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Peer Pressure: Not Just For Teens

Sure go head and choose the trending colors on Pinterest or go to the latest blockbuster movie. Even check out the trendiest resto in town. But please don’t apply that popularity concept to your investments.

Further to my last blog post let’s take a deeper dive into the workings of the stock market.

This blog post was prompted by 2 client conversations. The theme of both those chats was the fear of missing out on recent stock market highs. They were asking me to make their portfolios more aggressive.

First of all: Neither you or I can repeatedly be successful in the stock market on our own. We don’t have the time, resources, professional staff, expertise, and inside connections to the knowledge needed. That is why we hire professionals. The media perpetuates the myth that an individual can be successful in the stock market. Maybe only once in awhile. Yes I am part of the financial world but I only get a glimpse of the inner workings.

Secondly don’t equate the stock market and the economy. The 2 are connected but separate. Just because the stock market is doing well doesn’t mean the economy is. Recall I said that part of stock market activity is based on sentiment and beliefs.

Unfortunately stock market cycles are very predictable because participants repeat their mistakes over and over. Last year’s winners are usually the current year’s losers. And I would rather explain to you why your 6-8 % return is sufficient rather than try to console you when your return is negative 20%. Remember the earlier you start investing the better advantage you can take of the ups and downs.

Which brings me to an article I read in one of my professional magazines. Research shows that eliminating the worst AND best days will give the investor a higher return than trying to hit a home run by investing in the hottest stocks.(1) This confirms what very qualified expert investment managers have been practicing for years. Consistency of returns and process is of paramount importance.

The current stock market is overvalued and overheated with speculation built in. Current monetary policy(some experts go so far as to say dishonest monetary policy) is built on a kick the can down the road mentality. Building a’ great’ stock market by mortgaging the future of the upcoming generation is a fragile policy at best.

Remember the higher the potential gain the greater the risk will be. The higher the potential gain the bigger the potential loss. My job is to find that happy medium and to monitor your accounts. Your job is to patiently stay the course and not participate in the herd mentality. As a team we will progress towards achieving your life goals

1. Stacking the Deck: How maintaining consistent risk levels avoid large declines. Advisor’s Edge February 2018

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Painting the Tape

When you are as old as I am, the phrase been there done that takes on new meaning in all aspects of life.

The stock market and the activity of its participants follow patterns that hold true no matter the decade. It just blows my mind at the similarity of people’s behavior no matter what is the investing trend of the month, year or century.

The underlying principle is always the same: those particular stock market participants want to get rich quickly and with the least amount of effort. They feel if they don’t get in on the flavor of the month the will miss a golden opportunity.

The stock market’s movement up and down is based in large part on the beliefs and sentiments of the people buying and selling. Remember beliefs and sentiments are not quantifiable and measurable. When participants hear of a popular product they tend to believe that if many people are participating then it is a worthwhile venture. This is crazy because your friend or colleague most likely have zero professional qualifications to be making those suggestions. It both amuses and irritates me because I am highly regulated on what I can and cannot discuss, yet people will often believe the unqualified, unprofessional street and the media to their own detriment. This has held true since the Dutch tulip bulb craze back in the 1600s. Many of you readers may not old enough to remember more recent examples such as the dot com boom and bust or closer to home such examples as Bre X and Nortel. Somehow the similarities of these gone by the wayside stories are lost on the latest invention in fintech(financial technology) Bitcoin and its associated versions.

Bitcoin is a virtual currency that came about as a result of the financial crisis of 2008. The invention of Bitcoin was to create a currency that was not associated or sponsored by any central bank or government, and thus outside of regulation.(can you think of a segment of society that would like that?) Bitcoin has not caught on as a mode of payment, its attraction is more in speculating in it or mining which utilizes the technology associated to bitcoin, blockchain. Blockchain does have legitimate value.

Bitcoin has no inherent value, even though it has gone through very wild swings for the cost of one bitcoin. If you compare it to gold for example gold does have intrinsic value. The only value that bitcoin has is the value that market participants assign it. It doesn’t even physically exist, yet people are willing to pay thousands or tens of thousands for a bitcoin.

It always begins the same way. The interested participant(I can’t even say investor) knows someone who claims to have made a lot of money following bitcoin or fill in the blank of the latest fad. Somehow the fact that the interested participant knows the person touting the investment lends credibility. Does that make any logical sense at all?

Almost every wage earner has earmarked all of their net salary for many purposes from paying bills to ensuring a debt free secure financial future. If you are one of the fortunate few that could speculate you should google “painting the tape” before you want to consider any wildly popular so called financial product.

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No it Isn’t Eeny Meey Miney Moe

One of the suggestions for a blog post was: How do I select the companies or investments for you my clients?

Here are the characteristics that must be present in order of importance:
First and foremost is that the company must walk the talk. In other words what is said will be done. IF a business partner is sincere and possesses integrity they will stand out in a crowded field. In my books talk is cheap.

An example of integrity is how the investment company will talk about the stock market. I prefer to work with companies that acknowledge that the present scenario has some pitfalls and fragility, and what their professionals are doing to protect investors’ capital. Over optimism is cheap too. I have been in the business long enough to read between the lines, and interpret industry speak.

Secondly the companies that offer access to the investment professionals that manage your money will be preferred over those that do not. Access can take place through in person presentations, interactive webcasts, or blogs with the ability to leave a question for the blogger. The general investing public does not have access to this information. The idea is to have the ability to ask questions which is important when I evaluate the next desirable traits:

Discipline and depth. The investment manager will stick to his or her process no matter the state of the market or the latest fad in investing.

Any investment I choose almost always will have a proven history. I try to stay away from new investments. I have been in my career long enough to see which professionals have lasted, and who has faded away.

Cost is a factor as well. You want value for you money.

And I know the future of human race is dependent on sustainable and responsible investing, which are the companies that are providing innovative solutions to the challenges of resource management, population growth, energy efficiency, and scarcity.

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Will Your Future Self Thank Your Present Self?

Here are 5 questions to ask yourself to reflect on your future financial goals and to hopefully help you to be prepared for whatever the journey may bring:
What are your top 3 financial priorities or concerns?
Who do you care about and/or are financially responsible for?
Where do you want to be 5 years from now?
What do you want your money to do for you?
How old will you be when you are debt free?

It can be helpful to think of life’s milestones as well; when will your children go to junior high, high school, university? How old will my parents be in 5 years 10 years? How old will I be or my spouse?

The pace of our lives has us mostly focused on today. Asking these questions will allow you to have a plan for the future. As always I am happy to discuss the answers to these questions in a meeting.

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Borrower’s Remorse

Two recent client situations led me to write this blog. There is a myth that is perpetuated that financial success is achieved by choosing the right investments with a good return.

That is untrue. Your own financial behavior will have a greater effect on your outcome. Nowhere is this more true than in the realm of borrowing and lending.
Canadians are the most indebted citizens of the G7 countries according to the latest Stats Can report. For every dollar of income Canadians have at least $1.60 of debt. We are more indebted than Americans were in 2008 before the start of the financial crisis.

Lenders have made borrowing cheap, easy, and attractive. Along with societal peer pressure to have the newest and best, attitudes towards borrowing and carrying debt, and high prices for any major purchase can have a not so happy ending. Canadians need to learn more about borrowing.

Most people are familiar with how a mortgage works. Within the last decade variable rate mortgages have become popular. However, as interest rates have increased it would be wise to plan further than the next year or 2. Variable rate mortgages work best when you have extra money to pay the principal before or when rates rise.

It is the line of credit(LOC) that can trap borrowers into a never ending cycle of indebtedness. A line of credit is an on demand loan. In theory, the lender can ask you to pay off the entire loan anytime. They would probably never do that as they profit handsomely from collecting the interest on a loan that may never be repaid.

The borrower has options as well, having the right to pay off the entire loan at any time, unlike a mortgage. Lines of credit offer flexibility in payments unlike a mortgage. As long as the borrower pays the minimum interest there is no requirement to pay more. They are often very easy to get especially if the line of credit is unsecured. Unsecured means there is no collateral against the loan. For that privilege your will pay a higher interest rate, and that interest rate is calculated more frequently than a mortgage. This can become a debt trap where a large amount becomes harder to repay. It is called revolving debt for a reason!

The problem with borrowing money is that the borrower only focuses on the monthly payment they can afford and not the total interest cost. Lenders are loath to correct that tendency because if you the borrower knew the total interest cost you would never enter into the agreement. The interest cost can exceed either the amount borrowed, and/or the values of the purchases made with the borrowed money.

Secured lines of credit have higher limits because the collateral is your house. Recently one of my client couples was offered a LOC for $150,000, when they had requested less than a third of that amount. They were smart and used a little 3 word phrase: No thank you. I suggest you go to the mirror and practice that sentence, as good preventative financial planning. They told me the bank was mystified why they didn’t accept: “You can take it you don’t have to use it.” “Precisely why we don’t want it.” they said. I was proud of them that they had remembered and applied the advice from our discussions of the past.

I have seen maxed out LOCs where the only way the borrower will get out of debt is to do something drastic like sell their house, or something even worse. The problem is debt creep, you borrow from the LOC a little at a time until it becomes a huge unmanageable number that you don’t want to look at or deal with.

Remember that only making minimum payments and owing close to, or the maximum you can borrow will hurt your credit score.

Recently I helped a client walk through the process of refinancing a line of credit and her mortgage. She had used the LOC to buy a car. I don’t blame her with the price of car financing. I am sure you have noticed that the most attractive financing is on a new and expensive car. But with a salary that hadn’t risen significantly in 3 years, she had to do something. In the end I got her to negotiate a better deal. That was very gratifying work to me, when I used my extensive experience and knowledge to empower her to get a better outcome.

And here is the second exercise I would strongly suggest you do which will take less than a minute.

Ask yourself; How old will I be when I am debt free? Don’t say something academic like my mortgage/LOC/car loan will be paid off in x years. Nah that is an theoretical number devoid of meaning. If you say I am 48 and my mortgage is going to be a minimum of 21 years I will be 59….

Let’s practice some financial preparedness. Don’t let life just happen to you.

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Your Income and Out Go

Happy 2018 everyone! Hope your December was fun and relaxing!

The times I have spent with clients to help them get a handle on their monthly spending has always been very fruitful. At first some are reluctant to put in the effort to track all of the transactions for a month but they are always glad they did. And since most of us pay with a debit or credit card there is always a paper trail.


So far the people that have committed to this exercise have been surprised at how much they spend and always vow to do better.

So let’s begin 2018 with a to do list. The goal of the to do list is to be kind to your future self.
1. Allow yourself to keep a part of all you earn. Put another way don’t spend all that you earn.
2. If you allow yourself to keep a part of all you earn then you will be prepared for a period of less income. This period can happen for a number of reasons, unemployment, disability to name just a couple. Almost every wage earner will have a period of lower income and it often is a complete surprise.
3. Balance the wants and needs of today with your future life and financial goals,
4. Then you will not fall prey to marketing and advertising.
5. Avoid unnecessary debt. Canadians are among the top in the G7 in terms of indebtedness. For every dollar of disposable income, Canadians owe at least 1.60 in debt, according to the latest Statistics Canada figures.

To emphasize that last note, in late 2017 a consumer advocacy agency did secret shopping at car dealerships in Canada. They discovered that car purchasers for the most part were given few choices when it came to financing a new vehicle, nor were they given the details of the loan they did obtain. It is now standard to offer financing for 7 years. At that 7 year mark a car owner will have paid more than the car is probably worth and may not even still own the car. Remember a car is NOT an asset, because it doesn’t appreciate in value. Don’t be swayed by the low interest rate. What is more important is the total interest cost. The total interest cost will not be offered to you, you must ask for it.

The way to achieve your future goals and to weather any storms along the way is to be prepared and have good financial habits. We all know our incomes. We also need to know  where that income is going. I am here to be your coach and accountability partner on that journey.

Next up: Important questions to ask yourself and looking at your financial life in blocks of 5 years.

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Our Future Planet

With regards to responsible or sustainable investing a client recently asked me: Are you recommending this investment for moral purposes? He wanted to know if he would be sacrificing a good rate of return for doing the right thing.

Maybe in the past that might have been a concern but today the opposite is true.
First of all let us establish the background to this discussion. There are many terms to describe sustainable or responsible investing. In the past the focus was on excluding companies that made their money on weapons, or tobacco, or even non renewable resources. The term green investing was a narrow definition that, especially in Alberta got a negative connotation.

But sustainable or responsible investing is all encompassing. Let’s give it our own definition: It is investing that seeks to leave the planet in a better condition for future generations by dealing with the issues of resource management and the challenge of population growth. It is investing that has a long term focus and seeks to reward productive company behavior.

With respect to Environmental, Social, and Governance(ESG) the investing public probably has a good idea of what the E and S represent. When you read news articles on the polluted ocean or child labor in developing countries that would fall under the E or S. But this blog post will discuss the G for governance. Responsible investment companies are beginning to use their power as shareholders to influence company behavior for the better. And data is being compiled that show the companies with good governance outperform the companies that behave in an unethical manner. Sometimes the term impact investing is used but let’s not get hung up on phrases.

Governance involves such topics as executive compensation, risk management, independence of boards and directors, combined CEO and chair role, business ethics.

The bigger the shareholder the more sway they have on company management. Companies take note. Investment firms that have clout can get a company to change. So even companies that are in sectors that most people would think don’t belong in a sustainable investment category could be chosen if they are open to improving their governance. An example of this is Walmart, who even 5 years ago would have been an untouchable candidate. But they have responded to shareholder concerns in a positive way with respect to worker rights, pay equity, and supply chain monitoring.

Closer to home a sustainable investment firm in Canada expressed concern that Dollarama’s board lacked diversity. When a majority of Dollarama’s customers are women, shouldn’t they be represented when developing company policy? The firm was successful in getting Dollarama to change the board composition.

Companies with good governance practices will avoid share destruction. Think Volkswagen, Wells Fargo, Equifax or Home Capital. In the age of the internet bad behavior will get busted sooner rather than later. Sustainable investment companies that use due diligence focus on good or bad governance will provide value to their investors. It is risk mitigation which does contribute to a better rate of return. And you have the opportunity to participate in this.

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What You Need to Know Heading Into November

This blog post will follow the format of a news article by listing noteworthy financial events that will affect many Canadians. Here they are in order of importance:
Bill C-27 is rightly back in the news. The government has quietly tried to slip this into law, changing defined benefit plans into target date benefit plans. The employee then assumes more investment risk, and this creates uncertainty for their final retirement benefit. Although it will only affect federally regulated employees, other jurisdictions are already adopting target date plans.

Morneau Shepell the management company connected to the federal Minister of Finance may stand to benefit if the bill becomes law. That same company was also appointed to manage the Sears pension plan. Sears pension plan holders could lose a portion of their retirement benefit because of the Sears bankruptcy.

The CRA is revising the eligibility requirements for the disability tax credit(DTC). They are within their right to do so, but they are also going further by examining existing DTC claims. Sometimes they have revoked existing claims. The latest puts diabetics in the spotlight, where the CRA is requiring proof of the amount of life sustaining therapy that is performed weekly.

Revoking the DTC can have repercussions such as having to revise past tax returns, or closing the Registered Disability Savings Plan, or the repayment of RDSP grants. Mental disabilities are also being examined more closely.

Homebuyers who have a greater than 20% down payment will now be subject to a stress test, to see if they can afford their monthly payment if interest rates rise. Of course you already know that lenders would prefer to charge a higher interest rate to borrowers. The Bank of Canada still sees consumer debt as a vulnerability in the Canadian economy, which I agree with.

The proposal to change the taxation of investment income within a corporation is ongoing. The government has backtracked on its initial proposals and there are changes almost weekly it seems. Nothing has been finalized so please contact me if you have questions.

The Canada Child Benefit will be indexed.

Please contact me if you would like to discuss any of these topics further

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Déjà Vu Montreal October 2017

For the most part my blog posts have leaned towards the more factual side of topics related to your money and finances. I thought I would make this blog post more personal where maybe you could get a glimpse of my personality and values, so you would know I am more than a data analysing, geeky professional.

I just returned from our annual conference this year held in Montreal, Quebec, a city I like to call my second home. I lived there briefly in the late 70s and that was where I met my future husband.

The conference was information intensive, with little free time, but fun. It is good to get exposure to new ideas even if I may not use them in our client meetings. An advisor who strives for excellence must always be aware of the latest events in the financial world, especially in terms of compliance and regulation. My favorite part of the conference, however, is making new connections with other professionals and getting their opinions.

Montreal is a beautiful city and I learned more about Canada’s early history. Knowing our country’s history is humbling and keeps me grounded. Montreal is 375 years old. For one of its birthdays Germany gifted a piece of the Berlin Wall, which is located in the Centre de Commerce Mondiale in downtown Montreal.

One thing I found very disturbing about Montreal is that the number of homeless people seems to have increased since we were last there in 2014 for the Grand Prix. The disparity between those who have a comfortable life and those who are struggling is very evident. I am bothered by that because I still remember being a poor student.

This is similar to San Francisco which we witnessed in 2015. Every street and metro station had several people begging for money, food, or even a smile. Some had their pets with them, and one sign referenced a child. I found it heartbreaking. The early morning we left it was raining and we passed several people huddled in doorways, trying to shelter from getting wet. Businesses have adapted to this homeless population in various ways. At our AirBnB there was the usual front entrance code, but after 6 and on the weekend there was also a code to use the elevator.

Montrealers have accepted this as a fact of life. There seems to be little evidence of social services to enable these people to break the cycle of poor decision making, and to work towards a more hopeful life. It is easier to fall on hard times in Quebec, as they are heavily taxed and I am guessing wages are not high for many people. In addition to the GST they also have a 10% provincial sales tax. We are very fortunate here in Alberta that we have no provincial sales tax.

I came home grateful for what we have in Calgary. We are a very community minded city. Where else in the world would one be able to get free food for 10 days during the Stampede? Think of the way neighbors and strangers helped people during the 2013 flood. Or the winter transit strike a few years back where drivers would pick up people at bus stops. Or during the few crazy winters we have had where strangers would help drivers jump start their cars or get them out of the ditch.

With the civic election behind us, now is a good time to reflect on all Calgary has to offer, one of the most important being that there is a commitment here to give as many people as possible the opportunity to work towards a more hopeful life. There is an acknowledgement that each life has value and everyone deserves to be treated with dignity. Of course any city can improve but I am proud of what Calgary has done to help every one of its citizens if they so desire.

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Check this Yourself More Than Once in Your Lifetime

We do a lot of verification in our lives. Is the front door locked? When does the oil in the car need changing? We go to the dentist for a checkup.

Your credit score and report are 2 items in your financial life that are rarely given a thought. That is until you find out it will affect you, usually in a not so fun way. This blog post will outline what you need to know.

First off, many readers might have heard that one of the main credit reporting companies, Equifax, was in the news because of a widespread hack which exposed over 100 million citizens’ sensitive personal information in the US. Canadians are affected as well. Make no mistake, personal information has become valuable currency when in the wrong hands. Equifax should be punished for the lack of oversight and slowness to report. Indeed, US investigators are looking into whether laying criminal charges are warranted for other related matters.

Most people know in a general sense how your credit history can affect your ability to borrow. But I would like to take a deeper dive for your edification.

To begin, you should check your credit report on a regular basis. Note I said regularly not often. Regularly means more than once in your life. You want to ensure that details reported are correct. And if not to get it fixed. Don’t rely on the few times the bank or other authorised personnel look it over. If you regularly check your credit history you will be in a much better position to deal with the fallout if you become a victim of identity theft or fraud.

Secondly, the higher the score more likely you are to be allowed to borrow on terms that are favorable to YOU. Of course you can always borrow money but the interest cost must be affordable. You want to be in the driver’s seat not the lender.

Here is how to be a responsible attractive borrower:

Pay all your bills on time, allowing time for the payment to reach the receiving institution. Don’t wait until one minute to midnight on the due date. Did you know that if you are even an hour late in paying, the entire balance will attract interest charges back to the beginning of the period? And then you are recorded as being delinquent.

Your credit report is looked upon more favorably if you are a responsible borrower with different types of credit accounts. And interestingly enough, someone I know well who has paid off their mortgage has been penalized because they don’t have a mortgage debt anymore. How ironic that careful financial management can be NEGATIVE.

Your credit score will be lower if the total amount owing is more than 35-50% of available credit. So get out your calculator if needed and do the math. These percentages are in line with the Total Debt Service Ration(TDSR) lending institutions use when assessing would be borrowers.

Delinquencies and derogatory items(no I am not making that up),will remain on your report and affect your score for years.

Too many inquiries by lenders will hurt your credit score. Also interestingly enough so will cancelling credit accounts such as credit cards. But given how identity theft and fraud are ongoing concerns, the less inactive accounts on your credit report the better. I know I am guilty of this. In 2015 when I went to a major hardware chain to buy our flooring, the amount owing was too high to pay by debit. And I usually don’t carry my credit card. So I had to apply for their store card to be able to pay. And I never used it again.

If you are a Royal Bank account holder you can access your credit history for free. In your online banking portal you will be directed to the TransUnion website. TransUnion is a competitor of Equifax.

Long term financial peace of mind depends on your proactive maintenance and productive habits. Please don’t wait until a crisis to manage or correct your credit history and score.