Our enduring focus is aligning Life and Wealth. These are inextricably connected. We cannot face the future with confidence if unknown risks threaten to steal our wealth. And if money buys happiness, it can only be so when successfully supporting the life we want to enjoy. At any age and stage of life, guarding this vital relationship of life and wealth will protect our dreams and lasting comfort.
This month’s focus:
- Lifestyle Financial Planning through Life’s Ages and Stages
- Help family and friends avoid tragic losses from fraud
- You asked about interest rates.
- Where we are today: Sept 2015
- Two pictures: growing investments.
Grandparents: Life and Wealth.
Consider a grandparent whose financial plan arises from the following four value statements: 1. Never run out of money (ie. ensure income for life). 2. Freedom and flexibility for travel and special spending. 3. Abundant resources if I become frail and need help. 4. Protect values I can leave for my loved ones.
Listening carefully, we understand such values are really about “life” and so we dedicate ourselves to these values in our financial planning. We identify the resources to be kept safe for expenditures over the next 6 to 36 months; this is the “income reservoir”. We then focus on investments with a strong and rising yield over the next 3 to 7 years (which in time will further support the income reservoir). A third layer then highlights lasting growth and security into the more distant future. In this design we see how to never run out of money even to age 95 or 105.
Sadly only 25% of seniors have a financial plan to assure the next ten or fifteen years of income! At most 10% have such a financial plan that has been more rigorously tested and certified to age 95+.
Middle-age: Lifestyles and Wealth.
Think especially of those planning to retire in 5 to 15 years. I’ve surveyed this group in recent months and confirmed insights in the role of money and life for this group. (I’ve published results as articles on pension decisions (start here) and impact for career and business decisions (AMAZON -- Your Business, Your Retirement).
61% confess “having enough money” is their absolute greatest anxiety about retiring. The same percentage want to increase spending for extensive travel. The sad thing is that their fears are conflicting with their dreams. To get money enough to overcome that conflict, half say they’re willing immediately to raise savings by 5% today, and 1/3rd say they will raise monthly investing at least 10% in the next year or so.
A major surprise in this survey supports our concept of "life horizons". Most advisors illustrate financial planning as a single period from retirement to death (what I call the “flat line” planning method). Our survey shows people want a far more vivid future, to see three or more lifestyle periods because life is so full of changes (see life-horizons). This can offer higher lifestyle spending in early retirement, a more sedentary budget in our 80s, with higher spending when costs rise for personal healthcare and final comforts. This is a life-horizons-line which is vital to FINANCIAL PLANNING FOR OUR DESIRED LIFESTYLES …or in other words, aligning our Life and Wealth.
But MOST don’t even have flat-line planning. Their future is opaque, a black-hole. The Ontario Securities Commission OSC (see link) this year released that only 14% of homes in Ontario have some kind of financial plan. Many aren’t really plans but sales-tools from a bank or fund company. Under 10% have a financial plan that has been duly tested and certified to secure financial life and wellbeing to age 95 and beyond!
Younger professionals, singles and families: Avril. Josh.
Avril (not the singer) at a young age wants us to embody the following four values for her financial plan. 1. Pay off credit and student loans. 2. Build RRSPs and Tax Free Savings. 3. Buy a home in 3-to-5 years. 4. Establish independent wealth by age 40 to protect life, family, and retirement. Avril quickly discharges most of her debt and is putting $2000/month into a combination of high-value investments and insurance. She is investing strongly to pave and protect her future. (see Young Professionals)
Josh (not the singer) with a young family has been feeling the endless burden of monthly expenses. Two young children, he and his wife cope with a high mortgage, tax and utilities, childcare and a host of other costs. The most they can invest right now is 2% of income in an employer-matched group RRSP, and low-cost term insurances for life and critical illness. (See further in "Protecting Life, Loved Ones, and Future Dreams.")
Funny to realize, younger people have a lot in common with their grandparents. They want to build wealth without taking too many risks. Losing 30% at this age could be recovered, but they feel better and wiser avoiding steep losses to keep their wealth growing.
At the same time, younger people could put some of their money in more volatile areas. What if someone put $100/month into China (or energy) being down 40% or more this year. When China (or energy) get back to the value they had last December the investment will show a sizable profit.
Where we reduce risks and accelerate growth for such young professionals (link) they will see powerful results and increase their wealth and freedom.
Avoiding Fraud, Scams, and Incompetence.
6% admit they have suffered permanent, life-changing, financial losses due to fraud. It’s vital to discuss this with family and friends. Some have lost $1000s; others have lost a lifetime of savings. Imagine you “google” two words – your city name, and the word “fraud”. This easily produces over 500,000 web-links in less than a second. Fraud is a plague that hits people every week in every community.
And it’s not just such infamous names as Earl Jones, Bernie Madoff, Robert Mander. Well known firms can lead strategies that cause legal problems. KPMG is currently in a court case alleging that on their advice, wealthy families were transferring money tax-free to the Isle of Man, and paying it back to themselves in Canada as tax-free gifts. If this were allowed, more wealthy families would follow suit, and an even greater tax-burden would be forced on our middle-income families.
Your question of interest rates.
A lot of news lately has focused on when and how much interest rates will rise. Rates could soon jump 1/10th of a percent in the US and UK. In my Aug 24th letter I mentioned it’s never the first jump that kills economic growth but years later when rates are exceeding their long term average. Currently interest rates are at a 100-year low! When fears pass and rates rise a bit, this will signal a healthier, more prosperous economy.
Where are we today, September 2015?
It has been a busy ride for developed markets, down 12% to 18% since highs reached some months ago. At one point the TSX (Canada) was down 19% since Sept 2014. We’ve had some lift in recent weeks and believe values will be turning strongly upward.
Someone writing commentary for Great West / London Life offered the following creative insight: “The old market adage ‘when the US gets a cold, the rest of the world comes down with pneumonia’ needs an update. Perhaps something like “When China catches a cold, the US sneezes, emerging markets run a fever, Europe stays in bed with the chills, and commodities cough up a lung.”
As we review your own investment accounts here – and indeed we want to confirm that your investments actually show what I’m saying here – we’ll find three vital dynamics. (1) We find that a drop in our portfolio values is generally a small fraction of the drop in wider markets. (2) We ensure the income-yield of your investments is much stronger, more lucrative, and better insulated than wider markets. (3) We know the recovery of your portfolio can rebound far more quickly, from 2008 even 4-times faster, that normal measures of the stock market. These key dynamics should be working for you regardless of your age and stage and life.
With “life income mandates” we combine globally diversified income with built-in risk-reduction. With life income mandates your plan has a steady keel to withstand the storms and serve your future and your personal goals and dreams.
Closing with a picture or two . . .
Royal Bank - Global Asset Management helpfully pictures where we’re at today. You see a channel outlined by a higher line and a lower line. This channel contains all stock-market movement 95% of the time. In the lower range of that channel there’s far less risk and destiny should turn strongly upward. At or above the higher line is increased risk where we expect markets to stumble. Have a good look at the years past as well as where we’re sitting right now.
As you see in the picture, our Canadian market is strongly entrenched in the lower part of its channel, and the U.S. market (which leads the world right now) is mid-way, supported by growing earnings and healthier (reduced) levels of household and consumer debt. Such a simple picture hides enormous research that stands behind it, updated continually, and suggesting major recovery in market values over the coming seasons, even prolonged growth for some years to come.
Compare also with a table in my Aug. 24th letter, here again from our partners at RBC ...subject to the normal caveats and cautions that change is unpredictable and we cannot control world events that arise from month to month... In any event we see considerable growth opening over the coming seasons.
Closing word today on Life and Financial Planning.
We focus on Life and the financial process to support your comfort, goals, and future dreams. At any age or stage this is a vital enterprise to align wealth with the life experiences you want to be enjoying. You can also now peak into a new book I’ve been writing this year and published on Monday, Your Business – Your Retirement. I don’t even have it in my hands yet but order your copy at Amazon or Kindle, or get a free PDF e-book by replying here and asking me for it. I’m thrilled to share it with you.
Grateful to be serving your financial security for LIFE!
BrianBrian Weatherdon, MA. CFP. CLU. CPCA. CRC. MDRT. 905-637-3500 x 223 627 Guelph Line, Burlington, Ontario. L7R 3M7. 1-877-937-3500 FREE x 223 Brian@SovereignWealth.ca Amazon: “A Lifetime Of Wealth — And How Not To Lose It.” ** 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. For information on near 10,000 investment funds and other financial structures please feel free to contact me directly. Returns shown are from Morningstar and other major financial news media. Research is sourced from leading sources including GLC, RBC, CIBC, Franklin Templeton, Mackenzie, and a wide range of highly reputed firms. 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 serve alongside your legal and accounting advisors with whom we can best protect your financial security and advance your goals. We are grateful always to receive your comments and questions.