Peter Lynch, legendary investor, believes that in the next ten years, active fund managers will produce a better return than index funds and ETFs

The full story here

Canadians are fortunate to enjoy one of the best lifestyles in the world.  The comfort and luxuries we are accustomed to are the envy of many other societies.

A new client came in for a meeting.  I asked her, “ what is the most important financial issue on your mind currently “ .  She answered jokingly:  “I am here to ensure that I don’t become one of those Wal-Mart greeters in retirement”. 

Not that there is anything wrong with being a Wal-Mart greeter but there is a big difference between having to be and wanting to be a greeter.  This may seem an extreme scenario but really, could this be the reality of some? 

To preserve your lifestyle, you need to plan and most importantly, save enough and early enough.  Many recent studies clearly show that Canadians do not save enough.  Most will need to continue working well past their 60s and will even see their lifestyle drop when the paycheques stops. The amount of money required to fund one’s lifestyle for 20, 30 and even sometimes 40 years, will be, for most, over $1million.  It takes time and discipline to achieve this.

Saving adequately and investing wisely is required to preserve lifestyle.  If it weren’t for inflation, cash and bonds would be all you need. But even with modest inflation of 3% a year, your buying power would be cut in half in about 25 years, so you need to invest for future growth, too. We all have to turn to equities to provide the inflation protection we need for that lengt h of time.

Invest consistently to ensure that your nest egg grow with your lifestyle!  For most, an RRSP is the best place to save for retirement.  Make your contribution by March 1st 2010!

RRSP loan rates are the most inexpensive I have seen in years.  Our best rate is 2.75% for a one year loan.  Even 3, 5 and 10 years loans are low.  Does it make sense to borrow to make an RRSP?  Well it depends on your personal circumstances.

Generally speaking if the rate of return exceeds the loan rate it is a good idea.  With markets in recovery mode, it could not be a better time to invest also, for the long-term.  You also have to consider your cash flow however.  Make sure the payments are affordable and that your income is secure.

If you have a debt that you are trying to repay at a higher interest charge, you could use any refund to reduce it or pay it off!  You would have effectively used Canada Revenues’ money to reduce your debt!! I like that!!

Otherwise you could use the resulting refund to reduce the RRSP loan or apply it to your mortgage or use it for an extra RRSP counting for next year! 

Just contact us to assess your personal situation! 

Find out how much of your charity dollars goes to administration click to read

Canadians largely unaware of market rally click to read

Reading “The BRIC countries are Rich, But Poor” click to read

Reading “Jeff Rubin: Riding Hard and Fast on Energy” click to read

Are you a moving target?: How to avoid falling for an unscrupulous mover. http://bit.ly/5P5jxh

Bank of Canada keeps rate at 0.25%: Mark Carney stays true to promise and keeps interest rates low. click to read
Enjoy your week!

From a November 28th, 2009 Financial Post article titled “Now is No Time to Learn Pitfalls of Bond Market”. 

Article Summary:
-Lisa Myers, lead manager of Templeton’s flagship Templeton Growth Fund warns that now is not the time to increase your bond weighting. 
-Interest rates are at all-time lows and have nowhere to go but up
-There is an inverse relationship between interest rates and bonds
-The past 30 years have been favorable for bonds as interest rates have mostly fallen, therefore bond prices rose.
-Balanced fund managers are reducing their weighting in longer-term bonds to mitigate this interest rate risk.

Comments:
-As explained in the article, bonds have negative relationship with interest rates.  Given where we are with interest rates, it is understandable to have a weary outlook for bonds moving forward. 
-There have been a lot of articles written about inflationary concerns and what will happen once interest rates start rising again.  This is partly why gold has risen to record levels, due to its strong correlation with inflation. 
-Certain fund managers are starting to recommend real-return bonds (where the rate of return is adjusted for inflation) as a good fixed-income solution to a possible rising interest rate / inflationary growth environment.
-Fund managers are still pointing to the favorable yield spread between corporate bonds over government bonds.  Corporate bonds tend to be less sensitive to interest rate changes than government bonds.
-For those looking for higher yielding income solutions, in the past year, CI Investments, Mackenzie, and Dynamic Funds have all introduced some type of “Strategic or Diversified Income Fund”.  The objective of these funds is to seek income from the most attractive opportunities in corporate bonds, income trusts, infrastructure, and high-yield equities.  As market conditions change, managers have the flexibility to move in and out of these assets as they see fit. 

The link below provides 5-minute outlook on bonds given by John Braive, Vice-Chairman CIBC Global Asset Management in November 2009.  He goes over a lot of the issues discussed above.

Bond Outlook

The Investment Fund Institute of Canada reported that the return of billions of parked investment dollars continued last month as long-term mutual fund mandates experienced another strong month of net sales. The total mutual fund assets grew by $4.3 billion during the month of September to a total of $582.7 billion.

Investor money is coming back to long-term fund assets.  Investors are buying overwhelmingly balanced funds or fund-of-fund mandates. So, they are playing safe but they do take the action to move from low yielding cash to investments.

This recovery is a strong one. Don’t miss the boat if you have not taken action yet.  Make your investment now!

When you bought Mutual Funds from us, most of you selected the “Deferred Sales Charge” option.  This means that if you make a withdrawal within 6 or 7 years of the original investment date (depending on the company), you will have to pay a withdrawal charge.  Each company allows you to withdraw 10% each year without a penalty. This 10% does not carry over from one year to the next. Use it or lose it!

When you come to the office for your annual review, we always transfer this 10% to a fund without any deferred sales charges.  This is recommended, as it will build up your available “free money” for future use.  For those of you who didn’t come in this year, we are doing our best to send forms by the end of the year. 

Please contact us if you haven’t received forms from us yet and ensure to return these forms right away to allow enough time before the deadline of December 31.

A company’s stock return consists of two main factors: capital appreciation (company growth) and dividend contribution (the portion of company net earnings distributed back to shareholders).  In the last 50 years, dividend contribution has accounted for about 39% of investor returns (based on the Canadian Stock Index’s total return).  The 1990’s were a period of high growth and dividend contribution thus made up a smaller portion of returns (26%).  The post-2000 investing period has however been a low-growth period and dividends have made up 74% of returns. 

A dividend fund is a fund that holds primarily dividend-paying shares of a company.  These funds will invest in top dividend paying companies that have shown steady profits and dividend increases.  These will usually be large, established, high quality companies such as the Canadian big banks (ex. TD Bank) or oil companies (ex. Petro-Canada)

Dividend funds offer three main advantages:

1.  Young investors will benefit from years of compounding dividend growth.  For older investors, the dividends can be turned into a stable income stream.

2. Dividend funds tend to have less volatility than an equity funds because of their focus on large, stable companies.

3.  For open (non-registered) accounts, dividend funds are taxed at advantageous rates (19.91% based on combined BC/Federal dividend tax rate), thus investors can keep more of their money.

This type of funds is well-suited for investors looking for conservative or moderate returns.  They can also be used to compliment a more aggressive small-cap (smaller companies that offer higher growth potential) fund.