Thursday, December 6, 2012

Warren Buffet prescient prognostications from the past

Buffett: How inflation swindles the equity investor

 By Warren Buffett, Published May 1977 in Fortune Magazine

For many years, the conventional wisdom insisted that stocks were a hedge against inflation. The proposition was rooted in the fact that stocks are not claims against dollars, as bonds are, but represent ownership of companies with productive facilities. These, investors believed, would retain their value in real terms, let the politicians print money as they might.  And why didn’t it turn out that way? The main reason, I believe, is that stocks, in economic substance, are really very similar to bonds.
 The Superinvestors of Graham-and-Doddsville

By Warren Buffett, Published 1984 in Hermes, Columbia Business School Magazine
 I’m convinced that there is much inefficiency in the market. These Graham-and-Doddsville investors have successfully exploited gaps between price and value. When the price of a stock can be influenced by a “herd” on Wall Street with prices set at the margin by the most emotional person, or the greediest person, or the most depressed person, it is hard to argue that the market always prices rationally. In fact, market prices are frequently nonsensical.
 Mr. Buffett on the Stock Market

By Warren Buffett, Carol Loomis, Published November 1999 in Fortune Magazine.
 I think it’s very hard to come up with a persuasive case that equities will over the next 17 years perform anything like–anything like–they’ve performed in the past 17. If I had to pick the most probable return, from appreciation and dividends combined, that investors in aggregate–repeat, aggregate–would earn in a world of constant interest rates, 2% inflation, and those ever hurtful frictional costs, it would be 6%. If you strip out the inflation component from this nominal return (which you would need to do however inflation fluctuates), that’s 4% in real terms. And if 4% is wrong, I believe that the percentage is just as likely to be less as more.
 Warren Buffett On The Stock Market

By Warren Buffett, Carol Loomis, Published December 2001 in Fortune Magazine.
 Even so, that is a good-sized drop from when I was talking about the market in 1999. I ventured then that the American public should expect equity returns over the next decade or two (with dividends included and 2% inflation assumed) of perhaps 7%. That was a gross figure, not counting frictional costs, such as commissions and fees. Net, I thought returns might be 6%.  Today stock market “hamburgers,” so to speak, are cheaper. The country’s economy has grown and stocks are lower, which means that investors are getting more for their money. I would expect now to see long-term returns run somewhat higher, in the neighborhood of 7% after costs. Not bad at all–that is, unless you’re still deriving your expectations from the 1990s.
 Buy American. I Am.

By Warren Buffett, Published October 2008 in The New York Times
 Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”  I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” Today my money and my mouth both say equities.
 Buffett’s Big Bet

By Carol Loomis, Published November 2009 in Fortune Magazine.
 Will a collection of hedge funds, carefully selected by experts, return more to investors over the next 10 years than the S&P 500?  That question is now the subject of a bet between Warren Buffett, the CEO of Berkshire Hathaway, and Protégé Partners LLC, a New York City money management firm that runs funds of hedge funds – in other words, a firm whose existence rests on its ability to put its clients’ money into the best hedge funds and keep it out of the underperformers.
 Why stocks beat gold and bonds

By Warren Buffett, Published February 2012 in Fortune Magazine.
 My own preference — and you knew this was coming — is our third category: investment in productive assets, whether businesses, farms, or real estate. Ideally, these assets should have the ability in inflationary times to deliver output that will retain its purchasing-power value while requiring a minimum of new capital investment. Farms, real estate, and many businesses such as Coca-Cola (KO), IBM (IBM), and our own See’s Candy meet that double-barreled test. Certain other companies — think of our regulated utilities, for example — fail it because inflation places heavy capital requirements on them. To earn more, their owners must invest more. Even so, these investments will remain superior to nonproductive or currency-based assets.

Friday, November 16, 2012

The Truth about Risk

No doubt you've heard there's no reward without risk. That's as true of investing as it is of anything else in life.

Historically, each of the three major investment asset classes—stocks, bonds, and cash—has produced pretty consistent long-term returns, along with pretty consistent degrees of risk. Understanding these historical patterns can help you handle risk in your own portfolio.
Research done at Vanguard has shown that getting your asset mix right can have more impact on your long-term returns than anything else—it's even more important than the individual investments you choose.
How to strike a balance

For investors, risk comes in many forms. There's the risk of a downturn in stock prices. There's the risk that inflation will erode an asset's purchasing power. There's the risk of political instability affecting international markets. And so on.
How to strike a balance
For investors, risk comes in many forms. There's the risk of a downturn in stock prices. There's the risk that inflation will erode an asset's purchasing power. There's the risk of political instability affecting international markets. And so on.
Achieving long-term financial goals means accepting the trade-off between risk and reward, and understanding the historical patterns that have gone along with the three primary asset classes. Stocks, historically, have offered higher long-term returns than bonds or cash, but they've also carried more risk. Bonds have offered higher returns, with more risk, than cash. Cash has provided a measure of stability, but money that's stuffed in your mattress nets zero return and will probably fail to keep pace with inflation. Paradoxically, taking a conservative approach to market risk may expose you to a high degree of purchasing power risk.
Fundamentally, how you allocate your assets among stocks, bonds, and cash depends on how much risk you're willing to take for an expected return. And that depends on why you're investing, and when you need your money.
So, what's the right way to divvy up your portfolio? You'll need to answer three basic questions:  Read more... and try the How asset mix historically affected volatility calculator
For help in setting up a proper asset mix for yourself, e-mail or call us

Monday, November 12, 2012

Condo or REIT? Which is the better investment?

Looking for a real estate investment that generates income?  Here is a comparison of owning condominiums in Toronto or Calgary against Real Estate Investment Trusts (REITs) that own apartments.

Michael Smith, a real estate analyst at Macquarie Equities Research, in the fourth annual installment of his study comparing a REIT investment in the apartment sector to a condo investment says the REITs are still way ahead.
The Toronto-based analyst compared the returns of a Calgary condo to Boardwalk REIT, which is based in the city, and Toronto condos to Canadian Apartment Properties REIT, which is based in that city. He has now looked at five investment periods.

“In all five periods an equally-weighted REIT portfolio outperformed an equally-weighted condo portfolio,” said Mr. Smith. “Looking at each market independently, REITs also generated superior returns every period.”
Over the first 10 months of this year on equally weighted basis, the condo investments returned 7.4% while the REITs returned 21.4%. Going back the full five years, the two condos have returned 10.4% on equally weighted basis, impacted heavily by price declines in Calgary. Toronto condos returned 41.5% over the same period. Still the REITs, when combined, have returned 74% over that five-year period.

Mr. Smith made a number of assumptions for his model. He acknowledged that condos are leveraged. He used a 900-square foot condo for his example, and included condo fees and prevailing mortgage rates.  For income, he used actual distributions from REITs and Canada Mortgage and Housing Corp.’s latest rental market report for rental income for the condo.  In terms of capital appreciation, he used Royal LePage’s annual house price survey to establish values for condominiums.
Mr. Smith says there are some things he did not consider, which also tip the scales in favour of REITs. Transaction costs, for example, are much lower for selling a REIT than a condo. REITs also offer greater liquidity and diversification. Adding in tax considerations, repairs and maintenance of a condo and the downtime you face sometimes leasing your condo also widens the gap.

Sam Kolias, the chief executive of Boardwalk REIT, said he’s not surprised the REIT sector has won out again versus condos. “The valuation proposition is still more compelling than a condominium. The price of an average apartment versus a condominium, which is nicer, is still a wide gap. The total cost of renting versus owning all in is a wide gap,” said Mr. Kolias.
So why do people keeping buying condominiums as an investment when they could pick up a REIT unit? Ben Myers, vice-president of Urbanation Inc. in Toronto, may have some answers. “People just like that idea of owning the bricks and mortar,” he says.

But the future may look brighter for REITs, if you believe the report.  “First, the condo market is laden with concerns of a correction due to elevated pricing, oversupply and high consumer debt levels,” said Mr. Smith.

“With the general perception that condo prices have peaked, it stands to reason that many prospective condo buyers will delay their purchase, thus putting additional downward pressure on condo prices.”
Those potential buyers are also good news for landlords such as Boardwalk REIT and Canadian Apartment Properties REIT because it means more renters, helping put upward pressure on apartment occupancies and rent.  And if interest rates go up, it could increase demand for rental apartments.  That could mean even more income for REITs and better returns.

The opinions expressed by the people quoted in this article should not be construed as investment advice from this columnist.  To assess the suitability of particular investments for your situation, please contact us via telephone or e-mail us.   

Sunday, November 11, 2012

10 Challenges Facing Boomers

As Baby Boomers we are extremely fortunate. Relative to previous generations, we have been blessed with an endless selection of places to go, things to do, things to have and things to be. We can do things and go places that our parents could only dream of.

At the same time, we have been given the gift of time to enjoy this lifestyle. Significant medical advances, careers that are less physically demanding, and enhanced knowledge of and access to fitness, nutrition and hygiene have all contributed to the gift of extra years, maybe even decades.
However, the real gift is not just these extra years, but that they have been inserted into the middle of our life, when we have the desire, energy and health to pursue meaningful activities. A testament to these bonus middle years is the frequency with which we are reminded that age 70 is the new 50.

Don’t get me wrong, we will still be faced with the challenges of old age; it is just going to take a whole lot longer to get there.
While we have much to look forward to, we cannot ignore that these blessing also come with a host of associated financial challenges. We have identified the 10 greatest of these challenges.

  1. Financing our desired lifestyle. We have become accustomed to a lifestyle that far exceeds that of previous generations. We must understand the annual cash flow required to support a lifestyle we are unwilling to sacrifice. We need to know and reach our savings target before we give up the security of our pay cheque.
  2. Financing a longer life. These bonus years in the middle of our life mean that our desired lifestyle must be funded for much longer than in any previous generation. Relying on outdated rules of thumb for retirement planning is extremely dangerous.
  3. Avoiding expensive distractions. With so many choices and options, we can easily become distracted from the responsibility to defend our financial future. It is not uncommon to take a detour that significantly reduces our accumulated savings. These distractions will eventually prevent us from accomplishing the things that are most important to us. We need to be very clear about what is on our “Must Do” list and live our lives in accordance with that list.
  4. Assuming responsibility for your pension plan. Previous generations relied on their employer to provide a lifelong income, make all of the investment decisions and assume responsibility for any mistakes made along the way. Unless you have been a long-term employee of a government agency, you have been forced to assume total responsibility for these critical risks. Never before has a generation been left so alone to care for its financial future.
  5. Learning strategies for growth and income. Faced with unprecedented volatility in the stock market and record low interest rates, managing your savings and converting them into a reliable retirement income has never been more difficult. Indeed, strategies that served you well while you were accumulating your savings suddenly work against you when you start to withdraw an income.
  6. Thriving in a bear market. The investment strategies that served us so well during the 1980’s and 1990’s are now failing us miserably. Many investors look back in dismay at the lack of progress in their investment portfolio over the past decade. They are just now beginning to realize that new investment approaches and products are required.
  7. Supporting adult children. Economic and social changes are making it more difficult for many of our children to find their place in society. Often we find them requiring assistance far longer than planned. This has become so prevalent that the acronym ‘KIPPERS’ has been developed: ‘Kids In Parents’ Pockets Eroding Retirement Savings’.
  8. Supporting elderly parents. We are not the only ones that are living longer, so are our parents. Unfortunately, their extra years have been tacked onto the end of their life. We are faced with the potential responsibility of providing them with physical, emotional and financial, support. We need to be prepared for the challenge of being sandwiched between the responsibility of caring for our adult children and for our parents.
  9. Coping with loss of job security. Our world is highlighted by commoditization, rationalization, digitization and globalization. Life-long job security and pre-planned retirement are no longer the norm. Large companies and even entire industries are disappearing or being relocated overnight. Over 60% of those who retired last year did so unwillingly, in response to situations that were outside of their control. We need to continue to hone our skill sets and remain flexible to alternative employment opportunities if we have not yet fully funded our retirement nest egg.
  10. Planning for a meaningful and satisfying retirement. Financial issues will be the least of our concerns during the second half of life. We have become known as a society that relies upon our careers to provide our identity and define our relationships. Unless we plan for the future, we risk boredom and loneliness. While medical advances have extended our lives, unless we take care of ourselves through proper exercise and nutrition, ailments such as diabetes, arthritis, dementia and osteoporosis may take their toll on our enjoyment of life. Most of us have spent more time planning our last two-week vacation than we have spent planning the last 30 years of our life. We need to start planning what we will do and who we will do it with once our working years are over.
Previous generations could safely ‘wing it’ through their retirement years. They financed a few years of rewarding leisure before declining health and the aging process took their toll. This traditional thinking is not enough to conquer the many challenges we face. Getting the most from our lives requires detailed planning; we need to carefully consider what will provide the greatest level of happiness and fulfillment. We then need to carefully co-ordinate and direct our resources to live intentionally to achieve the things we really want. The planning tools we have developed have been designed to help you do just that.

Baby Boomers have redefined each phase of life as they passed through it. Retirement will be no different. In fact, it has been suggested that this generation will be best remembered for how it handled the second half of life.
Contact us by e-mail or phone and visit 


Friday, November 2, 2012

Plenty of shortcomings in Canadians' financial habits

Survey shows many Canadians fail to do research before purchasing financial products

Canadian consumers are lacking knowledge and skills in many aspects of their personal finances, a recent survey by Desjardins Group suggests.
The survey of 3,000 Canadians, as part of the Desjardins Personal Finance Index, reveals numerous shortcomings in their financial habits.

For instance, many Canadians don't have enough of a savings cushion to get them through the unexpected loss of a job, accident or illness without relying on credit. Only 50% of respondents said they would be able to take care of their needs and pay their bills for more than three months without resorting to credit; and 14% said they wouldn't last a month with their existing savings.

Retirement planning is another area of weakness. Nearly 60% of respondents said they hadn't set up a retirement savings plan. And of respondents aged 45 to 64 who were still in the workforce, 40% said they hadn't estimated the revenue they'll need upon retirement – and had no savings plan in place.

Many Canadians are also failing to do their research before purchasing financial products, the survey reveals. Insurance products, in particular, remain a mystery to many Canadians. For instance, only 44% of respondents knew that not all insurance policies come with surrender value; and 30% of respondents didn't know whether their credit card includes travel insurance (32% knew that it is included, but weren't sure of the coverage amount).  Furthermore, nearly 40% of those who have a home insurance policy would be unprepared to file a claim in case of a loss, with no lists, receipts or photos of their most valuable goods.

Interest rate calculations are also confusing to Canadians, the survey shows. Roughly half of respondents were unaware that credit card interest charges are calculated as of the date on which the item or service was purchased. Moreover, 60% of respondents were unable to compare total interest paid on two loans with the same terms and different amounts extended at different interest rates.

Young Canadians, in particular, are lacking in their financial knowledge. Half of respondents aged 18 to 24 gave incorrect answers to a simple question on real returns; 45% were unable to handle a simple question on the concept of compound interest; and 70% failed to answer a simple question on investment risk.

If you wish to find out more about how investments and financial instruments work, please e-mail us or visit

Friday, October 26, 2012

What is your probability of disability or critical illness before age 65?

Statistics show that workers between the ages of 35 and 65 are many times more likely to become disabled for an extended period than they are to die.  For example, for a 45-year-old female the probability of becoming disabled before age 65 is 31%, her probability of being stricken with a critical illness is 17% and her probability of dying before age 65 is 4%*   Try this calculator to find out your risk of disability between now and your age 65. 

Many Canadians have disability insurance through their employers.  Disability insurance provides a replacement income in the event of a serious illness or injury during your working years.  However, disability coverage has limitations and doesn't cover all eventualities.  It doesn't replace your full income but only a portion of it.  Depending on the type of coverage, you may qualify for benefits for only a limited time.  And coverage usually stops at age 65. After you retire, you might no longer be insured.  Self-employed people or people working in small businesses often have no disability insurance. What would happen to you financially if you were to become unable to work?

For those who have disability insurance through work, we suggest that you review your benefits booklet with your Human Resources department to find out just what your disability coverage is. Most people do not know how much income replacement coverage their disability coverage gives them, nor how long they have to wait to collect it, nor how long it will last if they are disabled for an extended time.  Individual disability policies can be purchased from a licensed Life and Health Insurance Broker to provide or supplement disability insurance. 

How is critical illness insurance different from disability insurance?
Critical illness insurance provides a lump sum of tax-free money 30 days after diagnosis of any one of the major illnesses listed in the policy, such as heart attack, stroke, or life-threatening cancer.  Since heart disease and cancer are diseases of aging, these illnesses are more likely to appear after age 65. Disability coverage generally stops by then, but critical illness insurance can go to age 100.

The incidence of these illnesses is rising, but survival rates are also increasing.  The Heart and Stroke Foundation of Canada reports that 92% of patients hospitalized for a heart attack survive.  While disability insurance may cover basic living expenses, critical illness benefits will allow you to pay for whatever extras you choose, such as private nursing care, housing modifications, alternative treatments or even a trip around the world.
While disability insurance is tied to your ability to work, critical illness insurance is not.  You can be eligible for critical illness coverage even if you don't work, don't have an income, and therefore aren't entitled to disability insurance.  And for employed people, if after a diagnosis you return to work and therefore aren't eligible for disability benefits, you can still be entitled to the critical illness lump sum.  In many cases you can receive both.

Here's a summary of the key features of disability and critical illness insurance, and how they complement each other.
Waiting period

Generally between 30 and 180 days for disability insurance;  30 days for critical illness.

A pre-set percentage of income, paid monthly for disability, usually for a limited time; critical illness pays a lump sum from $10,000 to $1 million.

Disability benefits are taxable to employees if they are funded by their employers, and tax-free if self-funded.  Critical illness benefits are tax-free.
Coverage period

Usually to age 65 or until retirement for disability;  up to age 100 for critical illness.
With our professional advice, you can design a comprehensive package to provide income, cover extra costs, and still allow your family to build toward important savings goals.  Visit us at, or e-mail us or call us at 416-230-2703

*Source: InsureRight

Thursday, October 11, 2012

What type of insurance should you buy?

There are two types of life insurance: permanent and term. They are two different types of protection that satisfy many different life insurance needs. Term may be all the life insurance you’ll ever need, or it may be used as an interim step before purchasing permanent insurance.

Possibly, a combination of term and permanent in the same policy may be the best solution for you. We can show you the strengths of each and their differences.
Permanent life insurance

Permanent life insurance – as the name implies – protects you for your lifetime. It can build cash values and provide a death benefit.  Some permanent policies pay policy owner dividends (participating or par), and others don’t (non-participating).
If the permanent policy you are considering has a cash surrender value, you should review the product guide provided by the insurance company to better understand how the assets backing the policy are managed and how these assets are used to accumulate value within the policy.

Universal life
Universal life provides permanent life insurance with a tax-advantaged investment component. As cash values accumulate, they can be used to pay part or all of the cost of your insurance or to increase the death benefit. You select an investment mix that is as individual as you are – taking into account the amount of investment risk you are comfortable with, and your financial goals and circumstances. This type of policy is generally non-participating and is attractive for people who want to actively manage their life insurance policy.

Permanent participating insurance
Permanent participating insurance policies have potential for earning policy owner dividends. Favourable investment returns, mortality and expense experience generate earnings in the par account – a portion of which can then be paid to policy owners in the form of dividends.

You choose how you want your dividends to be used. The most popular dividend options are either to use dividends to buy additional permanent coverage each year or to buy a combination of term and permanent insurance, which can make a larger amount of coverage more affordable. The first option provides an increasing death benefit that can offset the effect of inflation over the longer term. Higher premium options generally provide higher long-term growth (i.e. paying a high premium may mean you will receive higher values over the longer term). The insurance company manages the investment portion of a participating policy, so it doesn’t require hands-on management by the policy owner.
Assets in the participating account are managed in a diversified portfolio and are invested primarily in bonds, mortgages, equities and real estate.

Term life insurance
Term life insurance is well suited to meeting high, short-term protection needs for the lowest initial cost. For example, a couple with young children and/or a mortgage might select term insurance as an affordable way to obtain the full coverage they need today. Many term insurance plans do a good job of meeting immediate needs and provide the freedom to later move, or convert to a permanent product without providing proof of health. However, this ability to convert to permanent insurance often expires around age 65 or 70.

When purchasing term insurance, it’s important to understand what conversion options you have. Some companies impose significant restrictions or have a very limited choice of permanent plans for conversion.
Many term plans are renewable after five, 10 or 20 years without providing proof of health. The price will increase to be appropriate for your age at renewal, and the increase in premium can become substantial in later years. Coverage ceases for the majority of term contracts once you reach the age of 75 or 80.

When reflecting on the cost of term insurance, be sure to consider the following factors impacting your total cost:
  • the initial premium
  • the renewal rate and whether evidence of insurability is required at time of renewal
  • how long you’ll need the protection
  • how much flexibility you want in case your needs change in the future
Other types of term insurance

Decreasing term (also known as creditor insurance or mortgage life insurance)
Most lending institutions offer creditor or mortgage life insurance as part of their lending or mortgage packaging.  Its primary purpose is to protect the lender. Creditor or mortgage insurance from a lending institution is generally non-convertible term insurance (you can’t move to a permanent insurance plan if your needs change) – there are no cash surrender values and no premium flexibility. A personal life insurance policy has distinct advantages over typical creditor or mortgage insurance such as:

• you can control the amount of coverage, because it’s not tied to the balance of your loan or mortgage.
• your beneficiaries can choose how to use the funds – to pay off the loan or mortgage, provide a monthly income or take care of other immediate needs. It’s their choice, not the lender’s.

• you choose the type of insurance that best suits your needs with premiums to suit your budget – the cost may be lower than creditor or mortgage insurance from a lender.
• you own the policy, not your lender. You have the freedom to switch your loan or mortgage to another lending institution without jeopardizing your life insurance coverage.

It pays to compare. Insure yourself, not the lender.
Group insurance

If you’re working, there is a good chance your employer offers group life insurance. You may also obtain life insurance coverage as a member of an association, professional body, union or club.
Group coverage provides simple, low-cost insurance protection; however, it can have some drawbacks when compared to an individual life insurance policy.

Group coverage doesn’t offer the level of control, portability or choices that can be obtained with your personal life insurance policy. With many group or association plans, you are insured only as long as you remain part of the group. Employment related group coverage is owned by your employer and is subject to change at their discretion based on an annual review. With a group life insurance plan, you have the right to convert to an individual plan when you leave the group or retire, but this is not always practical. Depending on your age when you retire or leave the company, converting to personally-owned permanent life insurance could be expensive or may not be possible.
The right insurance for your needs – value for your money

Life insurance is one of your most personal and important buying decisions. A carefully considered purchase today can benefit you and those you care about for the rest of your life. There are several variables affecting the cost of life insurance and that’s why value doesn’t necessarily rest with the lowest-priced policy. It’s important to understand the factors that affect the cost of your life insurance policy.
• Gender – women pay less than men because statistics show that on average they live longer
• Age – the younger you are, the lower the premium you’ll pay
• Health and lifestyle – good health and sound lifestyle habits usually mean you qualify for the best rates. Non-smokers get a discount.
• Type of policy
• you pay less initially for term insurance
• you pay more for a policy that builds cash surrender values because it provides benefits beyond the basic insurance protection
• Method of payment – you’ll pay less if you choose to pay your premium on an annual basis rather than monthly

Other factors that may impact the premium you’ll pay
• Occupation or avocation – some occupations or hobbies/sports are riskier than others from both a health and accident standpoint which may impact the premium you’ll pay

• Foreign residence – Canadian insurance policies are based on Canadian mortality experience. If you live outside of Canada, you may be exposed to an increased mortality risk which may impact the premium you’ll pay
Your best buy is a policy with features that suit your situation today with flexibility to meet changing needs in the future.

Get professional advice
Purchasing life insurance that meets your needs now and in the future can be complex. That’s why it’s essential to get professional advice from a knowledgeable advisor, supported by a team of experts.

Life insurance is definitely not a one-size-fits-all product. We will take the time to understand your financial goals and insurance needs, your risk tolerance, and the control you want in managing your policy. Then we will help you to consider your options and ensure your life insurance is a good fit for you now, and in the future.  Call us or e-mail us or visit

Why buy Life Insurance anyway?

The advantages of life insurance

An instant estate
Few individuals, particularly those with the responsibility of a young family, have sufficient savings to adequately protect their loved ones should the main income earner die.  Life insurance can help create an estate at a time when funds may be needed most. This is a low-cost way to ensure your family’s continued financial well-being.

Money in hand – quickly
Your beneficiary, the person(s) you name to receive the insurance money, will be paid within a few days of the insurance company receiving the required information. By contrast, savings and other assets may be tied up legally for some time after death.

Financial benefits you enjoy
Some people have the impression that insurance pays only if you die.  That’s not the case. Many permanent insurance policies (i.e. participating and universal life) build cash values that you can access during your lifetime. The cash value is the equity you have built up in your policy. Cash values can accumulate within your policy on a tax-advantaged basis. The growth in the cash value is generally only subject to income tax when it is withdrawn from the policy. Your policy’s cash surrender value can be used to:
  • provide funds in an emergency
  • finance a down payment on a home or cottage
  • launch or expand a business
  • act as collateral for a loan from a third-party lending institution
  • supplement your retirement income
  • provide income for long-term care or home care for you or your spouse
How you use the money is really up to you.

Other advantages
  • the death benefit is not subject to income taxes
  • probate costs can be avoided if you name a beneficiary other than your estate
  • unlike a will, information regarding your life insurance can remain private
  • in many instances, life insurance may be protected against creditors.
Who needs life insurance?

People with responsibility for others

For people who depend on you for support, a spouse, children or dependent adults, life insurance can play a fundamental role in their continued financial well-being.  In addition to making up for the loss of your income, the proceeds from a life insurance policy can be used to take care of funeral expenses and other costs such as a mortgage, loans or credit card payments. If you’re a stay-at-home parent, the role you play also needs to be covered because of the additional expenses associated with childcare if something happens to you.
People without family ties

Over the course of a lifetime, situations and responsibilities change.  Even if you are single, or you and your partner both work but don’t have a family, life insurance can still play an important role in your financial security plans.
A life insurance policy can provide an efficient and cost-effective way to take care of any expenses or unpaid bills you might leave behind, such as legal fees and taxes, medical expenses, funeral costs, mortgage debt or car loans. It can also be used to leave a gift to a loved one or a favourite charity or to provide a supplemental income while you are alive.

People with estates to protect
Many people believe as they get older and become more financially independent, their need for life insurance decreases. However, over a lifetime, estate values tend to rise. Life insurance can help pay the inevitable taxes that are due on an estate upon death. This can ensure as much of your estate as possible is passed on to your beneficiaries.

Business owners  If you’re a business owner, either on your own or with a partner, you may have personal liability for the debts of your business. In fact, the vast majority of your wealth is likely tied up in the business. You have a greater need to protect what you have built against unforeseen circumstances such as death and disability or to ensure liquidity for a variety of reasons including funds for retirement.
In case of death, it is important that you have adequate insurance.  Otherwise, the claims of business creditors could significantly reduce your personal estate and leave your beneficiaries without the financial security you had intended.  Equally important is the smooth transition of ownership of the business to a family member, partners or a key employee. A life insurance policy can make this possible.

Your business is an asset that provides income for your family, both while you are alive and after your death. It is also likely your largest asset and will provide you with a retirement income. Life insurance can ensure your family receives fair value for this asset at your death. 
People who want to leave a legacy

You may wish to leave money to family or a favourite charity. Life insurance coverage allows you to leave a lasting personal legacy and provide your favourite charity with stable funding over the long term without reducing the estate available to your family or jeopardizing your future financial independence. A carefully arranged planned gift can be tax effective, and at the same time balance your final needs and the needs of your family.
People starting a child’s or grandchild’s insurance program

Life insurance provides a powerful foundation for building your child’s or grandchild’s financial security plan.  Insurance can work as a flexible asset that grows along with your child.  Premiums are relatively low for children and this low premium can be maintained throughout their lives.

To learn more, please visit, or e-mail us or give us a call at 416-230-2703


Friday, October 5, 2012

A painless way to cut back on expenses

With the current economic uncertainty, many people are looking for ways to reduce expenses.  A relatively painless way to reduce your monthly expenses is to have a second look at the way you’re managing your debt.

Over time, most of us take out a variety of loans for different purposes.  These can include things like credit card debt, car loans, home renovation loans and, of course, the mortgage.  And if you have more than one loan, you’re most likely paying a different interest rate on each loan.  One of the easiest ways to reduce your monthly interest costs is to consolidate your debt at the lowest rate.  Typically, your lowest-rate debt will be a loan that is secured by an asset, such as your home. 

If you have sufficient equity built up in your home, consider switching from a traditional mortgage to a product that allows you to access your equity, such as a home-equity line-of-credit.  Then, use this line of credit to repay your higher-interest loans. In this way, you’ll be bringing all of your debts together into a single account, at a single rate. Some line-of-credit products even allow you to track debts separately within the account so you can continue to keep track of interest costs and repayment separately.  And there is one product that even combines your debt with your bank account so that every dollar you have is used to reduce your debt and minimize the interest you pay.  Not only will debt-consolidation save you interest but it will make it easier for you to keep track of what you owe and how you’re progressing in paying it down.

Reducing your monthly expenses is one way to deal with economic uncertainty – and it doesn’t have to be painful.  By borrowing smarter you can reduce your interest costs and increase your cash flow each month. 

If you’d like to learn how to reduce your monthly interest costs, give me a call or send me an e-mail and I can discuss some options with you.  Visit

Friday, September 28, 2012

Is mortgage or term life insurance the best choice for you?

Whether you're buying a home for the first time, or refinancing an existing mortgage, someone has probably suggested you purchase mortgage life insurance. But don't rush into buying a policy until you've looked at all the possibilities. You could end up saving money and getting added life insurance coverage at the same time by purchasing a term life insurance policy instead.

What is mortgage life insurance?
Mortgage life insurance, also known as mortgage insurance or creditor insurance, is offered by most banks and lending institutions. It is a life insurance policy that pays the balance of your mortgage to the lending institution if a person listed on the mortgage passes away.

Mortgage life insurance vs. term life insurance

Depending on your age and health, the premiums on mortgage life insurance can be much higher than what you would pay for a term life insurance policy. Take a look at these price comparisons for $250,000 coverage:

For a couple aged Monthly bank mortgage insurance premiums* Term 20 monthly life rates**
30  $    53.68  $   36.70
40  $    84.75  $   55.31
50  $    180.80  $   135.89
* Based on the information available in September 2012 from the website of a major Canadian bank (including HST.)
**Based on the best rates available for joint coverage (male and female non-smokers) in September 2012, from a major Canadian Life Insurance company (including HST)

What do all these numbers mean?
Well, these numbers suggest that a couple buying or refinancing a home can get a better life insurance rate if you chose a term life insurance policy over a mortgage life insurance policy from your lender. While getting mortgage insurance through your lender is convenient, a term life insurance policy might be the way to go if you're looking to save money.

Extra coverage with term life insurance
A term life insurance policy gives you added coverage and flexibility over a mortgage life insurance policy:

  • The beneficiary of a mortgage insurance policy is the bank, whereas your family receives any payout from your term life policy directly. This gives them the flexibility of using the money to pay off debts, or, if they can still carry the mortgage payments, they can use it for investing and securing a future income.
  • Mortgage insurance policies only cover you for the amount of your mortgage you owe to the bank. As you pay down your mortgage, your coverage amount decreases with it. This is called a reducing balance. With a term life insurance policy, you have a constant level of coverage for the whole term and are getting better value for your monthly payments.
Shop, compare and save

When purchasing your new home or refinancing your mortgage, take the time to compare the cost of a term life insurance policy to a mortgage insurance policy. Chances are you'll find a term life insurance policy will have lower yearly premiums and offer more coverage and flexibility than a mortgage insurance policy.  Please e-mail us, call us, or visit 

Thursday, September 20, 2012

Guaranteed Investment Funds or Mutual Funds - what's the difference?

There are several differences between Mutual Funds and Guaranteed Investment Funds.  "GIFs" are are offered through Insurance Companies and offer many features and benefits that Mutual Funds do not, including:

A Maturity Guarantee
The maturity guarantee gives an investor the option to choose a guarantee of 75% or 100% of his or her net investment.  When he or she cashes in the GIF at a specified future date (usually ten years), he or she will receive the greater of the guaranteed amount or the current market value.  This feature provides long term protection from poor market performance while providing the opportunity to participate in the upside of good market performance. It is also useful if money is borrowed to invest.   

A Death benefit Guarantee
Death guarantees are similar to maturity guarantees but do not have a time requirement as the net investment is guaranteed on death. This is a very useful estate planning tool to protect funds to be passed on to loved ones if the investor were to pass away in a down market.

Protection of Market Gains - Resets
Either twice a year or on the investment anniversary date, there is an option to lock in all the gains to date, which resets the guaranteed amount at a higher level. So if the market is down, the investor is still protected by his or her original guarantee.  If it is up, the gains can be locked in.   

Avoiding Probate
Upon the death of the investor, Guaranteed Investment Funds flow to the beneficiaries without going through probate.  By avoiding the probate process, the funds are not tied up for months or longer.  Rather, they pass to the beneficiaries in days or weeks.  In addition, probate tax is avoided.  On a $1 million estate, probate tax would be just under $15,000 in Ontario. 

Creditor Protection
Provided that the investment is made before any creditor issues are apparent and the decision is a sound investment decision, then the creditor protection applies.  This is a particularly useful feature for business owners. 

Competitive Fees
For investors with $250,000 or more, there are offerings that carry significantly lower fees than the average mutual fund.  The MER or Management Expense Ratio, of these funds can be under 2%, including all of the features outlined in this article. 

We are here to help if you have any questions as do your investigation. You can request a call at a particular time by sending us an e-mail, or call us at the phone number on our web site and we will answer or get right back to you.  

Friday, September 14, 2012

Building guaranteed income for retirement

Is there a straight-forward, low-risk investment that allows you to convert your retirement savings into a source of dependable income that you can’t outlive?  Whether you’re building for your retirement or are in the retirement stage of your life, you can set up a Personal Pension Plan to supplement existing guaranteed income sources or to create a new income source on which you can rely.

Retirement today
The face of retirement is changing and it’s important to ensure that you’re financially prepared for a long retirement. With Canadians living longer it means you might spend as much time in retirement as you did working. That’s why your retirement income strategy should ensure that you don’t outlive your retirement savings.

There are some people who don’t need to worry about outliving their retirement savings – those fortunate enough to have access to company-sponsored guaranteed pension plans, also known as Defined Benefit Pension Plans. But today, the majority of Canadians no longer belong to these types of plans and therefore, need a retirement solution that offers security and peace of mind for their future.
To learn more about what retirement looks like today and why guaranteed income plays such an important role, watch Canada’s RetirementLandscape.

Personal Pension Plans are designed to provide you with: 
  • A secure income stream that is guaranteed for life to help form the foundation of a retirement income plan
  • A higher level of retirement income the earlier you invest and/or the later you wait to start drawing income
  • Flexibility to choose when to begin taking income, as early as age 50
  • The option of uninterrupted income for life for your surviving spouse
  • A conservative investment in a fixed-income portfolio or a more aggressive approach with full access to your market value, should the need arise
For more details of one such plan watch Understanding Manulife PensionBuilder for an overview of how this retirement income solution works.

Try the Income Calculator to help calculate what your guaranteed income from Manulife PensionBuilder will be in retirement.
A Personal Pension Plan is an attractive income solution, whether you are in the pre-retirement or retirement stage of your life. A complement to other retirement income sources, a Personal Pension Plan supports retirement plans and helps ensure that you will be prepared.

Contact us or visit to help make a Personal Pension Plan part of your retirement income strategy.

Friday, September 7, 2012

Annuities: A good choice for retirement income?

People who save through RRSPs have a choice to make when they retire. They can transfer their RRSP balance to an RRIF and draw it down at their own pace (subject to a minimum) or they can buy an annuity.

Buying an annuity seems like an elegant solution since it removes the risk of outliving one’s assets (what actuaries like to call “longevity risk”).  It eliminates the hassle of making investing decisions after retiring and the income stream it provides is super safe (it really is, at least in Canada).  

A 60-year-old male purchasing a single life annuity for $100,000 would receive an annual income of approximately $5,808. Not great if you live until 67, but by age 77 you would have recovered the original contribution and all of your income after that is in excess of your original purchase amount.  If you live to 101, you make out like a bandit! 

With the recent fall in long-term government bond yields, annuities now return more than 100% return of premiums paid in many cases.  And annuities can come with generous survivor income options, if one is prepared to pay for them.  

Annuities become increasingly attractive later on in your retirement (one of the few things that does).

Apart from money that is earmarked for bequests or the odd big ticket purchase, a sound strategy is to annuitize one’s wealth at about age 72.  To understand why, let’s look at the minimum payout at age 72 under a RRIF.   If the RRIF held $100,000 in assets at age 72, the minimum amount that would have to be withdrawn that year is $7,480. Many retirees are upset about this because they feel the minimum withdrawal rules force them to deplete their assets too quickly, especially in the current low-interest rate environment.

By contrast, an annuity that is purchased at age 72 with a single premium of $100,000 would produce annual income of about $8,382, in spite of low interest rates. Not only is this about $902 more than the minimum RRIF income, the annuity is payable for life and thus removes any chance your money will run out too soon. More income and less worry is a hard combination to beat.

Another reason to annuitize is to simplify your life.  Let’s say your RRIF is invested 50% in equities and 50% in fixed income. Why not buy an annuity with half the money and then invest the remaining portion 100% in equities? The annuity replaces the fixed income investments and provides a perfectly stable income stream at the same time. You can do this at the point of retirement or later on, say at age 72, as a variation on the first strategy.
To explore your retirement income options, e-mail us or visit

Saturday, August 18, 2012

The power of "a penny saved"

Modern portfolio theory—the concepts that underlie most financial thinking today—would argue that an aggressive allocation to stocks should generate higher returns over time than a comparable holding of lower-risk assets such as bonds. The flip side, of course, is greater risk of loss.

During "the lost decade" of 2000–2009, which left the broad U.S. stock market under water, that risk came home to roost. The lesson was especially hard on investors closer to retirement who had a significant allocation to equities and were counting on "average" returns from stocks to reach their goals.
A recent Vanguard study points out that some of the most reliable and powerful levers in your retirement toolkit have less to do with modern portfolio theory than with Benjamin Franklin. The study, Penny saved, penny earned, illustrates that investors who increase risk with the objective of gaining higher returns might actually be less likely to meet their retirement goals than those who simply save more, whether by starting earlier or by saving at a higher rate.
Maria Bruno, a Vanguard investment analyst who coauthored the study, noted, "The markets over the past few years have been a reality check for investors. In saving for retirement, it's better to focus on the things you can control—when you start to save and how much you save—because that's going to be the most reliable way to succeed in meeting your goals."
Save sooner, save more
As the study shows, saving earlier and saving more are things you can control. Independently or together, they are more likely to help you reach your retirement goals than adding riskier assets in the hope of getting higher returns.
While investors nearing retirement and facing a shortfall might be tempted to move more aggressively into stocks to try to catch up, a less risky option would be to keep working and keep saving. If you delay retirement by even a few years, the extra savings coupled with not spending from the portfolio can make a material difference in helping to fill the gap.
Looking at what you can control
The study used the Vanguard Capital Markets Model® (VCMM) to simulate investment returns using various assumptions about salaries, asset allocations, and contributions. One data set from the study shows a hypothetical 35-year-old investor planning to retire at age 65 who puts 12% of an annual salary into a retirement portfolio with a moderate asset allocation (50% stocks and 50% bonds). After 10,000 simulations based on different potential market scenarios, the investor's median inflation-adjusted balance at retirement was $475,000.
The study then examined the impact that each of three investment levers—portfolio risk, savings time horizon, and savings rate—could have on the investor's portfolio balance at retirement.
Behind door number 1—a 22% increase
Asset allocation—the portfolio's balance of riskier and safer assets—has been proven by a number of studies to be a powerful driver of portfolio performance over time. Choosing a more aggressive asset allocation (80% stocks and 20% bonds) would increase the investor's median balance at retirement by 22%. It's worth noting, however, that with this allocation the "worst-case" outcome is a much lower balance at retirement than the 50%/50% portfolio produced in its own worst case.
Door number 2—a 25% increase
Adding more savings to the portfolio—in this case, contributing 15% of an annual salary rather than 12%—would result in a median balance 25% higher than the initial one, according to the VCMM simulations.
And door number 3—a 51% increase
As Ben Franklin would have guessed, the power of compounding has the potential to be the most effective strategy. By starting to save ten years sooner, even with the 50%/50% allocation and the 12% saving rate, our investor would have garnered 51% more, with a median balance of almost $720,000 at retirement.

For help with developing a sensible savings and conservative investment plan e-mail us or visit

Saturday, August 11, 2012

Young people not preparing for retirement

Young Canadians aren't as well-prepared for retirement as their optimism would suggest, according to a Bank of Montreal survey.
One-third of people under 35 expect to retire by the time they're 60, but are the least prepared for when the day comes, the study finds.
The disparity between goals and reality mostly comes down to attitude. The study suggests that a person may need to be more excited about the prospects of retiring in order to start the planning stages.
"While it's great news that young adults appreciate the importance of retirement planning, it's a concern that many are not backing it up with concrete action," said Tina Di Vito, Head of the BMO Retirement Institute, said in a statement. "A clear dichotomy exists between what young people think about retirement and what they are actually doing to prepare for it."
Some 82 percent of young adults surveyed believe retirement planning is important, with another 52 percent owning a Registered Retirement Savings Plan (RRSP); and 36 percent have a Tax Free Savings Account (TFSA), the survey found.
While gender variables are present, the difference between men and women in the same tax bracket is negligible. The research indicates that the key indicator is the time remaining before retirement, not the actual age of the individual.
Having role models is critical when helping young people think differently about their financial future, Di Vito says.
"Parents and other influential adults have to foster an environment that will encourage young people to think about their financial future," she says. "Despite the challenging and complex financial realities facing young people today, increasing their financial preparedness for retirement will guide them towards positive results."
She offers three tips to help parents motivate their children to save for their future:
  1. Start early -- encourage kids to think about saving and their financial goals as early as their tween or pretween years.
  2. Hold them accountable - If adult children are employed but still living at home, encourage them to pay rent or contribute towards the household expenses.
  3. Speak their language - Instead of 'retirement planning' talk about 'saving money for tomorrow.' Even think of using smartphones or social media to communicate the message.
But such negative factors as high student debt, unemployment and low wages could hinder a young person's ability to save enough for retirement, the study also found.
The survey polled 1,000 Canadians in February and was conducted by Leger Marketing.

E-mail us or visit for a free assessment of your current financial plan

Thursday, August 9, 2012

Top tips Canadian retirees wish they knew before they retired

Savings and health are key to making retirement dreams a reality

Canadian retirees are feeling good about their lives, but many still have financial concerns, finds the TD Waterhouse Canadians and Retirement Report, a national survey of retired people. The majority of retirees polled aren’t confident they saved enough for retirement and have some advice for those next in line: start earlier and save more.
The top pieces of financial advice Canadian retirees wish they were told before retiring is: save more money than you think you will need (58%), pay off all debts before stopping working (28%), work with a financial professional (25%), and don’t leave the workforce too early (20%).

It takes a lot more than just money to live your retirement dream, but without enough savings, it’s almost impossible to enjoy a comfortable and fulfilling retirement lifestyle. 
The good news is that 48% of Canadians say that their retirement is “mostly” what they were expecting, and 11% say it’s “exactly” what they had in mind, so the majority are living their retirement dream.  Getting all the little financial planning steps right will make the difference between ‘mostly’ and ‘exactly’ living the retirement of your dreams.  Your retirement is as unique as you.  Develop a personalized financial plan that is driven by your lifestyle and then get ready to enjoy your retirement journey.

With 37% of Canadian retirees concerned they don’t have enough money to do what they want, and 23% worried about outliving their savings, it’s clear that planning and saving is needed in order to secure your financial future and live the retirement lifestyle you have in mind.  The following tips can help you get your savings on track, regardless of your stage in life or financial situation:
Twenty years from retiring? Retirement may seem like a distant reality, but it’s important to start planning now.  You don’t need to be debt free to start saving for retirement: if you contribute to your RSP and then apply any tax refund you receive from making the contribution towards paying down debt, you’ll likely be better off in the long term.

Ten years from retiring?  The closer you get to retirement, the more important it is to take stock of your savings plan.  Work with a financial advisor to monitor your progress and take corrective action if you fall off course.  Consider your investment objectives, the time remaining to retirement and your risk tolerance, and map out an investment strategy that will let you optimize the returns on your RRSP savings.  
Five years or less from retiring?  You’re almost there!  Before you retire, allow ample time to plan what you want to do with the money you’ve accumulated in your RRSP. When it’s time to convert your RRSP, you might want to consider a RRIF or an annuity.  If you have more than one RRSP or RRIF, consider consolidating for ease and convenience.  Having all your investments with one institution may also reduce your overall account administration fees.

It’s not just about money: retired Canadians share advice for those next in line: 
Almost three quarters (72%) of respondents urged boomers to take care of their health.  They also suggested it’s a good idea to take time to understand what you want out of retirement (67%) and pay off debts (63%).
For help with planning for a secure retirement e-mail us or visit