In speaking with a person yesterday I realized just how different our ideas of the term “Financial Freedom” can be. This individual is truly happy with having their needs met at a very basic level, they want food on their table and a roof over their head. The ironic thing is that the people who think this way and have these goals typically will end up with more in the end given they had the same means to begin with. I think it is obvious why this happens, but the question it forces the rest of us to ask is it more important to have stuff now or later.

I am in the later group myself and often wonder if I am preparing enough for tomorrow or focusing too much on today. Realizing only 17% of those employed outside government entities can expect to receive traditional pension in retirement puts the onus on us alone to determine our financial future. Nearly 80% of employees participate in their work-based retirement plan which is a great start. The ability to save with an automatic match provides you a fool proof method for immediate growth.

Depending on your debt balance the rest of the formula can be tricky, I typically work with a specific model to see if people are on track.

• If you are married will your debt be covered off by some form of insurance? This will prevent your partner from being wiped out in the event something happens. Ideally having enough insurance to do more than just cover debt should be considered.
  
• If your debt is managed and you have insurance in place and there are kids involved are you saving for school via RESP? No brainer as well due to our gov’t supplementing this savings through the education grant of 20% is impossible to guarantee in any other form of investing.
  
• Having your debt managed and your children’s future protected via both insurance and an RESP how much should you save for the future. This is the part of the equation where the now versus then argument comes into play and it is less about making sure current situations are secure and more about what are your expectations for the future.
  

I fall into the middle of the scale of the now vs. then scale where I do not want for anything realistic today and I am saving some for the future. Will I be able to live comfortably into retirement? Well again, this brings up another question, when are you planning to retire? In my situation I plan on working well into my “slow down” years so I know I will be maintaining an income well into my 60’s.

I guess you can see where this leaves us…no formula for success. There is no x+y=z here and there never will be for you. Why not? Because every person has different needs and all the factors that make up their situation vary slightly so in turn change what that formula would look like for them. So stop worrying about what the future will look like because the first and most important step is making sure your current situation is protected and is the priority. This brings me back to the example of the person I referred to earlier, they were saving a lot but had no protection in place so risked losing everything if any number of scenarios were to happen i.e. death of spouse, critical illness etc. So this answers the now or later question, sort of, because without taking care of today we have no tomorrow, or at least not the one we imagined.

Where is your priority?

Ok so I admit it I have been slacking with this blog. Due to the overwhelming popularity of my other blog I let this one slide. www.dogs4ppp.com

The idea behind the other blog was to see how things worked within the social networking world and how I could use those tools to create traffic and interest. At the same time I did not want to do anything foolish or make business blunders through my social networking trials and tribulations. Now that I have more than a firm grasp on how this can work to my advantage and also as a way to communicate with clients who like to know that their Advisor is paying attention to the ebbs and flows as it were. So the focus will be blogging about the world of finance as well as some other pertinent issues that may impact some clients or all. i.e. CBD development in Halifax

I am working on a new look for the blog as well as my first official post in some time.

Glad to be back.

A popular question I get.

Money market/ treasury bill funds – these funds are considered to be extremely safe and generally invest in government securities. Traditionally these funds pay a marginally higher interest rate than the average savings account.

Fixed Income funds – have holdings that consist of, mortgages, bonds, treasury bills and debentures. These funds are designed to provide high regular income payments with the possibility of some capital gains.

Equity funds – have holdings consisting of common and preferred shares of Canadian companies. Equity funds are recommend to those investors that are seeking long-term growth through capital gains. Usually 5 years is recommended as a minimum investment in this type of fund.

Balanced funds – designed to provide a blend of income and growth by diversifying and having a mixed portfolio consisting of, common stock, preferred shares, cash and bonds. This type of fund is structured for investors with limited dollars, and have a desire to have a more diversified portfolio in one fund.

Special equity funds – with a focus on investments in real estate, precious metals and resources. However because of the specialization of these types of funds returns tend to be startling, both positive and negative. A word to the wise even experience investors only have a very small percentage of their portfolio in type of funds.

Dividend funds – accumulate dividend-paying preferred shares of Canadian corporations, and common shares that are expected to yield a high level of dividend income. Similar to equity funds there is a potential for long term capital growth. Dividend funds also receive preferential tax treatment.

Global and international funds – invest in money market securities and in bond and stock markets in various and regions of the world. Investors have the opportunity to increase returns through added diversification. In other words if Canadian markets are doing poorly, its not to say that markets in China Japan or Europe are not doing exceedingly well.

Feel free to contact me for more info

The economic downturn is dampening Canadian baby boomers’ expectations for inheritances, a recent survey by the BMO Retirement Institute reveals.

In a May survey of more than 1,000 Canadians 45 years of age and older, nearly 20% of respondents said they would be unable to leave an inheritance due to current economic turmoil.

Nearly one-third of those expecting an inheritance felt it would be smaller than previously thought due to the recent economic crisis. Furthermore, almost one quarter of respondents said they would be relying more heavily than expected on their inheritance to reach their financial goals due to the downturn.

But despite the economic downturn, a $1 trillion transfer of wealth is expected to take place in Canada over the next 20 years, marking the largest transfer in history. And most families have not adequately addressed the challenges involved, a related report on inheritances from the Retirement Institute argues.

The survey showed that almost 30% of Canadian boomers are expecting to receive an inheritance from someone in their immediate or extended family.

A significant proportion of these families may not be properly prepared to manage this inflow of cash, according to the report. It finds that many families avoid candid conversations about death and the transfer of estates, which can negatively impact retirement planning.

“The lack of open conversation between generations can be a major contributing factor to poor inheritance and estate planning. It may even lead to misgivings and financial insecurity in retirement for family members,” said Tina Di Vito, director of retirement strategies at BMO Financial Group and head of the BMO Retirement Institute, a think tank that provides perspectives on retirement issues.

Families planning for an inheritance should be aware that its size could be impacted by such factors as unanticipated events and health care expenses, challenging markets, interest rates and inflation, and taxes on death, according to the BMO report. It points out that an inheritance of an RRSP worth $250,000 could result in taxes owing by the estate of up to $115,000, assuming top marginal rate of 46%, which may be further reduced by probate, executor, trustee and legal fees.

“Despite these challenges, there are strategies that Canadian families can take to help achieve their inheritance vision and maximize the intergenerational transfer of wealth,” said Di Vito. “Communication with advance planning is key and keeping your intentions a mystery until death can have negative consequences.”

The survey also found that 80% of boomers and 77% of seniors have not spoken with a financial advisor about what to do with their inheritance. A hefty 64% of boomers and 52% of seniors admitted that they do not plan to talk to an advisor about their plan to leave an inheritance.

From Investment Executive

When you die, you can transfer your assets tax-free to your spouse. But when your spouse dies and the assets are passed on to other heirs, 50% of the increase in the value of some assets will be subject to tax. So, assets like your cottage, stocks, company shares, and other investments left to your heirs may be subject to capital gains tax – a tax must be paid before your heirs get anything!

Most people don’t know about this devastating time bomb. But a simple plan can help you protect more of what you’ve worked for. What are your options?

Creating an effective estate plan means ensuring your beneficiaries are looked after. There are a number of ways to help pay for this tax, but which one is best for you?

Some choices:

• You or your family can start saving today.
  
• Your heirs can borrow the necessary funds from the bank.
  
• Your estate can sell the assets.
  
• You can purchase life insurance to cover the growing liability.
  

The best solution…

Life insurance can be the most effective estate-planning tool to fund the tax liability. You can design a plan to provide you with tax-free cash exactly when it is needed to pay the future tax obligation. It guarantees that your heirs don’t lose their inherited assets because of a large tax bill. What you get is peace of mind and your heirs get the property you intended them to receive.

If you are the child with a parent in the above scenario this may be something you want to discuss with them. Not a fun topic, but a conversation one should have in the event something does happen and you are the one left with a sizable tax bill.

Some of the common responses I get when I ask people about why they have their RRSP invested though one of the larger banks…although good points there are some things to consider as well.

Security – does your bank offer a stock market guarantee that guarantees the maximum value of your RRSP up to 10 yrs prior to your maturity date? Our providers can get you that! Companies that deal primarily with investments know that to compete with the perceived convenience of the larger banks they need to offer a wider variety of versatile and more secure investment opportunities. Primarily working within the insurance act also affords more security than working within the bank act.

Convenient – If going into your branch to deal with your banking representative means convenient I can understand that, it is convenient…if you are going to the bank. What if you want to go over your portfolio and you are busy, the convenience of an independent advisor is nice. Someone such as myself can come to your office, home, lunch, anywhere, anytime to meet and go over your information with you.

I will also not leave my job at the bank forcing you to become reacquainted with another representative.

I have my mortgage with them or “They are a bank, who better to handle my money?” – As an independent advisor I have the ability to find the best company for you to invest with, based on what your goals are. I provide options; I don’t try and sell you one line of products with no competitive options offered whatsoever. I will work with you through the investment process to find the ideal situation with your specific goals in mind. My ultimate goal is to make you happy and have you as a long-term client. Wouldn’t it be nice to know the person you are dealing with today will still be here working with you 20 yrs from now.

Try to think of this in simpler terms, do you buy your groceries at Walmart? Why not? Do you buy all your furniture at the Superstore? Yes these companies offer these services, yes they are convenient, but are they this company’s primary business? No, to get the hands on service and the comfort you need when making major decision regarding your future why go to someone who does not provide you a market of options, may not be there in 6 months, gets paid regardless of the results they provide.

I am not saying all banks are bad, what I am trying to illustrate is that if given the option to deal with one person who has only one goal in mind and that is securing your investment and your long-term happiness with your investments, why not choose that option.

Be a tire kicker! Give me a call and I will let you know what I can do for you, nothing more. Your decision…give yourself some options.

I grabbed this from Advisor.ca, for those wondering what sort of impact the U.S. mess may have on Canadian mortgages.

The federal government’s decision to purchase $25 billion of mortgages from the Canadian banks is being viewed as a precautionary, rather than necessary move, to put liquidity in the mortgage markets. Experts maintain, while the housing market is slowing down, it doesn’t resemble anything like the U.S. crisis.

The federal Department of Finance emphasized that its decision to take over high-quality CMHC-guaranteed mortgages had nothing to do with the risk profile of the mortgages in Canada, but was rather a way to infuse more liquidity into the Canadian market because banks are hesitant to lend to consumers.

Granted, the purchase is a drop in the bucket, given that Canada will have more than $913 billion of outstanding mortgage debt in 2008, according to a recent report from the Canadian Association of Accredited Mortgage Professionals (CAAMP).

One of the key indicators of the strength of Canada’s mortgage market is Canadian homeowners generally have much more equity in their home than their U.S. counterparts. The Department of Finance points out that in Canada, the average homeowner’s mortgage debt relative to the value of housing is slightly over 30% versus in the U.S., where homeowners on average are carrying 55% of the home’s value in debt.

Granted, a decline in home prices can drastically affect that statistic, but for now, it points toward Canadians having the capacity to pay back their mortgages. The risk is in our banks not having the liquidity to lend for future mortgages, points out Jim Murphy, president and CEO of the CAAMP.

“I’m asked a lot about [banks no longer offering mortgages]. If you qualify and you’ve got a reasonable credit score, the answer is no. From our membership I’ve not been told about any situations where people can’t get mortgages,” he says. “There is an issue with the banks wanting to get liquidity to fund mortgages. There is a concern with the credit markets and perhaps a freezing of inter-bank borrowing. In terms of the availability of mortgages, there haven’t been any significant issues.”

Murphy says the only significant pullback in lending is for alternative lending solutions. He says some of these providers have left the country, but these types of mortgages represented a very tiny percentage of Canadian home lending.

A new economic report from CAAMP, compiled by the organization’s chief economist Will Dunning, says only 0.27% of residential mortgages offered by the seven largest banks were in arrears as of June 2008. That represents only about 10,300 out of 3.85 million mortgages.

The Bank of Canada estimates that about 2% of subprime mortgages in Canada may be in arrears or foreclosure. In total, CAAMP estimates about 20,000 to 25,000 Canadian homeowners out of 8.05 million might be in arrears.

Pascal Gauthier, an economist and analyst in Canadian real estate for TD Economics, says the only real impact the credit crisis has had on the home market is marginalizing those who would have only been able to purchase a home using a subprime or alternative lending. The consumers who generally have much higher credit risk are likely to be out of the market. This has an impact on home prices, because it decreases the number of buyers in the market.

This is not an ideal situation for homeowners hoping for an increase in their valuation, but it creates a neutral buyer’s market. For most Canadian homebuyers there shouldn’t be too much fallout from the credit crisis, because falling home prices will likely offset any increase in mortgage rates that could result from tightening in inter-bank lending.

“It’s difficult to think rates are going down. For affordability, that’s going to be offset by the drop in resale home prices,” Gauthier says. “The resale home market is softening — mostly out west — after running at a furious pace over the past few years.”

Even if rates were to drift slightly upward, Murphy points out that rates remain at historical lows.

“In historical terms, we are nowhere near the 1970s and 1980s. Today if you qualify and can some of the discounts out there, you can still get a fixed five-year mortgage under 6%. In historical terms that is very low,” he says.

The credit environment may force more homebuyers to look at debt-consolidation products, like a home equity line of credit, rather than traditional mortgages.

In November, CAAMP will have statistics for this last year to see if there’s been a pick-up in this type of product usage. Murphy says these types of financing represented 17% of home debt financing in their 2007, and homeowners tend to use them as a way to either consolidate debt or finance a new home renovation.

One of the more recognized of these products in Canada is Manulife One, which brings a person’s mortgage, savings and income together into one multi-purpose borrowing and chequing account.

Any savings and income reduce the amount the client needs to borrow, which saves interest costs. When income enters the account, it immediately pays down the debt and then clients draw on the account to pay for expenses. Interest is calculated on a daily basis as long as there is money in the account; there is less debt and therefore less interest.

Jane Strong, assistant vice-president, product and marketing services for Manulife Bank, says she sees these types of products as particularly appealing during periods of rate uncertainty.

“Most Canadians manage their finances by depositing their income and other short-term assets into chequing and savings accounts and then borrowing when they need to, through mortgages, lines of credit, personal loans and credit cards. Unfortunately, they usually receive low interest on the money they deposit, while they pay high interest on the money they borrow,” she says. “In today’s times, people should be looking to solutions to better manage their debt and cash flow, and Manulife One can help. It can simplify consumer finances, reduce interest costs and allow clients to be debt-free sooner.”

Mark Noble, Advisor.ca

With what is going on south of the border should we expect it to have a significant impact on our national economy and in turn our personal financial situation? Short answer…Yes! Does it mean doomsday as some media in the USA would have us believe? No, but it certainly is worse than was being reported a few months back and could get worse yet. The USA economy is a world leader for a reason. The health of their economy obviously has an impact on the the health of the world economy.

The reality is that the more exposure you have to the markets the more at risk you will be. The more credit you require the more you will pay to get that credit. So you will have less and having less will cost you more…make sense? Well for example with prime at 6%, the difference between a mortgage rate of 5.4% versus 5.1% could mean almost $15,000 extra in interest on an average Canadian home over 25 years (based on a 10% down payment.) Now imagine what you could have done with that 15K in an RRSP or an RESP?

We have not seen huge stop gap measures that have been happening on Wall Street but things are happening on Bay Street as well. The spread on long-term loans – the difference between Bank of Canada government bonds and mortgage rates – has been widening as the perceived risk increases. The gap is now 184 basis points compared to 115 basis points in June.

Maybe we should consider returning to a simpler time…a time when consumers saved for purchases rather than just financing them with debt. The credit culture has finally gone too far, the sense of entitlement and “need” for more stuff now has repercussions that are being realized. If you cannot afford to own something you should not own it. The banking industry in the U.S. took advantage of a push to have more accessible financing terms available to people who could not afford to have what they were buying. In a lot of ways they preyed on the ignorant and uninformed.

I spoke with a regional director with Wells Fargo and we discussed what had gone wrong in the US. He also explained in very simple terms why Wells Fargo is not being hurt by what is going on, “We simply did not take on those high risk mortgages”. He also talked about the clients they prefer, they don’t feel the need to push for more business and reach into markets that will cause them problems if any number of “worst case” scenarios happen. Realistically if you let Florida and California drop into the ocean you would remove nearly 30% of the mortgage crisis in the U.S.

There are still signs that the worst is yet to come in the U.S. Orders to U.S. factories fell in August (reported Oct 2^nd, 2008) by the most in almost two years, signalling that business spending slowed down even before the recent worsening of the credit crunch. This downturn in business spending is bound to have an impact on manufacturing and as we see Europe and Japan’s markets falter there will be another blip worldwide as one of the world’s largest consumers cannot afford to buy things.

All things being considered the biggest risk in Canada will be those with greater exposure to the stock markets and those who might have variable lending rates attached to credit. This is as good a reason as any to start looking at your financial plan and figuring out what alternatives there are to the markets and which would provide more security and still enable you to achieve the results you want.

These are extremely volatile times. The investment world is struggling and has shown a steady decline for most of the calendar year. An investor could be worried about how their investments are holding up as the market falls off. This is where the maturity guarantee truly shows it’s value.

How do these maturity guarantees work to your benefit now? Your “High Water Mark” was set at your investments highest value so you are guranteed that amount. When there are more than 10 years to the maturity date of the investment, your Stock Market Guarantee is updated to reflect your investment’s market growth, deposits and withdrawals. In the final 10-year period, deposits made increase the guarantee at a rate of 75% of the deposit value, and withdrawals reduce the guarantee proportionately.

This powerful guarantee allows you to enjoy the performance of the equity markets with peace of mind, knowing that on your chosen maturity date, you’ll receive no less than the highest value achieved by your investments on any day up to 10 years prior, regardless of market performance. Of course, if the value of your investments is higher than the guaranteed amount on your chosen maturity date, it’s yours to keep.

Example

Another great aspect of this feature is that it allows for us to continue to build your investment without “catching up”. We stop depositing into the current plan and start a new one. Why contribute to rebuilding the fund when we are guaranteed the higher value? Ideally we move the remaining funds into an aggressive growth fund in an attempt to rebuild quickly and we will not worry about it until it at least reaches that “high water mark” and then move it back into a more appropriate portfolio reflecting your risk tolerance. This prevents us from adding funds to the rebuilding process and reduces the risk for any new deposits.

I appreciate this can be somewhat confusing so please contact me if you have any questions.

Your home purchase is probably the most significant investment you’ll ever make. When you arrange your mortgage with a financial institution, they must ask you if you want to insure your mortgage through them. But mortgage insurance from your bank or mortgage lender may not be your best alternative.

Life insurance gives you more options and greater control over your mortgage protection.

Compare these advantages to what happens when your mortgage lender insures your mortgage:

Buying a new home?

When you’re considering a new home it’s also a good time to look at both your insurance coverage and your investment strategy.

• Your home is probably the most significant investment you’ll ever make. We can help you protect that investment with enough life insurance to cover your debts and provide for you family.
• You may also want to think about insurance coverage in case you become disabled or experience a serious illness. Disability insurance provides a stream of income that allows you to continue to meet your mortgage payments while Critical Illness insurance can provide a lump sum payment to keep your finances healthy (if you need to recover from a life-altering illness.)
• Should you pay off your mortgage or contribute to your retirement savings plan? Answers to these and many other questions are available to you when you review your affairs with an advisor. The advisor will provide you with suggestions and options that may help you balance your current obligations while still preparing for the future.