I hope everyone is well and adjusting to our new “normal way of life”.  Hopefully, there’ll be a further easing of restrictions shortly.    

Since I started my Personal CFO business, I have a greater appreciation that permanent insurance could be beneficial, under the right circumstances.  Permanent insurance would be either whole life or universal life policies.  There might be a need for permanent insurance to finance the buyout of a deceased partner or a family might own a large amount of illiquid assets, which when deemed disposed of on death, could result in a large tax liability that needs to be funded.  

Every situation is different.  Every family is different.  People have mixed views on purchasing insurance, be it term or permanent.  I’ve met many people who have been confused by the advisors selling the insurance.  They’re unsure whether they’ve bought the right type of insurance, it’s for the right generation of the family or it’s the right solution.  

The insurance industry has set itself up as an estate planning business..  Ask yourself “how can someone be an estate planner when they’re only selling one solution?”  We all know commission paid on some of these policies is very large.  The banks have climbed onto the bandwagon over the last few years.  I’ve been in so many meetings when the bank representatives put forward insurance solutions “to help” their clients.  

It’s extremely difficult to sell insurance, be paid a large commission and not have this influence the judgment of the person selling it.  What do you do in this situation?  Engage a Personal CFO to help you navigate this minefield!

I hope this Tip of the Month finds everyone safe and healthy. We’re approaching the end of seven weeks of social distancing. Having spent so much time hunkered down, I’ve earned the right for a good rant!

Very few people could ever have expected us to live through what we’re experiencing. It’s given us plenty of time to reflect on what’s important in our lives, and I suspect when life gets back to normal, many of us will act differently. You should also reflect on how your professionals/advisors have conducted themselves.

I’ve written on numerous occasions that I’ve worked with several excellent investment advisors, also stating there are many advisors who don’t earn the fees they charge. If you’re primarily investing in the public markets, you should re-evaluate whether you’re receiving value for money from your advisor. If you have a portfolio of $1MM, you would be fortunate to only be paying $10K a year in fees. You might not know exactly what fees you’re paying, despite the transparency rules which were released a few years ago.

Many of the investment advisors remind me of the energizer bunny! They just keep charging and charging and charging, and never stop!! Once you’ve set up your investment strategy, how much work is involved in maintaining your portfolio? Your investment management fees are more than likely one of your highest expenses for the year. You never feel it because you don’t receive an invoice or make a payment yourself. It’s brilliant!

How often have you heard from your advisor this year? Are you satisfied with how your portfolio was structured? Has your advisor offered to change the fee structure you’re being charged? Could you do the job without an investment advisor? I expect you’re being told to “stay the course.” If you are, ask yourself what the value is that you’re receiving for the fees you’re paying. The whole industry needs to be re-engineered as far as I’m concerned!

Now I feel a whole lot better. Back to walking our dog, Georgia!

Additional articles on Texas Car Title Loan Interest Rate Calculator Tool are also available for reading. Seek out more details regarding it.

I had time on my hands from the middle of December to the middle of January, and I managed to complete a task I’ve been avoiding! A few years ago, I created a document that provided a road map for my executors after my demise! I knew it was out of date and had been avoiding dealing with it. Updating the document seemed like such a thankless job!

I was shocked at how many changes had occurred over a few years. I feel like a huge weight has been lifted off my shoulders. I’m determined to update the list on an annual basis now. It won’t take more than an hour, if I do this. Here’s what I’ve listed:

1. Details of investments, showing whether they’re income bearing, what the tax treatment is, how long the investment should be held for, who the contacts are and others who own the same investments.
2. All our bank accounts and the names of contacts.
3. All our insurance policies and the names of contacts.
4. The location of the ownership documents of our real estate holdings.
5. The location of our wills and POA’s.
6. Codes to get into investment, bank and other accounts.
7. The location of legal documents
8. The names of professionals to contact.

I put all the info on a USB key and told my family where it’s located. Job done!! Having drafted this document, I’m going to play a round of golf! If you haven’t prepared a similar list, I strongly encourage you to get started and to update it annually.

It’s the new year and time for me to have a good rant. I’ve been to many meetings with investment advisors over the last couple of years. Many of the advisors were very good and provided sound advice to their clients.

Unfortunately, too many were average. The advice they provided was of the cookie cutter variety. There was nothing tailored to the specific client. The same shares in the portfolio, the same split of equities/fixed income, too high a percentage of Canadian equities, etc.

What really disappoints me are the fees charged on fixed income investments. The fees were the same for managing fixed income and equities. In a low interest environment, they’re producing, at best, 3% for their clients, before fees.

I’ve written before that there are alternative investments, which are secure and provide a better return. If you’re ultra conservative, you might even get a better return from GIC’s, as there are no fees. Consider running the fixed income portion of your portfolio yourself.

Now I feel much better. Happy new year and all the best for 2020!

I recently received a notification of the annual insurance premiums for our cars. It was a real shocker. Our insurance has increased by about a third!  
 
My insurance advisor told me the increase was standard across the industry because of the number of claims and size of settlements. There was very little difference in the alternative quotes which were obtained. I was advised that home insurance has also increased significantly. 
 
I’ve previously written about reviewing insurance premiums every year. That advice is more on point than ever. Look for opportunities to change your coverage. Consider increasing deductibles on your cars and home; reviewing the coverage to rebuild your home; reviewing whether you need ryders on jewellery, art, etc.; checking mileage driven to work; and checking whether you’re receiving a discount for having winter tires.  
 
The reports say inflation is about 2%.  Well it’s definitely not 2% in my world!

Last month, I compared the merits of investing in an RRSP to a TFSA. Another question I’m often asked is whether you should pay down your mortgage or invest in an RRSP/TFSA. Some people say they don’t want to pay down their mortgage as it’s “free money!” They think they’ll be further ahead by investing in the equity markets.
 
Firstly, the stock markets won’t go up for ever. Sometimes they go down! Over the last six months, the overriding sentiment I’ve heard from investment advisors is one of caution. Secondly, despite interest rates being very low, the interest isn’t tax deductible, and you’re paying it in after tax dollars. Your mortgage won’t melt away if you don’t implement a plan to pay it down over the years. Being mortgage free is a pretty nice feeling.
 
When I was younger, my plan was try to reduce my mortgage and build a fund for my retirement. It was a way of having forced savings. I tried to put half of what I was saving in my RRSP and use the other half against my mortgage. There were many years I felt like I was climbing a huge mountain, with no chance of reaching the pinnacle.
 
Even with interest rates being so low, I give the same advice. Set a target for the cash you want to save, use half to pay down your mortgage and use the other half for your RRSP/TFSA.

Most people know that by naming beneficiaries for their life insurance policies, RRSP’s, RRIF’s and TFSA’s, the proceeds of these assets on their deaths fall outside their estates, avoiding probate fees.

A better alternative for TFSA’s is to name your spouse as a successor holder. This allows the TFSA proceeds on your death to pass directly to your spouse’s TFSA. If you name your spouse as the beneficiary, there’s no direct transfer of your TFSA to your spouse’s TFSA. A form has to be filed with CRA, and any gains from the time of your death until the proceeds are transferred to your spouse’s TFSA are taxable.
You should contact your investment advisor and check if you’ve named your spouse as a successor holder.

Over the last few months during meetings with my clients and their investment advisors, some of the clients have been advised not to make further contributions to their RRSPs. I don’t understand the rationale for this advice.

The investment advisors are telling the clients they’ve built up large amounts in their RRSPs and when they’re forced to start withdrawing funds at age 71, the income will be taxed at the highest rate of tax.

When people make their RRSP contributions, they’re usually saving tax at a high tax rate. Once the funds are inside the RRSP, there’s no tax on the income until amounts are withdrawn. This means all the income can be tax sheltered until age 71. Once a person turns 71, the statutory amounts required to be withdrawn are relatively low. The remaining amount in the RRSP will continue to earn income on a tax deferred basis.

Given how long people are living, you could defer taxes on the income generated in the remaining RRSP for twenty to thirty years after you’ve turned 71. I’ve always told clients to maximize their RRSP contributions for as long as they can. I can’t see any reason to change that advice.

I’ve never written about managing your income before. Most people’s idea of a financial plan is to spend everything they earn and “hope everything will turn out OK.” It’s hard to have the discipline to save money and pay down debt. It’s a bit like controlling your eating habits and exercising regularly. We all know it’s good for us, but it’s very difficult to do.

Initiate a plan to live off less than 100% of your income. Decide how much you can cut back and manage on e.g. 85%, 90% or 95%% of what you earn. Have the money you won’t be spending transferred directly from your bank account. We always find ways to spend the money in our bank account, so remove it.

Most people will usually say they can’t live off less income. If this is how you feel, start by living off 95% of your income. Once you’ve made your decision, restrict your spending to your available cash flow. When you receive a bonus or an increase in your income, don’t automatically increase your spending habits. Try the alternative route of increasing your saving habits and increase the percentage of your income you’re saving!

Try it. It will feel awful at first, but it works!

Last month I wrote about investing in alternative investments.  Over the last few years there’s been an increasing amount of product introduced to the market.  These investments differ greatly in quality. One such tool that traders may use to find value stocks is the stock screener penny stocks. It selects from among the thousands of equities that are tradeable on the market the tickers that match your filter criteria. This generates a list of several stocks, which you may further investigate to determine their valuation.Careful consideration must go into investment decisions. Here are some questions you should consider before investing in private Mortgage Funds:
 
1.  Are any mortgages held on properties in the US?  If there are, how much of the exposure to US currency has been hedged.  Do you want exposure to foreign exchange risk with this type of investment?
 
2.  Are any mortgages held on properties that are pre-construction or in construction?  In a downturn in the real estate market, these types of mortgages would be more illiquid and vulnerable to collectability.
 
3.  According to companies like Braga Buildings NJ, typically, mortgages on pre-construction and in construction properties yield a higher rate of return than mortgages on homes and commercial properties because of the risk.  If investors only receive the “the standard 7%” from the Mortgage Fund, where has the extra yield on these types of mortgages been spent?
 
4.  What is the default rate on the mortgages in the Fund.  If the default rate is high, for any reason, it should cause alarm bells to ring.  You should be concerned about what could happen when a correction occurs in the real estate market.
 
5.  Do the financial statements of the Mortgage Fund clearly disclose the loan to value? The loan to value compares the total of the mortgages to the total value of the properties the mortgages are held on.  Obviously, the higher the loan to value, the greater the risk. 
 
I suspect very few investors read financial statements before making an investment or review them annually.  In fact, many people don’t have the financial acumen to understand the nuances of financial statements.
 
Don’t make an investment because your friends and colleagues are making similar investments.  It’s up to you and your advisors to do due diligence before investing, and to review financial information on a regular basis.  Only invest with people you have complete confidence in.  Don’t invest in alternatives with money you might need within the next two years.
 
This is not an all-encompassing checklist.  It includes a few questions to consider.  There are many more.  Ask your accountant/financial advisor to review the financial information of the Fund before making an investment.