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 .