CAP U PRESENTATION final

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  1. 1. HAZARDOUS TO YOUR WEALTH: SIX MISTAKES CANADIANS MAKE WITH THEIR FINANCES
  2. 2. Life Expectancy at Birth 79.5 Age 1000 1200 1400 1600 1800 2000 80 70 60 50 40 30 20 10 0 1000 - 2000 Source: Census Bureau, 2000 Source: US Census 2000
  3. 3. If clients cant imagine living past age 100, tell them more than 50,000 people across North America already have, says Dan Anders. Whats more, the number of centenarians (people aged 100 and older) in Canada is rising. Statistics Canada says that cohort grew 25.7% between 2006 and 2011 (the number of people aged 60 to 64 grew 29.1%). Its also been one of the fastest-growing segments for nearly 40 years Centenarians
  4. 4. THE FOUR CORNERSTONE PHILOSOPHY Short Term Reserve Money or collateral for: Emergencies Opportunities Equity Investments Provides: Better return through ownership Capital appreciation Debt Management Provides: Debt Restructuring Wealth creation Risk Management For you and your dependents in case of: Premature death Disability, critical illness Need for long-term care
  5. 5. CASE STUDY Heres a regular Canadian Family: Viktor (50) supervisor, annual income $60,000 Josephine (50) HR manager, annual income $60,000 Barry (9) son Lidia (7) - daughter William (6) dog Monthly Family income: $8,000 The family feels like they live paycheque to paycheque
  6. 6. Assets Liabilities Home in Burnaby, BC - $850,000 ($500,000) - Outstanding Mortgage - @ 3.59% RRSP (Viktor) - $80,000 ($10,000) - Credit Card VISA - @ 19.99% RRSP at work (Josephine) - $120,000 ($25,000) - Line of Credit - @ P+1.5% / 4.5% TFSA (Viktor) - $10,000 ($15,000) Car Lease - @ 2% RESP (Barry) - $5,000 RESP (Lidia) - $4,000 Car - $20,000 Car - $20,000 CASE STUDY Family Balance Sheet
  7. 7. CASE STUDY Monthly Debt Servicing Cost Mortgage $2,520 Credit Card VISA $300 (trying $500) Line of Credit $350 Car Lease $690 TOTAL: $3860 (48% of family monthly budget) Concerns 48% of monthly family income goes to service the debt. That leaves them 52% ($4,140) for groceries, gas, kids fitness, kids education, time out, vacation, home insurance, property tax, internet, phones, cloths, insurance, savings etc. Sliding into debt even more No planned approach to paying off debt. No regular and disciplined strategy Bad debt VISA Stress
  8. 8. CASE STUDY Debt consolidation, step 1 New IG Mortgage $550,000 @ 2.5% Credit Card VISA ($10,000) @ 19.99% Line of Credit ($25,000) @ P+1.5% / 4.5% Additional Cash - $18,240 Penalty - $1500 Debt consolidation, step 2 Additional cash - $18,240 was used as an RRSP contribution for Viktor and Josephine. RRSP Contribution of $18,240 produced a tax refund of approximately $5,020, which was used to recoup the penalty and put against their new mortgage.
  9. 9. CASE STUDY Debt consolidation, step 3 New Monthly Debt Servicing Cost: New Mortgage - $2,340 Car Lease - $690 NEW TOTAL MONTHLY DEBT SERVICING COST : $3,030 vs. $3,860 ($830 per month / $9,960 per year)
  10. 10. CASE STUDY Drawbacks Penalty payment (interest rate improvement and recouped by RRSP contribution) Extended amortization to 25 years (but it isnt necessary bad) Benefits: Extra $830 per month for family cash flow Bad debt free! Except cheap car lease and new mortgage RRSP Contribution of $18,240. The family is moving forward with The PLAN, opposed to sliding into debt even more Planned and disciplined approach to paying off your debt No financial stress
  11. 11. YOU NEED A PLAN FINANCIAL ISSUES ARE COMPLEX YOU NEED TO WORK WITH A PROFESSIONAL
  12. 12. Basic Retirement: Age 65 Paid month after 65th Birthday Flexible (Early Retirement): Age 60-65 Amount decreased by 0.6% for each month under age 65 (max. 36%) Flexible (Defer Payments): Age 65-70 Amount increased by 0.7% for each month over age 65 (max. 42%) Canada Pension Plan - Retirement 75 0 5000 10000 15000 20000 25000 30000 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 Crossover-Breakeven Ages 60 65 Contribution Requirements: 4.95% of net earnings between $3,500 and $53,600 (2015) Employers contribute other half of premiums Contributions start as early as age 18 and end at age 70
  13. 13. Old Age Security (OAS) Eligibility Eligibility - 65 Years old and up (depending on age of birth) - Canadian Citizen or Legal Resident - For full payment: Reside in Canada for a minimum of 10 years after age 18 - For partial payment: Reside in Canada for 10 years or more prior to retirement or after reaching age 65 and up (depending on age of birth) - Defer up to age 70 for 36% increase Clawback - Pensioners who earn individual net income of $72,809 or more as of 2015 have to repay part of their pension benefits - Repayment amounts normally deducted from monthly payments $72,809 $117,909 $6,765
  14. 14. 1957 or earlier = 65 1958 =65 1959 = 65.5 1960 = 66 1961= 66.5 1962 = 67 1963 or later = 67 Current Changes to OAS starting April 2023
  15. 15. Retirement Paycheque RSP to RIF 1st death nd
  16. 16. DEATH AND TAXES Retirement Income Mary (Age 71) Ken (Age 71) Canada Pension (CPP) at age 60 $5,120 $5,120 Old Age Security (OAS) $6,780 $6,780 Work Pension $15,000 $15,000 Investment Income $1,000 $1,000 RRSPs/RRIFs (min) $18,450 $18,450 Taxable Income: $46,350 $46,350 Taxes ($7,740) ($7,740) Total Income $38,610 $38,610 Family Income: $77,219
  17. 17. WHEN KEN DIES Retirement Income Mary (Age 71) Canada Pension (CPP) $12,780 Old Age Security (OAS) $6,780 Work Pension $30,000 Investment Income: $2,000 RRSPs/RRIFs (min) $36,900 Taxable Income: $88,460 Taxes ($20,788) Total Income $67,672 Income: $88,460 - $92,700 = -$4,240 less income Taxes: $20,788 - $15,481 = $5,307 more taxes
  18. 18. WHEN MARY DIES Retirement Income Estate RRSPs/RRIFs $500,000 Taxable Income: $500,000 Taxes ($205,501) Total Income $294,549
  19. 19. YOU NEED A PLAN FINANCIAL ISSUES ARE COMPLEX YOU NEED TO WORK WITH A PROFESSIONAL
  20. 20. INVESTMENT MISTAKES Wrong investments in the wrong accounts Unsuitable investments Dont Understand Risk Questionable Source of Investment Information
  21. 21. Average one-year GIC rate
  22. 22. GIC INVESTMENTS Savings Accts Low interest 100% taxable / CSBs 1.5% 0.45% tax 1.05% Net Inflation at 3% means a negative real rate return of 1.95%
  23. 23. The Impact Rising Rates have on Bonds
  24. 24. A tale of two Income Options
  25. 25. October 1999 June 2000 Sept. 1991 October 1987 Sept. 2001 June 2002
  26. 26. THE IMPORTANCE OF FOCUS AND DISCIPLINE 8.2% 6.3% 2.3% 0% 2% 4% 6% 8% 10% S&P 500 Bonds Average Investor Source: J.P. Morgan Asset Management 20 Year Annualized Returns by Asset Class (1993-2012)
  27. 27. S&P 500 A STOCK MARKET?
  28. 28. Technology Apple ($568 Billion) Google ($381 Billion) Microsoft ($340 Billion) Oracle ($190 Billion) IBM ($187 Billion) Facebook ($169 Billion) Amazon.com ($153 Billion) Intel ($141 Billion) Cisco ($128 Billion) Consumer Staples Walmart ($247 Billion) Procter & Gamble ($217 Billion) Coca-Cola ($181 Billion) Pepsi ($134 Billion) Phillip Morris ($139 Billion) Healthcare Johnson & Johnson ($295 Billion) Pfizer ($188 Billion) Merck ($171 Billion) Gilead ($122 Billion) Industrials GE ($275 Billion) United Technologies ($110 Billion) Boeing ($100 Billion) 3M ($95 Billion) Union Pacific ($93 Billion) Telecom AT&T ($181 Billion) Verizon ($205 Billion) Consumer Discretionary Walt Disney ($147 Billion) Comcast ($137 Billion) McDonalds ($100 Billion) Home Depot ($110 Billion) Financials Berkshire Hathaway ($316 Billion) Wells Fargo ($277 Billion) JP Morgan ($219 Billion) Bank of America ($167 Billion) Citigroup ($150 Billion) Visa ($135 Billion) American Express ($101 Billion) Energy Exxon ($436 Billion) Chevron ($239 Billion) Shlumberger ($139 Billion) Conoco Philips ($100 Billion) All of these US companies would currently be the largest market cap in the Canadian equity market Source: IGIM, Bloomberg Or A Market of Stocks (Global Business)
  29. 29. S&P 500 INTRA-YEAR DECLINES VS. CALENDAR YEAR RETURNS Despite average intra-year drops of 14.4%, annual returns positive in 26 of 34 years Source: Standard & Poors, FactSet, J.P. Morgan Asset Management YTD 2014 26 -10 15 17 1 26 15 2 12 27 -7 26 4 7 -2 34 20 31 27 20 -10 -13 -23 26 9 3 14 4 -38 23 13 0 13 30 8 -17 -18 -17 -7 -13 -8 -9 -34 -8 -8 -20 -6 -6 -5 -9 -3 -8 -11 -19 -12 -17 -30 -34 -4 -8 -7 -8 -10 -49 -28 -16 -19 -10 -6 -9 -60 -50 -40 -30 -20 -10 0 10 20 30 40 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
  30. 30. Five Approaches Produce Five Results Source: Strategic Investment Planning THE BEST TIME TO INVEST 30 $277,623 $260,463 $251,289 $223,073 $137,575 $- $50,000 $100,000 $150,000 $200,000 $250,000 $300,000 Perfect Timer Anxious Investor Dollar Cost Average Terrible Timer Cash S&P/TSX Composite Last 20 years
  31. 31. WHAT TO HOLD WHERE RRSP interest bearing, dividends Non Registered accounts Dividends and Growth Equities TFSA Dividends and Growth Equities
  32. 32. YOU NEED A PLAN FINANCIAL ISSUES ARE COMPLEX YOU NEED TO WORK WITH A PROFESSIONAL
  33. 33. Sudden Death of a Loved One
  34. 34. YOU NEED A PLAN FINANCIAL ISSUES ARE COMPLEX YOU NEED TO WORK WITH A PROFESSIONAL
  35. 35. THANK YOU