Building Wealth

For the first 30 or so years of working, saving and investing, you’ll be first in the mode of getting out of the hole (paying down debt), and then building your net worth (that’s wealth accumulation.). But don’t forget, wealth accumulation isn’t the ultimate goal. Decumulation is! (a separate category here at the Hub).

How a Personal Pension Plan can mimic gold-plated DB pensions

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jplaporte
Jean-Pierre Laporte

By Jean-Pierre Laporte

Special to the Financial Independence Hub

There are approximately 1.2 million Canadians capable of saving for their retirement and mimicking the ‘gold plated’ pensions of federal civil servants and teachers.  Are you among them?

It’s well-known in policy circles that traditional defined benefit (“DB”) plans are better for employees but worse for the employers that underwrite them.

Why? Because the nature of the pension promise itself builds in an assumption that there will be sufficient assets, on an actuarial basis, to replicate a certain level of income, well into retirement.  If markets do well, the promise is met.  If markets underperform, these DB plans require that the employer  dip into its corporate pockets to make up the difference through ‘special payments’.  Short of a corporate insolvency, the DB model offers a guarantee of financial security that does not exist in any other type of tax-assisted plans (such as the RRSP, DPSP, PRPP or Defined Contribution plans).

While the mention of DB Plans conjures up visions of large public sector behemoths like the Ontario Teachers’ Pension Plan or the Healthcare of Ontario Pension Plan, they also exist at the other extreme:  small professional corporations created by a single individual to carry out a given profession.  Recently, small business owners and professionals are turning to the Personal Pension Plan (“PPP”), a type of registered pension plan that offers both DB and Defined Contribution (DC) accumulation methods under a single roof, with the freedom to select between the two each year.

The reason why the PPP works so well at the individual professional corporation (“PC”) level is that the interests of the plan member and of the shareholder are perfectly aligned. In years of market underperformance the requirement that extra tax-deductible contributions (special payments) be made, is simply a transfer of wealth from the owner’s taxable corporate pocket to his/her tax-deferred personal pension pocket.  Likewise, strong market performance can lead to a “contribution holiday” for the PC and an even safer retirement pension for the shareholder/member.

Upgrading from RRSP savings to PPP savings

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7 tips for investing in the Trump era

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Investors are inquiring how to invest their nest eggs after the U.S. election and the unexpected win by Donald Trump.” Let’s keep it very simple and explore a dose of reverse engineering. I highlight seven top tips for adoption:

USA presidential election donald trump, vector illustration, Editorial use only

1.) Ask where you want your nest egg to be in five, ten or twenty years.

2.) It’s imperative to always think and act logically, not emotionally.

3.) Accept that bond and stock market volatility is here to stay.

4.) Revisit your expectations as to goals, needs, objectives and plan of action.

5.) Implement, tweak and be patient with your long-term strategies.

6.) Cut to the chase and focus on managing your investing risks.

7.)  Keep cash available for buying opportunities during market sell-offs.

These straightforward, sensible tips can stickhandle your nest egg out of trouble most times.

AdrianAdrian Mastracci, MBA,  is president and portfolio manager for Vancouver-based KCM Wealth Management Inc., specializing in designing and stewarding retirement portfolios

Are your investing goals different after the U.S. election?

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President Elect Donald Trump

We’ve been doing a lot of reading leading up to and since the election: as you’d expect there is no shortage of opinions of what is going to happen to financial markets and how investors should position themselves as a result.

The investing opinions vary as extremely as the political views.  We’ve read crazy things and some very sensible things.  Perhaps the best articulation of how to approach this was written by Ron Lieber  in the New York Times on Wednesday when he asked, “Are your goals different now?”

“Once upon a time — like, say, last week — you had an investing plan that was based on goals that may come years or decades from now. Perhaps you’re hoping to buy your first home. Maybe you’re trying to save enough to send a couple of children to college. You hope to retire by age 67.

Has any of that changed? If it hasn’t yet, then it’s not clear why your investments should.”  – Ron Lieber, New York Times

Big events happen and market volatility sometimes accompanies. That doesn’t mean you should try to guess the market’s reaction. As Lieber hints, changing your investment strategy to either protect you or try to take advantage of market volatility can be a sucker’s game.  At best you’ll get lucky: at worst you’ll fall victim to many of the psychological pitfalls that leave most investors, both individual and institutional, chasing the market to the detriment of their investment performance. Speculating and investing are very different things. You are an investor and investing successfully is a long term game.

So what should you do?

1.) Ignore the noise

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What does the Trump Victory mean for the Markets?

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USA presidential election donald trump, vector illustration, Editorial use only
President Elect Donald Trump

By Craig Fehr, CFA, Edward Jones

Special to the Financial Independence Hub

Global stocks initially reacted negatively on Wednesday in response to Donald Trump’s U.S. presidential election victory, reflecting the fact that the outcome differed from the consensus expectation, as well as the greater degree of policy uncertainty associated with Trump.

The result does come with unknowns, but remember, the market is rarely free of political uncertainties. The broader path for investment conditions will, in our view, be driven by fundamental trends that are still reasonably favourable and unlikely to change abruptly based simply on the election. So while the markets are reacting immediately and in volatile fashion, it’s important to consider the longer-term outlook when it comes to your investments.

Initial volatility doesn’t tell whole story

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Investing in the Aftermath of the Trump victory

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image005By Kara Lilly, Mawer Investment Management

Special to the Financial Independence Hub

Donald Trump became the 45th president-elect of the United States last night. The businessman beat former secretary of state, Hillary Clinton, ending what has been a long and salacious presidential campaign. The GOP also kept control of both the Senate and the House, leaving the fractured party with room to implement its policy platform.

Markets were relatively calm today despite the knee-jerk selloff that was triggered by the impending victory last night. Equity indices have steadied and volatility indices have fallen as market anxiety has tempered. The greatest impacts so far appear in the bond and currency markets. Yields on longer term U.S. government bonds have risen amid wagers of higher spending. Meanwhile, the Canadian dollar and Mexico peso have sunk on concerns of unravelling economic integration with the U.S.. Within equities, pharmaceutical stocks rose as investors unwound bets that a Clinton win would usher in greater regulation.

No meltdown but still a significant investing event

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