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.

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

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.

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.

The Vanilla Index

Remember that line from Toy Story 2 when with reference to the limbo dance Barbie asks: “How low can you go?” Well I couldn’t resist taking the photo in the email because the last time I looked at the price vanilla it was just shy of $30. I feel like saying “How high can it go!”

That price indicates the forces of supply and demand. I am sure the increased price reflects a lower supply. More importantly however, retailers are testing how much consumers are willing to pay for a bottle of vanilla. Are you willing to spend almost $40? Would you spend even more than $40? How high do you want to go?

I was racking my brain recently trying to figure out how banks are extremely profitable. Then I witnessed 2 examples of accountholder behavior that gave me the answer. The banks have nailed accountholder psychology and used that knowledge to their maximum profit.

They know that in today’s society people are willing to pay for convenience, rapid solutions, and rewards and are often indifferent to the cost to do those.

Take for example the e transfer fee. It is $1.50 per transaction. Not bad if you only do 1 or 2 a month. But what if every week you did an e transfer? Over time that would add up. But people think it’s only a $1.50 no big deal. And if millions of transactions are done, well you do the math. And if you are accessing your cash from an ATM that is not your own bank branch there is an additional fee on top of that.

I happened to see a statement for a credit card with rewards attached to it. The interest rate was not your standard 19.99%. It was a full 5% higher at 24.99%. Does that 5% justify the reward of a free movie if you spend enough? Only if the cardholder can pay off the balance every month. How many do?

But the most egregious application of the banks’ knowledge of our psychology is how they behave when people get into credit trouble. This can happen when credit card holders are late on their payments or make interest only payments. I wouldn’t go so far as to say they prefer that credit card holders stay in debt but it becomes much more difficult to get out of debt when a cardholder gets in financial difficulty. This is compounded when someone would prefer to borrow a lump sum just to be able to pay off the offending card. The more prudent path would be to rearrange or cut monthly spending to be able to pay off the debt with their own money rather than borrowing again to get out of debt. But society is so conditioned to a quick fix that many consumers reject a longer term solution. As I said the banks know their accountholders’ psychology and they are not shy to profit from it.

Make no mistake credit is a huge business for banks and is extremely profitable. Recent events in my own life attest to this. During the summer I was shopping at a major retailer that I usually never patronize. The cashier was very persistent in trying to get me to sign up for their store credit card. She kept asking even when I kept saying no, repeating the supposed benefits over and over.

Our bank sent us new credit cards without us asking, even though we had recently received new ones. And you guessed it they are rewards cards. When my husband phoned to activate his, as the primary cardholder he had to listen to a long spiel of all the extra services he should buy that were associated with the new card.

In the near future I will be discussing the importance of understanding your credit score and report.

The Scariest Thing a Client Can Tell Their Financial Advisor

Ten days ago the Bank of Canada raised interest rates for the second time in less than 2 months. The prime rate is now 3.2 %. This increase will affect variable rate mortgage holders and those who carry a balance on a line of credit. The reason for the increase is that the Canadian economy is healthy. Collectively, Canadians carry a large amount of debt, and perhaps the Bank of Canada would like to curtail Canadians’ love of borrowing, since more rate increases are predicted.

This event nicely dovetails with a question clients have asked me a few times recently. It is also related to the title of this blog post.

The question I have been asked is: Which is better: To pay off your mortgage faster or to invest? I would answer: Both or it depends. No I am not playing round and round the mulberry bush.

Mainstream media has a habit of making generic pronouncements without too much background information. In order to properly answer that question to get the maximum benefit for your personal situation your own unique financial factors must be considered.

A general rule of thumb is that if your borrowing rate is less than the rate of return you could get to invest then it is more profitable to invest. However, with careful planning both objectives could be accomplished.

There could be situations where the debt would take precedent. Two examples of that would be where future income would be lower, or where the interest rate on borrowing is obscene(think rewards credit cards.)

An increasing rate environment is not good news for those with unproductive spending habits. If someone lives pay cheque to paycheque when times are good(full employment, ample salary, 2 incomes, or healthy), the inevitable financial storms will find them unable to cope with unexpected events which oftentimes are expensive.

So what is the scariest thing a client can tell their financial advisor? It is: ”I don’t care about next year!!” Since this is a blog post I will have to add this was said with emphasis, despair, and a bit of panic.

Unfortunately how this person arrived at this point could have been completely avoided if there had been FULL disclosure of financial factors that would have to be considered in any advice given by a professional. The advice a professional gives will only be as good as the information that is disclosed. Professionals are not mind readers!

Don’t let market forces of the economy persuade you to deviate from your future financial goals. I could write a book on the many wild goose chases and rabbit trails that can tempt clients off their financial journey.


Alberta Through the Eyes of a Visitor

It has been a while since I wrote a blog post. There were many topics and events I could have blogged about, but the chances were few readers would have been interested.

I hope all of you had an interesting and enjoyable summer! This summer will be memorable for me because of the vast amount of time I spent watering(did I plant too much?) and our visitor from Trinidad.

My husband’s cousin had never been to Western Canada. She spent 10 days with us, and I played tour guide, taking her to the sights of Alberta. We had a lot of fun together. The conclusion I drew from her visit was very humbling. We citizens of Alberta have a lot to be grateful for and proud of! The everyday things we take for granted are not lost on a visitor. She remarked on the clean and wide streets and logical layout of the highways. She noticed how everyone she met was so friendly and welcoming compared to the only other part of Canada she has visited.

While she was here we went shopping a few times. Now some of you probably know shopping is not one of my favorite activities. My goal when shopping is to spend the least amount of time in the store, focusing with laser precision only on the items I need. For instance, we went to Dollarama(the only dollar store I go to). Usually I make a beeline for the bags of dirt and try to get out the door in under 5 minutes. But she got a cart! So I was forced to browse, and actually got an education on what Dollarama sells. And I learned another humbling lesson. She wanted to spend and shop in Alberta because the other provinces she would be visiting had sales taxes. Not only that when she calculated the conversion from Canadian to Trinidad dollars she found the prices here to be very reasonable. And I was shocked at what she would have to pay for those items in her home country.

Which brings me to the lesson I learned. Sometimes I grumble at what I consider to be inflation creep or companies that have expensive prices. However, what we pay in Alberta is less than prices in other parts of Canada or elsewhere. I should never take my buying power for granted and use it carefully as she did.

Here is an anecdote on how prices involve a lot of perception and comparison. Before she came I found out from a friend that the gondola ride in Banff was a must see and cost $35 which at the time we agreed was pricy. The day before we planned to take her in August the website was giving the price as a minimum of $56 and a maximum of $62. That made $35 seem reasonable, in comparison. But was it? We decided not to go. This is why in restaurants the second most expensive item is the most sold, because people use the most expensive one as an anchor to help them decide what to order.

Next up: Should you be concerned about rising interest rates?

Put Yourself In the Driver’s Seat

So far this year I have had the pleasure of assisting 3 clients with their offer letters. All 3 wanted another set of eyes so to speak, or a second opinion.

In 2 cases the clients were not sure if the terms were acceptable enough for them. Let’s take a look at these examples.

In the first case the applicant had 2 choices. Take an approximately 10% higher salary with no vacation and zero benefits. We counted the beans and the lower salary with benefits and vacation was a better deal. I also calculated the tax owing at both salary points.

The second client was in a similar position. Wanting to move to an employer where there was more potential to grow and learn she felt stymied by the approximate 10% salary cut she would be facing. But the position with the higher salary had no benefits. The position with the lower salary had benefits and matching RRSP program. When we counted the beans the supposedly lower remuneration was very close to what she was giving up. The calculations also included tax owing at both wage points. After all it is what is in your bank account at the end of the day that counts.

In the 3rd case the offer came with various group investment benefits and matching as options. The choice of varying matching percentages and timing of entry into the programs is important. Our discussion can help you get maximum benefit out of any options an employer may offer.

Financial planning includes all aspects of your financial situation. I am your resource to call on whenever you have a challenge or query.

Let’s Chat!

This is an opportune time to review how my sponsoring company Portfolio Strategies Corporation(PSC) and I communicate with you. I appreciate the feedback you have given me so far.

First of all by law PSC must send a quarterly statement. Shortly after the end of each quarter you will receive an email from PSC with a link for the investor access portal. Otherwise you will get a paper statement in the mail. If you chose electronic delivery you have a user name and password. Thank you to the clients that get e delivery.

If you don’t remember your username I can give it to you again. I can also tell you your original password. However, if you have changed your password, your only recourse is for me to give you a temporary one and then you reset it to one more meaningful to you.

Please let me know if you have any questions about the information on your statement. Please note the since inception rate of return is not that meaningful because it is only for the time I have been with PSC, which is only 3 years. Many of you have had your accounts far longer than that.

Also in most cases for any switches or purchases the fund facts must be sent to you prior to the transaction. The fund facts are sent to you via an internal website. Therefore, when you receive them they are not from me but PSC. Clients have informed me that sometimes there are glitches. I appreciate that feedback, as that helps us do even better with the evolving technology.

Unfortunately some clients have told me they do not access either the statements or fund facts because they think it is spam from an unknown source. Thank you for letting me know. The hesitation is completely understandable, as hackers are becoming increasingly skilled at impersonating genuine providers.

For some time now, I have adopted the practice of sending meeting notes after each of our meetings, be they in person or telephone or email. Sometimes in lieu of meeting notes I keep our email correspondence. Please review these when you receive them. I welcome your comments. The meeting notes pdfs are best viewed on a computer or tablet, rather than a cellphone. The pdfs often show up blank on a cellphone.

One client had an excellent suggestion for me to send a quick email when the fund facts get sent by PSC prior to our meeting.

I would like to emphasize the importance of regular communications with me. If we are in regular communication you will get the maximum value out of our professional relationship. Your investments will benefit from regular review and rebalancing, which in turn will enable you to achieve your goals. Of course an in person meeting is the ideal, but even a phone conversation is helpful. Many life events can impact your financial future, but if I am not made aware, I cannot advise. Also my hope is that with each meeting you will be empowered with the knowledge you need to achieve your goals.

Your life’s journey and staying on track with your financial goals needs our ongoing professional partnership and communication. Better information through communication leads to a more ideal outcome for you.

Protecting the Treasure You Didn’t Know You Had

Tripping on a rock in the dark on the way to the hot tub in your backyard, you injure your back and leg. Your friend is suffering with anxiety and depression associated with caring for an aging parent who lives with her.

Which of those scenarios make up more disability claims?

Mental conditions are more than 3 times the number of claims than accidents. Over 30% of disability claims are for that reason. Claims due to accidents are only 8%. The statistics on disability are not what people assume them to be.(1)

So your contingency plan should look something like this:

It is highly advisable to have AT LEAST 1 month’s worth of living expenses as short term savings. In other words do not always spend every penny of your monthly salary.

If you are employed, you hopefully have some type of disability policy. You need to review it to know what benefits you are entitled to, and how to make a claim. We can review it together if you like.

If you do not have a group disability plan you need to ask yourself the question: Is it worth it to spend 1% of my income to insure 100% of it over a period of time? Why roll the dice especially if you are self employed or own your own business? Please speak to me to know what options you have.

The Disability Tax Credit(DTC) is an often overlooked tax credit that can be invaluable if used and applied properly. The DTC will decrease your tax owing if you or a close relative is “markedly restricted’ in one or more of the activities of daily living, ‘for a prolonged period’. Those include dressing, eating, toileting/bathing, walking, speaking, seeing and hearing, and the associated mental functions. A medical professional is required to complete a part of the application.

The DTC is transferable to a close relative in certain circumstances, mostly if you live and/or care for the disabled person. Examples are an aging parent living with a child, a child with a disability whose DTC can be transferred a parent, or in my mother’s case, the credit was transferred to my dad, which helped him pay less tax.

I have made several clients aware of their ability to qualify for this credit. And if someone is less than 49 years old and receives the DTC you can open a Registered Disability Savings Plan(RDSP) which has matching government grants on contributions. Please contact me if you or someone you know needs more information.

Life has a habit of happening in bunches. In 2013 I became unexpectedly and very seriously ill and was hospitalized. They only reason I was let out was if I followed a self administered antibiotic IV program. Then my mother contracted aspiration pneumonia and after a few days passed away. All of this happened in the span of a few weeks. The associated stress from those 2 events could have easily carried on long term, and impacted my ability to earn a living. Please know the stressful road has pit stops and assistance along the way, and that you don’t have to go it alone.

(1) WHO November 2013