Top 10 Facts and Predictions

2011 Facts

1.       Canada grew faster than Emerging Market darling Brazil. Despite challenges in Canada and the global economy, Canada grew by 2.3% not far off expectations and near its long-run average.  Brazil grew 2.1% over the same time period while the U.S. grew 1.5% and the Eurozone 1.4%.

2.       The Canadian Dollar was the weakest amongst G10 currencies.  Global investors were not impressed with our Canadian dollar in 2011, driving the currency down more than 2% on the year.  Surprisingly the loonie was not only weaker than the U.S. dollar and the Japanese yet (the strongest currency this year) but the Euro as well.

3.       The U.S. government has lowest interest rates since 1950s.  Combining the credit rating downgrade of U.S. government debt, the intense focus on deficits and debt, and a 3%-plus inflation rate, the ten year interest rate on government debt ended the year close to all-time lows around 2%.

4.       Gold was the top-performing commodity of 2011.  Despite record gold, silver and copper prices in 2011; commodity prices sagged over all this year with the index falling more than 8%.

5.       Canadian inflation rose at its fastest pace in 20 years.  Even with our soggy economy the inflation rate (cost of goods) rose by 3% this year.  This is the fastest annual increase since 1991, the year GST was introduced.

2012 Predictions

6.       North American economies will detach themselves from the European recession.  The most encouraging development in recent months is the ability of the U.S. economy to grow modestly in the face of Europe’s deepening woes.   Canada and the U.S. economies are expected to grow at a 2% rate next year.  For the first time in seven years the U.S. should grow faster than Canada.

7.       U.S. Housing will finally start to grow again in 2012.  After declining relentlessly for six consecutive years, and hitting a record low, residential construction is finally showing signs of growth, albeit slightly for the U.S. next year.

8.       The Bank of Canada will have its longest period of inactivity since the 1950s.  The Bank of Canada was the only bank in the G10 that did not cut interest rates in 2011.  Even though there is talk of a cut in 2012, if they stand aside and do nothing; that would hold rates for 28 months, the longest stretch of stable Canadian interest rates since the 1950s.

9.       China’s economy will slow down.  With the global economy sagging and the Yuan appreciating 5% combined with weaker European demand, China’s economy should slow moderately. China has been the engine that has kept global economies going over the last few years, but policy makers must slow it down before it over heats. 

10.   Calgary and Edmonton will be the two hottest real estate markets.  Vancouver has outpaced all Canadian cities since 2010 with price increases of up to 16%, that won’t be repeated this year.  There are already signs of sales dipping and prices coming down.  Toronto has been the hottest major market in recent months, and looks to be at the risk of overheating.  Calgary and Edmonton have enjoyed stable prices in recent years and with Alberta recording the strongest employment growth in Canada in 2011, look to these two cities to be the hottest housing market in 2012.

Wishing you and yours All the Best in 2012,

Happy New Year! 

Tracey

 

Original article by staff at advisor.ca

The Santa Claus Rally

There is always talk about the Santa Claus Rally in the financial industry this time of year, and with good reason.  Since 1990 the Down Jones industrial average has gained 2% on average in the last month of the year, 81% of the time.   In fact, the last week of the year – between Christmas and New Years – historically seems to be the best week of all; gaining on average 1.7% since 1896.

The reason is unknown, but many believe the yearend rally is due to the January affect; when many investors re-enter the market after selling off stocks late in the year to capture losses for tax purposes.   This re-entry tends to have a positive effect on stock values causing the markets to go up.

The opinions seem to be split whether we will have a Santa Claus Rally in 2011.  There are always a few Grinches and expectedly they are talking about how the ongoing problems in Europe will
interfere with any last minute upswing in the markets.

Either way, if you happen to see Santa over the next few days; make sure to let him know you would prefer a little more green than red in your stocking this year.

I wish you a Wonderful Holiday Season, filled with love, laughter and family,

Merry Christmas!

Tracey

Getting Divorced? What Happens With the Assets?

When you split up with your spouse you will need to divide your assets evenly. The division of assets upon relationship breakdown is a provincial/territorial concern and there are variations across the country depending on where you live. There are also differences depending on the nature of your relationship (married, common law, same sex). Consequently, you are advised to consult with a lawyer familiar with the laws of your province or territory.

However, the laws across Canada do have some factors in common. Generally the law regards a marriage as a partnership and although, in many provinces, assets brought into a marriage are not usually subject to division, the increase in those assets can be divided upon a separation. Family assets may include bank accounts, non-registered investments, registered investments such as RRSPs, real estate, etc. Any family debts incurred will also be included and reduce the overall asset value.

Some assets may be exempt from being divided. Again, depending on the province, these can be inheritances received, personal injury awards and life insurance proceeds.

The family home is a special case. In most provinces and territories the family home is subject to division regardless of when the property was purchased or who purchased it.

Once the division of property is determined, tax law will likely allow for the tax-free transfer of the asset to the former spouse. In the case of registered assets such as RRSPs; that are being transferred subject to a legal agreement on relationship breakdown; the money must be transferred to another tax sheltered plan (RRSP) to avoid immediate taxation. Tax form T2220 will have to be completed.

If you or your former spouse are members of a registered pension plan; when your relationship ends; there will usually be a required division of those benefits as well. If you are in a Defined Contribution pension plan (where you know how much is being contributed to the plan by you and/or your company) the division is based on an agreed-upon portion of the current value of the pension. In many jurisdictions no more than 50% of the value earned during the relationship can be transferred. With a Defined Benefit plan, (where what the pension pays you when you retire is based on a formula) in most jurisdictions the amount to be divided will be based on a lump sum payment at the time of separation as if the pension was being terminated at that time.

Pensions are designed to provide benefits to support the pension member for their retirement years. This is why most pensions are ‘locked in’. You can’t simply withdraw the money. In most cases, this locking-in will also apply to the benefits transferred due to a relationship breakdown. There will be a number of options to consider with respect to the transfer of pension benefits. You will need to contact your pension administrator when a transfer of pension benefits is required. They can assist you in explaining the options and how the transfer will be made. Special forms will have to be completed.

As you can appreciate the splitting of assets can be a complicate issue, make sure you get proper legal advice. Working with an advisor is just as important; we can take you through the different options and help determine what is best for you.

Happy Christmas shopping this weekend!

Tracey



Source: Dynamic Funds

Dying without a will can cost your family dearly

I'm always amazed at the number of people who have failed to prepare a proper Will. And I'm talking about intelligent and responsible people. With all the drawbacks of dying intestate (without a will) you'd figure these folks would have looked after this critical area of their planning. There are five key drawbacks to dying intestate:

1. Provincial laws dictate who gets what. Each province has its own intestacy laws which will distribute your estate in the manner the government sees fit. And I can tell you, your spouse doesn't automatically get it all if you have any children.

2. You'll pay more tax when you die. The easiest and most common way to defer tax on death is to leave all your assets to your spouse. Yet, dying intestate won't allow for this. The result? Taxes owing that might not otherwise have been paid.

3. Delays are a given. Dying without a valid Will means the court will have to appoint an administrator of your estate. This takes time and will delay the distribution to your heirs, and can lead to family feuds where more than one person feels they are best suited for the administrator's job.

4. Extra costs are guaranteed. The expenses of your estate will increase with additional legal costs, especially if each family member hires their own lawyer to gain a right to act as your administrator or for other advice. Also, money owing to minors must be paid into court and held there, which can cost legal and other fees.

5. A judge will decide on guardians. Without a valid Will, you forfeit the right to decide who should look after minor children when you're gone. A judge will make this decision based on what he or she sees as being in the best interest of your children.

The distribution

 The distribution of your estate differs by province if you die intestate. Generally, your spouse (if you're legally married, not common-law) gets everything if you have no kids. If you have kids, your spouse generally gets a fixed dollar amount, and then splits the balance of the estate with the kids in some manner. In Ontario, for example, your spouse would get the first $200,000 of your estate after all debts are paid. The balance of your estate would be split 50/50 between your spouse and one child. If you have more than one child, your spouse gets one third of the balance and the kids split the rest equally. Check with a lawyer in your province for the actual distribution where you live. And while you're at it, make an appointment to have that lawyer prepare your Will to avoid the pitfalls of intestacy.


Have a great weekend,

Tracey

Original Article By Tim Cestnick


Dynamic Funds

Is There Value in Advice?

The Investment Funds Institute of Canada completed its 2011 Value of Advice Report; and I thought you would be interested in some of the highlights.

So Wealth or Advice – Which Comes First?

The research samples that were studied have consistently shown that investors who work with financial advisor (advised investors) have more wealth and investable assets (larger portfolios) on average than those who do not (non-advised investors).  In the Canadian Financial Monitor database the sample of advised investors had an average net worth of $555,447 in 2011 compared to $191,743 for non-advised investors, nearly three times greater.  In the same study, investible assets of advised investor were found to be four times greater than investible assets of non-advised investors.   The large differences were found to exist for all age groups and income levels.

The Investment Plan – How it Pays Off

Great benefits arise from the discipline of developing and following a professional investment plan.  Investors with a plan save more regularly and tend to avoid the common investment biases and errors that they would fall prey to if left to invest on their own. 

According to results from HSBC’s The Future of Retirement: The Power of Planning 2011, those who have an advisor are more than twice as likely to have a financial plan.  Furthermore, those who have a financial plan in place and seek professional financial advice are the best off financially.  This group has the most retirement assets out of all the consumer groups.   In fact the group of individuals using an advisor for their financial planning had more than twice the retirement savings compared to those who did their own planning, and more than four times the savings compared to those who did not have a financial plan.

It is also clear that planning has positive impacts on the value of investor portfolios over time.  The 2011 Canadians and Financial Advice Study; data shows that the majority of advised investors believe that their advisor has had a positive impact on the value of their investments – 61% strongly agree that their advisor has helped them increase their net worth, and the same percentage 61% strongly agree that their advisor had done a good job in helping the achieve investment returns. 

Investing Without Advice – the Pitfalls

The results highlighted that many non-advised investors engaged in significant non-rational and biased investing behaviours.  In particular, the results show that individuals managing their own portfolios are overconfident when it comes to assessing their own ability to identify exceptional stocks.  They also note that a large proportion of about 30% have a preference for stocks that have the characteristics of a ‘lottery ticket’ and a very large proportion show a bias to familiarity – when judging between an unknown large listed company and a small listed company familiar to the investor 58% indicated that the small listed company would be of equal or lesser risk as an investment.

When considering the difference in the average returns between people who received help in choosing investment vs. those that didn’t receive help, on average the non-helped participants experienced returns nearly 3% lower returns than the people who received help choosing investments; even after paying a fee.

So the bottom line is, there is Value in Advice; of course if you are reading this you already know that.  Have a great weekend.

Tracey

I have only highlighted a few of the very interesting facts of the report; I encourage you to view the whole report at www.ific.ca .

Act Now, and Save on Your 2010 Taxes

As the final weeks of 2010 draw to a close, most of us are focused on holiday activities.  To ensure a fresh start to your 2011, now is the time to implement year-end tax strategies.  A quick review can uncover opportunities for you to keep more tax dollars in your own pocket. 

Here is a quick checklist to get you started:
 

1.       Pay items that qualify for tax breaks such as tuition fees, medical expenses, childcare fees, or child support.  Paying them before December 31 will allow you to deduct them on your 2010 income tax return.

2.       Consider triggering a capital loss for planning purposes.  Some investments in your non-registered portfolio may have been affected by the recent market fluctuations and currently sitting in a negative position.  If you sell or dispose of the investment, you can use the capital loss to offset capital gains earned in 2010, or carry them back against gains you were taxed on in any of 2009, 2008 or 2007.  You can also carry the loss forward as a cushion against future capital gains – you can carry a loss forward indefinitely.

3.       Make political or charitable donations before the end of December and get the tax credit for this year.

4.       Top up RESP and RDSP contributions before December 31^st as carry forward amounts are limited and you may miss out on Government Grants and/or Bonds.

A little preparation now can help reduce your tax bill and improve the performance of your investment portfolio.  It’s a good idea to speak with me; or your tax specialist before the end of the year about your tax and financial strategies.  If you don’t, you may end up paying more in taxes than you have to.

Have a great weekend,

Tracey

Source; Mackenzie Financial Corporation

How Does it Affect My Money?

Through all the noise about Sovereign Debt, political uncertainty and the possibility of a global recession; most people just want to know “How does it affect my money?”

Please click the link below to watch a short investor friendly video put out by the Portfolio Managers at Dynamic Funds.  It will give you a little in-site on how your money is being managed to take advantage of these volatile markets.

View the Video 

Enjoy, and have a great weekend.

Tracey

Rate Hikes May Mean Half Million Foreclosures.

With interest rates at historic lows and expected to rise in 2013, I though the following was an interesting article to share.

Over 600,000 Canadians will struggle to make their mortgage payments if their rates rise by just 1%, according to the seventh Annual State of the Residential Mortgage Market report by the Canadian Association of Accredited Mortgage Professionals (CAAMP). Recognizing that interest rates cannot stay at historic lows forever, many are bracing for higher rates. But 3% said they could afford no increase in their monthly payment, while another 5% said they could afford an increase of up to $99.

Of the 5.80 million mortgage holders in Canada, roughly 650,000 (12%) would be challenged by rate rises of less than 1%.

Overall, the average amount of room for increase is $750 per month on top of current costs, with 68% saying they could manage an increase of more than $300 a month. Eighty-four percent said they could handle an increase of $200 per month in their mortgage payments.

While nearly half (46%) of respondents agreed that Canadians have too much debt, the majority didn’t think their own debt load was a problem. There is also a strong sentiment that low interest rates have allowed people to buy homes that probably should not have bought them.

In spite of that sentiment, there was similar agreement that real estate is a good investment and that mortgage debt is “good debt”. Only seven percent agreed strongly with the statement that they personally regretted the size of the mortgage they took on.

In this extended period of rock bottom interest rates, it comes as no surprise that Canadians have largely sought out new lower rates on their mortgages. Twenty three percent renewed or refinanced in the past year and 78% of those secured a lower rate—on average, 1.46% lower.

“Overall, our survey paints a picture of Canadians generally and homeowners in particular as very focused on their finances,” said Jim Murphy, president and CEO of CAAMP. “They are planning ahead, aggressively paying down their mortgage in advance of any further economic jolt

There’s some good news on the home equity front: only 10% of mortgage holders took out equity in the last year, a 40% drop from 2010. Of those that did tap their home equity, the average amount is estimated at $49,000.

Seventy-eight percent said they have at least 25% equity in their homes. The study estimates that the total value of owner-occupied housing in Canada is $3.017 trillion, with mortgages and lines of credit on these homes totaling $982 billion. That leaves $2.035 trillion (68%) in home owners’ equity.

“Despite less than positive feelings towards the economy, or maybe because of that, Canadians are showing a level of prudence in their decisions that is inspiring,” said Murphy. “That suggests to us that there is no need for policy makers to introduce new measures that would reduce housing activity.”

When asked if they were concerned about a downturn in Canada’s housing market in the next year, the responses were far from optimistic. On a scale of 1 to 10, with 10 being complete agreement with the statement, responses averaged 5.84.

“Opinions are close to neutral on this question. But, for this statement, we would hope to see a high level of disagreement,” the report says. “These responses suggest weak confidence about housing market prospects.”

Across the country the weakest confidence levels were found in Quebec, Saskatchewan, Ontario and Manitoba. The strongest confidence levels were in Atlantic Canada, followed by Alberta and British Columbia.

How would an interest rate hike affect your monthly budget? Not sure; would you like to find out? Give me a call; I can even quote you on a new low mortgage rate if you need one.

Thanks for reading, have a great weekend.

Tracey

Originally published on Advisor.ca

Filed by Steven Lamb

What's Going on in Greece

European financial and political discussions have escalated from a simmer to a full boil this week and I’d like to use the post this week to go over some of the issues at hand, how we got to this point and what it means for Canadian and Global Investors. 

Early 1990’s – 2000’s

In an effort to align the economic interest of the member nations of the European Union, government debt and deficit limits were set.  Over time, some members including Greece (Greece joined in 2000) strayed from the limits and their debt levels increased far higher than Eurozone averages.  It is not entirely clear whether Greece was hiding the debt levels in complicated derivatives or other European countries were not interested in enforcing their agreement.  The end result is still the same; Greece had some of the highest debt to GDP ratios in the world at the end of the decade.

April 2010

Greece, seeing potential defaults on its sovereign debt and mixed results from the budget cutting they had already begun appealed to Europe and the IMF for an emergency loan.  Europe demanded austerity measures which were implemented and an EU/IMF loan package was agreed upon.

June 2011

Audits from the EU/IMF as well as decisions from the credit rating agencies concluded that the austerity measures undertaken were not enough.  Greece needed another round of emergency funds to stave off default and lenders were not convinced that enough budget cutting had been done to warrant more funds.  Stock markets feared the results of this standoff and price volatility increased.

October 2011

Leaders of the Eurozone fearing wide scale default in Greece agreed on a plan that would have Greek bondholders write off a large portion of loans.  They would enhance the bailout fund and add stability back to the Greek financial system. 

This Monday

Greek Prime Minister George Papandreou surprised everyone by announcing that he would take the decision to accept the new bail-out package (and associated austerity measures) to a referendum.  The global markets were shocked, European leaders were shocked and the MSCI global stock indices saw some of the largest drops in since 2008.

Thursday

After seeing the response to the referendum idea, Mr. Papandreou’s opposition party agreed to back the bailout conditional on a coalition government taking control of the country and Mr. Papandreou stepping down as leader.  Global markets rose as the fear of a drawn out referendum seemed to be gone however the political battle today has left Greece in political limbo.

Today

Mr. Papandreou’s party has a slim lead in Greek parliament and his popularity within his own party is fading.  He is facing defections and a non-confidence vote that could trigger an election within three weeks and change in leader within days.

So what is the impact for Canadians?  Canadian banks have invested less than 0.3% of their total assets in Greece, Ireland, Portugal and Spain.  It has been estimated that sovereign debt defaults in all four of those countries would only result in losses at .14% of revenues.  The challenge for Canadians is that our markets for many months have seen short term volatility as a result of symbolic events and not business fundamentals.  The unorganized default of Greece would be unprecedented and it is impossible to predict the reaction we will see should it happen.  Although we have seen sovereign defaults before in Argentina and Russia, we have not seen one in a developed country and we have not seen one involving a currency as important as the Euro. 

I will update the blog post as we receive news next week.  Call me if you would like to discuss any of these issues.

Have a good weekend,

Tracey

What is a Registered Disability Savings Plan?

A Registered disability Savings Plan (RDSP) is a registered savings plan, like an RRSP; but it is intended to help parents and others to save for the long-term financial security of persons with severe or prolonged disabilities.  In order to qualify for government grants the person who is disabled must be eligible for the Disability Tax Credit, and be 49yrs or younger.

 When the beneficiary is a minor, the parents or legal guardian can set up an RDSP and remain holders of the plan until the beneficiary turns 18 years of age.  If the beneficiary is over 18yrs and legally competent to manage property, then he/she must be the holder of the plan.  Although there can be more than one holder of the plan (both parents) there can only be one beneficiary per plan, and there can be only one RDSP per beneficiary.

 Anyone can contribute to a RDSP and you can contribute up to $200,000 per beneficiary during the lifetime of the plan.  There is no annual contribution limit, so a parent or grandparent can bequest a lump sum into a RDSP for a disabled child.

Although the contributions are not tax deductable; the plan holder will receive government grants for opening and investing into a RDSP, these can be quite substantial.

An RDSP can receive a maximum of $3500 in matching grants in one year, and up to $70,000 over the beneficiary’s lifetime.  A grant can be paid into an RDSP on contributions made to the beneficiary’s RDSP until December 31 of the year the beneficiary turns 49 years old. 

The amount of the grant is based on the beneficiary’s family income as follows:

Beneficiary’s Family Income	Contribution	Grant	Maximum
$81,941* Or less	On the first $500	$3 for every $1 Contributed	$1500
	On the next $1000	$2 for every $1 Contributed	$2000
More than $81,941*	On the first $1000	$1 for every $1 contributed	$1000

*The beneficiary family income thresholds are indexed each year to inflation.  The income thresholds shown are for 2010.

The Canada Disability Savings Bond

A Canada disability savings bond is an amount paid by the government of Canada directly into an RDSP.  The government will pay bonds of up to $1000 a year to low-income Canadian with disabilities.  No contributions are required to receive the bond.  The lifetime bond limit is $20,000.  A bond can be paid into an RDSP until the year in which the beneficiary turns 49 years old.  The amount of the bond is based on the beneficiary’s family income as follows:

Beneficiary’s family Income	Bond
$23,855* or less (or if the holder is public institution)	$1000
Between $23,855* and $40,970*	Part of the $1000 - based on the formula in the Canada Disability Savings Act
More than $40.970*	No Bond is paid

*The beneficiary family income thresholds are indexed each year to inflation.  The income threshold shown is for 2010.

Starting this year in 2011; you are able to carry forward unused grant and bond entitlements to future years.  The carry forward period only started after 2007 and is for a period of 10 years.

If within 10 years any of the following events occur, the government bonds and grants must be repaid to the government of Canada:

-        The RDSP is terminated (voluntary closure)
-        The plan is deregistered
-          A disability assistance payment is made from the plan money
-        The beneficiary ceases to be eligible for the disability tax credit
-         The beneficiary dies

 For more information about RDSPs visit CCRA’s website:

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rdsp-reei/menu-eng.html

Or as with any of your financial questions, give me a call.

Have a great weekend,

Tracey

Four Ways to Preserve Wealth Using Life Insurance

Pay the Tax Man

Taxes are usually owed upon death for assets such as a family cottage or non-registered investments as they are ‘deemed sold’ when the owner dies and capital gains are realized.  The tax liability might occur when the asset owner dies, or when the spouse dies.  Since life insurance proceeds are also paid on death, they provide cash to pay the taxes.  That way, your beneficiaries won’t have to sell the asset to pay the tax man.

Fund a Charitable Gift and Trigger a Tax Receipt

Life insurance can fund a charitable donation and trigger a large tax receipt when you pass away.  You can name the charity of choice as your beneficiary, so the insurance proceeds will be paid to the charity directly, instead of into your estate.  You will receive a large tax receipt to off-set taxes owing on your final tax return.

Ensure Your Children to Ensure Wealth Transfer to Your Grandchildren

Afraid the kids are going to spend all the money and leave nothing for your grandchildren?  Take out a life insurance policy on your children with your grandchildren as the beneficiaries.  This is a common way to transfer wealth efficiently and effectively through the generations.  You can set up the premiums to be paid up by the time you pass; this way your grandchildren aren’t stuck paying the premiums after you’re gone.

Use Life Insurance for Retirement Planning

The tax-exempt accumulation of cash in a Universal Life Insurance policy can function like an RRSP on steroids.  When you retire, you can access the funds through a collateral assignment of the policy to a lending institution (put the bank as the beneficiary) in exchange for a tax free loan to supplement retirement needs.

To learn more ways to use Life Insurance to create and/or your preserve wealth give me a call.

Have a great weekend,

Tracey

Please note: Insurance is not a business of Security Financial Services but is placed through an AGA, Capital Insurance Services via Hub Financial.

5 Golden Rules of Retirement Planning

The most common question I get as a Financial Planner is “How much can I afford to live on or take out of my investments every year during retirement?”  Naturally, this question has many assumptions and everyone is different, but here are five golden rules when it comes to retirement planning;

1.       Don’t expect to reduce your spending in the first few years of retirement, this is the time when you are healthy and finally able to do the things you have always dreamed of, such as travelling and golfing – so plan for it.

2.       Plan for increased longevity.  The average person will retire today at 61 years of age and live almost three decades in retirement.  In fact, it is likely that if a couple retires at age 62, one of them will still be living at age 92.

3.       Keep your withdrawal rate as low as possible for as long as possible, despite the increasing desire to spend in your early retirement years.  If possible, keep your withdrawal rate under 5% and increase if needed as you age.  Keep in mind this is the withdrawal rate from your investment portfolio, which does not include your pension, OAS or CCP.

4.       Plan for discretionary health care expenses.  This could be in the form or retirement housing, cross-border health care or even potential amendments to the Canadian system.

5.       Don’t go too conservative too quickly, thus “going broke safely”.  Capital protection is important and while the return and safety of bonds can be attractive; it is important the average person still has some equities well into their retirement.  This will be even more necessary if we experience a continued rising interest rate environment (causing bond values to drop).

The golden years are meant to be just that – not a time to cut back on your lifestyle.  Unfortunately, outliving money will be a more likely scenario for many Canadians who have not properly prepared. 

Like never before, aging Canadians need strong leadership and financial advice, don’t wind up somewhere unexpected; for a review of your plan give me a call.

Have a great weekend,

Tracey