All posts by Jonathan Chevreau

Franklin Templeton mid-year outlook: Caution lights on Recession

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Jeffrey Schulze

The 12 variables used to forecast Recessions are currently “signalling caution,” says Jeffrey Schulze, CFA.

Speaking Wednesday in Toronto at Franklin Templeton’s mid-year outlook, Schulze — Managing Director, Head of Economic and Market Strategy for Clearbridge Investments — told financial advisors and media that as of May 2024,  the 12 variables he tracks have “historically foreshadowed a looming recession … the overall dashboard [shown below] is currently signalling caution.”

 

Three indicators — Job Sentiment, Money Supply and Yield Curve — have been flashing red since the end of 2023 and continue to be, as you can see in the above chart taken from a presentation made available to attendees. The only green light is Credit Spreads, while the other eight — which include Housing Permits, Jobless Claims and Profit Margins — are all a cautionary yellow.

However, stock valuations do not appear to be too stretched at present. The composition of major stock indexes, such as the S&P500, support higher P/E ratios, Schulze said. “Less-volatile defensive and growthier sectors are typically rewarded with higher multiples. These groups make up a near-record share of the S&P 500 today.” As you can see in the chart below and in the higher purple line of the graph, these Defensive stocks include Tech, Consumer Staples, Utilities, and Health Care.

However, Schulze did note a “troubling” record-high concentration of the largest S&P500 names by market weight. As you can see in the chart below, the five largest-cap components now account for more than a quarter (25.3%) of the index, which is “the highest levels in recent history … While this dynamic can persist, history suggests that a reversion to the mean will eventually occur with the average stock outperforming in the coming years.”

 

In fact, the combined weight of the so-called Magnificent 7 tech stocks now exceeds the combined market weight of the stock markets of Japan, the U.K., Canada, France, and China!

 

However, “after behaving fairly monolithically in 2023, the performance of the Mag 7 members have diverged substantially so far in 2024,” Schulze said. A slide of the “Divergent 7”  showed Tesla down 28.3% and Apple flat, while the others were higher, led by the 121.4% surge in the price of Nvidia this year.

A key driver of the Mag 7 outperformance has been superior earnings growth, Schulze said, but “this advantage is expected to dissipate in the coming year,  which could be the catalyst for a sustained leadership rotation.”

Companies that grow their dividends are overdue to start outperforming. “Over the past year, dividend growers have trailed the broader market to a degree rarely seen over the past three decades … Past instances of similar underperformance have been followed with a strong bounce-back for dividend growers.”

A positive for markets is the “copious” amount of cash sitting on the sidelines and being readied to deploy on buying stocks. After the October 2022 lows, investors flocked into money market funds with a net increase of US$1.5 trillion, or 32%, Schulze said:  “Should the Fed embark upon its widely anticipated cutting cycle later this year, investors may reallocate. This represents a potential source of upside for equities.” Continue Reading…

MoneySense Feature on Rising Fraud: How Seniors and everyone else can minimize odds of being scammed

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Deposit Photos

MoneySense.ca has just published a feature article by me that looks at the rising tide of frauds directed at Canada’s seniors, and everyone else.

You can find the full piece by clicking on the highlighted headline here: Canadian Seniors, watch out for these scams.

This Saturday (June 15th) is World Elder Abuse Awareness Day.

Note that while the full 2500-word article at MoneySense is aimed at Seniors, it is not technically my  monthly Retired Money column, which is typically shorter.  And this short summary here at Findependence Hub is only a third as long: hopefully enough to entice readers to hop over to MoneySense for the full article.

So below, I offer only a small fraction of the full column and some of the major links. This is an important topic both for seniors and those who hope to be financially independent seniors one day, so do take the time to click on and read the full article at MoneySense.ca, linked above.

It was a bit of an eye opener researching and writing  this piece but it appears to be the unfortunate reality of the technological world we all now inhabit.  It’s overwhelming and the situation is unlikely to improve any time soon.

In the past MoneySense has covered such topics as getting scammed through e-transfers, phishing, crypto schemes, identity theft and more. There’s financial fraud in general that targets bank accounts, credit cards and potentially every other aspect of your financial life. My feature attempts an overview of most of them from a Canadian perspective, with a few new scams I hadn’t known about before researching this article. (Example: “smishing,” which is sort of phishing in the form of text messages on smartphones.)

A.I. is exacerbating the spread of Frauds on all platforms

As I note at the top of the full column, it’s a sad fact that the rise of Artificial Intelligence (A.I.) has exacerbated this problem. While anyone can be prey for technology-linked schemes to separate you from your money, seniors need to pay particular attention, seeing as they tend to have more money to lose and less time to recoup it.

According to Equifax, Fraud is the top crime perpetrated against older Canadians. Sadly, many seniors fail to report these crimes to the police because they feel shame or embarrassment about being duped by scamsters.

Identity Theft

 Identity theft is particularly worrisome for seniors, if not the rest of us. As Equifax puts it, “a scammer may try to get information such as a bank card or personal identity number, credit card number, health card number, or a driver’s license or Social Insurance number. They can then apply for credit cards, take out loans or withdraw funds in the person’s name.”

5 cyber scams targeting seniors

Elder Abuse Prevention Ontario (EAPO) lists 5 cyber scams that target seniors. These include Romance scams targeting the recently bereaved. Here are 5 red flags to watch for if you’re looking for love online. Continue Reading…

Retired Money: The LIRA-to-LIF deadline and more on the RRSP-to-RRIF deadline

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My latest MoneySense Retired Money column is the second part of an in-depth-look at the deadline those with RRSPs don’t want to miss once they turn 71. Part 1 appeared in March and can be found here.

The full new column can be found by clicking on the highlighted headline here: RRSP to RRIF, and LIRA to LIF: How it all gets done.

For convenience, here are some highlights:

The first column looked at the necessity of winding up RRSPs by the end of the year you  turn 71: a topic that becomes increasingly compelling as the deadline approaches. This followup column looks at two related topics: the similar deadline of LIRA-to-LIF conversions and the alternative of full or partial annuitization.

LIRAs are Locked-in Retirement Accounts and analogous to RRSPs, albeit with different rules. They usually originate from some employer pension to which you once contributed in a former job. To protect you from yourself you can’t extract funds in your younger years unless you qualify for a few needs-based exceptions. LIFs are Life Income Funds, in effect the annuities LIRAs are obliged to become, also at the end of your 71st year.

The full MoneySense column looks at our personal experience in converting my wife’s LIRA to a LIF, aided by Rona Birenbaum, founder of Caring for Clients. Note that the timing of the conversion is NOT affected by having a younger spouse: that only affects the annual minimum withdrawal calculus.

In my case, having turned 71 early this April, I have until the end of this year (2024) to convert my RRSP to a RRIF. The first required minimum withdrawal must occur in 2025: by the end of 2025 I must have withdrawn the annual minimum.

You can choose RRIF payment frequencies: usually monthly, quarterly, semi annually or once a year: you just have to specify which date. I imagine we’ll go monthly.

Currently, our retirement accounts are held at the discount brokerage unit of a Canadian bank, although we use a second discount broker for some non-registered holdings. While the LIRA will be the basis of an annuity provided by an insurer selected by Caring for Clients, most of our RRSPs will likely become RRIFs, probably by November of this year.  Our hope is that we will keep largely the same investments as are being held now and administer them ourselves, with an eye to maintaining enough cash to meet our monthly withdrawal targets.

Self-directed RRIFs

The new vehicle will bear a familiar name for those with self-directed RRSPs: it’s a Self-directed RRIF. At our bank, it was a simple matter of entering the RRSP and finding the link to convert it to a self-directed RRIF. Once there, you tick boxes on when you want the money, withdrawal frequency and (optionally) choose a tax withholding rate. You can also specify that your withdrawals will be based on your spouse’s age, assuming they are younger.

You can of course also go through a similar process with any financial institution’s full-service brokerage or investment advisor, ideally with at least one face-to-face meeting.  One thing Birenbaum says retirees often miss is specifying tax withholding, since there is no minimum withholding tax period required on the minimum withdrawal. I imagine we will ask to have 30% tax taken out at the time of each withdrawal: which is what we do with existing pension income. It’s on the high side to make up for the fact we also have taxable investment income (mostly dividends) that is NOT taxed at source.

             “I find the majority of retirees like having that withholding tax held at source so they don’t have to deal with installments and owing the CRA.” You can of course have more than 30% withheld.

            With a LIRA, you need to get the account liquid before the money is sent to the insurance company to annuitize. This means keeping tabs on the maturity dates of GICs or other fixed income.

            The paperwork is minimal: we provided a recent LIRA statement, then had an online meeting with one of Birenbaum’s insurance-licensed advisors to go through the application, then sign a transfer form to move the cash to the insurance company for a deferred annuity. The transfer takes a few weeks, with the actual annuity rate determined when the insurance company actually receives the money: registered transfers are recalculated at the point of purchase. There is a form T2033, which is an RRSP-to-RRIF transfer form that moves the money from the bank to the insurance company.

Having a mix of RRIF and annuities

Semi-retired actuary and author Fred Vettese says he has endorsed retirees buying a life annuity ever since the first edition of his book “Retirement Income for Life” back in 2018. “If you buy one, it should be a joint-and-survivor type, meaning it pays out a benefit to the survivor for life.” Continue Reading…

NIA on Canada’s 3-pillar Model of Retirement Income

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The National Institute of Ageing is today releasing the next instalment [“the final Step 1”] of its series of papers on the Canada Pension Plan (CPP/QPP) and the Canadian retirement income system. The link invites readers to click on a download button for a full PDF of the report.

Recall that Findependence Hub’s introductory blog on this was published on April 11th here, and subsequently in my Retired Money column at MoneySense.ca on April 23: How to double your CPP Income. It also summarized in this second Hub blog on April 24th.

Below is a screenshot from the new paper: my comments follow below the graphic, which the NIA defines as a “redefined visual of the Canadian retirement income system.”

 

Recall that the entire series of papers is titled 7 Steps Toward Better CPP/QPP Claiming Decisions: Shifting the paradigm on how we help Canadians.  Step #1 is titled (Re)Introducing the Retirement Income System: A New Framework Tailored to the Retiree’s Perspective.

The accompanying text includes this overview:

“Canada’s retirement income system has traditionally been presented to the public as three pillars, consisting of government-sponsored retirement income programs (CPP/ QPP, OAS and GIS), workplace pension plans and personal savings. However, this traditional framing is a missed opportunity to help workers mentally transition into retirement, encouraging them to shift their attention toward the adequacy of their financial resources to successfully and sustainably finance their entire retirement.”

The paper goes on to point out that here is some irony involved in how the traditional “three pillar” framework of the retirement income system is presented: it does so from the perspective of providers (i.e., government, employers and the financial services industry), rather than those it is intended to inform.

“When viewed from the end user’s perspective, pensions are not a financial pillar of the retirement income system. They are the income foundation on which other financial resources rest.”

By viewing pensions as “a foundation rather than a pillar,” the NIA continues,  “the resulting framework provides a structure that is more focused on spending, with an ‘income’ foundation that securely and sustainably replaces employment income. Private assets accumulated on an individual or collective basis — including tax-deferred savings such as registered retirement savings plans (RRSPs), registered retirement income funds (RRIFs), and defined contribution (DC) pension plans — are ‘spending buckets’ on top of this foundation, providing flexibility to support non-routine spending throughout different retirement stages.” Continue Reading…

Inflation is getting to retirees and some pre-retirees, Fidelity survey finds

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2024 Fidelity Retirement Report (CNW Group/Fidelity Investments Canada ULC)

More than four in five (82%) Canadian retirees say inflation is having a negative financial impact on them in retirement, according to a just-released report from Fidelity Investments Canada ULC.

The 2024 Fidelity Retirement Report also found that 43% of pre-retirees say the rising cost of living is delaying when they think they will retire. In addition, 59% of retirees report helping their non-student adult children in retirement: both with day-to-day expenses as well as big-ticket items like home purchases, weddings and even education savings for their grandchildren.

“It comes as no surprise that retirees are feeling the bite of inflation. Other macroeconomic issues such as a slowing economy, rising rates and volatile markets are also common factors that have negatively affected retirees financially,” says the report, “Pre-retirees are also feeling the pinch. We find that compared with last year, a larger share of pre-retirees are considering delaying their retirement in response to the rising cost of living.”

As you can see from the graphic below, the percentage of pre-retirees who plan to retire later than originally expected rose from 37% in the 2023 survey to 47% in the new 2024 edition.

While less than a third of those already in retirement have worked in some capacity once they have left full-time work, most pre-retirees anticipate that they will work at least part-time once they’re retired, according to the report.

While Fidelity cites rising inflation as one reason for this trend, it also says “most pre-retirees would like extra money for recreational purposes.” Further, the report says, “We also find that there isn’t a clear relationship between those working in retirement and their level of household income, suggesting that in general, many Canadians may be working or anticipating working to maintain a higher material standard of living, rather than just to keep up with the rising cost of essentials.”

 

Continue Reading…