Yes I Said Correction

I hope you and your family had an excellent summer and have settled into your fall routine now that school is back in full swing! After a prolonged period of low volatility and steady growth, financial markets have become increasingly unsettled.

In recent weeks, stock markets have declined while investments considered to be “safe havens” have increased in value, including developed market government bonds and the U.S. dollar. Investor concerns have focused on the slow pace of economic growth, particularly in China, Japan and Europe, continued conflict in the Middle East and the winding down of the U.S. Federal Reserve’s economic stimulus plan, which may lead to higher interest rates.

Below are our thoughts on the current market correction (yes I said CORRECTION) provided by FFAS Capital Markets Strategy Group (CMSG), compliments of Fidelity Investments:

  1. There is no doubt that economic growth in the rest of the world is slowing down.
  2. At this moment this cannot be said for the US economy. The domestic data still looks overall very solid.
  3. Ebola and ISIS might be all over the news but are from an economic perspective immaterial (however, it might weigh on the consumer psychologically). Ebola is frankly not that contagious (if it would be, we would have more than three cases in the US by now) and ISIS is at the moment no threat for the US domestically.
  4. From our vantage point we do not foresee a global recession nor do we see a significant slow-down in the US. Lower oil prices and low interest rates are going to help.
  5. At a minimum the US should weather this storm better than the rest of the world.
  6. Chances still are that this is just a normal “garden variety” correction which are actually quite typical for October especially in “mid-term’ election years.
  7. Past the election the “seasonals” are very strong historically.
  8. November & December are normally strong months for the market. Especially after mid-term elections.
  9. According to Strategas equity markets are up on average about 4.5% from the October lows since  1950.
  10. The 12 months period after mid-term elections has been positive since 1947 with an average return of 16.1% (Source: Strategas)

Conclusion:

1. Stay the course.

2. If you are under-allocated to equities this could turn out to be a nice entry point for long term investors.

3. These corrections demonstrate why you should consider maintaining a well-diversified, balanced portfolio that holds a position in Investment Grade Domestic Bonds.

I believe the best way to weather market volatility is to take a longer-term view and remain invested in a diversified portfolio tailored to your individual objectives.  Diversification by asset class, industry sector and geographic region helps to provide more stable returns, because not all investments respond to events in the same way.

Until next time, continue to live for today, but plan for tomorrow.

AF

 

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Convert. Purchase. Withdraw. What to do with that RRSP!

Lately I am hearing from our clients “It’s really hard to believe another summer has come and gone!”  I guess time really does fly when you are having fun.  And just like summer ending and the fall approaching (along with ski season!), retirement and age 71 can sneak up on you!  If you are fortunate enough to be turning 71 this calendar year then there is some planning that needs to be done before the end of 2014.

Like most Canadians, during your working years you saved for your retirement by contributing to a personal Registered Retirement Savings Plan (RRSP) or an employer-sponsored Group RSP, or both. Whether your retirement is close at hand or still several years away, now is the time to start planning for your retirement income.

An important step in that process comes when you switch from contributing to your retirement savings to withdrawing from them. Your RRSP can be converted to some form of income at any time, but no later than the end of the calendar year in which you turn 71. At that time, you will have three options:

1. Convert your RSP to a Registered Retirement Income Fund (RRIF)
2. Purchase an Annuity
3. Withdraw the entire amount of your RSP in one lump sum and pay the applicable taxes.

1. Converting to a RRIF. When your RSP matures you may choose to transfer or convert it into a tax-sheltered investment plan known as a RRIF. With this option, tax is deferred until you actually start receiving your retirement income. This allows more of your money to remain invested on a tax-deferred basis over longer periods of time. As well, a RRIF has the potential to provide you with income for the rest of your life.

A RRIF is similar to your RSP, except that you are no longer allowed to make new contributions, and must begin to withdraw a minimum percentage from your RRIF each year. You can keep the same investments in your RRIF as in your RSP, and you are also free to make switches between mutual funds or other qualifying investments. Most importantly, your investments can continue to grow tax-free.

If you decide to transfer your RSP to a RRIF in the year you turn 71, you should do so well ahead of the December 31 deadline to ensure that you establish a retirement plan tailored to your particular needs and goals.  Converting early in the year carries no disadvantage, since you are not required to begin receiving payments until the year after you convert. If you prefer, however, you can start drawing an income from your RRIF the month following your conversion from an RSP, subject to the applicable withholding taxes.

2. Purchasing an annuity. You can use some or all of the money in your RSP to buy an annuity from a life insurance company. Annuities may be fixed-term (providing a guaranteed source of income until age 90, or until your spouse turns age 90), or a life annuity (providing benefits during your life, or during the lives of you and your spouse).

With annuities, you are locked into defined, regular income payments. As well, you are unable to benefit from any capital appreciation or investment income on the money you used to purchase the annuity. You also cannot adjust the amount of income you receive.

3. Cashing in your RSP. Withdrawing all or part of your RSP assets in cash will add the amount withdrawn to your taxable income for the year of the withdrawal. That could result in you paying as much as 50% of the value of your RSP in tax, depending on your tax bracket.

If you or someone you care about would like to increase the probability of achieving their life goals and objectives, then do yourself a favour and make a date with a CERTIFIED FINANCIAL PLANNER® professional who is planning focused, not product driven.  Our goal is to make sure we address our clients most pressing concerns and to make certain that we do not overlook the details when it comes to your big picture thinking!

Until next time, continue to live for today, but plan for tomorrow.

AF

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Benefits of Critical Illness Insurance… My Brokers Family’s Experience

First, it’s great to be back! Not that I’ve been away somewhere hot but rather, back at with my
blog! Yes, it appears that time just flew by but now I’m back.

Two weeks ago I had a meeting with one of my trusted mortgage professionals to catch up on
the recent mortgage trends and in particular, more information on the Investors Group 1.99%
mortgage ( Flip me an email if want info on this product). What I wasn’t expecting from this
meeting was a real life story as per why we should all consider purchasing some Critical Illness
insurance (CI). Below is Russ’s story.

In October of last year my wife, age 37, suffered a heart attack due to a rare condition called
SCAD (spontaneous coronary artery dissection). The result of this condition had nothing to do
with her cholesterol levels or heart disease whatsoever. It was the result of high hormone levels
due to the recent birth of our daughter. Totally unexpected!

In our early 30’s we applied and successfully acquired critical illness insurance in the event
something was to happen to one of us. At that time we were on the fence on whether or not we
needed to spend the extra money on this type of insurance and thought these types of things
only happen to other people not us!

In June of this year my wife underwent triple bypass surgery in order to bypass all of the stents
that were placed in her arteries that her body was not reacting well too. I am glad to say that
she is recovering from her surgery and prognosis is very good.

Where does Critical Illness fit in to all of this?  The CI insurance we attained years ago resulted
in a successful claim of 100k. This has allowed my wife the time to get better with little stress
and hire a nanny to help her with day to day activities until she fully recovers.

The Morrison Family ‐ Pam, Russ, Ethan, & Ella

If you or someone you care about would like to increase the probability of achieving their life goals and objectives, then do yourself a favour and make a date with a CERTIFIED FINANCIAL PLANNER® professional who is planning focused, not product driven. Success is simply following a repeatable sequence of predictable actions that can change a known undesirable condition into a predictable, more desirable one.  Our goal is to make sure we address our clients most pressing concerns and to make certain that we do not overlook the details when it comes to your big picture thinking!

Until next time, continue to live for today, but plan for tomorrow.

Cheers,

AF

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604.531.0022


Aaron Fransen   CFP® , CHS, CPCA   |   CERTIFIED FINANCIAL PLANNER®, Investment Advisor   |   Suite 203 - 15350 34th Avenue, South Surrey, BC V3S 0X7   |   Tel: 604.531.0022