JULY/AUGUST 2023 CANADIANMONEYSAVER.CA SAVER Independent Financial Advice For Everyday Use - Since 1981 CANADIAN DIVIDEND & COMPANY NEWS ■ ASK THE EXPERTS ■ TOP FUNDS ■ DRIPS ■ ETFS MONEY $4.95 PM40035485 R09904 LESSONS ON INDEX INVESTING Fred Masters Page 6 HELPING OTHERS TO IMPROVE THEIR LEVEL OF FINANCIAL LITERACY A Crash Course In Crypto Bitcoin Part 2 Chris White Page 25 Why You Should Know How Your Business Is Valued Liisa Atva Page 8 MODELCANADIANMONEYSAVER ETFPORTFOLIO PAGE5
JULY/AUGUST 2023
EDITOR-IN-CHIEF: Lana Sanichar
EDITOR: Peter Hodson
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Ed Arbuckle, Isabelle Beaudoin, John De Goey, Donald Dony, David Ensor, Derek Foster, Benj Gallander, Janet Gray, Robert Keats, Ken Kivenko, Marie-Josée Loiselle, Moez Mahrez, Ryan Modesto, Richard Morrison, Caroline Nalbantoglu, Brian Quinlan, Wynn Quon, Rino Racanelli, Barkha Rani, Colin Ritchie, Norm Rothery, Rita Silvan, Allan Small, Barbara Stewart, Kornel Szrejber, Brian Tang, Becky Wong.
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JULY/AUGUST 2023 Volume 42, Number 9 REGULAR FEATURES Sharing With You 4 Dividend & Company News 5 Model ETF Portfolio 5 Money Digest 18 Insights From Sector ETFs 19 Annuities Offer Income For Life 22 Top Dividend Yields For U.S. Companies 28 Ask The Experts 31 Portfolio Confidential 32 TSX 60 - Constituents listed by Dividend Yield 34 Canadian DRIPs 35 Top Funds 36 Canadian ETFs 38
Lessons On Index Investing – Part One Fred J. Masters 6 Why You Should Know How Your Business Is Valued – Even If You’re Not Ready To Sell Liisa Atva 8 Playing With House Money: Ways To Save For That First Home - Part 2 Colin Ritchie 10 How To Make Difficult Money Conversations Easier Janet Gray 13 Survival Of The Richest: How To Handle Sudden Wealth Rita Silvan 15 What Are The Top 10 Points Every Separated Parent Should Know About The Canada Child Benefit ? Steven Benmor 21 A Crash Course In Crypto Bitcoin Part 2 – Everyone is a Skeptic at First Chris White 25 Yield-Seeking Retirees Should Stick With Boring Companies Richard Morrison 29
We acknowledge the financial support of the Government of Canada.
Post Publication
40035485
SPECIAL FEATURES
It’s July and summer is upon us. Many of us are winding down looking for a bit of sun and relaxation, hopefully near one of our beautiful Canadian lakes.
As I reflect back on the past 12 years of my time with Canadian MoneySaver, I recognize the changes that both I and the magazine have gone through.
When I first started with CMS, I knew nothing about the 60/40 split, or the dividend tax credit much less about how to invest in the stock market. I admit, my vocabulary has increased significantly and my family’s future is greater for it.
But I admit, as my husband inches increasingly closer to retirement, my worry about our children’s financial future grows stronger. With the soaring costs of home ownership will they ever be able to afford their own homes? Will they be able to afford to raise a family? Or will they be able to afford many of the luxuries that we have become accustomed to? Without our help?
While the education system does include some financial literacy, the task is still largely left to parents. As a MoneySaver, I will continue to talk to talk to my children about money. Their future is in our hands.
Lana
Lana Sanichar Editor-in-Chief Canadian MoneySaver
P.S. Did you know that you can now manage your subscription online at www.canadianmoneysaver.ca? This includes changing your mailing address as well as renewing your subscription!
You can email moneyinfo@canadianmoneysaver.ca if you don’t know your login.
4 | Canadian MoneySaver | https://www.canadianmoneysaver.ca | JULY/AUGUST 2023
Sharing With You
MoneySaver DIVIDEND & COMPANY NEWS
In this column we list recent news, events, dividend income news and any other relevant information for MoneySavers. News items are those received after our last publication date. Please go to https://www.5iresearch.ca/dividend-updates for a more comprehensive list of dividend updates.
■ CIBC (CM) raises dividend by 2.4%.
■ Royal Bank (RY) raises dividend by 2%.
■ Bank of Nova Scotia (BNS) raises dividend by 2.9%.
■ Bank of Montreal (BMO) raises dividend by 2.8%.
■ Dream Office REIT (D.UN) declares special $4.55 distribution.
■ Sun Life (SLF) raises dividend 4.2%.
■ CES Energy Solutions (CEU) increases dividend by 25.0%.
■ Maple Leaf Foods (MFI) increases dividend by 5.0%.
■ Osisko Gold Royalties (OR) raises dividend by 9.0%.
Canadian MoneySaver MODEL ETF PORTFOLIO
date: October 18, 2013
Prices are at market close on on May 31, 2023.
Individual prices are in USD$. Portfolio values, $Gain/(Loss), % Gain/(Loss), % Annualized all reflect USD$ values are converted to CAD$.
Returns include foreign exchange gains/losses
Current notes: None.
6.74%
Other notes: Keep in mind all investors are different. This portfolio is designed as a guide in setting up your own personal portfolio. Unique considerations and adjustments need to be made to reflect your personal situation. Please perform your own due diligence before making investment decisions. For use by Canadian MoneySaver subscribers only.
Analysts do not own a financial or other interest in any of the above securities. Past performance is not an indicator of future performance.
Not for redistribution. Please direct portfolio questions to moneyinfo@canadianmoneysaver.ca.
Canadian MoneySaver | https://www.canadianmoneysaver.ca | JULY/AUGUST 2023 | 5
ETF SYMBOL CATEGORY PRICE # OF UNITS TOTAL % OF PORTFOLIO iShares 1-5 Year Laddered Corporate Bond CBO Fixed Income 17.25 506 8,728.50 4.7% iShares DEX Universe Bond XBB Fixed Income 27.61 280 7,730.80 4.1% iShares S&P/TSX Canadian Preferreds CPD Fixed Income 10.45 738 7,712.10 4.1% iShares S&P/TSX Capped Composite XIC Equity: Canada 31.25 740 23,125.00 12.3% iShares S&P/TSX Cdn. Div Aristocrats CDZ Equity: Canada Div. 29.76 613 18,242.88 9.7% iShares U.S. High Yield Bond Index ETF XHY Fixed Income 15.71 350 5,498.50 2.9% Vanguard FTSE Emerging Markets Index VEE Equity: Emerging 31.82 285 9,068.70 4.8% Vanguard FTSE Developed Europe All Cap VE Equity: Interntional 31.63 304 9,615.52 5.1% SPDR S&P 500 SPY Equity: U.S. 417.85 41 23,251.35 12.4% Vanguard US Dividend Appreciation Index VGG Equity: U.S. Div. 70.83 217 15,370.11 8.2% iShares Russell 2000 Growth IWO Equity: U.S. Growth 224.58 45 13,716.00 7.3% BMO Covered Call Utilities ZWU Equity: N.A. Div 10.89 604 6,577.56 3.5% Vanguard Information Technology Index VGT Equity: U.S 416.88 27 15,276.32 8.2% Consumer Discretionary Select Sector SPDR XLY Equity: U.S 151.61 60 12,345.91 6.6% Cash Cash Cash 11,029.96 5.9% Total Portfolio 187,289.20 Exchange Rate 1.36 $ Gain/(Loss): 87,289.20 Inception value: 100,000.00 % Gain/(Loss):
Inception
% Annualized:
87.29%
Lessons On Index Investing–Part 1
My Students Learned, Index Investing Is A Great Option To Consider For Those Who Are Beginning Their Investing Journey
Fred J. Masters
Ihave been very fortunate to pursue my life’s passion—helping others to improve their level of financial literacy—for decades, both in the classroom and subsequently as the president of a financial wellness business. I learned a great deal about how others approach money during my teaching days, and the lessons are worth considering by anyone new to the investing game.
I spent three decades teaching for the Waterloo Catholic District School Board in Ontario and spent half my career in leadership positions such as schoollevel Head of Business & Cooperative Education and board-level Consultant. I thoroughly enjoyed my time in the classroom. I taught senior financial accounting and cooperative education for decades.
Genius Hour
In the Ontario Curriculum, there is a strand that deals with “Financial Analysis and Decision Making” in both the grade 11 and 12 financial accounting courses that most schools offer. At the school where I taught, “Genius Hour” was supported. This is a philosophy that involves structuring classes in such a way that students control their learning to trigger exploration and find deeper meaning.
Students love to play. Students love to compete. Students love to be challenged. Students love to be put in a position to succeed. Students love to apply what they have learned. Knowing this, I frequently used computer simulations in my financial accounting classes.
The Index Portfolio
I asked my students to choose a partner in class so as to form a team. I gave each team access to two $500,000 stock market simulation accounts. Team members owned both accounts jointly. I covered how to invest using asset mix elements (equities/stocks, fixed income/bonds and
cash) to reach long-term goals such as retirement. For our purposes, the simulation accounts would be used for the equity weighting; the accounts needed to be fully invested in equities only. They were then ready to invest inside their index portfolio account using equity index funds via using equity index funds via exchange-traded funds (ETFs). These equity index ETFs contain stocks that mirror a given stock market index. Teams were expected to invest one-fifth of their index portfolio as follows during the next classes:
■ an all-world ETF so as to learn how to use the simulation’s trading platform,
■ either a broad U.S. market ETF or a broad Canadian market ETF,
■ a sector ETF (such as Tech or Health Care),
■ a country-specific equity ETF (other than Canada or the U.S.),
■ an equity ETF of their choice.
Each team then had a few days to make any changes to their index portfolio, and then they were instructed to leave it alone.
The Active Portfolio
Each team had a second portfolio which also would be jointly controlled. This one, however, would be actively managed. It would be filled with shares of individual companies, and teams would be encouraged to actively trade holdings; this account would be called their active portfolio. We covered financial analysis concepts such as technical analysis (examining stock charts) and fundamental analysis (dividend yield, price-to-earnings ratio, etc.) so that they knew how to compare companies. Again, options were limited in the early days so as not to overwhelm them. The choices were restricted to two Canadian companies in the same sector (such as two Big
6 | Canadian MoneySaver | https://www.canadianmoneysaver.ca | JULY/AUGUST 2023 Youth and Money
As
Banks) on one day, then two U.S. tech giants on the next day, for example.
Let The Trading Begin
Then, the beauty of “Genius Hour” kicked in. Teams could use their active portfolio to buy any stocks that they wished. I also showed them how to use tools to protect profits, such as stop-loss orders and taught them how to short a stock. They were required to track their trades and, more importantly, the thinking behind their trading decisions on a spreadsheet.
Much learning happened over the ensuing weeks. The energy in the classroom was electric as students experienced the ups and downs of the stock market. I shared business articles to generate lists of companies to consider for their active portfolios. It was as realistic as could be, except the accounts weren’t funded with actual dollars.
Lessons Worth Considering
The students and I co-constructed the assessment and evaluation rubric that would be used at the end of the simulation. The goal was to assess each student’s critical thinking and communication skills. What follows is a sampling of student reflections as the simulations wrapped up, along with some lessons to consider.
“Our active portfolio was doing well, and then we got crushed. The index portfolio didn’t go up as much, but it didn’t fall as far either.”
There is a reason why large pension plans rely so heavily on diversification as the key investment strategy over the long term. It’s a great way to mitigate investment risk; index investing is built on this principle.
“I couldn’t invest my real money in the stock market. Even though this was just a game, I was too afraid to lose money.”
We are human, and so it’s no surprise that fear and greed are with us every step of the way when we invest. Understanding your risk tolerance is crucial. Structure your long-term portfolio in such a way that you will sleep at night when (not if) stock markets correct (drop by 10%+) or crash (drop by 20%+). Panic selling is not a good strategy.
“Our worst move was chasing a hot stock. We invested 20% of our active portfolio in a small, volatile stock that was in the news and rallying. We literally bought right at the top and ended up selling when it was down by 50%.”
When you are investing dollars for important longterm goals such as your retirement, avoid any attempts to hit investing home runs. When a stock’s price falls by 50%, it then must rally by 100% to make up for those losses. Having the ability to concentrate is a good thing, but concentration in a portfolio (where too much money is invested in a small number of stocks) increases risk.
“We did a lot of research, but both of our portfolios were still down. We found it stressful.”
Money that you need to access in the next few years should not be invested in stocks. In the short term, stocks can be volatile. Once your investing time horizon is long enough, broad stock market indices have been able to generate returns that beat inflation.
“I could easily see myself using the index strategy with real money when I’m done school. I just don’t think I’d have the time to use the active strategy.”
Time. We never have enough time. Finding the time needed to actively trade stocks in a portfolio is a challenge.
Index Investing Is Here To Stay
Embracing index investing has lots to offer, as my students learned firsthand. This is especially true for those who are just beginning to invest so as to reach their long-term financial goals, but it’s equally true for those investors who are more seasoned. Many significant additional benefits, such as lower fees, exist too. As a result, index investing isn’t going away anytime soon, and we’ll explore how to go about index investing next time.
Fred J. Masters, BBA, BEd, PQP, is the author of Lessons on Mastering Money: The Personal Finance Guide for Canadians in their 20s & 30s. He is the President of Masters Money Management Inc. and has given financial wellness presentations to all demographics in Canada, including university students and alumni. He is a retired professional educator, having taught senior financial accounting for decades and is a licensed mortgage agent with Mortgage InGenuity Inc. in Waterloo Region. He can be reached at F.Masters@mastersmoneymanagement.ca. To find out more, visit www.mastersmoneymanagement.ca.
This work contains the author’s opinions and ideas as related to the subject matter. The content is by no means designed to provide any reader with individual financial advice. Note that past performance is not a guarantee of future results when it comes to any specific investment or investment strategy. Always consult a competent financial professional for advice when it comes to making financial decisions. No guarantee is made with respect to the accuracy or completeness of the content.
Canadian MoneySaver | https://www.canadianmoneysaver.ca | JULY/AUGUST 2023 | 7
Why You Should Know How Your Business Is Valued –Even If You’re Not Ready To Sell
Liisa Atva
Originally published in Chartered Professional Accountants of B.C. (CPABC) newsroom.
https://www.bccpa.ca/news-events/latest-news/2018/ why-you-should-know-how-your-business-is-valuedeven-if-you-re-not-ready-to-sell/
“But I’m not retiring until years from now.”
“I’m focused on growing my business.”
“It’s still a startup!”
Entrepreneurs who don’t think about how their business is valued until the time comes to sell are missing an opportunity. They could be implementing strategies today that could result in a higher business value in the future. Here are five valuation tips to keep in mind, even if it’s not time to sell your business yet.
1. Understand that value-enhancing strategies take time
Businesses that are profitable, and will continue to be in the foreseeable future, are typically valued based on expected cash flow. Entrepreneurs should be able to increase the value of their business by finding ways to increase cash flow, and to reduce the risk of not attaining those cash flows. Strategies to consider include the following:
■ Putting a strong management team in place;
■ Reducing dependence on a few, specific customers or suppliers;
■ Cutting out unnecessary expenses;
■ Updating equipment and technology; and
■ Ensuring that financial information is current and adequate.
It can take time to implement value-enhancing strategies: building a management team, for example, can take years. The owner of a mid-sized company had engaged a professional accountant to assist him in preparing the business for sale. The owner prided himself on the fact that his management team had been with him for well over twenty years. A prospective buyer, however, viewed the management team as a potential risk since they were all close to retirement age.
2. Don’t make goodwill personal
A significant component of the value of a viable business is often its goodwill – the “magic” of the products, services, location, and people that make the business what it is. Goodwill is an intangible rather than a “hard” asset, and has value to a prospective buyer only if it is attached to the business. If the goodwill is personal, i.e. attributable to the present owner’s reputation or skills, when the present owner leaves, so may the goodwill.
To help ensure that the goodwill stays with the business, strive to make the owner dispensable. Consider putting in place strong managers, documenting systems and developing processes that minimize reliance on specific individuals.
Also, when choosing a name for your business, consider the fact that calling it John Smith Automotive, for example, could be a deterrent to future buyers, unless they happen to have the same name. If your business is already operating with a personal name consider rebranding.
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3. Be investor ready
If you need capital to grow your business, knowing how much your business is worth can make the difference between closing a deal or not. On the reality TV show Dragon’s Den, entrepreneurs pitch their business to the “Dragons,” a panel of successful investors. If you’ve watched the show, you’ll likely have heard the Dragons’ all-too-frequent lament: “You’ve got the value all wrong.” Many an entrepreneur has walked away empty-handed because they overvalued their business. Even worse, other times they’ve undervalued it and given up more equity than necessary.
4. Find your special purchasers
Certain buyers may be willing to pay more for a business than others. These “special purchasers” can envision higher revenues, lower costs, or some other strategic benefit from buying a specific business. Your special purchasers may include competitors, suppliers, customers, and employees. To identify potential special purchasers, consider your business’s existing relationships. As well, look at where you can expand your business networks. Participating in industry associations can connect you with new or want-to-be entrants to your market. When the time comes to sell your business, established relationships with special purchasers may prove valuable.
An example of a special purchaser transaction is the 2019 acquisition by Cook it, a Montreal-based ready-tocook company, of MissFresh, one of its main competitors. By integrating MissFresh operations with its own, Cook it grew it’s facilities over threefold, positioning itself as an industry leader in Quebec and Canada.
5. Recognize that timing is everything
Lastly, timing can have a significant impact on the value of a business in several ways. Cash flow methods of business valuation incorporate the desired rates of return of investors and buyers, and general economic conditions play a role in determining an acceptable rate or return. Investors may have less appetite for risk if the economic outlook is uncertain, or if financial markets are in turmoil,
as was the case during COVID when some potential buyers adopted a wait-and–see attitude. The opposite applies when the economy is booming. Financing may be more readily available during good times, making it easier to buy a business, and attracting more buyers into the market.
Developments to your industry may also have an impact on the value of your business. These can include changes to taxes, legislation, technology, climate change, or competitors entering the field. For example, the “sharing economy” has had a big impact on hotels through Airbnb, and on taxis through Uber.
Owners should also keep in mind the number of businesses expected to change hands in the future. According to a January 2023 report by the Canadian Federation of Independent Business (CFIB), over 76% of small business owners are planning to exit their business within the next decade.
If a number of similar businesses come on the market at the same time, selling prices may suffer.
That being said, internal factors are as important as external ones when it comes to timing the sale of your business. Naturally, it makes sense to sell a business after a good year than after a poor one. Having a history of strong cash flow will lend credibility to forecasts of strong cash flow in the future. As well, it may be difficult to convince buyers that a bad year is an anomaly, and not the start of a downward trend.
Taking the opportunity to learn how businesses are valued can help you increase the value of your own. Not only can this put more money in your pocket, planning your exit strategy from your business – even if you aren’t ready to sell, just makes good business sense.
Canadian MoneySaver | https://www.canadianmoneysaver.ca | JULY/AUGUST 2023 | 9
Liisa Atva C.P.A, C.B.V is the author of The Ask: How Much Is a Small Business Worth?
Taking the opportunity to learn how businesses are valued can help you increase the value of your own.
Playing With House Money: Ways To Save For That First Home Part 2
Colin Ritchie
As I discussed in Part 1 of this series, saving enough money to buy a first home in Canada these days may seem like deciding to run a marathon without ever owning a pair of running shoes– a long daunting process that may sometimes seem impossible. On the other hand, just like having a training plan to help you complete 26 miles of running hell, having a savings strategy for how to put away enough money buy a place to call your own similarly increases your chances of home-owning success. The first part of this series discussed and compared the three registered savings plans that can help maximize your eventual downpayment, particularly the new First Homebuyers Savings Account that combines the best features of a TFSA and the RRSP Homebuyers’ Plan. Today, I talk about a few additional options other family members can explore if they want to assist the next generation buy into the housing market.
Before diving in, I want to reiterate the key messages from my last article so you read today’s effort with those points in mind. Those are:
■ One size doesn’t fit all. You’ll have to strategize based on the specifics of your situation rather than assuming what is right for someone else is the most efficient way forward for you.
■ Any plan may involve using a combination of savings strategies rather than one stop shopping, particularly since there are caps on the government savings plans. Determining the best mix and which options to fund in which order is vital.
■ If other family members are willing to help (or if you’re one of those generous souls), creating an integrated plan that maximizes everyone’s contributions can make a world of difference. Consider planning as a family and getting professional input.
■ Plan ahead. Make the most out of the magic of compounding by setting aside funds early and in the right savings vehicles. Older family members can start assisting as soon as youngsters are old enough to open registered savings accounts.
■ Ensure that your investment mix matches your goals and time horizon. Reduce risk and volatility the closer you get to attending open houses so a change in the stock market doesn’t decimate your downpayment.
Family Trusts – Are The Hassles Worth The Tax Savings?
Key Benefits:
■ Potential massive tax savings if the contributor is in a high tax bracket.
■ Can allow purchase funding to start far earlier than most other options.
■ Can be used to augment a youngster’s other savings vehicles or to provide the money to fund those plans.
■ Loan rates are locked in for life, which is a huge advantage for families who lent money to their trusts before the recent rate hikes.
Key Drawbacks:
■ Setup and annual costs, plus the headache factor, make this option only really attractive in Wills or when there is perhaps $500,000 plus to contribute at once or over a few years.
■ The current minimum trust loan rates (May of 2023) are five per cent, which is far less attractive
10 | Canadian MoneySaver | https://www.canadianmoneysaver.ca | JULY/AUGUST 2023 Legal And Big Picture Planning