December 2018 SWM Letter; RDSP Disability Planning

As Canada Post awaits arbitration we've skipped cards this season to donate in two ways that will truly brighten the season:  a food bank/nutrition-training program and a student stress kit to ease the blues that can accompany holidays and winter exams.   Perhaps we'll get a "new year" card out but watch this space as we have valuable updates and events coming in early 2019.   ...  Now in this closing 2018 letter we highlight having strongly outperformed world news and markets this year, and in addition we open a window on planning that most eligible families have never considered even though they could open it with as little as $1.  Stay with me here and enjoy this year-end issue with a view to what 2019 can bring.

Got your January calendar ready?  We have two client events / dinners  scheduled for January 17th and 31st.  Clients at greater distance - don't worry - we love to visit you too!  These are times to invite family and friends who would appreciate our service and loyalty.  On these two dates you meet our team, also some of our outside partners that support our service through every year and season.  An economic overview will review forecasts and opportunities for the year ahead.  Reach me directly to confirm details for seating, also whom you will invite to join us.


2018 has been called “The year no one made money.”   In your financial plan that's not completely true yet another headline was,  “Looking back on the year of declines.”   Deutsche Bank evaluates that 89% of all asset types dropped this year -- worldwide.  No safe ground, no relief.  On the other hand another headline suggests, “There is plenty of reason to be optimistic” …especially looking to 2019.

2018 opened by falling into a pit, down 15%.  Rising through spring it then dropped 20% this fall.  Year-to-date Canada's TSX is down 9%, Europe down 17%, Emerging markets down on average 20%.   Half of U.S. companies are down 20% and another 1/4 are down 10% or more.  “FAANGs” have dropped 25%.  Marijuana stocks have sunk 40-to-50%.  Bitcoin is down 85%.

One would naturally expect better traction from defensive “value-oriented” investments yet commercial Real Estate has been modest, Financials are down 10%, Renewable Energy and Clean Tech are down 15%.  Bond and Fixed Income are broadly down 5%.   Oil producers suffering from lack of pipelines are down.  Foreign currencies share the malaise (except Switzerland and U.S.) despite the benefit of diversifying risks and geography.

Fortunately our clients’ accounts tend to resist an outgoing tide.  Some of our holdings gained value this year (see the Peruvian Farmer, below).  We consistently reduce volatility, especially with our “life income mandates” and also with unique approaches to strategic income.  Where world equities have lost over $6 Trillion in 2018, our clients’ accounts range from -2% to -7% depending on clients’ ages, profiles, risk/return goals.

This also reveals a fallacy of financial media that promote index-based investing which would have accounts down 10-15% this year.   (Recall 2008/2009 indices were down 35-60%.)  Our mandates in normal markets cut risk in half, and in more volatile markets cut risk to 1/4 compared to wider market indices.  Avoiding the depths is as vital as preparing for growth.

Any questions, reach us directly.  Staying within a prosperous “comfort zone” is always important to us.  Naturally there is a year now and again that will drop but our focus remains "Life Income" and sustaining wealth for our clients' "forever".


When Virginia and I visited Peru we saw potato fields perched on steep mountains, even 8000 feet and more above sea level.  We learned there are 4,000 varieties of potato and they are grown in at least 20 different types of soil and climate.

A recent Economist article (Nov. 17) noted that each farmer plants as many as twenty different fields, requiring great effort going back and forth between fields at such great heights.  In a given year only a few fields may prosper.  One might conclude it would be better if they planted only a few fields that would provide the greatest gains in a given year.  But such forecast is impossible.  No one can know in advance.  Diversifying across different parcels of land -- spreading their effort – is their only insurance against starvation.

Similarly we invest in Canada, U.S., Europe, Asia, Latin America, Africa, and the Middle East.  Our holdings can include stocks, preferred shares, private equity, government and corporate bonds, T-Bills and shorter term commercial loans.  A chart I occasionally share shows how various sectors have rewarded or declined in years gone by.  Advance forecasts are out of the question … always easier in hindsight.

We always diversify.  First we focus on key mandates of long term global value where “yield” increases with time.  We consider also the cost of earnings (P/E) in each economy and sector:  recently high in the U.S. at 22, compared to Canada near 14, Europe and Emerging markets near 12.   We aim for greater growth and reduced risk.  We spend fewer calories than a Peruvian potato farmer but by similar principle we'll find areas of prosperity even in difficult times.  Each field or asset will yield abundant return in due course.


Most popular question -- people ask about interest rates.  The answer has changed.  Four weeks ago we expected 2019 to bring three more increases in U.S. and Canada, one in the U.K., and remain negative in Europe and Japan, with perhaps flat or downward rates to follow.

Today’s outlook favours just one or two increases in 2019 and little change in Europe, UK, Japan.  The world remains in ICU from the turmoil of 2008/2009.   (European Stoxx 50 is still negative since 20 years ago;  Japan is still negative over 25 years.)   The world’s economy has been too weak for “normalized” interest rates (eg. 4-5%) and rising US bonds were threatening havoc.  Low or negative rates are a blood transfusion for weak economies ...and for weaker companies in a strong economy.  Rates seem unlikely to rise much over the year ahead.


RDSPs can offer vital advantages to both low- and high-income families.  Last month we focused on Eldercare, and I promised this month we would review RSDPs.  Here are some brief notes along with two links to help you or someone you know.  Reach us if we can help.  Consider how you think about, “HOW”, “WHEN”, and finding your “WHY”.

Our RDSP beneficiaries currently range from age 7 to 60s.   RDSP requires being eligible for the Disability Tax Credit (ie. severe and prolonged physical or mental impairment) starting at any age up to the year one turns 60.   Owner(s) may be the beneficiary personally who is at least 18, or family member(s) legally recognized as acting for the beneficiary.  Allowed investment ranges from $1 to a maximum $200,000 and can include tax-deferred transfers from RRSPs, RRIFs, RPPs of parents and grandparents.

In addition, Canada Disability Savings Grants and Bonds can add a further $70,000 and $20,000 respectively (up to the year a beneficiary turns 49).   To age 17, grants and bonds depend on parents' income;  after that they depend on income of the beneficiary (and spouse if applicable).

Sadly many have never applied even though they could qualify for Disability Tax Credit and the RDSP.  Good news is, applying can open a floodgate of new money.  If someone would have qualified in and since 2008 but failed to apply until 2018, they can get carry-forward grants up to $35,000 and bonds up to $10,000.   (Two stories, below.)

Links included above discuss how to draw income -- a combination of taxable and non-taxable -- and leave other income-tested federal programs untouched (CPP, OAS, GIS, GST credits, social assistance benefits).  Certain procedures apply if a beneficiary dies or overcomes their impairment.

SAME FAMILY:   Low-Income vs. High-Income

Jane and Jack have a handicapped daughter named Jill.  One parent has an income and the other is full-time caregiver.  For now their net family income is a penny under $30,000.   If the parents open a RDSP with just $1 Canada will match that with $3 of CDSG plus $1000 of CDSB …for a net account value of $1,004.  If life was so busy that they hadn’t applied and Jill is now 10 years old, the $1 deposit could be matched with $3 CDSG plus $10,000 of CDSB …for net account value $10,004.  Plain to see:  families with a qualifying member should at least contribute that $1.   (If Jane and Jack could deposit merely $100/month they would generate the maximum federal CDSG + CDSB at $4,500 per year.  In ten years with 6% growth they could have over $200,000 -- a vast nest egg compared to the $12,000 they invested.)

Now if Jill’s grandparents have greater wealth or cash-flow, what then?  Perhaps they want to contribute up to the max $200,000.  Grants and Bonds aren't based on their income but on that of Jane and Jack.   We'd be careful to design gifts/deposits to optimize grants:  this is very flexible for families to contribute within their means.

Some families begin this discussion with older parents' Estate Planning.  Mark at 35 is paraplegic from a diving accident at 18.  His parents Mary and Mel want to support their son without forfeiting his provincial support and drug benefits.  From their Wills or as beneficiary from their RRSPs or RRIFs (by Mark’s age 49) or directly from parents’ savings, they can contribute up to $200,000 to Mark’s RDSP.  Correctly designed this will increase Mark’s financial resources for life, insulate his provincial benefits, and shift the parents’ taxable assets to Mark’s low tax rate.

NB:  over age 17 the RDSP beneficiary needs a Will (if competent to make one) or provincial laws of intestacy will come into force at the beneficiary’s death.   Henson Trusts are also key for wealthier families, fitting beside the RDSP to support the dependent while living, then carrying over to other family or philanthropy after the dependant’s passing.

Less than one in ten homes who could qualify for RDSPs actually own one.  This is a vital opportunity to think of who you know and how we can help.

Merry Christmas and Happy Holidays!

In every language, culture, and faith we wish our dear friends Peace and Prosperity, Health and Happiness, a wonderful holiday season and the very best through 2019.  Again I apologize for not sending cards but delivery is sketchy this season so let's speak in person or by phone or email.  We wish you our heartfelt warm wishes and happiest returns.

Yours in Financial Security ... always for LIFE!

Brian and Virginia,  Whitney,  Ben,  Christine,  Barbara  . . .


Freely share this letter whenever it can help a neighbour or friend, and ease the concerns of someone you know.  Introduce us -- we love to help.

Yours in Financial Security for LIFE!

Brian Weatherdon, MA, CFP, CLU, CPCA. 905-637-3500

627 Guelph Line, Burlington, Ont. L7R 3M7.  1-877-937-3500

Author:  A Lifetime Of Wealth — And How Not To Lose It  (2013). Protecting Life, Loved Ones, and Future Dreams  (2013). Your Business, Your Retirement: Halton Retirement Study (2015) .

** This monthly letter touches on key strategies in Canadian and global investing and financial planning. This letter is not an offer to sell any kind of security, insurance, or program. Historical returns and risk measures are not a valid guide to future performance. Returns are from publicly available sources and research from a variety of firms including but not limited to GLC, RBC, CIBC, Mackenzie, Franklin Templeton.  Opinions reflected in this letter belong solely to the author and no other body is responsible for the content expressed here. We value opportunity to consult alongside your legal and accounting firms to advance your financial security and unique goals. We are grateful always to receive your comments and questions.

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