Monthly Archives: September 2014

Terry Broaders

Weekly Update September 30 2014

“In The Future Everyone Will Be Famous For 15 Minutes” -Andy Warhol



TSX Snaps Five Day Losing Streak

The Toronto stock market ended its five-day losing streak Friday, rebounding strongly in a session helped by energy and infotech stocks, particularly BlackBerry whose shares surged five per cent after beating expectations on earnings. The S&P/TSX composite index soared 133.20 points to 15,026.77, while the Canadian dollar dipped 0.38 of a cent to 89.65 cents US. Wall Street also snapped back from deep losses from the previous day. The Dow Jones industrials added 167.35 points to 17,113.15, the Nasdaq gained 45.44 points to 4,512.19 and the S&P 500 index saw an uptick of 16.86 points to 1,982.85. It’s been a wild week for investors, who saw the Toronto market plunge more than 200 points Thursday, capping a fifth day of declines. The U.S. indexes did even worse, sporting the steepest declines in two months as the Dow shed nearly 250 points.


Fewer Underwater U.S. Home Owners

U.S. homeowners’ negative equity tumbled last quarter, with the second greatest drop in underwater properties since data tracking started, according to a September 25 release. Last quarter there were about 5.31 million homes with negative equity  ( owners owing more on a mortgage than a property was worth ) down 946,000 from the prior quarter according to CoreLogic, an Irvine, California based analysis firm. That drop for underwater homes was the second sharpest since data collection started in 2009, and far greater than a decline of about 352,000 in the prior quarter. The share of mortgaged U.S. properties in negative equity fell to 10.7% in the second quarter from 12.7% in the first quarter and 14.9% in the year-earlier period.

Rapidly rising home prices have enabled troubled homeowners to regain equity. Having positive equity can help owners to refinance or sell a home, further firming their pocketbooks. Financial stability will likely also provide some psychological relief to owners, and could support.  Certain markets are doing much worse than others when it comes to underwater properties, with just five states accounting for almost one-third of negative equity across the U.S. These states included Nevada, where 26% of mortgaged homes were underwater in the second quarter, followed by Florida, where the share was 24%, Arizona, where it was 19%, and Illinois and Rhode Island, which both had a share of about 15%.


Market Update as of September 26 2014

The TSX closed at 15027, down -253 points or -1.66% over the past week. YTD the TSX is up 10.31%.

The DOW closed at 17113, down -167 points or -0.97% over the past week. YTD the DOW is up 3.23%.

The S&P closed at 1983, down -27 points or -1.34% over the past week. YTD the S&P is up 7.31%.

The Nasdaq closed at 4512, down -68 points or -1.48% over the past week. YTD the Nasdaq is up 8.02%.

Gold closed at 1218, down -9.00 points or -0.73% over the past week. YTD gold is up 1.16%.

Oil closed at 91.92, down -0.53 points or -0.57% over the past week. YTD oil is down -6.78%.

The USD/CAD closed at 1.11543, up 0.0204 points or 1.86% over the past week. YTD the USD/CAD is up 4.91%



Retirement Fulfilment and Fear of Running Out of Money

Should I Delay CPP ?

GrandParents Help With RESPs ?

Men, Women & Importance of a Good Manicure

Are We Headed For a Correction ?


Sources: Bloomberg; Investment Executive;

Odette Morin

Retirement fulfillment and the fear of running out of money

Senior couple looking at bills, sitting at dining table. Image shot 2009. Exact date unknown.

In my practice, I see retirees concerned about the risk of taking too much out of savings and running out of money.  At the same time, retirees are young and active and want to enjoy life while they can. How do you balance the risk with the need to have a fulfilling retirement?

Retirement planners recommend, as a rule of thumb, that annual withdrawal rates from retirement nest eggs should not exceed 4 per cent.  By the time RRIF holders  reach 71, however, the federal government’s age-related formula dictates they must withdraw a minimum of 7.38 per cent of their RRIF, with the mandatory minimum withdrawal rate increasing each year.

It may give some retirees the impression that they can take that much out and oblige the holder to run tax-deferred assets down rapidly. We feel that the minimum drawdown from RRIFs and similar vehicles should start later and be smaller or even disappear entirely.   However, we have to follow the current rules.

What is the retiree to do to make sure they don’t deplete assets too fast?  It is imperative to have a solid retirement cash flow analysis performed and reviewed annually to establish the maximum annual withdrawal rate you can afford.  Experienced  financial planners, such as us, are used to preparing these analyses making sense of what assumptions to use.

If the RRIF Minimum Annual Payment (MAP) exceeds your personal maximum withdrawal rate, the smart thing to do is to take the surplus that you don’t need and promptly put it into a tax-free savings account (TFSA). Your TFSA account can be invested similarly to your RRSP and achieve similar rates of return on a totally tax-free basis.  That’s the most tax effective way of dealing with the excess RRIF payment. If you have already maximized your TFSA, reinvesting the excess RRIF MAP in a non-registered portfolio of tax efficient investment is the next step.  Just make sure you have sufficient TFSA contribution room.  There are hefty penalties if you over contribute.

The withdrawal rate is just one factor that must be accounted for in any retirement plan. Inflation taxation and the chance that out-of-pocket health-care costs might also drain savings must all be part of the plan. When planning for and during retirement, ensure that you review your cash flow analysis annually with a qualified Certified Financial Planner.  This is your best bet for a worry-free, comfortable and fulfilling retirement!



Terry Broaders

Should I Delay CPP ?

Beginning in 2012, anyone who paid into CPP and reached the age of 60 could choose to begin receiving CPP benefits regardless of employment status. Previously, in order to qualify for retirement benefits one had to cease employment. There are significant financial incentives for delaying CPP.   Under the new rules, the monthly penalty for taking the CPP early (before 65) will increase gradually from 0.5% in 2012 to 0.6% a month by 2016 and the monthly benefit for delaying CPP increased from 0.5% a month to 0.7 % a month in 2013. Taking CPP early at 60 will mean you will receive 36% less than if you take it at 65 and you’ll get 42% more if you start taking it at 70 instead of 65.The maximum CPP payment for 2014 is $1,038.33, or 12,459.96 a year.

Deciding when to take CPP benefits is best based on each individual’s circumstances, but there are a number of factors to consider.  One has to do with your marginal tax rate.  If you are in a high marginal tax rate from age 60 to 65 but will be in a significantly lower rate after age 65 it may be best to delay CPP beyond age 65.  Another consideration is your life expectancy and what is known as the cross over date. This is the age you need to attain to get the benefit of delaying receiving the benefits to get the larger amount. For example, if you delayed taking CPP at 65 and took the enhanced benefit at 70, the cross over age is 80.2 years.  You need to live beyond 80 to compensate for not taking any CPP benefits at age 65.  If you’re in good health and longevity is in your family, it may be a good idea to delay because you may have a better chance of reaching that cross over age. On the other hand, if you need the cash benefit or are in questionable health it may make sense to begin receiving reduced early benefits and take the after-tax proceeds and invest them in a Tax Free Savings Account.  Also keep in mind that if you are retired and are collecting your CPP then you have to take less withdrawals from your other investments, leaving your money there to grow.   

While generally speaking we suggest taking the CPP early and potentially reinvesting it completely or partially there is simply  no one answer that fits all.  We can help you analyze your specific  situation to determine what is best for your circumstances.

Odette Morin

Should Grandparents help with grandchildren’s Education Savings Plan (RESP)?

Statistics  Canada reported that the average undergraduate tuition and service fees bill in Canada last year was over $6000. Add in the price of accommodation, meals, books and other living expenses and the total annual cost for today’s student runs between $16,000 and $20,000 a year, estimates David Trahair, a financial author and CPA who runs his own financial analysis firm in Toronto.

Tuition costs are currently outpacing inflation and families  often have to go  deeper in debt to pay for the children’s education. A national survey of 604 parents commissioned by the Canadian Alliance of Student Associations found that one-third are dipping into their own retirement savings to help finance their children’s post-secondary education. The survey, conducted by the polling firm Abacus Data, also found that slightly more than one-third of parents reported taking out a loan and 15 per cent said they had or would be remortgaging their home to help cover their children’s education.

A welcome trend has been the willingness of grandparents to step up with contributions to RESPs (Registered Education Savings Plan). More than 53 per cent of grandparents are saving, or plan to start saving, to help pay for post-secondary costs, according to a recent U.S. study commissioned by Fidelity Investments.  We see the same trend occurring in Canada as well.

RESP GrandPar

Grandparents often have the means to help and see this as an “investment” in their grandchildren’s future. It is more than just money gifted.  They feel that it will be money well spent.

In many cases, grandparents are not just giving money but also taking an active role in planning for higher education. More than two-thirds of survey respondents (69 per cent) said they have talked to their own children about how the family will pay for it, Fidelity reports. The study, conducted last April by the research firm ORC International, surveyed 1,001 adults with at least one grandchild 18 years of age or younger.

Grandparents can make RESP contributions directly into their grandchildren’s RESP.  Please contact us should you wish to contribute or start a new RESP for your grandchildren.


Odette Morin

Men. Women. And the importance of a good manicure.

The other day, I ran into an acquaintance I hadn’t seen in awhile. She began to tell me that she’s been unemployed for nearly two years.

Never had she imagined facing such hardship in her middle age. She then apologized for cutting the conversation short. She had to get to an appointment – and not just any appointment either. She was scheduled to have her acrylic nail repaired.

Oh mon Dieu!


Then again, as outrageous as that might seem, most of us –men and women alike – are guilty of misguided financial priorities. It’s very common to blur the lines between want and need.

There was a time when we’d pour ourselves a coffee from the pot at work. How did daily runs to Starbucks become a norm? I believe it happened the same way that real vacations now mean flying off to a sun destination instead of driving to the cottage.

I chalk it up to Competitive Spending. That is, “keeping up with the Joneses” except that now we’re trying to keep up with the Kardashians.

Somehow, through advertising and “reality” TV shows, we no longer measure our needs and aspirations against the lifestyles of our neighbors. We measure them against those that are both excessive and, often, manufactured.

We need to get real.

According to a recent survey by Canadian Payroll Association:

  • More than one half the employees surveyed reported that it would be difficult to meet financial obligations if their pay cheque was delayed one week.
  • More than a quarter of those surveyed said they probably couldn’t pull together $2,000 over the next month if an emergency expense arose.
  • This is alarming. So, let me offer three suggestions that can help you gain financial control.

Top 3 tips to saving money.

  1. Pay with cash: As reality checks go, there’s just nothing like handing over cold hard cash to pay for what you need. Credit cards are my greatest pet peeve when it comes to easy spending.
  2.  Get off Amazon, avoid malls and scrutinize advertising. Avoid the temptation, as well as the messages, suggesting that what you want is actually what you need. When I Googled “Amazon’s best sellers”, the party game, Cards Against Humanity, comes up at $25 – not including shipping. Does no one play Charades anymore?
  3. Avoid logo wear and “exclusivity”. Do you really need a new fridge or expensive runner’s shorts? Do your kids need the latest Nike apparel? On that note, have you taught your children the value of money?

I’m not suggesting that you stop buying what you need. I am, however, suggesting that you think critically about what’s considered essential. If you don’t reign yourself in now, you may not have enough to cover real living expenses in the future.

Odette Morin

Are we headed for a correction in this amazing three year market run

Market fearI have not been writing a lot this summer because we know you were busy enjoying the amazing sunshine we have been having.  We sure have been busy too, keeping abreast of market developments even if things have been fairly stable and positive.

Specifically, we have been evaluating where this market is going.  Many of you have been asking whether some actions are required after such a strong market recovery.  Is it time to sell?  Should we be reducing exposure to equity?  Are we heading for a crash?  These are the kind of questions I get every day. Honestly, I too ask myself the same questions.

Here is a brief summary of our analysis:

The markets will likely continue to go up because of four main factors:

1.      External Liquidity

Even though the U.S. Federal Reserve is reducing Quantitative easing, it’s still putting money into the system and it’s still a few months away from withdrawing liquidity and raising rates. That external liquidity tends to drive stocks.

2.      Internal Liquidity

Companies balance sheets still holds lots of cash and there has been an increase of capital within investors cash holdings. But, as the Fed tapers, there will likely be a movement of cash from retail investors as they move towards stocks.

3.      Cheap valuations

This is a tough one but valuation metrics appear to be fine, relative to historic mediums and means.  Equities are cheap relative to interest rates.  We think that equities and interest rates have to rise a lot more in order to correct the major undervaluation relative to interest rates.

4.      Global stability

The U.S. economy is improving. At the same time, China has the monetary and fiscal policy firepower to ensure a soft landing. Europe has bottomed. We are in a sweet spot we feel.

What if we are wrong?

Well, even if we are wrong, it does not matter.  What?!  Of course, when the markets drop you also see a drop in the market value of your account but you keep getting your dividends.  In good and bad times, there are dividends.

A dividend is a payment made by a corporation to its shareholders, usually as a distribution of profits.  Dividends are like rent income for a rental property.  The market value of your real estate might go down but your rent will stay the same.  Of course, nor dividends or rent cheques are guaranteed.  This is just a basic analogy to illustrate that historically even when the stock markets drop, mosts dividends will continue to be paid.

Warren Buffet calls dividend paying stocks, Equity Bonds.

Investors and especially retirees need not only income, but also cost of living adjustments (known as COLA). Otherwise, inflation can erode their purchasing power as the years go on.

Dividends are very important and the investor’s best friend mainly, because with time they rise, and keep up with inflation.  When we have inflation, the price of goods and services go up.  The companies that deliver these goods or services are making more money and will in turn pay more dividends.  If you invest in bonds or GICs, the purchasing power of your interest will go down when we have inflation but if you hold equities, you will own dividends which rise with inflation.  Dividends are you best friend over time.

If you are retired and fortunate enough to derive income from a pension, the cost of living adjustment can still be a sore subject because they are rarely guaranteed.  Even with the government pension, you may be subject to politicians’ whims on how much of an annual increase, if any, you can expect.

But an increasing number of retirees don’t have traditional pensions and must rely on a combination of investment income, RRSP savings and government pensions.

Therefore, even if equities are volatile with market sentiments, they are your best ally over time to counter inflation.  You should hold equities at all times regardless of where the market is heading.

Relying on dividend figures alone is not enough however. You must do additional research to make sure the company can comfortably support the dividend from its cash flow, and then go further and consider whether the firm is in a position to increase its dividend.

That is precisely why we rely on our dividend fund managers to research and identify companies with ability to continue paying dividends and or even raise them.  Free cash flow yield is often talked about. Free cash flow is a company’s remaining cash flow after capital expenditures. The free cash flow yield is free cash flow divided by market capitalization.  Analysts look at the difference between the dividend yield and the free cash flow dividend. The greater the difference, the easier it is for a company to raise dividends.

Like I say often, always remember that equity investment returns are closely tied to corporate earnings growth and the price you pay for those earnings. Historically, over the long term corporate earnings have been fairly stable and have grown along with productivity gains and inflation. Stock valuations though are more volatile than earnings since they are influenced by investor sentiment, which swings between optimism and pessimism.

Some will say that this view is optimistic.  I would say that this view is realistic.  A rational optimist is usually a successful investor.  Over the long term, and if we need money until age 90 or more, we sure are in for the long term, we need an adequate portion of our investments in equities to meet and exceed inflation.  Staying invested in good quality income investments will protect your lifestyle and peace of mind.