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PERFORMANCE OF CANADIAN VS. INTERNATIONAL MARKETS: 1999-2010

Thu, 9 Jun 2011 08:07:52 -0400

Sources: Fidelity Management & Research Company, BMO Nesbitt Burns, Datastream. Total returns in CDN$. Note: It is not possible to invest directlyin an index. Asset class performance represented by: foreign equity: MSCI EAFE Index; global equities: MSCI World index; emerging markets equity: MSCI Emerging Markets Free Index ; U.S. equity: S&P 500 Index; U.S. Small Cap: Russell 2000 index; Canadian equities: S&P/TSX Composite Index; Canadian small cap: Nesbit Burns Small Cap Weighted PR Index; Canadian bonds: DEX Universe Bond Index. As at December 31, 2010.
© 2011 FMR LLC. 54 579996.1.0

Receive your just Reward

Sun, 8 May 2011 17:13:15 -0400

www.agf.com/straighttalk.com

One of the first questions you may be asked by your financial advisor is ‘what is your risk tolerance?’ This question is important because the returns you receive from your investments can be proportionate to the amount of risk you assume. Generally, you can be rewarded with higher returns for taking on more risk and receive more moderate returns when you take on less risk. How do you determine how much risk is suitable for you? There are two main considerations when it comes to determining your risk tolerance.
Your time horizon, meaning the length of time until you need to sell your investment, is important to determine before making any investment decision. For example, if you plan to buy a house within the next year, your time horizon is very short and investing in a higher-risk portfolio is likely not your best strategy. If the market falls, you have less time to recoup your losses. On the other hand, if you are investing for the longer term (i.e. more than 10 years) you may be able to select investments with higher risk and higher potential reward. A long-term view is important because when you invest in the stock market the value of your investments will fluctuate over time.
Your personal comfort level should also not be overlooked. It is important to think carefully about what risk you are able and willing to bear in order to reach your financial goals. If you have a long-term horizon but become nervous when you see your investments fluctuate, you may be more comfortable taking on less risk. Keep in mind, taking on some risk is crucial if you want to grow your investments and outpace inflation.
Risk and Return Relationship
Various asset classes have different risk/return characteristics. Generally, equities can offer higher levels of return, but also higher levels of risk. Fixed-income securities offer lower levels of risk but, on average, provide lower returns.

The challenge is finding the right balance and creating a portfolio that has the appropriate risk levels and return potential to meet your needs.
Contact your financial advisor for help in determining your risk tolerance and what investments are right for you.
Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. The information contained in this sales tool is designed to provide you with general information related to investment alternatives and strategies and is not intended to be comprehensive investment advice applicable to the circumstances of the individual. We strongly recommend you to consult with a financial advisor prior to making any investment decisions.

Reap the dividends

Sun, 8 May 2011 16:56:29 -0400

www.agf.com/straighttalk.com

Reap the dividends

Many investors still feel understandably hesitant about re-entering the equity markets after experiencing the severe market downturn in 2008, but many are also realizing that if they remain in ultra-safe investments like GICs, they may not reach their long-term financial goals.
If you’re still feeling ambivalent about investing in equities because you think they are too risky, you should talk to your financial advisor about dividend-paying equities. They can offer healthy returns, a steady flow of income and lower risk.

What are dividends?

Dividends are distributions that certain companies pay from their earnings on a regular basis (usually every three months) to shareholders. Typically dividends are paid by mature, profitable companies. Since these companies are no longer growing as rapidly, they give a portion of their earnings directly to the shareholders instead of reinvesting all of it back into their businesses.
Dividends are a signal that the company’s fundamentals are healthy and that management is optimistic about future performance. While dividends aren’t guaranteed, companies take the payments seriously and will typically go to great measures not to cut them, for fear of undermining investor confidence. For example, in the third quarter of 2010 only 35 of more than 7,000 U.S. companies lowered their dividend payments and more than 299 companies increased them, according to statistics from Standard & Poor’s.

The cheque is in the mail

Receiving a regular dividend cheque from a company helps many investors sleep easier. They are receiving an income stream that they can either spend or reinvest to further boost their savings.
Also, unlike interest income from bonds, which is fully taxed at the individual’s highest marginal rate, dividends from taxable Canadian corporations qualify for the dividend tax credit, which can reduce the amount of tax you pay1.

Greater returns and lower risk

The total returns of dividend-paying stocks – since they include both the stock price and the dividend – can grow significantly over time. From December 1956 to December 2009, the S&P/TSX Composite Total Return Index (a pool  of stocks that represents the Canadian stock market) returned 8.9% and more than a third (3.3%) of that return was from dividends.2 Markets around the world have behaved in a similar way. The excess return from re-investing dividends over the past 20 years (in local currency) has been substantial, ranging from 19% in Denmark to over 65% in Belgium.3
While the price of stocks can be impacted by market events, the dividend stream’s performance is generally more consistent. The Index’s standard deviation, which measures how much a stock price fluctuates, was 17.1% over the period, compared to only 2.1% for the dividend stream, which indicates its performance was much steadier.

Narrowing in on growing dividends

You can amplify the advantages of dividend-paying stocks by narrowing in on companies that have been growing, rather than just paying, their dividends over time, as the chart below shows.
If in 1986 you invested $10,000 in companies that simply paid dividends, by March 2010 you would have $97,676, which is a greater return than if you’d invested in companies that cut their dividends or didn’t pay dividends at all. But if you invested in companies that grew their dividends over that period you would have a considerably greater return of $142,341.

Dividend growth can lead to better long-term returns

Source: RBC Capital Markets Quantitative Research

1 Source: Canada Revenue Agency
2 Source: RBC Capital Markets Quantitative Research. For illustrative purposes only. You cannot invest directly in an index.
3 Source: Bloomberg, as of July 31, 2010

Talk to your financial advisor to learn more about how dividend-paying stocks can help you reach your long-term financial goals with less risk.

Nine ways to improve your personal finances in 2011

Sun, 24 Apr 2011 20:01:27 -0400

Source; Mackenzie Insight, posted January 2011
www.mackenziefinancial.com

Family Finance
January is a good time for getting organized and making changes. But, when it comes to personal finances, it’s hard to know where to start. Here is a list of nine things you can do to improve your personal financial situation in 2011.
1. It's difficult to arrive at a destination if you don't have a map. It's same with your personal finances. You need to sit down with a financial advisor and decide, based on a number of factors, including your age and income, just what your financial goals are and how to get there.
2. Once you have established your financial goals, you need to create a budget, so that you can set aside money. Your advisor can review your monthly income and expenses to help you identify areas for saving. To help with your budgeting click here.
3. If you haven’t already done so, open an RRSP or Tax-Free Savings Account. And just as you would with your bills, pay yourself first by putting money into your RRSP or TFSA every month.
4. Start a pre-authorized chequing plan (PAC). This simple investment strategy lets you set aside money on a regular basis to purchase mutual funds. Amounts as small as $50 per month, can be deducted from your personal bank account and invested in your RRSP or TFSA.
5. Once your plan is in place, review it at least once a year with your financial advisor. This helps ensure that your plan continues to reflect your current situation.
6. Buying a house is probably the biggest single investment you’ll ever make, and the biggest expense. Did you know that over the life of a $200,000 mortgage at 6% interest (assume a 30-year amortization and a monthly payment of $1,200), you would pay $230,000 in interest? But, by making a few extra mortgage payments every year, you’ll be able to save thousands of dollars.
7. Check your insurance. When was the last time you looked at your home, auto and life insurance? Are you covered adequately and have you shopped around to make sure you’re not overpaying?
8. Do you have a will? Review and update your estate plan annually to make sure it reflects your age and family circumstances, and protects your family from unnecessary taxes.
9. Pay off your credit cards. We hear about “record-low” interest rates all the time, but credit cards are not part of this trend. Did you know that the highest-interest store credit card as of January 2011was charging 29.90% in annual interest? Bank and trust company credit cards were charging from 9.99% to 19.99% interest. Consider all the better uses you have for that money

Mutual funds sponsored by Mackenzie Financial Corporation are only qualified for sale in the provinces and territories of Canada.
Commissions, trailing commissions, management fees and expenses may all be associated with mutual fund investments. Please read the prospectus carefully before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

Mackenzie Saxon Dividend Income Fund A conservative solution to retirement income

Sun, 24 Apr 2011 19:07:45 -0400

Source; Mackenzie Insight, posted April 2011
www.mackenziefinancial.com

Mackenzie Saxon Dividend Income Fund Canada is about to enter a retirement boom. Currently 41.5% of the population consists of people born between 1909 and 1946 or Baby Boomers (1947 to 1966). And with the average retirement age at 62, it suggests that almost half of our population is either retired has it in their sights.
As a result, many investors are looking for products that will provide a high level of income in retirement. Hovig Moushian, Vice-President and Portfolio Manager with the Mackenzie Saxon Team, says Mackenzie Saxon Dividend Income Fund can help. He begins by estimating the income yield of the fund for the year, and offers a conservative monthly distribution per unit that will remain fixed for that period.
“The key behind the distribution level is that we don’t want to pay out more than we generate in income, as that would result in erosion of the capital of the fund,” says Moushian. “So we determine the gross yield being generated and then adjust for a conservatism factor and fees to come up with the monthly distribution paid to unitholders.”
As it is with other mutual funds, any excess net income over the fixed distribution is distributed to investors in the final month of the year. While that monthly distribution is important to most of the fund’s investors, it is only part of the investor’s potential return. “While income is our primary focus, we also look to achieve capital appreciation from our investments, so our total return ends up being a combination of income and capital appreciation,” says Moushian.
That combination of income and capital appreciation added up to 22.9% last year. And since its inception in 1997 the Fund has earned a compound annual return of 10.7%*.
Income trusts: Yesterday, today and tomorrow
Over the years, income trusts have been an important source of income for Saxon Dividend Income Fund. Before October 31, 2006, when the federal government announced the taxation of income trusts, about 72% of the fund was invested in income trusts. Today that number has fallen to 14%. However, this doesn’t mean that the income from these companies has disappeared. “It is important to note that we still hold many of the income trusts we held several years ago, just in their corporate form,” says Moushian.
As income trusts have converted to corporations, the changes to distributions have been wide ranging, from complete distribution eliminations to distribution increases.
“Generally I would say that companies have, on average, reduced distributions by the amount of corporate taxes that are to be paid,” says Moushian. “However, an important point that should not be overlooked is the after-tax impact on taxable investors. Even though dividends being paid today are generally lower than previous distributions, dividends have a much more favourable tax treatment. This means that, generally speaking, the change in after-tax income for taxable investors will be negligible.”
*Investor Series, to March 31, 2011. Please see fund page for current performance of Series A
Mutual funds sponsored by Mackenzie Financial Corporation are only qualified for sale in the provinces and territories of Canada.
Commissions, trailing commissions, management fees and expenses may all be associated with mutual fund investments. Please read the prospectus carefully before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

Please be careful with T-SWP’s A Cautionary Tale to Check Your ACB

Mon, 22 Feb 2010 19:44:46 -0500

Please be careful with T-SWP’s A Cautionary Tale to Check Your ACB

Has your advisor been suggesting that your next mutual fund be a T-SWP series? If so you better continue to read below before you say yes.

A recent rage in mutual fund promotion has been T-SWP’s. A SWP stands for Systematic Withdrawal Program. What this means is that those enrolled in a SWP will withdraw a certain percentage of their mutual fund value each year. The value generally ranges from 4% on up. The purpose of a SWP is to provide a cash flow to the holder of the mutual fund. For example, if you had $100,000 invested in SWP mutual funds that provided a 4% distribution out to you, you would receive $4,000. This $4,000 could be broken down over monthly installments, quarterly installments or a single payment.

Generally, SWP’s will give a portion of the gain to the client and in certain circumstances a portion of a return of capital. (In simplest terms, a return of capital is a return of your own money invested in the mutual fund). You will receive a T3 or T5 at the end of the year that will tell you how much of what you received from your SWP is taxable.

A T-SWP stands for Tax efficient Systematic Withdrawal Program. What this means to the client is that most, if not all, of the distributions that they receive from the systematic withdrawal program are a return of capital. In other words, the mutual company is giving back your own capital and letting any gain from the growth of the mutual fund accumulate within the mutual fund. Because a client is receiving a return of capital, which is their own money, they can not be taxed on it. Therefore, the SWP becomes tax efficient. A T-SWP is great for people that are looking for income that produces little or no immediate tax consequences.

One thing that everyone must come to term with in Canada is that the tax man will always get his share in the end. You can delay and or put off the tax man, but eventually he gets paid. The same is true for T-SWP’s. Please don’t think that you are winning a game against the tax man when you are using a T-SWP. What you are really doing is delaying the inevitable. Here is the reason why.

When you participate in a mutual fund series that is a T-SWP, as we discussed above, you are getting a return of capital (your distributions are returning your own money). This means that you aren’t paying taxes on your own money being returned to you. However, because you are getting your own money back you are reducing the amount of money that you have invested in the mutual fund. Below is an example:

Let’s say that you invested $100,000 in year one and for argument sake your T-SWP has been really tax efficient and has only returned your money to you at 4% through a distribution at the end of each year. Now this scenario wouldn’t be complete unless we had a gain or loss involved. For simplicity sake, let’s say that your gain has been 5% every year.

Here is how this looks in numbers:

Your original book value was $100,000; which bought you 10,000 units at $10/unit. At the end of each year you have received your tax efficient systematic withdrawal program of 4%. Because your mutual fund has grown throughout the year by 5% that 4% T-SWP will increase each year. But because you are taking a 4% distribution in the form of a T-SWP your mutual fund is growing, but not by 5%. Your visible gain in the first year is only $800 and not the $5,000 most would assume.

What really is happening is that since you are receiving a return of capital through a T-SWP that yearly T-SWP 4% is being taken off your original invested capital of $100,000. That is why the Adjusted Cost Base (ACB – see below for a simple term) is shrinking in value. While at the same time your visible investment is slowly growing. I call this your visible investment because in most cases your mutual fund company will only report this number to you in the form of Market Value. On first glance your investment is growing by the difference between a gain of 5% less a T-SWP of 4%. However, in reality your investment is growing by 5%. But since you are taking 4% away in the form of a T-SWP it is visibly only growing by a fraction of the 5%.

If your mutual fund was growing at 3% you would actual show a visible loss. This fact has heavily impacted End of Year Market Values for many investors who have taken any form of SWP during years when their mutual funds have performed at a percentage below the SWP. In 2008 a vast majority of mutual funds reported negative returns and this was compounded by SWP’s. For example, if you had a SWP of 8% and your mutual fund reported a loss of 10% in fact the visible impact on your mutual fund was -8%-10% or -18%. In actual fact the SWP of 8% for that year was actually a return of capital and therefore your Adjusted Cost Base will be reduced. This is a fact in any case where the SWP amount is greater than the performance of the mutual fund. This is a danger all people who take SWP’s must face. The simplest way I can explain this is that the amount you take in a SWP, whether it be 4% or 12%, it becomes your new bench mark for your mutual fund’s performance. If your mutual fund does not perform at the amount that you are taking from it the difference will be a return of capital. For example, using the 3% gain mentioned above and a SWP 4% there is a visible loss. As the distributions from the SWP’s must be paid out the difference between the gain and SWP will be paid out as a return of capital. If you are using a SWP the chances are you will get a t-slip that reports a portion of the gains even though you see a visible loss.

But since you are taking a T-SWP chances are you won’t be reporting that gain, but you will be subject to the effect of a gain less than the SWP being taken. As well, since you won’t be reporting the gain because you will be receiving a return of capital your Adjust Cost Base will drop by the amount of capital you are getting back. In the scenario above it is 4%. This makes sense because if the money you are getting back is your own money that you originally invested than it makes sense for the amount of your original capital being reported should go down as well.

There doesn’t seem anything wrong with this until you decide to sell your mutual fund. When you decide to sell your mutual fund you are taxed on the difference between the market value of your mutual fund at time of sale and what you invested in the mutual fund (ACB). In year ten of the scenario above that is $108,294 (market value) less $60,967.55 (ACB) = $47,326.45 taxable gain. It is not the $8,294 which appears to be your visible gain.

As I mentioned above, in Canada you can’t avoid the tax man. You can delay or put off the tax man for a period of time, but inevitably taxes need to be paid. Therefore, when you go to sell your mutual fund that you have been receiving T-SWP’s from you are going to have a taxable gain of $47,326.45 and not $8,294. This can be a shocker for some people who have not been explained this fact by their advisor. In some cases it could have quite a dramatic affect on future plans.

When dealing with T-SWP’s please make sure that you are well aware of the fact that if your mutual fund reports an overall gain between the time you bought it and the time that you sell it, you will be paying tax on those gains; which might not be anywhere close to the visible gains that you see being reported as your Market Value.

Adjusted Cost Base (ACB) – In simplest terms is the amount it cost to buy an asset. This can include any additional cost to acquire the asset such as fees, commissions.