Managed Money Reporter Newsletter — Issue 250, March/April 2009

Editors: Carl Spiess & Allan McGlade

Featured Articles

The long, painful decline

Carl Spiess

Interest rates at historic lows

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

No, we are not talking about the decline in equity valuations over the last six months. Although that continues, it has been (and continues to be) more of fast, sharp painful decline. The long, painful decline we are talking about is the decline in interest rates over the past few years. And given this decline, where do you put your short-term investments and cash equivalents?

The Bank of Canada (BoC) took short-term interest rates nearly as low as they can go on Tuesday March 3rd, slicing the trend-setting overnight rate half a percentage point to an all-time low of 0.5%. Meanwhile, the Bank of England and the European Central Bank (ECB) each cut interest rates by 50 basis points (a basis point is 1/100th of one percent) to record lows of 0.50% and 1.50% respectively.

The Bank of Canada and the Federal Reserve Bank in the US have lowered interest rates on government paper to historic lows in order to stimulate economic activity. The effects have filtered down to corporate and consumer rates, making it less costly to borrow but harder to get good rates on cash and fixed income securities. While this is good news for your mortgage, it makes for some pretty dismal rates for government-backed and liquid corporate securities (i.e. government bonds, Canada Savings Bonds, T-bills, money market funds).

Interest rate trends

Canada Savings Bonds now offer .75% as their rate for one year, with the premium bonds offering 1.4 to 1.7% for 3 years. Most Money Market Funds have current yields under 1%, and Treasury Bill Funds have yields approaching zero. The underlying corporate paper in money market funds and government T-bills in T-bill funds have 6 month returns of under 1%, so if you subtract a 1% management fee on the fund, the net return would be zero. So in fact, many money market and T-bill funds have begun to cut their management fees, to help avoid creating an environment where clients achieve negative returns.

This would also be an appropriate time to remind investors about the difference between money market and treasury bill funds. These funds offer a convenient way to invest small amounts into interest bearing investments that normally have high investment minimums. Corporate paper that makes up most money market funds are short term obligations of corporations with maturities less than a year. Treasury bill funds similarly own bonds with very short maturities but they are government bonds.

While both money market and T-bill funds typically have unit values of $1 or $10, and pay investors with additional units rather than appreciating unit values, it is important to remember that unit values can fluctuate, even though in the last 15 years that has not been the case. For money market funds, they could "break the buck" or see a unit price decline if one of the underlying corporations default on their short term debts. This is not unthinkable in this environment.

Similarly, T-bill funds, could see prices drop, if interest rates were to rise very suddenly, as they did in 1993. While these are really the most stable kinds of investment funds in the market, it is worth remembering what could happen, even if it would only be a short term decline.

Other popular short term savings vehicles have seen their rates lowered as well. For example, here are some updates on some of the more popular savings accounts:

Altamira $CA High-Interest Cash Performer¹ 1.25%
Altamira $US High-Interest Cash Performer¹ 0.60%
Dundee C$ Investment Savings Account¹ 1.55%
Dundee US$ Investment Savings Account¹ 1.00%
$Cdn Rate Manulife Investment Savings Account¹ 1.55%
$US Rate Manulife Investment Savings Account¹ 1.00%
B2B Trust's High Interest Investment Account¹ 2.50%
Scotia Power Savings² 1.75%
Scotia Money Master² 0.75%

The best rate is on B2B Trust's High Interest Investment Account (HIIA) which currently offers the highest rate of the four Deposit Funds available in ScotiaMcLeod accounts. Their rate is currently 2.5%, which as the latest entrant to this market, is higher, but not expected to last (it was 3.5% just a few days ago.)

¹ A $25 fee applies on purchases of these 4 deposit funds in your ScotiaMcLeod account, and rates change regularly, which is why we do not recommend frequent changes to these funds or frequent changes or chasing of yields.
² These accounts are available through Scotiabank or ScotiaOnline

So what to do?

Luckily, Guaranteed Investment Certificates (GICs) have better rates, and offer CDIC insurance. So in many ways, they can be a better solution right now than money market funds. While cashable GICs are currently yielding only 0.9% (March 10, 2009), unless rates head upwards any time soon, they will outperform T-bill and money market funds as short term investments.

We also have longer term GICs with rates at 3.75%. Comparing this to Government of Canada rates at less than 2%, GICs offer better value to investors at the moment. So, if you know you won't need the money for a few years, locking into a longer term GIC makes sense. Please contact us for current rates or to discuss your portfolio.

GIC Rates - March 10, 2009

GIC Rates - March 10/09

More on interest rates

For current yields, please see:


Invest in a new perspective

A second opinion can help you make the most of what you have

The recent market downturn has many clients wondering if they have the right plan in place to meet their long-term financial goals. In addition to advising you on your holdings at ScotiaMcLeod, we are happy to provide second opinions on assets held with other institutions. If you are having difficulty answering any of the questions below, then perhaps it's time for a Second Opinion.

  • Are you getting the objective financial advice that you deserve?
  • Do you know what investments you hold now and why?
  • Have you taken full advantage of the new savings opportunities available to you?
  • Are you effectively reducing the taxes you pay through proper planning?
  • How have changes in your investments impacted your retirement and estate plan?
  • How recently has your portfolio been rebalanced?
  • Is your total financial solution being looked after including your estate, trust, protection and tax needs?

The Spiess McGlade Team can assess your investment, estate planning and income and asset protection needs as part of a customized, tax-efficient financial strategy.

Please call us at 416.863.7777 or email us today to arrange a complimentary, no obligation review of your portfolio. Putting your needs first to achieve your personal, financial goals is our commitment to you.

Contact The Spiess McGlade Team for a second opinion


What a slowing economy means to your portfolio

Economies, like stock markets, move in cycles, experiencing peaks and troughs while trending higher over time. The troughs can be challenging, but it's important to remember that they don't last forever.

Recessions are short-lived

Technically, a recession is defined as two or more consecutive quarters of negative economic growth. In real terms, it's a period of slowing demand, rising unemployment, reduced investment, and weaker corporate profits.

In some cases, recessions are accompanied by deflation — a sustained decline in prices caused by reductions in personal spending and investment.

Canada's last recession was in 1990-1991. Every recession is different, and the good news is that these downturns have a limited lifespan. Since the 1930s, they have typically lasted between six and 16 months.

Your portfolio

Still, it's a good idea to ensure that your portfolio is positioned to withstand current economic conditions and is positioned for a future rebound. Here are two ideas that can help in an uncertain economy:

  • Focus on companies with high-profile brands, strong balance sheets, and low debt loads. Market leaders with deep pockets may gain market share as weaker competitors fail.
  • Hold high-quality bonds and other secure fixed-income instruments for stability and potential gains. These are especially valuable in deflationary periods, since the buying power of their returns increases.

We can help ensure your portfolio reflects your investment objectives and is prepared for all economic and market climates. Contact us for more details or for a review of your portfolio.


Tax Reporting

This time of year, we always get lots of questions about tax receipts. This piece provides a nice summary of all the details about mailing dates for Tax Receipts and T3 and T5 Income summaries. Don't hesitate to call us if you have any further questions.

Note: RRSP contribution receipts should all be mailed by March 15th


How asset allocation works in your portfolio

Asset allocation is an essential tool for building a balanced portfolio. Each of the major asset classes has a role to play in your investment plan. The cash portion provides security and liquidity, fixed income adds stability and regular income, while equities provide the growth potential you need to reach your goals and stay ahead of inflation.

Disciplined investing

The asset mix that's right for you will depend on your objectives, risk tolerance, and time horizon. Having the right allocation makes it easier to stay the course through challenging markets — a cornerstone of disciplined investing.

In volatile markets, having an asset allocation strategy takes on added importance, as it provides a framework to manage your portfolio through changing conditions.

For instance, when the markets are strong, the equity component of your portfolio may rise above your target weightings. In this case, following your asset allocation plan could mean selling some of your equities and reinvesting the profits in cash or fixed income. Doing so would reduce your risk and restore your portfolio's balance.

Conversely, market corrections can reduce the value of your equity holdings, bringing them below their intended weighting. In that case, it may be prudent to sell some bonds or other fixed income holdings, which may have appreciated, and reinvest in equities. This can present an opportunity to add shares of quality companies at lower prices, creating the potential for future gains.

rebalancing your asset allocation

Revisit your plan

Market downturns also present an opportunity to revisit your investment plan and make sure your asset allocation is still in line with your risk profile.

You may find that your risk tolerance is now lower than when you established your original allocations. As well, if you haven't adjusted your investment plan for some time, it may be time to adopt a more conservative asset allocation that reflects your age.

Here are some principles to keep in mind as you review your asset allocation and determine whether your holdings need to be rebalanced.

Employ your cash. The cash portion of your portfolio becomes even more strategic in uncertain markets. It can provide security in case you need money quickly, and act as an investment fund to take advantage of new opportunities.

Average your costs. Investing on a regular basis can potentially help you smooth out the average price you pay for an investment. Dollar-cost averaging can be especially beneficial in changing markets, as it may reduce your average price.

Look for value. Volatile markets can create opportunities for investors with a medium- to longer-term horizon. We can help you to identify sound, market-leading companies which trade at attractive prices and which fit your risk profile.

Keep an eye on bonds. An appropriate fixed-income allocation, in line with your objectives, can provide welcome stability and income when equity markets are unpredictable.

Think long term. It's important to have a portfolio that can outperform over the long term, through varying market conditions. While you may adjust your holdings, it's a good idea to maintain a focus on solid companies with strong balance sheets and a record of paying dividends. Remember that dividends may represent a significant part of your long-term returns.

Getting going

Now is a good time to review your asset allocation. Speak to us about how to prepare your portfolio for all market climates. Contact Carl, Allan or any member of The Spiess McGlade Team for a review of your portfolio and asset allocation.


Bond funds

One of our top ideas right now for our own and client portfolios continues to be Corporate Bond Funds (see our 2008 year-end wrap up). One we like is the Franklin Templeton Managed Corporate Yield Class (based on the Bissett Corporate Bond Fund). The benefit to buying it packaged as a Franklin Templeton Corporate Class fund is its structure allows growth to be taxed as capital gain, rather than interest income - a substantial savings.

Another alternative for investors to consider are slightly longer term bond funds, like Fidelity Short Term Bond Fund, or Scotia Mortgage Income Fund. Although these fall under the "short-term" category, they are longer-term than others in that category — effectively "medium-term".

More on corporate bond funds

More on medium/short term bond funds


Recommended Reading

The following two pieces provide great insights into the markets and why it makes sense to work with an advisor:


Recommended Link of the Month

Scotiabank's MyVault provides a wide array of services and information for Scotiabank/ScotiaMcLeod clients, including:

  • Daily news and financial headlines from around the world
  • A calendar-based cash flow planning tool
  • Fully interactive financial calculators
  • Online community forums
  • Digital newsletters, The Money Clip podcast and much more

Register on the MyVault site:



Contact Us

T.  416.863.RRSP (7777)
F.  416.863.7479

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.