Managed Money Reporter Newsletter — Issue 270, Sep/Oct 2012


Editors: Carl Spiess & Allan McGlade


Featured Articles



Preaching to the converted

By Carl Spiess, CFP, CIM, FMA, FCSI, MBA

Toronto Skyline

This issue, we have a number of articles that will confirm preconceived notions for many of our clients. First, we share information from The Economist that reminds us that Canada is a good place to live. Our second article shows that there is a relationship between getting advice on your investment accounts and account size. Third, we'll review annuities and why people seem to think in this low rate environment that it is not the right time to choose this terrific high yield investment option. We are also pleased to remind you about how easy it is to transfer money to your ScotiaMcLeod accounts. As always, please contact us if you have any questions about your investments.

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EIU: Canadian cities among best to live in worldwide

The Economist magazine publishes an annual ranking of the best places in the world to live. The top cities tend to be in democracies, in large countries with low population densities and low crime rates. This allows for freedom and economic prosperity. It is comforting to know that Vancouver, Toronto and Calgary were in the top 5. We really do have it good in Canada. Our strengthening dollar, robust (if not overvalued) housing market, and relatively good stock market performance vs. global markets over the last decade are a few of the results. You can read more about the liveability ranking at the following links:

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But look elsewhere for value?

Global Valuations

While we've been happy to be North American investors of late, the best values in terms of dividend yield on stocks is now in other parts of the world (see "Global Valuations" chart). Price earnings ratios (a measure of how expensive the stock market is or how many years it will take to be paid back on your investment) are very high in North America. So while we love living in Canada, we should expand our search for investment opportunities beyond our own borders to take advantage of the high purchasing power of our dollar and bargains around the world. Contact us for recommendations suited to your investment goals.

More on global valuations

 

 

 

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The value of advice

A recent report from the Investment Funds Institute of Canada (IFIC) combines several recent surveys and research papers to help try and quantify the value of advice. One of the more interesting results was in this quote:

"In other recent research, U.S. firms Aon Hewitt and Financial Engines looked at eight large 401(k) plans representing more than 425,000 individual participants with $25 billion in assets. They compared the accounts of workers who received some form of financial help (Help Participants) with those who received no financial help (Non help Participants) in the period from 2006 to 2010. When considering the difference in median returns across the different age groups, they found that Non-help Participants, on average, experienced returns nearly 3% (292 basis points) lower than Help Participants, net of fees. The performance difference ranged from 2.53% to 3.40% across the age groups."
Value of Advice

One of IFIC's charts was particularly interesting, since it also allows individuals to look at how they are doing vs. the national averages. In the chart right, we see the average 50 year old (Ages 45-54) making 50k a year (35-70k range) would have a net worth of $301,000 if working with an advisor, and $143,000 if investing with no advice. Yikes!

Of course, there is a chicken and egg question here, do higher assets result from the advice, or do clients with higher assets have more sophisticated needs and thus seek out advisors. The surveys suggest that since clients decide to start with advisors even when their accounts are small, it is the advice that is indeed responsible.

More on the value of advice

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Annuities

For many years we have recommended that clients generate some of their retirement income from annuities. Especially for those who have no pension plan income other than Canada Pension Plan, an annuity provides guaranteed income for life. In the last 20 years, I can't recall a single client who regretted making an annuity purchase. But with rates so low today, does an annuity still make sense?

Principal Protected Annuities have solid yields

We shop the street for our clients and use Cannex to get quotes from all the major insurance companies. This way we can ensure that you get the best rates. We can also review the various guarantee options. Annuities with short payment guarantee periods offer the highest incomes, but your estate may not receive any significant residual assets. Principal Protected Annuities are attractive since you or your estate are guaranteed to receive a return of the initial invested amount. Of course, if you live even longer than average, your return will be very attractive.

Here is more information on Principal Protected annuities. As you can see from the chart, right, the yields and current rates are solid, leading to the question and thoughts from the recent article, linked below. We try to present annuities to most of our clients as they prepare for retirement and are looking to convert accumulated savings into a retirement income stream, and yet a surprisingly low number choose annuities each year. So why don't more clients take our advice and choose this vehicle, I guess because you can always wait and choose it next year too?

For clients between 60 and 70 years of age, there is a great article, Life After Work in the Fall issue of Solutions for Financial Planning magazine from Manulife. (You can also view the article as a somewhat syrupy video.) If you are wondering where your retirement income will come from and how we as your ScotiaMcLeod advisors can help, please read this article and then book a time to meet with us.

More on annuities

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Online contributions to ScotiaMcLeod and going paperless

Select ScotiaMcLeod as the payee and enter your account number

We would like to let you know that most financial institutions in Canada now list ScotiaMcLeod as a Bill Payment option so you can contribute online to your ScotiaMcLeod account. Simply choose ScotiaMcLeod and enter your account number (the first 8 or all 10 digits, as requested). Once the funds are received here, we will work with you to select the best investments for your situation.

Paperless Record Keeping

Also, if you would like to go paperless, simply log into Scotia Online, select "Manage My Accounts", "Document Preferences" and "Go paperless". (You may still want to keep an annual trading summary on paper for your records.) Click on the "Go paperless" icon, below, for complete details.

 

 

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Recommended reading

Looking for the latest updates from ScotiaMcLeod about what is happening in the markets? What is the Fed doing in the US? Where is the Euro headed?

Please visit our Market Watch page for the constantly updated:

On the Market Watch page, we also link to the full listing of "Scotia Economic Reports". One of the more interesting Scotiabank publications is their Global Forecast Update which lists the Bank's forecasts for Oil, Gold, the CDN$, global GDP growth and more.

Interesting in Investment Portfolio Quarterly and the early September editions of the Weekly Market Strategy is that the TSX has already hit Scotia's target for year end, indicating this might be a good time to revisit your asset allocation and cash in on some of those strong equity returns. Contact us for advice tailored to your portfolio.

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Recommended Link of the Month

What would a $100 basket of goods from 1914 be worth today? The Inflation Calculator uses monthly consumer price index (CPI) data from 1914 to the present to show changes in the cost of a fixed "basket" of consumer purchases. Remember your starting salary? It seemed like a lot of money at the time. What would the equivalent be today? Oh, the nostalgia....

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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

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

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