Hub Blogs

Hub Blogs contains fresh contributions written by Financial Independence Hub staff or contributors that have not appeared elsewhere first, or have been modified or customized for the Hub by the original blogger. In contrast, Top Blogs shows links to the best external financial blogs around the world.

Get more out of giving: The benefits of a philanthropic strategy

Posted By Financial Independence Hub | December 27, 2022

By Christine Van Cauwenberghe

Special to Financial Independence Hub

December ignites the spirit of giving and most affluent Canadians are continuing to spread the wealth, despite the current economic climate.

A survey conducted by Pollara Strategic Insights on behalf of IG Private Wealth Management found that 96 per cent of high-net-worth Canadians (those with at least $1 million in investible assets) give to charities, with more than half (57 per cent) stating that the volatile economy will not impact their philanthropic priorities. However, only 26 per cent have a charitable giving strategy.

There’s good reason to give, particularly at year’s end, as many can pair supporting the causes they care about with financial incentives. However, with increased capital comes complexity – it’s important that wealthy Canadians speak with a financial advisor to understand when, and how, to give to maximize the benefits for themselves and the causes they champion.

A carefully constructed giving strategy can enhance tax efficiency and optimize the impact of donations. Below are three key considerations to keep in mind when making a charitable donation:

Tax benefits

Prior to making a gift, it’s helpful to understand the tax benefits associated with your donation. An organization can issue a tax receipt following a donation if it meets the criteria under the Income Tax Act.
A charitable donation claimed personally on your tax return generates non-refundable donation tax credits. The value of these credits reduces the taxes you owe.
When claiming donation tax credits on your tax return, the credit rate you receive and amount of tax savings for each dollar donated will depend on your specific circumstances. The value of the donation tax credit is determined by the amount of donations you wish to claim, your taxable income level, and your province or territory of residence.
If this is a high-income year, it may be beneficial to increase donations in the year to take advantage of the potentially higher donation tax credit rates available to you.

Deciding what to give

Your donation decision should align with your overall financial plan – when deciding on the amount to give, consider your short- and longer-term goals, retirement and estate plan. Continue Reading…

Merry Christmas!

Posted By Jonathan Chevreau | December 25, 2022

5 key themes that will shape the Canadian and global economy in 2023

Posted By Jonathan Chevreau | December 23, 2022

Vanguard has released its 2023 forecast. You can access it by clicking on this link to a PDF.

We first looked at this in this Hub blog on December 12: Vanguard says Balanced portfolios still offer best chance of success as Inflation gets beaten back.

In this follow-up blog, we’re looking in more depth on the Canadian portion of the report, which begins on page 23. We have reproduced some of the text and charts from that section in the second half of this blog.

“Generally, we are calling for a global recession next year, including a milder recession for Canada with economic growth pegged at 0.7% (for Canada),” says Matthew Gierasimczuk, spokesperson for Vanguard Investments Canada Inc.

Vanguard expects five key themes will shape the Canadian and global economic environment as we move into 2023:

Central banks’ vigilance in the fight against inflation
Spillover effects of global economy, energy, and real estate markets on the Canadian economy
Economic effects of the energy crisis in Europe
China’s long-term structural challenges as it aims to end its zero-COVID policy
Last, but not least, a more positive outlook for long-term investors across bonds and equities

Fighting inflation: Central banks maintain vigilance

Vanguard says 2022 has proven to be “one of the most rapidly evolving economic and financial market environments in history. Across the globe, central banks have responded with coordinated monetary policy changes that have outpaced anything we’ve seen for several decades.”

A globally coordinated monetary tightening regime

“This is the greatest inflation threat we’ve seen since the 1980s,” it continues, “Central banks have a difficult path ahead that will require being more aggressive with policy, making additional rate hikes, and maintaining vigilance as the inflation situation shifts.In the U.S., the Federal Reserve has adopted the position that there is still work to be done, and it appears to have the resolve to stick with it.”

For the balance of this blog, we’ll drill down on the report’s prognosis for Canada, which starts on page 23 of the forecast. We’ve selected large chunks of text, which is as it appears in the report, with minor excisions such as references to some charts not reproduced here. Therefore, we are not using quotation marks. An ellipsis (3 dots as here: …) is used to indicate sections excised between passages. With one or two exceptions, most subheadings are from Vanguard. Readers who want the full report should of course click on the PDF link above.

Canada: Reining in an overheating economy

The year 2022 has seen persistent global inflation followed by rising policy rates as central banks across the world played catch-up. Over the course of 2022, inflation in Canada continued to tread higher driven by a combination of rising demand, tightening labor markets, and volatile energy and food prices as a result of ongoing supply constraints and geopolitical events. Heading into 2023, there are growing signs that inflation will moderate due to recovery in global commodity supply and slowing economic growth driven by tightening monetary policy.

In 2022 we discussed how policy tightening will be a crucial risk behind a lower growth environment among other factors such as high inflation, further supply disruptions, and new virus variants. Looking back most of these risks occurred throughout the course of 2022. The unexpected Russian invasion of Ukraine added to supply disruptions and pushed headline CPI inflation to its historically highest level of 7.9% YoY. Continue Reading…

Diversified & Dynamic: 2023 Global Investment Outlook

Posted By Financial Independence Hub | December 20, 2022

By Ian Riach, Franklin Templeton Canada

(Sponsor Content)

Investors may see key improvements in conditions in the capital markets and the wider economy in 2023 and beyond, according to the Capital Market Expectations (CMEs) from Franklin Templeton Canada. We presented our CMEs at Franklin Templeton’s Global Investment Outlook in Toronto on December 6.

We develop a proprietary set of CMEs annually, using top-down fundamental and quantitative research. Using an outlook for the next seven to 10 years, we review the expected returns and risk of investable asset classes: equities, fixed income, alternatives and currencies. Our economic outlook and 10-year asset class forecasts are driven by macro expectations, current valuations and various asset class assumptions. The CMEs are annualized 10-year return expectations, and they are intended to coincide with the average length of a business cycle and are aligned with the strategic planning horizon of many institutional investors.

Our process also considers long-term macroeconomic themes to complement the objectivity of our quantitative analysis. This year, we factored in three major themes:

Growth: We expect to see moderate growth in the next phase of the economic cycle, driven by advances in technology and increasing productivity. Demographics will likely be a slight headwind to growth as populations in developed markets age.

Inflation: Inflation is expected to remain slightly higher than the targets established by central banks over the medium term. Rising wages and energy prices are sticky aspects of inflation.

Fiscal and monetary policy: Central banks, including the Bank of Canada, will keep up their aggressive fight against high inflation. Not surprisingly, this will hamper economic growth. On the other hand, we expect fiscal policy by governments to remain accommodative. Fiscal policy can result in higher government debt, which can be inflationary. But if government stimulus targets, say, capital projects such as infrastructure, then it can be beneficial to long-term growth. Policymakers are walking a tightrope now.

Capital Market Expectations

With that background, here is a concise summary of our expectations over the next several years:

The expected returns for fixed income assets, like bonds, have become more attractive. We also expect the recent volatility in fixed income markets to subside.
The returns of global equities are expected to revert to their longer-term averages and outperform bonds.
Stocks in Emerging Markets are expected to outperform developed market equities over the next seven to 10 years.
A diversified and dynamic approach to investing is the most likely path to achieving stable returns over the long run.

The chart below sets out our range of expectations for key assets compared to historical averages:

Note that these return projections are higher than our 2022 outlook and are closer to their long-term averages.

Franklin Templeton Canada uses its CMEs to shape strategic asset allocation for our portfolios. However, we do not just “set it and forget it”. We employ a dynamic asset allocation process over the shorter-term, taking into account market conditions. While we are optimistic over the next decade that returns will favour risk assets, our short-term preference (next 12 months) is to be cautious as recession risks rise. Continue Reading…

Innovation is the key to growth

Posted By Financial Independence Hub | December 16, 2022

By Erin Allen, CIM, VP Online ETF Distribution, BMO ETFs

(Sponsor Content)

It’s simple, innovation has the potential to create higher productivity: the same input generates higher output. As productivity moves higher, more goods and services are produced, and as such the company or the economy grows.

Innovative companies in turn will displace industry incumbents as they see an increase in efficiencies and productivity leading them to gain market share. The long-term growth potential of these innovative companies is what investors in this space are after.

In the late nineteenth century, the introduction of the telephone, automobile, and electricity changed the way we communicated, travelled, transported, and powered our economy. The world’s productivity went through the roof as costs dropped, creating demand across sectors.

Source: BMO ETFs, Nov 2022

Today, the global economy is undergoing a technological transformation that will shape the future. Innovations in areas such as artificial intelligence, robotics, DNA sequencing, energy storage and blockchain technologies are evolving at a rapid rate and seeing cost declines that are expected to further lead this growth.

BMO Global Asset Management offers three ETF series in partnership with ARK Invest that focus on disruptive innovations. BMO ARK Innovation Fund ETF Series (ARKK), BMO ARK Genomic Revolution Fund ETF Series (ARKG), and BMO ARK Next Generation Internet Fund ETF Series (ARKW). ARK believes innovations should meet three criteria and invests accordingly in these unconstrained, high-conviction portfolios.

3 Criteria for Innovations