HOW MUCH MONEY SHOULD YOU BE SAVING?

If you ask yourself that question your answer should have been as much as possible, of course. But with so many debits coming out of your bank account saving up for your future is a daunting task. How can you prioritize your options, without knowing the importance of saving and investing your pay check or any extra cash, as you work towards reaching your financial goals.

As we have discussed in previous articles the answer to the question above is only a simple one if you implement and follow a strategic plan… Here is a look at things you should be doing when you start thinking about saving.

Pay down your credit card and other high-interest debt first

The average Canadian household carries a credit card balance of nearly $8,600 with interest rates that can be as high as 21 percent. Be sure to make minimum payments on all accounts to avoid accumulating more fees. The next step is to work on paying down your consumer debt from the highest-interest accounts to the lowest. Use any extra cash to pay down your credit card balances or any other loans, prioritizing those with high interest rates. Paying down high interest consumer debt will allow you to start saving for the future as the interest on this debt is lost potential.

Employer matching on your RRSP

When it comes to finances, there is nothing worse than leaving free money on the table. That’s why getting the most out of your employer’s RRSP match program is one of the most important “must do” strategies for your financial planning. Many employers will match your contributions up to a certain pre determined percentage of your gross pay dollar-for-dollar. Therefore you should be contributing up to the amount your employer matches because this is easy money and a winning strategy you will never regret.

Did you know that 85% of Canadians do not max their RRSP contribution…

Contribute to your RRSP

We’ve already covered how important it is to make the most of your employer’s RRSP matching program, but it’s also important to max out your tax-deferred RRSP contributions. For the tax year 2020, you can contribute up to $27, 230 in pre-tax dollars which will defer paying taxes on that money until you withdraw funds during retirement. That means you’ll pay less in taxes today, and depending on when you plan to retire, allow the money you invested in yourself this year time to grow. The advantages of paying yourself first have been covered in previous articles.

Contribute to your TFSA

Maxing your TFSA yearly can help save you money from taxation in the future. Your 2021 max limit is now $75,500 the benefits of a TFSA can be substantial: Your contributions grow as they would in an RRSP but the withdrawals you make in the future are tax-free. You have the same flexibility to invest in a range of investments, such as individual stocks or active management. Be careful not become a day trader on the stock market with a TFSA account as the government can change the status of your TFSA if they deem it to be a trading account. This account was set in place to be a buy and hold type of stock account – buy stocks that pay dividends and have the dividends reinvested into your portfolio. That is free money that will help you grow your portfolio.

Build up an emergency fund

2020 was a strange year that no one saw coming years earlier. You never know if or when you’ll experience a job loss, a major medical procedure, a housing emergency or other challenging life event. That’s why you should be establishing a “rainy day” fund to get you through until your next pay check. No amount of money could have been saved for what happened in 2020, but keeping cash for three months’ worth of expenses would go along way if needed.

The most efficient way to meet your long-term financial goals – retirement, university/college for your kids, or emergency fund. – is to take the short-term view of paying yourself first. Automatically funding your financial goals before your other expenses will help you adjust daily and monthly spending habits.

• Setting up RRSP or TFSA auto deposits
• Monthly RESP auto deposits
• Setting up a regular monthly transfer from your checking account, to a high interest savings account

After paying yourself first, you may find that you don’t notice the difference in income, but your investments and nest egg will be steadily growing all the while. All of which means you’ll be saving for the long term, and seeing your financial security become more stable.

A smart approach is to think of your savings plan as consisting of two separate figures: one for things you must have, the other for things it would be nice to have. The first and most important part of financial savings is taking care of things you must have. You want to ensure you have enough to live on without feeling deprived of anything vital during your retirement years.

So how much should you be saving? As much as you can afford!

WHAT DO YOU HAVE TO DO TO BECOME WEALTHY?

We often find ourselves lured by the thought that there are shortcuts to living a wealthy lifestyle. We may dream about winning the lottery, investing in the next enormous stock tip, or having that one business idea that becomes the latest hit. If only you had jumped on that stock tip that was guaranteed to make you rich. We have all been given the stock tips that will make us rich – but the only people getting rich on the tips are the people who truly know what they are doing. If getting rich is so easy, why are only 4% of the Canadian population considered rich?

What can you do right to accumulate wealth in Canada?

Wealth is not built overnight and since only one percent of our population’s wealth has been inherited. Most wealthy Canadians have built their wealth one step at a time. One of the key habits of wealthy people is their ability to create a systematic disciplined savings plan. If you want to succeed then develop a plan that pays yourself first. Put a percentage of your paycheck into a savings portfolio before any other expenses or deductions are incurred. Just think if you could save 5% – 10% of your income before expenses how much money would you have saved in a year? Continue that over a few years with the added value of compounding interest you would have created a savings portfolio with incredible growth potential.

Keep debt in check

Ever wonder what a wealthy person looks like. The typical wealthy person might not be the one that drives the nice new Mercedes, lives in the biggest house, or wears the top designer clothes. Rather, the millionaire next door is the person that has lived in the same bungalow they have lived in for the past 20 – 30 years, they may drive a nice car but it is an older well-taken care car with lower mileage. They live within their means.

Know where your money is going

Most wealthy people not only live below their means but also are very conscious of where they spend their money. If you want to become wealthy, you should develop a habit of tracking where you are spending your money every month. Budgeting can be a very intimidating word but the fact remains, it is an essential habit for wealth accumulation.

Avoid debt

Wealthy Canadians make a very conscious effort to avoid, minimize and pay off debts. It is so easy in our society to access debt. But if don’t spend money you don’t have. You will be able to build wealth with the money you do have.

Maximize income

There is a correlation between wealth and income. While this makes sense, it may not always be easy to just go out and increase your income so you can increase your wealth. Building wealth will take some effort and your wealth will be directly correlated to your situation. Wealth has a different value for everyone, for instance, if you earn $50,000 a year and you managed to put $5,000 into your savings portfolio that would be incredible. Now, what if you could earn a 6% return on investment compounding interest per year on that investment (strictly stated for illustration purposes) – that would mean over the next 8 years you would have saved just over one year’s salary. Given the same time frame and math, the same can be said for someone earning double the amount and saving $10,000 a year. It’s all relative when it comes to maximizing your savings.

Own things that appreciate

A majority of wealthy people are on their way to owning their own home. Owning your residence creates a positive net worth on your balance sheet. This intern creates a positive asset that is used when discussing wealth. Besides, having equity in your home, your newly found saving plan is also considered an appreciating asset. The next time you put your money into something, ask yourself if it is an appreciating asset or a depreciating asset.

Get professional advice

Wealthy people typically work with professionals to help them accumulate, manage and protect their wealth. This might include accountants, lawyers, and financial advisors. Although they use professional advisors, they ultimately make the final decisions themselves. If you want to become wealthy, you must seek help but understand that you are always the one to decide on when to move forward on the recommendations given.

DEBT?

Growing up watching my parents navigate their power of spending and living within their means is now a distant thought based on today’s immediate gratification of purchase within our society. Having debt was not something that had meaning to them 50 years ago there was only one thing that they were in debt for – that was our house everything else was paid by cash. If you did not have the money then you saved until you did. My mother would put stuff on “layaway” and make weekly payments until paid in full or if she used the Sears Roebuck credit card it was paid in full at the end of the month. 50 years ago, a mortgage was and still is today considered ‘good debt’, because your home is considered the biggest increasing asset that you own. A car was something of a necessity only and not a want. A Black and White television was the norm and if you could afford a Color Television you would have been considered rich. Fast forward 50 years and you will find the banks and credit card companies are big business empires now, the consumer is now encouraged to use credit cards, lines of credit and, a myriad of financing options because it has become increasingly acceptable and very easy to carry large amounts of consumer debt. The new generation of consumers requires immediate self-gratification and this has helped to shift the public’s perception about carrying debt which has been extremely profitable for lenders. Yes, society has changed drastically in 50 years. The reality is still the same you cannot continue to spend if you do not have the means to afford your need to spend so you can be accepted in society.

Acceptable or not, when talking about finances, people who are carrying large amounts of debt understand their reality but unfortunately without the understanding of basic budgeting this is a cycle that cannot be broken. Until we as a society accept and understand that we need to live within our means if we are to succeed in our future – If not we will continue down a path of certain self-destruction.  

What can you do to reduce your debt?

How much debt do you have?

To pay down your debt and create a plan to reduce or eliminate debt you must first understand how much debt you have. To build a plan to get out of debt you should create a budget plan which lists each of your debts on a spreadsheet this will show you who you owe, what you owe, and your total debt, the minimum payment is the interest rate you’re being charged. You will need to get past the minimum payments to get out of the debt cycle.

Once you can see it on paper you will start to understand the process and value of this exercise. When you have all your debts written down, you’ll know exactly what you’re dealing with. The next part of the exercise and this is the most important step, is to implement change. It’s important to remember the only thing you can change is what happens from this point forward what you have done in the past is in the past it cannot be taken away. There must be a change in spending habits, there is no point putting energy into starting a plan to move forward if you plan on making the same mistakes from your past. Take positive action to better your situation.

How much debt is too much?

If you’re not paying your balances in full then where will you find the additional money to pay down your debt? This is where your budgeting skills start to come into play. You have to determine exactly how much you have coming in and going out each month. The simple math will show you either a positive or negative number. Either way, change has to come if want to remove your debt. There are only two ways to change your balance sheet at the end of the month: either you have to figure out a way to earn more or you have to find a way to spend less. Take a close look at your monthly cash flow; if you can capture money from other expenses and repurpose it to attack your debt, you’ll be able to get out of debts a lot faster. The simple answer for how much is too much? When you can’t pay your monthly bills comfortably, you have hit your threshold and you now need to put a plan in place which allows you to spend less and repurpose funds to pay down your debt. 

Understand how you got here… 

Debt is not a problem. It’s a symptom of a problem. If you focus on fixing the symptom rather than the root cause of your financial situation there’s a good chance that you’ll end up facing the same issues down the road. It’s not uncommon for people to consolidate credit card debt with a loan or line of credit and then to run their credit card balances up again. Effective money management isn’t grounded in strong math skills; it’s grounded in our psychology. Understanding the psychology of money and how spending habits are created will help you create new patterns and new habits that will not only help you get out of bad debt but will also help you stay somewhat debt-free from the credit card companies in the future.

The plan moving forward…

Without a plan, you will never achieve success. Without a budget in place, you will find yourself back where you started in no time. Once you know how much you have each month to pay down your debt, then you can create a plan that will allow you to pay down each debt systematically, starting with the smallest balance of your highest interest debt. Keep your expectations realistic. Once you have successfully started to pay down your debt, removing any temptation to spend which is the cause of that debt in the first place is required. If it’s a credit card try removing the card from use until the debt is gone. One solution is to freeze the card in a zip lock bag full of water. When you want to use that credit card you will have to defrost it first giving you time to decide if you need what you are buying.

Implement your plan…

You have to start somewhere change will not just happen. Change involves stepping out of your comfort zone and into the unknown. Taking the first step to getting out of debt is usually the hardest. Be prepared for the fact that you’ll feel like giving up more than once. Don’t give up if you falter or get off track in the beginning; just remind yourself of what you’re moving away from and all the great things that lie ahead and then make the choice to get back on course. Always revaluate your plan make changes and refine your plan if necessary. Celebrate every step of your progress towards your end goal of being debt-free and by learning the power of self-discipline where spending is concerned.

What is a Tax-Free Saving Account (TFSA)?

The Tax-Free Savings Account (TFSA) was introduced in 2009. The account can let anyone above the age of 18 enjoy tax benefits that can help accumulate significant wealth without paying the Canada Revenue Agency (CRA) a single penny on the income gained in the account.

However, the CRA will keeps a close watch on these accounts to catch you if you make any mistakes. While the TFSA can let you enjoy tax-free wealth growth, it comes with certain rules and regulations you need to comply with to enjoy the tax-free status. Failing to comply will allow the CRA a chance to collect tax, which they will gladly do.

How can they do that you ask ?

• Over-contributing

Canadians that make the mistake of disregarding the maximum contribution limit in their TFSAs. The government introduced a limit to which you can contribute to your TFSA each year. The government increases the contribution limit annually, and with the 2020 update, the maximum contribution limit for your TFSA is now $69,500. That means if you have never invested in a TFSA since its inception, you can contribute $69,500 in cash or equivalent assets to the account in one lump sum.

Unfortunately, there are some Canadians that have made the mistake of contributing a lot more to their TFSAs than they should. The CRA charges you a penalty of 1% on the excess amount you hold in your TFSA each month. You can effectively lose the tax-free status of your account by making this mistake.

• Trading too much in the account

Another more common mistake you never want to make with your TFSA is using it as a day-trading account. Yes, you can use the TFSA to hold assets equivalent to $69,500. However, you can’t use the tax-free status of your TFSA to make trades for the short-term gains. If you plan on using the account for day trading, you can expect the CRA to take action as it was never intended as a tax-free way to trading stocks. If considerable money is made by day trading The CRA can consider any account used frequently in trading stocks to have taxable income, and will subsequently consider this a trading account and not a TFSA.

There is no definitive limit to how many trades you can make in your TFSA in a year, but you should not act as a day trader with the account. Ideally, you should use the account to buy and hold long-term investments. If you were to buy a stock which pays an annual divided and keep it in your portfolio for the long term then this is seen as a tax-free investment as you are allowed to investment in the stock market. 

What is the advantage of the TFSA?

Think about this you have $69,500 that you are able to investment in any funds or stock that you would like and under the Umbrella of a TFSA that can grow to a value much greater than your original investment. Let’s assume that this money grows by 6% on average during the next 15 years… plus with the additional moneys the government lets you deposit annually without penalty. You could have in excess of $382,251 of tax-free savings depending on the type of investment you choose. This is tax-free money and can be withdrawn without taxation which would make this another piece of the puzzle to consider in your retirement planning portfolio.

How did we get here?

Start with $69,500

Added.      $90,000 = $6,000/year for 15 years

Total Inv.  $159,500 x 6% (on average over 15 years) 

Total Value $382,251

The numbers are based on a continued estimate of what the government will do moving forward, the government has the ability to raise or lower the TFSA deposits allowed moving forward so we have estimated the present-day value moving forward for 15 years. If we take into account the compounding interested on money invested through deposits over 15 years our simple calculations @ 6% on a yearly average for a moderate investment you could grow this account to $382,251 of Tax-free Savings. 

Note:

We made this very general in the nature of simple math so we could show the effects of compounding interest. There will be years above and below 6% growth on your investment but we chose to look at an average rate of return throughout the 15 years of investment for the simplicity of explanation.

Financial Security, What is it?

Financial security refers to the peace of mind you feel when you aren’t worried about your income being enough to cover your expenses. It also means that you have enough money saved to cover emergencies and your future financial goals. When you are financially secure, your stress levels goes down, leaving you free to focus on other issues.

Budgeting for Success

Feeling financially secure requires knowing what your assets and liabilities are, as well as how your income compares to your expenses. If you aren’t tracking these, you might not know you’re struggling, but that’s like an ostrich sticking its head in the sand and hoping for the best. For true financial security, create a budget that addresses both your current needs, like food, clothing and shelter, and your long-term goals, like paying down debt and saving. You should also include insurance to cover the what-ifs in life.

Prioritizing Long-Term Goals

Pay yourself first, when it comes to making your budget. No, that doesn’t mean take the first fruits of your paycheck and go out to eat. Instead, it means make sure you’re setting aside money for long-range goals, like an education fund for your kids, a down payment for a future home or a retirement account for your golden years. If you’re struggling to find enough remaining money to pay down debt, look for discretionary expenses that you can cut.

Building an Emergency Fund

Whether you call it an emergency account, your safe money or a rainy day fund, setting aside several months worth of living expenses is critical for your financial security. That way, when something unexpected like a job loss, refrigerator breaking down, or a child having to go to the hospital pops up, you have the funds to deal with it rather than having to go into debt, especially high interest debt like a payday loan or a balance on your credit card.

Tracking Long-Term Goals

You can’t just set it and forget it when it comes to your budget. Instead, your budget requires maintenance and fine tuning over time to make sure you’re adhering to your goals. For example, if you haven’t been tracking your spending in the past, you might think you’re only spending $100 a month eating out, but could be spending two or three times that amount if you’re not tracking it. If you need help staying on top of your money, contact us at info@henleyfinancial.ca for your free budgeting template. Let us help you achieve your financial goals.

What is Wealth Management?

Wealth management can be more than just investment advice, as it can encompass all parts of a person’s financial life. The idea is that rather than trying to integrate pieces of advice and various products from different managers the client benefits from a holistic approach in which a single manager coordinates all the services needed to manage their money and plan for their own or their family’s current and future financial needs.

The concept of a wealth manager is based on the theory that he or she can provide services in any aspect of the financial field, while many mangers choose to specialize in particular areas. This would be based on the expertise of the wealth manager in question, or the primary focus of the business within which the wealth manager operates.

A wealth management advisor will coordinate input from outside financial experts such as the client’s own lawyers and, accountants, to create the best strategy to benefit the client. Some wealth managers also provide banking services or advice on philanthropic activities.

So, in short wealth management is an investment advisory service that combines other financial services to address the needs of a person’s financial life. Clients benefit from a holistic approach in which a single manager coordinates all the services needed to manage their money and plan for their own or their family’s current and future needs. This service is usually appropriate for individuals with an array of diverse needs.

Wealth managers may work as part of a small-scale business or as part of a larger firm, one generally associated with the finance industry. Depending on the business, wealth managers may function under different titles, like financial adviser. A client may receive services from a single designated wealth manager or may have access to members of a specified wealth management team.

The wealth manager starts by developing a plan that will maintain and increase a client’s wealth based on that individual’s financial situation, goals and comfort level of risk. After the plan is developed, the manager meets regularly with clients to update goals, review and rebalance the financial portfolio, and investigate whether additional services are needed, with the ultimate goal being to remain in the client’s service throughout their lifetime.

This brings us to financial security planning within Wealth Management

A sound financial security plan should protect you against uncontrollable events such as disabilities or death, while helping you plan for controllable events such as buying a new home and retiring comfortably. To do this, Henley Financial & Wealth Management planning process is based on four areas of financial security planning:

• Financial security at death
• Retirement
• Liquidity
• Disability and critical illness

Financial security at death

 All financial security plans start here because death is inevitable and an uncontrollable event. As part of the financial security planning process, we’ll discuss:

• How much income will your family need if you die?
• How will inflation affect this income?
• How to preserve your estate for your family when you die

Retirement

 When we discuss retirement planning, we consider:

• What kind of lifestyle do you see for yourself in retirement?
• How much money will you need to retire comfortably?
• What impact will inflation have on your income?
• Would you like to have the freedom to slow down or retire early?

Time and planning are two factors that influence whether or not you accomplish your retirement goals. Therefore, you must work towards your retirement goals over time.

Liquidity

Liquidity is your ability to access cash or assets that are easily convertible to cash. Liquidity can be a short-term savings option that can regenerate over time and need your constant hard work.

Disability and critical illness

Mitigating your risk against uncontrollable events such as disability or critical illness is key to your financial security. When building your financial security plan, we’ll consider:

• Will your income be reduced in the event of disability or critical illness?
• If your income is reduced, will it be difficult for you to maintain your lifestyle and retirement savings?
• How much disability or critical illness insurance coverage is enough?
• What impact will inflation have on your income if you’re unable to work for a long time?
• Do you know if your group benefits provide a provision to allow you to continue your retirement savings if you become disabled or suffer a critical condition or illness?

 

 

What types of insurance are available?

Life insurance in the beginning was the benefit which was realized at the death of the policy holder. It was really “death insurance” which in today’s world would be a hard idea to sell. Today, the world of insurance has expanded to different types of insurance where you don’t have to die to win. While also providing benefits to the policy holders who are alive – a living benefit. Living benefit plans are insurance policies that provide financial benefits to survivors who face issues due to aging, illness, accidents and dependency.

Disability insurance

Disability insurance (sometimes referred to as DI) is an insurance policy that pays out a stream of monthly income in case you get disabled and cannot work. The injury or disability does not have to have happened at work but it must severe enough to prevent you from working and earning an income. Many people have both short-term disability and long-term disability coverage through work but you can buy personal disability policies if there is not coverage like in the case of some self-employed individuals.

 Health and dental coverage

Health and dental plans are often covered through group benefits. These plans are designed to help with the unexpected cost of healthcare needs when you need it. There is a growing concern that governments will have significant cut backs in the health care industry and as a result, the financial burden of prescription drugs, visits to the dentist, eye exams, and paramedical services may increase in the future. Individual Health and Dental insurance policies can also be purchased through insurance companies.

Travel insurance

Travel insurance is something you can buy when you travel outside of Canada in case you get sick or have an accident while you are away. Travel insurance can cover the cost of your medical emergencies. Travel insurance may or may not include trip cancellation coverage. Most travel agencies will offer travel insurance coverage. However, you can also choose to purchase from a third party. If you’re planning your trip online or on your own, you’ll have to research which insurance companies are best for your needs.

Critical illness insurance

Critical illness insurance is a type of insurance that helps you if you become critically ill. There are many different conditions that might be covered under a critical illness policy but the most common are heart attacks, strokes, and cancer. Typically, critical illness insurance provides a lump sum payment when a specific condition is diagnosed. The money can then be used for any purpose. Some examples include finding alternative medical treatments anywhere in the world, hiring a caregiver, paying debts, covering expenses that are not covered under government health care, paying for private nursing homes, or providing income support.

 Long term care insurance

Long-term care insurance is another coverage that is rapidly growing in popularity. It pays a daily or monthly benefit for medical or custodial care received in a nursing facility, in a hospital, or at home if you are unable to carry out some of the common activities of daily living (ADLs). Some examples include:
· Bathing
· Dressing and undressing
· Eating
· Transferring from bed to chair, and back
· Voluntarily controlling urinary and fecal discharge
· Using the toilet
· Walking (not bedridden)

Few people plan to get injured or ill. Getting insurance of any kind is a form of risk management . . . preparing for unfortunate circumstances in life. Be sure to include a review of living benefits when you review other types of insurance.

 

 

Market volatility does not mean the sky is falling

SAM SIVARAJAN, March 31, 2020

I found this article below in the Globe and Mail and it is a common sense piece, which states what we in the financial industry have all been saying from the beginning. This, is an unprecedented time and a time that will be remembered in the history books. What we need to understand is our economy was strong going into the pandemic, which will certainly help coming out of it…Jobs lost will be recovered and yes some small businesses will unfortunately close. That will bring new opportunity for future business owners who will grow from this time in history. These new business owners will carry the torch forward, and the business owners who survive this will definitely have a new business model in place moving forward. Life as we know it will return to some normalcy.  Winston L. Cook

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Rudyard Kipling’s famous poem “If” starts with “If you can keep your head when all about you are losing theirs…” That is good advice for all of us, but especially investors.

The Covid19 pandemic has mixed health concerns with financial concerns. Unprecedented market drops, continued volatility, stimulus packages, layoffs and the fear of recession or depression is weighing on most people’s minds. The human and health toll is substantial and not one that anyone can, or should, dismiss lightly.

From an investment perspective, redemption activity is picking up pace and will likely continue. Globally, equity funds saw record outflows of $43 billion in the first 2 weeks of March 2020, according to the Financial Times. Flight from equities is typical in these situations. However, investors fleeing investment-grade corporate debt and sovereign bond funds underscores the fear-inducing sell-off in the market. According to market data provided by EPFR Global, mutual funds and ETFs that invest in bonds had $109 billion in outflows for the week ending Wednesday, March 18th. This rush towards cash has exacerbated already volatile markets – and there is no indication that this will change any time soon.

 

When Q1 statements arrive at investor homes in a few weeks, there will be a rush by many to redeem some or all of their investments. Before investors decide to do so, they should keep a few things in mind:

1. The sky is not falling: investment legend Peter Lynch once observed that most investors sit in excess cash or redeem investments because they fear a doomsday scenario. Lynch argued that the end of the world has been predicted for thousands of years and that the sun has still risen every morning. He also argued that in a doomsday scenario, people will be focused on food and shelter. So, whether you hold stocks or cash is not likely to matter. His advice? Act like the sun will rise tomorrow and invest accordingly.
2. People will still buy stuff: when we get to the other side of the Covid19 crisis – and we will – people will still need food, clothing, shelter, services, etc. As Warren Buffett said in 2012, “Our country’s businesses will continue to efficiently deliver goods and services wanted by our citizens.” He also said “In the future, the U.S. population will move more goods, consume more food, and require more living space than it does now. People will forever exchange what they produce for what others produce.” So, businesses will continue to exist, continue to produce, continue to employ, and continue to reward investors.
3. Market corrections are natural: in Europe and North America, prescribed burning has been used for over a hundred years to rid a forest of dead leaves, tree limbs, and other debris. This can help prevent a much more destructive wildfire. It also enables the hardier trees to receive more nutrients, water, and sunlight so that they may thrive. Joseph Schumpeter, the Austrian economist, coined the term “creative destruction” whereby more nimble, innovative practices displace more complacent ones. After the longest bull market in history, there was bound to be a market correction – of course, it is deeper and faster than anyone anticipated. A dispassionate investor would view the current economic turmoil as shaking out some of the less nimble public companies, reducing over-valuations and directing capital and resources to the best-positioned businesses.
4. Don’t try and time the market: even the most successful professional investors don’t believe in their ability to time the market. Peter Lynch said “When stocks are attractive, you buy them. Sure, they can go lower. I’ve bought stocks at $12 that went to $2, but then they later went to $30. You just don’t know when you can find the bottom.”
5. Don’t forget your long-term goals: most stock market investors originally invested with a time horizon of 5, 10 or more years. Most would have known that stock markets can and will correct, and sometimes violently, and so they should have invested only those monies that they did not need in the short-term. When the rebound comes, it will come quickly and those who are out of the market, and miss it, will have to dramatically revise their long-term goals.

Yes, the Covid19 crisis is a new crisis – but Canadians, the Canadian economy and Canadian portfolios have experienced and survived world wars, depressions, and pandemics before. There is little reason to believe that this time will be any different. Investors would do well to keep that in mind.

How to look through the panic of our markets.

By Winston L. Cook, President Henley Financial and Wealth Management

March 23, 2020

As you know, stock markets around the world have experienced unprecedented volatility, primarily because of the COVID-19 pandemic, PANIC, and what we may learn in the future “market manipulation”. In these crazy times, we thought it might be helpful to offer some information and insights in an effort to address the implications it has on your investments.

Over the past couple of weeks, the value of most investments has fallen considerably. There are lots of opinions out there on why this is happening but it’s not something anyone could control or predict accurately. When it comes to investing, it’s really important to make sure our decisions are logical more than emotional so rather than trying to figure out what’s driving other people’s decisions, it’s much simpler to focus on asking what makes the best sense for you. From our perspective, there are 3 general courses of action to consider:

It’s not easy to watch your investments drop in value. For some people their instinct will be to run to safety but be careful before you move forward with this course of action for the following reasons:

1. A lot of the damage is done already. If you trust the logic that successful investing is all about “BUY LOW, SELL HIGH” then selling low after a big drop of 20%, 30%, or more doesn’t make logical sense.
2. You could miss out when the market starts to go back up. If you move all of your money into a ‘safer’ place, you will miss the opportunity to recover in a low-interest environment. In the past, we have seen lots of people miss the opportunity with no chance to participate in the recovery.
3. Successful market timing is really difficult. We’ve always said the decision to sell at the top is extremely difficult to time. The decision to buy back in at the bottom is also extremely difficult to time. The ability to time both the sell decision and the buy decision properly is near impossible. You may instinctively want to move to safety for a period of time but the next challenge is to decide when to get back in.

Remember that you only make or lose money at the point where you sell your investments. If the market drop is causing you stress and stopping you from sleeping at night then it might make sense to cut your losses and either shift to something less aggressive or get out of the markets altogether. However, before you make the decision to sell, you might want to consider the next strategy.

Could this be the buying opportunity of a lifetime?

Although this strategy is not for the faint of heart, some will look at the downturn in the markets as an opportunity to buy. We want to be clear that we’re not trying to downplay the significance of the COVID-19 virus or minimize the experience that people are currently dealing with but, when you look back at other major downturns in the stock markets (in 2008 for example) you can see how events like these could create opportunity from an investment perspective.

For those of you who’ve been in one of our information sessions, you’ll have heard us say that times like these are when investments go on sale. If big-screen TVs go on sale 20% to 50% off, people line up for hours to get a chance at getting those deals.

In hindsight, many of us would agree that buying more investments in 2008 after the world financial crisis caused markets to go down 50% would have been a great thing. Similarly, buying more investments back in 2001 after the tech bust would have paid off down the road. While our industry likes to remind us that “past performance is never an indicator of future performance”, years from now, we suspect many of us will look back and see that this recent downturn in 2020 was the best investment opportunity in our present day lifetime.

If you have a group rrsp or pension plan through work, the good news is contributions continue to happen every month. This is known as Dollar Cost Averaging and, over time, it tends to create higher investment returns than if you were to make just one contribution per year. This is because making multiple investment purchases over the year helps you buy more when the markets are low. Right now, with every new contribution you make, you’re essentially getting a far better bang for your buck than you were in February simply because lower investment values mean you can buy more investment units with each contribution.

Here are a few market statistics to think about:

• • • Markets typically rebound within 12 months after big drops.
    • Markets have gone down 20 of the past 80 years. In 18 of those 20 years, the markets rebounded with positive returns in the following calendar year.
    • The average return that followed a negative year was 14.6%, We know it can be tough to invest more (or more aggressively) when the markets are falling so, if you’re not so panicked that you need to sell but still nervous of investing more, there’s one more strategy to consider.

Stay the course…

Most of the financial industry will preach the buy and hold strategy. There are many reasons why but most people will believe that markets will eventually recover. The key word here is ‘eventually’. Often the reason that people are fearful is that we just don’t know how long the recovery will take. While it’s easy to let doom and gloom take over our decision-making process, it’s important to take a logical rather than an emotional approach to decision making.  So, let’s look at some additional realities of the stock market:

• • • Markets go up more often than they go down. Over the past 90 years, markets have gone up 74% of the time and down 26% of the time.
    • Markets have lost more than 20% only 4.5% of the time.
    • Markets rarely experience back to back negative years. It’s only happened twice in the past 75 years the bottom line is that markets go up and down. As much as we hope markets will stay positive all the time, the risk of a correction is always there.

Every correction or bear market is a test of patience.  It’s not easy but a necessary reality of the markets.  From the beginning of time the stock markets have steadily increased and will continue to do so in the future, there will always be a down turn, correction or crisis to recover from along the way. What you must understand is that this unprecedented sell off has been created more by panic and fear than smart economic metrics.

We realize that the position of many is not being able to invest more at this time and that is understandable given the circumstance surrounding our present situation. Having faith in the future of our world, it’s population and our inevitable economic return is what we all want. We will survive this and we will return stronger than ever as a population because it’s human nature to survive and conquer the elements placed before us.

Please be well and stay the course we will get through this together.

I’m going to see other Banks

At Henley Financial and Wealth Management we are here to help you save money wherever we can, we want to help you save money being spent unknowingly and unwillingly.

So, let’s start with something we know that everyone has… a bank account.

Why do you pay a monthly fee just to keep your money in a bank account?  Canada’s big 5 banks have been raking in the profits from monthly chequing account fees and additional transaction charges. We’ll even go out on a limb and say you do most if not all of your transactions online.

We have all fallen into this category once we got out of school and were no longer eligible for a free student chequing account. We use debit cards for everything, so our banks recommended that we sign-up for the “unlimited” chequing account for $14.95 per month. Again, we ask why do you pay to keep your money at the bank when you do all the work? You put your pay check in the bank and take it out of the bank without any assistance from them and you pay for that service – but there is no service.  Spending money Unwillingly because this is not an option. We will come back to that “option” part later.

Since most of us lived paycheque-to-paycheque in the first few years out of school we didn’t even realize how much money we were wasting on fees. You can have those monthly fees waived by always carrying a minimum balance, but how many people could do that on a fixed start up budget.

You probably pay up to $179 a year for the privilege of using your own money in your chequing account at your bank.  So, think of that as a household, your Husband/Wife, and children also have accounts so as a family (of four) you are paying over $717 a year in bank fees! That is the Unknowingly because you never stopped to do the math. Now it does not seem like much but remember you are doing all the work and it’s your money that was put in their hands.

So now that you know and are willing to save the money, would you stop paying the bank fees and switch to no fee bank account?

Here is the “Option” part we spoke of earlier, Manulife Bank has an advantage checking a online account (personal or business) that pays you an interest percentage to keep your money with them. Now that’s a service that makes sense to us, you get paid to keep your money in your own account with no penalty for using your own money. A bank with several unique features such as listed below:

• no fee daily chequing
• pays interest
• 24/7 live support
• free email money transfers
• free ABM access through the banking network
• mobile banking

Now that free chequing accounts are becoming more popular in Canada, there are many more non brick and mortar banks with high interest savings accounts than Manulife. We like Manulife because of their willingness to help with other financial needs we all need as adults, such as Mortgages, Credit cards, lines of credit, with the emphasis on keeping the money in your hands. No more Fees Lost Unknowingly or Unknowingly!!!!

Contact Us at Henley Financial and Wealth Management and we will help you set up a No Fee, High Interest Paying, Account with Manulife Bank.