tag:blogger.com,1999:blog-23052345612981632052024-02-08T07:54:20.751-08:00Tom Buck on Financial PlanningI am posting newsletters that I have sent to my clients in case others are interested. The newsletters are "from my own pen" except where noted.
I can be reached at tom.buck@ethicalfootprint.caTom Buck M. Ed. CFPhttp://www.blogger.com/profile/17713509512315741782noreply@blogger.comBlogger28125tag:blogger.com,1999:blog-2305234561298163205.post-74032729647890360882009-11-10T23:10:00.000-08:002009-11-10T23:17:39.376-08:00Newsletter Part 2Greetings. This letter is a follow-up to the last in which I wrote about talented investment managers searching for great companies to grow your money. Let me start by emphasizing that investing is not just about buying stocks. Fixed income investments—high- interest savings accounts, bonds, high yield debt and so on—have an important role in a portfolio. For the moment, though, I’m looking at stock selection. A later newsletter will look at fixed income investing.<br /><br />But back to my last newsletter where I wrote--<br /><br /><em><strong>As an investor you want to own the best companies that will grow their stock price over time because they are better at what they do than their competitors. Better companies do well, regardless of broader economic conditions, because they take existing business away from other companies.</strong></em><br /><br />So the best companies do two things: build a better mouse-trap and take business away from the other mouse-trap builders. Let’s illustrate this by looking at the example of Ryanair, an investment choice of Geoff MacDonald of Edgepoint Wealth. Anyone who has travelled in Europe has likely heard of the discount airline called Ryanair. You may have even flown with Ryanair and, perhaps, not been thrilled with their service. But you will likely fly with them again because their tickets are 50% or less than the competition and, for many flyers, price matters most. What you may not know is that Ryanair has grown its market share from zero to become the largest airline company operating in Europe in just ten years. They were able to do this because they created a competitive advantage through innovation. <br /><br />What were these innovations?<br /><br />1. Sell airline tickets over the internet. This allows for software in the background to provide very sensitive price monitoring and changes moment by moment. For example, you may start filling an empty plane by offering tickets for a few dollars. As soon as the amazing price attracts buyers, you start putting prices up. The software manages the ebb and flow of ticket demand and pricing until you fill the plane, all the while ensuring that you fly at a profit.<br /><br />2. Fly to alternative airports. Traditionally, every airline wanted to fly into a city’s major airport. That’s where the services were and the fancy airports. The problem is that airlines pay huge fees to the major airport. Ryanair decided to break this monopoly by flying to smaller airports near the major cities, and in Europe there is lots of choice. Just think of all the airport options around London, England. Ryanair enjoyed massive savings by taking advantage of this opportunity.<br /><br />3. Buy planes cheaply. How do you do this? Ryanair noticed that Boeing and other plane manufacturers operate a cyclical business, meaning that the cost of a new plane varies widely over the course of an economic cycle. In a recession when fewer people are flying, traditional airlines stop buying planes. As a result, a Boeing is desperate for orders of new planes. At those times, Ryanair puts in an order for 5 planes a year for the next 5 years. They are able, this way, to buy planes at a 50% discount which amounts to a saving of many millions of dollars. <br /><br />I don’t know about you, but I find this stuff pretty neat. But coming back to my point about great companies, Ryanair takes business away from its competitors through discount ticket prices. And this allows them, very simply, to identify a route in high demand—say London to Paris—fly their plane, and steal customers from the other airlines because Ryanair’s ticket is half the price. Over the last ten years, they have been busy filling planes in good economic times and bad: there may be fewer people flying in the recession, but all the more reason to fly cheaply.<br /><br />The other aspect of successfully investing in great companies is to buy the stock when it’s cheap. An investment manager can do this two ways: [1] identify a great company and its potential before this potential is widely known; [2] buy the company’s stock when it is out of favour or being ignored and its price drops. Geoff MacDonald bought Ryanair during this recent recession when investors sold off shares in airline companies believing that fewer passengers meant airlines would not survive. MacDonald, convinced of the competitive advantage of Ryanair, bought the stock during the sell-off. He and his investors have done very well with Ryanair stock over the last few months. <br /><br />How long will MacDonald hold on to Ryanair stock? He will sell it off when he’s made a lot of money on it <strong>and</strong> when he has identified another company that represents a better opportunity for growth than Ryanair.<br /><br />My goal is to identify investment managers with the ability and dedication to buy great companies. We look to them to grow our money and history shows that the best managers are able to do this for us over time, regardless of economic conditions. Yes, stock investing will have its ups and downs, but over the long term our patience should be rewarded.<br /><br />Bye for now,<br /><br />TomTom Buck M. Ed. CFPhttp://www.blogger.com/profile/17713509512315741782noreply@blogger.com0tag:blogger.com,1999:blog-2305234561298163205.post-27213467101046322492009-11-09T14:55:00.000-08:002009-11-09T15:02:48.106-08:00STOCK MARKET UPDATE<strong>Stock market update: What have markets been doing and what should we make of it? </strong><br /><br />Greetings to you all.<br /><br />As you know, I often like to start a current market update by looking at what I wrote in a previous market update. It keeps me honest and allows me to develop a theme. In my market update of March 23, 2009, I wrote--<br /><br /><em>So for money you've already invested, patience and staying invested are essential. If you have cash on the sidelines that you want to grow? Take advantage of this bear market by investing before it's over, not after.</em><br /><br />As it turns out, I was wrong about one thing and right about the other [more important thing]. Looking back 6 months from today, we can see with hindsight that March 23 was actually 2 weeks after the end of the bear market. I was right about my view that March 2009 was an excellent time to invest in stocks. Since the market low of March 2009, the Toronto Stock Exchange [TSX] is up 48%, the US stock market [S&P500] is up 60%.<br /><br />So 2009 has provided good news for investors and the bear [bad] market, which began in the fall of 2008, has been followed by a bull [good] market and patience has been rewarded. Yes, we are looking for more growth to get us back to where our portfolio was, but the strong recovery of 2009 should provide us with confidence the next time we experience a bear market.<br /><br />Now we turn to the questions of the day. <strong>Does the global economy still face challenges</strong>? Yes, the banking crisis of 2008 that helped trigger the bear market will not be fixed overnight. And if we want to look for economic things to worry about, we can certainly find them. <br /><br /><strong>Why have stock markets gone up so much in spite of lingering economic problems</strong>? Because stock markets anticipate good news [they are what we call a "leading indicator"]. Investors pushed up markets [1] not because they believed the recession was over, but because they felt confident it would end sooner than anticipated, and [2] as they saw markets recover, they wanted to participate.<br /><br />Here's the last question I want to deal with, one that is most important to investors—<strong>Going forward, can we rely on our investment in stocks to grow our money so that we can afford to live when we retire?</strong> The answer is it depends. Let me explain. <br /><br />The most important thing about buying stocks is to buy the right companies. You know the old saying that 50% of doctors finished in the bottom half of their class. The same is true of companies: as an investor you want to own the best companies that will grow their stock price over time because they are better at what they do than their competitors. Better companies do well, regardless of broader economic conditions, because they take existing business away from other companies. How are we going to pick the best companies when it's not an easy task? [You won’t do it by buying index funds which are blind pools, but that’s for another newsletter.] <br /><br />An important part of my job is to find those mutual fund managers that can identify the best companies to own. These managers will be unusually smart and dedicated to ongoing research and being on the road to meet with company executives. Only this way will these managers really understand a company and identify opportunities. The fruit of that talent and labour will be shown in the out-performance of their mutual funds compared to the competition and the index. This outstanding performance helps me to identify them as I compare the performance of the 5600 mutual funds available in Canada.<br /><br />The other way I identify the top managers is to meet with fund managers throughout the year. I, and about a dozen other financial advisors, had lunch yesterday with Geoff MacDonald of Edgepoint Wealth. Geoff spoke about the work that went into discovering two of the companies he's bought for investors in his mutual fund, and how these companies have an advantage over their competitors that should result in a rise in the value of the company's stock. Geoff was insightful, excited about what he had discovered, and he had good answers for the questions I asked. And I can tell you that not all managers pass the test as well as Geoff did for me.<br /><br />I’m excited to tell you about one of the companies that Geoff has invested in, Ryanair, but I’ve written enough for now. I will say more in my next newsletter which I will send out soon.<br /><br />For investors, a mutual fund can look like nothing more than a name on a statement that’s there month after month. In reality, the funds I choose for investors are all about what’s behind the name: the investment managers that I have researched and chosen because I know them well enough to respect them and what they’ve accomplished. The manager’s ability and dedication to buy good companies is what we rely on to grow our money. History shows that good managers are able to do this for us over time, regardless of economic conditions.<br /><br />Watch for my next newsletter.<br /><br />Bye for now,<br /><br />TomTom Buck M. Ed. CFPhttp://www.blogger.com/profile/17713509512315741782noreply@blogger.com0tag:blogger.com,1999:blog-2305234561298163205.post-51623001976730982592009-11-09T14:51:00.000-08:002009-11-09T14:52:18.897-08:00The Family CottageGreetings. <br /><br />The transition of the family cottage from one generation to the next can be a major issue for many families. This article came across my desk today, so I thought I would pass it on in case it's of interest.<br /><br /><a href="http://www.advisor.ca/advisors/tax/estateplanning/article.jsp?content=20090922_170748_5324">http://www.advisor.ca/advisors/tax/estateplanning/article.jsp?content=20090922_170748_5324</a><br /><br />Cheers!<br /><br />TomTom Buck M. Ed. CFPhttp://www.blogger.com/profile/17713509512315741782noreply@blogger.com0tag:blogger.com,1999:blog-2305234561298163205.post-32736136916417755772009-11-09T14:43:00.000-08:002009-11-09T14:50:48.413-08:00September 21, 2009--Estate Planning BasicsGreetings! My regards to everyone and I hope you enjoyed your summer.<br /><br />I have a couple of newsletters planned for the next month and will write about the state of investment markets the next time. <br /><br />This time I want to write in some detail about two planning issues: the ENDURING POWER OF ATTORNEY and the PERSONAL DIRECTIVE [or Living Will]. These two documents are essential tools in your planning for the future, regardless of your age, and take effect should you become unable, due to physical or mental incapacity, to make your own decisions. I encourage you to read on and explore the links that I provide.<br /><br />PERSONAL DIRECTIVE WHAT KIND OF INSTRUCTIONS CAN I LEAVE IN A PERSONAL DIRECTIVE?<br /><br />Your instructions can be about any or all personal matters that are non-financial, such as:<br /><br />• medical treatments you would or would not want;<br /><br />• where you would like to live;• who you would like to live with;<br /><br />• choices about other personal activities (recreation, employment or education);<br /><br />• any other personal and legal decisions, and<br /><br />• who you want to care for and educate your minor children if you are not capable of doing so.<br /><br /><br />So how does a Personal Directive differ from a will? It provides directions about non-financial matters should you, during your lifetime, become unable to direct your own affairs. The Personal Directive allows you to put your wishes in writing and appoint an agent to act on your behalf to see that your wishes are carried out. This is important because your relatives and friends do not automatically have the legal right to make decisions for you.<br /><br />The Government of Alberta has established a Registry for Personal Directives to make it easier for interested parties, for example medical staff, to find your Personal Directive and contact your agent. Please see the following link to a pamphlet provided by the Government of Alberta on Personal Directives.<br /><br /><a href="http://www.seniors.gov.ab.ca/services_resources/opg/persdir/publications/pdf/OPG1645.pdf">http://www.seniors.gov.ab.ca/services_resources/opg/persdir/publications/pdf/OPG1645.pdf</a><br /><br />When you look at the list above of the potential purposes of the Personal Directive, you may not feel strongly about all the items, or they may be items you have not thought about. But you may feel strongly about your medical care, or who will look after your children during a period of mental incapacity. So don't hesitate to write a Personal Directive now about those things that you feel strongly about. You can add to or amend your Personal Directive at a later time.<br /><br />The most common reason that individuals write their Personal Directive is to direct their medical care and communicate their wishes regarding extraordinary measures to prolong life in the case of a very serious illness. Without the Personal Directive, doctors are left responsible to use all extraordinary measures regardless of what family and friends may say. The Personal Directive is your way of having your wishes acted upon. Legislation regarding Personal or Advanced Directives varies by province. <br /><br />For my clients in BC, please see--<br /><br /><a href="http://www.viha.ca/advance_directives/faq.htm#today">http://www.viha.ca/advance_directives/faq.htm#today</a><br /><br />My clients in Ontario, please see--<br /><br /><a href="http://www.culture.gov.on.ca/seniors/english/programs/advancedcare/docs/AdvancedCare.Guide.pdf">http://www.culture.gov.on.ca/seniors/english/programs/advancedcare/docs/AdvancedCare.Guide.pdf</a> <br /><br /><br />ENDURING POWER OF ATTORNEY<br /><br />The Enduring Power of Attorney is complementary to the Personal Directive. The Enduring Power of Attorney allows you to provide directions and appoint an agent [your "Attorney"] should you become, during your lifetime, unable to make decisions related to your financial affairs. The Enduring Power of Attorney is cancelled at the time of your death at which point your Will applies to your estate. The Enduring Power of Attorney would allow your agent to keep your financial life going should you become incapacitated. For example, without the Enduring Power of Attorney your family and friends would not have access to your individual bank accounts to pay your bills, or have authority to watch over and direct your investments. To read more about the Enduring Power of Attorney, see--<br /><br /><a href="http://www.justice.gov.ab.ca/dependent_adults/enduring_powers_of_attorney.aspx">http://www.justice.gov.ab.ca/dependent_adults/enduring_powers_of_attorney.aspx</a><br /><br />Needless to say, you will want to choose your agent very carefully. Be sure to consult your choice to confirm his or her willingness to be appointed. Spouses will typically appoint one another. If you are not sure whether you have written a Personal Directive or an Enduring Power of Attorney--this may have been done when your Will was done--check to see which documents are with your Will or ask your lawyer. <br /><br />Looking after all three documents can be done with the assistance of a lawyer which allows you to benefit from her or his legal expertise. Many lawyers provide this expertise at a reasonable cost, assuming your affairs are not complicated, as a public service. Registry offices and some Drug Stores will have generic, fill-in-the-blank forms which, while lacking personal legal advice, are much better than nothing. Please let me know if you have any questions. <br /><br />I hope that you will take this newsletter as a prompt to undertake your drafting of a Personal Directive and Enduring Power of Attorney. Clearly we do not hope for a future incapacity. But should it happen, we want to be prepared, we want our wishes to be clear and we want to lessen the stress on our loved ones.<br /><br />Cheers!<br /><br />TomTom Buck M. Ed. CFPhttp://www.blogger.com/profile/17713509512315741782noreply@blogger.com0tag:blogger.com,1999:blog-2305234561298163205.post-81696290132668325052009-07-14T17:54:00.000-07:002009-07-14T17:56:27.722-07:00Market update from April 29th, 2009Greetings to all. <br /><br />Nice to see the sun today and no snow!<br /><br />I wanted to update my last market update that I sent you. My March 23, 2009 headline was-- Stock markets up over 5% today, 20% in the last couple of weeks. What does it mean?<br /><br />Today is April 29, 2009. So what's happened since March 23? The Toronto stock market [TSX] is up another 5.1% and the index sits at 9416 points. New York [S&P 500] is up another 6.0% since March 23 and the index sits at 874. It's obviously good news for investors when markets have a good run: we see that markets can go up after they've gone down. And to be fair, I have to point out that markets have to recover much more to get back to where they were. <br /><br />The TSX peaked at about 15,000 points in 2008, the S&P 500 peaked at about 1550 points in late 2007. How long will it take to recover and surpass those peak levels? Well, bear with me--no pun intended--as I look at some more numbers. <br /><br />The last bear market ran from 2000 to 2002. We all remember that one which overlapped with the events of 9/11. When the bear ended in 2002, markets went into a recovery rising to the peak, as stated above, of about 15,000 on the TSX. But do you want to guess at the point level of the TSX at its low in 2002? Was it 9000 or 7000 points?<br /><br />I think it's remarkable that the TSX was as low as 5,695 in 2002. The recovery took it from 5,695 to 15,000 in 2008. That's a climb of over 9000 points or 168% from the low. Has the TSX had that kind of recovery before? In the 1990s, the market recovered 203%, 253% in the mid-1980s, 288% the mid-1970s. <br /><br />Should the market climbs 160% again--from where it is today at 9416--that would take the TSX to near 25,000 points. That's well above its 2008 peak of 15,000. No one can say how long the climb would take, but we can say that the markets have done it before.<br /><br />Cheers! Tom<br /><br /> PS-so what is the TSX index anyway [more properly known as the S&P/TSX]? The index was invented to measure the rise and fall of the Toronto stock market over time. The index includes about 70% of the largest companies whose stocks trade on the Toronto Stock Exchange. If, on average, these stocks rise in value today, then the index will go up accordingly. The index value in points--e.g. the TSX closed at 9416 points today--has no absolute meaning, it's all relative: the index is measured each day so that we can compare to what the index was yesterday, a month ago or 20 years ago.Tom Buck M. Ed. CFPhttp://www.blogger.com/profile/17713509512315741782noreply@blogger.com0tag:blogger.com,1999:blog-2305234561298163205.post-6102678763967794462009-07-14T17:33:00.000-07:002009-07-14T17:34:52.067-07:00Newsletter April 6th, 2009Greetings! All of us have probably read in the newspapers how the current environment is encouraging thrift. One challenge of trying to save money is that there are so many items in our budget that are "must-haves" and therefore hard to trim back. What if some of the must-haves could be bundled together to save money?<br /><br />All of us probably use two or more of these services: TV, phone and internet. Bundling refers to buying a package of two or more of these services from a single service-provider with a resulting savings. And we may already have two or more services from a single provider but because we have not applied for bundling pricing, we may be paying too much.<br /><br />Take for example Shaw and Telus. Shaw provides cable, digital phone and internet. While I'm well aware of Shaw cable and internet, it had not dawned on me that Shaw was now in the [landline] phone business with long distance packages. Check out their site to see how bundling might save you money-- <a href="http://www.shaw.ca/en-ca/ProductsServices/BundlesAndPricing/default.htm">http://www.shaw.ca/en-ca/ProductsServices/BundlesAndPricing/default.htm</a><br /><br />Telus, of course, provides landline and mobile phones, long distance packages, internet, but they are also into TV now. You can check out their bundling options at-- <a href="http://promo2.telus.com/tm/09/q1/bundle/ab/index.html">http://promo2.telus.com/tm/09/q1/bundle/ab/index.html</a><br /><br />Speaking of long distance, here's an interesting option that I use-- 10-10-969 is a long distance calling provider for landlines that you can use on almost any landline. It does not require you to sign a contract and the service travels with you anywhere in Alberta and the BC lower mainland, Okanagan and Victoria. I even use it at home on my second landline because I do not do enough long distance on that line to justify signing up for a Telus long distance package. From what I've seen, their pricing is very competitive. Just dial 10-10-969+1+area code+ number. The billing will show on the statement of the landline provider. Check out the details at-- <a href="http://1010969.ca/">http://1010969.ca/</a><br /><br />Happy bundling!<br /><br />TomTom Buck M. Ed. CFPhttp://www.blogger.com/profile/17713509512315741782noreply@blogger.com0tag:blogger.com,1999:blog-2305234561298163205.post-89280319212344959632009-03-23T16:46:00.000-07:002009-03-23T16:52:31.280-07:00Stock markets up over 5% today, 20% in the last couple of weeks. What does it mean?Greetings.<br /><br />Stock markets are up over 5% today, 20% in the last couple of weeks. What does it mean? Let me write about what we do know, and what we don't know.<br /><br />We do know--<br /><br />--That investors--both individual and institutional--have cash they want to grow by investing in the stock market. A 5% gain on the markets today proves that investors will put money back into the market when they find a trigger that creates optimism. This need to grow money will be one factor that will bring the recovery in stock markets.<br /><br />We don't know--<br /><br />--Whether the last couple of weeks are the beginning of the recovery. They might be, but we don't know. Just as the end of bull [good] markets cannot be spotted in advance, the end of bear [bad] markets is not seen in advance. It's only in the rear-view mirror that we will know that the bear market hit its bottom on such-and-such a date.<br /><br />We do know--<br /><br />--That investors who wait for a sign that the bear market is over will miss the start of the recovery. There are two reasons for this: [1] The end of a bear market is not announced in advanced. [2] Growth in the stock market happens on just a few days when the market makes a powerful push upwards. Let me elaborate on this second point because it is very significant to understanding how stock markets really work. Consider this--<br /><br />--Take the example of the US stock market [S&P 500] between 1993-2007 [that's 15 years or 5475 days]. An investor who stayed invested in that market for those 5475 days grew his money at 10.5% per year. But the remarkable thing is this: if the investor missed the best 30 days during those 15 years, he would have grown his money at only 2.2% per year. And if he missed the best 60 days, his return was negative!<br /><br />By far, most days on the stock market are inconsequential. The growth in the market is delivered only on those rare days. If you miss those days, you miss the growth. So for money you've already invested, patience and staying invested are essential. If you have cash on the sidelines that you want to grow? Take advantage of this bear market by investing before it's over, not after.<br /><br />Cheers!<br /><br />TomTom Buck M. Ed. CFPhttp://www.blogger.com/profile/17713509512315741782noreply@blogger.com0tag:blogger.com,1999:blog-2305234561298163205.post-15378515860040187662009-02-18T13:47:00.001-08:002009-02-18T13:48:29.171-08:00March 2, 2009 is the RRSP DeadlineOnly 15 days to the RRSP deadline for contributions to your RRSP that you can deduct from your 2008 income.<br /><br />Time is running short. If you need to consider topping up your RRSP, please call me for an appointment soon. The last week in February is very busy and I would hate to be unable to accommodate your meeting request. When you come, we can discuss investment options from the safe option to the growth option and everything between.<br /><br /><strong>RRSP investing for 2009</strong><br /><br />You can also consider taking advantage of the bear market by setting up a monthly, automated investment for dollar-cost-averaging [DCA] for your 2009 RRSP contribution. This would see you buy into growth investments bit by bit without the worry of trying to pick the bottom of the market.<br /><br /><strong>A new idea for this year<br /></strong><br />Given the merits of DCA, some fund companies have developed an interesting option, the "DCA fund." You can contribute to this fund now before the March 2nd deadline and collect your RRSP contribution receipt for 2008. As a DCA fund, you are buying a safe, interest-earning investment that then moves your money into balanced or growth investments bit by bit over the year ahead. This works well for clients who need to make their RRSP contribution before the deadline but don't want to invest all at once into growth investments.<br /><br />These are just some of the ideas I have.<br /><br />I can be reached at 403-229-0128 or by replying to this email.<br /><br />Cheers!<br /><br />TomTom Buck M. Ed. CFPhttp://www.blogger.com/profile/17713509512315741782noreply@blogger.com0tag:blogger.com,1999:blog-2305234561298163205.post-36233061119148306832009-02-18T13:47:00.000-08:002009-02-18T13:48:17.698-08:00March 2, 2009 is the RRSP DeadlineOnly 15 days to the RRSP deadline for contributions to your RRSP that you can deduct from your 2008 income.<br /><br />Time is running short. If you need to consider topping up your RRSP, please call me for an appointment soon. The last week in February is very busy and I would hate to be unable to accommodate your meeting request. When you come, we can discuss investment options from the safe option to the growth option and everything between.<br /><br /><strong>RRSP investing for 2009</strong><br /><br />You can also consider taking advantage of the bear market by setting up a monthly, automated investment for dollar-cost-averaging [DCA] for your 2009 RRSP contribution. This would see you buy into growth investments bit by bit without the worry of trying to pick the bottom of the market.<br /><br /><strong>A new idea for this year<br /></strong><br />Given the merits of DCA, some fund companies have developed an interesting option, the "DCA fund." You can contribute to this fund now before the March 2nd deadline and collect your RRSP contribution receipt for 2008. As a DCA fund, you are buying a safe, interest-earning investment that then moves your money into balanced or growth investments bit by bit over the year ahead. This works well for clients who need to make their RRSP contribution before the deadline but don't want to invest all at once into growth investments.<br /><br />These are just some of the ideas I have.<br /><br />I can be reached at 403-229-0128 or by replying to this email.<br /><br />Cheers!<br /><br />TomTom Buck M. Ed. CFPhttp://www.blogger.com/profile/17713509512315741782noreply@blogger.com0tag:blogger.com,1999:blog-2305234561298163205.post-15779432399087783972009-02-10T16:34:00.000-08:002009-02-10T16:36:41.504-08:00MAKING SENSE OF THE MARKETS...................................................................................................................<br /><br />The media currently love to talk about how we might be headed into another depression, it's a terrible time to invest, and that current events are going to unfold as they did in the 1930s. I wanted to address this briefly.<br /><br /><strong>What we've heard?<br /></strong><br />The "dirty thirties" were a terrible time to be invested in the stock market because there was a depression going on. Let's examine this claim<br /><br /><strong>The background and the facts--<br /></strong><br />The Depression was triggered in part by the collapse of the stock market from 1929 - 1931. The performance of the New York stock market at that time--as measured by the S&P 500-- looked like this:<br /><br />1929....-10%.....[this has been rounded so read it as a drop of less than 10%: i.e. 0 to -10%]<br />1930....-30........[-20% to -30%]<br />1931....-50<br /><br />Needless to say, this drop was a severe blow to investors and gives one pause to think of how it could have happened. It makes for a fascinating story but let me give you a brief summary: there were two major things at play.<br /><br />1. The stock market in the 1920s was influenced, literally, by a handful of wealthy families. As a group, they met over cigars to engage in stock market manipulation on a grand scale and, sadly, no one stopped them. They helped push stock market prices to irrational levels to feed their greed.<br /><br />2. The small investors in the stock market routinely invested--it's hard to believe now--ten dollars where nine of those were borrowed!<br /><br />So you can see that the stock market then was a house of cards. And when the cards fell, not only were investors faced with large losses, the small investors were left with large debt. <br /><br />What is interesting, for the purpose of this newsletter, is the part you don't hear about now, namely, what happened to the stock market in the aftermath? Here are the numbers--<br /><br />1932....+20%<br />1933....+60<br />1934....-10<br />1935....+50<br />1936....+40<br />1937....-40<br />1938....+40<br />1939....-10<br /> sum...+150%<br /><br />Conclusion--even the worst bear market was followed by a strong bull market. And there is an historic correlation: the worse the bear market, the stronger the bull market that follows.<br /><br /><strong>My recommendations--<br /></strong><br />1. Bear markets are to be tolerated. Be patient, hold on to your stocks, the bull market is coming.<br />2. Investors who have the courage to buy in a bear market, when no one wants to buy, have been very well rewarded.<br /><br />To repeat what I've said in previous newsletters, I don't know when the next bull market will begin. But for people who are invested--or who now buy more--and then are patient, the timing won't matter. And waiting for the end of the bear market before investing is like waiting for the wind to change direction.<br /><br />Cheers!<br /><br />Tom<br /><br />Tom Buck M. Ed CFP<br />Assante Financial<br />403-229-0128<br /><br /><br />PS--one of the most interesting documentaries I have every watched is shown periodically on PBS as part of the series, "American Experience." The show is titled The Crash of 1929. It can be watched online at--<br /><br /><a href="http://www.pbs.org/wgbh/amex/crash/program/index.html">http://www.pbs.org/wgbh/amex/crash/program/index.html</a>Tom Buck M. Ed. CFPhttp://www.blogger.com/profile/17713509512315741782noreply@blogger.com0tag:blogger.com,1999:blog-2305234561298163205.post-3035230738769210562009-02-01T20:17:00.000-08:002009-02-01T20:22:53.872-08:002008 Year-end StatementsGreetings!<br /><br /><strong>Year-end 2008 Statements will be arriving any day</strong><br /><br />The turbulent markets since September 2008 have caught the attention of all of us. Bear markets come along on average once in every four years. This one has been harsh and is reminiscent of what investors experienced in 2001, the mid-1980s and the mid-1970s. We should expect, then, that a snap-shot of your portfolio on December 31, 2008 may well be alarming.<br /><br />As I have done in my regular newsletters to you, allow me to provide context and be encouraging-<br /><br />--Bear markets are part of investing for growth and are always followed by recovery. Recovery often occurs suddenly.<br /><br />--Only a portion of your portfolio is exposed to the volatility of growth investments.<br /><br />--For growth, you own good businesses [i.e. TD Bank, not General Motors] which will benefit from the recovery. It is just a question of when the recovery will come, not if. <br /><br />--My client portfolios have not been hurt nearly as much as the stock markets.<br /><br />--Stock markets recover before the economy does.<br /><br />--Your exposure to growth investments is, by design, meant to be long term. Further, your time horizon is old age--not retirement--so as to protect your money from the erosion of inflation throughout your remaining years. So you have time to wait for the recovery and, with patience, you will realize the growth that you need.<br /><br />--As a measure of my confidence in the recovery, I have invested $80k of my own money since the bear market began [trying to behave like a Warren Buffett]. Should you have cash to invest for the long term, I encourage you to consider doing the same. We can talk about it.<br /><br />A number of clients have come in for a review [and to discuss an appropriate Tax-Free Savings Account for them]. This has allowed a discussion to take place and for information to be shared that clients are not getting from the media. Clients have appreciated the information and been encouraged by it. <br /><br />I welcome a visit from any of you. If we have not done a review for a year, then we are due to meet.<br /><br />Finally, I have attached some interesting reading on market volatility and the behaviour of successful investors. I highly recommend that you read it, and would appreciate your feedback. You can find it on the net at--<br /><br /><a href="http://www.nezperce.org/content/081024%20Davis%20Funds%20Wisdom%20ofGreat%20Investors.pdf">http://www.nezperce.org/content/081024%20Davis%20Funds%20Wisdom%20ofGreat%20Investors.pdf</a><br /><br />Thank-you for your patience.<br /><br />Tom<br /><br />PS--what statements are coming? You will receive statements from fund companies, from MRS and B2B Trust for any self-directed accounts and Assante will be sending a comprehensive statement [showing the mutual funds you own but not term deposits].Tom Buck M. Ed. CFPhttp://www.blogger.com/profile/17713509512315741782noreply@blogger.com0tag:blogger.com,1999:blog-2305234561298163205.post-6508802970041918612009-02-01T20:10:00.000-08:002009-02-01T20:15:52.161-08:00TFSA, the Tax-Free Savings Account--Part IIHello again!<br /><br />This letter is Part II of my information on the new TFSA, the Tax-Free Savings Account.<br /><br />"With its ability to immediately shelter investment-related income from taxation, the TFSA should become an indispensable wealth planning tool for all Canadian investors," ---says Doug Carroll, Vice President, Tax & Estate Planning at Invesco Trimark. <br /><br />I sent out Part I before Christmas and again a few days ago. Part II today is meant to sharpen your thinking on the TFSA and how it can be an opportunity for you. We are all used to paying tax on investment growth. We put money in a savings account and we have to declare the interest and pay tax. Or if we buy a mutual fund or stocks and bonds outside an RRSP or RESP, we will again receive investment growth that we have to pay tax on. The TFSA eliminates, forever, any tax on investment growth and thats what makes it exciting.<br /><br />So you ask--"If I'm going to take advantage of a TFSA, what do I need to have to get going?" The answer is--<br /><br />--money to invest. You can put in up to $5000 into a TFSA in 2009 either with a lump-sum or set up a monthly automatic PAC plan with as little as $50 per month. If you don't have any money but you do already have OPEN investments [i.e. investments outside an RRSP or RESP], you can transfer $5000 from your OPEN investment into a TFSA.<br /><br />"So I have some money but should I be putting it in my RRSP or RESP [an educational savings plan for your kids]?<br /><br />Yes, most people should contribute to their RRSP and RESP first, before setting up a TFSA. [If you're not sure you are "most people," then just ask me.]<br /><br />"OK, so I have some money to put in a TFSA, so what should I invest in?<br /><br />A TFSA can hold the same investments as an RRSP or RESP. So the question of what to invest in is the same as always and depends on--<br /><br />--how long you are going to invest for.<br /><br />--whether you want conservative investment returns, OR long-term growth.<br /><br />Other things to consider--<br /><br />--when you take money out of a TFSA, you can put in back into the TFSA but not until the following year. Therefore, a TFSA does not work as a short-term savings account where you are putting money in and out of the account regularly.<br /><br />--the TFSA has one advantage: sheltering investment growth from tax. It follows, then, that the more growth you have in your TFSA, the greater the tax you save. Consider two investors each 50 years old. They each plan to put $400 per month into a TFSA for 15 years. The first investor puts his money into a conservative investment earning 4% [interest]. After 15 years, he will have $98,000 and will have saved $10,400 in taxes.* The second investor goes for growth at 8% per year [capital gains]. After 15 years, he will have $138,000 and will have saved $13,200 in taxes.** <br /><br />Having said this, the foremost consideration for any investor is when he needs his money back from the TFSA: if he wants his money back in 3 years or less, the conservative investment approach is required. <br /><br />*as compared to making the same investment outside a TFSA.<br /><br />**remember that capital gains are taxed at a lower rate than interest income. <br /><br />Bye for now,<br /><br />Tom<br /><br />Tom Buck, M. Ed. CFP<br />Certified Financial Planner<br />Assante Financial Management Ltd<br />#600, 1414-8th Street SWCalgary, AB T2R 1J6<br />TEL 403.229.0128<br />FAX 1.866.386.9776Tom Buck M. Ed. CFPhttp://www.blogger.com/profile/17713509512315741782noreply@blogger.com0tag:blogger.com,1999:blog-2305234561298163205.post-24688258653420639842008-11-21T16:45:00.000-08:002008-11-21T16:54:41.608-08:00INTRODUCTION TO THE TFSA: Tax-free Savings Accounts<strong>Tax-free Savings Accounts—How about some good news!<br /><br /></strong>Greetings!<br /><br />Two of the most “delicious words” in financial planning are “tax-free.” As of January 2, 2009, Canadians will have access to a TFSA [tax-free savings account]. The TFSA is the most exciting tax-saving opportunity for Canadians since the introduction of the RRSP. And, when properly used, there is simply no down-side to the TFSA.<br /><br />"<em>With its ability to immediately shelter investment-related income from taxation, the TFSA should become an indispensable wealth planning tool for all Canadian investors,"</em> says Doug Carroll, Vice President, Tax & Estate Planning at Invesco Trimark.<br /><br />Allow me to cover the basic features of the TFSA below. With later newsletters, I will get into further details and planning opportunities.<br /><br />Features of the TFSA—<br /><br />-The account can be set up for any Canadian resident age 18 or over regardless of his or her income.<br />-The TFSA contribution is done with after-tax dollars [unlike an RRSP], but look—<br />-The investment income earned in the TFSA is tax-free and—<br />-Withdrawals from the TFSA are tax-free.<br />-You’ll be able to contribute up to $5,000 each year beginning in 2009 [the $5,000 contribution room will be indexed, or increased, each subsequent year].<br />-You can withdraw money at any time, tax-free, and then choose to “re-pay” your TFSA at any time in the future.*<br /><br />Furthermore—the TFSA does not “replace” the RRSP or RESP, it supplements it; a spouse or parent can fund the contribution for the TFSA of a spouse or child; unused contribution room for a TFSA is carried forward to future years.<br /><br />Here are just a few ways that tax-payers can make use of the TFSA—<br /><br />-Save for a specific purpose like a renovation or recreation property, again with no tax on the investment income.<br />-Supplement retirement savings. In retirement, this will augment the tax-efficiency of producing retirement income.<br /><br />See more examples at the very bottom under “Scenarios.”<br /><br /><br />In brief, what does the TFSA mean for investors? Beginning in 2009, any non-registered investments should be made in a TFSA within the limits allowed. And, once you’ve maximized your RRSP—or if you are in a low tax bracket—the TFSA becomes an efficient way to save additional monies for retirement or a child’s education without having to worry about tax on investment growth. The longer the time horizon for building up your TFSA, the more you will benefit from the tax-free compounding of investment growth. Finally, unlike an RRSP, when you withdraw monies from your TFSA there will be no tax.<br /><br />I will be offering TFSA accounts in the new year that are free of administration and withdrawal fees. In the meantime, if you have any questions about TFSA accounts, see the supplementary reading provided below and then send me any unanswered questions.<br /><br />Cheers!<br /><br />Tom<br /><br /><strong>Next newsletter: the RRSP versus the TFSA</strong><br /><br />Notes--<br />*For example, say you contributed to your TFSA and, after several years, it is worth $30,000. You can withdraw any or all of that money tax free and not lose the contribution room. So, if you withdrew $30,000 from your TFSA, you can put the $30,000 back at any time in the future. On top of this, you will receive your additional $5,000 [indexed] contribution room each year.<br />Supplementary reading—<br /><br />Click on or enter the following links into the address bar of your browser—<br /><br />1. Investor Q&A on the TFSA<br /><br /><a href="http://www.advisormailout.com/Advisor/Home/1153/1685/images/Scenarios.pdf">http://www.</a><a href="http://www.advisormailout.com/Advisor/Home/1153/1685/images/TFSA%20Investor%20Q&A%20Final.pdf">advisormailout.com/Advisor/Home/1153/1685/images/TFSA%20Investor%20Q&A%20Final.pdf</a><br /><br />2. Scenarios--how to take advantage of the TFSA<br /><br /><a href="http://www.advisormailout.com/Advisor/Home/1153/1685/images/Scenarios.pdf">http://www.advisormailout.com/Advisor/Home/1153/1685/images/Scenarios.pdf</a>Tom Buck M. Ed. CFPhttp://www.blogger.com/profile/17713509512315741782noreply@blogger.com0tag:blogger.com,1999:blog-2305234561298163205.post-86543362829565701042008-11-17T14:16:00.000-08:002008-11-17T14:33:52.191-08:00Reprint: Retirement fears ill-founded.This article is courtesy of Advisor.ca<br />by Mark Noble<br /><br /><br />Almost two-thirds of Canadian pre-retirees are worried about outliving their money, but once they're well into retirement, the fear subsides, according to a new survey conducted by Russell Investments and Harris/Decima Research.<br /><br />The survey of 2,200 Canadians found that only 40% of respondents felt comfortable about their financial health in the first year of retirement. In year two, the percentage of those who felt comfortable drops sharply to only 29%. However, within years three to five after retirement, optimism takes hold, with 58% of retirees feeling comfortable about their financial circumstances. And once they had passed the 10-year mark, only one in five was still worried about having enough money.<br /><br />This rise in confidence could result from retirees making the best of their new situation, but Irshaad Ahmad, president and managing director of Russell Investments Canada, says the company has found that many retirees meet their retirement goals once they are actually retired and understand what they need. "Once they get through the first two years of retirement and they realize things are going to be OK, a lot of the concern starts to go away," he says. "Also, they start to realize the power of CPP and OAS and their pension income, if they have one. Once they figure out how much they actually need, they start to feel better. A lot of people don't know how much they need until they start to live it. We hear retirees saying things like, 'I don't have a mortgage anymore, my kids are all grown up, and this isn't as tough as I thought it was going to be.'"<br /><br />Sending out an optimistic message about retirement would seem counter-intuitive to an asset management company that earns its returns from sales to pre-retirees. But Russell was already bucking the trend on conventional industry wisdom when the company suggested earlier this year that retirees probably don't need more than 60% of pre-retirement income for a happy retirement. Most people in the investment industry quote a figure somewhere in the vicinity of 75% as what is needed.<br /><br />Ahmad believes it's important for advisors to have a retirement reality check for clients so they can work to create a realistic financial plan. "We saw the data of our survey and the remarkable difference between those who had not retired and those who had retired. Given the level of anxiety displayed by those who have not retired, it's evident there is a disconnect in information. We wanted to find a way to shine a light on that," he says. "If you actually help people and identify what the issues are and what they need to do to solve it, presumably people will remember and be grateful for that."<br /><br />Russell has found a few common traits among retirees who felt comfortable about their financial health. These types of people--<br /><br />--tend to have higher net worth, assets and income.<br /><br />--are much more likely to have a pension and started planning for retirement at an earlier age.<br /><br />--tend to be fortunate in terms of life experiences: they are less likely to be separated or divorced and more likely to have paid off their mortgages and to have received an inheritance.<br /><br />Ahmad emphasizes that professional financial advice is also extremely important. "People who work with advisors have a higher level of financial health and feel better about their financial health than people who don't use an advisor, so clearly advisors are doing a good job in that regard," he says.Tom Buck M. Ed. CFPhttp://www.blogger.com/profile/17713509512315741782noreply@blogger.com0tag:blogger.com,1999:blog-2305234561298163205.post-10065633323037552272008-10-30T16:35:00.000-07:002008-10-30T16:39:19.609-07:00Creditor protection of RRSPs<strong>New federal law protects your RRSPs in the case of bankruptcy</strong><br /><br />Greetings!<br /><br />Clients may sometimes wonder what would happen to their RRSPs, RRIFs and other registered plans should they face creditors that are coming after assets. Let me give you a brief summary of the pertinent information [with thanks to Frank Di Pietro, Mackenzie Financial's director of tax and estate planning].<br /><br />Until recently, there were no laws in Alberta to ensure that registered plans received creditor protection. Effective July 7, 2008, creditor protection is now universally available in all provinces for a bankrupt person's assets held in a Registered Retirement Savings Plan (RRSP), Registered Retirement Income Fund (RRIF) or a Deferred Profit Sharing Plan (DPSP).<br /><br />Note that an individual would have to formally apply for bankruptcy for the protection to apply.<br /><br />The new law includes a clawback period, which means creditors may still attack and successfully seize any property contributed to an RRSP, RRIF or DPSP within the 12 months preceding the date of bankruptcy. A trustee can also seize a registered plan in bankruptcy within five years of a transfer to the plan, if the client was insolvent at the time of the transfer. Therefore, any attempt to transfer property into a registered plan in anticipation of entering bankruptcy will not provide your clients with protection.<br /><br />Creditor protection has always applied to Locked-in plans, including the property in LIRAs, LIFs, and LRIFs, since these enjoy the same creditor protection as Registered Pension Plans under their respective provincial and territorial pension legislation.<br /><br />If you have any questions, please let me know.<br /><br />Cheers!<br /><br /><em>Tom </em><br /><br />Tom Buck, M. Ed. CFP<br />Certified Financial Planner<br />Assante Financial Management Ltd<br />#600, 1414-8th Street SW<br />Calgary, AB T2R 1J6<br />TEL 403.229.0128<br />FAX 1.866.386.9776Tom Buck M. Ed. CFPhttp://www.blogger.com/profile/17713509512315741782noreply@blogger.com0tag:blogger.com,1999:blog-2305234561298163205.post-8168485765407216582008-10-28T11:19:00.000-07:002008-10-28T11:28:17.109-07:00The forgotten element in financial planningGreetings!<br /><br />I'm going to call this newsletter "Tom versus the stock markets." I will keep this brief because I have written a lot about the stock markets recently. And then I'm going to finish with something much more important.<br /><br />As a broad measure of how my clients' portfolios are doing, I track the total dollars that I manage for all me clients. With the recent market drop, I want to compare this total to what the stock markets have been doing. I have numbers for the period September 9, 2008 to October 24, 2008. For this period--<br /><br />--the total dollars that I manage for all my clients has declined 15%<br /><br />--the stock markets in Toronto and New York are down, on average, 26%<br /><br />I believe that my "cushioning" of the stock market drop reflects my more conservative, pension-manager approach. And this approach will serve us well as poor markets come to an end followed by recovery. I don't know when this will happen. I do know that the doom-and-gloom that we find in the media will continue right through to the recovery. Stock market recoveries do not announce themselves: they arrive in fits and starts so that, only in hindsight, do we see their beginning. <br /><br />So while we wait, let's turn to something more important. It's what I call the forgotten element in retirement planning. Retirement planning tends to focus on crunching the numbers to see what we have to save in order to reach our goal later. That's important, but what are we really pursuing? <br /><br />We are pursuing a freedom to balance play and work in a way that is meaningful to us. For some, retirement means continuing a rewarding career but also playing as much as they want. For others, retirement means all play and no work. For everyone, it's the play that we look forward to whether it's learning to sail, travel, and so on. And what is the most important ingredient that enables play? Is it money?<br /><br />I submit that the most important ingredient for play is good health. This is the forgotten element in retirement planning: without good health, play can be very restricted. If you agree with me on this, you may also agree that good health is a lifelong pursuit: you can't wait to develop good health, you must build it into your lifestyle now through exercise and good eating. Lord knows I struggle with this, but I try to remember just how important it is. All the saving in the world might not come to much if we haven't looked after ourselves.<br /><br />One last point. Good health, unfortunately, is not a guarantee and if we are blessed with good health at the moment, then let's take advantage of it by doing some of the things, now, that we hope for. Want to learn to sail? Whatever your passion, why not sign up and get started?<br /><br />Happy sailing!<br /><br />Warm regards,<br /><br /><em>Tom</em> <br /><br />Tom Buck, M. Ed. CFP<br />Certified Financial Planner<br />Assante Financial Management Ltd<br />#600, 1414-8th Street SW<br />Calgary, AB T2R 1J6<br />TEL 403.229.0128<br />FAX 1.866.386.9776Tom Buck M. Ed. CFPhttp://www.blogger.com/profile/17713509512315741782noreply@blogger.com0tag:blogger.com,1999:blog-2305234561298163205.post-38705012739912866952008-10-16T13:59:00.000-07:002008-10-16T14:12:07.399-07:00October 11, 2008--article from the Toronto Star<p>The following article is written by David Olive, a business columnist with The Toronto Star, who shares his take on making sense of current stock markets.</p><p>Please use the link below, or, if the link becomes inactive, I have copied the article below.</p><p><a href="http://www.thestar.com/article/515946">http://www.thestar.com/article/515946</a><a href="http://www.thestar.com/default"> </a></p><p> </p><p><strong>TheStar.com - Business - Harper's not wrong on bargains<br />Markets to worsen before stocks hit rock bottom<br />So, in these uncertain times, what to do about your stock portfolio?</strong></p><p><br />October 11, 2008 David Olive, Business Columnist</p><p><br /><em>Buy on the sound of cannons.<br /></em>– Rothschild family investing maxim<br /></p><p>Some of us might be tempted by the bargains emerging in the incredible shrinking stock market. But we're waiting to exhale. Since last fall, when the looming global credit crisis first began to command the attention of the powers that be, the worldwide emergency crew of central bankers, finance ministers and regulators have, with mounting aggressiveness and creativity, experimented with a succession of more drastic rescue measures. So far, none have restored the investor confidence needed to arrest the downward spiral in stock values. </p><p>This week began for me with a call from an investment banker acquaintance urging me to join with his peers in "going to cash." By which he didn't mean GICs. He meant taking enough cash out of the bank to cover expenses for a few months. If today's plummeting share values go on much longer, "going to the mattresses" will no longer mean preparing for a war among the five families, as it did in The Godfather.</p><p>Yet, the global stock-market decline of nearly 40 per cent since June's peak is typical of severe bear markets, from which patient investors stoic about their paper losses have subsequently done very well. Just as bull markets always end, so do bears. And as an economist noted Thursday on PBS, "it's rare that you see this level of pessimism at the outset of a market collapse. It's more characteristic of the end."</p><p>Caution certainly is warranted. We're still a ways from the previous Dow Jones industrial average nadir of 7,286 in October 2002. Conditions likely will worsen further before equity markets bottom out. Investors already have been punished. I haven't seen Canadian estimates yet, but Americans are suffering a paper loss of about $2 trillion (U.S.) in their retirement savings. And it's tough to restore investor confidence when the news is dominated by the sudden disappearance of once-mighty U.S. financial institutions that controlled $11 trillion in assets.<br />Yet, it's too bad the expression fundamentally sound lost its reassurance value at the time of Herbert Hoover. Because the real economy is sound. Canada created 87,000 new jobs in the first eight months of this year, and 1.5 million since 2002. The jobless rate of 6.1 per cent is modest by Canadian standards. An otherwise gloomy report by the International Monetary Fund last week said that with an estimated GDP growth rate of 1.2 per cent, Canada will outperform its G8 peers, while avoiding recession. </p><p>Corporate balance sheets worldwide, outside of the financial sector, are for the most part strong. Inflation and interest rates are historically low. These are unusual signs of vigour for a downturn. The real problem is that stock markets are a slave to a global credit market in paralysis, a novel scenario in modern times. A U.S. capital markets observer last week said that "No one's afraid to lend to Berkshire Hathaway or Microsoft. It's only the financial companies they're leery of, because no one knows the true value of the 'assets' on their books." Yet, while it may be the arcane world of high finance that's gone haywire, not the broader economy, investors fret that eventually such recession-resistant firms as McDonald's Corp. will run dry of funds to pay its meat-patty suppliers.</p><p>But the point at which the real economy is starved altogether for capital is far off, and likely won't arrive. The orthodoxy-busting measures taken by world governments haven't yet had time to kick in. And it's manifestly evident that governments are prepared to do anything required to get credit markets functioning properly again, even if they have to convert post offices to state-run bank branches. </p><p>So, in these uncertain times, what to do about your stock portfolio?<br />Think twice about selling, because that will just lock in losses that now exist only on paper. It is a good time to evict the dogs in your portfolio and take a 2008 tax loss. </p><p>If you're invested in battered blue chips, and bought them, as Warren Buffett has long advised, because they're good companies worth owning forever, it's probably best to hang on for the inevitable upturn. There's no need to sell companies if they retain the solid balance sheets, consistent dividend payouts and dominant market-share position that drew you to them in the first place. These companies will emerge stronger from the downturn, if only for their ability to benefit from bargain-priced acquisitions and the shakeout among weaker rivals. </p><p>Finally, should you engage in bargain-hunting, the last thing on the minds of today's panic-stricken investors streaming for the exits? The answer is yes, if you believe, as I do, that this century will be the most prosperous in history. This century will be bereft of wealth-destroying world wars and will see developing-world economies – and not just China and India – striving for developed-world living standards. In what we once quaintly called the Third World, there will for decades be voracious demand for power plants, upgraded public-transit systems, the firefighting water bombers in which Bombardier Inc. has a global near-monopoly and the Waterloo, Ont.-designed BlackBerrys.</p><p>What to buy? The global food shortage that made headlines last summer hasn't gone away. Yet, such agribusiness stars as Potash Corp., Agrium Inc., Deere & Co., Archer Daniels Midland Co. and Monsanto Co. are all trading at about half their five-year highs.<br />Infrastructure giants that build power plants, elevators, construction equipment and lighting systems, including General Electric Co., United Technologies Corp., Caterpillar Inc. and Siemens AG, are trading at a one-third to 50 per cent discount to their five-year highs.<br />And each pays a generous divided (6 per cent in the case of GE) to cushion the short-term blow even if these stocks have a bit further to fall before rebounding. Leading chemical producers share that distinction, including BASF AG, Dow Chemical Co. and E.I. du Pont de Nemours & Co.<br />Some of my favourite defensive stocks are also available at fire-sale prices:<br />Walgreen Co., the dominant U.S. drugstore chain (about 50 per cent off its 5-year high); Rona Inc. (down about 60 per cent, and takeover bait for Lowe's Cos. or Home Depot Inc.); Big Pharma stocks Merck & Co. Inc. and Bristol-Myers Squibb Co., each trading at little more than half their 2003 price and boasting outsized dividends; and Cisco Systems Inc., the world's best-run supplier of telecom and Internet gear trading 45 per cent below its five-year high. </p><p>"There are probably some great buying opportunities emerging in the stock market as a consequence of all this panic," economist Stephen Harper, whose day job is running Canada, said earlier this month. "When stock markets go down people end up passing on a lot of things that are underpriced."<br />Harper was excoriated, of course, for real or perceived insensitivity to those with paper and locked-in losses, retirees in particular, during the admittedly cruel market of the past several months. But on this point, at least, Harper's empathy deficit doesn't make him wrong.</p><p><strong>David Olive</strong> writes on business and political issues. He can be reached at <a href="mailto:dolive@thestar.ca">dolive@thestar.ca</a>.</p>Tom Buck M. Ed. CFPhttp://www.blogger.com/profile/17713509512315741782noreply@blogger.com0tag:blogger.com,1999:blog-2305234561298163205.post-33955157434969604242008-10-16T13:47:00.000-07:002008-10-16T13:54:04.072-07:00October 9, 2008--Dealing with emotional timesGreetings.<br /><br />I try to have a clear sense of my role as your advisor, especially during turbulent times in the markets. Communicate, answer your questions and emphasize the rational perspective in the midst of emotional times. These are emotional times and are response is not helped by the newspaper or CNN, so it's important for me to provide perspective in the midst of the noise. I hope these newsletters help, and be assured that I will keep writing them.<br /><br />I attended a four hour seminar yesterday that was well-timed. The subject was stock market history and, in particular, the general behaviour of investors, economists and the media during times of bad markets [called "bear" markets]. Let me share a few of the highlights.<br /><br />Not surprisingly, falling portfolio values can make us feel fearful, triggered by the question "how bad can this get?" We know that economists are not immune to this fear and so their comments are not always helpful. Thus fear can turn into panic in which people become irrational and say "sell at any price, let's just get out." This behaviour, although self-destructive to our portfolios, occurs when emotions over-rule the mind. <br /><br />Another quick example of the power of fear was documented during the <span class="blsp-spelling-error" id="SPELLING_ERROR_0">SARS</span> virus crisis in Asia: one in four people thought that they were likely to get the virus and die, even though the actual probability was many times smaller.* How can we deal with fear and avoid panic?<br /><br />Focusing on the facts related to bear markets helps our mind to keep the fear in check. So let's do that. The facts about bear markets are--<br /><br />-Bad markets have always been followed by good markets and that is why patience is critical to success.<br /><br />-Trying to time the markets to avoid bear markets, however tempting the thought, is not practical.** <br /><br />-Bear markets are what we have to tolerate in order to have growth in our money over the long term and achieve our goals.<br /><br />-Our mutual fund managers are always active. With this, they have lessened our loss as compared to the broad market index and are now actively buying bargain stocks which will assist the recovery of our portfolio when good markets return.<br /><br />-For those investors still in the saving time of life, it's important that they continue to invest since cheap stock prices in good companies are available now. A bear market is an opportunity.<br /><br />-Most investors have consistently done the wrong thing at the wrong time by buying high and selling low. We must not follow the herd. Fight the good fight<br /><br />When we try to stay rational, our emotions may fight back. And what is the number one lie that our emotions will scream at us--"it’s different this time!" That lie comes out with every bear market we humans go through. And we need to recognize that this lie fuels the newspapers and the <span class="blsp-spelling-error" id="SPELLING_ERROR_1">CNNs</span>, for the simple reason that they want you coming back to hear more. Their role is not to give you good advice. But it is my role.<br /><br />If you want to read more, I’<span class="blsp-spelling-error" id="SPELLING_ERROR_2">ve</span> offered some thoughts below.<br /><br />Warm regards,<br /><br /><em>Tom</em><br /><br />*You can read more at-- <a href="http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_hassett&sid=aO8VJ9Y7qjrQ">http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_<span class="blsp-spelling-error" id="SPELLING_ERROR_3">hassett</span>&<span class="blsp-spelling-error" id="SPELLING_ERROR_4">sid</span>=<span class="blsp-spelling-error" id="SPELLING_ERROR_5">aO</span>8VJ9Y7<span class="blsp-spelling-error" id="SPELLING_ERROR_6">qjrQ</span></a><br /><br />**Why is timing the market so hard? Because we need the crystal ball twice: Once to know when to sell; once to know when to buy back.<br /><br />My other thoughts if you want to read more-- I mentioned Warren <span class="blsp-spelling-error" id="SPELLING_ERROR_7">Buffett</span> in my last email, one of the wealthiest men at $50 billion. Did you know that seven months ago, <span class="blsp-spelling-error" id="SPELLING_ERROR_8">Buffett</span> was worth $62 billion? When markets go down, he's not immune to paper losses. Here's the question I have--if you and I lost $12 billion, how would we react? Would we be tempted to sell and run for the hills? What did <span class="blsp-spelling-error" id="SPELLING_ERROR_9">Buffett</span> do? He invested $8 billion of his money. Why? Because he saw opportunity in the bear market and did what he's done all his life: invest when others are afraid. He's sticking to the process that made him wealthy in the first place. <span class="blsp-spelling-error" id="SPELLING_ERROR_10">Buffett</span> is rare as seen by the wealth that he has accumulated. <br /><br />When <span class="blsp-spelling-error" id="SPELLING_ERROR_11">Buffett</span> is asked what the "secret" of his success is, he answers that he was fortunate enough to study with the father of "value investing," Ben Graham. Among the ideas that Graham put forward is that the price of a stock today may have nothing to do with what the stock is worth. Remember that stocks trade by auction, so every time someone sells, it's because someone else is willing to buy. <br /><br />Further, in bear markets—when sellers line up in a panic to sell—it follows that the buyer has the possibility, then, to buy stock very cheaply. If the buyer has done his homework and identified a fundamentally sound company, he needs then to just wait and buy when that company's stock is on sale at a good discount. No wonder then that <span class="blsp-spelling-error" id="SPELLING_ERROR_12">Buffett</span> [and the fund managers that I like to use] are busy buying during this bear market.<br /><br />If this sounds simple enough, why doesn't everyone do it? Because a bear market is accompanied by fear and panic and these can paralyze rational behaviour. <span class="blsp-spelling-error" id="SPELLING_ERROR_13">Buffett</span> is rare because he remains rational even when surrounded by fear. There’s one more ingredient that goes into “being a <span class="blsp-spelling-error" id="SPELLING_ERROR_14">Buffett</span>.” Once you’<span class="blsp-spelling-error" id="SPELLING_ERROR_15">ve</span> bought stock in a fundamentally sound company at a good discount, making money requires patience while waiting for the stock price to go up. And you must continue to be patient even if the stock you’<span class="blsp-spelling-error" id="SPELLING_ERROR_16">ve</span> bought goes down in price [this requires fortitude].<br /><br />Finally—and then I will stop for now—being a <span class="blsp-spelling-error" id="SPELLING_ERROR_17">Buffett</span> is not about being right all the time with your stock picks. That would be impossible. But the discipline of buying good companies when their stock is on sale is all about increasing your probability of making money. You don’t have to be right with every company in order to win in the long run. That’s what <span class="blsp-spelling-error" id="SPELLING_ERROR_18">Buffett</span> has shown and Ben Graham taught him.<br /><br />Tom Buck, M. Ed., <span class="blsp-spelling-error" id="SPELLING_ERROR_19">CFP</span><br />Certified Financial Planner<br /><span class="blsp-spelling-error" id="SPELLING_ERROR_20">Assante</span> Financial ManagementTom Buck M. Ed. CFPhttp://www.blogger.com/profile/17713509512315741782noreply@blogger.com0tag:blogger.com,1999:blog-2305234561298163205.post-69784062660461026152008-10-16T13:41:00.000-07:002008-10-16T13:46:09.020-07:00October 6, 2008--US Congress supports bail-outGreetings!<br /><br />The US Congress voted for a second time on the bail-out proposal. As expected, the proposal did pass and the bail-out is now approved by both the Senate and Congress. This clears the US government, on behalf of taxpayers, to begin purchasing sub-prime mortgages from US financial companies in an effort to ease the paralysis that has prevented US institutions from lending to one-another, a practice that happens regularly under normal conditions [you may want to refresh your memory on this by reading my newsletter of Sep. 18<span class="blsp-spelling-error" id="SPELLING_ERROR_0">th</span>].<br /><br />The bail-out proposal has stirred a great deal of controversy in the US with some arguing that it was a bad deal for the taxpayer and rewarded incompetent banking executives. Without addressing all aspects of the controversy, let me point out that Warren <span class="blsp-spelling-error" id="SPELLING_ERROR_1">Buffett</span> is on record saying that, given the chance [which he was not], he would have invested $7 billion of his own money in the bail-out effort. Why? For the simple reason that he things the US taxpayer will end up making a nice return on the sub-prime mortgages being purchased. That is, the bail-out involves paying pennies on the dollar for the sub-prime mortgages and <span class="blsp-spelling-error" id="SPELLING_ERROR_2">Buffett</span> believes that, in time, those mortgages will be sold for more than the US taxpayer is paying for them.<br /><br />The example of the US bail-out is being followed in some European nations. Canadian financial institutions had relatively small exposure--or none in the case of TD Bank--to US sub-prime mortgages so, to my knowledge, there is no talk of a similar bail-out planned in Canada.<br /><br />And what about stock markets? The <span class="blsp-spelling-error" id="SPELLING_ERROR_3">TSX</span> opened sharply lower today as sellers drove markets down about 1200 points before buyers jumped in pushing the markets up about 650 points before the closing. Sellers and buyers will continue to battle it out and the current fearful environment will probably mean more sellers than buyers for awhile yet. There is always a mob mentality that drives markets in the short term. When fear is "in the air" and splashed across newspapers and TV news, it is contagious and makes it hard to act rationally. <br /><br />I'll finish this newsletter by quoting Warren <span class="blsp-spelling-error" id="SPELLING_ERROR_4">Buffett</span>, the most successful individual investor of all time who has built a net worth of over $50 billion [and is giving almost of it all away to charity]. In talking about his investment philosophy, <span class="blsp-spelling-error" id="SPELLING_ERROR_5">Buffett</span> said--<br /><br /><em>“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”</em> <br /><br />Bye for now,<br /><br /><em>Tom</em><br /><br />PS--as you've probably guessed by now, Warren <span class="blsp-spelling-error" id="SPELLING_ERROR_6">Buffett</span> is one inspiration for my investment philosophy and his life story is a fascinating one [did you know that he still lives in the same modest house in Omaha that he bought for $31,500 in 1958, doesn't carry a cell phone and drives his own car?]. If you would like to read more, check out--<br /><br /> <a href="http://en.wikipedia.org/wiki/Warren_Buffett">http://en.wikipedia.org/wiki/Warren_Buffett</a> <br /><br />Tom Buck, M. Ed. <span class="blsp-spelling-error" id="SPELLING_ERROR_7">CFP</span><br />Certified Financial Planner<br /><span class="blsp-spelling-error" id="SPELLING_ERROR_8">Assante</span> Financial Management LtdTom Buck M. Ed. CFPhttp://www.blogger.com/profile/17713509512315741782noreply@blogger.com0tag:blogger.com,1999:blog-2305234561298163205.post-40666230610082489292008-10-16T13:28:00.000-07:002008-10-16T13:36:46.971-07:00September 18, 2008--US financial crisisGreetings! <br /><br />My frequency of communication with you has picked up to try to keep up with the headlines. Recent coverage of events in the financial markets, of the US in particular, may create concern among some of you. I have had only three communications from concerned clients in the last couple of weeks, but my hope is that my newsletters will help all of you to make sense of what is going on.<br /><br />Allow me to begin with conclusions first and address some of the more alarming headlines—<br /><br />While there is confusion and concern about US financial companies as the impact of the sub-prime crisis works its way through the system, we are certainly not on the verge of a global financial collapse. <br /><br />Question—since mid-May, which stock market has fallen further, Toronto or New York? Based on the panic headlines about the US, you would think it’s New York. In fact Toronto has fallen more, largely due to the sell-off in resource companies. I mention this because no one in the media is talking about the end of the oil industry; they’re too busy writing headlines about the US. Needless to say, we shouldn’t believe everything we read.<br /><br />The value of a company as a business enterprise has little to do with the price of its stock today. Stock prices are falling across the board, yet Coca Cola still has a “license to print money.” The value investor is always thinking "I’ll buy Coke stock when it becomes cheap because other investors are distracted. Then I’ll sell the stock at a profit when other investors remember that Coke is a great enterprise."In spite of the sub-prime crisis, people will continue to drink Coke, visit Home Depot to plan a renovation, put gas in their cars and continue to invest for retirement.<br /><br />Let me say more about the US financial crisis by looking at AIG Insurance, the most recent chapter in the story. This week, AIG Insurance was bailed-out by the US government. For $85 billion, the US government took an 80% ownership of AIG and prevented its collapse. AIG is the largest insurance company in the world. Perhaps surprisingly, AIG was and continues to be a strong enterprise with over 100 profitable divisions [lines of business] and 116,000 employees world-wide. Virtually every American owns some AIG insurance on their house, car, etc. Insurance is one of the most profitable enterprises you can find. AIG doesn’t sound like a prospect for bail-out, does it? So what happened? <br /><br />A while back, AIG’s bosses decided to diversify into a new business line and insure mortgages investments, including investments derived from sub-prime mortgages. We’ve all read about sub-prime mortgages, but a quick review. Mortgage brokers were paid to write new mortgages with home-owners with poor credit ratings [thus the term-sub-prime]. In many cases, these people were unable to maintain their mortgage payments and defaults became widespread. Further, the mortgages were secured by houses with inflated values. The result of the defaults is whole neighborhoods as ghost towns filled with foreclosed housing that no one will buy. And written against these empty houses are worthless, sub-prime mortgages. <br /><br />On top of this predatory lending practice, investment banks like Lehman Bros packaged and re-packaged these mortgages into investments [known as derivatives] and sold them as high-interest alternatives to savings accounts, at a time when consumers were fed-up with the low interest rate environment. You can see the picture now of this “house of cards.” [The whole episode is a disgraceful story of bankers’ greed, the failure of bond-rating services, the failure of government regulation….but that’s another story].<br /><br />Back to AIG. In insuring mortgage investments derived from sub-prime mortgages, AIG had made a promise to compensate the investor should the mortgage investment turn bad. As the sub-prime mortgages were revealed as junk, AIG had to begin to pay up. At that point, AIG had a liquidity crisis, much like, to use a metaphor, the wealthy professional with the nice house, cars, cottage, who loses his job--lots of assets, great net-worth statement, but a cash-flow problem. That was AIG. <br /><br />Just a few months ago, AIG had no problem raising cash by issuing shares which were gobbled up by investors. But in the last month, the sentiment has changed completely, driven by fear about just how big the sub-prime crisis might be. And, afraid, investors did not want AIG shares at any price. In the same way, banks that previously would have lined up to lend money to the world’s largest insurance company held onto their cash. Thus the US government became the lender of last resort. <br /><br />So, here’s the point. AIG is a strong enterprise [the US government admits that their $85 billion investment will likely turn out to be a good one as the government sells off AIG’s profitable business lines]. AIG went under because fear prevented AIG from accessing solutions—issuing shares or borrowing money—that a strong company like AIG would normally have access to. The sub-prime crisis has created fear that has paralyzed the financial system. But the system is not a quadriplegic that will never walk, it’s just too scared to get out of bed. <br /><br />Yes, it’s disturbing, but the fear will pass. This is reflected in the debate amongst most experts about HOW LONG the crisis will take to pass, not IF it will pass. As I’ve said before, markets in the short term are driven by fear and greed. Fear is having its day right now, and stock prices in both good companies and bad have fallen. But as the fear passes, more and more investors will turn their attention to good companies with cheap stock prices, and start to invest as the recovery begins. And so the cycle will continue as it always has.<br /><br />Cheers!<br /><br /><em>Tom </em><br /><br />I welcome your questions and comments. <br /><br />copyright September 2008<br />Tom Buck, M. Ed. CFP<br />Certified Financial Planner<br />Assante Financial Management LtdTom Buck M. Ed. CFPhttp://www.blogger.com/profile/17713509512315741782noreply@blogger.com0tag:blogger.com,1999:blog-2305234561298163205.post-61016551523254460702008-10-16T00:14:00.000-07:002008-10-16T00:21:42.752-07:00September 9, 2008--follow-up to letter of Sept. 4Greetings again!<br /><br />I have had some good feedback on my newsletter of last week. One client responded by asking for "good news" as it comes along. Well, I have just been updated with August performance numbers for mutual funds that I use with clients and it confirms the perspective expressed in The Globe and Mail article that I included with my last newsletter--namely, that August was a very good month for value investors. September, in spite of the falling TSX, is a similar story.<br /><br />So while I do not focus on short-term numbers, let's look at the recent August performance. First, the context--In my newsletters since November last year, I wrote that resource stocks had reached irrational price levels and, while not knowing when, I expected a sell-off as the price of oil moved down. When this happened, investors would move to value stocks [i.e. good companies with reasonable stock prices].<br /><br />Remember that markets in the short term are driven by fear and greed. When one sector of the economy has stock prices driven up to irrational levels, a correction follows at some point when the direction reverses and fear kicks in. We can avoid, to some extent, the wild ups and downs of the stock markets by focusing on reasonably priced stocks in good companies, an example right now of value stocks being bank and other financial stocks. But there will be times when the value approach takes time to pan out and, certainly, the last year-and-a-half has tested the patience of you, my clients. I thank you for your patience.<br /><br />So how did August performance of my mutual fund choices provide good news?<br /><br />I'll just cite a few representative examples--<br /><br />Canadian stock funds--in the month of August, the Toronto Stock Exchange [TSX] lost value while Trimark Canadian Endeavour fund was up 6.4% in the month. As for Canadian Balanced funds [~50% invested in Canadian stocks] Trimark Select Balanced was up 3.5%, Mackenzie Universal Canadian Balanced was up 4.0%.<br /><br />On the global stock side, Trimark Fund was up 3.1%, Trimark Global Balanced up 1.7%; Mackenzie Cundill Global Balanced up 2.3% in one month.<br /><br />What's happening right now with the Toronto Stock Exchange falling one day after another?<br /><br />Here's a quote from The Globe and Mail late today--<br /><br /><em>"Jeff Parent, associate portfolio manager at Quadrexx Asset Management, expects commodities to continue their slump through the end of the year. He'll be looking to the financial sector to power any gains on the TSX for the rest of the year. Natural resources are getting killed," he said. "But I think there's a realization that the U.S. financial system is in somewhat of a recovery, and the Canadian banks are on fundamentally stronger ground. I think we'll see the financials start to take control of the index." </em><br /><em><br /></em>What to expect in the months ahead?<br /><br />Month by month, expect volatility. And I would suggest you don't watch your portfolio month by month if the ups and downs are going to upset you. Want to know how your portfolio has done? Look at 5 and 10 year average rates of return [which I always give you when you come in to see me]. That's exactly what I do when selecting good mutual funds for my clients. Shorter-term performance is distracting, can be upsetting, and tells us nothing about what investments will do well in the long term.<br /><br />Thanks for your comments and questions. You are always welcome to come and see me and, in fact, if we have not met face-to-face in the last year, please call me to schedule a meeting.<br /><br />Warm regards,<br /><br /><em>Tom<br /></em><br />Tom Buck, M. Ed., CFP<br />Certified Financial Planner<br />Assante Financial ManagementTom Buck M. Ed. CFPhttp://www.blogger.com/profile/17713509512315741782noreply@blogger.com0tag:blogger.com,1999:blog-2305234561298163205.post-61873132204302159102008-10-16T00:10:00.000-07:002008-10-16T00:14:24.815-07:00September 4, 2008--stock market commentaryGreetings!! <br /><br />I hope that everyone enjoyed some summer relaxation. I want to send you a brief note of update on the markets and an article to read to provide perspective. The recent decline in the Toronto Stock Exchange index is actually good news for value investors like myself [and therefore you]. The reason for this is that value investors do not buy the index [TSX] which is currently loaded with resource stocks [oils, minerals, fertilizer...] which are currently in some kind of free-fall. And with a free-fall in over-priced stocks, investors everywhere tend to shift their money to quality companies with stock prices priced for value. <br /><br />Well, these are the companies that value investors already own which currently includes, for example, bank stocks. I expect the shift to value stocks to continue which will reward value investors who, admittedly, have had to be a patient bunch lately. But, it's a pattern we've seen before which has provided long-term value investors with excellent returns and "fewer free-falls."<br /><br />So don't be alarmed by the news on the falling TSX. I'm providing below a recent article that argues for a view that I share and have written about in my last several newsletters. Please have a read in order to gain perspective on what's been happening in Canadian markets. I provide the article because I couldn't have said it better myself. <a href="http://www.theglobeandmail.com/servlet/story/LAC.20080903.RHEINZL03/TPStory/Business">http://www.theglobeandmail.com/servlet/story/LAC.20080903.RHEINZL03/TPStory/Business</a> Questions? <br /><br />[If the above link is not clickable, copy and paste it into the address bar of your browser. If that doesn't work, let me know and I will get the article to you].<br /><br />Warm regards and bye for now,<br /><br /><em>Tom</em> <br /><br />Tom Buck, M. Ed. CFP<br />Certified Financial Planner<br />Assante Financial Management LtdTom Buck M. Ed. CFPhttp://www.blogger.com/profile/17713509512315741782noreply@blogger.com0tag:blogger.com,1999:blog-2305234561298163205.post-17509637680443295422008-10-15T23:59:00.000-07:002008-10-16T00:02:11.432-07:00June 11, 2008--Caution re: Reverse MortgagesGreetings! <br /><br />You may have seen the TV ads for reverse mortgages showing very happy seniors enjoying their new-found money. It's promoted as the "CHIP program." A reverse mortgage, as the name suggests, is a way for seniors to get a lump-sum, tax-free payment based on equity that they have in their home. As you can imagine the payment creates a debt against the house. And, because the senior typically makes no payments against the debt, the debt grows quickly due to the accumulating interest owing. <br /><br />Now, one might expect that the interest rate charged on this debt, by CHIP, might be comparable to mortgage rates [e.g. for a mortgage, the current fixed 5-year discounted rate is 5.25%]. Unfortunately this is not the case. The current fixed 5-year rate on the CHIP loan is 8.6%**. That's high. And at 8%, for example, the size of the debt to be repaid will double every 9 years.<br /><br />Imagine, then, a senior pulls out $100,000 at age 65. By age 83, the debt will have grown to $400,000 [which is typically collected by CHIP when the house is sold]. To be fair, the house should rise in value over those 18 years, but the bottom line is that the CHIP interest rate is high resulting in a compounding growth of the debt that can become painful to the senior and the family.<br /><br />If you know of anyone contemplating a reverse mortgage, my advice would be for that individual to get an expert, second opinion and to explore alternatives to the reverse mortgage. Only then can an intelligent decision be made on the merits of the reverse mortgage for that individual.<br /><br />Cheers!<br /><br /><em>Tom</em><br /><br />**RATES AND FEES TO PARTICIPATE IN THE CHIP PROGRAM--"There are some set-up costs. The fees for an independent home appraisal are typically $175 to $400. The amount varies by province and whether you're in an urban or rural area. Fees for independent legal advice are typically $300 to $600. In addition, legal & closing costs of $1,485 are deducted from your CHIP Home Income Plan funds so they are not an out-of-pocket expense." [see details at <a href="http://www.chip.ca/index.cfm?id=100&language=english">http://www.chip.ca/index.cfm?id=100&language=<span class="blsp-spelling-error" id="SPELLING_ERROR_0">english</span></a> ]<br /><br />Tom Buck, M. Ed. <span class="blsp-spelling-error" id="SPELLING_ERROR_1">CFP</span><br />Certified Financial Planner<br /><span class="blsp-spelling-error" id="SPELLING_ERROR_2">Assante</span> Financial Management LtdTom Buck M. Ed. CFPhttp://www.blogger.com/profile/17713509512315741782noreply@blogger.com0tag:blogger.com,1999:blog-2305234561298163205.post-30953595911841620042008-10-15T23:54:00.000-07:002008-10-15T23:57:30.202-07:00May 27, 2008--Follow-up to letter of May 14Greetings again!<br /><br />About a week ago, I sent out my last newsletter about how speculators differ from pension managers, and my approach to investing RRSPs for retirement. If I were to highlight one point from that article, it would be this—in managing RRSPs we have to aim for reasonable and reliable returns to reflect the importance of accumulating and maintaining a nest egg for retirement.<br /><br />In 2007, we’ve experienced something that we need to expect, namely that not all our investments always go up. So “reliable” does not mean every year is a good year! This is the price one pays for growth. Take for example one of my favourite funds Trimark Global Balanced fund. It has a 5 year average annual return of 10.7% per year [which is great] but last year dropped by 12% [ouch].* But remember that the 10.7% result includes last year’s loss. <br /><br />Thus we are reminded of the importance of focusing on the long-term rate of return and ignoring, or at least keeping perspective, when looking at one year results. This brings me to the message of this newsletter and I’ll stick with my example of Trimark Global Balanced fund [there are other examples I could use]. Let’s consider the following facts—<br /><br />1. Over any 5 year period in history, the fund has never dropped in value. The average annual compound return for this fund over all 5 year periods is 9% per year.**<br /><br />2. The fund has been around for 8 calendar years. During that time, it dropped in value in only 2 of those years. In 2002 the fund dropped by 8.1%. The next year, 2003, it gained 23.5%. In 2004 it gained 11.2%. So here are my points. Growth funds will drop in value about once in every 4 years [when averaged over the long term]. We should expect this to continue and understanding this will help us weather the bad years.After growth funds have dropped, they have eventually recovered [gone up] and often they recover quickly.Good funds over the long term provide reasonable and reliable returns. Let me finish by pointing out that Trimark Global Balanced fund dropped by 8.1% in 2007. <br /><br />So what might happen next? Well, it’s already started—the fund made 4.62% in the last 3 months. And if history repeats itself, and I’m confident it will, I’m going to be writing another newsletter down the road—a year from now, two years?—and saying, yes, our patience in the aftermath of 2007 was rewarded. And what I can say right now is thank you for your patience and for trusting me to be your advisor.<br /><br />Cheers!<br /><br /><em>Tom </em><br /><br />PS—have any questions for me? Please let me know. <br /><br />*for the period ending March 31, 2008. Note that 10.7% occurred at a time when GICs were paying about 4%.<br /><br />** measured by a “trailing return basis” meaning that for each month that the fund has been around, you go back 5 years and measure the return.<br /><br />Tom Buck, M. Ed. CFP<br />Certified Financial Planner<br />Assante Financial Management LtdTom Buck M. Ed. CFPhttp://www.blogger.com/profile/17713509512315741782noreply@blogger.com0tag:blogger.com,1999:blog-2305234561298163205.post-86188004233833778612008-10-15T23:38:00.000-07:002008-10-15T23:49:09.668-07:00May 14, 2008--Timeless truth about investingHere's my perspective on a timeless truth about achieving long-term investment success. But first, some quotes--<br /><br /><em>"Despite the recent record jump in oil prices, the outlook suggests that oil prices will continue to rise steadily over the next five years, almost doubling from current levels</em>." --Jeff Rubin, chief economist at CIBC World Markets, predicting in April this year, that the price of oil will go to >$US200 by 2012<br /><br /><em>"It (the future price of oil) is all speculation. We might as well be talking about the future price of broccoli or TV sets."</em> --Bruce Orr, spokesperson for the Canadian Petroleum Institute, commenting on Rubin's prediction<br /><br />Many people love to predict and to read the predictions of others. You can't help noticing, though, that people who predict rarely agree on their predictions. Makes me glad I'm not an economist. <br /><br /><strong>Is the ability to predict the future a key to being a successful investor?</strong> <br /><br />It depends on what kind of investor you are and how you define success. Every investor has to wrestle with the fundamental fact that the higher the rate of return you target, the higher is the risk that you will not achieve your target. This is known as the law of the risk/return relationship. "Speculators" are investors who want big rates of return, the bigger the better, and sooner than later. This requires the investor to make the right prediction AND to sell before any gains become loses. <br /><br />Speculation is inherently risky because pursuing big potential returns puts you at higher risk of losing your money. Speculation, therefore, puts your capital at risk and leads to unreliable rates of return. I have been told by professional speculators/investors that for every 10 stocks chosen, they expect--on average over the long term--7 of those stocks to lose money. They hope that the remaining 3 stocks will go up enough to cover those losses and leave them with a profit. Speculation, when it works, can be exhilarating, even intoxicating. And the toughest things about being a speculator? Knowing when to sell and tolerating loses.<br /><br />I have nothing against speculators but it's not what I do for clients. I'm another kind of investor that is best described as a "pension manager." <br /><br /><strong>How does a pension manager differ from a speculator?</strong><br /><br />1. Pension managers avoid losing money. A 50% loss requires a 100% gain just to get your capital back. Yes, there may be paper loses over short time frames, but you certainly do not want loses in the long run. That brings us to the second point.<br /><br />2. Pension managers aim first, over 5-plus years or more of investing, to preserve capital. The second goal is a "reasonable and reliable" rate of return.** In other words, pension managers will not chase big returns because preservation of capital comes first.<br /><br />3. Pension managers don't believe that consistently predicting the future is possible, and don't speculate with other people's money.<br /><br />4. Pension managers balance risk and return to maximize the possibility of reaching your target rate of return with the minimum amount of risk possible. This is key.<br /><br />5. Pension managers rely on a patient, disciplined system of investment analysis developed over years of testing. And they do this in an effort to provide a reasonable and reliable rate of return in the long term. ** <br /><br />**Note "reasonable" means a rate of return that aims to be higher than what a "no-risk" bank account will pay. "Reliable" means a rate of return we can be confident--but not certain--about achieving over the long term. [Not certain because past returns do not guaranteed future returns.]<br /><br />If someone asked me, 'what's the most important thing you try to do for clients?' my answer would be that I help clients achieve their long term financial goals. Now, "achieving financial goals" may sound like nothing more than a slogan. But consider this. My typical clients come to me long before they retire and we work out a plan, including projections for rates of return, to allow them to look forward to their retirement goal. And, not surprisingly, it really matters that those projections be reasonable and reliable. <br /><br />I started in this business 14 years ago in April 1994 which is long enough ago that some of my first clients are now entering retirement. And what started out as a projection into the future is becoming a reality and they and I see, right now, whether their retirement goal was achieved. In other words, the retirement plan we designed years ago is now, in effect, being "graded"--does it get an "A' or an "F" grade? I'm proud to tell you that it's an "A." And that brings me to why I'm a pension manager--my clients rely on me to try to protect their capital and provide a reasonable and reliable rate of return over a period of many years. Without these things, we can't plan and they can't hope to achieve their goals. <br /><br />Cheers!<br /><br /><em>Tom</em><br /><br />Tom Buck, M. Ed. CFP<br />Assante Financial Management Inc.<br />email: <a href="mailto:tom.buck@ethicalfootprint.ca">tom.buck@ethicalfootprint.ca</a>Tom Buck M. Ed. CFPhttp://www.blogger.com/profile/17713509512315741782noreply@blogger.com0