We’ve got a new video out in time for the New Year! What stories mattered the most in 2013? Who lost biggest? Watch to find out!
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From the Desk of Brian Walker – The New Year is a Time for Reflecting on the Past
This Christmas will likely be remembered by many of us as the holiday that nearly wasn’t. While many found themselves without power, including Adrian, I was lucky and relatively unaffected. But seeing so many of my friend’s and family’s Christmas plans so greatly disrupted caused me to think on better years. It seemed appropriate that the theme of the Queens message this Christmas was “Reflection and Contemplation”, and after listening to the Queens speech I spent some time reflecting on my life and came to the conclusion that I have much to be thankful for and owe many for that good fortune.
It was exactly 21 years ago to the day that Damaris and I walked into the offices of The Financial Planning Group on Bloor Street to start my new career in financial services. After twenty three wonderful years at Wardair, several more years as a private consultant to major corporations, having owned a significant percentage of a major tour company and started two airlines, I knew it was time for another long term career. It took time to realise that I needed a role away from “travel” and it was friends and my lovely wife who convinced me to bring my skills to the burgeoning financial service industry.
Perhaps the most rewarding aspect of what we have accomplished since January of 1994 is that we still have many clients with us today who signed on with us that first year. To those clients and the many that have joined us since, I would like to extend an enormous “thank you” for your business, your understanding, and your support during both good and bad times. For example, I was amazed that while I was reaching out to our investors during the 2008 market meltdown how many of our clients who called to see if we were OK! Our clients rallied around us in 2010 when I had my heart attack and subsequent bypass surgery. And then in 2012 when Damaris passed, the outpour of grief and messages of love and support by those of you who had known her was unbelievable.
I am leaving for my winter holiday this week and I have asked Adrian and his family to join us in Barbados for a few days. We would not normally be both away at the same time but this is a special trip. Adrian has secured permission for us to take Damaris’s ashes to the island to be scattered. Barbados was a very special place for Damaris who I think visited annually since the early 1960’s and she and Adrian spent nearly six very happy months on the island when he was a baby while I flew down most weekends. Adrian was just nine months old on his first visit and he and Shraddha are thrilled to be taking little Sophie on her first visit at eleven months, hopefully one of many. Kimber, freshly returned from her sun vacation will be in the office and Adrian will be setting up a “virtual office” so business can carry on as usual.
In February we will be reminding all clients who need to make RRSP contributions for 2013 to do so but if you would like to get this chore out of the way you can do so with an electronic transfer to your B2B account or simply mail us a cheque.
In summary thank you again and my very best wishes for 2014.
Sincerely,
Brian Walker
Be the Most Interesting Person at Christmas Dinner
Merry Christmas and Happy Holidays! We’ve been busy over here for the last couple of weeks and unfortunately I haven’t been able to update our blog as often as I would like. However lots of interesting and important things have been happening over the past two weeks and they are worth mentioning. Check them out below!
Bitcoin is maybe not going to survive. Maybe: There is an ongoing fight about whether Bitcoin, the digital currency, is in fact a real currency. Bitcoin has been criticized for being a tool of the criminal underworld, and praised for its inventiveness. But like all fiat currencies there is a lot of speculation about whether it is worth anything. After all, who is backing Bitcoin? There is no government that will guarantee it and not every government is happy with it, and its value fluctuates wildly. And yet Bitcoin persists, at least until today. China has just banned Bitcoin and its largest exchange will not accept any more deposits, sending the value of Bitcoin tumbling.
What’s good for the investor maybe bad for the economy: There is a demographic shift going on in the Western Developed nations. People are getting older. Not just older, but retirement older, and as a result the economy is feeling pressured to respond to needs arising out of this aging baby boomer trend. One of those shifts is towards dividends. Dividends are traditionally issued by companies to their shareholders when the companies have extra money lying around and can’t use it productively. However many companies, especially large ones that generate more cash flow than they can reasonably use issue regular dividends, such as banks and many utilities. This is useful to investors that are looking to retire or are retired already. Regular dividends help provide retirees with regular and predictable income. However dividends may be bad for the economy. CEOs are often rewarded for market performance, and markets tend to like companies that increase their dividends (Microsoft increased its dividend in September). But companies can be far more useful to the economy generally when they invest in growth rather than give money back to shareholders. That would mean hiring new people, building new factories and generally moving money through the economy. But as much of the population ages and looks for dividends this might undermine the both growth in economic terms and affect choices that CEOs make about the future of their companies.
Canadians are at record debt levels, again: This may not come as much of a surprise, but Canadians have record debt levels and nothing seems to be correcting it! This story began regularly occurring in 2010, 2011, 2012, and of course 2013. What is more important about how high the debt of Canadians continues to rise, but what’s driving it. Not surprisingly it’s mortgages. The high cost of Canadian housing has worried the federal government, and many global organizations. But far worse would be a deflationary cycle on Canadian homes, driving down the price while saddling home owners with debts far in excess the value of their houses. Despite a number of efforts to limit the amounts that Canadians are borrowing, the very low interest rate set by the Bank of Canada is keeping Canadian’s interested in buying ever more expensive homes. The reality is that no one is really sure what is to be done, or what the potential fallout might be. What is clear is that this can’t continue forever.
We’re going to be taking next week off, but will be back in January!
It’s Official, Young Canadians Need Financial Help
It must be terribly frustrating to be a twenty-something today. It’s hard to find work; you probably still live with your parents and a whole culture has developed around criticizing your generation. But beyond the superficial criticisms directed at twenty somethings, there are structural shifts going on within the economy that are making paupers of the next generation.
Some of these shifts do extend from things like a lack of good paying jobs in manufacturing and an increasingly reliance on service sector jobs. There are many university graduates that now find themselves in work that they are overqualified for and underpaid in. But some of the changes also come from an increasingly high cost of living that is making it financially untenable to move out of a parents’ home. This phenomenon has been dubbed “boomerang kids”, or “boomerang generation.”
The challenge that the Millennial generation is facing is that costs are rising as a proportion of their income. Consider the cost of a house in Toronto. In November of this year the average cost of a home sold in Toronto was $538,881, up 11.3% from November of last year. Assume you make the minimum downpayment to get a home, 5%, your downpayment would then be $26,944 (roughly). Your monthly payment on a 25 year fixed rate mortgage would be $3,077 per month, or close to $36,924 per year. If we factor in real-estate tax and an average heating cost, that would bring annual costs to roughly $43,000 a year. That would mean that to qualify for the mortgage with a bank you would need to be earning at least $134,375 before taxes. The average income in Canada is $47,000.
We can quibble about how accurate these numbers are, but it would still amount to the same end. It costs a lot today to be like your parents. Buying a house for the first time is incredibly expensive and forces young people to make different choices about how to spend their money. For many millennials this has meant “postponing” growing up, financially as well as spiritually. But what today’s young generation actually need is a working budget that lets them get a big picture of their spending and allows them to set and reach financial goals. There are free services, like Mint.com (which I am very much in favour of), but even better is that young people should be encouraged to seek out professional financial help. People with a small amount of savings often feel discouraged about seeing a professional, but getting this guidance early on can lead to significantly better financial outcomes, comfort with the markets and wiser tax efficient planning!
Want to discuss your future planning?
From the Desk of Brian Walker – In Retirement Go Small
For many people approaching retirement, there may be mixed feelings about their house. Perhaps not their house, but their home. Homes are where important things happen for families and for many soon-to-be retiring couples there is sometimes some question about whether you should sell your home, or keep it in retirement.
While you may have lots of fond memories about your home however (and while your children may never forgive you for turning their room into a train model city) selling your family home in retirement can be liberating, financially and personally. Downsizing in retirement can represent an exciting new phase of your life, providing you with more leisure time, additional funds for travel and a considerable reduction in the amount of manual household chores.
I speak from experience, having recently moved from a country home of nearly 4,000 square feet and three acres of grounds to a modest 1000 sq ft condo in downtown Toronto. But deciding to make the move was difficult. I knew the benefits of parting with my home, the extra money I would have and the lack of physical work, etc. But I also recognized that I would also have to part with many things I had acquired in my life. In the end what finally drove my decision was the realization that caring for my home was now more a burden than a joy.
In most cases you will never be as healthy, or as in good shape as we are today. Retirement is no longer about spending your remaining years in your slippers. I have a bucket list of things I’d like to do, trips I’d like to take and a granddaughter I enjoy playing with. Your retirement should be about what you want, and while the decision to downsize our houses and change our lifestyles can be difficult, we shouldn’t be squandering our active years shackled to our homes.
It took me a year to make up my mind that it was time to downsize. Ultimately a pro and con list really helped crystallize my choice. There was lots of work to do, lots of emotion and stress associated with the move, but after six months in my new home I know I made the right decision.
Successful Cities Don’t Always Feel Successful
In the ongoing tedious and sad affair that is Rob Ford, I came across an interesting article from Edward Keenan written just before Mayor Ford won his election. The pertinent part of the article I feel is where the Ford campaign’s genius was to define the election around the idea that Toronto is a city in decline. This idea, which caught on as the election narrative suited the Ford camp well, and by pointing to traffic, city projects and basically the realities of a city that is rapidly growing made it appear that Toronto really was broken.
But Toronto isn’t broken, and many of the problems that we face are actually the problems of a city that is incredibly successful and growing rapidly. It’s ironic that the outward signs of our success are some of the things that aggravate us the most, but its a reminder that strong economies don’t look like lazy towns on a Sunday afternoon but instead are chaotic, busy, hot and frustrating. It’s also interesting that many of the problems that successful cities face (and things that define a successful city) don’t ever change, regardless of the age. Noise, construction, overcrowding, congested traffic and suburban resentment are the hallmarks of prosperous cities.
Since I am a great believer that cities are our economic future I think its worth pointing out that the problems we face today we faced in the past, and will continue to face in the future. Cities that are actually in decline have a totally different set of problems. So its better to worry about constant traffic congestion and debate how best to expand our public transit than to wonder whether we should have public transit at all. If you’d like to see Toronto dealing with this in the past, may I recommend Toronto Boom Town by Leslie McFarlane, National Film Board of Canada, a ten minute long video from 1951, looking at Toronto, a booming city of tomorrow!
Great Further Reading: The Unwanted Sound of Everything We Want by Garret Keizer, Triumph of the City by Edward Glaeser, Some Great Idea by Edward Keenan
All Time High Doesn’t Equal Bubble
On more than one occasion I have been quizzed about the future of some stock market-or-other to the lack of satisfaction of the quizzer. Invariably the conversation goes something like: “What with all the money being printed and the new highs of the stock market, shouldn’t it all come down?” And my answer is usually, “No.”
This is frustrating for people because there is a real feeling that the stock market in the United States should not be doing as well as its doing. Some of this comes from the incongruity of negative media reports about the US economy and the ever growing stock market, some comes from the lingering shock of 2008, and some from an intellectual class that feel that our economic future is built on sand.
But a large reason for my belief in future growth is in looking past the fear of “big numbers.” When the stock market has a correction it’s often pointed out that it had just reached new highs. But this doesn’t mean that all new highs equal a market correction. The subtext is that there must be some limit to the growth in the market and that a new “all time high” must transcend this natural barrier, creating a bubble.
This is a populist understanding of market bubbles and has little to do with reality. The market should grow and reflect a burgeoning economy, and while the American economy has struggled its companies have continued to post substantial profits and many of them have either continued to grow in the slower market, or have begun to offer or expand dividends, making them more attractive.
The simple truth is crashes happen at market highs, but not because of them. Bubbles are not simply a quickly growing market, but represent a detachment between market fundamentals and a rapidly rising price, fed by the enthusiasm for rapidly growing prices.
Economists Worry About Canadian Housing Bubble, Canada Politely Disagrees
This week the Financial Times reported that “Canada’s housing market exhibits many of the symptoms that preceded disruptive housing downturns in other developed economies, namely overbuilding, overvaluation and excessive household debt.”
These comments made by economist David Madani have been repeated and echoed by a number of other groups, all of whom cite Canada’s low interest rates and large household debt (now 163% of disposable income according to Statistics Canada) as a source of significant danger to the Canadian economy.
This is not a view shared by Robert Kavic of BMO Nesbitt Burns who believes that the Canadian housing market has long legs, saying “Cue the bubble mongers!”
Since 2008 predicting the fall of housing markets has become a popular spectator sport. Canada seems to have sidestepped most of the downturn, which has only made calls for the failing of Canada’s housing markets greater. But the reality is that our housing markets are very hot, and we do have lots of debt.
So is Canada’s housing market heading for a crash? Maybe. And even if it was its hard to know what to do. Fundamentals in Canada’s housing sector remain strong (and have improved). People also want to live in Canadian cities, with 100,000 people moving annually to Toronto alone. In other words, there is lots of demand. In addition regulations in the Canadian financial sector prevent similar scenarios that were seen in the United States, Spain and Ireland from occurring.
But housing prices can’t go up forever, and the more burdensome Canadian debt becomes the more sensitive the Canadian economy will become to interest rate changes. Meanwhile I have grown far more weary of over confident economists assuring the general public that “nothing can go wrong.”
The big lesson here is probably that your house is a bad financial investment, but a great place to live. Unless you own your home, a house tends to be the bank’s asset and not yours. In addition your home, like your car, needs constant maintenance to retain its value. So if you wanted to buy a house to live in, good for you. If you want to buy a house as an investment my question to you is, “Is this really expensive investment the best investment in a world of financial opportunities?”
No, Rob Ford’s Crack Smoking is not Hurting Toronto Businesses
If you happened to pick up the Toronto Metro paper on Thursday morning, you might have noticed an article claiming that “experts” said that the scandal is bad for businesses in Toronto. It’s been echoed by other news outlets as well, including the CBC.
This is the kind of assertion that’s easy to make, but rarely seems to be backed by any hard numbers. While its true that Toronto Region Board of Trade would like Rob Ford to step aside, its not uncommon for businesses to be overly sensitive to potential threats. But while we may not enjoy the additional and unflattering media coverage regardless of how funny it might be, it’s hard to see how Rob Ford’s personal life can overpower an entire city.
Because of the circus that is Rob Ford attracts so much attention, many feel like he can do permanent damage to the reputation of the city. But cities are much bigger than their mayors, and few cities have ever been held back by the sordid private lives of their politicians. If you don’t believe me, simply compare the fates of Detroit to Washington D.C. and guess what was more damaging, the collapse of the auto industry, or Marion Barry’s own drug related escapades?
In the end the only lasting damage that a mayor or city council can do to us will be in the form of poor infrastructure and runaway costs. In other words the damage Rob Ford was doing before we learned about his crack use.
I’m from the Government and I’m Here to Help! (Your Retirement)
I’ve just finished a Fideltiy Investments Tax Clinic, and it was filled with some great ideas about how to help people manage their investments with tax implications in mind. But what really jumped out at me is how retirees are being penalized under the current tax system.
The 2013 budget closed a number of investment loopholes that they felt were being abused by large corporations. One of these was a structure called a Capital Yield Class (aka character conversion transactions), which when reduced down to its basics allowed investors to benefit from conservative yield generating investments, like bonds and dividend funds, while converting their income into more tax friendly capital gains.
Closing that loophole may help preserve Canada’s tax base, but it raises questions for retirees. As people start retiring there will likely be a growing demand for conservative investments that are mindful of taxes. Between pensions, RRIF payments and the CPP its not improbable that retirees with sufficient income may find themselves paying a HIGHER rate of income tax than people with a comparable salary!
This is where the government can be incredibly useful. There is clearly a need for smart taxable strategies that benefit retirees beyond RRIFs and the CPP, but shares the same clarity as those products. Any solution that the government supplies would be unlikely to make everyone happy, but it would provide certainty to retirees and those approaching retirement that they are choosing the soundest investment solutions.
The Conservative Party has shown a lot of responsibility when it comes to taxes, as well as a strong populist streak not always in keeping with “business minded” political parties. This has meant ending Income Trusts and Capital Yield funds while introducing the TFSA and a potentially divisive income splitting proposal. But as the Canadian population continues to age smart political parties will likely continue to focus on the needs of that growing demographic.
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