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Odette Morin

Odette Morin

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What does Greece mean to you?

Gexit

Greece forced a “bank holiday” until July 6th 2015, as the Greek government has announced a referendum on whether the austerity measures demanded by Greece’s creditors in return for continued financial aid should be accepted or not.  Along with the bank closures, daily limits on cash withdrawals have been limited to 60 euros per day, and a halt on foreign transfers of cash have been implemented in an effort to prevent a mass run on Greek assets.

Predictably, the Eurozone equity market dropped by nearly 3% on the open Monday morning.

So, what are they voting on in the referendum?

While the literal wording will address the government acceptance or refusal of creditors’ terms, in reality, the referendum will be a vote on: a) whether the current government remains intact, and b) whether Greece should begin its exit from the Eurozone sooner rather than later.  Recent polls have suggested that the majority of Greek voters would prefer that negotiations continue to avoid departure from the euro, but the wording of the referendum may centre focus on the prerequisite pension reductions and even harsher austerity measures, prompting an emotional “no” which would all but seal Greece’s accelerated departure from the Eurozone.

What happens next?

In the event of a “no” vote, market volatility will certainly increase, pushing quality yields even tighter, and credit spreads wider, particularly among peripheral Eurozone sovereign bonds. The degree to which this happens will be determined by the European Central Bank’s (ECB’s) follow-through on their commitment to mitigate any possible financial market contagion, having adopted a familiar “by any means necessary” stance.

Conversely, a “yes” vote would almost certainly result in a rapid reversal of sentiment and markets in the shorter term, with sustained financial aid keeping the Greek economy afloat for a while longer.  Politically, one would expect some sort of reshuffling of the government, with either resignations, elections, or some other sequence of events that would essentially remove the current majority government.

How could your investment portfolio be affected?

The primary impact of all of this has been the increased volatility felt throughout financial markets.  Economically speaking however, the impact of Greece’s default and Eurozone departure is limited relative to the global economy, and in the medium term may in fact lead to positive sentiment among European investors. In the longer term however, with the precedent of a troubled Eurozone member departing, it may bring into question the possibility of a “domino” effect in the future.

Among the various macroeconomic and geopolitical risks that exist today, Greece remains a minor factor.  It has been well documented that the financial impact of a default is manageable on a larger scale, although companies and smaller emerging European countries with larger exposure to commerce with Greece will certainly be affected.  From a silver lining view, equity markets may in fact welcome a Greek tragedy as it would almost certainly guarantee a continuation of loose monetary policy from the ECB and U.S. Federal Reserve as global financial markets digest the news.  “Lower rates for longer” has been a driving force behind equity returns, and removal of Greek uncertainty should almost certainly be seen as a positive.

Given the uncertainty of the referendum’s outcome and the short timeframe until its conclusion, trying to adjust asset allocation of a global portfolio to capitalize on the results would be pure speculation.   Over a 12 month horizon, fundamentals of Eurozone economies and equities remain attractive.

Ongoing Monitoring

The “noise” related to Greece has been closely monitored over the past several months by managers. As new developments present themselves, we will continue to update you.

 

 

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.

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.

New $10,000 TFSA limit approved

TFSA

 

 

 

 

 

 

 

BREAKING NEWS
The CRA has come out and confirmed that the TFSA increase to $10,000/year is effective immediately (before budget gets passed into Law).  You can top up your limit now.
The total maximum contribution from all previous years to date is $41,000.  If you have maximized every year, and have already made your $5500 contribution this year, you can now add $4500.
Contact us if any questions or wish to make your top up TFSA contribution now. email hidden; JavaScript is required

2015 Federal Budget Highlights

Joe's Budget shoes

 

 

 

 

The Federal Government delivered its “New Balance” budget today offering lots of goodies for everyone. Here are the most important announcements affecting your financial planning:

  • No new tax cuts.
  • TFSA limit is being increased from $5500 to $10,000 per year effective immediately. This happens as soon as the budget is passed and approved. We will let you know as soon as we hear.
  • The RRIF (Registered Retirement Income Fund) MAP (Minimum Annual Payment) is being lowered. Under the current rules, a 71-year-old would have to withdraw 7.38 per cent of his or her RRIF in the first year, escalating all the way to 20 per cent by age 94. Under the new rules outlined in the budget, those limits have been ratcheted down to 5.28 per cent to start, and down to 18.79 per cent by 94. This truly is excellent news for retirees.
  • EI premiums to be reduced by 21% in 2017
  • EI compassion benefit (to take care of a sick family member) increased from 6 weeks to 6 months.
  • Small business tax reduced from 11% to 9% by 2019.
  • New government initiative to help Women owned businesses.
  • More financial help for Young entrepreneurs.
  • New retirement income benefit for veterans.
  • New home accessibility for seniors and people with disabilities. Starting this tax year, homeowners who spend up to $10,000 on renovations such as wheelchair ramps, walk-in bathtubs, non-slip flooring and grab bars can get a tax deduction for up to $1,500.
  • There is something for students too. Canada Student Grants eligibility will drop from 64 to 34 weeks.
  • The government is also changing the student loan program. Under current rules, any dollar over $100 a week that a student earns from a part-time job while studying reduces the loan amount they’re eligible for. The budget proposes eliminating that “penalty” from now on, which the government says would help 87,000 students a year.
  • 4 Billion surplus this year
  • Total overall debt $617Billion

More in tomorrow’s newspaper. Make sure to check our blog often. We will be commenting on these new government initiatives in the weeks ahead.

Sources: CBC news, CTV News, National Post, Globe & Mail