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Monthly Archives: May 2015

Terry Broaders

Weekly Update May 26 2015

 

“Don’t Try This At Home” – David Letterman

 

Stocks Step Back After Recent Rally

Stocks in Canada’s largest centre retreated on Friday, weighed down by cooling energy and financial stocks, with investors taking some profits after making gains in four of the previous five sessions. The S&P/TSX composite index fell 20.63 points to greet Friday’s noon at 15,182.98. The Canadian dollar slumped 0.56 cents to 81.40 cents U.S.

On the economic beat, Statistics Canada said retail trade rose for the second consecutive month in March, advancing 0.7% to $42.5 billion.  The Consumer Price Index rose 0.8% in the 12 months to April, after increasing 1.2% in March. On a seasonally adjusted monthly basis, retail inflation decreased 0.1% in April, following a 0.3% rise in March.In the U.S. the Dow Jones Industrials swooned 48.68 points midday Friday to 18,237.06. The S&P 500 index slid 3.47 points to 2,127.35. The NASDAQ slumped 3.73 points to 5,087.06 The U.S. Labor Department said on Friday its Consumer Price Index (CPI) rose 0.1% last month, with the core figure discounting food and energy costs up 0.3%, for the largest gain since January 2013.

Yellen Says Rate Hike Likely Before Year’s End

Federal Reserve Chair Janet Yellen said she expects the Fed to begin raising interest rates later this year if the job market improves and it is confident that inflation will rise closer toward its target rate. She cautions that the economy is still facing a number of headwinds that could stall growth. In a speech in Rhode Island, Yellen highlighted problems such as disappointing wage growth and a significant number of people working part time who would like full time jobs. She also mentioned a weak housing recovery and global economic weakness.
Yellen says because the Fed’s interest rate moves take time to filter through the economy, she believes further improvements in the economy will likely make it prudent to start raising rates later this year. With a rise in U.S. rates Canada is likely not far behind.

 

Blog Links

The Death of Money

New RRIF Withdrawal Rules

New $10,000 TFSA Limit

 

Sources: Bloomberg; Investment Executive; advisor.ca; Statistics Canada

Odette Morin

The Death of Money

death money

 

 

 

 

 

 

 

A client of mine told me that she recently read the book called “The Death of Money”.  She asked my opinion on it.  She stated that she found the book “frightening”.  This book is a classic example of Doom and Gloom propaganda.  The book describes in detail what central banks do and how they affect currencies and global economies.  I have not read it, but I think it concludes that the central bank’s policies of excessive money supply could lead to outcomes like hyperinflation or devaluation of currencies (thus, “the death of money”).

I am generally weary of any extreme predictions or economic forecast. Doom and gloom and apocalyptic economic predictions have always been around.  I’ve heard it all over the years, the fall of currencies, countries, capitalism, disruptive technologies.  It’s normal investor behaviour to worry about investments and there are a lot of sources that try to pray on those fears, even profit from them.  Just like there are also “euphoric” and “sky is the limit” type economic predictions.

I always remind myself that stock markets have been around for 100+ years.  In the past century we’ve gone through events like the great depression, world wars, civil wars, cold wars, oil crises, financial crashes, rise and fall of emerging market nations, fiscal cliffs, the shift from British Pound to U.S dollar as the world currency reserve, etc…  In spite of all these events, markets are still around.  The financial crash of a 2008-09 was the most significant bear market event since the great depression of the late 20’s.  Six years later, the S&P 500 has not only recovered but is currently trading at record highs.

I also remind myself of the companies that make up the various markets.  Companies like Royal Bank, Telus, Coca Cola, Apple, Canadian National Railway, Fortis, Shopper’s, Amazon, Tim Horton’s, Suncor and so on.  Do we stop talking on cell phones, buying soft drinks and groceries, pumping gas, using bank accounts, drinking coffee, buying goods online, paying heating bills, and requiring medication because of central bank activity? The economic backdrop is important, but it is the ability of a company to make money that drives its stock price.  A bad economy will have a impact, but I do not think we should worry about all major companies disappearing overnight.

I hope this makes sense to you and give you a more rational look at things.

Odette Morin

The New RRIF withdrawal rules

Federal Finance Minister Joe Oliver tabled the 2015 federal budget on April 21, 2015. This commentary summarizes the changes in the new budget that affect retirement income and savings. Budget changes that do not relate to retirement income and savings have been covered extensively by many accounting and tax advisory firms and will not be covered in this commentary.

Main Change – Minimum Withdrawal Factors for Registered Retirement Income Funds (RRIFs)

The main retirement-related change introduced in Budget 2015 is to adjust the RRIF minimum withdrawal factors that apply in respect of ages 71 to 94, as follows:

Age (at start of year) Existing Factor New Factor
% %
71 7.38 5.28
72 7.48 5.40
73 7.59 5.53
74 7.71 5.67
75 7.85 5.82
76 7.99 5.98
77 8.15 6.17
78 8.33 6.36
79 8.53 6.58
80 8.75 6.82
81 8.99 7.08
82 9.27 7.38
83 9.58 7.71
84 9.93 8.08
85 10.33 8.51
86 10.79 8.99
87 11.33 9.55
88 11.96 10.21
89 12.71 10.99
90 13.62 11.92
91 14.73 13.06
92 16.12 14.49
93 17.92 16.34
94 20.00 18.79
95 & over 20.00 20.00

 

The existing factors were determined on the basis of providing a regular stream of payments from age 71 to 100 assuming a 7% per annum nominal rate of return and indexing at 1% annually with factors capped at 20% for ages 94 and over. The new factors were determined assuming a 5% per annum nominal rate of return and indexing at 2% annually with factors capped at 20% for ages 95 and over.

Minimum withdrawal factors for ages 70 and under remain unchanged and continue to be determined by the formula 1 / (90 – age). Note that at the time of establishing the RRIF, individuals also have the option to base the minimum withdrawal amounts on the age of their spouse or common-law partner.

Similar rules will apply to those receiving annual payments from a defined contribution registered pension plan (RPP) or a Pooled Registered Pension Plan (PRPP).  These new factors will also apply to minimum payments from an Individual Pension Plan (IPP) after age 71 for members who are controlling shareholders or related persons.

The new RRIF rules have not been formally.  Stay tuned.  We will update you.