How To Take A Retirement Leveraging Tax-Advantage Income ... · Dominic Pun North York II...

JANUARY 2019WWW.CANADIANMONEYSAVER.CACANADIAN

SAVERIndependent Financial Advice For Everyday Use - Since 1981

MONEY

Such simple frameworks are now more invaluable than ever.

A Crusoe Economy

Brian Chang Page 25

How To Take A Retirement Income From Your Corporation Using A Corporate AnnuityRino Racanelli Page 6

Leveraging Tax-Advantage in RRSP, TFSA and Non-Registered Accounts Moez Mahrez Page 22

IN THIS ISSUE

The MoneySaver Podcast

RRSPs, TFSAs and RESPs

with Colin Ritchie P.19

• DIVIDEND & COMPANY NEWS • TOP FUNDS • DRIPS • ASK THE EXPERTS • ETFS

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REGULAR FEATURES Shareclubs 4

Sharing With You 4

Dividend & Company News 5

Model ETF Portfolio 5

Annuities Offer Income For Life 24

Ask The Experts 32

Money Digest 34

Canadian DRIPs with SPPs 35

Top Funds 36

Canadian ETFs 38

SPECIAL FEATURES

How To Take A Retirement Income From Your Corporation Using A Corporate Annuity Rino Racanelli 6

How Much Do You Need? Jim C. Otar 8

Multiplying Your Wealth By Subtraction Richard Vetter 10

Why Canadian Investors Should Complain, Why They Don’t Complain And What To Do About It Ken Kivenko 12

Case Study In Second Level Thinking: Amazon Aman Raina 15

Market Timers Can Bet On An Energy Sector RecoveryCyclical Resource Stocks Must Be Traded, Not Held Richard Morrison 17

Leveraging Tax-Advantage In RRSP, TFSA And Non-Registered Accounts – Part 1 Moez Mahrez 22

A Crusoe Economy Brian Chang 25

The Divestment Talk: How To Broach The Conversation About Financial Legacy Mike Thiessen 28

Tools For The Commodity Investor Donald W. Dony 30

EDITOR-IN-CHIEF: Lana Sanichar

EDITOR: Peter Hodson

CONTRIBUTING EDITORS:Ed Arbuckle, Margot Bai, Isabelle Beaudoin, Dan Bortolotti, John De Goey, Donald Dony, David Ensor, Derek Foster, Benj Gallander, Andrew Hepburn, Robert Keats, Ken Kivenko, Camillo Lento, Marie-Josée Loiselle, Brenda MacDonald, Gina Macdonald, Nick McCallum, Ross McShane, Ryan Modesto, Caroline Nalbantoglu, John Prescott, Brian Quinlan, Wynn Quon, Rino Racanelli, Barkha Rani, Ed Rempel, Colin Ritchie, Scott Ronalds, Norm Rothery, Allan Small, John Stephenson, Kornel Szrejber, Brian Tang, Becky Wong.

MEMBERSHIP RATES: All rates for Canadian residents are printed on the inside back cover. Non-residents of Canada may purchase the online edition only – at $26.95 for one year’s service.

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JANUARY 2019 Volume 38, Number 4

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Sharing With You ShareClubsJoin any of the listed ShareClubs by contacting your local

volunteer. Like-minded members get together to share financial information. No cost. No obligation. Just an inquiring mind. The agenda for each group is shared by all group members, i.e. it is not just the responsibility of the contact person. ShareClubs are unlike investment clubs because they are meant to share investing information only. Contact MoneySaver and volunteer to start a ShareClub in your area. When ShareClubs are filled, they are delisted.

VOLUNTEER REGION CONTACT

ONTARIO

Blake Hoo Ajax/Pickering [email protected] Mayo Aurora [email protected] Attobelli Bolton 905-857-6527James Bolen Caledon 416-617-7311Ken Kyer Cornwall [email protected] Etobicoke [email protected] Piccoli Georgetown [email protected] Sneltjes Guelph [email protected] Hyslop Hamilton [email protected] Matthew Moore Kincardine/Port Elgin 519-371-6592Irving Freilich Kingston 613-544-3257Richard Gerson Kitchener-Waterloo [email protected] Gauld London 519-657-4393Dipen Parekh Milton 647-745-2420Linda Sopoco Delfin Mississauga 905-858-5555Jim Ashley Newmarket [email protected] Matsdorf North York I [email protected] Pun North York II [email protected] Hogenhout Orangeville 519-942-0220Tom Loftus Oshawa 905-725-1979André Albert Ottawa [email protected] Rinzema Peterborough 705-748-2824Paul Mintha Port Hope 905-885-8659Volunteer needed Scarborough [email protected] Danby St. George 519-753-7414Gary Poxleitner Sudbury [email protected] Zhang Toronto-Central [email protected] Closs Thunder Bay [email protected] Lamasz Unionville/Markham [email protected]

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SASKATCHEWAN

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ALBERTA

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BRITISH COLUMBIA

Ron Beaton South Delta, BC www.tlshareclub.comPeter Schwirtz Kamloops [email protected] Gidi Maple Ridge [email protected] Hicks New Westminster, 778-875-2615Brian Pearson Prince George [email protected] Karefoe Queen Charlotte Is. [email protected] Lines Salmon Arm [email protected] & Vic Parks Salt Spring Island [email protected] Groom Sidney [email protected] Lee Ctrl. Vancouver [email protected] Page Victoria/Sanich [email protected] Broatch White Rock [email protected]

NEW BRUNSWICK

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Frank Driscoll Charlottetown 902-569-3601

L ike most Canadian investors, you are likely very glad

2018 is over. For those invested in the stock market, very little went right the whole year. ‘Safe’ dividend stocks declined. Preferred shares declined. The energy sector got killed. Very little worked.

After one of the worst years since 2008, it is little wonder investors are despondent. But what surprises us is the LEVEL of frustration. We talk to many investors every day, and we have never seen so many just wanting to ‘throw in the towel’, ‘go to cash’ or ‘sit out the volatility’.

We think that may be a mistake, though. While we can’t tell you when the pain will end, we can tell you that ‘things always look bad when they are’. The market is down--so of course investors are not happy. We can also tell you that most investors have a ‘recency’ bias. Looking in the short term mirror, most investors expect recent movements and trends to continue. In other words, the market is down, so most now expect it to go down further.

Fortunately, this is not always the case. Since 1988, there has only been one time when a down year in the TSX has been followed by another down year (2001, 2002). If you recall, we had a recession, and terrorism, back then. Unfortunately, we still have terrorism, but the economy is nowhere near recession right now.

Markets decline. It happens. Accept it, stay diversified and within your risk comfort levels. If we don’t get a market rally in 2019, we will in 2020. If not then, then in 2021. Time is your friend here; selling after a decline has already occurred has, historically, never worked out.

PeterPeter Hodson

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http://www.tlshareclub.com












Canadian MoneySaver z https://www.canadianmoneysaver.ca z JANUARY 2019 z 5

MoneySaver DIVIDEND& COMPANY NEWSIn this column we list recent news, events, dividend income news and any other relevant information for

MoneySavers. News items are those received after our last publication date.

• InterRent (IIP.UN) increases distribution 7.4%.

• Manulife (MFC) increases dividend by 14%.

• TFI International (TFI) raises dividend by 14.3%.

• Corus Entertainment (CJR.B) cuts dividend by 36%.

• A&W Royalties (AW.UN) raises distribution by 1.4%.

• Fortis (FTS) raises dividend 5.9%.

• Canadian Tire (CTC.A) raises dividend 15.3%.

• GMP Capital (GMP) restarts dividend and declares

special dividend.

• Sun Life (SLF) raises dividend by 5%.

• Nutiren (NTR) raises dividend by 7.5%.

• Artis REIT (AX.UN) cuts distribution by 50%.

Canadian MoneySaver MODEL ETF PORTFOLIOETF SYMBOL CATEGORY PRICE # OF

UNITS TOTAL % OF PORTFOLIO

iShares 1-5 Year Laddered Corporate Bond CBO Fixed Income 18.17 506 9,194.02 6.6%

iShares DEX Universe Bond XBB Fixed Income 30.13 166 5,001.58 3.6%

iShares S&P/TSX Canadian Preferreds CPD Fixed Income 12.84 460 5,906.40 4.3%

iShares S&P/TSX Capped Composite XIC Equity: Canada 24.20 980 23,716.00 17.1%

iShares S&P/TSX Cdn. Div Aristocrats CDZ Equity: Canada Div. 25.09 613 15,380.17 11.1%

iShares U.S. High Yield Bond Index ETF XHY Fixed Income 18.56 350 6,496.00 4.7%

Vanguard FTSE Emerging Markets Index VEE Equity: Emerging 31.72 194 6,153.68 4.4%

Vanguard FTSE Developed Europe All Cap VE Equity: Interntional 26.95 304 8,192.80 5.9%

SPDR S&P 500 SPY Equity: U.S. 275.65 29 10,625.43 7.6%

Vanguard Div. Appreciation Index VIG Equity: U.S. Div. 107.95 74 10,618.05 7.6%

iShares Russell 2000 Growth IWO Equity: U.S. Growth 190.76 45 11,410.12 8.2%

BMO Covered Call Utilities ZWU Equity: N.A. Div 12.81 437 5,597.97 4.0%

Vanguard Information Technology Index VGT Equity: U.S 182.67 27 6,555.73 4.7%

Consumer Discretionary Select Sector SPDR XLY Equity: U.S 107.99 43 6,172.23 4.4%

Cash Cash Cash 7,938.59 5.7%

Total Portfolio 138,958.77

Exchange Rate 1.33 $ Gain/(Loss): 38,958.77

Inception value: 100,000.00 % Gain/(Loss): 38.96%

Inception date: October 18, 2013 % Annualized: 8.14%

Prices are at market close on Nov 30, 2018. Individual prices are in USD$. Portfolio values, $Gain/(Loss), % Gain/(Loss), % Annualized all reflect USD$ values are converted to CAD$

CURRENT NOTES: none

OTHER NOTES: Keep in mind all investors are different. This portfolio is designed as a guide in setting up your own personal portfolio. Unique considerations and adjustments need to be made to reflect your personal situation. Please perform your own due diligence before making investment decisions. For use by Canadian MoneySaver subscribers only. Not for redistribution.

Please direct portfolio questions to [email protected]



Insurance Products

How To Take A Retirement Income From Your Corporation Using A Corporate Annuity

If you’re the owner of a Canadian-controlled private corporation and have reached retirement age, this could be the time to use some of your corporate savings for a retirement income. If

your corporation has built up significant retained earnings over the years and most of your investment capital is tied up in the company, ask yourself: Should I start using some of my business assets as retirement income, or wait and leave the money inside the corporation?

Deciding when to retire and when to start taking an income from your business is not always an easy decision. A host of factors will weigh on your decision including, your current financial situation (savings and personal income), health, family needs and estate plans.

I have come across several business owners with large portions of cash sitting in corporate accounts, invested in traditional fixed-income investments such as Guaranteed Investment Certificates (GICs) and bonds.

This is a common investment strategy, since most business owners near retirement age have investments in a more conservative portfolio. Income received from these types of investments is considered income to the corporation and taxed at the highest marginal tax rate (50.17% in Ontario).

With such a high tax rate on interest-bearing vehicles, business owners should be looking for an alternative investment to help them reduce taxes, while increasing

Rino Racanelli

their net after-tax retirement income. A simple retirement product created by insurance companies to do just that is the corporate annuity.

A corporate annuity offers a lifetime retirement income stream while reducing tax payable. Shareholders of private corporations who want to take income from their corporation and prefer conservative type investments, should consider a corporate annuity.

How It WorksWhen a corporation purchases

an annuity, the corporation will be the owner and beneficiary of the contract. The annuitant typically will be the shareholder of the corporation (annuitant is the person whose life the contract is based on). Annuity payments will be based on the life (or joint lives) of the shareholder(s) and would be paid into the corporation.

The taxable portion of the annuity is taxed as interest income. In Ontario it will also be taxable at a rate of 50.67% of which 30.67% of this tax is refundable when a taxable dividend is paid to a shareholder.

Now, to get income into the shareholder’s hands, the corporation would then turn around and pay a dividend to the shareholder as an ineligible dividend. The individual would pay personal tax on the received dividend at their marginal tax rate. The actual rate of tax on the dividend will depend on personal income level (46.84% in Ontario if a shareholder is in the top tax bracket). I often use taxtips.ca when running these kinds

Shareholders of private

corporations who want

to take income from

their corporation and

prefer conservative

type investments,

should consider a

corporate annuity.



of scenarios to get an idea of an individual’s tax liability when paying dividends out of their corporation. https://www.taxtips.ca/taxrates/on.htm

Lastly, since the annuity is purchased with non-registered funds (non-RRSP or RRIF), the taxation will be either accrual or prescribed. The accrual method is based solely on interest earned. Because the principal is high in the early years, the interest portion of the annuity will also be high; therefore, a higher taxable portion is payable in the beginning. As the amount of the annuity principal goes down with each payment received, the interest and the tax payable decrease.

Alternatively annuities can be taxed on a prescribed basis. Annuity payments will be a blend of interest and principal over the life of the contract. This spreads out the tax payable evenly every year. An annuity contract must qualify for prescribed tax treatment and is defined in Regulation 304(1) of the Income Tax Act. It can be exempt from accrual taxation if the following conditions are met:

• The policyholder must also be the annuitant. An annuitant is the person whose life the contract is based on.

• A joint-life annuity is permitted subject to certain variables. Joint-life usually refers to husband and wife who receive income payments, but there are other combinations.

• The annuity must be non-commutable and non-transferable i.e. it is a permanent contract for the life of the individual and cannot be cashed or transferred to another party, either as a gift or for consideration.

• Annuity payments must start by December 31 of the year following the purchase date.

• Annuity payments must be equal, made regularly, at least annually, and cannot be inflation protected.

• Annuity payments can be for life or a certain term as long as the term does not exceed the annuitant’s 91st birthday.

• The policyholder can also be a testamentary or spousal trust.

Since the owner is the corporation and not the annuitant, a corporate annuity would not qualify for prescribed taxation. It would be taxed on an accrual basis.

The table above shows the two taxable methods for a 70 year old male who purchased a $250,000 single life annuity. The annuity income payments would start at the end of 2018. The highest paying life annuity at time of article was $18,240 per year.

Accrual Versus Prescribed TaxationThe prescribed method of taxation shows an equal

annual amount tax payable each year, while the accrual method of taxation will vary from year-to-year. Although the taxable portion of the annuity is taxed as interest income, 50.67% in Ontario, the corporation could have access to a tax refund of 30.67% Refundable Dividend Tax On Hand on the taxable portion of the annuity when a dividend is paid to the shareholder. Each $2.61 of dividend paid to the shareholder will result in a tax refund of $1 in the corporation.

Rino Racanelli is an independent insurance advisor in Toronto, ON. Email: [email protected]. www.BackToBackAnnuities.com

Year Accrual Tax Chart Prescribed Tax Chart

Reporting Year

Annual Taxable Amount


2019 $0 $3,523

2020 $5,737 $3,523

2021 $8,001 $3,523

2022 $7,684 $3,523

2023 $7,365 $3,523

2024 $7,046 $3,523

2025 $6,730 $3,523

2026 $6,420 $3,523

2035 $4,147 $3,523

2040 $3,214 $3,523

2045 $2,544 $3,523

2050 $1,927 $3,523


https://www.taxtips.ca/taxrates/on.htm

https://www.taxtips.ca/taxrates/on.htm


http://www.BackToBackAnnuities.com


Reader’s Write

How Much Do You Need?

Jim C. Otar

Unless you have an excellent pension plan that can cover all your income needs during retirement, you will ask sooner or later: “Do I have enough savings for

retirement?”

First, let’s define what the “Sustainable Withdrawal Rate” (SWR) is. SWR is the maximum amount of money that you can withdraw from savings throughout retirement with an acceptable risk of depletion. It is customary to express it in terms of a percentage, such as the famous “4% rule”. This rule suggests that if you start withdrawing the dollar amount that is equal to 4% of retirement assets at the beginning of retirement and then index these withdrawals to the Consumer Price Index (CPI) throughout retirement, then you would have income for 30 years at a reasonable risk.

The important question is: “What is acceptable risk?” The answer makes a big difference in SWR and how much savings you need for retirement. What is acceptable depends on what this money is needed for: Do you need this money to buy your groceries or is it to help your grandchild for her overseas vacation? So, we place each expense item into one of these three groups: Essential, Basic, and Discretionary.

Essential Expenses:

These are expenses that are necessary for survival. Generally, housing expenses, income taxes and most living expenses are in this group. Here, we define acceptable risk as: “the occasional loss of purchasing power must not be larger than 10% at any age”.

Basic Expenses:

These are lifestyle expenses that that are not critical for survival. For example, if you love going south each

winter, when push comes to shove (financially), you can probably do without it. Here, our acceptable risk is: “the probability of portfolio depletion should not exceed 10%” during your retirement.

Discretionary Expenses:

You are flexible with these expenses. Donations, multiple vacation homes, financial assistance to relatives, usually belong to this group. Here, the acceptable risk is: “the median outcome must last until death”, i.e. there is a 50% probability of portfolio depletion at death.

Going back to our important question, the first step is to make a list of all your expenses which is the easy part. The difficult part is to decide (and agree with your spouse) which are essential and which are not. No one else will do this for you. For example: having two cars may be essential for some. For others, having one car may be a discretionary expense. Another example: helping with a grandchild’s expenses can be a discretionary expense, but helping with a disabled grandchild’s expenses can be essential. Make the list, categorize each expense item, and then discuss with your spouse to make sure it is entered in the correct group. To make this process easier, use the cash flow worksheet template at my website if you want.

The next step is to make a list of all expected retirement income from all sources. This list should include income from Canada Pension Plan (CPP), Old Age Security (OAS), company pensions, annuity income, rental income, business income, royalties, and so on. Do not include income from investments (open or registered) because it is calculated separately using the SWR.

The SWR table on the next page is based on a “buy-and-hold” portfolio, with an asset mix of 40% equities, 60% fixed income (and cash), rebalanced annually, time horizon until age 96.



Now, we can demonstrate “Do I have sufficient savings for retirement?” with an example:

Ron and Ann are both 65, just retiring. They have combined retirement assets of $680,000. Their combined government benefits CPP and OAS are $35,000 per year. In addition, Ann has an indexed pension that pays $23,000 per year.

Their total annual expenses are $80,000; $40,000 for essential, $35,000 for basic, and $5,000 for discretionary expenses.

Essential Expenses:

Their income from other sources (CPP, OAS and pension) add up to $58,000 (calculated as $35,000 plus $23,000). Their essential expenses are $40,000. Ron and Ann don’t need any savings to meet their essential expenses because income from other sources pay their essential expenses in full, and we carry forward the surplus of $18,000 towards their basic expenses (calculated as $58,000 less $40,000).

Basic Expenses:

Their basic expenses are $35,000. The surplus of $18,000 that we carried forward pays part of it. They need an additional $17,000 from their retirement assets (calculated as $35,000 - $18,000) to cover their basic expenses.

From the table above, SWR for basic expenses at age 65 is 3.82%. Divide $17,000 by 3.82% to calculate how much assets they need for their basic expenses: $17,000 / 0.0382 = $445,026

Discretionary Expenses:

Their discretionary expenses are $5,000 per year. From the Table above, SWR for discretionary expenses at age 65 is 5.03%. Divide $5,000 by 5.03% to calculate how much assets they need for discretionary expenses $5,000 / 0.0503 = $99,404

They need total of $544,430 (calculated as $445,026 plus $99,404). They have $680,000. So, they have sufficient savings cover their retirement expenses.

I hope this example helps you to answer your “Do I have enough?” question.

Jim C. Otar is a retired advisor living half of the year in Thornhill and the other half in Niagara. www.retirementoptimizer.com

Retirement Age Sustainable Withdrawal Rate

for Essential Expenses for Basic

Expenses

for Discretionary Expenses

60 2.97% 3.46% 4.44%

65 3.25% 3.82% 5.03%

70 3.64% 4.35% 5.73%

75 4.28% 5.35% 6.88%

80 5.38% 6.95% 8.74%


http://www.retirementoptimizer.com


Less May Be More

Multiplying Your Wealth By Subtraction

There’s one skit by comedian Steve Martin that I absolutely love:

You can be a millionaire and never pay taxes. You can have one million dollars and

never pay taxes. You say “Steve, how can I be a millionaire and never pay taxes?” First, get a million dollars. Now, you say “Steve, what do I say to the taxman when he comes to my door and says, ‘you have never paid taxes.’” Two simple words, two simple words in the English language: “I forgot.”

It’s funny, but not what I’m recommending when suggesting that subtraction (or omission) is the key to multiplying your wealth! Too often, we try to build wealth by developing a mental list of all the things we think the wealthy have added to their investment strategy. Rather, we need to go back to the actions the wealthy took along their initial journey.

Competing Non-Primary GoalsAn associate had a conversation with a young logger in

Northern B.C. a few years ago regarding his investment portfolio. In response to a few initial questions, the young man said he was 30 years old, worked very hard, lived simply and had accumulated a portfolio of $250,000.The advisor was floored and told the logger that he had accomplished the most important part—actually saving the money! He lived in an environment relatively free of shiny objects competing for his attention.

Successful wealthy people and their organizations began by defining one primary goal:

• Steve Jobs’ mission statement for Apple in 1980 was “To make a contribution to the world by making tools for the mind that advance humankind.”

Richard Vetter

• The purpose of Richard Branson’s Virgin Group is “changing business for good.”

• Starbucks mission is: “To inspire and nurture the human spirit – one person, one cup and one neighborhood at a time.”

• The Lego Group seeks to “Inspire and develop the builders of tomorrow.”

Everyone has a primary goal. The trick is to continue stripping away everything that is non-essential until you are left with the essence of your purpose. You are then left with a simple question whenever you evaluate a purchase: “Does this serve my primary goal?” All the competing non-primary goals simply erode your power.

TaxesThere is a difference between tax avoidance and tax

evasion and it often involves jail time. Our tax act gives us plenty of opportunity to avoid or defer taxes through vehicles like Tax-Free Savings Accounts (TFSAs), Registered Retirement Savings Plans (RRSPs), Registered Education Savings Plans (RESPs) or Registered Disability Savings Plans (RDSPs). There are also strategies that allow us to deduct from our taxable income things like investment counsel fees, certain interest paid in pursuit of our investment goals, etc.

The most effective tax planning involves taking advantage of tax reduction opportunities that are often staring you right in the face. All it takes is a little help in identifying the opportunities.

Investment CostsUp until a few years ago, many people may have been

under the impression that there were no fees on their



investments. Today, there is far better disclosure showing what you are paying for investment management and advice. That’s a good thing. Investment management and advice are not free, and you get nothing for nothing. The trick is in getting your money’s worth. It is worth having a conversation with your advisor about what kind of value you are getting, what value you may not be tapping into and what it is costing you. It often pays to do a fee audit to compare the value you receive compared to what you pay for it.

ComplexityThe problems that plagued the financial markets

during the great financial crisis of 2007-2008 revolved around the use of complex financial derivatives that tried to mask their true underlying risk. There is nothing wrong with owning stocks, real estate or bonds directly or through a well-structured investment fund. The risk arises when you own something that not even your financial advisor truly understands.

Negative MindsetDepression and anxiety play a key role in determining

investment success or failure. Depression over past financial performance often results in anxiety over expected future events. This certainly affects our actions and we need to be very aware of that.

Research into the psychological value of losses and gains have identified a loss aversion ratio averaging two to one. For example, a gain of 20% has the same impact as a 10% loss. Our brains are wired to avoid loss rather than to pursue gain.

You cannot strip away negative emotions. Rather, it is best to replace those emotions with a successful mindset. Warren Buffett said it best: “To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework. You must supply the emotional discipline.”

Sweating the Small StuffThe list of small stuff is never-ending and there would

be no point to even giving examples. The fact is that most of the things that distract us and get us into a rut are all small stuff. Small Stuff is all the things that we look back upon over the years and say: “that really wasn’t worth worrying about at all, was it?”

If we focus on the big priorities in life, the little things will carry less impact when they happen to us. By focusing on all the little things, there is little room in our hearts and minds for the big priorities.

Unnecessary Do-it-Yourself (DIY)For too many years I did my own accounting and tax

returns, both personally and for our business. I would even try to do my own research on legal matters. I may have been competent in some areas, but I was distracted from my primary goal and ultimately made avoidable costly mistakes. Today, I bounce all my questions off my accountant and lawyer. Although I get an invoice, I also get valuable guidance and peace of mind.

If you are seriously focused on a primary goal, you cannot afford the luxury of being a jack of all trades and master of none. This especially applies to financial, tax and legal advice.

Financial Freedom And Security Budget

We need to clearly paint a picture of what our big long-term goals are and what kind of income will be required in order to support those goals. In other words, begin with the end in mind. Then, we need to work that plan backwards and determine what we need to save every month in order to pay down our debt and accumulate a nest egg that will fuel our long-term goals. We need to also set up contingency plans that will complete those goals for our families if we get seriously sick, injured or if we die.

Once we know what we need to do every month in order to build and secure our wealth, we subtract that amount from our income and consider it completely unavailable for spending. That’s your financial security budget and it is like having a business – you do not comingle that amount with your other expense items. All you need to do then is revisit that plan every year and adjust for any course corrections that have happened along the way.

There is no rocket science involved here. Don’t get stressed out if you feel you do not have enough resources to achieve your goals. The secret lies not in adding what you don’t have. The transformation is in subtracting what is unnecessary.

Richard Vetter, CFP, CLU, CIM | PresidentWealthSmart Incorporated www.wealthsmart.ca • www.insuresmart.ca


http://www.wealthsmart.ca


Investor Protection

Why Canadian Investors Should Complain, Why They Don’t Complain And What To Do About It

Canadians don’t complain much when we are wronged. We are a more genteel culture. We are very trusting, especially of our financial institutions. Yet it is clear this undue trust

and complacency is being exploited by Bay Street. If investors complained more, the industry would change for the better. With so few complaints, the incentive for the financial services industry to improve is reduced.

We certainly have a basis for complaining. For instance, we have among the highest mutual fund fees in the world yet there is over $1.5 trillion invested in mutual funds. Discount brokers have sold $25 billion of A series mutual funds to Canadians, knowing they will not provide the advice built into the price. We read about multi-million-dollar scandals involving double billing and overcharging for over a decade or more without an investor rebellion. Class action lawyers have difficulties finding lead plaintiffs for egregious cases of investor abuse. In addition, there is the usual assortment of wrongdoing including churning, undue leveraging, unsuitable investments, unauthorized trading, reverse churning and fraud.

A study by Environics Research Group Canadians Continue Crazy Contentment with Investment Advisors found that:

(a) 37% of respondents say they work with a financial advisor and most appear to be extremely satisfied,

(b) When questioned on various aspects of service, only an average of 3% indicated they were dissatisfied and

(c) the 2017 survey results were extremely similar to those the year before, in spite of media reports highlighting questionable sales practices in the financial services industry.

These results are not surprising since retail investors are unaware that most “advisors” are registered as Dealing

Ken Kivenko

Representatives (salespersons) with no obligation to provide advice in the best interests of clients. Hence, no complaints.

A detailed study by Professor Douglas Cumming, Ontario Research Chair at the Schulich School of Business at York University showed that recommendations by mutual fund salespersons are skewed by commission structures. Professor Cumming found that:

(a) Mutual funds that perform better attract more sales but the influence of past performance on fund sales is considerably reduced when fund manufacturers pay sales and trailing commissions to advisors,

(b) As past performance becomes less influential on fund sales, there is a corresponding reduction in future fund performance and

(c) For mutual fund sales through fund dealers that are affiliates of the fund manufacturer (as in a bank branch), past fund performance has little to no influence on sales, and this also negatively impacts future fund performance. In other words, embedded sales commissions leads to investor harm.

More recently, it was found that a mere 10 basis point increase in commission rate was enough to sway “advisors” to recommend selected proprietary funds for purchase. https://www.theglobeandmail.com/investing/article-royal-mutuals-fined-more-than-1-million-in-settlement-over-higher/ Most retail investors wrongly believe that their representative is required to act in their best interests so if losses are incurred they assume it is due to the market or their own fault.

Why are Canadians so reluctant to complain about high prices or exploitive advice?

For one, the public’s expectations of complaint


https://www.theglobeandmail.com/investing/


handling processes are low: Consumers think it’s going to be difficult and time consuming. Stories abound about complainants being treated disrespectfully, low-ball compensation offers and the need to sign Confidentiality Agreements (gag orders).

Many retail investors are at a disadvantage—those who are recently widowed, in poor health, English is a second language, people with limited education, anyone who has difficulty writing clearly or expressing themselves and busy people who can’t devote the time and effort.

A lack of retail investor financial literacy acts as a major barrier for clients to understand what products/ trading practices may or may not fit their investment objectives, risk tolerance and time horizon, and a lack of awareness of the costs and fees associated with any purchases. For vulnerable investors, the lack of financial literacy can be even more damaging. They tend to be too trusting and willing to accept an advisor’s word—and unwilling to ask tough questions—when in fact that advice is all too often self-serving. Indeed, the trust can be misplaced, resulting in financial abuse of seniors, who disproportionately lose a portion of their life savings to abusive sales practices or fraud.

It’s our experience that the elderly are especially reluctant to formally complain for a variety of reasons. Seniors often avoid publicity or litigation due to the embarrassment of having been bilked. They may unduly blame themselves for losses and are reluctant or unable to formulate a complaint or are unaware that something is amiss. Sometimes a curt letter from an investment dealer that the representative did nothing wrong is enough to discourage a senior from pursuing a valid complaint.

The complaint process is complex and intimidating; lots of jargon is used so people feel they don’t understand what is being said to them. They therefore think “How can I fight what I don’t understand?” and conclude they are incapable, or worse stupid, compared to these “experts”.

Other reasons for client complaint passivity include:

• Complainants do not know they have a valid complaint.

• Client account statements are confusing and hard to interpret.

• Clients are informed by the dealer/representative that they do not have a valid basis for a complaint. “You signed this” is used as a tool employed by dealers to confuse and intimidate complainants.

• Clients do not understand the complaint process.

• Clients do not want to rock the boat.

• Clients don’t want the hassle of going through the complaint process.

• Clients do not know their rights as investors.

• Clients are unaware of the Ombudsman for Banking and Investments (OBSI www.obsi.ca), a free dispute resolution service.

• Clients have unshakeable trust in their “advisor” (actually registered as a Dealing Representative).

• Clients feel intimidated by the multi-step complaint process.

• Clients do not know where to turn when they hit roadblocks.

• Clients blame themselves, believing they must have misunderstood.

• Clients are taught not to question authority, especially seniors.

• Clients see the “advisor” as expert, knowledgeable and trustworthy, therefore if something went wrong it must be the investor’s own mistake.

• Clients do not realize how common their situation is because they rarely hear much in the media or from other people (due to gag orders).

• Clients feel embarrassed and ashamed at losing money.

Industry has all the resources; a burned investor feels they have none. Victims fear that if they complain, they might lose even more money. Many victims tell us how much it helped them to have someone validate for them that they have a legitimate concern and how to navigate the process. The complaint process is indeed very stressful, complex and unduly long; people get exhausted, give up and want to move on with their lives.

Some thoughts on generating more retail investor complaints

There is no one silver bullet to solve the dilemma. Increased financial literacy can help so that investors can detect when something isn’t right. Regulators could provide more plain language educational material on what dealer behaviours are legitimately subject to a complaint. Street-proofing materials can be powerful


http://www.obsi.ca


guides for investors to know their rights and avoid problems. Recently implemented Client Relationship Model 2 (CRM2) reporting increases cost visibility and performance information but regulators can do more to educate retail investors how to use the information.

Rules should ensure that job titles are reflective of demonstrated proficiency and registration and are not misleading. Titles like vice president, based solely on sales production, create undue investor trust. Better guides to making a complaint would also be helpful. Periodic regulatory sweeps of dealer complaint-handling systems can be effective in improving the complaint process for the retail investor.

Securities regulators could also include brief case studies for investor examination on their websites and publish an Investor Bill of Rights modelled on North American Securities Administrators Association (NASAA) or G20 high level principles of financial consumer protection.

Dealers could make it easier and simpler to file a complaint. Front line staff should be given more authority and training to resolve problems at the earliest point in the cycle. Eliminating the non-independent internal bank ombudsman function would simplify the complaint process and lead to better outcomes. Where a dealer identifies (from its complaints or otherwise) recurring or systemic problems in its provision of, or failure to provide, a financial service, it should consider whether it ought to act with regard to the position of clients who may have suffered detriment from, or been potentially disadvantaged by, such problems but who have not complained and, if so, take appropriate and proportionate measures to ensure that those clients are given appropriate redress or a proper opportunity to obtain it.

In many cases investors do not understand the purpose of the New Account Application Form (NAAF). Dealers should clarify the intent of the NAAF form so that clients understand its multiple purposes, including how it could and would be used when a complaint arises. Dealers should provide a signed and dated copy of the completed NAAF to the investor and provide a copy of the Know Your Client (KYC) to the investor on an annual basis or whenever it is changed.

OBSI should dramatically increase its outreach program so that investors are better informed of their rights and dispute-resolution options. Providing OBSI with binding recommendation authority would incent reluctant investors to submit complaints. OBSI should

also define its service standard in a defined number of calendar days rather than “80% within 180 days”; people are turned off by the uncertain cycle time for resolution of their complaint.

It is hoped that the financial services industry will come to realize that complaints represent an opportunity to address customer concerns and improve business policies, processes and products. The end result will be a healthier industry and investors will more likely meet their financial objectives. It’s a win-win proposition.

Of course, the goal is to increase the flow of complaints so that the dealers use the feedback to improve processes, ultimately resulting in fewer complaints. The best way to reduce complaints is to prevent them in the first place. Rather than investors becoming more effective complainers, a better approach would be for registered representatives and dealers to adhere to the Best Practices formulated by the Institute for the Fiduciary Standard and prevent complaints. That’s the subject of another article.

REFERENCES

Complaint Handbook: MBC Law author H. Geller This excellent plain language Guide fills a critical info need for the Retail Investor.

https://static1.squarespace.com/static/58350df5b3db2bbc30614fbf/t/5b2444c86d2a734942edff91/1529103562413/Complaints+Process+for+Retail+Investments+in+Canada.Handbook.MBC+FLAG+2018.pdf

The Investor Protection Clinic at Osgoode Hall Law School provides free legal advice to people who believe their investments were mishandled and who cannot afford a lawyer. Canadian investors have not had a place to go for free legal advice; the Investor Protection Clinic fills this void. The Clinic provides legal advice to people who believe they have suffered an investment loss as a result of someone else’s wrongdoing.

https://www.osgoode.yorku.ca/community-clinics/investor-protection-clinic/

Ken Kivenko, PEng, President , Kenmar Associates, [email protected], www.canadianfundwatch.com










The Investment Coach

Case Study In Second Level Thinking: Amazon

Several issues ago, I wrote about second level thinking, which involves looking at potential investments with a more critical and often contrarian context. I thought I would put that

into practice with a dive into a stock that often takes up a lot of oxygen whenever and wherever I’m talking about investing: Amazon.

Amazon has been one of the “It” stocks for the last decade. It has had an epic run. Even if we don’t own shares, we often own it indirectly through Exchange Traded Funds (ETFs). Just in the U.S. alone 605 ETFs have Amazon in their baskets. In 2008, it was only 9.

Let me be very clear here at the outset. Amazon is a wonderful business. It demonstrates a key competency of successful, long-run viable businesses which is reinvesting back into its products and services and challenging itself to do better. It just does it in a hard-core style by choosing to reinvest all its profits and is willing to try anything and not rest on its laurels. That competency usually peters out for most, if not all companies, but after 24 years, Amazon continues to bring this element to its culture.

If we were to look at Amazon from a 1st level thinking perspective, the conventional thinking behind buying Amazon is that they are disrupting retail. Any space Amazon enters, be it grocery, streaming, pharmaceutical drugs or diapers, is met with fear and doom by the existing players. First level thinking would tell us that in the future we will shop at Amazon only.

I would consider Amazon to be a Fear of Missing Out (FOMO) stock. Many have missed the moves up and feel compelled to jump aboard so they won’t miss out. For those considering it, here are some second level thinking perspectives worth considering.

Aman Raina, MBA

For all the banter about Amazon disrupting retail and various industries, when you drill down into the areas Amazon is involved, the one space they have truly dominated and taken over is the space they were founded upon: books. They are hands down the largest books retailer in the world and many large and small legacy bookstores have gone out of business because of them. Amazon has truly revolutionized how we buy and read books. When you go beyond books, it’s hard to find any of their other business lines dominating their space in this fashion. The logical progression for this would be book publishing but they really haven’t made any traction. In fact, you could say they have used their power to engage in some dubious publishing practices.

After buying Whole Foods, many called for the demise of grocery retailers. The reality is Amazon’s market share has gone from 0.2% to 1.4%. Hardly moving the needle. Walmart, Costco, and Loblaw have responded with expanded delivery services and are meeting Amazon head-on.

After buying Pill Pack to gain entry into the drug retail space, pharmacies like CVS and Walgreens came under pressure. The reality is Pill Pack does $100 million in sales, while companies like Walgreens does over $118 BILLION in sales and offer similar delivery options to Amazon.

Amazon has been building up its entertainment streaming catalog and producing more content, some of it quite good, and has some Emmy Awards to show for it. To their credit, they saw the potential of eSports and were the first to stream video game tournaments, which has created mass audiences and drawn in mainstream networks like ESPN to broadcast tournaments like the Overwatch League. Conversely their entrance into live sports has been sketchy with fumbles in delivery of the U.S. Open tennis tournament. Do you see Netflix, or Disney shaking because of this?



Does anyone remember when Amazon dabbled into building a social network to rival Facebook? It bought a portal called PlanetAll in 1996 to link its book customers. It didn’t fare well.

Then there was the acquisition of Diapers.com that had everyone in the children’s retail world hyperventilating. As a father, who’s been changing diapers the last few years, I can firmly attest that Pampers, Huggies and Kirkland diapers are still thriving quite nicely.

The genesis of the Amazon as a disruptor was in the electronics space as people went to a Best Buy to touch the TVs and computers and go home and order it on Amazon. So many experts painted the end of electronics retailers. They’re still around and more than holding their own (Note Future Shop which was bought out from Best Buy went under, not because of Amazon but because of duplication in their real estate footprint).

Despite selling 50 million of the Alexa smart assistant Echo products, only 2% of owners have used it to make a purchase this year and of those who did buy something, 90 percent didn’t try it again. Also, remember the Fire phones? They got shelved pretty fast.

Amazon has also tapped into the search engine model and has impressively generated about $2 billion in sales. Somehow I don’t think Google or Facebook which generate $24 billion in revenue per quarter is losing sleep right now.

If we get into numbers, Amazon has locked in about 49% of online retail sales, which thinking from a first level perspective is incredible. When we add some context and look at it from a second level thinking perspective, Amazon represents approximately 5% of total retail spending. Retail is not just Amazon.

I realize that none of these points will sway any of the Amazonians who have loyally ridden the stock to where

it is. It has had the winds behind them thanks to Wall Street and now retail investors are joining the ride.

The reality is Amazon contrary to first level thinking has not achieved the same level of market power and dominance in any of their other retail ventures. They’re doing OK.

Somewhere along the way, an expectation has been embedded that just because Amazon enters a space, they will, by default, own it. The reality is entering a retail space does not entitle Amazon to 100% of that industry’s profits. It still has to compete. What has happened is when they do enter a space, the competition far from lies down. They, in fact, double down. I wouldn’t say that Amazon has disrupted retail, but invigorated retail from being complacent to being more proactive. In the long run that’s good for everybody.

From a second level thinking perspective, when you look at all these elements and then bring it back to its stock and how it has behaved and how it has been perceived by investors, it’s really hard to justify the valuations. It is being priced as a monopolistic business. As the above iterations show, it is far from one.

Again, Amazon is a wonderful business and it does offer value for its customers. The Prime program has allowed it to build a critical mass of sticky potentially loyal users. The reality is as investors we must always take a step back and look at investments with context. Amazon as a disruptor may be a sexy first level thinking concept that you can tweet out, however when you put it in context and look at it from a second level thinking viewpoint, a better perspective can be gained.

Aman Raina is an Investment Coach and Founder of Sage Investors. Aman can be reached through his website (www.sageinvestors.ca), Twitter (@sageinvestors) and Facebook (www.facebook.com/sageinvestors)

Canadian MoneySaver FORUMS!Are you looking for single share DRIPs, information on

taxes, equities, or just savings in general? Join our forums to get in contact with other

like-minded Canadian MoneySaver subscribers.

Visit the forum link at www.canadianmoneysaver.ca/forums


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Sector Focus

Market Timers Can Bet On An Energy Sector RecoveryCyclical Resource Stocks Must Be Traded, Not Held

Investors with holdings in the Canadian energy sector have lost money on even the safest bets. A global oil glut, partly fueled by increased U.S. energy production, has depressed oil prices

around the world. In Canada, where opposition to new pipelines has made it difficult for oil and gas producers to get their products to market, the slump has been especially painful.

My old friend Peter, a retired financial advisor who has been an active resource investor since the 1970s, said he was down about $400,000 on his energy stocks, despite focusing on large, well-capitalized energy companies with a long history of paying dividends.

“This is ridiculous,” he said during a recent game of billiards. “John Templeton said to buy at the point of maximum pessimism, so maybe this is a great opportunity. Or else it’s the end of fossil fuels in Canada.”

Figures at OilPrice.com show global oil prices are at a long-term low, with the slump especially painful in Canada, where pipeline opponents currently hold sway. As a result, Canadian crude oil futures trade at only a fraction of West Texas Intermediate (WTI). As of early December, the price for Western Canadian Select (WCS) oil was just US$26 per barrel, less than half the US$53 WTI price and near its 2016 lows, the site says.

The slump has depressed the share prices of several Canadian industry giants. As of early December Canadian Natural Resources (CNQ/TSX) and EnCana Corp. (ECA/TSX) were at their lowest since 2016, Tourmaline Oil Corp. (TOU/TSX) was trading at less than the $20 price at which it went public in 2010 and both Seven Generations Energy Ltd. (VII/TSX) and PrairieSky Royalty Ltd. (PSK/TSX) were below their 2014 issue prices.

Richard Morrison

In some cases, the falling share price means dividend yields have climbed to generous levels, providing a cushion against further losses — providing the dividends can be sustained.

For example, Enbridge Inc. (ENB/TSX), having recovered slightly from its low near $40 in October, pays an indicated annual dividend of $2.68 that yields 6.3% and the annual dividend of $2.76 paid to holders of TransCanada Inc. (TRP/TSX) now yields 5.1%.

Vermilion Energy Inc. (VET/TSX) and Crescent Point Energy Corp. (CPG/TSX) both trading at eight-year lows, pay dividends that now yield an astronomical 8.7%, while Peyto Exploration and Development Corp. (PEY/TSX), trading at a 10-year low, pays a dividend that yields 7.7%.

As for energy sector income trusts, Peter said he had once owned several, but noticed the unit value of many trusts fell by roughly the amount of the distribution. “This ‘return of capital’ business is basically just getting back your own money, like putting $100 into a safe and taking out $10 a year until there is nothing left after 10 years.”

Giant utilities such as Enbridge and TransCanada aside, the dismal long-term returns from Canada’s oil patch over the past decade or so has shown that energy sector holdings are not “buy and hold” investments but must be actively traded — bought when they are relatively low and sold when they are relatively high. If you buy oil and gas stocks and put them in the proverbial drawer like you might do with bank or telecom stocks, you may end up losing money in the long run.

In my opinion, some companies in the energy sector appear to be good turnaround candidates for risk-tolerant investors who can afford to wait for a recovery. Along



with having the right temperament and sufficient money, however, those betting on a turnaround need to be young enough to wait for a rebound that may be many years away. Figures from Statistics Canada show a Canadian man who turned 65 in 2009 would have an average life expectancy of 18.5 years, a woman 21.6 years. That puts the average life expectancy of a Canadian man at about 83.5 years, a woman 86.6. Retirees betting on a stock to recover must keep this in mind, lest their goal be to enrich their heirs.

Those still determined to gamble on a rebound in the sector can hold units of an exchange-traded fund (ETF) that has a diversified portfolio of names. An ETF helps you avoid company-specific risk such as, for example, too much debt in relation to cash flow or assets. The recent record low price for most of the ETFs looks like a good buying-in point, but the risk is high — the funds could still go much lower. Here is a look at a few ETFs.

iShares S&P/TSX Capped Energy Index ETF (XEG/TSX)

The largest energy fund in Canada with $768-million in assets under management has occasionally brought big gains for investors, but the bad years have outnumbered the good. At a recent unit price of $9.48, down 29% since its peak in mid-July, the fund’s units are at their lowest since early 2016.

A long-term chart of the fund’s price illustrates how any investment tied to an underlying cyclical commodity must be traded to be profitable. Investors quadrupled their money between XEG’s launch in 2001 and its peak in May 2008, while those who bought when the fund was down in February 2009 and sold in two years later also made big gains. Aside from a brief run-up in mid-2014, it has been all downhill since then. The iShares site says that as of the end of October, the fund’s 10-year annualized return was minus 1.88%.

XEG carries an MER of 0.62%. The iShares site says that as of the end of October, the fund had 37 holdings, with fully 24.8% of its assets in Suncor Energy Inc. and 23% in Canadian Natural Resources Ltd. The remaining top holdings included EnCana, Cenovus, Imperial Oil, Husky Energy Inc., Vermilion Energy, Tourmaline Oil Corp., ARC Resources Ltd. and PrairieSky Royalty Ltd.

The 12-month trailing yield of 2.16% is eligible for a dividend reinvestment plan (DRIP) the iShares site says.

BMO S&P/TSX Equal Weight Oil & Gas ETF (ZEO/TSX)

Like XEG, investors in this fund have had to be active traders to make money. The BMO Global Asset Management site shows that as of Oct. 31 this $154-million fund had an annualized performace of minus 2.32% since its launch in 2009.

The fund’s holdings are concentrated among 14 companies, roughly equally weighted at about 7% of the fund, including Imperial Oil Ltd., Pembina Pipeline Corp., Cenovus Energy Inc, Seven Generations Energy, TransCanada Corp., Keyera Corp, Enbridge Inc., Inter Pipeline Ltd., Tourmaline Oil Corp. and ARC Resources Ltd.

The fund, which carries an MER of 0.61%, had as annualized distribution yield (which includes capital gains) of 2.9% and is DRIP eligible.

BMO Junior Oil Index ETF (ZJO/TSX)

This thinly traded ETF, launched in 2010, had $70.8-million in net assets as of Oct. 31, the BMO Global Asset Management site says. Like the other energy ETFs, unit holders were generally able to sell at a profit between 2010 and the peak in mid-2014, but since then annualized performance has been negative. The fund’s net asset value is down 2.08% since its launch, the site says.

Roughly three fourths of the fund’s 58 holdings are U.S. companies with exposure to oil, with Canadian names Vermilion Energy and ARC Resources also included among the fund’s top 10 holdings.

The MER is 0.6%, larger than its annualized distribution yield of 0.4%.

BMO Junior Gas Index (ZJN/TSX)

Like the junior oils, small companies in the natural gas sector are also suffering, as this fund’s annualized performance is a dismal minus 7.53% over the past five years. About two thirds of this fund’s $31.2-million in assets are in U.S. companies, one third in Canadian.

Among its top holdings are Canadian names Parkland Fuel Corp. (9.3%), Enbridge Income Fund Holding (6.8%) and Seven Generations Energy (5.9%).

The fund carries a management expense ratio of 0.58%, with an annualized distribution yield of 2.3%.



Horizons S&P/TSX Capped Energy Index ETF (HXE/TSX)

This fund’s units were $25 when it launched in 2013, fell to a low near $15 in 2016 and have slipped again to near $16.

The fund, with $21.7-million in assets as of Nov. 30, has no holdings but instead uses total return swap agreements with Canadian banks to track the daily movements of the S&P/TSX Capped Energy Index, including the dividends paid out. It carries a relatively low MER of just 0.25%. Although the fund’s net asset value includes the dividends in the index, the fund officially pays no distributions, which the Horizons site points out is a tax advantage.

Resource sectors are cyclical, which means they must be traded. Investments made in any company whose fortunes are tied to an underlying commodity means the company could get into serious trouble when the commodity price falls, no matter how well the firm is managed.

Investors who hold stakes in energy, minerals or forest products companies have little choice but to try to time the market by buying at what appears to be a low price for the commodity in hopes of selling higher later. Company-specific risks such as high debt levels can be reduced by holding exchange-traded funds that hold a diversified portfolio, but even these must be watched carefully.

Richard Morrison, CIM, is a former editor and investment columnist at the Financial Post. [email protected]

"A much needed resource to help people grow their financial literacy..."

In the 12th edition of the MoneySaver Podcast, we chat with Colin Ritchie from colinsritchie.com and Canadian MoneySaver contributor about grandparents funding RESPs, TFSA or RRSP, The Smith Manoever, taxation, Wills and Powers of Attorney as well as his tips for a successful financial career.


All episodes are free to download and stream.

Get them all at the link below!

LIND

A M

ACKI

E PH

OTOG

RAPH

Y





Canadian MoneySaver Professional Directory

Looking for a helping hand with your finances or investments? Canadian MoneySaver (CMS) has created an online directory to help you find the right person or group to meet your needs. Use

this directory to discover financial professionals that offer the services or credentials that you are looking for. You wouldn’t buy an investment without looking at all of the options out there, so why would you look for an advisor any differently?

**Please note that this is an online directory only. Canadian MoneySaver cannot attest to the accuracy or completeness of any information provided in the directory. The inclusion of any individual or group is not to be viewed as a recommendation or endorsement by Canadian MoneySaver.**

Are you a financial professional who would like to be included in this directory? Learn more at https://www.canadianmoneysaver.ca/advisor-directory-more-information/

FINANCIAL ADVISORS

Fee Type Service Area Licensed to sell Investments

CMS Contributor

Credentials Contact

John De Goey Asset Based Licenced in 7 provinces (all but SK, PEI & NFD)

Yes Yes CIM, CFP, Fellow of FPSC

416.216.65881.844.777.5551

Website: www.wellington-altus.c

Peter Brieger Asset Based ON, QC, NS, MAN, SASK, AB

and BC

Yes Yes CFA 1-416-591-7100 1-800-387-0784

Website: http://www.globe-invest.com/team-peter-brieger.php

Warren MacKenzie Asset Based ON, BC, AB, SASK

Yes Yes Registered Portfolio Manager

905 827 8540

Website: http://www.optimizewealthmanagement.com/post-welcoming-industry-veteran-and-contributor-to-the-globe-and-mail-warren-mackenzie-to-optimize-team

Keith Richards Fee only, based on asset allocation breakdown

ON, AB, MAN, BC, NB

Yes Yes CMT, CIM, FCSI 1 888 721 8736

Website: https://www.valuetrend.ca

Becky Wong Commission Greater Vancouver

Yes Yes CFP 778-227-7087

Website: http://beckywong.com/

Ed Arbuckle Fee for Service No No CPA, TEP,FCA 519-884-7087

Website: https://www.personalwealthstrategies.net/

Steadyhand Low MER fee BC, ALTA, SASK, MAN, ON

Yes Yes CFA, CFP, OTHER 888 888 3147

Website: https://www.steadyhand.com/

Caroline Nalbantoglu Fee Based Across Canada No Yes B.B.A., C. Adm.F.P., CFP, RFP.

514-798-4895 ext. 1

Website: http://cnalfp.com/montreal/

Colin Ritchie Based on the Service BC, AB, ON, MB Yes LL.B, CFP, CLU, FMA, TEP

778-233-8089

Website: https://colinsritchie.com/


https://www.canadianmoneysaver.ca/advisor-directory-more-information/

http://www.wellington-altus.c

http://www.globe-invest.com/team-peter-brieger.php

http://www.optimizewealthmanagement.com/post-welcoming-industry-veteran-and-contributor-to-the-globe-and-mail-warren-mackenzie-to-optimize-team

http://www.optimizewealthmanagement.com/post-welcoming-industry-veteran-and-contributor-to-the-globe-and-mail-warren-mackenzie-to-optimize-team

https://www.valuetrend.ca

http://beckywong.com/

https://www.personalwealthstrategies.net/

https://www.steadyhand.com/

http://cnalfp.com/montreal/


Name Fee Type Service Area Licensed to sell Investments

CMS Contributor

Credentials Contact

Brenda Hiscock Fee-only / advice-only / fee-for-service

All provinces No No CFP, RHU 416-691-84711-855-691-8471

Website: https://objectivefinancialpartners.com/

David Nicholson Fee only, fee only with transaction charges/transaction charges only

BC, AB, ON Yes(Insurance too)

No Senior Investment Advisor/Retirement Planning Specialist

/Estate Planning Specialist

250-380-7505

Website: http://www.davidnicholsontoday.com/

Allan Small Flat fee or commission based

Across Canada Yes Yes PFP, FMA FCSI 416-332-3863

Website: http://www.allansmall.com/

Janet Gray Fee Only N/A No Yes CFP, CHS 613-834-6639

Website: https://moneycoachescanada.ca/about/janet-gray/

Natasha Knox Fee Only Canada-wide, excluding QC

No No CFP, PFP 1-800-934-1414

Website: https://paxplanning.ca/

LAWYERS Fee Type Service Area CMS Contributor

Credentials Contact

Steven Benmor Based on the Service Toronto Divorce/Mediation Yes 416 489-8890

Website: https://benmor.com/

Colin Ritchie Based on the service BC LL.B, CFP, CLU, FMA

Yes 778-233-8089

Website: https://colinsritchie.com/

ACCOUNTING Fee Type Service Are CMS Contributor

Credentials Contact

Eileen Reppenhagen Based on the Service BC Yes Quickbooks Advisor

604-943-7414

Website: http://www.taxdetective.ca/home.html

Kody Wilson Hourly Ontario Yes CPA, CA, FPSC Level 1 Certification

613-694-4486

Website: https://www.ggfl.ca/

INSURANCE Fee Type Service Are CMS Contributor

Credentials Contact

Rino Racanelli Fee Based/Commission

ON, AB, BC Yes LUATC CIFC, CSC 416-880-8552

Website: http://www.backtobackannuities.com/


https://objectivefinancialpartners.com/

http://www.davidnicholsontoday.com/

http://www.allansmall.com/

https://moneycoachescanada.ca/about/janet-gray/

https://paxplanning.ca/

https://benmor.com/

https://colinsritchie.com/

http://www.taxdetective.ca/home.html

https://www.ggfl.ca/


Proper ‘Account’-ing

Leveraging Tax-Advantage In RRSP, TFSA And Non-Registered Accounts – Part 1

Have you ever stopped to think what type of account you should be using to maximize your investment returns? You can have great returns, but if you don’t

pay attention to the way you use different investment accounts, your returns may end up less than you had hoped. When it comes down to it, your real return is what you get back when you cash out your investments. We are guaranteed to be taxed, we cannot escape it (for the most part.) However, what we can do is optimize the use of our tax-deferred, tax-exempt and even taxable accounts. In Canada, our tax-deferred account is the Registered Retirement Savings Plan (RRSP), our tax-exempt account is the Tax-Free Savings Account (TFSA) and our taxable accounts are known as non-registered accounts. For Exchange Traded Funds (ETF) investors, there are a few considerations that need to be made depending on the type of ETF and type of account being used to get the most out of your returns and avoid being taxed unnecessarily.

RRSPLet’s start with RRSP basics. First, the RRSP is a tax-

deferred account, meaning contributions reduce your taxable income, taxing you less in the short term, but you eventually pay taxes on the amounts you withdraw. The RRSP is efficiently used if you contribute to it when your income tax bracket is higher and withdraw when your income tax bracket is lower. All capital gains and dividends are taxed only when they are taken out of the RRSP and are taxed as regular income rather than at the lower tax rates of capital gains and dividends. However, compounded tax-sheltered returns through an RRSP over a long period of time can outweigh higher tax rates.

The RRSP has a specific advantage when it comes to U.S. stocks and ETFs that pay dividends. U.S. dividends

Moez Mahrez, cfa

are normally subject to a withholding tax of 15%, but the Internal Revenue Service (IRS) (the U.S. equivalent to the Canada Revenue Agency (CRA)) treats Canadian RRSP accounts as if they are tax-free. Therefore, a wise course of action is to own U.S. listed ETFs in your RRSP. However, if U.S. companies are held in a Canadian-listed ETF, the withholding tax will be applied within the ETF itself, so it is best to avoid Canadian-listed funds that hold U.S. equities. Holding a Canadian-listed fund that holds Canadian stocks is fine as Canadian dividends are tax-sheltered until withdrawal as per standard tax-deferral rules.

One fund allocation consideration to keep in mind is how much exposure you want to the U.S. vs Canadian and international markets. For example, if you are an investor who prefers to maximize RRSP contributions, it may not be ideal to only hold U.S. ETFs and stocks in your RRSP if you are not optimistic about the U.S. markets. On the other hand, if you want more U.S. exposure but have a limited amount to invest it may be optimal to focus your U.S. equity ETFs in your RRSP and reserve Canadian and international equity ETFs for your TFSA and non-registered accounts. With respect to international equity, it gets a little trickier and requires some discretion. On the one hand, international equity ETFs result in less withholding tax if the ETF is U.S.-listed, and on the other, a Canadian-listed ETF that holds the underlying international stocks directly helps reduce currency exchange costs. The most inefficient combination from a tax perspective would be to hold a Canadian-listed ETF that gets international exposure through another U.S.-listed ETF.

TFSAThe TFSA has a unique advantage of allowing investors

to be completely exempt from investment income tax on



dividends, capital gains and interest. Unlike the RRSP, the TFSA is not tax-deductible on contributions, nor does it result in taxing investors upon withdrawal. In other words, the TFSA has no tax implications whatsoever. Of course, if the TFSA did not have its own limitations, Canadians wouldn’t bother with any other accounts. The TFSA contribution limits are important to understand to avoid over-contribution penalties. The TFSA program began in 2009 and each year since then you are permitted to contribute an incremental amount allotted to that year. Any withdrawals in a given calendar year become unused contribution room to carry forward for the next year. If you haven’t contributed to a TFSA until today and are a Canadian resident or citizen of 18 years or older in 2009, your maximum contribution in 2018 would be $57,500, which is still quite a bit of room to work with.

To compare the RRSP and TFSA, let’s assume you start out with $10,000 in each account. At a rate of 10% average annual return for 10 years you will end up with $25,937. When you withdraw the full amount from the RRSP, you will be taxed at whatever your marginal tax rate is, so for example, a marginal rate of 29%, leaving you with $18,415. Withdrawing that same amount from the TFSA leaves with the full amount of $25,937. In return terms, that’s a 10% average annual return for the TFSA and 7.86% for the RRSP (calculation includes tax refund benefit assuming 29% marginal tax rate). This implies that high growth investments may be more optimal in a TFSA rather than an RRSP.

For many investors, the TFSA is an appropriate place in a portfolio to venture into high growth spaces like health care, artificial intelligence or even a niche space in specific country. A caveat to this is that with high growth comes high volatility in the interim years, meaning capital losses can occur. TFSA limits are based on your contribution amount not your balance, so losses do not add to your contribution room. Furthermore, investors should expect a longer time horizon to make up for higher volatility. There’s nothing wrong with holding some high growth stocks and ETFs in an RRSP, however, assigning “portfolio tasks” of high growth for TFSA and lower yielding bonds and U.S. dividends for RRSPs has worked very well for many investors.

In contrast to using the TFSA as a great spot for high growth funds, it is also important to factor in an allocation for emergency funds. The flexible nature and no tax consequences of withdrawal make the TFSA a primary choice over the RRSP for accessing emergency savings.

With respect to ETFs, Canadian equity ETFs seem to

provide the most tax efficiency as no returns or dividends are taxed in the TFSA. It is less than optimal to hold U.S. equity ETFs (Canadian-listed or U.S. listed) that pay dividends because the foreign withholding tax of 15% would apply (the only way a TFSA can be “taxed”). This makes it even more optimal to hold U.S. equity ETFs in a RRSP as discussed earlier.

For international exposure it is best to stick to Canadian-listed ETFs that get exposure by holding underlying international companies directly rather than through another non-Canadian-listed ETF. U.S.-listed ETFs with international exposure are the least tax-efficient way to invest in the TFSA because they are subject to the 15% foreign withholding tax on dividends and a possible extra withholding tax from the subject country on dividends and capital gains.

Non-Registered AccountsConventional wisdom tells us to stick to tax-sheltered

accounts whenever possible and to take full advantage before resorting to taxable (non-registered) accounts. However, we often take taxable accounts for granted. The primary, obvious, advantage we overlook is that there are no contribution limits or withdrawal penalties like those experienced with registered accounts. This gives investors with more investable money a lot more flexibility in general, and when withdrawing for retirement or other purposes. Another less obvious advantage that non-registered accounts have over TFSAs and RRSPs is the ability to perform tax-loss harvesting strategies. This is a strategy by which you use a losing investment to your advantage by purposefully selling it to incur a capital loss, thereby reducing your total capital gains tax bill. Furthermore, tax-loss harvesting offers flexibility as investors can apply capital losses from the last 3 years or hold on to them for the indefinite future to offset capital gains. Having an accountant is useful for advice on tax-loss harvesting strategies.

The advantage of holding ETFs in a taxable account over mutual funds is that ETFs are traded like stocks so you only incur capital gains once you sell your holdings. With mutual funds, capital gains are less in your control because they are recorded based on when the fund manager buys and sells holdings within the portfolio. When looking at mutual funds it is important to look at the turnover percentage; a high number indicates lots of buying and selling.

ETFs which have a fund structure that re-invests dividends instead of paying them out have proven to



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1. Male Single Life Prescribed Annuity ages 65, 70, 75 and 80

2. Female Single Life Prescribed Annuity ages 65, 70, 75 and 80

3. Joint Life Prescribed Annuity Male/Female ages 65, 70, 75 and 80.

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Annuity rates change daily. Income and tax rate will depend when the annuity contract is issued.

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Male age at purchase

Annual income


65 $6,062 $1,056

70 $6,849 $740

75 $7,819 $590

80 $8,985 $667

Female age at purchase

Annual income


65 $5,658 $1,076

70 $6,357 $821

75 $7,263 $539

80 $8,425 $427

Joint age at purchase

Annual income


65 $5,176 $1,221

70 $5,790 $1,020

75 $6,627 $775

80 $7,801 $637

be quite advantageous for taxable accounts. Investors only realize capital gains when they sell ETF holdings, instead of upon receiving distribution from dividends. Furthermore, capital gains are usually the lowest taxed form of income, giving investors even more tax savings. Canadian-listed ETFs work decently in a taxable account as Canadian dividends are taxable, but eligible for the dividend tax credit and capital gains can be deferred. For U.S. equity ETFs, dividends are taxable as well but eligible for a foreign tax credit. For international exposure it is best to use Canadian-listed ETFs that hold the underlying companies directly. You will be taxed on dividends and capital gains as usual, but you can also take advantage of a foreign tax credit if available. It is best to avoid international exposure though U.S.-listed ETFs because an additional 15% withholding tax will be applied (although can be offset with foreign tax credit).

We have gone through some of the mechanics of registered accounts and taxable accounts and how to use them to our advantage. We have also discussed what to be aware of when investing in ETF in those respective accounts. Of course, there is no one-size fits all rule and investors must use discretion according to their personal circumstances.

In summary, it is generally most tax-efficient to hold U.S.-listed ETFs that hold U.S. equity in an RRSP, Canadian-listed growth stocks in a TFSA and Canadian-listed ETFs in taxable accounts. For RRSPs it is best to avoid Canadian-listed funds that hold U.S. equities, TFSAs should avoid U.S.-listed ETFs with international exposure and taxable accounts should avoid international exposure though U.S.-listed ETFs. Stay tuned for Part 2 of this edition where we will provide an analysis of our favorite ETFs for each account.

ETF investors interested in sharpening their skills can sign up for an ETF Mutual Fund Update membership at https://etffundupdate.ca. Access to the website includes recommended lists, investment tools and a monthly newsletter with insights and updates to the ETF and mutual fund universe. Canadian MoneySaver members get an exclusive 25% discount off the annual subscription fee by following this link: etffundupdate.ca/cmsdiscount

Moez Mahrez, CFA, Investment Analyst at 5i Research Inc., Waterloo



https://etffundupdate.ca


Debunking Economics

A Crusoe Economy

W hen commentators today talk about “Crusoe Economics”, in fact, what they are referring to is the seldom-used analytical framework

sometimes employed by economists to reduce complex market concepts down to basic first principles. As originally envisioned, the framework examines a hypothetical Robinson Crusoe stranded on a desert island with only a single friend, Friday, as his companion. The analysis then distills the complexities of a modern economy down to basic elementary truths, emulating a simple closed economic system with only two individuals under conditions of resource scarcity.

While originally created as an educational tool for the teaching of core economic principles to the uninitiated, it has today become a euphemism for debunking popularized economic fallacies and a rebuttal to the increasingly pervasive and misguided policies of modern-day governments. In today’s new world of “muddle-through” economics where policymakers bounce unwittingly from one failed policy experiment to the next, such simple frameworks are now more invaluable than ever.

Let us begin our analysis with one of the most pervasive and deeply-damaging fallacies that currently exists in modern-day economics: the erroneous belief, held by the majority of policymakers and government economists, that consumer spending is the primary engine of economic growth. This profoundly damaging viewpoint is reflected in virtually all forms of public discourse and policy discussion concerning efforts by governments and central banks to either increase economic growth or support the economy during times of recession.

These erroneous views are reflected most perniciously in the continued advocacy of the idea that the root cause of present-recessions is insufficient “aggregate-

Brian Chang

demand” by consumers. In the world of government policy-makers and mainstream analysts, it is always and everywhere consumer spending that stimulates economic growth, and a lack thereof is the root cause of recessions. According to widespread present-day economic doctrine, every dollar spent by the consumer is in fact income for the businessman, which in turn becomes wages to the employee to be spent repeatedly throughout the economy, thus setting in motion a virtuous cycle of economic growth based entirely on the initial spending by the original consumer. Recessions must therefore be fought through the lowering of interest rates to stimulate borrowing and spending, and the curse of savings must be combated through inflation so to incentivize “hoarders” to unleash their stockpiles of cash into the broad economy.

And yet the problems inherent in the above fallacy are easily made clear through a simple illustration which has nonetheless befuddled the average government economist of the day. Turning our attention back to our hypothetical “Crusoe Economy”, imagine a fictitious Robinson Crusoe suddenly stranded on a desert island and forced to turn immediately to the critical task of survival. Let us assume that he has found a nearby stream to quench his initial thirst for water, and must now turn his attention towards food, finding that he is able to catch only two fish per day through laborious and painstaking work. Crusoe finds that he must wade waist-deep into the ocean and stand completely motionless for hours on end in the unrelenting sun, hoping to snare the odd fish that happens to swim close enough to be caught by hand.

The work is tedious and difficult, and he soon devises that he will improve his means through the creation of a net, which he estimates will take him five days to complete. But Crusoe, of course, does not have the time to dedicate five straight days to making this net, for in the meantime he will surely starve to death. Instead, he



decides that for five straight days he will bear the hardship of consuming only one fish per day and keep the other fish in a small nearby pond to eat at a later time. At the end of five days, while he has indeed grown weary with hunger, he now has a stockpile of five fishes to consume over the next five days while he toils away constructing his net. Fortuitously, at the end of the 10th day, Crusoe is suddenly able to use his newly constructed net to catch 20 fish per day and is now able to gorge on fish for days on end to at last satisfy his unrelenting hunger.

It should be obvious, however, that while Crusoe was indeed ultimately able to increase his consumption from two fish per day to 20 fish per day, he did so only through the initial act of under-consumption. In choosing to forgo the consumption of two fish per day in order to keep one for the future, Crusoe chose to save and invest so that he might increase his productive capacity, which only at the end of the long and drawn-out process allowed for a final increase in consumption to 20 fish per day. What this simple example illustrates is that an increase in consumption does not magically appear out of thin air with the wave of the hand by some altruistic central banker. It requires savings to fund increased productivity, which only then creates a sustainable increase in consumption. Government economists have it precisely backwards in that they continuously enact policies to increase consumer spending before any savings or increases in productivity has taken place at all.

The problem is made clearer if we now introduce Crusoe’s lone companion, Friday, into the mix, who being native to the island, enjoys a vastly different set of skills than that of his friend. Friday, it turns out, has not the temperament to fish, but is instead more apt at climbing trees to collect stockpiles of coconuts. After some time, reviewing his own situation, Crusoe realizes that he cannot hope to consume all 20 fish each day, and even after having set aside some quantity of fish for a rainy day he finds that he still has a large surplus which will over time go to waste. Seeing Friday’s skill at collecting coconuts and wishing to introduce these into his diet, Crusoe decides each day to offer Friday five fish for one coconut, which Friday gladly accepts, since he has in fact a surplus of coconuts while not the means to acquire fish.

What was not obvious from our original example of a lone Robinson Crusoe catching fish for his own consumption is now readily apparent with the introduction of Friday as an additional economic agent. Absent the introduction of the concept of money, we see now that Crusoe pays for coconuts with fish—he pays for

consumption with production. Obviously, Crusoe would never have been able to acquire the coconuts from Friday had he not first produced fish and, likewise, without first producing coconuts, Friday would have no means by which to acquire the fish in return.

Modern-day economics has become obfuscated with the construct of money which, while originally introduced into exchange economies for measures of convenience and efficiency, has as a side-effect come to hopelessly confuse the fact that people do not actually pay money for goods. Rather, they pay for goods with other goods; money is the common medium of exchange. These examples serve to illustrate just how far present-day economists have been led astray from basic economic fundamentals once increasing complexities are introduced into the system by way of artificial financial and monetary engineering.

It is a fundamental economic truism that society must ultimately pay for consumption with production, and in order to increase consumption in any sustained and permanent way, society must also increase its productive capacity, which requires savings followed by investment. Deliberate government policies to incentivize its citizens to go further into debt for the sake of consumption-based economic stimulation is an inherently flawed and backwards policy that, over time, erodes the real wealth of society. Under-consumption and savings happen first and increases to spending happens last.

The failure to understand this basic concept is to decry the growth of savings by individuals as economically harmful, since by its very definition, an increase in savings by society requires a corresponding decrease in consumption-based stimulus. The belief that savings is somehow damaging to society despite being beneficial when undertaken on an individual basis is what mainstream economists today refer to as the “Paradox of Thrift”. The problem with the Paradox of Thrift, however, is that there simply is no paradox. It is merely a name given by modern-day Keynesian economists to a phenomenon which contradicts their confused models that consumption, not savings and investment, is the ultimate engine of economic growth. Instead of considering the possibility that their models are in fact incorrect, and that savings and investment are beneficial for both individuals and society as a whole, they simply label the phenomenon as a curious “paradox” and move on to other stimulus-inducing measures that detract from future production and standards of living.

As Henry Hazlitt noted in 1946 in his book Economics in One Lesson with a warning still as relevant to investors



today as it was over 70 years ago: “Elementary illustrations like this are sometimes ridiculed as Crusoe Economics. Unfortunately, they are ridiculed most by those who most need them, who fail to understand the particular principle illustrated even in this simple form, or who lose track of that principle completely when they come to

examine the bewildering complications of a great modern economic society.”

Brian Chang is the author of the finance blog Crusoe Economics (https://crusoeeconomics.com). He resides in Vancouver and can be contacted by email at [email protected] or on twitter @CrusoeEconomics.

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Sustainable Investing

The Divestment Talk: How To Broach The Conversation About Financial Legacy

W e live in a rapidly changing world. Climate change is no longer a looming threat, but something we’re actively contending with.

Movements for gun control, gender equality and racial equity are gaining steam. And more investors are asking questions about what their money is funding.

There is a pervasive belief that investing in at least a little bit of the traditionally bad stuff (fossil fuels, arms manufacturing, tobacco, private prisons) is necessary to generate strong returns, though many investors don’t view those investments as bad at all. Whatever your loved ones’ personal philosophy, there is an investment strategy to match.

Financial legacy isn’t just about what ends up being bequeathed in a will; it’s about consciously choosing to invest your money in a way that aligns with your values.

For many families, money isn’t something discussed openly or often, so broaching the subject of financial legacy can be tough. To help, here are some conversation starters and talking points for adult children looking to talk to their parents, grandparents, and relatives about aligning their investment portfolios with their values.

The Case For Responsible Investing

Older generations may not actively seek out ways to ensure their financial portfolio is socially and environmentally conscious, because until recently, it just hasn’t been common practice. It’s important to communicate in a conversational and non-judgmental way how the choices of older generations will affect younger generations of the family in the future.

Mike Thiessen

It may feel awkward to bring up financial legacy with a parent or loved one at first. Discussing recent headlines around countries and institutions announcing major fossil fuel divestments or shareholder activism, and the rationale behind them, can be a good way in.

Questions to ask:

• What causes do you care about and would like to support? Is it the environment? Society? Healthcare? Technology?

• Do you know what types of projects your investments are supporting now?

• Would you be willing to make changes to your portfolio if you knew it was important to your loved ones?

• What are your biggest concerns when it comes to divesting?

• What would you like your financial legacy to be? What difference would you like your money has made in the world?

• What would you want your grandchildren to know you cared about most, and actively supported?



FAQs

What is divestment and how does it work?

“Divestment” is the opposite of an “investment.” It means getting rid of financial assets issued by companies or industries that you don’t support. Major banks and institutions all over the world (the Catholic Church, Norges Bank, New York City) are divesting or planning to divest from fossil fuels, both for values-based reasons and to avoid the risk of stranded assets as the world transitions to a low-carbon economy.

Why should I care?

Diversification is important. Canada’s economy is highly correlated with fossil fuels, including jobs, retirement savings, housing prices and the Canadian dollar. Doubling down and also having fossil fuels in a portfolio is risky. Some of the associated risks include increasing government regulation, carbon taxes, and litigation from communities affected by climate change.

One of the big skepticisms around divesting is that it isn’t financially sound. But a study of the past 20 years shows that when you take fossil fuels out of your portfolio, you’ll either match market returns or beat them.

Financial legacy involves developing a clear understanding of how your choices will impact the world for years to come. Divesting from fossil fuels will help reduce harmful emissions and improve air quality by helping to speed up the transition to a low-carbon economy. Divesting from tobacco companies could reduce the number of people harmed by their products in the future. On the other side, investing in healthcare innovation may mean an end to certain diseases in our lifetime.

Will my returns suffer?

Divesting from fossil fuels specifically does pay. In The Divestment Report, Genus Capital studied the data for fossil-free and traditional portfolios over four years, and the fossil-free funds performed as well or better than their carbon-heavy counterparts. Likewise, the same report

included a seven-year study on sustainable portfolios (those without tobacco, gambling, arms manufacturing and other controversial industries) and determined that they also outperform their non-sustainable counterparts.

A study by Hunt and Weber from the University of Waterloo1 showed that after divestment of fossil fuel investments, portfolio value continued to grow, leading to better performance. So, a values-driven, socially responsible investment strategy also happens to be financially beneficial.

What should I know before I divest?

There are levels to sustainable investing, from responsible investing, which considers (but doesn’t necessarily act on) environmental, social and governance factors, to impact investing, which actively puts money to work in initiatives improving the world. You can tailor your financial legacy to align with your values.

Starting a dialogue with friends and family about financial legacy and putting money to work for a sustainable future is a good place to start.

Looking for more information?

Here are some other helpful resources:

• Climate Science Basics, 350.org

• Fossil Fuel Divestment Brings Us Closer To A Clean Energy Future, The Huffington Post

Mike Thiessen is manager of sustainable research at Genus Capital, the first Canadian investment management firm to offer fossil free portfolios and a pioneer in Canada’s Divest-Invest movement.

1Chelsie Hunt, Olaf Weber (2018). Fossil fuel divestment strategies: Financial and carbon related consequences. UWSpace. http://hdl.handle.net/10012/13043



Technical Speculator

Tools For The Commodity Investor

Investors often stay too long with a stock or sector when the evidence suggests that the tide has turned. This is one of those factors that I continue to see in my 30 plus years as a broker

and now as an analyst.

The reasons are many:

1. The expectation that the stock /sector will turn around, soon.

2. Ego. The investor cannot believe that they made the wrong choice.

3. The market will recognize eventually that this stock/sector offers good value.

Donald W. Dony

4. The position in the stock/sector is not that big. The investor can simple wait until the position turns around (this is a combination of 1, 2 and 3.)

Commodity investors, I have found, are some of the worst culprits for hanging on to a position long after the trend has changed from up to down. Perhaps it is a “Canadian thing” to always have at least one foot in the natural resources pool.

Some of the basic factors that need to advance before commodity prices can rise are increasing demand and stable or decreasing supply, a general strengthening in U.S. Treasury bond prices, inflationary pressures, and perhaps most important, a weak or downtrend in the U.S. dollar.



2008 and 2009, the CRB’s ascent began to falter. A reverse of trend occurred for both assets between 2009 and 2012 and is continuing to present date.

Bottom Line: For those investors

who must have some commodities-based securities in their por t fo l io s , those investors should focus, not just on the short-term supply /demand fundamentals, but also on the longer term guiding factors such as inflation or

The first factor is often difficult to quantify. Commodities are a global asset and greater demand in one section of the world (e.g. China) may be neutralized by more supply coming from another region (e.g. U.S. or Canada.) Oil prices are a prime example of this.

The third and fourth factors (inflationary pressures and the U.S. dollar) are easier to measure and quantify.

The movement of the U.S. Dollar Index (DXY) is a critical indicator of any long-term trend in natural resources. As commodities are priced in U.S. dollars, the higher the dollar climbs the less attractive commodities become when they must be purchased in other currencies.

Right now, the dollar has the wind at its back with a strong economy (rising Gross Domestic Product) record low unemployment (about 3.8%) and more interest rate increases on the way in 2019. The chart below shows the impact of an escalating dollar on the Commodity Research Bureau (CRB).

The U.S. dollar index peaked at $122.50 in early 2002. At the same time, the CRB was at one of its low points at 185.66. As the dollar crashed over the next six years, commodity prices soared. The CRB went from up over 250% from 185.66 to 462.74. However, as the “Big dollar” started to bottom out and form a base in

deflation. Which group has the greatest relative strength? And most importantly, what is the U.S. dollar doing. A quick review of the Federal Reserve’s interest rate strategy over the next six to 12 months plus the dollar’s overall trend will provide more information that is valuable than any annual report.

Two very useful websites for this information (and a whole lot more) are Stockcharts.com and tradingeconomics.com.

Donald W. Dony, FCSI, MFTA. Analyst, past instructor for the Canadian Securities Institute (CSI), editor for the www.technicalspeculator.com, [email protected].


http://www.technicalspeculator.com

http://www.technicalspeculator.com


Q My financial advisor is recommending that my wife and I purchase separate segregated funds for a nominal dollar amount. His reasoning is that if we purchase now we will be guaranteed to add more money to it. If we don’t open it now we may not be able to open it later. He also stated that there was some sort of guarantee of return of capital if we die and the markets are down at that time. We have been dubious about segregated funds and would very much appreciate your advice.

CMS Reader

A These funds can make sense for some situations but in general we are not big fans of these structures. Nothing is ‘free’ and these structures do have a higher cost to them compared to say ETFs. Typically these have some form of guaranteed return of capital (not always the full amount). But there are minimum time requirements and it can be lower than 100% of the capital. As for the having to buy ‘soon’ we are unsure of why this might be, this could be product specific. They can make sense but we encourage those who own them to make sure they know all of the details and costs so there are no surprises. Sometimes we find the alternative can be just holding the right mix of equity vs cash vs bonds.

RYAN MODESTO, CFA5I RESEARCH INC.

Q I am in my 60’s and the parent of two children in their 40’s. I was wondering if I could set up an annuity for each one of them either when I’m older or in my will.

CMS Reader

A Yes, you can set up an annuity for each of your children when you’re older and/or in your will.

Annuities are purchased from Canadian insurance companies and usually through a licenced life insurance agent.

When you’re older:

You simply purchase a life annuity on the lives of your

You must accompany your inquiry with your Membership Number (ID) and telephone number or e-mail to have your question reviewed. Inquiries are responded to directly and the Q&A may be published here later. Hundreds of Q&As are found on www.CanadianMoneySaver.ca

children. This means that your children are the annuitants of the annuity policy.

You can also make your children the owners of the annuity policy which mean that they would receive the annual tax reportable on the non-registered annuity and would pay the annuity portion tax.

The insurance company will accept a cheque from you for your children’s annuity purchase.

The other option is for you to be the owner of the annuity policy and your children the annuitants, however, you will then be receiving the tax slip and you will have to pay the annuity portion tax every year.

In your Will:

A common way to purchase an annuity through your Will is to set up a Testamentary Trust.

Trusts are not my area of expertise, however a good estate planning lawyer who deals in trusts would be your best contact. A testamentary trust takes effect on your death.

The annuity can be purchased on your children’s lives based on their age at the time of your death according to the trust documents.

Here’s an idea if you own a life insurance policy:

You can call the insurance company and ask them to put a percentage of your death benefit into a settlement annuity option.

For example, if you have $100,000 life insurance policy you can ask the insurance to give your beneficiaries say 25% lump sum on death (to cover funeral expenses, immediate debts, etc.), then the rest of the death benefit proceeds can be used to purchase an annuity on the lives of your two children (the beneficiaries). They will receive an annuity income for life and not a lump sum.

RINO RACANELLI RACANELLI@SYMPATICO.CAWWW.CORPORATETAXSHELTER.CAWWW.PRESCRIBEDANNUITIES.CA


http://www.CanadianMoneySaver.cachildren

http://www.CanadianMoneySaver.cachildren


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This column offers excerpts from published and online sources

to provide other viewpoints.

INVESTMENT THESIS

After a long track record of profitability, WestJet is undertaking a large-scale expansion, adding both an ultra-low-cost-carrier and launching a trans-Atlantic wide body service. The combination is likely to pressure results over the near-term.

EVENT

WestJet held its Investor Day on December 4, and provided a detailed outlook for 2019 and extended its long-term targets to 2022 (was 2020). Near-term guidance is in line with our forecast, leading us to maintain our Hold rating and $16.00 target. The longer- term outlook could drive share price appreciation post-2020.

HIGHLIGHTS

Management’s Financial Targets 2019–2022e. WestJet announced numerous financial targets that it expects to achieve between 2019 and 2022.

o Free Cash Flow: Cumulative free cash flow of $900–$1,100M. A significant portion will come in 2022 post the completion of the capital spending on fleet expansion.

o Leverage Ratio: Leverage ratio of 1.0x by the end of 2022. WJA’s currentdebt/EBITDAR is 2.3x; previously the company was targeting 1.2x by 2020.

o EPS Growth: 40% EPS CAGR by 2022, starting from the 10-year low of $0.70 in 2018. This implies $2.50+ in EPS by 2022.

Longer-term targets | WJA also announced longer-term targets, growing ancillary revenue by

OUTLOOK OFFERS GLIMPSE INTO INTEGRATED WESTJET

>$200M over the next few years. Ancillary revenue is now 10% of revenue, double a year ago. It also expects to reduce annual costs by $200M through to 2020 with new “lean” initiatives.

Long-term Extension of Mastercard Partnership | WestJet has extended its strategic partnership with Mastercard for its WestJet RBC Mastercard. WJA is clearly looking to capitalize on any customer confusion/apprehension about the evolution of Air Canada’s (AC-T, $36.00 TP, Buy) new loyalty program.

VALUATION & CONCLUSION

WestJet is at the front end of a material expansion of its business. The next 2–3 years should be characterized by ongoing growth of its ultra-low-cost carrier Swoop and the rollout of the new Boeing 787 widebody transatlantic service. We are seeing near-term volatility owing to the heavy load of initiatives underway and the continuing uncertainty regarding labour disputes. On a more positive note, the recent decline in jet fuel prices should act as a tailwind heading into Q4. As we saw with Air Canada and the launch of rouge and its international expansion, these long-haul seats are typically dilutive to unit revenue although still accretive to overall profitability — we are seeing a similar trend at WJA. We believe near-term upside potential is priced into the stock. We were encouraged by the long-term outlook and estimate that if management can achieve its targets, the 2022 financial results could potentially support a $37.00–$42.00 share price. We expect to gain more clarity on the 2022 plan by 2020. We maintain our Hold rating and $16.00 target price.

Source: Paradigm Capital



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http://www.cifsc.org/en/index.php








Specialty ETFsTOP EXCHANGE TRADED FUNDS RANKED BY FIVE-YEAR RETURNS AS OF DECEMBER 5, 2018 Fund Name Ticker Mkt Tot Return

YTD(Current)

Mkt Tot Ret 1 Mo

(Current)

Mkt Tot Ret 3 Mo (Current)

Mkt Tot Ret 12 Mo

(Current)

Mkt Tot Ret 3 Yr

(Current)

Mkt Tot Ret 5 Yr

(Current)

Mkt Tot Ret urn Since Incept

(Current)

iShares S&P/TSX Capped Info Tech ETF XIT 17.97 3.12 -5.33 18.42 13.32 18.53 3.43

BMO India Equity ETF ZID 6.07 11.26 -0.99 8.02 13.09 17.28 7.81

iShares Edge MSCI Min Vol USA ETF XMU 14.59 4.03 2.37 11.95 12.12 16.77 17.61

BMO Low Volatility US Equity ETF (CAD) ZLU 13.59 3.26 3.42 10.61 9.97 16.73 -

BMO US Dividend ETF (CAD) ZDY 10.20 3.83 0.09 8.84 13.36 16.55 -

Vanguard US Total Market ETF VUN 10.10 3.05 -3.70 8.20 11.15 15.19 16.43

BMO NASDAQ 100 Equity Hedged to CAD ETF ZQQ 7.98 -0.23 -9.41 8.52 14.15 15.19 16.67

Invesco QQQ ETF QQC.F 7.76 -0.47 -9.57 8.38 14.17 15.17 17.09

Vanguard US Dividend Appreciation ETF VGG 13.05 5.23 0.95 11.76 12.57 14.52 15.59

iShares India ETF XID 0.79 11.86 -3.43 1.95 9.08 14.47 -

iShares S&P/TSX Capped Cnsmr Stpls ETF XST 2.56 7.04 6.05 2.58 5.83 14.17 15.37

First Asset TecGntsCovCallETF Comm(CADH) TXF 0.97 0.83 -8.90 0.90 17.09 14.05 14.12

BMO Eq Wght US HlthCare Hdgd to CAD ETF ZUH 8.45 4.81 -4.08 7.75 9.50 13.53 -

First Asset Canadian REIT ETF Comm RIT 7.66 1.71 -0.75 8.59 11.44 13.23 -

iShares US Fundamental ETF Comm CLU.C 6.31 3.81 -2.49 5.54 9.43 13.16 16.21

iShares Edge MSCI Min Vol Global ETF XMW 9.37 4.26 1.63 7.06 9.01 12.90 13.87

First Asset MstarUSDivTgt50 ETF UhgdComm UXM.B 3.98 3.20 -0.57 6.14 8.32 12.04 12.72

BMO US Dividend ETF (USD) ZDY.U 3.66 4.50 -2.31 5.64 13.29 11.27 -

iShares MSCI World ETF XWD 4.38 2.24 -3.79 2.93 8.03 11.26 11.90

BMO Dow Jones Ind Avg Hdgd to CAD ETF ZDJ 3.42 1.94 -1.46 5.55 14.06 11.17 -

BMO Low Volatility US Equity ETF (USD) ZLU.U 5.85 3.18 0.44 6.51 9.59 11.16 -

BMO Low Volatility Canadian Equity ETF ZLB 0.65 4.79 -0.42 0.23 7.19 11.16 12.85

BMO US Dividend Hedged to CAD ETF ZUD 2.90 2.35 -1.96 4.23 12.58 10.94 -

Horizons Active Global Dividend ETF Comm HAZ 0.12 3.04 -1.23 -0.92 5.85 10.75 -

iShares Global Water ETF Comm CWW 0.17 4.53 -2.82 -2.85 6.62 10.68 6.27

iShares Global Healthcare ETF CADH XHC 12.39 5.56 1.81 12.01 7.85 10.62 14.39

Invesco S&P 500 Low Volatility ETF CAD H ULV.F 5.16 4.79 1.01 4.98 10.10 10.57 8.30

BMO Global Infrastructure ETF ZGI 3.21 1.83 -0.63 -1.09 6.75 10.05 12.95

iShares US Dividend Grwrs ETF CADH Comm CUD 3.91 5.01 -0.05 4.92 11.47 9.95 13.34

iShares Global Real Estate ETF Comm CGR 6.02 5.65 0.71 3.86 4.08 9.78 6.74

iShares Edge MSCI Min Vol EAFE ETF XMI 2.46 2.93 -2.12 0.45 4.59 9.75 -

Vanguard US Total Market ETF CAD-H VUS 3.12 2.06 -5.71 4.15 10.55 9.72 13.20

First Asset Mstar US Value ETF Uhgd Comm XXM.B -2.32 1.89 -4.88 -1.78 2.28 9.68 11.07

First Asset Mstar NatlBk Québec ETF Comm QXM -3.11 2.56 -5.65 -1.44 6.70 9.38 12.18

BMO Equal Weight Banks ETF ZEB -2.26 0.75 -6.03 -1.09 11.99 9.30 11.03

First Asset Mstar US Mom ETF Uhgd Comm YXM.B -3.57 -1.48 -15.38 -4.59 2.95 9.18 10.78

BMO Equal Weight REITs ETF ZRE 8.02 1.29 -0.88 9.90 12.03 8.80 -

Vanguard FTSE Canadian Capped REIT ETF VRE 5.94 1.66 -3.10 6.81 8.97 8.67 7.21

BMO China Equity ETF ZCH -10.21 5.23 -8.90 -9.61 5.33 8.33 6.90

iShares Global Agriculture ETF Comm COW -8.23 1.02 -3.41 -9.24 6.99 8.26 6.86

©2018 Morningstar. All Rights Reserved. The information, data, analyses and opinions contained herein (1) include the confidential and proprietary information of Morningstar, (2) may include, or be derived from, account information provided by your financial advisor which cannot be verified by Morningstar, (3) may not be copied or redistributed,(4) do not constitute investment advice offered by Morningstar, (5)are provided solely for informational purposes and therefore are not an offer to buy or sell a security, and (6) are not warranted to be correct, complete or accurate. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, this information, data, analyses or opinions or their use. This report is supple-mental sales literature. If applicable it must be preceded or accompanied by a prospectus, or equivalent,and disclosure statement.


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