The Year-end Checklist

1) If you have capital gains (inevitable, unfortunately, if your portfolio is growing) you may want to harvest some capital losses to offset those gains (if there are any). The good news is that you only pay income tax on 50% of your capital gains.  If your marginal rate is 50%, then for every $100 of gains you pay $25.

2) RESP contributions: the best way to maximize the Canada Education Savings Grant (CESG) is to pop $2,500 for each child into their respective RESP's and you will receive the $500 CESG per child about a month later. We strongly encourage folks to take advantage of this free money (it is not often that the federal government gives you free money). The cut-off is calendar year end (December 31). If you happen to miss a year, you can play catch-up in future years (1 year of catch-up per year).

3) While we tend to focus on TFSA contributions at the beginning of each year (with automatic client deposits) and you can always make up for missed contributions, remember that come January 1, 2017, if you have made any withdrawals in 2016, you can deposit them back plus make your 2017 contribution.

4) Charitable donations: December 31 is the last day for the 2016 tax year, whereby you can receive a federal charitable tax credit of 15% on the 1st $200 and 29% on any amount above the initial $200 (to a registered Canadian charity). for you really generous folks, you can only donate up to 75% of your net income (after deductions, before taxes). You can donate securities which will be valued at market prices (at the time of the donation) and not have to pay any capital gains tax. There some restrictions on certain securities.

Big thanks to High Rock Certified Financial Planning (CFP) professional Bianca Tomenson for her input.

Wishing you all a wonderful holiday season and a very happy, healthy and prosperous 2017!

scott@highrockcapital.ca

Re-balancing Your Portfolio

Regardless of whether you believe in a more tactical approach to investing (as we do and is our Key Theme for 2017) or a buy and hold strategy that rides out the volatility over an investing cycle, none of it works if your portfolio doesn't get re-balanced.

If you have a balanced asset allocation, over the course of a quarter (or a year) the percentage allocations will shift and your portfolio will need to be re-balanced back to the originally assigned allocations. What is important about this operation is that strong performing assets are sold (profits taken as they have become over-weight) and they are re-distributed to purchase under-performing assets (that have become under-weight and cheaper). As the cycle progresses, over-priced, out-performing assets will return to more realistic prices and the same for under-priced, under-performing assets. 

The catalyst for this blog is from a meeting with new clients on Friday, disappointed with their buy and hold portfolio returns that had never (to his knowledge) been re-balanced (over a 4 year period). Full fees, limited client service.

Without this re-balancing process, a buy and hold portfolio will likely not provide better than benchmark (index) growth over longer periods of time: in other words why not just buy the benchmark index ETF and pay considerably less in fees.

If you have a buy and hold balanced portfolio and are getting non-discretionary financial advice, your advisor needs to call you (or you have to call him/her) to be able to enact a re-balancing (you have to give your permission for each trade). Needless to say, every client is not treated the same (from a timing perspective). Obviously the folks that we met with were not high on the list.

When you use a discretionary portfolio manager (see last Friday's blog for other differences: http://highrockcapital.ca/scotts-blog.html)
this is done automatically and simultaneously for all clients, so everyone is treated the same and fairly. 

You can add this to all the other benefits of discretionary portfolio management, but remember, this is not investment "advice", this is active portfolio management (by experienced portfolio management professionals with CFA and / or CIM credentials). 

At High Rock, we add in Wealth Forecasting by a Certified Financial Planning (CFP) professional, because every client has specific goals and objectives that are personal and their own. There is no cookie cutter, "one size fits all" strategy, because every family's circumstances are different.

If you really want to be looked after properly...
scott@highrockcapital.ca

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bianca@highrockcapital.ca

Small Investor Protection Association Report:

"Above The Law"

You do really need to read this:

The investment industry routinely uses the title “Financial Advisor” for their sales persons, whether they are selling mutual funds, insurance products (e.g. segregated funds), bank products (e.g. Principal Protected Notes), or acting as brokers to trade in financial products (e.g. bonds, shares, structured products).

Sales persons (dealing representative) have no legal requirement to look after an investor’s best interests. However, it is in the sales person’s interest to maximize his commissions. This can be done by selling the products that pay the highest commissions and by the use of leverage to increase the amount of assets under management (AUM) on which he generates commissions. Both of these initiatives are contrary to an investor’s best interests.

http://sipa.ca/library/SIPAsubmissions/500_SIPA_REPORT_REGISTRATION-Above-the-Law_201611.pdf

At High Rock we are licensed as a Portfolio Management Company with the Ontario, BC, Alberta and Saskatchewan Securities Commissions (OSC, BCSC, ASC, SSC) and held to a higher fiduciary responsibility that legally binds us to put the interests of our clients before our own.

This is a big distinction that is not necessarily always clear.

But it is enormously important.

See Rob Carrick's article in the Globe and Mail:

http://www.theglobeandmail.com//globe-investor/personal-finance/household-finances/should-i-dump-my-investment-adviser-to-save-on-fees/article33331965/?cmpid=rss1&click=sf_globe

This is the alternative (different and better) that we offer:

Financial Planning (Wealth Forecasting), Portfolio  Management (with a tactical option) and a fantastic client service experience at a very reasonable cost.

It is the future of personal finance: ensuring that you are not being "sold" anything that might have a conflict of interest attached to it (like being paid a commission).

Soon, if not already, you will be able to see what your Financial Advisor receives as "commission" and you should take a good hard look at it and ask yourself if you are receiving the service that you are paying for.

You should also ask the Advisor if he/she is investing in the exact same assets that you are being put into (at High Rock we invest in the exact same assets as our clients and we even produce a quarterly report from an independent compliance service to prove this).

As you may have assessed, I am extremely passionate about the differences between true portfolio management and simple financial advice and I think it is important for everyone to have a full understanding of those differences.

Always happy to discuss that in more detail...

Scott

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Bianca

Canadian Household Debt: 

Need To Look Beyond The Headlines.

Record amounts of household debt in Canada are once again  catching the headlines of financial markets, however it is not time to panic, yet.

The good news is that asset prices are also rising and at a faster pace than Canadians are building debt (so debt has been productive):

The ratio of Debt to Total Assets is lower and has been coming down steadily since the Financial Crisis. In other words Canadians, as a whole, have generally been investing wisely.

As well the cost of servicing the debt (payments of principal plus interest as a proportion of disposable income) remains low at 14%.  

63.5% of Canadians total assets are financial assets (cash, savings, investments) 36.5% are non-financial assets (real estate for the most part).

So on the whole, household balance sheets are not in terrible shape.

However, the risks are pretty high because these are broad averages and studies by the Bank of Canada have shown that those who are more highly leveraged  (greater amounts of debt) are vulnerable.

If asset prices, either financial or non financial (or both) start to retreat, the debt to asset ratio will climb (as it did in the financial crisis) and debt becomes non-productive and a drag on household balance sheets.

Rising costs to service the debt (interest rate increases) will also take their toll and of course any threat to household income (employment) will also be a factor.

From a family wealth management perspective, when you are reviewing your own household balance sheet, you want to make sure that you have the liquidity to endure a short-term crisis (because, believe it or not they do happen) and be appropriately balanced. 

Over-exposure to any one asset class (especially real estate, where it is not necessarily so liquid) can be problematic.

Having the ability to be flexible and tactical, one of our key themes for 2017, is paramount.

That is why, prior to creating any investment strategy, you need to have a deep understanding of the composition of your net worth and within the context of your long-term goals, are able to withstand any short-term volatility so that your goals do not get derailed.

That is why we take the time and effort to understand our clients needs, goals, time horizon and risk tolerance long before we recommend an investment strategy. 

There is no "one strategy fits all", because everyone is different.

Canadians are in relatively good shape as a whole, but within the whole, there are plenty of vulnerabilities and they need to be protected. We can help.

Feedback...

Scott

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Bianca

Fed Pulls Punch Bowl Away:

Trump / Santa Rally Arrested For DWI

'Tis the Season! (my apologies for using all the cliches).

As expected and to nobody's surprise the US Federal Reserve raised interest rates by 1/4%.

However, according to the new "dot plot" of FOMC member expectations, it appears that they are now looking for 3 rate hikes in 2017, which may be a bit of a shocker (and hence the reference to the punch bowl being pulled from the party). 

Certainly equity markets have been somewhat "over-served", what with all the Trump promises and still very accommodative monetary policy as they ran up a considerable 12 month forward looking Price to Earnings (P/E) ratio of 17.2 or thereabouts.

The CNN Money Fear and Greed Index blew close to 90!

That should be enough for a market to get "pulled-over"!

At least for the moment, anyway.

Our recommendation is to move forward responsibly: best check into our themes for 2017 from our client webinar at

http://highrockcapital.ca/current-edition-of-the-weekly-webinar.html

"The Old Rules Of Diversification Are No Longer Working"

(BlackRock Investment Institute: Global Outlook 2017)

As we at High Rock have been suggesting since the inception of our Private Client Division with the addition of a "Tactical" model to compliment our Fixed Income and Global Equity models for our balanced portfolios, back in April of 2015. BlackRock (iShares ETF's) confirms this in their Global Outlook for 2017, saying that: 

"We favour an active approach to investing as rising dispersion creates opportunities to identify security and asset class winners and losers".

Today on our final weekly client webinar we will discuss our themes for 2017 and how this will evolve our portfolio strategies for our clients and ourselves in the coming year.

The recorded version will be available on our website at or about 5pm EST later today.

http://highrockcapital.ca/current-edition-of-the-weekly-webinar.html

Feel free to tune in and have a listen!

Tactical Portfolio Management Outperforms Traditional Buy And Hold In 2016.

For 2016, if you stuck with a traditional "buy and hold" strategy, you involuntarily likely took on greater risk than any time in the recent past because correlations between stocks and bonds flipped and when they reversed , bond portfolios (the usual "safe" investment) were crushed, while stock portfolios barely kept up and in doing so made risk-adjusted returns that much more vulnerable.

For the moment, that risk has actually increased because equity valuations (as measured by the 12 month forward Price to Earnings ratio at 17.1) are at the highest level since May 2015).

If equity prices "correct", without a bond market that rises in price in equal measure, the buy and hold balance will not be able to keep the additional volatility out of the portfolio as was the case throughout 2016.

With the most recent rally in stock prices, "greed" (from CNN Money's Fear and Greed Index) is at extreme levels:

Last year, "greed" peaked In late November and January and February were important tactical buying opportunities. This situation could easily repeat itself as we head into 2017. We were able to make some very strategic trades in the first half of 2016 that added significant value to our models in the second half of the year.

Almost 2 years ago we (at High Rock) introduced a tactical model to add broader scope to our investing process and our clients (and the High Rock management, because we invest in the exact same models) have benefited immensely from this, while at the same time reducing their/our exposure to unwanted volatility and lowering their/our risk profiles.

Last Friday we received an email note from a client with a simple "thank you". Nothing makes us feel better than to be appreciated.

Tomorrow we will host our weekly client webinar (the final one for 2016) where we will discuss our thoughts and themes for 2017.

Given the current investing environment and the changing world geo-political issues, more than ever we will have to be ultra careful with how we invest our and our client money and the buy and hold strategies that may have served investors reasonably well in the past, will likely be leaving them potentially even more vulnerable than they were in 2016.

Feedback...

Scott

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Bianca

Late Season Tactical Harvest  http://highrockcapital.ca/pauls-blog.html

Caveat Emptor

It is that time of year where the pundits (economists, analysts, advisors and journalists) all have to make thier predictions for 2017.

At the same time, we at High Rock (portfolio managers) are busy trying to determine what our key investing themes will be for 2017.

For 2016, our key theme: that uncertainty would create greater levels of volatility channelled our focus on non-correlated assets and tactical trading.  Slower than expected economic growth and deflationary pressures in the first half of the year, followed by Brexit and the Trump election in the second half, helped to reinforce that theme and financial markets found themselves  providing lots of big swings in price. Protecting our clients from these swings and taking advantage of low prices in times of high volatility were key in  helping us to come out well ahead of our combined benchmark indexes over the course of the year. 

As a result our clients (and ourselves, because we invest in the same asset models as our clients) have been rewarded with excellent risk-adjusted returns and above average portfolio growth (a great deal of our performance did come from our taking advantage of the volatility in the first half of the year) over the course of the entire year.

As we ponder our key themes for 2017, we are watching financial markets build in a lot of positive economic and earnings growth based on the election promises of Donald Trump. 

So one important theme (coming to the forefront) is one of reflation: whereby bond investors are demanding higher yields to protect themselves from higher future inflation. This is something that central banks have been working hard to achieve with extraordinarily easy monetary policy, but had basically been unsuccessful at achieving until Donald Trump was voted in as the next president of the United States.

He was able to apparently convince (sell) financial markets on his proposed agenda that he would, with lower taxes and big spending, be able to propel economic growth (and inflation) forward. He is obviously a very good salesman.

Caveat Emptor: (buyer beware) he has made some pretty big promises in his past as well.

There is going to be a big gap (of time) between the initiation of all his promises, the implementation of them and the end results and there will be plenty of water to flow under the bridge in the meantime (something that financial markets appear to be taking for granted).

So, financial markets and  maket particiapnts, at this moment seem to be fairly convinced. I have to admit (if you have not already figured it out) that I am rather skeptical (if not out-rightly cynical).

Perhaps see this article as a reference point:

http://www.nytimes.com/2016/12/08/us/politics/trump-picks-twitter-fight-with-union-local-chief-in-indiana.html?smid=tw-nytimes&smtyp=cur

Oddly enough, I have always been more of an optimist (than a pessimist), but there is something that just does not sit right with me about all of this (too many close encounters with slick salespeople and manipulative personalities in my time as a Branch Manager in the investment industry, perhaps).

Sometimes (and it is pure human nature that does it) we just get caught wanting to believe. I hope that it all comes true, but I still think that we need to stay cautious.

Feedback...

Scott

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Bianca

Trump Tactics Spell Trouble

Perhaps he is just "poking the bear" as part of his skillful art of negotiation (remember Trump University?), but even before taking the helm (Commander In Chief), the president-elect is picking fights.

His latest Twitter tirade ( lashing out at China) may be a glimpse into what to expect in the years to come and the word diplomacy doesn't much seem to be factored in.

China's response via an op-ed in the Peoples Daily (the Communist Party Newspaper):

Op-Ed: Trump's irrational China bashing shows his ignorance of China

 and it suggested the option of "retaliation" if necessary and that "Not only is the US more dependent on China than Trump seems to realize, but world peace and prosperity depend on a healthy develop of China-US relations. Trump needs to get the China-US relationship right."

http://en.people.cn/n3/2016/1205/c90000-9150804.html

The difficulty here is that the word "apology" is not in a narcissist dictionary (believe me, I have had the experience). That could provide some challenges for Trump's relationships on the global stage. For a person used to getting his way because he could force it or "scam it" (read: http://www.nytimes.com/2016/12/05/opinion/the-art-of-the-scam.html?smid=tw-nytimes&smtyp=cur&_r=0 ), this is a bit of a different situation.

And, according to Bloomberg, a client survey by forecasting firm Oxford Economics:

https://www.bloomberg.com/news/articles/2016-12-05/trump-seen-as-biggest-global-economy-risk-oxford-economics-says

suggests that Trump's future policy stance poses " the single largest risk to the global economy".

"More than half of respondents said that the probability of a sharp slowdown has increased..."

As I said yesterday, if stock markets believe that reduced taxes and increased spending (if and when it all comes to fruition sometime in 2017/2018) are beneficial, they will have to come to grips with the fact that earnings are a function of revenues that are generated by sales. This may pose some serious difficulty as far as finding growing markets to sell into if the US goes about alienating itself from the rest of the world.

We will talk about this and other developments in financial markets and the global economy on our weekly client webinar today. We will post the recorded version at or about 5pm EST on our website: http://highrockcapital.ca/current-edition-of-the-weekly-webinar.html

Feedback...

Scott

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Bianca

Reduced Volatility Following The Italian Referendum Is  Only A Short-Term Victory For Central Banks

The Bank of England reacted strongly and swiftly following the Brexit referendum and although volatility soared in the aftermath, it quickly settled as the BOE made it clear that it was further prepared for action to reduce the volatility. 

The European Central Bank made it clear in 2011 that it was prepared to do everything in its power to defend the Euro (and it has) with extraordinary stimulative monetary policy. 

Market participants have come to rely on the central banks to be there to artificially prop up financial markets when they are experiencing the uncertainties that arise in the economic and geo-political arenas which might otherwise give rise to significant bouts of volatility.

While the Italian referendum may not have any immediate ramifications for the Euro, it puts the Italian political situation into question and clearly advances the populist movement that began with Brexit, gathered momentum in the US presidential election and has now permeated the Euzo Zone's third largest economy. Italy's banking crisis will not be resolved swiftly in this environment.

Clearly, without the "back-stop" of central bank intervention, this significant development would have created a great deal more volatility. Add in elections looming in France, The Netherlands and Germany in 2017.

So what is real?

Global trade is at risk and the economic advancement that would benefit export countries, like China and other developing nations as well as Germany (which has been a net beneficiary of the European Union) is also at risk.

In a nutshell, this puts the global economy at risk.

Trumpenomics (if he can advance all his desired proposals) might seem favourable for corporations with tax advantages offsetting higher operating costs, but without the continuation of global growth, US companies are going to run out of markets (where there is demographic growth) with which to sell into in order to continue to get revenue and earnings growth.

Populations are rising in developing nations and falling in developed nations. The 21st century is a very different world than was the 1980's where the next US government wishes to return us. It is not going to happen.

And central banks will not be able to forever protect us from the fallout.

US Unemployment Data Pushes Out 

Recession Risk

As you all know by now, one of the metrics that we have used to determine where exactly we are in the economic cycle in the US is the historically significant relationship between current unemployment and the 3 year moving average, which when they have converged in the past has indicated the beginning of a  recession:

The lines had been converging at a fairly rapid pace, within about 0.06% or so, as unemployment levels had held steady at or near the 4.9-5.0% point, while the moving average continued to decline. Until yesterday's US data showed that unemployment had dropped to 4.6%, widening out the spread to about 0.9% :

We can analyze the unemployment data (participation rate of the labour force), but that doesn't matter so much in this metric (yet), because the likelihood of near-term recession has been reduced, but that does not mean that it has completely gone away either. As we say often, one month's data, that can often be fraught with revisions, does not a trend make. Be that as it may, the 3 year moving average (in purple above) continues to decline at a good clip, so we shall continue to monitor the monthly data as it progresses and the status of the economic cycle that it produces.

More importantly, it  (the most recent unemployment data) does nothing to impede the US Federal Reserve from raising interest rates on December 14, in fact it gives them more reason. This plus the increase in longer rates (higher bond yields) will have longer-term implications on a highly leveraged global economy that is firing out on less than all cylinders at the moment.

The recession may not come next month or the one after that, but it's eventuality has not gone away either.

Now we move on to see what the Italian people want for their future and what that may mean for all of the Euro Area.

Stay tuned.

Feedback...

Scott

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Bianca

Plenty of Uncertainty To Watch For This Week

Beyond the "Trump Trade", which is as much bluster and mis-direction as his tweets (meant to take our focus off of the real issues), there are more important near-term questions:

1) OPEC meets on Wednesday (Nov. 30) and whether or not a meaningful production cut can be achieved will be a significant  hurdle and oil prices will be impacted (one way or the other). 

2) US Employment Situation Report is on Friday (Dec. 2): our focus is (and has been) on the current unemployment data (now at 4.9%) and the 3 year moving average (5.6%) and how when these numbers have converged in the past it has indicated recessions. With little change in the unemployment rate and a falling 3 year moving average, this convergence is happening rather quickly. An uptick in the current unemployment rate (more workers looking for jobs) may signal that (with this indicator) a recession may not be far behind. Whether or not Trump can provide economic stimulus is not going to be an issue in this case, because the impact of that would not be felt until well into 2017 (reason why equity and perhaps bond markets have got way ahead of themselves).

3) In what could be a very important moment for the future of the Euro, Italy votes on constitutional reform on Sunday (Dec.4). Prime Minister Renzi has indicated that if a "no" vote wins, he will resign and once again Italy will be thrown into political chaos and it is likely an election will follow. This may give the "populist" parties (who want to hold a referendum on the Euro) an opportunity to move into power. This is at a time when banking issues in Italy are already problematic and could create even more financial market chaos.

Next Week: Central Banks start to take the stage.

Feedback...

Scott

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Bianca

Thanksgiving 

Last year at this time I wrote about being thankful for the time my family and I spent living in the US (and all the great memories) and the return to Canada (that likely extended my stay on this planet).

Giving Thanks (11/25/15)

We still celebrate the holiday because it became part of our lives and for us, kicks off the Christmas / Holiday season. It also allows us to think about what we have and reflect on our good fortune and take the time to consider those that have not had such good fortune.

My wife and I have had the great pleasure to be involved with the folks at New Circles over the last year. These are people who dedicate their lives (or a very large chunk of them) to helping those who have not had such good fortune, try to get to a bit of a better place.

It starts by making sure that they have clothing (Gently Loved Outfits to Wear or GLOW) that they can shop for (without cost) in a dignified setting, but goes much further and helps them to begin to grow into productive members of the community with skills training and social programs.

We had the wonderful opportunity to attend a graduation ceremony last summer. There was a great deal of pride and accomplishment in that room and it was moving to say the least. People who had come, with basically nothing, to live in Canada were ready to become independent members of the community in a very positive way.

At High Rock we recently met with a new Canadian (referred by Cindy, the founder of New Circles) who was educated, trained and worked in the world of investment finance in a developing nation. He had packed up his family and taken the bold step of trying to create a better life for them. We helped him develop his "value proposition" for marketing himself as an expert in emerging markets and build a successful resume.

At this time of year, one of our favourite programs is the  Holiday Angels , where donors are matched with families in need who provide a wish list which includes items such as clothing, kitchen wares, toys and giftcards for groceries. The notes of thanks from small children and their parents in past years have touched us deeply. Many are in sheer awe of the kindness of strangers.

So for us it is not just a time for giving thanks, but a time for giving to make the spirit of the holiday season a meaningful time.

So thank you to Cindy, Alykhan, Diana and all the staff for allowing us the privilege to be part of the New Circles family, it has enriched us and opened our eyes and our hearts.

US Stocks At Record Highs: Building In A Large Number Of Positives 

S&P 500 prices are up close to 8% on the year and earnings for 2016 are expected to show close to zero growth. 

Earnings expectations for 2017 (building in all the positives) are for growth of 11.4%.

Inclusive of all that is positive, 12 month forward Earnings Per Share are at 16.7 times, well above the 10 year average of 14.3.

Simple question: if you had new cash, where would you want to buy US stocks (with a long-term investment in mind)?

If you are buying a stream of future earnings, which is why you invest in equities (which are completely built-in to the 16.7 times Earnings per Share data), then you are buying at relatively rather expensive prices.

At prices that put Earnings per Share below their longer-term average, it would likely make more sense.

So why the hurry?

Hype.

Stock prices are running on emotion: they are calling it the "Trump Trade" and most investment companies and financial institutions want you to buy into the hype, because if stock prices go up, all is well with the world, apparently.

I am a contrarian by nature, so I am not likely someone who runs with the crowd and I am definitely not running with this one. In fact, I notice the cracks in the argument (part of my cautious nature: keeps me agile, fit and slims my waist line): like the possible end result of the continuation of the populist, anti-free trade movement. First Brexit, then Trump (tearing up the Trans Pacific Partnership, which accounted for about 40% of the global economy), next the Italian constitutional referendum and/or the French presidential elections (which could, in fact be the beginning of the end for the Euro).

Are we to ignore all that because apparently Donald Trump will make America great again?

He has certainly pushed interest rates higher and left a great deal of those with overwhelming debt (at record levels) with higher debt servicing costs and only hope for some economic help from the yet to be announced fiscal spending.

Hope is a good thing as long as there is some follow-through.

Are we to believe that Donald Trump is going to be able to pull it off (he also claimed that he was going to put Hillary in jail)?

Good luck with that. The man is all talk, little substance.

As my business partner Paul says..."One month does not a trend make..."

We will talk about this and more and how our models and portfolios continue to beat the benchmark averages despite our cautious approach on our client webinar today. The recorded version will be posted on our website: High Rock Capital Weekly Webinar at or about 5pm EST.

Feedback...

Scott

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Bianca

The Biggest Risk: Running Out Of Money

For each of our clients, as regular readers know, we prepare a Wealth Forecast that attempts to project (as best as is possible) how their money is expected to grow and meet their needs for their respective time horizons. There are many assumptions that we have to make and as I discussed on Friday, understanding inflation is one.

We also assume a steady or increasing employment income (for those who are earning one, i.e. not retired) as the means to add to savings and grow wealth (income - expenses = savings).

But, what if that income should suddenly be reduced?

If it is merely a change in employment circumstances from losing a job, there is hopefully only a short time frame where you can land a new job and resume the income stream.

If however, there is something more dramatic: illness, injury or worse, loss of life, that income stream may never be resumed.

More often than not, these situations take you by surprise.

That is the benefit of Critical Illness, Disability and Life Insurance: they offer the protection you  and/or your family need if you suffer a loss of income (under the respective category) that would remedy your income needs and reduce the risk to your financial health.

Of course their is a cost associated with protecting you from that risk, but what is appropriate (if it is at all needed) can all be determined through the Wealth Forecasting process (High Rock's Certified Financial Planner (CFP) professional, Bianca Tomenson is also licensed to sell insurance products and is co-authoring this blog), which helps to identify risks across your wealth growing years.

There are a number of benefits that come with the use of insurance products, but much of it stems from the fact that you (in most cases) pay the premiums in after-tax dollars, so the beneficiary(s) receive after-tax dollars.

For Life Insurance especially, this can be a significant factor in planning for your estate and what you wish to pass on, to whom and what tax burden you wish to pass on as well.

Life Insurance benefits by-pass the estate and go directly to the beneficiaries, tax (and probate) free.

Interestingly, whole life, participating policies (which pay annual dividends that can be used to purchase additional paid-up life insurance each year and as a result potentially increase the death benefit significantly over longer periods of time) can be used as a way of supplanting income in later years (if necessary). These types of policies accumulate a cash surrender value (CSV) over time and the policy owner, while still alive, can utilize the CSV by borrowing against it and making the amount borrowed payable to the lender, by making the lender a beneficiary (of the policy) for the amount borrowed (plus interest).

The borrower pays no tax, the lender receives the re-payment of the loan, tax-free, on the death of the insured.

As well, the death benefit is guaranteed and therefore an asset that is highly diversified away from the financial markets and the risks of price volatility.

Depending on your circumstances, of course (and this needs to be looked at in conjunction with an expert who is not selling you what you don't need), this may fit well into your financial goals. We have seen may positive outcomes from this type of planning over the years and the security and peace of mind can be well worth the cost.

Questions...

Bianca

Feedback...

Scott

Ever Considered Your Own Personal Level Of Inflation?

Inflation is an enormously important component in planning (Wealth Forecasting), because your actual or "real" rates of return of growth have to take inflation into account.

If your annualized rate of return (after fees and taxes) on your savings is growing at or about 2.5% (our benchmark 60/40 balanced return as of last Tuesday was 3.25%, after fees, before taxes, although High Rock clients are getting a significantly better rate of return) and the basket of goods that Statistics Canada follows, as it was announced this morning, is growing at an annualized rate of 1.5%, the net or real rate of return is 1%.

However,

Statistics Canada's "basket" of goods and services may not necessarily be your "basket", so it is relatively important to understand your own basket when planning your family budget:

Here's what Statcan suggests:

And this is what they show as to what represents the annual growth in the prices: 

You can decide for yourself what weights you should prescribe to your own personal basket, but if you like a glass of wine more than the "average" or travel a little more than average, you may find that your personal rate of inflation is a little higher than the average. This could very well impact your real rate of growth as well and when you project it out over a long-range period of time, this could be significant.

As painful as it may be, the whole budgeting thing that is, it is absolutely essential in determining how you are going to reach your financial goals and an extremely important part of forecasting your wealth.

That is why we are adamant about preparing a Wealth Forecast for our clients, because how can anyone begin to know how to build a strategy for achieving those goals if they do not understand your lifestyle and the costs of that lifestyle and the impact of that lifestyle on your projected net worth?

They cannot.

If you have an advisor, ask her/him how they know what your strategy should be?

If they are just popping you into a standard plan (that everybody has), they are not doing their due diligence appropriately.

And that my friends is what happens when you get "Robo-style" advice and portfolio management. 

Don't settle for it, there is a better alternative.

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Scott

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