Monthly Archives: March 2010

Anthony Sabti

Small-Cap Funds Soar in Early Stages of Recovery.

From a March 20th Globe and Mail articled titled “Small-Cap Funds Soar in Early Stages of Recovery”, which highlights the one year return of some well known Canadian small-cap mutual funds. 

Small-Cap mutual funds, which focus on buying shares of smaller companies, have historically outperformed in the first year of a market recovery, and last year was no different.  The popular BMO small cap index has a 1yr return returned 87.6% compared to 47.6% for the TSX Canadian index. 

Small-cap companies tend to do well in early stages of recovery because of their presumed higher growth potential than larger companies.  Also, they do not have the widespread stock analyst coverage that larger companies have.  Fund managers have a better opportunity to uncover overlooked companies. 

There is a flip side to this of course.  Small-cap funds are more volatile than large-cap funds. Smaller companies have a harder time securing credit and offer less diversified revenue streams than larger companies. It should be mentioned that the BMO small-cap index fell 46.7% during the “great recession” of 2008, versus only 33% for the TSX. 

Anthony Sabti

Constructing your Portfolio

From an Article titled “Lifeplan: Upgrade your Portfolio”.  From the SmartMoney website, part of the Wall Street Journal Digital Network. 

This article goes over some of the fundamentals and latest trends related to portfolio construction, asset allocation, and fixed-income. 


-Although stocks and bonds remain the pillars of any portfolio, some investors look to add certain “alternative asset classes” to their portfolio.  These include commodities, infrastructure, income trusts, and precious metals through the purchase mutual funds. 

-The benefits of these classes of funds is they offer low correlation to equity funds.  They tend to do well when equity funds go down. .

-Young investors should still load up on equity funds, as high as 80% of their total portfolio

-Interest rates have nowhere to go but up and the simple rule of thumb with bonds is that when interest rates go up, bond prices go down.  Fixed-income fund investors should be paying attention to the average bond duration in the fund.  The shorter the duration, the less sensitive the fund will be to rate increases.  The corporate and real-return bond weighting is also important as these tend to perform better in a rising-rate or inflationary environment. 

Odette Morin

What to do with your Tax refund, Spend some and save the rest!

Getting a tax refund?  Before spending it all, read my suggestions below. 

Not getting any refund or not enough of a refund?  Start a monthly RRSP now!  You now have 12 months ahead of you to make this happen.  It is so easy to save for a comfortable retirement and increase your chances of a refund next year.  Just let us know and we will prepare the required forms for when you pick up your tax return. 

Many of you will be getting a tax refund soon.  Before spending your refund remember that a refund isn’t a gift.  It is the return of an interest free loan you made to the Government for overpaid taxes.  Even if advisors like me tell you that the best tax refund is no refund at all, the truth is that it is for most, the best forced saving.  So, now when it comes back to you, think hard before spending frivolously.  Why not spend some and save the rest!

Here are some thoughts on how you can use the refund to better your financial position.

1. Begin or add to your emergency savings plan: If you don’t have a cash emergency fund set aside, put some of your tax refund in a high interest savings account like ING or Dundee savings.

2. Make a 2010 RRSP contribution: Get a head start toward your 2010 RRSP contribution. This way you will add to your retirement fund, have more to spend later in life and get a tax saving for next year!

3. Invest in a TFSA: You can add $5000 a year to a Tax-Free Savings Account.  You can save it short-term or invest it for wealth accumulation and retirement!

4. Add to your children’s RESP: And get the 20% government Grant! You know this will cost you a bundle and an education is the best investment!

5. Reduce the mortgage: Please remember however that with interest rates this low, you will likely be better off investing your refund. More on that in a future Blog post.  Stay tuned!

Every situation is unique, whenever in doubt, just call us. We will review your situation and help you make an appropriate decision!

Odette Morin

If you are in your 20s or 30s, here is the “I don’t care plan”!

One of my 27 year old clients said to me today: “I could have made an extra RRSP contribution before the deadline but I didn’t because, I don’t care….really, I’m serious, I really don’t care!”

For all of you 27 years old out there, let me just say that it is totally normal or ok to not care at this time in your life but I can guarantee that you will care later when you get to 60.  So, I thought I would design an “I don’t care plan” for you!  This plan is simply a way for the young and carefree individuals to make things happen automatically without having to talk about it, think about it or even care about it!

Here is the “I don’t care plan” that I prepared for her.  After factoring her employer Group RRSP contributions, her retirement income need based on current income plus inflation, I figured that she would need a retirement fund of about $875k at age 60.  Based on an 8% rate of return, she will need to save an extra $1600 per year. Yep!  That’s all.  Can you imagine having to save only $1600 per year??  If she waits to age 50, she will have to save a whooping $27,000 a year!!! Ouch!  That is a lot of pub nights!

If she ask s her employer to increase her RRSP contribution by $66 per pay, the net difference on her paycheque will only be $46 (she is in a 30% tax bracket). 

$4000 a year seems like a lot but if you work out the numbers, look at your situation and divide the figure per pay cheque, $46 is a lot more manageable! The best part is that you won’t have to give up a lot of pub nights, think about it, talk about it or even “care about it”!!

She looked at me, smiled and said, I can do that!  I think she liked her new “I don’t care plan”.  She left my office after signing the form to adjust her Group RRSP plan, smiling and went straight to the pub! wink

Anthony Sabti

Be Careful With One-year Return Figures

From an article titled “Phillips Hager Tortoise Outpaces Hares” written by Rudy Luuko of Morningstar. 

Lots of clients love to point to one-year performance figures as a reason to buy or sell a particular fund.  As this article explains, these figures can be very unrepresentative of long-term performance.  It is very unlikely for a fund that tops a performance list one year to be in that same spot the following year.  In the end, things revert back to the mean. 

The author reminds us that most equity funds who have posted high double digits returns last year have also lost money in the past 3 years.  Funds that have the more credible 3-year or 5-year returns may not lead the pack in any given year, but finish strong in the end. 

To read the full article, click here.

Odette Morin

Federal Budget Highlights

The 2010 Federal Budget is optimistic by my financial planning standards, relying on slow growth in government spending and healthy growth in the economy hoping to balance the books by 2014-15.  This year’s budget has very little impact for most people. Here are the highlights pertaining to your personal finances :

What was not changed :

– no extension of the popular home renovation tax credit

– no tax cuts either

– no TFSA and RRSP limits increase either. 

What was changed (with excerpts from the National Post and CBC news)

Stock options relief: relief has finally emerged for many employees who exercised employee stock options and deferred their tax obligations until the date of sale of the underlying shares, only to find that the price of the shares has since plummeted in value. Read more here

For parents with a child with disability: If you have a disabled child and have contributed to a Registered Disability Savings Plan, you’ll be able to carry forward the Canada Disability Savings Grants (CDSGs) and Canada Disability Savings Bonds (CDSBs) entitlements for 10 years as welll as transfer your RRSP to the RDSP upon your death.  These are truly great for parents with disabled children.

No more tax break for Cosmetic procedures: Procedures like liposuction, teeth whitening and Botox injections are no longer covered. However, medically necessary cosmetic procedures will still qualify for a tax break.

Child tax benefit can now be shared: The budget also changes the rules for parents who share custody of a child, when it comes to the child tax benefit and the universal child care benefit. Under current rules, only one parent can receive the benefits each month. Under new rules, both parents can share the benefit if the child lives more or less equally with two parents who live apart.

Tax treatment of the universal child care benefit – that $100 monthly payment for children under the age of six. The payment is currently taxed as income in the hands of the spouse with the lowest income in a two-parent family. That means a single parent may end up paying more tax than a single-income couple even if their respective incomes are the same. Under rules coming into effect this year, a single parent will have the option of including the aggregate universal child care benefit amount received in their income or in the income of the dependant for whom an eligible dependant credit is claimed. The measure will provide $168 in tax relief for single parents with one child under six in 2010, the budget document says.

Prohibiting negative-option billing in the financial sector. A financial institution won’t be able to bill you for products or services unless you’ve agreed to them.

Mortgage penalties: standardization of the calculation and disclosure of mortgage pre-payment penalties. That is so welcome!

Cheques holding period: Reducing from seven days to four, the maximum time a financial institution can hold funds from a cheque you deposit to your account. As well, the institution would have to allow you to access up to $100 from that cheque within 24 hours.

Read the full budget plan here or more info in tomorrow newspapers.