices themselves. Gold stocks might act differently because they are equities, yet intricately linked to commodities, which are the most volatile asset class. Take a look at Barrick’s recent and very unique situation. Company Risk: Because you’re dealing with individual companies, you will have some management risk. A change in management or management decisions, a lawsuit, political risk, local currency risk and other factors can all affect the valuation of the company itself and hence, the value of your stock. Gold ETFs might seem like the perfect common ground between the above two options. But don’t forget that there are different types of gold ETFs. Some trade gold futures. Others, more recently, can hold the physical bullion itself.

Most exotically, there are also leveraged gold ETFs. These are intended for very experienced investors. If you are new to investing, let alone investing in gold, please do not start with leveraged gold ETFs! They might be (or we should say, seem) simple to understand, but so is a sharp 10” chopping knife. Advantages of Holding Gold Bullion ETFs. Depending on the type of ETF, you get the benefit of either asset form listed above – your own metal, safe storage, and liquidity. You also don’t have to pay insurance or account fees. You might have more direct exposure to the commodity if your ETF holds the bullion itself in vaults. On the other hand, if you prefer owning the equities and you want a dividend of some sort, then an equity ETF is the way to go and really does provide unique value – maximum diversification with a tiny bit of income, too. Disadvantages of Holding Gold Bullion ETFs. There are still fees that eat up your costs here – the ETF management fee, as well as commission fees for each buy and sell. There is the market risk of the underlying companies, and depending on how actively managed your ETF may be, there may be some management risk or turnover risk. You must check out the specific ETF in which you are interested and research its exposures. One perspective: if you’re a beginner, or new to investing in gold, an ETF may be your best alternative, although you will have to determine whether it invests in a gold index (such as iShares XGD) or bullion itself (such as GLD). Because gold companies are also subject to cyclical forces as well as production forces, it makes sense to spread your risk out among a number of them. Once you become more familiar with the landscape and get to know individual companies you may want to consider investing in a particular company. Mutual funds are an option too. If you can find a mutual fund with an MER comparable to its closest ETF, it might be worth considering. Whichever asset group you choose, it’s smart to have at least some exposure to gold – it’s not just an investment, it’s a form of insurance, too. Like having an emergency fund, gold can help insulate your portfolio from some market shocks like inflation since gold is negatively correlated with various sector movements. Just be sure to do your due diligence before making your final decision. With courtesy to: • Wikipedia • http://facts.randomhistory.com/2009/03/09_gold.html • http://www.getmoneyenergy.com/2009/09/advantagesdisadvantages-investing-gold-bullion-gold-stocks-gold-etfs/ MONEY® Magazine - Fall 2013 - 13

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C AAreNthey AD I A N really serving t Written by Ian R. Whiting, Senior

013 has certainly continued the trends of 2010, 2011 and 2012 for the major Canadian Banks. Record profits each quarter. Regular dividend increases to shareholders. Steady growth in stock value for both preferred and common shares. Excellent international and supra-national credit-worthiness ratings. Held up as role models for banks in every other country by the IMF and World Bank. Everything is rosy all around – right? First, while the Big 5 are leading the way financially – RBC, TD, ScotiaBank, BMO and CIBC – let’s not leave out some other key players such as the National Bank, HSBC Canada, Canadian Western Bank and Manulife Bank and perhaps AMEX Bank of Canada; or the vast credit unions such as the Caisse Populaire, Desjardins or Vancity. Despite the record profits across the entire Canadian banking industry – in all sectors – are Canadians getting any more service? Are we getting any better service? Are our costs to use the system dropping? Is the sense of entitlement in the 14 - MONEY® Magazine - Fall 2013

banking sector approaching that of some Senators with no signs of abatement? Are our fees dropping as profits increase? Are fees being eliminated all-together particularly for low- and average-income Canadians? With interest rates at all-time lows, why are credit card issuers (the banks and credit unions) still charging users up to 24% on outstanding balances – 24 times the rate at which they borrow? Isn’t this usury on their part at the expense of Canadians? Shouldn’t they be HELPING Canadians rather than hurting them? Are our banking institutions pursuing profit at the expense of Canadian jobs and employees? One of the Big 5 got caught earlier this year in a PR disaster for exporting Canadian jobs: but did any of the others learn from that experience? If so, what did they learn – don’t get caught? Run things through multiple levels of non-Canadian subsidiaries and call it a necessary part of global expansion? Should all parts of the Canadian banking/trust company/credit union system be required to fill jobs in Canada? Should there

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be a requirement that 90% of the work done to support their Canadian operations has to be done in Canada using Canadians as employees? We began by asking questions about the Big 5 Banks and some of their close colleagues – but what about Job Banks? Where do they fit? Should sponsorship or other financial support of Canadian Job Banks be a requirement of all members of our banking system: whether they are Federally, Provincially or Territorially regulated? Should banks have to hire a certain percentage of new employees from Job Bank listings? Lets chat about another well-known bank – the Food Banks across Canada. These days, most companies have either official or unofficial annual food drives usually targeted towards cultural or religious holidays – and that is very nice to see. But what about something stronger? Something with teeth. What about supporting school lunch programs for under-privileged children by using AFTER tax profits on some form of mandatory scale rather than increasing dividends or

provides some valuable ideas and concepts, it is certainly not a panacea. We also don’t want anyone to get the impression that we are against companies succeeding and doing so at internationally recognised levels – we clearly are not suggesting that. What we are suggesting is that morally and as ethical contributors to Canada, these businesses, their boards and executives need to pay more attention to the impact of their decisions on everyone in Canada. From the new Canadian arriving here to escape the horrors and ravages of war, civil unrest, torture, personal and religious persecution to the 10th generation “blue-bloods” living in the wealthiest postal codes in the country – everyone deserves fair treatment; ethical treatment; treatment that empowers them as individuals and rewards them as contributing Canadians. They deserve to pay fair fees for services – not to be taken advantage of in the pursuit of profits. They deserve to pay fair rates for credit not those of a usurious nature. Even the smallest account holder deserves a fair return on their savings

B I G B A N K S the needs of Canadians? Editor and James Dean, Publisher

share value all the time? And should we now discuss executive compensation – both from a practical as well as an image perspective? Should there be a penalty tax (non-deductible as a business expense) when executive compensation (in all forms totalled together) exceeds a certain threshold? Should it be formula based on the lowest earning person on the payroll for public companies (of all types)? We are NOT suggesting socialism which has been a proven failure but rather a process that changes the compensation dynamic to WE rather than ME. Perhaps public companies should have mandatory profit sharing programs that EXCLUDE executives or caps their eligibility? To be sure, some credit unions have taken and are taking a broader approach to ensuring their products and services are available to a broader cross-section of Canadians and at very low cost; but not all of them. While their “communal” approach

as is clearly possible given the level of profits being earned despite low rates charged by the Bank of Canada. In the last issue of Money Magazine, we wrote about Social Capital. Our system is good – however it can be much better. We wonder: who will take the lead? Will it be the Big 5? Will credit unions expand and enhance their offerings? Will the middle tier decide to grow with the HELP of their customers and employees and outstrip the Big 5? The gauntlet is thrown... now who will pick it up? With courtesy to:

• www.canadabanks.net • http://www.bing.com/images/search?q= Canadian+Banks&FORM=HDRSC2

• http://www.bing.com/images/search?q=

Canadian+Bank+Cartoons&qpvt=Canadian +Bank+Cartoons&FORM=IGRE#a

• http://www.bing.com/images/search?q=

Social+images&qs=n&form=QBIR&pq=so cial+images&sc=2-13&sp=-1&sk= MONEY® Magazine - Fall 2013 - 15

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Inheritances – a relic of the past? Written by Ian R. Whiting, Senior Editor

touchy subject I suspect, as I know of quite a few Boomers, Gen. Xs and Ys that are counting on inheritances from the Zoomers, and then down through the other generations, to fund their own financial independence. Numerous studies have pointed to the trillions of dollars currently in the hands of the rapidly aging Zoomers and older Boomers that will be left to the younger groups – but will that actually happen?

sums to charitable foundations rather than pass it all to family and/or friends.

Having been in this industry for more than 40 years, I have seen first-hand the results of inheritances – some that were positive experiences but most, regrettably, were not. One situation comes to mind where a young person inherited close to $900,000 from a parent – it lasted less than 9 months and accomplished nothing other than totally wrecking multiple vehicles worth more than $500,000, together with some outlandish trips and spending sprees – nothing was left from the hard work of the parent’s lives. Was this what was intended? Most certainly not.

Could it be that increasing longevity has made people aware that their first priority is not to become a burden on others? Could it be that people are looking to enjoy more in their postemployment lives that has been the case in the past 50 or 60 years? Are we now awakening to the true cost of caring for ourselves as we age? Are we finally recognizing that the various levels of government will not provide the standard of care to which we feel entitled?

As I speak with more and more Zoomers and Boomers, the attitude seems to be far closer to the well-known bumper sticker: “We’re spending our kid’s inheritances.” But why is this happening? Even the multi-billionnaires are getting into the act with various pre- and post-mortem gifts being planned as the Jimmys, Sir Richards, Bills and Warrens are donating massive 16 - MONEY® Magazine - Fall 2013

But these people aside, why the apparent change in attitudes towards leaving an inheritance to family members? Could it be that parents are recognizing they made sometimes excruciating sacrifices to raise their children, pay for food, clothing, shelter, education, sports, entertainment, etc.? Gave them the love and caring support they needed to reach adulthood?

I certainly don’t have the answers and my guess is that there are many factors at work. What I do know, however, is that very few Gen. Xs, Ys or Millennials are going to lie in the lap of luxury when their parents finally pass away. A mentor once told me something very profound – every monkey has to hang by their own tail. Is your tail strong enough to support you?

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1 2 3 4 5 6 7 1.

Never Finding Any Time

This is the first and biggest mistake people make — they never do any estate planning. Why does this happen? Are we really too busy or is it that we just don’t know how to get started? For most people, it’s trying to find all the answers by themselves. That’s impossible. You need to find out who can help you find the answers you need. 2. Not Having Any Plan Many people leave things to chance because they think they’re not rich. It’s a mistake thinking the people you leave behind will automatically manage and figure things out. In every family there are differences of opinion concerning money. Problems can occur whenever someone else must try to interpret what you want done. If you don’t bother making an estate plan, the Provincial or Territorial Government will provide one by default. Their

Wills are legal documents that must pass certain legal tests. Judges are often called upon to interpret or declare homemade wills invalid. Don’t try to make a will by yourself. Invest in a professionally prepared will to get peace of mind. Start your research by finding the right legal advisor. 5. Becoming a Target of Financial Abuse Who can protect you and your money if you can no longer do so? Don’t think that your family, spouse or children will automatically have access to your bank accounts to pay your bills. Your estate plan should include all necessary types of power of attorney documents. You sign these written legal documents to designate someone as your agent to make financial and/or healthcare decisions for you. You can choose who will control your money and make health-care decisions when you are no longer able.

The 7 Biggest Estate Planning Blunders to Avoid Written by Ed Olkovich

idea of what happens to your money leaves no room for your personal wishes, flexibility or tax savings. Your personal estate plan lets you decide what happens to your money and everything else that is valuable to you. You need to learn how to give away all your stuff to keep the government rules from doing it for you.

6. Not Dealing with Insurance, Business and Charities

3. Paying Way Too Much Tax

Donating to qualified charities, religious, or public causes as part of your estate plan can reduce your income tax liabilities. Giving to charity can be rewarding in more ways than one.

The government has ways to make you pay taxes even after you’re gone. If you have a vacation property, a business, substantial investments or even a registered pension plan, don’t think you can give these away tax-free. An estate plan can give away your property and reduce, or perhaps altogether eliminate, taxes. Think how grateful your beneficiaries will be. 4. Not Making Your Will If you fail to make a will, the Government writes one for you. You have no say about who is in charge of your estate, who gets a share of your money or how and when it is distributed. You also lose the chance to use any tax-reduction strategies. Yet people die all the time without having a will. Why? Often, they have no idea what is involved in making a will or why it’s the cornerstone to every estate plan.

Missing an opportunity to deal with these items in an estate plan can be devastating. There are certain tax-free advantages with insurance or a qualified incorporated business. Your estate plan should always consider these items in order to capitalize on the benefits.

7. Not Updating Your Plan No estate plan will work if it is out of date. Learn why updates are necessary when changes occur, including: • a change in your personal relationships (marriage, cohabitation, separation or divorce) • new children, grandchildren, or stepchildren • changes in your legal and moral obligations • moving to another province, state or country Edward Olkovich (BA, LLB, TEP, and C.S.) is an Ontario lawyer, nationally recognized author and estate expert. He is a Toronto based Certified Specialist in Estates and Trusts. Edward has practiced law since 1978 and is the author of seven estate books. © 2013

MONEY® Magazine - Fall 2013 - 17

The MONEY® School Back to the drawing board... learn more to earn more. Welcome to the destination place that helps you Make, Save and Preserve more of your MONEY. • The MONEY School is a continuous odyssey of learning that makes sense and pays dividends. • Come once to The MONEY Class for free or PAY for exclusive MONEY® Membership and stay for the course, plan and program and graduate from MONEY U. • The MONEY Book - Course Class and School is a lesson you can’t afford to miss.

REGISTER NOW - Only $100.00 per person and $125.00 for couples and immediate family. Sign up and get Money Magazine and the monthly online Money Newsletter - FREE!!! We accept Mastercard Visa, American Express and INTERAC online. GTA and Surrounding Area - New Classes and Courses Starting in January Including - Oakville, Hamilton, Burlington, Mississauga MONEY, PERSONAL FINANCE, and The Core Financial Products, Services and Advice Channels Re-visited. The Focus is on You - The Average Canadian that wants the instructions, motivation and common sense as a philosophy and more importantly a discipline.

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- MONEY® Magazine - Winter w18w w. T heM o n2013 eySchool.ca

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FINANCIAL LITERACY? ®

lain and simple. Easy to understand. Complete. Accurate. Objective. To quote Albert Einstein: “If you can’t explain it to a six-year old, then you don’t understand it well enough.” “it” being the topic of choice!

multiply on seemingly a daily basis. While certainly the intent is not to hide information or confuse people, the good intentions sometimes inadvertently go astray and the end result is more confusion than before.

November is

Financial Literacy Month An advertorial written by Desmond Jordan and James Dean - The MONEY® School

TheMoneySchool.ca

We believe this is the underlying tenet of financial literacy. Everyone will agree that our world – in all aspects – has become potentially far more complicated and confusing over the past 10, 20 or 50 years. Social media, while it has many uses and advantages, has not necessarily kept our lives comprehensible – in fact often, it is the reverse. We now live in something far more than an information age; we have access to too much information in many cases. The result isn’t increased clarity but rather increased confusion. Choices abound. And choice is good – right? We suggest this is not always a true statement. If people don’t clearly understand the benefits and risks of each choice, can they make an informed decision? Don Shaughnessy and Richard Kiernicki are two well-known bloggers that work hard to provide clear and concise information together with easy-to-understand explanations of otherwise complex financial topics. You can find them at http://money.ca/you_and_your_money/. At The MONEY® School, we take great pains to ensure our material is timely and accurate in addition to be easy to understand. In common with most industries today, it seems that “buzzwords”, acronyms and strange combinations of letters

Our courses leave you with a deeper understanding of the world of finance in Canada and how you can best take a leading role in your own financial success. The written “takeaways” are a ready reference to help you navigate this world. Remember, no-one cares as much about your money as you do. Advisors can be of great assistance to you, your family and business, but it is not in your best interest to abdicate responsibility for your own financial plans. Sadly, financial literacy does not form part of the core curriculum anywhere in Canada’s education systems leaving children, teenagers and young adults inadequately prepared to make sound decisions in this area. The Federal Government now has a new service available called the Financial Consumer Agency of Canada http://www.fcac-acfc.gc.ca/eng/pages/ home-accueil.aspx. While this is a good step in the right direction, much more needs to be done... not just to help ourselves but to ensure that upcoming generations get a solid foundation and understanding of our financial world. Take time to talk about this with children, grandchildren and yes, great-grandchildren. Help ensure they are well-equipped for their own futures! MONEY® Magazine - Fall 2013 - 19

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WE ARE CHANGING LIVES!

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hen’s the best time to negotiate a severance package? Believe it or not, it’s when you get hired.

Having provisions spelled out up-front in case of a layoff, is a negotiation tool that upper-level executives often use. But even if you’re not a corner-office hire, there’s no reason that you can’t ask for a few assurances if worse comes to worst.

necessary — especially if a lot of money is on the line or if you were axed before a bonus, commission, vesting period or some other important deadline. Then schedule a time to come back with questions and show off your new golf swing. If you are dismissed “with cause,” however, your former employer may not owe you a cent.

How to survive a layoff Written by Mark Borkowski

When you get a formal job offer, ask for an agreement to be included, such as three months’ severance pay. Should you lose your job, you’ll have your contract or offer letter with specific guarantees and possibly legal rights in hand. (Just remember where you filed the sucker!)

If you have some notice before the day the axe finally falls, do a little research. Call friends who have been through it — in this economy, chances are a few of your pals can commiserate — and compare severance-package notes. If nothing else, misery loves company.

If you’re already working and have been taking advantage of the Employee of the Month parking spot, then there’s usually not much wiggle room on negotiating a better deal — especially in a mass layoff situation. Most companies consult with a pack of lawyers to make sure the fateful day goes smoothly. Although they aren’t too fearful of lawsuits, they are concerned about bad press — both their outside reputation and among remaining employees.

Volunteer to stay for another 30 or 60 days. If you can set your emotions aside, offer to help with the transition, shut down your department or train your remaining coworkers. By prolonging full pay and benefits, you can push off your severance for a little while. Besides, leaving on good terms is a good move. You’ll benefit from a glowing reference and the satisfaction of being a bigger person than most.

Still, there are some measures you can take to soften the layoff blow. Here are a few tips we got from our resident Human Resources Fool. Get everything you’ve been promised in writing. Remember, you cannot be forced to sign something on the spot. Take the paperwork with you and agree to drop it off after you’ve had time to review it with a cool head. Consult a lawyer if 22 - MONEY® Magazine - Fall 2013

Consult the employee manual. If you’re determined to walk out the door with one of your employer’s valuables, take the employee manual. You can glean some important info about policies, procedures and the amount of time you can hang on to that sweet dental coverage. Mark Borkowski is president of Mercantile Mergers & Acquisitions Corp. Mercantile is a mid market M&A brokerage firm. He can be contacted in confidence at mark@mercantilema.com or www.mercantilemergersacquisitions.com.

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have previously written about how a well-defined problem is half solved and about how bureaucracies survive. Defining the problem carefully is an advantage for most of us. There is a simple assumption in this belief: that when the problem is solved you will go away and leave it alone. Not so for bureaucracies. A bureaucracy, or a department in your business, likes and wants their problem. It is, after all, their reason for being. They adapt other means and intentions when they define “their” problem. Their definition is such that the problem can never go away.

As the people whose tax money falls into this perpetual and growing maw begin to realize that poverty has mostly been cured, they come to resent it and fight back. Finding the tennis courts at the local park tied up by folks on welfare tends to irritate the tax-paying crowd who want to use them. The result is a fight against the monthly welfare amount. “Make it smaller. Let’s force these people to work.” My favorite resentful idea, “A safety net is not supposed to be a hammock.” Who loses when monthly payments shrink? Not the bureaucrats. Maybe some of the “defined poor.” The “real poor” people lose big and there are not enough of them to mount a counter attack. That seems misaligned.

There are examples: How do you define clean air? I have noticed that the air today is much cleaner than it was 50 years ago. If people still put their clothes out on the line to dry they could do so every day, not just the days the local factories were idle. A modern car produces about 1% of the noxious exhaust elements that it did 30 years ago. Where should it stop? Not soon it appears. Over-solving problems is uselessly expensive. Take poverty. I think poverty is a condition that we can well

I can understand the pain of the ‘buy food’... or ‘pay the hydro bill decision’ intellectually but not viscerally. Real poor people know. Real poor people have sick children who do not receive the proper medical care. Real poor people have limited or no recreation choices. Real poor people are not living in safe communities.

Do You Know What POOR Means? Written by Don Shaughnessy

do without. But, if I am a bureaucrat tasked with curing poverty, rather than risk my unemployment I will prefer to change the definition so the problem is always there. That is how you come to over-solve the problem. What does poor mean? To me, it means the inability to financially afford necessary things. Food, clothing, shelter, medical care, education, safety, recreation and so on. This is the consumption-based definition. By this standard there are few poor people in North America. Not none, but few. Unfortunately this definition is not of much use to preserve a bureaucracy. The definition in vogue now is the income definition. You are poor if your income is lower than 60% of the median income of all persons. It is not related in any way to the necessities of consumption and certainly not to any specific person. The income method is a comparison to others. That method, as we all teach our children, fails. It is a sweet deal for the poverty fixing crowd, however. They will never run out of poor people.

Real poor people have no predictable security. The essence is, “$20 is not much money until you need it, don’t have it, and can’t get it.” It is wasteful to spend on problems that have been mostly solved. Use resources to solve real problems and we all win. Defining poverty in terms of the ability to consume given the local cost of goods and services would be a useful starting place. In the interim, if you know of “real poor” people, help them because the government is not. A little to you can mean a great deal to them. It is the human thing to do. If you came this far, you might find this article from Forbes.com useful: http://www.forbes.com/sites/ timworstall/2013/09/21/thecorrect-us-poverty-rate-is-around-andabout-zero/ Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough, ON.

MONEY® Magazine - Fall 2013 - 23

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s the mortgage rules have changed over these past few years, so has the role of a mortgage broker. While offering low rates and access to the best products is still very much a part of what we do, our role has expanded as competition for your mortgage business increases.

and your ongoing financial needs. For example, we understand credit reports and know how you can improve yours. If you don’t qualify for a mortgage right now, we can show you how to qualify for a mortgage in the future, and together, we can develop a plan.

Your Mortgage Broker and You! Written by Guy Ward

Many Canadians see their financial institution as a one-stop shop for most of their financial services. The opportunity to cross-sell to you is one of the reasons they aggressively go after your mortgage business as well as everything else. Once you’re locked in with them, they have numerous opportunities to sell you other financial products. While it’s true that financial institutions have become more competitive with respect to rates, you, as a consumer and client, should consider whether they are looking after your best mortgage interests. Mortgage brokers on the other hand work for you and answer only to you. That’s not to say we wouldn’t place your mortgage with a bank or a credit union. We most certainly will, if after reviewing your financial goals, that financial institution has the best product to help you meet those goals. Mortgage brokers are trained and licensed to work with you to make sure you are getting the best products for your needs. We won’t try to cross-sell to you although we do offer many of the same products such as creditor life insurance, business equipment leasing and commercial mortgage lending. Because our education is ongoing, it means we are up-to-date with changes in the industry and our services are relevant to you 24 - MONEY® Magazine - Fall 2013

First time homebuyers have the added benefit of our knowledge of the home buying process – we understand every step and can act as a guide from Offer to Purchase to closing. We are invaluable to those who are self-employed. The changes to mortgage rules hit this group the hardest, but many of you can still qualify for a mortgage. A broker has relationships with many lenders and can source mortgage products that fit. Mortgage brokers don’t disappear post-transaction. We stay in touch, checking in with you to see if everything is still on track. Life does change and we help clients manage those changes. And when it’s time to renew your mortgage, once again, we will review your financial goals and shop for the best product. Many of us offer out-of-the-box thinking and strategies to help improve your finances. For example, if you want to pay off your mortgage quickly, we can offer solutions beyond the accelerated payment option. Most of us are easy to work with and very accessible – we work when and where you need us. We are an invaluable asset to your financial portfolio. Just call and find out for yourself. Guy Ward is a Mortgage Broker in Calgary, Alberta with TMG (The Mortgage Group Alberta). www.GUYTHEMORTGAGEGUY.com

MEDIA RELEASE

MONEY®

M A G A Z I N E

A licence to print New CANADIAN Money.

New Canadian money: beautiful, colorful and scarce until now. The Bank of Canada is in full phase launch mode. The latest series of new 5s and 10s join the line-up of the newest printed Canadian 20s, 50s and those wonderful “C” notes. The new Canadian money is different, unique and distinct as its land, languages and people. “The smell of money” a common old saying brings new meaning to Canada and Canadians. OOOAAAW – the scent of money. Many Canadians and a few brave members of the media have reported the smell of maple syrup that wafts off the newest Canadian bills. In order to best enjoy Canadian money one must know the rich history of its past. The English and French fought over our fledgling nation throughout the 100 year war. Two of the most powerful Imperial nations at the time mixed it up to own, control and rule these lands and peoples for many reasons. The “A History of the Canadian Dollar” by James Powell is the definitive history and a must read for any money aficionado, novice or patriotic Canadian. http://www.bankofcanada.ca/publications-research/books-andmonographs/history-canadian-dollar From playing cards to coins and notes, Canada has a beautiful currency history and the story is fascinating and the odyssey continues today. The nostalgic penny will no more see the light of day whilst the demand of copper has increased the value of the remaining pennies – a hidden advantage to be recycled and live on. In the “Canada Economic Action Plan 2012”, the Federal Government announced it would phase out the penny from Canada’s coinage system. To help consumers, businesses, charities and financial institutions to plan for the change, a transition date of February 4, 2013 was set as the official date that the Royal Canadian Mint would no longer distribute pennies. Rounding up and down will take some time to get used to for retailers, consumers and Canadian businesses. http://www.budget. gc.ca/2012/themes/theme2-eng.html Money in Canada is not without its own inherent problems; counterfeit currency has plagued the nation several times 5s, 10s and 20 dollar bills have all surfaced at different times. I have had the pleasure of personally receiving two fake 20s from a bank machine just in the last two years. Unknowingly, Canadians have used and passed on hundreds of thousands of dollars. The new Canadian money is many times more safe and secure than most currencies to date. See the latest safety features, information and equipment available to take in, authenticate and transact the new

Canadian money. http://www.bankofcanada.ca/banknotes/banknote-series/polymer/ The Canadian Dollar, commonly known as the Loonie, embarked on its metamorphosis in 1982 changing from paper money to minted coins. We have often learned in a painstaking manner from the last generation the true value of a dollar. It has been told to us, shown to us and demonstrated. It’s all this pent up energy we had in our childhood that enables us to cut loose if and when we can ever get money or it’s more dangerous relative, ‘credit’. This fact of knowing the value of a dollar has little or no effect on the currency and worth as it fluctuates on a daily basis and is based on complex systems, other than the value of other currencies together with fiscal and monetary policies as set by the Government of Canada and the Bank of Canada. The price of bread, milk, eggs, cars and homes have increased considerably, but accordingly, and in line with inflation. The American Dollar: you cannot mention Canadian money without considering American dollars – our closest geographical neighbor and largest trading partner. The Canadian Dollar holds its own compared with the United States but has had its ups and downs; in the early 70’s the Canadian dollar was worth more than the greenback. In the 80’s Canada had a policy of making it easier to trade with the U.S. by having a lower dollar that encouraged Americans to buy Canadian and do more business here. In recent times, as America tries to re-invent itself and regain the helm of as a leading economic nation, Canada will get a tremendous boost as America rebuilds and restores its once unchallenged place in world rankings. For now, our currency exchange is almost on par and our financial institutions are in good shape because of good and strong government policies. “Old money is better than new” a statement that refers to extreme family wealth or inherited money. Newsflash! There are now more self-made Canadian millionaires today than ever before yet the gap of the 99% and 1% grows exponentially. New Canadian Money is here and we should enjoy it and embrace it, covet it, have it, hold it and learn to share it with those that have nothing, less or not enough. The color of money will not change and the meaning of money will not change; but change we must! With time, technology and circumstance, our young and growing world-class nation must change to grow.

November 7th, 2013 – the release of the final polymer bills – keep watching!

www.MediaRelease.ca

Happy New Model Year. 3 months payments waived on select 2014 models2. But only until October 31st.

THE 2014 B 250. TOTAL PRICE1 : $32,915** FINANCE APR

LEASE APR

THE 2014 GLK 250 BlueTEC 4MATIC™. TOTAL PRICE1: $45,915** LEASE PAYMENT

0.9 2.9 398 %*

60 MONTHS

A Daimler Brand

%* $

48 MONTHS

THE 2014 C 300 4MATIC™ AVANTGARDE EDITION. TOTAL PRICE1: $44,665** FINANCE APR

LEASE APR

LEASE PAYMENT

0.9% 2.9% $498

$695* DOWN

Taxes extra.

60 MONTHS

39 MONTHS

FINANCE APR

LEASE APR

LEASE PAYMENT

1.9 3.9 598 %*

60 MONTHS

%* $

36 MONTHS

$2,995* DOWN

Taxes extra.

$1,995* DOWN

Taxes extra.

[Dealer Name], [Dealer Address], [Dealer Telephone Number], [Dealer Website] © 2013 Mercedes-Benz Canada Inc. 2014 B 250/2014 C 300 4MATIC™ Avantgarde Edition Sedan/2014 GLK 250 BlueTEC 4MATIC™ shown above, National MSRP $30,500/$42,250/$43,500. **Total price of $32,915/$44,665/$45,915 includes freight/PDI of $2,245, RDPRM fee of up to $55.49, air-conditioning levy of $100 and a $15 fee covering EHF tires. 2 First, second and third month payment waivers are capped for the 2014 B 250/2014 C 300 4MATIC™ Avantgarde Edition Sedan/2014 GLK 250 BlueTEC 4MATIC™ up to a total of $1,200/$1,350/$1,650 (including taxes) for lease programs and up to a total of $1,800/$1,950/$2,250 (including taxes) for finance programs. Payment waivers are only applicable on the B-Class, C-Class Sedan (not including AMG), GLK, E-Class Sedan and Wagon (including AMG). *Lease offers based on the 2014 B 250/2014 C 300 4MATIC™ Avantgarde Edition Sedan/2014 GLK 250 BlueTEC 4MATIC™ available only through Mercedes-Benz Financial Services on approved credit for a limited time. Lease example based on $398/$498 (includes a $2,190 discount)/$598 per month for 48/39/36 months. Down payment of $695/$1,995/$2,995 plus security deposit of $400/$600/$600 and applicable taxes due at lease inception. MSRP starting at $30,500/$42,250/$43,500. Lease APR of 2.9%/2.9%/3.9% applies. Total obligation is $20,199/$22,017/$25,123. 18,000 km/year allowance ($0.20/km for excess kilometres applies). Finance example is based on a 60-month term and a finance APR of 0.9%/0.9%/1.9% with a price of $32,915/$44,665/$45,915. Monthly payment is $548/$690/$748 (excluding taxes) with $695/$1,995/$2,295 down payment. Cost of borrowing is $694/$920/$2,080 for a total obligation of $33,575/$43,395/$47,875. Vehicle license, insurance, registration are extra. Dealer may lease or finance for less. Offers may change without notice and cannot be combined with any other offers. See your authorized Mercedes-Benz dealer for details or call the Mercedes-Benz Customer Relations Centre at 1-800-387-0100. Offer ends October 31, 2013.

Check your local dealer for more details.

MBZ_NCT_P15446A4.indd 1

13-10-03 9:56 AM

North Star Mercedes-Benz THUNDER Happy New Model Year.Tel: (807) 475-3333 BAY northstar.mercedes-benz.ca 1480 Walsh Street West, Thunder Bay, ON P7E 6H6

3 months payments waived on select 2014 models2. But only until October 31st.

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OTTAWA

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Tel: (613) 737-7827 starmotors.ca

THE 2014 B 250. TOTAL PRICE1 : $32,915** FINANCE APR

60 MONTHS

A Daimler Brand

LEASE PAYMENT

Mercedes-Benz %Sudbury % $ FINANCE APR

LEASE APR

LEASE PAYMENT

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LEASE APR

THE 2014 GLK 250 BlueTEC 4MATIC™. TOTAL PRICE1: $45,915**

%* $

48 MONTHS

THE 2014 C 300 4MATIC™ AVANTGARDE EDITION. TOTAL PRICE1: $44,665** FINANCE APR

$695* DOWN

LEASE APR

60 MONTHS

Taxes extra.

39 MONTHS

LEASE PAYMENT

Taxes extra.

36 MONTHS

$2,995* DOWN

Taxes extra.

sudburyfinecars.com

$1,995* DOWN

13-10-03 9:56 AM

MONEY

here are very few options for withdrawing funds from an RRSP on a tax-free basis. One such way is through the Home Buyers’ Plan (HBP). The HBP allows an individual to withdraw up to $25,000 from their registered retirement savings plan (RRSPs) to buy or build a qualifying home. The withdrawal needs to be repaid within a fifteen-year period. The purpose of this article is to provide an introduction to the HBP.

A qualifying home is a housing unit located in Canada, including single-family homes, semi-detached homes, townhouses, mobile homes, condominium units and apartments in duplexes, triplexes, fourplexes or apartment buildings. Repaying the HBP The HBP withdrawal needs to be repaid with a ratio of 1/15

Using the RRSP’s Home Buyers’ Plan Written by Camillo Lento, Lakehead University

Note that this article discusses the HBP at a high level.

There are many detailed rules associated with the HBP, and readers are encouraged to read the full rules before making any decisions. The rules can be found on the CRA’s website, at the following link: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrspreer/hbp-rap/menu-eng.html

of the total withdrawal amount annually. Accordingly, it will take a maximum of 15 years to repay the HBP withdrawal. The repayment period starts the second year following the year you made your withdrawals. If you do not repay the amount due for a year, it will have to be included in your taxable income for that year. You can also repay the full amount at any time.

Some of the Rules on the HBP Withdrawal

Pros and Cons of the HBP

The HBP can only be used by first-time home buyers to purchase or build a qualifying home that will be occupied as a principal residence. There are many other conditions that need to be met at the time of withdrawal, including the fact that the withdrawer is a Resident of Canada and completes Form T1306. The maximum amount that can be withdrawn under the HBP is $25,000.

The main benefit of using the HBP is that the amount withdrawn from the RRSP can be used as an additional down payment on a qualifying home. Therefore, the interest expense over the life of the home mortgage will be reduced. However, the fact that the funds are no longer in the RRSP, the total investment growth in the RRSP will be reduced.

The definition of a first-time home buyer is provided by the CRA: “You are not considered a first-time home buyer if you or your spouse or common-law partner owned a home that you occupied as your principal place of residence during the period beginning January 1 of the fourth year before the year of withdrawal and ending 31 days before your withdrawal.”

In general, an individual should consider using an HBP when the total interest savings exceed the foregone tax-free investment income in the RRSP. As a general rule, this occurs when the mortgage interest rate is greater than the rate of return on the investments in the RRSP. However, there are other factors that impact the decisions, including the length of the mortgage and an individual’s marginal tax rate. In conclusion, an individual needs to conduct some calculations in order to determine if the HBP is appropriate for their specific situation. MONEY® Magazine - Fall 2013 - 27

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MONEY

ost of us dream of the day when we can burn our mortgage. Few of us are prepared for the day when the mortgage burns our dreams of home ownership.

For some, the added expense of renewing their mortgage at a higher rate of interest can come as a shock. The rates offered today are crazy low by historical standards. Young homeowners weren’t faced with the skyrocketing mortgage rates during the early 1980’s and God willing, they never will. I recall being asked – long ago when friends thought I was prescient just because I worked in the financial industry – whether or not one should lock in the mortgage rate for the long term since it seemed like they’d just keep going higher. After all, in 1982 the trajectory of interest rates and mortgage rates had been straight UP! As you can imagine, my answer at the time was an emphatic “NO!” Today the opposite is true. The cheapest posted mortgage rates are the ones with the shortest terms or are variable. Plug those rates into your calculator and the payment schedule seems like a dream come true. Unfortunately interest rates over short horizons can be surprisingly volatile. It’s possible just one or a few years later you’re burdened with payments that are no longer manageable.

Unfortunately, the panic to buy is short-lived and soon there is a veritable drought of buyers who can’t afford to hold mortgages at the higher rates. Suddenly, there’s a glut of houses for sale, and if you can’t manage the higher monthly payments you have to sell the house at a loss. OUCH! The process of rising interest rates has already begun in earnest. Historically, mortgage yields are slightly above bond yields. Bond yields go up, mortgage rates go up too. Financial institutions have responded to rising bond yields (see graph) by raising their mortgage rates in recent months as I’m sure you’ve noticed. At present, mortgage rates haven’t risen as much though, because these institutions continue to compete with one another by offering incentives and there’s also a bit of a lag as head office communicates its changes in corporate strategy down to the marketing departments. There is still a bit of time to buy your dream home and walk away with a low-rate mortgage, but not nearly as much time as you might think. You might be reading that governments are inclined to keep the ‘bank rate’ (or discount rate which is the rate of interest the central bank charges the commercial banks to borrow money) low, in order to help the economy along. This policy is long-in-the-tooth already, and central banks cannot continue lending money to the banking system

It’s time to lock in your mortgage rate…ASAP! Written by M. Spooner

In March of 1987 the average mortgage rate was close to 10%, but by March of 1990 had climbed to 13.5%. The monthly payment for a $500,000 mortgage at 10% (crude calculations but I am lazy) might have been around $4800. But at 13.5% would be nearly $6000. If you or your partner were lucky enough to get a $15,000 raise over the course of the term (say 3-year in this example) then things would be okay, but otherwise your consumption (food, child’s education, gasoline) or savings plan would suffer. Worst case, you’d have to sell the house. Strangely enough, housing prices can rise during the early stages of rising interest rates as people who were planning to buy a house begin to hurry up the process, hoping to get a more attractive mortgage rate (before they go any higher).

at a ridiculously low rate when the interest rates the central banks have to pay to raise money for government spending (bond rates) keep rising. The strain on the country’s finances will become too onerous and unwanted inflation becomes inevitable. If you haven’t taken advantage of low mortgage rates yet, go ahead and lock up your rate at the lending institution for as long a term as possible. And if you’ve been holding off buying that new car, don’t wait. I’ve been in the financial industry long enough to know a good thing when I see it and I took advantage of one of those generous 0% financing offers – I figure I may not see another opportunity like it in my lifetime.

MONEY® Magazine - Fall 2013 - 29

MONEY

Plan Now for a Year-End Investment Review Written by Guy Conger

ou might not enjoy sitting down to do year-end investment planning, but at least this fall you can make plans with greater certainty. For the last three years, investment planning has meant trying to anticipate possible changes in tax law; for the tax year 2013 and beyond, you know for sure how income, capital gains, and qualifying dividends will be taxed. That gives you an opportunity to fine-tune your longterm planning or to develop a plan if you’ve postponed doing so. Here are some factors to keep in mind as the year winds down. Consider harvesting your losses. With tax rates settled, the question of whether to sell losing positions to generate capital losses that can potentially be used to offset capital gains or $3,000 of your ordinary income becomes a much more straightforward decision. That process is known as harvesting tax losses, and it could prove especially worth considering this year. The first half of the year produced strong gains for U.S. equities; even a mediocre second half could still have the potential to leave you with a higher tax bill than you had anticipated. To maximize your losses for tax purposes, you would sell shares that have lost the most, which would enable you to offset more gains. Unless you specify which shares of stock are to be sold, your broker will typically treat them as sold based on the FIFO (first in, first out) method, meaning that the first shares bought are considered to be the first shares sold. However, you can designate specific shares as the ones sold or direct your broker to use a different method, such as LIFO (last in, first out) or HIFO highest in, first out. Interest rates: bane or blessing? The Federal Reserve has said that if the economy continues to recover at its expected pace, it could raise its target Fed funds rate sometime in 2014. However, investors have been anticipating such an increase since early summer, when many bond mutual funds began seeing strong outflows from investors concerned that a rate increase could hurt the value of their holdings. As any consumer knows, lower demand for a product often means lower prices. And since bond prices move in the opposite direction from bond yields, yields on a variety of fixed-income investments have begun to rise. However, there also could be a silver lining for some investors. Higher yields could provide welcome relief for individuals who rely on their investments for income and have suffered from rock-bottom yields. The Fed has said any rate decisions will depend on future economic data. However, now might be a good time to assess

the value of any fixed-income investments you hold and make sure you understand how your portfolio might respond to a future that could include higher interest rates. Many investors’ asset allocation strategies were likely developed when conditions generally favored bonds, as they have for much of the last 20 years. Though asset allocation alone can’t guarantee a profit or prevent the possibility of loss, make sure your asset allocation is still appropriate for your circumstances as well as the current investing climate. And don’t forget that other financial assets can be affected by potential future interest rate changes as well. WWW.FREEPORTFOLIOREVIEW.CA

Fire hose or Faucet? Written by Jim Ruta

ou would think that clients would already know it all. But they don’t. With the explosion of information on the Internet the reverse has happened. There is so much knowledge available consumers are overwhelmed by it all. It’s like they need a drink of water and the Internet is like having a fire hose turned on you. It’s too much. You can control that flow and make it useful. Be like the kitchen faucet. Its a very important job today. When I started in the 1970s, we brought the information to consumers. Now the job is discerning what information applies and what does not. We provide interpretation today, not information. We provide context, not just content. We need wisdom, not just data. The ink may barely be dry on your license and you already know more about financial matters than most clients will ever know. I know it’s easy to presume that business people and professionals have it all figured out, but they usually don’t. Educate them and build your credibility, reputation and refer-ability. Financial literacy is a big deal these days. Controlling the flow of information so it is useful is a big part of an advisor’s role. Doing this takes both ongoing education and focus. There is no way you can know everything. Please don’t try. Instead, choose the area that interests you the most and “go deep” there. Know all you can know. Be someone else’s expert on the topic. Have a team of others to refer to so you can be sure your clients get the best possible advice you can get them. They’ll appreciate it. You’ll benefit from it. But, be sure to take the time to educate yourself and your clients. A client you educate is a loyal client. They need to hear about their money from you. Be their fountain of knowledge and you’ll be high performance too. I’m Jim Ruta, and that’s just the way it is. WWW.THEADVISORSADVISOR.CA

MONEY® Magazine - Fall 2013 - 30

The only Take Control of Your Money. comprehensive guide to reaping big returns investing in the hottest new growth markets. This book makes a compelling case that, just as today's wellrounded portfolio includes emerging market funds, tomorrow's well-rounded portfolio will include frontier market funds. More importantly, it alerts you to the vast opportunities and potential pitfalls of investing in frontier markets while providing expert advice and guidance on how to research and invest in the most promising frontier growth markets. Widely considered to be the next emerging markets, frontier markets, such as those of certain sub-Saharan African, Eastern European, Asian, and Central and South American countries, are showing strong signs of reaching economic critical mass. If you are an investor on the lookout for authoritative, actionable information on the next big investment opportunity, this book is for you.

• Provides sector-by-sector analyses that let you assess opportunities and risks in each frontier market • Provides strategies and tools for determining the most efficient methods for executing, monitoring, and exiting investments • Guides you through the wide diversity within frontier markets, showing how to differentiate countries on the basis of economic development and wealth distribution and other factors About the Authors GAVIN GRAHAM is founder and President of Graham Investment Strategy Ltd. His investment experience spans thirty years and three continents, beginning in London in 1979 with Baring Brothers & Co. Ltd and including eight years in Hong Kong, three years Getting your managing financialAsian house in and order big job. At first,Formerly, you might like you’ve bitten more in San Francisco funds, theis lasta decade in Toronto. he waseven chief feel investment officer for severaloff mutual than you can chew. But don’t give up! In How to Eat an Elephant, you’ll gain vital understanding fund companies and director of investments for Bank of Montreal Asset Management (BMOAM), where he was responsible for of important personal finance in just one day a month. Rather than tackle the beast in one supervising over $50 billion in assets basics under management (AUM).

bite, you’ll master it a little bit at a time. Supported by online resources, tools, and reports, you’ll AL EMID has forty-plus years’ experience as a journalist, and this is his third book. He has reported on financial issues on the complete fundamental tasks and gain fundamental understanding in an orderly and effective way. United States, Canada, South America, and the Middle East and has coordinated correspondents from all of these locales.

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MONEY

Shopping is NOT a Sport Written by Tammy Johnston

verywhere we go, the world is set up to part us from our money. It may only be a few dollars, maybe a few more, but it’s okay. You want this gadget, article of clothing, candy, tool or whatever. We put it in our cart, we place it at the till, and we pull out our wallet. Next thing we know our bank account is smaller than we were expecting and our wallet is thinner while our credit card statement is thicker. We have all been bitten by the impulse purchase. All of us. If you think you are immune, let me ask you one question: “If I were to go to your home and open up your closets, your cupboards, go into your garage or your tool shed, would I find anything that you spent your hard earned money on that you used once or NEVER?” If you can honestly say no, then my hat is off to you. If you are like the vast majority of people (myself included) you would find an item or two or maybe more. So the million dollar question is how we minimize our useless spending. And yes, I did call it useless spending. The fact is if it really was something we wanted or needed it would have been used more than once. The reality of life is that we will have some pointless spending. It isn’t a bad thing as long as we keep it in check, but it is a big problem if it gets out of control. Conquering the frivolous shopping problem breaks down into a few steps or options. The first step is to stop looking at shopping as a sport. Unfortunately too many people resort to “Retail Therapy” to deal with emotional issues. This works as well as alcohol, drugs, or junk food for a lot of people. It doesn’t fix the problem it makes it worse because the high wears of quickly and now we are out money. If going on a shopping spree is your way if dealing with the stresses of life, find another outlet. Preferably a healthy outlet, such as exercising, going for a walk with a friend or meditation. The second step/option is to put yourself on a cash budget and allow yourself some play money. That way you can still enjoy a little frivolous spending without breaking your budget. In fact if you plan for it, it isn’t wasted money, just a part of your overall plan for financial success. The third, and most important, step is to ask yourself this question every time before you spend money on anything, “Do I really want this?” By slowing down and asking yourself this very simple but extremely powerful, question you put into motion your biggest ally, your brain. Most of our spending is unconscious. We are creatures of habit that operate on auto pilot. By taking the moment to ask ourselves this all important question we move from unconscious to conscious. A lot of the time we will look at the item and decide no, this isn’t going to give me what I really want. I’d rather save for my Hawaii vacation, or pay off my credit card faster, or stick with my diet (candy and coffee are regular “wasted” purchases) or whatever may be a bigger want 32 - MONEY® Magazine - Fall 2013

for you. If you can honestly say, “Yes, I do want this” then go for it without guilt. No one is taking away your right to choose how you spend your money. But we all make much better long term and short term decisions when the best part of us is fully engaged in making the decisions. Now go out and wake up when it comes to how you are investing your hard earned money. “Too many people spend money they haven’t earned to buy things they don’t want to impress people they don’t like.” Will Smith

Should You Contribute to Your RRSP? Written by Ryan Wall

here are two advantages to RRSP investing. The first is taxdeferred growth, which allows the effects of compounding to grow your assets far in excess of non-sheltered assets. The second is the assumed reduction in your personal tax rate at older ages when the assets will be withdrawn. Both of these benefits may not be as advantageous as they used to be. In a perfect world, RRSP funds should be invested in income generating assets such as bonds and GICs, which would otherwise attract the highest tax-rates outside of an RRSP. Assets which return capital gains are best kept outside of the RRSP due to the more favorable tax treatment of those gains. With interest rates at multi-decade lows, and projections that these low rates will continue for the foreseeable future, compounded growth will be severely limited. With growing government debt loads and lower projected growth rates, we also face the real potential for higher taxes. This may be especially true with respect to retirement assets, which will draw the attention of future politicians struggling to pay for the debt load which, as far as many voters will be concerned, was created by a wealthy retired class. In analyzing a retirement strategy, it would therefore be prudent to consider the possibility of low investment returns and higher tax rates. For instance, a 50 year old, earning only 3% per year, with a marginal tax rate increasing from 46% to 60%, by age 71 would have been slightly better off without an RRSP. If those gains were capital gains, the RRSP effectiveness drops significantly. Most scenarios for the future still show RRSP investing to be beneficial, especially if it is likely that you will find yourself in a lower tax bracket at retirement. Nonetheless, based on age, investment return, and future tax rates, there will be a percentage of Canadians who would have been better off without registered assets. Those fortunate enough to remain in the top tax bracket should consider whether de-registering all of their assets now would reduce their total tax bill, should tax rates increase in the future.

MONEY

“as sound as a dollar” T

his is going to be so much fun; writing about financial idioms and I already have a huge list from which to select. Most of them seem to have originated in North America and have been heard time and time again. So I am inviting you, my global reader, to share with us money idioms with which we may not be as familiar; that have made some kind of an impression on you in your country of origin. Furthermore how does the idiom, if at all, relate to life in your new homeland? Otherwise I will be forced to bore you with a myriad of financial idioms that we have all heard countless numbers of times before. I realize that the meaning of the idiom may change once translated into the English language, however, I am not overly concerned as all things change over time, including the meaning of

today’s meaning of that biblical text already eroded away from the original meaning? Will this idiom and its meaning today continue to provide future generations a better understanding and application of its message or will it get lost in translation to an entire generation hooked on Twitter? Does it even matter? As I read through my “list” I came across an idiom that immediately caught my attention and I am sure that many would agree, this is one idiom that needs to be addressed right now; the “as sound as a dollar” idiom. I would think that when it was introduced some time ago, a dollar of the United States currency really meant something. Based upon the current state of the US green-back from an international perspective, I do not think the “as sound as a dollar” idiom refers to the once almighty American dollar anymore.

The Present, Past and Future of Money Idioms, Famous Quotes and Double-Entendres Written by Richard Kiernicki

the words we use. This idiom sent in to me from J.S. is a perfect example. She writes “now this one is originally said in Arabic and like you wrote, when words are translated the sentence loses its meaning. This one is said to one who is very talented and knowledgeable of how to make good money and it says; ‘he knows where to eat the shoulder from’”. Thank you J.S. Well… that idiom is quite interesting and nothing like any of the idioms that I have heard before and yet there is a slight sense of familiarity when I think about it for a moment. It almost reminds me of the hunter who knows where to get the best meat from his kill, a lesson to be learned and remembered.

The fear of financial collapse in the US has many questioning the value of the currency and combined with the fact the government of the United States was closed for business while they struggled with increasing the debt ceiling to another astronomical level, breeds all kinds of uncertainty and speculation regarding the financial strength of the once mighty US of A. As far as the American dollar goes, this idiom has had its day and will not be relevant to future generations for quite some time.

Don’t be an IDIOM!

This is partially why writing on this topic is going to be fun. With the new age electronic chat that is rampant amongst the younger people of the globe, the 15 to 30 year olds who text more than they talk on their phones, with their “new” language, their understanding and application of the “new-speak” language, keep these commonly accepted tidbits of knowledge as valid today and tomorrow or will they go the way of the land line? How will that “new-speak” affect the meaning of the earliest of idioms with which many of us are familiar such as the ever popular “for whatever one sews, that will he also reap”. Or has

In future editions of this column the questions I want to explore about idioms include; has the meaning of these idioms changed over time? Does it still make sense, or has it become redundant? Is the meaning more important today than it was when originated and will it be just as or more important in the future? Will current idioms be changed in their wording to appeal to future generations and from where will new idioms arrive? In a world that is doubling its knowledge in the shortest time frames in history and information on most every topic is readily available over the world wide web we need to know what idioms to keep at the ready. MONEY® Magazine - Fall 2013 - 33

MONEY

he latest US Federal Reserve’s decision to continue to buy US Government bonds at the $85 Billion per month target was met with gleeful approval from the financial markets. Both US and Canadian markets which were in the red for the morning spiked sharply higher after the announcement was made. The enthusiasm was quickly tempered as the markets digested the effects and the ultimate potential effects. The US Fed has been very aggressive in the financial markets since the 2008 financial meltdown. The purpose for its intervention initially, was used to prop up the banks after the Lehman Brothers collapse. There was no liquidity in the system as the financial house of cards, built on fraudulent transactions, collapsed. However after the US government realized how bad the situation was, the Fed was instructed, along with the other levels of government, to get the US economy going, so it instituted the quantitative easing which kept interest rates artificially low to encourage businesses and consumers to restart spending. Since that had minimal positive effect and showed no signs of working effectively, (even with interest rates at near zero levels) and now with very few effective tools left in its arsenal,

3. The bond buying just financed the government deficits. It encouraged the US Federal government (and many state governments) to simply keep spending at reckless levels while having minimal effect on the economy – a total failure for Bernanke here. Funding wars, propping up corrupt domestic and foreign governments and national surveillance infrastructure were priorities. The US Government provided scant hard evidence of productive use of the funds. 4. The bond buying was funded by the simple expedient of printing more money. This massive printing, estimated at more than $1 trillion per annum, will result in a devaluation of the US currency. The only remaining question is by how much? From an economic technical perspective, devaluing their home currency generally results in making imports more expensive and exports more attractive. The goal is simply to make the US artificially more competitive. This assumes, of course, that no other foreign government wil try the same strategy; wishful thinking at best. So what does this mean for all us Canadians north of the 49th? First of all, the Canadian economy will continue to limp along and

How the US Federal Reserve’s decisions affect you Written by Michael Kavanagh

the Fed decided it had buy US bonds and treasuries. Not unexpectedly, this did not have the desired effect of stimulating the economy as the money only financed the government deficits. It did manage to depress interest rates even further as it redirected the government to avoid going to the bond market to fund the deficits. This has worked temporarily but in the past year, 10 year fixed rates have doubled and are poised for further increases. The market is reasserting its rightful role. Simply printing more money has been a failure for the Fed as has been the case for central banks throughout history. Some of the key issues are as follows: 1. Propping up banks so that the banks could lend was undercut by tougher rules and regulations for lending. Federal regulators were placed in each major lending center to monitor loans. As such, Banks held on to the money and made money on the zero interest that the Fed charged and the interest the Governments paid. One hand of government structure was undercutting the other hand. A Grade 1 student could see the inevitable result – and it did not disappoint. 2. While the interest rates were kept low, many consumers could not access funds as their homes were under water (market value was less than the mortgage amount). In addition, unemployment was historically high, making borrowing nearly impossible.

34 - MONEY® Magazine - Fall 2013

there is very little that we can do internally to change that fact as a consequence of the blundering around down south. The value of the Canadian dollar will increase in relative terms as the value of the US $ drops. This of course will have a major negative impact on Canadian exports. Interest rates, despite the US Federal Reserve and the Bank of Canada intervention, will rise! The Fed has already lost control of the long term rates as investors want higher premiums for the risk. Water always finds its own level. As noted, 10 year rates have doubled over the past year and it is highly conceivable that they could double again over the next year or so. Expect more volatility in the markets. This volatility could mean that the price of precious metals, including gold and silver, will spike as investors lose faith in the US dollar and currencies in general. This is not far as fetched as it may seem. Simply consider the rise of Bitcoin. For Canadians, expect to pay noticeably more for loans and mortgages. If the US Federal Reserve continues its massive purchases of government securities, devaluation and inflation are the probable. Consequently, expect that Canadian economic activity will be constrained by currency fluctuations as the result of the Fed interventions.

MONEY

fter dinner in a Chinese restaurant this week, I cracked open a fortune cookie which read – “Have you prepared for your worry free retirement with more money than you’ll need?” Ok, it didn’t actually say that. It said – “May you live in interesting times!” When it comes to personal finance we are certainly living in interesting times. Mortgage subprime, global credit crisis, U.S. government shutdown and you cannot pick up a daily newspaper without a headline screaming “Stocks Crash”, “Fiscal Cliff”, or “Economic Armageddon”. The flip side is that the global stock markets have recovered to near market highs around the globe. What is really going on? Turbulent Times Turbulent economic times are difficult for investors, but a prime opportunity to re-examine our personal financial plans. Our problem? Many of us spend so much time focused on the rest of our lives that we overlook the very important role of being director of our own finances. Are your personal investments worth more or less today than in August of 2008? During the financial meltdown, did your investments fall by 20%, 35%, perhaps 50%? Given that we continue to feel some degree of pain opening our investment statements, the biggest question we face is best phrased in

Cost Concerns Given the potential complexity involved in combining all of these different aspects of personal finance - how is it that close to 60% of Canadian Baby Boomers don’t see the need to consult a financial advisor? Often when Canadians are surveyed about their ambivalence to using financial professionals, it comes down to cost. Financial professionals can earn compensation from fees billed to you or from commissions from product suppliers that create the products sold to you. Some feel there is an advantage to ‘fee only’ because there is no pressure to sell you anything. Fees can range from an hourly rate for work done, a flat fee to create an individual financial plan or a fee based on the percentage of assets managed. Fee-only planners may not have any direct motivation (i.e. commissions) to help you implement the plan. Having a plan and not implementing it is equivalent to having no plan at all. Only focusing on cost or commissions rather than value, may lead you to short-change yourself. A more important measure should be how your plan functions and whether or not you are achieving the benefits/results you set out to achieve. Hiring a financial advisor can be a scary thought for many people. To build a complete and comprehensive plan, an advisor has to become

The Clock is Ticking Written by Robert Gignac – author of Rich is a State of Mind.

Latin – “Quo Vadis”. The phrase means “Where are you going?” and it is a good question to ask in times of turmoil. Current estimates are that less than 40% of all Boomers (many readers of this article…) currently use a financial advisor. Interesting. As many of these same boomers have a personal trainer at the gym, a coach to help them with their golf swing or see the value in providing tutors for their children, what stops people from seeking guidance with their financial future? Emotions Rule Money is still a very emotional issue for many Canadians – even in 2013. My work in speaking to financial advisors across North America and their clients confirms this fact. We all feel that we should be doing better. We compare ourselves to others which is self-defeating (and always leaves us feeling as though we are somehow lacking) and many of us feel inadequate about our financial knowledge. We need to understand that our personal financial future includes much more than just money in terms of bank accounts, mutual funds, RRSPs, RESPs and TFSAs. Our use of credit, insurance, wills, written financial plan, powers of attorney (for personal or health care and property), are part of having a comprehensive financial plan for our future and for that of our families.

familiar with your entire personal and financial situation. You have to be comfortable and willing to share personal information with them. They have to understand your dreams and goals. Sharing personal information with a ‘stranger’ can be scary. Don’t be intimidated. Financial professionals aren’t there to pass judgment and they can help you attain the goals you want for yourself and your family. Keep in mind they don’t do it for you. You are responsible for your part in the planning process; nobody will care more about your money than you will. Are we living in “interesting times”? Absolutely. But these difficult times won’t last forever and your financial future awaits – the clock is ticking. Robert Gignac is the owner of Taynac & Associates - providing keynote presentations, seminars and workshops on personal financial development and motivation. He is the co-author of the International best-seller “Rich is a State of Mind” now in its 14th printing – more can be found at: www.richisastateofmind.com. To book Robert to speak at your next corporate or client event, please contact him at: robert@richisastateofmind.com Copyright: Rich is a State of Mind 2013

MONEY® Magazine - Fall 2013 - 35

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t’s that time of the year when employees start to receive their annual evaluations and employers start to pay out annual year-end bonuses. Many people contemplate the payout options for their bonus and they often seek the advice of a financial advisor. When clients ask me what they should do with their bonus, my advice always depends on their individual budget, their average tax rate and their personal savings capacity. However, regardless of your personal financial

account just in time for the holidays can be very helpful for all of your seasonal expenses. If you chose to take your bonus in cash, keep in mind that you may have to pay a substantial percentage of the gross amount in taxes; this could leave you with a significantly smaller portion of your bonus money after taxes. In Canada we have a progressive tax rate system. This means that we do not pay the same percentage of tax on the first

What to Do With Your Year-end Bonus? Written by Tahnya Kristina

situation the options are always the same. Canadians usually have 4 different options to choose from when you are deciding what to do with the extra money. Option 1: Put your bonus into your RRSP. This is a very common option for employees because it helps increase your personal savings (aka your net worth) and it may also give you an RRSP contribution receipt to declare as an income deduction on your annual income taxes. Whether or not you receive an RRSP contribution receipt depends on how your employer chooses to pay out your bonus.

$10,000 of income earned at the beginning of the year as we pay on the last $10,000 of income earned at the end of the year. You may be able to recuperate the difference between the tax rate paid on your bonus at the end of the year (i.e. your marginal tax rate which is the highest percentage paid on the last dollar of income you earned during the year) and your average tax rate. As an example, if your bonus is $10,000 and you paid tax on it at a rate of 42% but your average tax rate is only 38% you should receive an income tax refund of $400 ($10,000 x 0.04).

If the bonus is paid to you as part of your salary and it is contributed into your RRSP with after-tax money (meaning you already paid tax on the lump sum bonus amount) you will receive an RRSP contribution receipt. However if your employer is contributing the money on your behalf with pretax dollars you will not receive an RRSP contribution receipt to declare on your income taxes. It is very important to inquire about the RRSP options for your bonus before making a decision on whether or not you wish to contribute your bonus into your RRSP.

Option 3: Choose a combination of the two options. If you want the best of both worlds you can choose to take a percentage of your bonus in cash and you can allocate a certain percentage of your bonus into your RRSP.

Option 2: Take your bonus in cash. This is another very common option for people who are receiving this year-end gratuity. Having a lump sum of cash deposited into your bank

What are you doing with your bonus? Tell me on Twitter @TKBlogs

38 - MONEY® Magazine - Fall 2013

Option 4: Defer your bonus and take it in January. Depending on your personal income, your marginal tax rate and your average tax rate, it may be beneficial for you to defer your bonus and take it in cash in the New Year. This of course is only beneficial if your marginal tax rate is substantially higher than your average tax rate. Photo by meddygarnety.

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