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Markham Living: Dewling Finances |
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December 2007 – The United States is home to over 40% of the world’s equity market capitalization, possessing a greater share of wealth than any other nation. Right now, the U.S. equity market offers unique opportunities to Canadian investors.
Historically, there has almost never been a bad time to invest in America for long-term investors. Despite occasional dips and corrections, the world’s largest economy has maintained a steady long-term growth trend and produced solid returns for patient investors.
U.S. equity markets have recently faced a number of well publicized headwinds, but it’s important to keep these short-term economic trends in perspective. U.S. economic fundamentals remain strong, corporate earnings are healthy and stock valuations are attractive. In fact, there are many reasons to believe that investing in the U.S. is a particularly timely decision right now, especially for Canadians.
The United States is home to more corporate headquarters than any other country and is the largest single stock market in the world. It makes sense to have some U.S. exposure in your portfolio, especially if your goals are earning strong long-term returns, diversification and managing risk. In fact, I’d argue you can’t afford not to!
Right now, there are several key themes that make U.S. investments an interesting opportunity – particularly for Canadian investors.
Although investing in Canada has paid handsome rewards in recent years, it is important to remember that Canadian equities represent 4% of world stock market capitalization. Further, our market depends overwhelmingly on just a few sectors, namely materials, financials, and oil and gas. Investing in the U.S. can give you more exposure to additional major world industries such as consumer goods, technology and health care, which can increase your portfolio’s over-all return potential while managing risk.
Measured in U.S. dollar terms, the benchmark S&P 500 index has gained more than 100% since its low point in October 2002, or approximately 15% per year. The U.S. market has also outperformed the MSCI World Index over the past 20 years. An analysis of the index shows that a global portfolio with U.S. exposure has outpaced a global portfolio without U.S. exposure by approximately 1.1% annually.
Back in 2002, a Canadian had to pay as much as $161,000 to acquire a $100,000 investment in the U.S. But today, with the Canadian & U.S. dollars valued much closer to par, we are able to buy the same investments at a dramatically lower cost. This currency advantage means Canadians are now able to buy shares in the world’s largest equity market at a historical low price.
While sub-prime lending and housing woes have grabbed headlines, the U.S. remains an economic powerhouse. Inflation is below the average level of the last 17 years, unemployment is low, consumer spending is relatively strong and U.S. corporate earnings have continued to rise. Plus, many major U.S. companies derive as much as one third of their earnings from overseas sources, and are able to benefit from a strong global economy as well as strength in their home market.
U.S. corporate earnings have been growing at an above-average rate for the last five years, yet share prices have not kept up. As a result, there is strong argument that U.S. stocks currently offer attractive valuations compared to the current and expected future profits being earned by American companies.
To find out how U.S. investment opportunities can add value to your portfolio, email me.
The content of this article is current as of December 1, 2007, is for information purposes only and is not intended to offer tax advice. A tax advisor should be consulted prior to implementing any tax strategy.
Article by Shane Dewling for SayItCornell.com
©2007 All Rights Reserved. |
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July 2007 – This is the second part of June's A Roadmap for Financial Success, continued from:
 Building an investment portfolio;
Diversify and rebalance; and,
Stock funds offer best long-term potential.
Both men and women are living longer, and professionals retiring at 65 may be looking at financing a good 30 years or more. The lynchpin of any retirement plan is the Registered Retirement Savings Plan (RRSP), which allows annual contributions to be deducted from current income, income splitting, and tax-deferred compounding within the plan. The increased diversification provided by the ability to invest globally can potentially lower risk and enhance returns. In assessing the retirement income needs of you and your spouse, consider all sources of future income, including government pensions, company benefits, proceeds from the sale of a business or dental practice, inheritances, and investments held outside of an RRSP. Any plans to supplement retirement income with a part-time job or consulting work will also have a bearing. Other factors that can have an impact on an investor’s retirement planning are special health concerns, significant age differences between spouses, or children born late in life.
Unfortunately, a long, healthy life is not guaranteed. Accidents, illness and untimely death can deal an unwelcome blow. Various types of insurance can protect you and your family against misfortune — including life, disability, critical illness and long-term care. Having insurance in place is a necessity. In determining your insurance needs, many factors need to be considered, including the potential lost income as well as the income earning abilities of your spouse and the cost of putting food on the table until your children become independent.
Strategies to reduce and defer tax are an integral part of an investor’s financial plan. It’s important to assess your tax planning needs with a financial advisor to make sure you are taking advantage of legitimate ways to reduce the tax bite on your earnings, including maximizing RRSP contributions, income-splitting opportunities with family members, and deferring and offsetting capital gains. Remember that interest income is taxed at a higher rate than dividends or capital gains, and this may affect which spouse holds certain securities and whether they are best held inside or outside of an RRSP.
After a lifetime spent building and managing your wealth, the transfer of assets to a surviving spouse or partner and other beneficiaries must be done carefully. It’s important to know what tax liabilities are associated with which assets, and what measures you can take to ensure an equitable distribution among beneficiaries. A variety of estate planning tools are available, including wills, trusts, charitable donations, private foundations and gifts during your lifetime. Life insurance typically provides a tax-free benefit, and can also be used to supplement existing assets and to cover tax obligations triggered by death.
The content of this article is current as of March 1, 2007, is for information purposes only and is not intended to offer tax advice. A tax advisor should be consulted prior to implementing any tax strategy.
Article by Shane Dewling for SayItCornell.com
©2007 All Rights Reserved. |
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Part I – A Roadmap for Financial Success
FIND OUT MORE ABOUT SHANE DEWLING >>
June 2007 – Every investor faces a wide variety of complex, interrelated financial choices on the road to long-term financial security. While many people share similar basic goals, such as providing for families and living a comfortable lifestyle in retirement, we all have different dreams, responsibilities, and financial resources.
In achieving our financial goals it helps to have a map to ensure no important destinations are missed. Investment, retirement, taxes, insurance and estate planning are all interrelated parts of an individual’s financial life and they all work together. A financial roadmap helps you form a coherent overall strategy, making the component parts easier to manage.
It’s important to build a customized and diversified investment portfolio that suits your time frame, income, risk tolerance and financial lifestyle goals. Your investment horizon is a shifting variable and depends on the timing of specific circumstances – family formation, child-rearing and education, eldercare, weddings, home buying and selling, and ultimately, succession and estate planning. Events such as job loss and divorce also play a part. A sound investment plan will help you get through both expected and unexpected events. Your choice of investments should be tied to the ultimate use of funds and whether they’re needed in the short, medium or long term. For example, financing your children’s education or renovating a home may loom much closer than saving for a vacation property or enjoying a comfortable retirement. Your portfolio can include a broad range of individual securities and mutual funds, giving you exposure to domestic and international stocks, bonds, specialized income–producing securities, small capitalization stocks, and money market instruments. Mutual funds offer many advantages, including diversification across a broad mix of securities, professional portfolio management, and ease of management. The shorter the investment time frame, the less volatile the investment should be. Money market, bond, and balanced mutual funds tend to be less volatile than investments purely in stocks.
Saving for long-term goals usually involves investing at regular intervals, rather than trying to pick the absolute perfect time to invest. Market highs and lows are impossible to identify except in hindsight. It’s wise to diversify across various asset classes to match your individual circumstances, and rebalance regularly to bring your portfolio back to the desired asset mix that fits with your risk tolerance. The past few years have given most of us a chance to see how our ability to sleep at night is affected by market volatility, and it may help your peace of mind to add some balance to your portfolio by holding at least a portion of it in stable investments such as fixed income securities.
Keep in mind that stocks and stock mutual funds will fluctuate in value, but they have traditionally offered the best long-term returns and tax advantages, and it’s important to remain committed to these investments during inevitable difficult periods. Often the best gains are made by those with the fortitude to buy when others are indiscriminately selling high-quality investments. While market gains can be exciting, dips can be anxiety-inducing, and it’s important to take a rational view of what is occurring. By keeping your eye fixed on long-term expectations, you will reap the rewards that a diversified portfolio of well chosen investments can provide over time. Commitment to a long-term disciplined investment strategy can be an effective balm for fear and doubt.
Come back next month for Part 2 which will cover the following topics:
Retire in style;
Construct an insurance safety net;
Minimize the tax bite; and
Your financial afterlife.
The content of this article is current as of March 1, 2007, is for information purposes only and is not intended to offer tax advice. A tax advisor should be consulted prior to implementing any tax strategy.
Article by Shane Dewling for SayItCornell.com
©2007 All Rights Reserved. |
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Top 5 Worst Practices in Financial Planning
FIND OUT MORE ABOUT SHANE DEWLING >>
April 2007 – In the last issue, we talked about the 5 best practices of financial planning. If you are following them exclusively, you will avoid the investment traps of the worst practices. Here are the top 5 worst practices for you to review and avoid.
Constantly switching investment vehicles to access better returns (the flavour of the month stock or fund). Also bouncing from one financial company to another looking for outrageously high-posted returns with unrealistic expectations. Once again, these hasty decisions might counteract your long-term financial goals and will also increase your portfolio’s risk exposure — something you might not be able to afford.
Acting on investment advice of a friend, family member or a colleague who is unqualified to dispense investment counsel. The famous “my brother-in-law suggested I invest in” is not a professional and effective way to manage your money. Good or bad, if you are hearing word-of-mouth recommendations to buy or sell, nine times out of 10 you are probably too late. This is because you are using emotions rather than your logical financial plan to drive your actions. A spontaneous investment might counteract your long-term financial goals.
Correlating your tax picture with your investment portfolio. Many people do not realize the impact of taxes on their finances. They only look at their tax picture at the end of April, paying what they owe rather than digging deeper to see if the portfolio can be restructured while keeping the same risk tolerance but lowering the cash output due to higher tax costs. You should try to understand how the income tax system can work for you (be familiar with programs where tax authorities are prepared to help you reach your objectives, such as RESPs).
Assuming investment past performance is indicative of future performance. It is rare, however, for an individual manager to be the top performer year after year. There is danger in focusing on any one year or, for that matter, on the short-term performance of any given manager or fund. Trying to pick the best manager or fund on the basis of short-term performance is equal to playing roulette. By chasing last year’s investment winners, you are more often than not chasing this year’s losers. Do not base your investment decision on short-term performance.
Over-concentration in an individual security. We saw this recently with Income Trusts. Many people jumped into the market and bought Income trusts. They may have bought an amount that represented a small part of their overall portfolio, but it grew in some cases to represent 5, 10 or 20% of their portfolio. Whenever an individual stock represents over 10% of the portfolio, there is risk — something that also happens with employee stock option plans. Some employers allow 10% of one’s gross pay to go to the company stock. If an employee does this, they will quickly have a large percentage of the overall portfolio in this stock without considering the risks involved. Over-concentration is not limited to securities. Some people may have put most of their RSPs into technology mutual funds in 2000, only to see their account values drop significantly just a few months later.
I sincerely hope that you have avoided these investing traps. If you haven’t, please take a look at last month’s article to ensure that you’re taking my best practices and using them to your advantage.
Article by Shane Dewling for SayItCornell.com
©2007 All Rights Reserved. |
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Top 5 Best Practices in Financial Planning
FIND OUT MORE ABOUT SHANE DEWLING >>
March 2007 – When it comes to investing, investors have a wide range of financial knowledge. Some are very involved in their day-to-day financial planning; others want to leave all decisions to an expert.
To give you an idea of what action should be avoided and what decisions can benefit your financial health, I have put together a two part article series of “top 5” best and worst practices in financial planning.
Invest the time to have a written financial plan tailored to your individual situation, that makes sense for you and your family. Commit to a long-term plan and live it! Your financial plan is a living document; it is constantly evolving and needs to be updated regularly. While best to start early, regardless of your age, make sure to establish measurable goals. If you articulate your goals clearly, it is easier to establish a plan. For example, you might want to retire by age 60 with $50,000 in income. By knowing what you want, your Financial Consultant can work with you to help you achieve your goals. Don’t forget to factor in items such as life insurance, estate planning and a Will as they will have an influence on the financial decisions you make.
Your risk exposure should not be increased or too high when you are entering or in retirement. Risky investments need to be done earlier in your career when you have enough time to recover from a potential loss. Risk profile should be decreasing
at retirement.
Review your progress periodically so that you are aware of how things stand and how a current event might be affecting your portfolio. To ensure you are on track and can make informed decisions, you need to review your financial plan once or twice a year.
Maintain an asset mix that is consistent with your risk tolerance and re-adjust your portfolio when necessary. The key is to adopt a disciplined strategy that works with market movements, as opposed to attempting to predict future market movements.
Start saving money now for long and short-term objectives, such as your retirement, child’s education, annual vacation or a new car. Make sure that money put aside for short- term purposes is not invested in volatile instruments. You don’t want to use an emerging market fund to pay for your vehicle purchase next month.
These are the top 5 best practices for your financial planning. Look for next month’s article for my 5 worst practices in financial planning.
Article by Shane Dewling for SayItCornell.com
©2007 All Rights Reserved. |
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