May 31, 2010

Your Most Valuable Asset

Filed under: Financial Planning — Tags: , , — MikeT @ 5:03 pm

As a financial planner, I’ll admit that insurance is not the most interesting topic.   Not surprising; who really wants to talk about death, critical illness or being disabled!?  For fear of losing you too quickly, I’m going to throw out some stats to think about:

  • 35yr olds have a 50% chance of disability lasting longer than 90 days; 40% for 45yr olds (1)
  • the average length of disability for a 35yr old is 2.8yrs; 3.2yrs for a 45yr old (1)
  • 1 in 4 Canadians will develop heart disease during their lives; with 1 in 2 before age 65 (2)

Canadians tend to consider life insurance before disability insurance but I think the above stats show why it’s also important to purchase disability insurance or make sure the coverage you currently have protects you properly.  Many people fall into the latter, where they already have coverage at work, but the policy payout isn’t enough to cover monthly family expenses or it only covers for 2 or 3 years (not to age 65 like you may need it!)

A colleague of mine recently shared her own personal experience with her husband’s disability.  He worked for a large company in the oil & gas industry and was given group benefits that included disability insurance as part of his typical employment package.  One day he was involved in a car accident that left him disabled and unable to work.  His group disability policy covered him for two years after the accident but that was it.  Without his pre-disability income or disability coverage, my colleague’s family struggled to make ends meet.  Canada Pension Plan payments, which took over four years to get approved, helped to replace some of the missing income but even that wasn’t enough.  It has been over twenty four years since the accident and he still is unable to work.

Having the proper disability coverage in place would have helped this family avoid the financial hardships they experienced as a result of the accident.

Many people would say their house, cottage, or retirement portfolio is the most valuable asset they have but I would argue it’s their ability to make a living.  If you or someone you know feels that they would benefit from a disability insurance coverage review, I am more than happy to help.  I recommend that this be reviewed as soon as possible.

(1) 1985 Commissioners Individual Disability Table A
(2) Heart & Stroke Foundation

February 16, 2010

2009 Market Recap

Filed under: Financial Planning, Investments — MikeT @ 7:37 pm

So how do you think stock markets performed in 2009? If you’re like 74% of investors in a recent survey, you thought the S&P/TSX was flat, down or you didn’t know (1). Only 14% in the survey actually knew the S&P/TSX posted a return over 20% (1). In fact, our major Canadian stock index posted 30.7%, its best return since 1979 (2 & 3). Although I don’t have a survey or any stats to prove my theory, I believe that investors were far more cognizant of poor market performance in 2008 when the S&P/TSX’s return was -33% (2). I’m sure the media is to blame for much of investor’s knowledge of market conditions, with their tendency to focus and trumpet the negative as oppose to the positive.

For the record, the S&P500 (a major U.S. index) and the MSCI World index produced returns of 23.5% and 27% respectively (2).

At the end of the day it really doesn’t matter if you’re up-to-date with market returns as long as they don’t swing your emotions enough to make trading decisions. Investors that get caught up in emotions are more likely to make investment decisions that lead to timing the market, resulting in buying high and selling low.

Reviewing your portfolio annually in conjunction with your financial plan is the best way to support long-term financial health. Evaluating performance and matching it to your financial goals will ensure you remain on the financial path mapped and will help eliminate the emotions involved in investing.

(1) Angus Reid Survey Results (Jan 5, 2010)
(2) globeadvisor.com
(3) Bloomberg

May 20, 2009

Financial Planning Notes – May 2009

Filed under: Uncategorized — MikeT @ 12:00 am

In my January newsletter, I suggested that when the economy recovers that it will be led by equity markets. Although it is difficult to say where we exactly are in the economic downturn, it is my opinion that the worst is behind us.

We have seen the major Canadian stock market, the S&P/TSX, wipe out losses experienced in the beginning of the year and move strongly into positive territory, up to 9.6% year-to-date(1). A major stock index in the U.S., the S&P 500, has also made up ground from the beginning of the year with only a slight year-to-date loss of -1.1%(1). While as of April 30th, the MSCI World Index has shown a 3-month return of 7.6%(1). Equity markets have traditionally been leading indicators of where the economy is headed so these potentially are signs of a recovery on the way.

Further, an economic recovery can be anticipated with signs that the global credit market is stabilizing and improving. The LIBOR, which is the interest rate offered to the world’s most preferred borrowers (strongest banks), is now down almost 5% in May 2009 on the 3-month rate from its peak in October 2008(2). My belief is that this is significant progress as it strongly encourages banks around the world to lend more money to credit worthy companies that have been struggling since the credit freeze began (hope you’re still awake after that bit of news). More borrowing is not what consumers need but is vital for companies to survive and grow, supporting commerce and keeping people employed.

There will continue to be bad news as we move along in the recession but keep in mind that this is often fallout from earlier problems that started the recession. The ripple effect is normal and usually signals the stage we are at in the economic cycle.

Whether you pay attention to economic news and indicators or ignore them, remain focused on your financial goals and stick to your plan. Economic downturns tend to be brief while short-term equity market fluctuations provide great opportunities for our professional fund managers to grow our investment portfolios.

1 – Globeadvisor.com (May 14, 2009)
2 – Dow Jones Newswire (May 14, 2009)

December 23, 2008

Financial Planning Notes – December 2008

Filed under: Uncategorized — MikeT @ 12:00 am

It has been a tough year for investing to say the least.  With 2008 nearing a close, major markets around the world have dropped 35 – 40+% this year (Source: Globeadvisor.com).  The steep decline in equity markets (publicly traded companies) has been broadly based leaving virtually nowhere to hide in terms of sectors or geographical areas.

Although some in the media may have you believe otherwise, this downturn is no different from any other in the past.  History has proven that the economy recovers after bad times, often led by a revival of equity markets.  Recovery takes time and patience.

It is natural to want to minimize losses in the short-run by moving out of equity investments and into cash.  The problem is timing the market, to get out early enough or back in before the upswing, is extremely difficult.  My belief is that past success in doing this is based mainly on luck.  Further, those choosing to time the market are potentially limiting their long-term return through missed opportunity.

The graph below shows the risk of not participating in the best performance days on the Canadian and U.S. markets from 1998 to 2007.  Moving from left to right, the first set of bars show the returns one would realize in the respective indexes if money was invested and held for 10 years.  The next set shows what would happen to returns if the investor removed money from the respective indexes and missed the 10 best days.  In the case of the Canadian index, the return would fall from an average annual return of 10% to only 5.7%, nearly losing 5%.  The remaining bars illustrate what happens if we remove additional best performance days for each index.

Staying Invested

Staying Invested

The point to take from this is investors can damage their portfolio’s long-term performance by temporarily moving out of equities during tough market conditions.  The best days on the market do not necessarily occur in consecutive strings, making it difficult to identify what opportunity has been missed.  Based on this, I believe keeping money invested in portfolios is the key to maximizing long-term returns.  Further, you may miss some great opportunities if you “wait for the market to recover” when adding new money to your investment portfolios.