Managed Money Reporter Newsletter — Issue 227, May 2006


Editors: Carl Spiess & Allan McGlade


Featured Articles



Our email newsletter: A personal investment Blog?

by Carl Spiess

Weblogs or "blogs" are all the rage. Did you know that this newsletter is basically a blog that I have been writing for the last decade? Most of the articles are simply responses to questions that a few clients have posed in the last month. I figure, if two clients ask me the same question, there are many more that have the same question. Sometimes the articles are written by other members of my team (last month's RESP special by Andrew McGoey or Estate Planning articles by Allan McGlade), who have had a number of repeat questions as well. Thus my constant spring of articles is simply inspired by questions that you, my valued clients ask. Read on to see if your recent question is answered here, or contact me if you have a suggestion for a future article. Here are some topics that clients asked about this month. Let's keep up the dialogue.

Budget 2006

The 2006 federal budget had some major news, eg. the reduction of GST from 7% to 6%, but it had a relatively small number of changes that affect investors.

The major changes for investors are:

  • Formal implementation of the Liberal proposed changes to the dividend tax rate, putting normal corporation taxes on a more even footing with income trusts, and reinforcing the fact that these securities are best held in taxable accounts (with interest bearing investments in registered accounts)
  • Elimination of capital gains on securities donated to charity
  • An increase in the pension tax credit from $1,000 to $2,000 of tax free pension income.

No mention was made in the budget of the seemingly complicated election promise to eliminate capital gains tax if the proceeds are re-invested in 6 months. Similarly, there were no changes to RSP rules.

We will continue to review your accounts and make recommendations that can take advantage of these changes.

More on the 2006 federal budget

The yield curve – where are the best rates?

Normally, long term interest rates are higher than short term rates. It makes sense that a borrower pays more for a 30 year loan than a 1 month loan – a lot can happen over 30 years. A line chart showing interest rates for maturities from various timeframes is called the yield curve.

There has been much talk about interest rates rising over the last two years. Recently, the Bank of Canada raised short term rates again, to 4%, and short term rates have risen considerably in the two years, from 2% to 4%. (See chart.)

yield curve april 2006

However, in the last two years, longer term rates have actually fallen from 5.25% to around 4.5%. Around a year ago, we stopped recommending adding to very long bonds, which had been our practice since the early 1990s, when rates were much higher. While rates have risen a bit in the mid term and hurt returns on mid length bonds (and bond funds since prices on bonds fall temporarily when yields rise) we don't see this as a reason to get out of bonds.

As we suggested in 1993-4 when interest rates backed up temporarily and resulted in short term negative returns on bonds, people who hold on will see solid long term bond returns. If you want the stability of guaranteed investments and will be cashing out in a year or two, looking at a cashable GIC or the Altamira Cashperformer (now at 3.5% Cdn or 4.0% US) would now be a good alternative. We now also offer the Manulife Daily Interest fund at 3.65%.

Wonderful things really do happen to nice people: A referral story

Allan and I regularly receive referrals from our clients, who pass our names on to family and friends who might also benefit from our conservative investment approach. Last month, we had a most unusual referral, which is a heartwarming story. A client, (who is actually a stock trader by profession, has us look after his and his wife's RRSPs), was approached by someone looking for a financial planner. It was his letter carrier, who had recently come into an inheritance.

This individual, a wonderfully friendly and helpful person, had amazingly inherited $500,000 from an elderly widow on her route. As the only person in daily contact with the widow, the letter carrier was named in her will. This came as a complete shock and surprise, and the windfall was quickly put to use paying off debts. For the rest of the money, we are developing a plan to ensure a long term nest egg will be there for retirement.

If you know of someone who could benefit from our advice, please let us know, we are pleased to help.

Recommended Reading: Understanding fund dividends – and your return

Dynamic has created a good piece on understanding fund dividends and how your return is different from the increase in your fund's average cost. We recommend you take a look:

Interested to see how your funds have done? Have us perform an analysis of your funds' total return:

RBC O'Shaughnessy U.S. Growth Fund Closing June 30th

RBC Asset Management Inc. has announced that it will close the RBC O'Shaughnessy U.S. Growth Fund to new purchases effective June 30, 2006. This change will not affect existing investments in the fund.

The RBC O'Shaughnessy U.S. Growth Fund has been extremely successful and has grown rapidly in size. Closing the fund to new purchases will provide the best opportunity for continued success due to the regular rebalancing inherent in its investment approach.

Please note, all other RBC, TD, CIBC and BMO funds are all available for purchase with no loads in your ScotiaMcLeod account. Contact us for details.

More on the RBC O'Shaughnessy U.S. Growth Fund

Mutual Fund Reporter Recommended Website of the Month

We are highlighting the AIM Trimark website this month. In addition to the excellent budget analysis referred to earlier in this issue, their overall tax and estate planning pages are excellent.

  • AIM Trimark on estate and tax planning

 



Contact Us

T.  416.863.RRSP (7777)
     1.800.387.9273
F.  416.863.7479
E. carl.spiess@scotiawealth.com
    allan.mcglade@scotiawealth.com

ScotiaMcLeod is a division of Scotia Capital Inc., member of CIPF.

Security | Privacy Policy | Legal Information | Important Information | Site Map

 

 

 

® Registered trademark of The Bank of Nova Scotia, used under licence. ™ Trademark of The Bank of Nova Scotia, used under licence. Scotia Wealth Management™ consists of a range of financial services provided by The Bank of Nova Scotia (Scotiabank®); The Bank of Nova Scotia Trust Company (Scotiatrust®); Private Investment Counsel, a service of 1832 Asset Management L.P.; 1832 Asset Management U.S. Inc.; Scotia Wealth Insurance Services Inc.; and ScotiaMcLeod®, a division of Scotia Capital Inc. ("SCI"). Wealth advisory and brokerage services are provided by ScotiaMcLeod, a division of SCI. Insurance services are provided by Scotia Wealth Insurance Services Inc., the insurance subsidiary of SCI. When discussing life insurance products, ScotiaMcLeod advisors are acting as Life Underwriters (Financial Security Advisors in Québec) representing Scotia Wealth Insurance Services Inc. SCI is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada.

The Spiess McGlade Team is a personal trade name of Carl Spiess and Allan McGlade.