Talk about a winter of discontent! From US/China Trade wars, Brexit, pipeline politics, trade tariffs, provincial and federal elections, to ongoing media attention around rising household debt levels and youth unemployment, 2019 has so maintained the turbulence we grew familiar with in 2018. Thankfully, with summer now around the corner, many of the issues that have left us unsure and nervous about the future are beginning to resolve themselves.
Taxation levels in Canada are high and leave our country at a competitive disadvantage. Our governments regularly boast about the pension schemes offered to civil servants. And, while rightly, those who work for the government (the minority) truly do benefit from a great pension, the majority are making contributions that go directly toward paying benefits to current retirees and not toward building the monthly income that younger contributors will need in the future. Taxation is now our largest single expense ahead of both food and shelter. Using tax effective strategies to conserve our incomes to build savings is crucial. Income splitting and maximizing the benefits of deferral offered through TFSA, RSP and RESP savings accounts is really all that is available to the average saver. Setting aside savings comes only from spending less than we make.
For some years now our portfolio managers have been saying that Canadian consumer spending will remain low due to high personal debt levels and high taxation some time. They point to the opportunities presented by the growing tsunami in foreign countries of families that are entering the middle class. As wages equalize around the globe, these people want and can now afford the shelter, nutritional foods and the consumer goods that we have enjoyed for many years. Demand for better foods, health care, clean drinking water and reliable sources of energy can now be purchased by incrementally increasing numbers of consumers. The US is, by far, our largest trading partner but is inclined to change the rules when they feel they are unhappy about some aspect of our trade agreement. China and India, both large and combined have a population now eight times the size of the US. Indonesia itself is the same size as the US. These emerging economies experience growth rates of six to eight percent a year and their demand for all of the products and services that we rely on is astronomical. In contrast, mature economies such as our own, the UK, EU, US and Japan are unsurprisingly seeing declining growth rates at one to two percent as a result of the saturation of goods and services. Fortunately, our savings can participate safely in these thriving markets by holding shares in companies that comply with our accounting standards and regulatory framework.
Global companies in all sectors can participate in this unprecedented opportunity for consumer growth. Companies across healthcare and pharmaceuticals, finance, transportation, technology, energy, engineering, and education are core holdings in our diversified portfolios. Canadian companies that provide these goods and services stand also to benefit
Needless to say, in times like these and in the face of so many factors that are out of our control, a proper budget and a financial plan that is reviewed annually is a must.
What is the best way to position our savings? History has shown that diversity is the safest way to protect your wealth. We do so by investing with different investment companies, holding different types of securities in many countries managed by different companies, and working with you to stay the course, focused on the long term so you can weather short-term challenges and grow your wealth over time. This doesn’t mean a good advisor can prevent your portfolio from declining in value over the short term. However, the patience you exercise during the ups and downs of the market is what distinguishes a successful investor from an unsuccessful one. Based on a study of U.S. markets, markets finish in positive territory 75 percent of the time. The importance of staying the course can’t be over stated.
We appreciate your trust and loyalty and look forward to any opportunity to help make your financial lives better.
Don
PROFESSIONAL FINANCIAL ADVICE IS FOR EVERYONE
The majority of Canadian households have investable assets of less than $100,000. And for many, the circumstances of their savings leaves them feeling that their net worth does not justify the need to seek professional advice. However, the opposite is true. We believe financial advice is advantageous in all phases of life. From helping newlyweds learn how to budget, to assisting transitioning employees out of the workforce and into retirement, we assess the individual financial needs and challenges for each of our clients in order to recommended the appropriate steps to help them achieve their goals.
What does it cost?
We believe in transparency around the cost and value of our services. While the cost for financial advisors, investment advisors, financial planners, can vary depending on the model in which the service is charged, we operate on a percentage model. The cost associated with a fund is known as a Management Expense Ratio (MER). Depending on the type of fund you hold, the average MER of a portfolio is between 2 & 2.5 per cent. Typically, 1.5 per cent of that cost is paid to fund company for their professional investment management and operating costs. The remaining one per cent is then split between us, the advisor, and our dealer, who ensures compliance and oversight, privacy enforcement and money laundering protection. The fee that is directed to us is used to cover the services and value our clients receive through our ongoing support, financial planning, client meetings, administration and client reporting.
Should I do it myself?
Recently, we’ve seen a surge of ads promoting do-it-yourself investing, without the administration costs. With some of these ads making claims that if “everything is equal” you could obtain 30% more wealth by doing it yourself versus working with an advisor, it’s difficult not to be intrigued and certainly consider the switch to self-directed investing. However, everything else is not equal and the hypothetical claims made by these companies are not necessarily reflective of true returns. Financial planning is a comprehensive evaluation of your current and future financial state, used to implement the steps needed to reach your objectives. This cannot be achieved by a computer algorithm alone. The Financial Planning Standards Council, revealed in its Value of Financial Planning study that “regardless of net worth, Canadians who engage Certified Financial Planner professionals for their financial planning needs report that they are experiencing significantly higher levels of financial and emotional well-being.”
The value in advice. Like the Standards Council, we believe in order to make a suitable recommendation, proper certification and licensing is key. This includes participation in lengthy courses in economics, financial markets, investments, retirement planning, taxation and so on, followed by rigorous testing of every advisor. To keep current, we regularly meet with fund managers, attend conferences, listen to webinars, research funds and products and obtain continuing education. We also stay up to date on industry changes and global economic factors. This ongoing commitment allows us to better use your gathered personal and financial data to implement and monitor a sound financial plan.
Sound advice provides investors with a better chance of accumulating greater wealth. With professional advice comes improved savings behaviour, the opportunity to identify tax-efficient investment vehicles, support to build and maintain long-term investment strategies, counsel against poor financial decision-making, as well as objective opinions that help mitigate emotional investing habits. Our advice does not come with a minimum investment, so regardless of age, stage or net worth we can offer a strategy for you.
Allison Stone
Have a great summer from the team at Stone and Company! Don, Allison and Penney.