This month brings an astonishing array of anniversaries highlighting how we have come through all kinds of storms and turbulence, yet still build and sustain wealth. Today’s issue looks at a pension crisis that is rising again to threaten peoples’ future income. Also a note on inflation expectations as this gave rise to the most questions this past month.
We are now twelve months since Covid-19 was declared a global pandemic. Twelve years since the Global Financial Crisis hit its lowest. Twenty-one years since the dot.com tech boom collapsed (and took 15 years for the Nasdaq to recoup in March 2015 what it had lost in the meltdown).
Lesson 1: we diversify investments across different sectors and styles, geographies and currencies. Don’t buy fads or impossible dreams. Keep a solid hold on “good stuff” that will last. Peek again at what we mean by “Life Income Mandates” – value that has continued growing and paying handsomely over 10, 50, 200 years.
Lesson 2: remain patient even when value pauses for a while – especially then! For a time the world hated banks and real estate even though “that’s where the money is” and these two have been among the strongest and most rewarding sectors for 20, 50, 200 years and more. On the other hand we must not buy something silly and then rest patiently; if something shows zero earnings and a rising price tag the result will end in tears.
Lesson 3: if you’re investing more money each month, double-up when the news is bad and markets are down. If you’re drawing income out each month, be sure to keep a healthy cushion or “income reservoir”.
Lesson 4: even the most cautious investor will feel safe and grateful as we keep a healthy balance between growth and value. Growth currently includes many dividend stocks that paused last year. Growth includes companies which are growing their earnings quicker than others. Growth includes emerging markets which are reaching development goals in 15 years that took the developed world 150 years to accomplish.
Lesson 5: we have exceptional portfolio teams guiding your investments and we are 100% confident in reducing risk and sustaining growth to fit your lifestyle and future needs.
Another major employer is in the news for declaring insolvency with devastating consequences for staff, including pensions and the ongoing income of retirees. There is a tragic list of such events: Stelco was the first I saw up close when pension benefits were slashed in half. Think over the past 25 years, how many retailers have disappeared, manufacturers have closed, and so on. Such news has come up again this season as we see how often and sadly this type of situation arises.
It would be similar in a non-pension context if you own a major amount of stock in the company where you work. That becomes major jeopardy when an employer’s failure hits your income, your investment savings, and your future pension expectations, all at the same time.
Many pension plans offer a choice to privatize or commute the pension – meaning to remove your money from the pension to invest privately. When considered and deemed suitable in a person’s own situation, the benefits may include:
- Eliminate future risks of inadequate pension-funding &/or failure of the employer.
- Pension becomes a personal asset instead of being owned by the pension trustees.
- Draw income to fit your current/future lifestyle (instead of a specified allowance).
- Survivor benefit becomes flexible (not restricted to 50-75% specified in pension).
- Estate value to your children, grandchildren, instead of to the pension trustees.
It’s remarkable how our clients have enjoyed the flexibility of a personalized pension, for instance:
- Major home renovations to enjoy next stages of life.
- Enhanced travel budget for first 10-15 years retirement.
- Funding elite education for a qualifying family member.
- Investing in the new opportunities of a family business.
If privatizing (commuting) can help escape a future pension crisis, then equally important is avoiding market losses. Investing must be rooted in and guided by a holistic, certified financial plan, keeping you and your wealth safe for life! In this website and my books (click “books”) we go into far greater depth on this. Reach me to discuss personal situations or questions you have in mind.
More questions on inflation arise because news media have been raising the alarm — rather needlessly. Covid struck a year ago and many prices went down – then with recovery and government stimulus prices have gone up. For now that’s inflation, and the inflation rate will rise in April-May compared to year-ago periods in 2020. For instance gas prices that bottomed at 86 cents are again near $1.25/litre. Lumber is at all-time highs. Food prices too are rising.
This blip of inflation may briefly pass 2% and then ease nearer 1.5% this summer. The Bank of Canada and other central bank authorities are not forecasting any concern on inflation or interest rates: in fact they have every intent of keeping rates modest.
On the bright side, a modest rise of inflation and interest rates suggest economic health and increasing potential. If we can find a goldilocks range, 1.5% to 3% over the next couple of years while missing any abrupt distortions we should be happy.
Now on housing prices: nice when selling, but really tough when trying to get into a market like this. Those who can afford may buy; those who cannot buy may rent and invest to save their down payment for a time when costs pause or recede. Recall 1987-1991 when housing values lost 25% to 30%; if that happens again, younger buyers will want a healthy down payment saved by then.
An excellent summary of the inflation discussion these days: see David Parkinson in, Inflation, should we be worried?
HOPEFUL SEASONS AHEAD.
Days are growing longer and warmer – all to enjoy as spring arrives. Vaccinations are increasing daily: 8% of Canadians have had one or more doses. Sometime between June and September, 70% of our population should have received at least one dose. Variants remain a great concern but vaccines are being tweaked to better protect against known virus mutations.
This assures us people will be getting out more, while face-coverings and handwashing will remain for good hygiene. Travel will gradually open in and beyond Canada. Work places and public environments have already been updating HVAC and filtering systems. Restaurants and entertainment venues will open their doors to in-person traffic, actual rooms instead of zooms. Schools, churches, gyms will allow safe spacing for more participants. Public transportation and highways will move people to and from work almost as much as two years ago, while we’ve learned to be comfortable with some amount of work-from-home. Corporate earnings will rise significantly across most sectors, strengthening employment, tax revenues, and investment values.
As April opens we’ll get to see how values have grown in this first quarter 2021, also since last September and June. As markets rise or fall from one week to the next, what we foresee is a stronger second-half this year than where we’re at right now. Meanwhile remember we’re always here for you to keep your plan safe and your lifestyle well funded. Focus on enjoying life each day: patiently start thinking ahead to what life will be like post-covid, and reach me with any questions or needs that touch our planning for your Life and Money in the seasons ahead.
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
Certified Financial Planner, Certified Retirement Coach
** 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 Canada Life, CIBC, Dynamic, Mackenzie Financial, RBC / PH&N, and more. Opinions in this letter belong solely to the author and no other body is responsible for the content expressed here. We value opportunity to coordinate with your legal and accounting advisers to further your financial goals in home and business. We are grateful always to receive your comments and questions.