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"The only thing new in the world is the history you do not know"
Harry Truman
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DAN'S BLOG
Seven Sins of Investing
This month I want to share the seven sins of an Investment portfolio. Over the last three decades I have seen these investment sins repeated over and over. One of the concepts that I have worked with in my professional life is a list of things to do each day but I have also developed a list of things I am not going to do. Following on in that same context I have following a list of seven things not to do when you invest in a portfolio.
1.Don’t put all your eggs in one basket:
We have all heard this before but what I am talking about here is asset allocation. Don’t put all your money in one asset class like Real Estate or all in stocks. We never know what asset class is going to perform the best. I remember in 1999 a client came in to see me about his portfolio which was performing in double digits. He informed me he was moving his portfolio to his daughter who as a university student had got a 40% return on her money and he told me that “She is outperforming you so I am moving everything to her”. She had invested everything in High Tech stock. His wife chose to stay with me and I asked her 2 years later “how is your husband’s portfolio doing?” She replied “don’t even talk about it!” He had lost 80% of all his retirement funds in his daughters portfolio management. The best way to spread your “egg’s” around is to invest in 7-8 asset classes that have no or little correlation. One goes down the others go up. You won’t lose all your money and you will get the best growth historically over time.
2.Don’t fall in love with an investment:
I have seen people fall in love with Gold, stocks or certain investments that they expound are going to outperform everything else only to ride them into the abyss. I believe in having an allocation of gold or precious metals but a few years ago I had to talk some clients out of moving all their money into gold when it was at $1,800 and as I write this today it is $1,204. Sometimes we can be married to an investment but that marriage might turn sour if you are married to the wrong investment.
3.Don’t react to the market with your emotions:
This is a very common mistake. If you are buying Tuna and the price of canned Tuna falls to 50 cents a can when it is regularly $1.00 do you go to the cupboards and look at how many cans of Tuna and yell “Honey, get to the neighbours and offer them our Tuna for 75 cents a can because Overwaitea has it on for 50 cents a can!” No, you say “Honey, let’s get down to Overwaitea because Tuna is on sale and we can pick it up for 50 cents a can. Stock is the only product in the world that when it goes on sale people complain. Now as long as you are needing to save for retirement you are still buying and corrections are great times to buy future dollars on sale. Don’t sell off in a correction but buy.
4.Don’t write a personal cheque to your investment advisor:
Well this is one that unfortunately I see about every 2 years. A client comes to me and says “Dan, can you help a friend/family/associate that just found out the investment they made was a scam. Don’t write cheques to investment advisors or their personal companies. Some years ago a client who being a top performing realtor called me and said he just sold a house for a 72 year old widowed client. Since she was not buying a new home he asked her “what are you going to do with your money” to which she replied “I am writing a cheque to my investment advisor personally and he is going to invest the money for me.” My client the realtor said “Dan you told me never to write you a cheque personally and this gave me a yellow flag when my client said she was writing a cheque to her advisor”. I said “not a yellow flag, a red flag! Call her right now and stop her before she gets ripped off!” Fortunately he did.
5.Don’t be motivated by the tax write off:
One of the worst motivations for buying an investment is because it is a tax write off. You must invest on the merits of the invest first alone and then secondly if there is a tax benefit. I have seen many “tax shelters” over the years go sour and CRA come back on the investors years later. There again these are calls I get “Can you help them?” If you are going to buy a “tax shelter” put all the tax savings in a contingency fund for at least 7 years and don’t touch it. So many people I have seen go by the Porsche with the tax savings only to have to remortgage their home years later to pay the CRA bill.
6.Don’t set unrealistic expectations:
The TSX index of the past 60 years has done about 10%, but no one can buy the TSX index without a cost. The average management fee is around 2-3% in Canada so let’s say its 2% and take that off the 10% average return, now you have a net 8% return. Do the same things with bonds and you will net out around 6%. No one should have all their money in stocks so let’s say a balanced 60/40 portfolio would come in at a long term net growth of 7%. I have people come into my office saying I just saw a mutual fund that advertised a 30% return and I want to put all my money in there. I say how do you feel about losing 30% next year and they say “no way”. Well what goes up 30% can go down 30% or more in one year. Be realistic about your expectations and appetite for volatility. Set realistic expectation for your asset classes and your investments. Everyone needs to have a short term 1-5 years, medium term 5-10 and long term 10+ accounts for different needs and goals in their life. If you want to learn more about this just ask us and we will show you how to do this.
7.Don’t spend your principle:
Love him or hate him Kevin O’Leary of Dragons Den fame is right. His mother taught him this principle and O’Leary states that money is like little soldiers out their making you more money, don’t kill your little soldiers! We all get crunches in life but if all possible keep those little soldiers working for you and they will live on long into the future to work to support you in years to come.
Dan Loney
For more information on how Loney Financial can help, contact us at 604.534.6003 or Email: dan@loneyfinancial.com
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Congratulations to client Ryan Walter
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The Washington Capitals honor Ryan Walter, one of the 40 Greatest Caps, as part of the team's 40th anniversary celebration.
Ryan played 15 seasons in the NHL. He was an assistant coach with the Vancouver Canucks, head coach of the Canadian National Women's hockey team and president of the Abbotsford Heat.
Drafted second overall in the 1978 Draft the Capitals named him as team captain in his second season where at the time he was the youngest player in the history of the NHL to hold that position.
Walter was traded to the Montreal Canadiens in a blockbuster trade in 1982 where he went on to win the Stanley Cup in 1986.
In 1991 he signed as a free agent with the Vancouver Canucks, where he played the final two seasons of his career and won the Budweiser NHL Man of the Year Award in 1992.
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CLIENT NEWS
Manulife Earnings: Growth In Asia Continues, Canada And U.S. Mixed
 Manulife reported earnings for the fourth quarter of 2014 on Thu, February 12.
The company reported a C$657 million year-over-year (y-o-y) decline in net income of C$640 million for the fourth quarter due to unfavorable investment results.
The company has some investments in oil and gas holdings, and a sharp decline in oil prices had a negative impact on investment returns. However, full year net income for 2014 increased over 11% y-o-y.
The company’s core earnings also dropped by nearly 6% y-o-y to C$713 million in the fourth quarter. Although the company benefited from an increase in business volume, unfavorable policyholder experience in North America and other expenses more than offset those gains.
The company sustained growth momentum from higher insurance and wealth sales as well as an increase in assets under management during the fourth quarter, falling just short of its core earnings guidance for 2014. During the fourth quarter, insurance sales grew 20% y-o-y. Wealth sales increased 6% y-o-y during the same period.
Manulife operates in three primary regions, namely Asia, Canada and the U.S. In this note we discuss the key performance metrics from the company’s fourth quarter and full year results in each region. We have a price estimate of $19 for the company’s stock, which is about 10% higher than the current market price.
Asian Business On A Strong Footing
Core earnings from Asia declined 9% y-o-y, largely due to the impact of FX headwinds. Insurance sales in Asia recorded another solid quarter with 30% y-o-y growth in sales of $364 million. Over the year, insurance sales saw an uptick of 31% y-o-y in Asia. This was primarily due to strong growth in corporate products in Japan and new product launches and sales campaign efforts in Hong Kong. The company also benefited from strong sales through the bancassurance distribution channel in Japan and higher sales of pension products in Indonesia during the quarter. Over the year there was a 2% y-o-y growth in wealth sales from the region. We expect the company to sustain the growth momentum from 2014 in 2015.
Growth Picks Up In The U.S.
Operating under the John Hancock brand in the U.S., the company holds over 3% of the life insurance market in the country in terms of premiums earned. The company posted a 5% decline in core earnings from its operations in the country, though targeted pricing and product enhancements introduced earlier in 2014 have started reflecting in the company’s performance in the country. During the fourth quarter, the company’s insurance sales picked up and grew 12% y-o-y.
 Mixed Results In Canada
During the fourth quarter, core earnings in Canada declined 4% y-o-y, but registered 2% y-o-y growth for the full year 2014. The fourth quarter was, however, marked with better performance over soft third quarter results. Insurance sales in the fourth quarter saw a 6% y-o-y upswing. Wealth sales declined 8% y-o-y, but improved 10% over the third quarter performance. Wealth sales improved due to higher group retirement sales, but the growth was partially offset by lower bank loan volumes.
In 2014 Manulife acquired Standard Life plc and we expect it to fuel the company’s wealth and asset management business going forward.
www.forbes.com/sites/greatspeculations/2015/02/13/manulife-earnings-growth-in-asia-continues-canada-and-u-s-mixed/
If you require more information please contact me at 604.534.6003 or Email: dan@loneyfinancial.com
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RRSP Tax Savings Calculator
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Your RRSP is one of the most effective tools available to help you save for retirement . This financial planning calculator lets you estimate the tax savings on your RRSP contribution.
The maximum you can contribute to your RRSP is the lower of 18% of your earned income in the previous year or $23,820 for 2013. Your maximum allowable RRSP contribution for a year is stated on the Notice of Assessment for your tax return from the previous year’s tax return. The amount shown here will also include any unused RRSP contribution room you have accumulated in previous years. The RRSP contribution deadline for the 2014 tax year is March 2, 2015.
Try some RRSP Tax Savings Calculations
Use this calculator to estimate the tax savings on your RRSP contribution. You can enter three different contribution amounts to compare the savings.
www.lifestylecalculators.com/rrsp-tax-savings/
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Manulife One is a game changer
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Discover why the Clarkes have been recommending Manulife One and how it made their life easier.
http://www.manulifeone.ca
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Should you invest in an RRSP or TFSA?
Instead of debating the merits of an RRSP or a TFSA, Canadians should consider socking away money in both types of accounts for the best tax breaks, financial advisers say.
But since that can be a challenge for most people, the decision of where to save boils down to what you want to use the money for, your income and how much you expect to earn in retirement.
"In a perfect world, people would be maximizing both their RRSPs and TFSA contributions," said Susan Stefura, a certified financial planner with Bespoke Financial Consulting in Toronto.
"But, of course, the world isn't perfect and most Canadians don't have the funds available."
Launched in 2009, Tax-Free Savings Accounts were created as a way to encourage Canadians to invest and save without paying taxes on those gains. In contrast, money socked away in an Registered Retirement Savings Plan generates a tax deduction when it is invested, but it may be taxed when it is withdrawn.
Stefura suggests Canadians look at their tax rate and what they expect it to be in retirement.
For those who are in a high income bracket and expect that their tax rate will be lower in retirement, an RRSP contribution will allow them to take advantage of the lower rate upon withdrawal without risking old age security (OAS) benefits.
"But if your income is too high (in retirement), you won't get that tax benefit and it will clawed back," Stefura said.
Factors to consider that might affect your taxable income in retirement: receiving a generous pension and not having a spouse to take advantage of income-splitting rules, the sale of a business or property, or the expectation of a large inheritance.
Certified financial planner Monique Maden notes RRSP contributions can only be made by Canadians until the age of 71. So older investors will want to consider a tax-free savings account if they have extra money to invest.
Money held in TFSAs are tax-free and are not factored in when calculating old age security benefits.
"All withdrawals from an RRSP count in the calculations, where the same amount of money taken from a TFSA isn't part of the OAS clawback because it's effectively out of the tax system," Maden said.
TFSAs can also provide more flexibility than an RRSP.
That's another reason why a TFSA may be more attractive to young savers who want to have an accessible emergency fund or save up for a large purchase like a car or vacation, said Chris Buttigieg, a senior manager of wealth planning strategy with BMO Financial Group.
"The TFSA makes sense early on because of the flexibility that they offer. You can make withdrawals at any time for any amount for any reason," he said.
Money can be taken out of an RRSP account before retirement but investors will be taxed on the withdrawl unless they are taking advantage of homebuyer or lifelong learning programs.
In an ideal situation, Buttigieg suggests taking the tax refund from an RRSP contribution and investing it in an TFSA to maximize the financial benefits.
"Use the two vehicles to complement each other so you can try to save as much as you can," Buttigieg said.
www.ctvnews.ca/business/should-you-invest-in-an-rrsp-or-tfsa-1.2238203
For more information on how Loney Financial can help, contact Dan Loney at 604.534.6003 or Email: dan@loneyfinancial.com
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WHAT'S DAN READING?
David and Goliath: Underdogs, Misfits, and the Art of Battling Giants.
by Malcolm Gladwell
 Gladwell is quickly becoming one of my favorite authors. I have read several of his books and they are extremely well researched.
This book helps us see the world from a different perspective than our biases that might have developed over time even from our youth. All that seems as it is may not be in reality as it is, that is the message I got from this book.
As a child I went to Sunday School and learned about David and Goliath but not from the perspective that Gladwell writes. It is a refreshing and introspective telling of a story we know well but with new facts and information that serve well to introduce modern day examples that go from the battle fields of the middle east to the modern surgery theatre.
I enjoyed this read and my take away is to dig deeper on each story in life, there may be a story behind the story and a life lessons to learn.
Dan
Purchase this book at Amazon.ca online.
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The rising power of the TFSA: Are RRSPs even relevant anymore?
Jonathan Chevreau - Financial Post
Now that most Canadians and their advisers have gotten the message across about the rising power of tax-free savings accounts (TFSAs), some are beginning to question whether RRSPs are even relevant anymore.
 In a nutshell, they are, at least for the vast majority of people still working and trying to put aside some money for retirement.
Remember first that the RRSP and TFSA are mirror images of each other. Mathematically, they behave in almost the same way in terms of the ongoing elimination of tax on investment income, but where the RRSP has an upfront tax deduction that lets contributors lower their taxable income, the TFSA does not.
On the other hand, the sweetness of the RRSP’s immediate tax refund is ultimately negated by the sourness of retirees eventually being forced to withdraw money from RRSPs (or the RRIFs they become), withdrawals that are taxed each year after age 71, and which may also cause the clawback of such government benefits as Old Age Security and the Guaranteed Income Supplement.
In their early years, some still working may have been — to use the phrase coined by CIBC Wealth’s Jamie Golombek – “blinded by the tax refund” created by RRSPs, and so favoured the RRSP over the TFSA, which provides no such immediate gratification.
But fast forward to the far future, when you’re retired and withdrawing money from various sources. Let’s try a thought experiment and imagine you have $300,000, spread evenly between an RRSP, a TFSA and non-registered savings.
So if the RRSP ultimately is taxed so harshly relative to the two alternatives, then why invest in one at all?
The RRSP refund is really a red herring. “You will end up paying this money back to the government, with interest (i.e. the growth on the “refund”), years later upon retirement and ultimate withdrawal,” Mr. Golombek says. “The real question when deciding between an RRSP and TFSA, assuming you don’t have the funds to do both, is to compare your tax rate today versus your expected tax rate in retirement.”
Which of these pots of money is most valuable? I’d argue $100,000 in an RRSP is least valuable because eventually you’re going to be taxed on it, at your marginal rate just like earned income or interest income. If it turns out your precise tax liability is $30,000, then you could argue that $100,000 is really worth only $70,000, net of the tribute you’ll ultimately pay to Ottawa.
Next consider the second pot, $100,000 in non-registered money. This $100,000 should be “worth” quite a bit more than the same $100,000 in an RRSP because there are no forced annual taxable withdrawals from it. It’s not tax-free, however, because it will generate perhaps 2% or 3% a year in taxable dividend or interest income. And if you take profits on individual stocks (or funds), you will have to pay further capital gains tax on it. But odds are this pot of money is going to be worth a lot more than the $100,000 RRSP.
Finally, consider the $100,000 in the TFSA. If it’s invested totally in Canadian stocks or equity ETFs and some Canadian fixed-income, this $100,000 is worth almost exactly the full $100,000. (There may be a bit of tax leakage from foreign dividends.) Unlike the RRSP, you don’t have to make taxable withdraws from it after age 71, and, if you’re in a modest middle-income tax bracket and qualify for OAS, it won’t trigger benefit clawbacks. Plus, if you’re among the seniors who have the least financial resources, that $100,000 TFSA won’t jeopardize GIS benefits or other means-tested benefits.
So if the RRSP ultimately is taxed so harshly relative to the two alternatives, then why invest in one at all? Well, remember the two big benefits. First is the ever-tempting upfront tax refund. If you’re in the top tax bracket and paying 46% tax on your last dollar of earned income or interest income, then a $10,000 RRSP deduction immediately reduces your taxable income for the previous year by $10,000, making it “worth” roughly $4,600: the amount by which your tax bill will be reduced that year. That’s worth a lot, especially if — as the financial industry usually claims — you expect one day to retire in a lower tax bracket. Since advisers often suggest that in retirement you can live on between 50% and 70% of what you earned in your working years, then it makes sense to get a tax deduction on those 46% dollars and decades later be taxed at perhaps a 20% or 30% tax rate.
And second, remember the ongoing deferred sheltering of investment income of both the RRSP and the TFSA. All those dividends, capital gains and interest can be reinvested with no tax consequences during all those years you’re still working and contributing. At the end, even after it’s taxed in the RRSP scenario, the pot of money will be the equivalent of an employer pension plan. Because that’s in effect what an RRSP is: a personal pension plan.
So should everyone invest in an RRSP and should they do so at all stages of their work lives? No. Young people just starting their work lives may be in a lower tax bracket. They may be better off first maxing out their TFSAs, assuming they’ve first eliminated high-interest credit-card debt. If and when they get into a higher tax bracket after several years in the workforce, they can consider adding to RRSPs as well. Remember that you can “catch up” on any unused contribution room if you have the funds to do so. If you don’t, any financial institution will be glad to give credit-worthy individuals a “catch-up” RRSP loan at prime to do so.
Alternatively, you can contribute to your RRSP as you go, but only opt to claim the deduction once you’re reached the years when you’re in the top tax bracket.
The other group that should favour TFSAs over RRSPs are those with limited financial resources who are nearing the traditional retirement age. In particular, if you think you’ll be able to collect the GIS as well as OAS, then you’re much better off saving what little money you can put aside in a TFSA and avoid using RRSPs altogether.
Middle-income people who have accumulated six-figure RRSPs may also want to get a financial planner to look at their situation after age 60. If you think you’ll be subject to OAS clawbacks after age 65 or 67, there may be a case to be made to start “melting down” your RRSP once you’ve stopped earning a full-time taxable income, in order to minimize the taxation and benefit clawbacks of RRSP/RRIF withdrawals after you turn 70.
Ideally, you continue to contribute the maximum to your TFSA, even well after age 70: to 90 and beyond! You may fund the TFSA through the net (after-tax) proceeds of RRSP/RRIF withdrawals and/or transfers in kind (also taxable) of your non-registered investments.
At some point in old age, this would result in minimal registered savings and non-registered savings but very large TFSAs. Ultimately, you may end up qualifying for OAS again and possibly even GIS, all the while drawing non-taxable dividends and interest income from what has become a huge six-figure TFSA.
http://business.financialpost.com/2015/02/17/the-rising-power-of-the-tfsa-are-rrsps-even-relevant-anymore/#__federated=1
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Click here to see the story of a 35 year dream come true and learn about Loney Financial’s support of rescuing homeless children in Guatemala. Thank you to all the clients and associates that have helped to make this a reality.
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COOKING WITH DENISE
Denise Bailey our Client Services Coordinator brings you a delicious monthly recipe from her renowned portfolio.
Rice Pilaf
recipe web link
Makes 5 cups
 Here is my recipe for March – Rice Pilaf.
Normally, I would just cheat and buy one that already has the flavorings in but thought it would be better to get back to basics and stay away from the processed stuff.
I also usually cook my rice on the stovetop so this was something new for me. Oven baked rice!
This recipe had great flavor and my family really enjoyed it. The only thing I found was that I had to cook it longer than the recipe states. Hope you enjoy – I know we did!
Denise.
 Depending on the saltiness of the chicken stock you use for cooking, the addition of some additional salt may or may not be needed.
Ingredients:
- ½ cup uncooked orzo pasta
- 1 tablespoon extra virgin olive oil
- 3 tablespoons butter
- 1 cup chopped onions
- 1 cup uncooked long grain white rice
- 2 large cloves garlic finely minced
- 2 bay leaves
- ½ teaspoon dried thyme
- ¼ teaspoon black pepper
- 3 ½ cups chicken stock
Directions:
- Preheat oven to 350 degrees.
- In a Dutch oven over medium heat, dry toast the raw orzo stirring constantly with a wooden spoon until a light walnut color (3 to 4 minutes). Remove orzo to a bowl and set aside.
- Add the olive oil and butter. Once the butter is melted, add the onions and rice. Sauté for five minutes stirring occasionally or until onions are translucent. If the rice starts to get brown, remove from heat before you proceed to next step.
- Add garlic and stir for one minute. Then add bay, thyme, pepper and browned orzo. Stir and add chicken stock. Be careful – when the stock hits the pan, it will bubble up.
- Stir once, cover and place in the oven for 30 minutes untouched.
- Remove from the oven and discard bay leaves. Fluff rice with a wooden spoon and taste. Add salt to taste, as needed.
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Solutions Magazine
Life is Full of Choices
Learn how the right ones can boost your financial future.
Read More (PDF) >
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Articles
Canada vs. the USA: Whose retirement grass is greener?
Nobody gets to choose the country of their birth. But if it were possible to pick either Canada or the United States, I’d advise incarnating souls that while the U.S. is a better place to become truly wealthy, Canada is superior for those who will have limited financial prospects or encounter costly health issues.
Read More >
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