With stock markets violently zigging and zagging during the month of August, I thought it would be a good time to check in with our ROBO Portfolio to see how it withstood the market gyrations. Here are some observations:
Performance:
After being up 0.8 per cent year-to-date in July, the portfolio slipped into the red, dropping 2.93 per cent year-to-date. Every asset class in the portfolio was now in a loss position. The real estate and Emerging Markets components were the biggest laggards, posting -14.9 and -12.7 returns year-to-date. Given the meltdowns we saw in global equity markets, this isn’t much of a surprise.
Man sacrifices his health in order to make money. Then he sacrifices his money to recuperate his health. And then he is so anxious about the future that he does not enjoy the present; the result being that he does not live in the present or the future; he lives as if he is never going to die, and then dies having never really lived. – James J. Lachard
You have worked your butt off for many years saving, investing, and doing mostly the right things. You’ve accumulated a substantial retirement account and are ready to retire. You know both your yearly spending average and your daily spending average, and are well within your Safe Withdrawal Rate.
You retire, and life is better than you ever expected. As the years pass your net worth continues to grow, and you are feeling confident and have relaxed into your lifestyle.
Then you get sick.
Health insurance covers most of the expenses, and you move on. Then something more serious happens, and costs are exploding. You need in-home care and services that are not covered by your policy. You are starting to strain your nest egg, and the financial security that you have worked your entire life for is slipping away.
If you’re like many Canadians, your financial life story may go something like this: over the past 20 years you’ve been busy taking care of multiple financial commitments. You may have gotten married, bought your first home and have made some good headway to paying it off, you may have even had a child or two and gone back to school to further develop your career.
Now in your 40s, you’ve achieved quite a bit and are probably starting to seriously think about how you will fund your retirement, children’s education, a bigger house or something else specific to you. Throughout all this, you’ve managed to put away around $100,000.
Congratulations! But, this is most likely not enough for you to be considered a good prospect for most financial advisors. You’re either left to do it yourself [DIY] or your hard earned money is probably going to be put into an expensive option, typically in a mutual fund paying up to 2.5% in fees each and every year.
Though, you may not know just how much you’re paying and may even believe that you don’t pay anything at all because fees are not currently reported on investment statements. What’s more, these fees will likely destroy up to 50% of your potential gains in wealth — yes, small fees have devastating effects over time — leaving you with much more work ahead of you and a harder time reaching your goals. If this is not a slap in the face, I don’t know what is. The good news is that there are new options available for individuals just like you.
Pat McKeough responds to many requests from members of his Inner Circle– a select group of customers who receive subscriptions to all four of his newsletters and are entitled to ask him specific stock and investment questions. Every week, his comments on the most intriguing questions of the 7 days go out to all Inner Circle members. Below is a highlight from these Q&A sessions.
There’s no limit to the types of financial questions Inner Circle members can ask Pat and his team of investment experts. Aside from asking for advice about investing money in specific investments (such as stocks or exchange-traded funds), members ask a wide range of other investment questions as well.
For example, a member recently asked whether there is any advantage to investing money in a prepaid funeral. So you can get a sense of how the service works, I’d like to share this question, and our answer, with you. I hope you enjoy and profit from it.
Reader Question: What’s your view on prepaid funerals? At 57 years old, it seems reasonable to me to lock in funeral costs at today’s prices and pay for it now. This makes even more sense since I can reasonably expect to live another 25 years. Funeral costs for any level of funeral have doubled every 10 years over the past 30 years, according to the brochure. Does this make sense to you?
Pat McKeough: This sounds like a consumer decision, but it’s really an investment decision, as well. When you prepay a funeral, you are investing money in a highly specialized fixed-return investment. You pay now, and get a fixed return (consisting of preselected funeral services) at an indeterminate point in the future — the few days or weeks after your death. Continue Reading…
Canadian seniors have two national income support payments – Old Age Security (OAS) and the Guaranteed Income Supplement (GIS). These are not pension plans as such because they are non-contributory and financed out of general revenues. Employment history is not a factor in determining eligibility. You can receive OAS pension and benefits even if you have never worked, or are still working.
Old Age Security
The current Old Age Security pension came into effect in 1952, with a maximum benefit of $40 a month. It replaced a program of benefits that was income or “means” tested.
Everyone who has been a resident of Canada for at least ten years is eligible to collect OAS starting at age sixty-five. Normally, you qualify for the full amount only if you have been a resident for at least forty years after turning 18. Partial payments are calculated according to each complete year of residence in Canada after age 18.
Starting in April 2023, the age of eligibility will increase from 65 to 67 over a six-year period. Full implementation will be in effect by January 2029. This change will affect people born in 1958 or later.
You can defer your payments for up to 60 months after the date you become eligible. The payments will increase 0.6% per month to a maximum of 36%.
OAS payments are indexed to inflation and are adjusted quarterly. For the third quarter of 2015, the maximum monthly payment is $564.87 per month.
OAS was originally intended to be a universal program, providing an income safety net to all Canadian seniors. In 1989, the Conservative government under Brian Mulroney changed the rules by introducing what it called the “social benefits repayment tax” – now better known as the dreaded “clawback.”
If a person’s net income exceeds a certain level – called a threshold – they must repay some, or all, of their OAS benefits at a rate of fifteen cents for every extra dollar received. For the 2015 income year, the clawback applied to anyone whose net income exceeds $72,809 up to a maximum of $117,954.
Tom’s income is $80,000. He is $7,191 over the threshold, so $1,078.65 (7191 X 0.15) must be repaid.
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