Monthly Archives: November 2015

Open Letter to Finance Minister Bill Morneau on why middle class and seniors need larger TFSA limits

The following is an Open Letter addressed to the new Finance Minister, Bill Morneau. It is republished here with the permission of the writer, Gordon P. Johnson (coordinates below). It addresses a topic we’ve been looking at in depth ever since the election: the Liberal promise to cut the annual TFSA contribution almost in half, from $10,000 to $5,500. He points out that preserving the TFSA limit at the higher amount will benefit the very people the Liberal party has said it wishes to help: the middle class and seniors. Because this is an open letter, we have not edited the letter nor attempted to add subheadings to break up the text. 

Dear Mr. Morneau,

Finance Minister Bill Morneau (Liberal Party of Canada)

First of all I wish to congratulate you on your recent Cabinet post.

Mr. Trudeau stated that should he form the next government of Canada he would reduce the recently increased TFSA limit from $10,000 to the previous level of $5,500.

His reasoning is that the $10,000 limit only benefits the wealthy and not the average middle class taxpayer. I contest that this declaration is a political move and not at all in the best interests of the average middle class person.

He spoke of reducing taxes both for the middle class and the senior population.

Let’s look at the TFSA account and how it potentially benefits the very people he claimed that he wished to help (middle class and seniors). Not only does it benefit through compounding tax free gains (both short term as well as long term) but it reduces the tax burden at retirement when needed the most.

Let’s assume that your average middle age, middle class taxpayer is earning $50,000 and struggling to save for retirement. He certainly isn’t contributing his maximum to a TFSA – most likely he isn’t contributing anything to his TFSA.

His/her parents, possibly seniors on a fixed income, have accumulated some savings and have a clear title home. Their savings are invested and the income is taxable. If the savings were placed into a TFSA that income would be tax free—a significant benefit to seniors trying to maximize their cash flow.

However, the real benefit to the middle age, middle class wage earner is the carry forward of unused TFSA contributions. Let’s say that upon his or her parents passing they inherit $250,000. These funds are after tax and there is no benefit to placing them in an RRSP. Continue Reading…

Fed may soon get “off zero” but prepare for years more of low interest rates

Will she or won’t she get off zero? Official Federal Reserve portrait of Janet Yellen.

Here’s my take on interest rates, published earlier today in my Financial Post blog. It’s titled How to deal with rising interest rates: Keep expectations low and prepare for a fall.

The blog makes reference to a road show I’ve been on called An Investor’s Guide to Thriving: How to navigate in a High-debt, Low-growth Bubble-prone World. (Link in red is to the Toronto event this Sunday, which is the final stop on the tour).

But it doesn’t look like this so-called “Financial Repression” is going to let up any time soon.

Organized by ETF Capital Management Inc., most of the speakers on the “Thriving” tour warned the audience (many of them near-retirees) to be prepared for 10 or even 20 years more of minuscule interest rates.

Near-zero interest rates are especially tough on savers and those in the Retirement Risk Zone. Either you settle on no real rate of return at all relative to inflation, or you find yourself taking more risk (i.e. through stocks) than you would prefer.

That’s the dilemma of being in the Retirement Risk Zone and it reflects the dilemma of central banks around the world. Like savers, they too are between a rock and a hard place.

FWB TV video: Survivorship bias weakens case for active management even more

Robin-Survivor-biasThe latest Evidence-Based Investor Video is now live at FWB as well as Findependence.TV.

Titled Lies, Damned Lies and Statistics, the short (3.5 minutes) segment recaps the phenomenon called “Survivorship Bias.”

The title of the segment is of course a famous phrase coined by Mark Twain, and is used to describe the persuasive power of numbers, particularly the use of statistics to bolster weak arguments.

When we look at the statistics of what percentage of actively managed funds underperform, they are even more dire when survivorship bias is taken into account — in other words, the industry often “shoots the wounded,” closing down poorly performing actively managed funds. This has the effect of removing them from overall performance statistics, leaving only the “survivors” or better-performing surviving funds, which naturally have better track records. 

craiglazzaraThe segment features Craig Lazzara, Global Head of Index Investment Strategy for S&P Dow Jones Indices (pictured, right). Lazzara  notes that the semi-annual “SPIVA” report cards in Europe show that 89% of actively managed global equity funds and 91% of US equity funds failed to beat the indexes over the last five years. And the 10-year performance numbers “are even worse.”

How widespread is survivorship bias? Well, among British small- and mid-cap funds, more than half were closed or merged over a ten-year period.

Jack Mintz on Pension Reform: What is the Problem? What is the Solution?

This blog is based on a talk prepared for the influential industry investment lobby, the Portfolio Management Association of Canada. It was delivered by Jack Mintz at the Fairmont Royal York, Tuesday, November 24, 2015, and  reproduced with permission of the organizers.

Jack Mintz speaking today at PMAC


By Jack M. Mintz, President’s Fellow

School of Public Policy, University of Calgary

Special to the Financial Independence Hub

These days many governments, including the newly elected federal Liberal party, espouse the need for public policy to be evidence-based. I am sure everyone in this room would agree that evidence-based policy is far better than policy dependent on conjecture and the whims of a politician.

When it comes to pension reform, many politicians pushing for a much bigger public pension plan in Canada have based their policy prescriptions on an argument that Canadians do not save enough for retirement. The issue has been charged for almost a decade with some suggesting that Canada faces a pension crisis.

Four in five have adequate retirement income

In 2009, I was asked by the federal-provincial-territorial ministers of finance to be a research director of a project to determine whether there was evidence as to whether Canadians did not have adequate income for retirement.   The overwhelming conclusion based on expert studies was that most Canadians – almost four-fifths – had adequate retirement income although a pocket of Canadians with modest incomes should be of concern.

The evidence developed at that time had a remarkable impact on the pension income debate. The words pension crisis disappeared and many experts understood that Canadians had many types of investment to ensure sufficient retirement wealth. This not only included CPP, QPP, registered pension plans, tax-free saving accounts and RRSPs but also home equity, which on an after-tax basis was more valuable than all other tax-favoured retirement accounts.   With other financial and business assets, it was clear that most Canadians were doing just fine without expanding the Canada Pension Plan. Even our new Minister of Finance, Bill Morneau, concluded in a 2013 book with Fred Vettesse that the pension crisis was overblown although some issues needed to be addressed.

Low interest rates making investors nervous again

Continue Reading…

Health is a higher priority than Wealth

Sandy Cardy - photography 3
Sandy Cardy

By Sandy Cardy

Special to the Financial Independence Hub

I’ve been advising clients the same thing for many years:  “Wealth is built with returns over time.”

It’s sound, life-long, investment strategies that have the greatest impact on the financial health of your retirement.

All the while I was giving this advice, I’d thought of investing as being all about money,  so my coaching involved objectives such as:

  • Minimizing income tax
  • Investing for children’s education
  • Investment planning and asset allocation
  • Tax-efficient earnings
  • Navigating government retirement and savings plans
  • Income splitting
  • Retirement needs analysis

Health should come before Wealth

All of these being quite essential to providing safeguards for when there won’t be any more paychecks. But all this while I had been focusing too narrowly! Sound investing is not just about money. It’s about more than that, and it begins with something else entirely: Health comes before wealth – or should.

Continue Reading…