Odette Morin

Odette Morin

Recent Posts

Should you worry about the recent stock market drop?

In recent weeks, stock markets have declined while investments considered to be “safe havens” have increased in value, including developed market government bonds and the U.S. dollar. Investor concerns have focused on the slow pace of economic growth, particularly in China, market worryJapan and Europe, continued conflict in the Middle East and the winding down of the U.S. Federal Reserve’s economic stimulus plan, which may lead to higher interest rates.

Markets began to turn lower in September, resulting in uneven results for the third quarter. The Canadian dollar and stock market were affected by weakness in the resource sectors, as the price of oil and other commodities dropped in response to downgraded expectations for global growth. After hitting a new high on September 3, the S&P/TSX Composite Index went on to post a modest drop of 0.6% for the quarter.In the U.S., the S&P 500 Index moved above the 2,000 mark before losing momentum and finishing the three-month period with a gain of 1.1% in U.S. dollar terms and 6.2% in Canadian dollars, the difference reflecting the weakness in the Canadian currency. Globally, the MSCI World Index was 2.1% lower in U.S. dollars, but was up 2.8% for the quarter in Canadian dollars.

The Canadian bond market, meanwhile, posted an overall gain of 1.1% during the third quarter, with higher-quality issues such as federal government bonds leading other segments of the market.

However, stock markets continued to lose value in the first two weeks of October, with economic data from Europe one of the factors disappointing investors. While these market movements have resulted in alarming headlines in the business press, I would like to put the numbers in perspective.

Even with the recent declines, the Canadian and U.S. stock markets were still positive for the one-year period (as of October 15), and the S&P 500 was up more than 175% from its low reached during the financial crisis in March 2009. In addition, the broad U.S. stock market had not had a correction, which is a drop of more than 10%, since October 2011. Such a long period of stability is, in fact, highly unusual for stock markets, and we should not be surprised by higher levels of volatility.

While no one can predict how prices will move in the short term, there are a number of circumstances that remain supportive of markets, including low interest rates, strong corporate earnings, and a strengthening North American economy. For example, the U.S. economy grew at an impressive annual rate of 4.6% in the second quarter, and the unemployment rate fell below 6%in September for the first time since July 2008.

I believe the best way to weather market volatility is to take a longer-term view and remain invested in a diversified portfolio tailored to your individual objectives. Diversification by asset class, industry sector and geographic region helps to provide more stable returns, because not all investments respond to events in the same way.

Here is a great article that everyone should read published last week in the Globe & Mail which discuss the subject. Find it here.

If you have any questions about your investments, please do not hesitate to contact me or Anthony at 604-878-0702.

Thank you for your trust and confidence during this period of market uncertainty.

Sources: CI Investments, Bloomberg, Reuters, Globe and Mail, National Post, and Financial Times. Index information was provided by TD Newcrest, PC Bond and Yahoo!Finance.


Relax. We will recover from this market meltdown

From the Globe & Mail

16 Oct 2014, The Globe and Mail (BC Edition), TIM KILADZE

Here is the actual article here

Humans love to think of themselves as incredibly logical actors. The truth is, we’re hopelessly irrational animals. Just look at these markets for proof.

In little more than a year, the S&P/TSX composite index soared 30 per cent, propelled by a peculiar case of amnesia. Amid warning signs that the European economy was sputtering and that China’s lending boom had run its course, investors kept piling into Canadian stocks.

The same is true in myriad other markets. Take oil prices, which hung in around $100 (U.S.) a barrel no matter what happened in the Middle East or how many new barrels came onstream in emerging plays such as the Bakken.

Now investors are acting as if the world is imploding, and all it took were some predictions of a market peak.

Here’s some logical advice for everyone who’s panicked: We’ve been here before; we got through it then; we’ll get through it now.

Remember the summer of 2011, when the United States had its debt downgraded and the S&P 500 tumbled 17 per cent in two weeks? How about July, 2012, when Spain’s 10-year bond yields skyrocketed to 7.6 per cent amid fears that countries on the euro zone’s periphery couldn’t control their spending? In every case, investors freaked out. Yet somehow we survived. Above all else, that’s the most important story of this rocky recovery. Our progress can be frustrating, because it often feels like two steps forward, one step back. But we manage to improve. Although there is a lot of noise, unemployment rates in Canada and the United States keep falling.

This is all very normal in the grand scheme of things. Throughout history, full-blown recoveries from horrible financial crises have always taken much longer than expected, according to research in the seminal book This Time Is Different. The last crisis turned ugly in late 2007, and seven years of uncertainty can seem like forever, but history proves otherwise.

If anything, these red alerts can be helpful, because they force craven policy makers to stop caring about political calculations. People typically don’t like tax and fee hikes, but they’ll stomach them if it means the markets will be okay. Funny things, these irrational minds of ours.

To stay focused, remember that we’ve seen this all before. By now the meltdown playbook is pretty obvious. Investors panic and then flock to safe havens such as U.S. Treasuries. As fear spreads, politicians come forward and promise to do whatever it takes to fix the key problems. Eventually investors realize corporate profits haven’t suffered too badly, so they start buying stocks because they need better returns than those offered by the bond market.

The latest correction is ugly, no doubt. It is especially scary because this can feel like uncharted territory. Few fundamental investing theories hold up in this era of rock-bottom interest rates, fuelled by central banks flooding the world with money.

But there is one truth that is universal: Nothing goes up forever. Which is why the market had to correct at some point. Keep that in mind the next time you look at Canadian house prices.

Hold on to your hat, we may be having a market correction.

After more than 1000 days without a 10% or greater market correction, it looks like we are headed for one.  The S+P500(USA) is down 4.28% as of today Oct 2, 2014 from its peak on Sept 17.  The TSX (Canada) is down just over 5% from its peak on Sept 2.  We are experiencing a lot of volatility due to the Iraq issues, the protest in China and the Ebola crisis.

When markets have such a run up, a correction is expected.  Any kind of uncertainty can quickly spur jitters and this is exactly what we are seeing now.

Should you be concerned? No, you should not be concerned.  The indicators do not point to a recession. For reasons outlined in my previous market blog, data shows that we are still in the recovery and early expansion phase, not in the recession or downturn phase.

Take a look at the chart below compiled by IA Clarington from data obtained from Morgan Stanley research, Bloomberg and NBER.  Most of the U.S. cycle indicators show that we are in the recovery phase with no indicators in the downturn phase.

What should you do?  Sit tight and do nothing.  This will pass eventually and we should see the recovery continue.  Or, you can exploit this volatility and make an investment if you have the funds available and are in your saving years.

Read our last blog here on What if we are wrong.

Terry and I are heading to a 3 day investment conference where we will be listening to many managers, analysts and economists.  Stay tuned for a full report when we return.

Don’t hesitate to contact me or email hidden; JavaScript is required should you have any questions or concerns.




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!



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.