Managed Money Reporter Newsletter — Issue 246, September 2008


Editors: Carl Spiess & Allan McGlade


Featured Articles



Market Volatility

Carl Spiess

By Carl Spiess, CFP, CIM, FMA, FCSI, MBA, Director, Wealth Management

The first half of September has been a challenging one in the markets with the U.S. credit crisis continuing, the bankruptcy of Lehman Brothers and the collapse of AIG Insurance. Many of our clients are concerned about what this volatility means for them and their retirement investments. ScotiaMcLeod has prepared the following articles which we feel offer good advice on just this topic:

Also, be sure to check our volatility page for some historical perspective:

I want to encourage you to contact Andrew, Allan, myself or any member of the Spiess McGlade Team to discuss any concerns you may have regarding the current market conditions and your portfolio. We know this is a trying time for investors and, as always, we are here to get through it and to help you stay on track for your long term goals.

Carl Spiess 416.862.3150 carl.spiess@scotiawealth.com
Allan McGlade 416.862.3066 allan.mcglade@scotiawealth.com
Andrew McGoey
 
416.945.4107 andrew.mcgoey@scotiawealth.com

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(Re)Introducing Andrew McGoey

Allan McGlade

By Carl Spiess & Allan McGlade

The remainder of this month's issue of the Managed Money Reporter is written by our colleague, Andrew McGoey. Many of you will know Andrew as a long-standing member of the Spiess McGlade Team. Earlier this year (see Issue 242, Jan/Feb 2008), Andrew changed roles within the team to become one of your Investment Executives (a.k.a. Wealth Advisors). We look forward to working together with Andrew in this new capacity and feel his education and experience are a real asset to our clients.

Andrew holds both the Certified Financial Planner (CFP) and Financial Management Advisor (FMA) designations and is working on his Canadian Investment Manager (CIM) designation. In addition to being a perennial student, Andrew is a new father and avid runner. The former two attributes make him especially well informed to discuss this month's topics. Happy Reading!

More on Andrew McGoey

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Special Back to School Edition

Andrew McGoey

By Andrew McGoey, CFP, FMA, Wealth Advisor

Here we are again in September and for thousands of young Canadians heading off to university and college for the first time, there's a new reality that quickly sinks in — education isn't free anymore.

For parents reading this article, we believe that self-directed Registered Education Savings Plans (RESPs) offer the best mechanism to save for a child's university or college goals. A guaranteed 20 percent return on your deposit in the form of the Canada Education Savings Grant (CESG) can add up significantly over time.

For university and college hopefuls, who may not have the benefit of a well-funded RESP plan; there are several other school sponsored bursaries and government assistance plans available. However, be aware of application deadlines to ensure you apply on time. Most of the deadlines are earlier than you would think!

As I found out, the reality of these programs is that in many cases eligibility requirements are quite tight. I was faced with the frustrating reality to hear that I was ineligible for government assistance. At a dead end, I spent the final few days before my departure to university struggling to find funds to pay for school.

I believe that the best advice for soon-to-be post-secondary students looking for financial help is to look at a Student Line of Credit (LOC) through their bank. Parents are likely to be included as co-signers on this loan, and your children will be required to maintain at least a minimum (interest only) payment each month. On the bright side, this monthly payment is a good exercise to help prepare kids for their future credit cards, utility bills and rent or mortgage payments.

Generally, Ontario Student Assistance Program (OSAP) loans allow for deferral of any payments until six months after program completion (or graduation), at which time the loan interest rate ranges from 1.0-2.5 percent over the prime rate. While this interest is tax deductible, the result is four-years of accumulated loans compared to only one-year at a time with the Line of Credit strategy.

Other benefits of the LOC strategy, is that a student can develop a credit history with their bank, and can convert the LOC to their own name after graduation, as I did. This will fortify a strong relationship with their bank when other larger borrowing needs enter their lives (car, mortgage etc.).

Ideally, repaying the LOC balance each year with money earned from their summer jobs and starting fresh in September each year with no balance owing is recommended. While students will lose the ability to claim OSAP related interest payments on their tax returns, staying disciplined and paying back their bank loan each year with summer earnings will ensure your child is debt free within months, rather than years after they graduate.

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Having a Baby?

Over the past year, several members of your investment team have welcomed new additions to our extended family. Chris Kelly and I both welcomed baby boys and Sharon Calvert was thrilled at the birth of her first granddaughter earlier this year.

Whether you know someone who just had a baby, or are putting the final touches on the nursery yourself, here's a refresher on a few important things to remember to get off to a great start for your baby's future.

1. Social Insurance Number (SIN) - start to finish:

Paperwork begins before you leave the hospital, and the most important thing you'll need is the 'Certificate of Live Birth'. Put this somewhere safe as you will need it to apply for the Birth Registration Card.

The Birth Registration Card is required to apply for a Birth Certificate and SIN (which is needed to open an RESP account).

Ontario residents can now apply for all three at the same time at the Service Ontario Newborn Registration link below:

2. Tax Tips

Now that you have your SIN Card and Birth Certificate, you are able to apply for the National Child Benefit Supplement and Universal Child Care Benefit which are monthly tax-free benefits paid to you from the government.

The 2007 Federal Budget announced the 'Child Fitness Tax Credit', a non-refundable tax credit available to parents who pay up to $500 in membership costs to enroll their kids in physical activities. Save your receipts!

Child-Care costs can also be deducted from income. The T778 form should be attached to your income tax return to take advantage of this reduction.

  • Child Care Costs form (T778)

Consult your tax advisor for more on this and any other tax savings that you may qualify for.

3. RESP

If you're having a baby this year, Stats Can predicts a four-year university degree will cost more than $100,000 in 2026. As mentioned above, we feel that self-directed RESPs are the best way to plan for post-secondary education.

Canadian Scholarship Trust (CST) and other RESP trust plans are also available, but have a number of terms and conditions which could make it more difficult to access the money when your child needs it or to change plans half way through. A recent report from CTV on one family's experience with the CST plan is not unlike other stories we've come across:

  • Canada AM Consumer Alert on Canadian Scholarship Trust

We maintain that self-directed plans offer the most flexibility to investors and students.

More on education savings for your children

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Life Insurance Audit – Have you reviewed your coverage lately?

There are many reasons why most people don't like to talk about life insurance, but we feel that this is one of the most important parts of any successful financial plan that many people over-look.

"How much do I need? How much will it cost? How does it work?" All are very common questions that you should be asking us in your next account review.

We can run a simple needs analysis to assess how much insurance is recommended, whether you are applying for new coverage, or updating coverage as your situation evolves. Occasionally, we find that clients have held on to coverage for too long, and are over-insured.

Insurance rates have been trending down over the past decade, in part due to more competition in the industry, and the fact that Canadians are living longer. However, the flip side of this is the fact that underwriting requirements have tightened up and the older one gets, the more difficult it can be to get approved for coverage. The take-away — lock in your insurance rate now. Money doesn't buy cheaper insurance, good health does.

We have discovered that some clients with older coverage are paying too much each year in premiums. Over the past few months, we have written several new policies (at lower rates) and significantly reduced the premiums for the new coverage. For example, Carl and I recently updated his wife's insurance coverage. A 10-year term came up for renewal. Since rates have come down over the last 10 years and Jennifer is in good health, we knew we could do better for her. We found that a university alumni plan was less expensive than her current coverage but shopping the street, we found even cheaper coverage.

So if you are noticing an increase in your premiums and you are in good health, we may be able to find you something more cost-effective. As licensed Life Underwriters, Carl, Allan and Andrew are able to review your insurance coverage with you. We encourage you to contact us directly and to bring your life insurance details to your next account review for an audit of your coverage.

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Using Life Insurance to Generate Income

Annuities are insurance products that act kind of like a reverse life policy. Instead of paying a monthly premium now for a lump sum death benefit down the road, you pay a single premium up front and the insurer pays you a monthly income for life, guaranteed.

For individuals who are uncomfortable with current market volatility and how it may impact future income from their RRSPs or RRIF accounts, annuities are a great solution to eliminate all market risk and ensure that you'll never outlive your savings, no matter what the market does.

Insured annuities combine the estate planning benefits of a life insurance policy with monthly income from an annuity. The premium for the life insurance coverage is paid for with part of the annuity income so you're not out of pocket for the new coverage. When you die, your estate (or named beneficiary) receives the benefit of the insurance policy, tax-free.

This strategy is more appropriate for individuals with fixed-income investments held outside their RRSP accounts and who are looking for more attractive yields on their bonds. Income from the annuities is also paid on a ‘prescribed' basis that is much more tax efficient than income earned on bonds which is taxed at 100%.

For more information on Life Insurance and annuities, please contact us directly or visit the Spiess McGlade Team's life insurance page:

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Fidelity Manager Changes

Last month Fidelity Investments announced several portfolio manager changes in their international and global line-up. The funds impacted are:

  • Fidelity International Discipline Equity Fund - Cesar Hernandez assumes lead manager role from Chris Goudie
  • Fidelity Northstar Fund - Chris Goudie removed from International portfolio, replaced by Cecilia Mo & Joel Tillinghast
  • Fidelity Overseas Fund - Cesar Hernandez assumes lead manager role from Chris Goudie
  • Fidelity Global Disciplined Equity Fund - Cesar Hernandez assumes lead manager role from Chris Goudie
  • Fidelity Global Fund - Bob Haber, Bob Swanson and Bill Hoyt assume lead, in place of Chris Goudie

We see these changes as positive and will continue to monitor these funds to recommend if any changes should be made in your accounts. The changes are effective as of October 1, 2008. If you have any questions on your Fidelity mutual funds, please do not hesitate to email or call us (416.863.RRSP). Please review the press release below for more on the changes:

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AIM Trimark Becomes Invesco Trimark

As part of AIM Trimark's strategy of taking advantage of the global capabilities of its U.S.-based parent Invesco Ltd, the company name has changed to Invesco Trimark, effective August 11, 2008. Many of their fund names are changing to reflect the location from which the fund is managed. You will notice these changes occuring on your statements and on our websites over the next few months. For more details see the link, below.

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Recommended Link of the Month

Each month the Financial Planners Standards Council (FPSC) challenges CFP members like Carl, Allan and Andrew to submit relevant articles for publication. This month's article is appropriate for the university and college kids heading back-to-school with great money management tips.

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Contact Us

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

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