Articles

Lorne Zeiler on BNN’s ‘The Street’, Jan.12, 2018 – TriDelta Fixed Income Fund

0 Comments

Lorne Zeiler, VP, Portfolio Manager and Wealth Advisor, TriDelta Investment Counsel, was the guest co-host on BNN’s The Street on Friday January 12th discussing the following:

TriDelta Fixed Income Fund Generates 6.5% Return in 2017 (vs. Index return of 2.5%)

The TriDelta Fixed Income Fund generated a 6.5% Return in 2017 (vs. 2.5% for the index). Lorne Zeiler, Portfolio Manager, discussed the benefits of active management in fixed income investing and income alternatives on BNN’s the Street this morning.
Click here to view

Lorne Zeiler
Written By:
Lorne Zeiler, MBA, CFA
VP, Wealth Advisor
lorne@tridelta.ca
416-733-3292 x225

Lorne Zeiler on BNN’s ‘The Street’, Jan.12, 2018 – TriDelta Financial’s 2018 Market Outlook

0 Comments

Lorne Zeiler, VP, Portfolio Manager and Wealth Advisor, TriDelta Investment Counsel, was the guest co-host on BNN’s The Street on Friday January 12th discussing the following:

TriDelta Financial’s 2018 Market Outlook.

While Equity valuations are quite high (particularly in the United States), we still feel there is more room for the Bull market to run in the short-term, but that the best opportunities may be in Emerging Markets, Europe and Japan. Lorne Zeiler, Portfolio Manager, discusses our views this morning on BNN.
Click here to view

Lorne Zeiler
Written By:
Lorne Zeiler, MBA, CFA
VP, Wealth Advisor
lorne@tridelta.ca
416-733-3292 x225

Q4 TriDelta Investment Review – From Great to OK – Moving from 2017 to 2018

0 Comments
2017 – the year without a stock market correction

The Ebola Virus, Greek Crisis, Debt Ceiling, Refugee Crisis, Global Warming, Brexit, Trump, North Korea…there is always something scary for the media to report and make us nervous. Usually, these headlines frighten investment markets. For some reason, 2017 didn’t see this. In many major markets, there was not one decline of 5% during the year, and outside of Canada’s 6% stock market growth (which was among the weakest in the World), most stock markets saw returns well in excess of 12%.

Like a sports team that makes it through a season with no major injuries, 2017 was one of those years. To count on that happening again is to bet against history. The question isn’t so much what will cause greater volatility, as much as when. The next question is whether we should really fear volatility, especially if markets end up alright in the end?

How Did TriDelta do in 2017?

While those holding individual stocks and bonds would see bigger differences in portfolio returns, our TriDelta funds provide a good overall picture of our investment performance. These returns are before fees:

TriDelta Growth Equity Fund 13.3%
TriDelta Pension Equity Fund 12.5%
TriDelta High Income Balanced Fund 10.0% (the four year return on the fund is 9.2%)
TriDelta Fixed Income Fund 6.5% (this was among the top 1% of Canadian Bond Funds)

Our lower exposure to Canada helped the funds meaningfully outperform the TSX return of 6.0%.

The 6% yield on the High Income Balanced Fund, along with some stock exposure provided solid returns.

The outperformance on the Fixed Income Fund was largely due to strong active management. Our portfolio manager anticipated when to shift from shorter dated to longer dated bonds and from corporate to government exposure. Returns were also helped by some small Preferred Share exposure and opportunistic currency decisions.

Without further ado…

Our Investment View for 2018

Valuations are high, particularly in the U.S., which often indicates low or negative equity market returns, but we have searched for signs and signals of a market pullback, and we are not seeing it in the near term.

This doesn’t mean that it won’t happen during the course of the year, it most surely will. Yet, for the early part of 2018, we remain bullish on stocks.

We believe the following:

*Stocks will remain positive but returns will be better outside of North America. Geographically, the U.S. market appears to be further along the cycle than markets in Europe and Japan and much further along than Emerging Markets. This is based on higher valuations, Central Banks’ raising interest rates, and Consumer Confidence Indices.

As a result, we see Non-North American markets benefiting more in 2018, due to the same low interest rates and quantitative easing that helped the U.S. in 2017.

*Interest rates will not rise as much as expected. While it looks very likely that Canada will raise interest rates this month, and the U.S. will likely raise rates in March, both central banks will be cautious about further rate hikes. Of interest, if the market is expecting 3 rate hikes, and there are only 1 or 2, the bond market is likely to perform better than expected. In Europe and Emerging Markets, some decrease in quantitative easing is expected, but little in the way of actual rate increases will be seen in 2018.

*Marijuana stocks and cryptocurrencies will see major declines in 2018 (from January 9th). This is based on the simple fact that Marijuana stocks are at valuations today that are priced beyond perfection for most companies and cryptocurrencies have yet to see the wrath of the IRS or other major Government agencies. In addition, they use an enormous amount of energy and often originate from poorly regulated countries. Government actions will be coming very soon under the guise of regulatory stability and countering tax evasion, and we expect most cryptocurrencies to see a bubble burst during the year.

*The Canadian Dollar will continue to surprise, but should decrease overall. The difficulty in predicting currency is that there are many important moving parts globally and locally. In the case of Canada and the U.S., NAFTA, the price of Oil, interest rates, and US$ repatriation will all be key drivers of currency changes and will result in several shifts during the year. We believe that interest rates will start to play a lesser role in the currency than it has in the past few years, as the other factors mentioned increase in relative importance.

We expect that the lowering of U.S. Corporate tax rates will drive some Corporate M&A activity. This may result in more Head Offices moving back to the U.S. and shifting dollars and taxes along with it. This will be an important strength contributor for the U.S. dollar in 2018.

*Toronto and Vancouver Real Estate Markets will be more stable….but still grow. Despite changes to mortgage rules, China’s flow of foreign funds, and Canadians comfort with high debt, the main thing that will truly pull back residential house prices is meaningfully higher interest rates. Increases in rates and tighter mortgage rules will help to restrain rapid growth, but until we start to see 5%+ five year fixed mortgage rates (you can still find low 3% rates), we won’t see a significant pullback. We may be a couple of years away (or longer) from seeing those rates.

*Alternative Income Investments should boost returns in 2018. We continue to look at and occasionally add investment options that we believe will provide returns of 6% to 10% most years, have a very low volatility, and little connection to stock market returns. These investments are similar to those that are a key part of portfolios that make up the Canada Pension Plan, Ontario Teachers’ Pension Plan and the Harvard Endowment Plan.

Compared to a world of only stocks and bonds, these alternative investments can help lower overall portfolio risk, add to returns and generate income. The downside is that these are Private Investments, not fully available to all investors, and liquidity is lower than for public investments (stocks and bonds).

One TriDelta advantage is that due to our strength in this area we have been able to negotiate institutional rates, resulting in lower costs for our clients from certain providers.

*Preferred Shares will see more normalized returns but remain an important part of the mix. After a year which saw Preferred Shares gain 13%, we see more typical 4% to 7% returns out of this asset class in 2018. The advantages of Preferred Shares are the tax benefit of Canadian Dividends (many retirees and middle income Canadians pay a tax rate of 10% or less), as well as the ability to benefit from both rising and falling interest rates – depending on whether you own fixed rate or rate reset preferred shares. This flexibility provides an important distinction from bonds.

As a result of these beliefs, we enter 2018 with the following tactical asset allocation.

Based on these factors, we are increasing our exposure outside North America – both to Developed and Emerging Markets. We are decreasing our exposure to the U.S. market, and maintaining an underweight to Canadian markets.

SUMMARY

Early 2018 will likely see the continuation of the strong stock markets that we saw in 2017. At some point, however, we expect to see the U.S. market buckle a little. The catalyst could come from increased pressure of a mid-term U.S. election that may shift control of the House and Senate from Republican to Democrat hands. Traditionally, a Republican President and Democrat House and Senate have not been ideal for stock markets.

When technical market indicators suggest reducing risk, we will ease back on stock weightings. By maintaining strong portfolio diversification from Alternative Investments, Preferred Shares and active Bond management, we will aim to reduce volatility for clients. Our best guess is that most clients will see positive, but lower returns in 2018 than 2017.

Lower volatility, a long term plan, tax efficiency and financial peace of mind are the hallmarks of TriDelta.

We will do our best to continue to deliver that to our clients in 2018 and for the long term.

All the best to our readers for a healthy and prosperous year ahead.

TriDelta Investment Management Committee

 

Cameron Winser

VP, Equities

Edward Jong

VP, Fixed Income

Ted Rechtshaffen

President and CEO

Anton Tucker

Exec VP and Portfolio Manager

Lorne Zeiler

VP, Portfolio Manager and
Wealth Advisor

FINANCIAL FACELIFT: Newly divorced dad is setting his retirement goals high

0 Comments

Below you will find a real life case study of an individual who is looking for financial advice on when he can retire and how best to arrange his financial affairs. His name and details of his personal life have been changed to protect his identity. The Globe and Mail often seeks the advice of our VP, Wealth Advisor, Matthew Ardrey, to review and analyze the situation and then provide his solutions to the participants.

gam-masthead
Written by: DIANNE MALEY
Special to The Globe and Mail
Published December 22, 2017

Upheaval, both personal and financial, has characterized Logan’s life over the past year or so. He and his former wife divorced and they’re sharing custody of their 15-year-old son.

“My personal circumstances are in the midst of a change, and I need to start thinking about the next five, 10 and 20 years in terms of overall financial planning,” Logan writes in an e-mail.

They have sold the family home and soon the cottage will go up for sale as well.

A few months ago, Logan bought a house in the Toronto bedroom community where he lives and his son goes to school.

The plan is to keep the house until his son goes off to university. At that point, Logan would sell the suburban place and look for a waterfront lot up north on which to build a house and workshop.

In the meantime, he is thinking of buying an investment condo to rent out. At the age of 52, Logan is also beginning to think about retiring from his job of more than 20 years in the tech industry. He is grossing $154,000 a year.

Logan’s goal is to retire at 60 with $80,000 a year after tax, substantially more than he is spending now. He is setting his sights high to pay for travel, a couple of expensive hobbies, and recreation. Is he on track?

We asked Matthew Ardrey, a vice-president and financial planner at TriDelta Financial in Toronto, to look at Logan’s situation.

What the expert says

Logan is thinking of buying a condo for $350,000 with $240,000 down. The balance would be financed by a mortgage of $110,000, Mr. Ardrey says. Logan figures the property would generate $5,000 a year in net income before tax.

In four years, Logan hopes to buy some land up north and build a house. This would cost about $450,000. “Some short-term financing will be needed to buy the land and build, but this will be paid off by the sale of his current home,” Mr. Ardrey says.

Selling expenses are assumed to be $70,000, including real estate, legal and moving costs. The planner suggests Logan secure a homeowners’ line of credit on his current house to finance the build.

“The remaining $185,000 cash surplus that year (2022, when his house is sold) will be saved to Logan’s non-registered account,” Mr. Ardrey says. Logan’s current budget shows a “significant surplus,” a recent occurrence, the planner notes. “Starting in 2018, this surplus will be allocated to retirement savings.”

Logan is currently saving $18,480 a year in his registered retirement savings plan. He has $50,000 of RRSP room available. Logan has not contributed to a tax-free savings account, so he has the maximum room of $57,500 available at the beginning of 2018. With the surplus generated each year, Logan can catch up with his TFSA room by the end of 2019 and his RRSP room by the end of 2020. Any additional surplus after annual contributions to his TFSA and RRSP will be directed to his non-registered savings.

In drawing up his projections, Mr. Ardrey assumes Logan will earn a rate of return of 4.67 per cent before fees based on the historical averages of his current asset mix. His lifestyle expenses will be subject to an inflation rate of 2 per cent. The planner further assumes that Logan will receive maximum Canada Pension Plan and Old Age Security benefits at the age of 65 and that he will live to 90.

Currently, Logan is spending $42,000 a year after savings and child support are subtracted. His retirement spending goal is $80,000 a year.

“Unfortunately, based on the above assumptions, Logan falls short of his goal,” Mr. Ardrey says. “His investment assets are exhausted by 2042, when he is 77.” At that point the planner assumes Logan sells the rental property, but that will only carry him until 2046, when he is 81.

“To make it to 90, Logan will need to reduce his retirement spending by $17,000, to $63,000 a year.”

If he really wants to spend $80,000 a year, he would need to work longer and still sell the condo.

Mr. Ardrey explores a couple things that could improve Logan’s financial position.

Instead of buying a rental condo, Logan could invest the money. The anticipated $5,000 a year profit on a $350,000 rental-property investment is equivalent to a 1.42-per-cent rate of return before tax, and 0.71 per cent after tax, the planner says. So Logan would be depending on capital appreciation that may or may not be forthcoming.

Second, Logan could shift his asset mix to improve the rate of return on his investment portfolio. As mentioned, based on historical averages, he can expect to earn 4.67 per cent on his existing portfolio before fees. Subtracting a management expense ratio of 1.5 per cent leaves Logan with a net return of 3.17 per cent.

“Take inflation away from that, and he is making just over a 1-per-cent real return.”

Instead, Logan could shift to an asset mix that includes alternative investments, along with traditional stocks and bonds, Mr. Ardrey says. By doing so, “he should be able to increase his return to 6.5 per cent, or 5 per cent net of investment costs.” He suggests 50-per-cent equities, 30-per-cent fixed income and 20-per-cent alternative investment strategies.

+++++++++++++++++++++++++++++++++++

The person: Logan, 52

The problem: How to get his life back on track to meet his ambitious retirement spending goal.

The plan: Take full advantage of RRSP and open a TFSA. Rethink the investment condo. Diversify investment portfolio to include alternative investments to boost returns.

The payoff: A road map to a secure financial future.

Monthly net income: $8,853

Assets: Cash $6,000; RRSP stocks $10,000; RRSP mutual funds $434,000 (the bulk of this from a former employer plan); RESP $44,000; residence $660,000; expected proceeds from cottage sale $240,000. Total: $1.39-million

Monthly outlays: Property tax, home insurance $425; utilities $280; maintenance, garden $60; transportation $540; groceries $500; child care $1,100; clothing $105; gifts, charity $100; vacation, travel $600; dining, drinks, entertainment $650; personal care $20; sports, hobbies $120; pets, subscriptions $40; health, dental insurance $10; phones, TV, internet $70; RRSP $1,540. Total: $6,160

Liabilities: None

Want a free financial facelift? E-mail finfacelift@gmail.com

Some details may be changed to protect the privacy of the persons profiled.

Matthew Ardrey
Presented By:
Matthew Ardrey
VP, Wealth Advisor
matt@tridelta.ca
(416) 733-3292 x230

Countdown to Year-end – Have you put your tax planning in place?

0 Comments

With less than a month to go before the end of the year, it is time to give some thought to how you are going to put your affairs in order to minimize your taxes next April. Below I have provided several points which you should contemplate for your own tax situation. Some of these are methods you should consider each year and some are very specific to this year, as the Federal Government proposed some significant changes to the Income Tax Act regarding corporate tax planning.

Capital gains/losses

The end of the year is a good time to review your portfolio. If there are stocks you are holding at a loss, you are better off to realize that loss before the end of 2017. In doing so, you will be able to use those losses to offset any capital gains you may have. If you do not have any capital gains in the current year, you can carry back your capital losses up to three years or forward indefinitely.

Age 71 RRSP Over-contribution

In the year in which you turn 71, you must convert your RRSP to a RRIF by December 31. Once you are in the year you turn 72, you may no longer make personal RRSP contributions; however, spousal RRSP contributions are still permitted if you spouse is under age 72. If you have earned income in your age 71 year, you can make a RRSP contribution in December. Though you will be over-contributed for one month, as you will have new contribution room on January 1, and have a penalty tax on it, the tax savings from the deduction could far outweigh the penalty.

Charitable Donations

December 31 is the final day to make a charitable contribution and receive the tax credit for your 2017 tax filing next April. With donations, the amount you contribute and the amount you earn have an impact on the credit you will receive. The first $200 attracts credits at the lowest marginal tax rates, but those above $200 can attract credits at or near the top bracket. In Ontario, for example, the first $200 will attract a credit of 22.89%, income below $220,000 a credit of 46.41% and above $220,000 50.41%.

First-Time Donor’s Super Tax Credit (FDSC)

This is the final year for the FDSC. If you have not claimed the donation tax credit in the past five years you can claim the FDSC on the first $1,000 of donations. This is an additional 25% of federal tax credit across the board making the federal tax credit 40% on the first $200 and 54% on the next $800 of donations.

Donation of Capital Property

Though gifts of capital property are not eligible for the FDSC, they are an effective way to donate when compared to cash. Consider a qualified investment such as a publically traded stock. You can donate it at its fair market value (FMV) and receive a tax credit equal to that FMV. The additional benefit comes into effect when calculating the capital gain due on the disposition of that security. The capital gain is not taxable. As these donations often take significantly longer than cash, you should consider proceeding as soon as possible to avoid missing the December 31 deadline.

Income Sprinkling

Effective at the beginning of 2018, the “kiddie tax” will be expanded to include all non-arm’s length dividend recipients from a private corporation. If there are not reasonable contributions to the business for which the dividends are compensation, they will be taxed at the highest marginal tax rate. Thus, if you are able to, this year would be the time to pay out additional dividends to take advantage of the income splitting opportunity this strategy affords. In addition, consider a share reorganization so that contributing family members have different classes than non-contributing.

Passive Investment Income

As the rate of tax on income can be much lower than if taxed personally, there is the potential for an increased rate of savings inside the corporation. This can compound over years providing in the estimation of the government an unfair advantage. The initial proposal would remove the refundable tax on investment income, making the rate of taxation in excess of 70% in certain situations.

Since that point, the government has relaxed its point of view to allow for $50,000 of investment income to continue under the previous rules. This would be equivalent to $1,000,000 at a 5% rate of return. They now feel that this should limit its impact to only the top 3% of corporations.

The tax landscape just grew increasingly complex with these recent tax changes. Unless you are an expert yourself, navigating this new environment should be done so with an experienced hand at the helm. With less than a month to go, do not leave your planning to chance. Your pocketbook will thank you next spring.

Matthew Ardrey
Presented By:
Matthew Ardrey
VP, Wealth Advisor
matt@tridelta.ca
(416) 733-3292 x230

FINANCIAL FACELIFT: Are these soon-to-be retirees ready to set sail?

0 Comments

Below you will find a real life case study of a couple who are looking for financial advice on when they can retire and how best to arrange their financial affairs. The names and details of their personal lives have been changed to protect their identities. The Globe and Mail often seeks the advice of our VP, Wealth Advisor, Matthew Ardrey, to review and analyze the situation and then provide his solutions to the participants.

gam-masthead
Written by: DIANNE MALEY
Special to The Globe and Mail
Published November 10, 2017

Cruising into retirement, Steve and Donna plan to work part-time for another three years then hang up their hats for good. He is 65, she is 62. They have two grown sons, ages 26 and 28, a house in Alberta, some savings and no debt.

In addition to part-time income, Steve is collecting a work pension, while Donna, who is self-employed, is drawing a dividend from her company. Add it all up and they have been grossing nearly $120,000 a year.

Looking ahead, they wonder when they should begin taking government benefits, and what investment strategies would best allow them to achieve their goals. Their retirement spending target is $70,000 a year after tax.

Short-term, they plan to buy a new vehicle ($40,000) and a motorcycle ($25,000). Longer term, they plan to sell their house, downsize and buy a sailboat ($25,000).

Are they on track?

We asked Matthew Ardrey, a vice-president and financial planner at TriDelta Financial in Toronto, to look at Steve and Donna’s situation.

What the expert says

Steve’s employment income is currently $47,720, but will drop to $32,000 for 2018 and 2019, Mr. Ardrey notes. Donna’s work income is expected to remain constant at $10,567 through 2019. In addition Donna is drawing $11,123 of dividends, while Steve is getting pension income of $50,316 a year, indexed to inflation.

In his plan, Mr. Ardrey assumes the couple have arranged to split Steve’s pension income. After monthly expenses, they have a surplus of $1,800 a month, which they are saving to buy a new car and a motorcycle.

In 2019, Donna and Steve plan to sell their home for about $770,000 and buy a condo worth $415,000. Real estate transaction expenses are estimated to equal at least 10 per cent of the sale price, with the remainder of about $276,000 being invested. The following year, they plan to purchase a sailboat for $25,000.

Steve is contributing $7,440 a year to his registered retirement savings plan, which he should continue to do as long as he is working, Mr. Ardrey says. He has Steve taking Canada Pension Plan and Old Age Security benefits at 68 and Donna at 65, and assumes they both get full benefits. Inflation is forecast at 2 per cent a year.

First, Mr. Ardrey looks at their existing portfolio and its expected rate of return based on historical averages. That would be 2.8 per cent a year net of any account fees. “Though they have stated they would like a strategy for their investments, I felt running an ‘as is’ scenario would be interesting for comparison,” the planner says. Donna will increase her dividend to $11,600 a year to exhaust the funds in the corporation by the time she is 90.

Despite the low investment return, Steve and Donna are able to comfortably meet their retirement spending goal, Mr. Ardrey says. They would leave an estate of $1.7-million at Donna’s age 90.

If, instead, they spent all of their investments, leaving only real estate and personal effects, they would be able to increase their spending to $92,000 a year, the planner says.

Now he looks at how well off they would be if they increased their rate of return to 5 per cent a year and began contributing to tax-free savings accounts. When they downsize in 2019, they could each make a lump-sum TFSA contribution of $63,000 ($52,000 in accumulated room to 2017, plus $5,500 for 2018 and another $5,500 for 2019). “Though these changes may appear minor, their effect on the retirement lifestyle potential is major,” Mr. Ardrey says. In this forecast, Donna increases the dividend she draws to $13,000.

They would leave an estate of $4-million at Donna’s age 90. If, instead, they decide to exhaust all of their investments, leaving only real estate and personal effects, they would be able to increase their spending to $115,000 a year. Donna and Steve could either more than double the size of their estate, spend substantially more, or “some combination of the two.”

Donna and Steve’s entire investment portfolio is cash and Canadian equities. They have so much cash because they sold some stock recently and are hesitant about investing the proceeds. Mr. Ardrey suggests a balanced approach, with 50 per cent stocks or stock funds, 30 per cent fixed income and 20 per cent alternative investments. The equity portion would be diversified geographically (Canadian, U.S. and international) and the alternate investments by strategy (such as private debt, real estate, infrastructure).

While the returns on fixed income are low, “it is important to include it to insulate against equity market volatility,” the planner says. The alternative investments should help offset the low fixed-income returns and provide further diversification because of their low correlation to financial markets, he adds.

++++++++++++++++++++++++++++++++

The people: Steve, 65, Donna, 62, and their two sons.

The problem: How best to prepare for full retirement in three years, including when to draw government benefits and how to invest without undue risk.

The plan: Begin drawing government benefits when they retire fully. Open TFSAs and review their investment strategy to improve balance and diversification.

The payoff: The comfort of knowing they have achieved financial independence.

Monthly net income: $7,965

Assets: Bank accounts $6,500; her RRSP $31,040 (cash); $8,750 (stock); his spousal RRSP $78,015 (cash); $69,280 (stock); her business bank account $158,750; her business trading account $47,390 (cash); $55,450 (stock); estimated present value of his pension $274,000; residence $750,000. Total: $1.48-million.

Monthly outlays: Property tax $340; home insurance $50; utilities $365; maintenance, garden $395; transportation $405; groceries $900; clothing $370; gifts $300; charity $166; vacation, travel $850; other discretionary $100; dining, drinks, entertainment $300; personal care $100; sports, hobbies $100; subscriptions, other $40; health care $150; health, dental insurance $310; life insurance $137; telecom, TV, internet $133; RRSP $620. Total: $6,131. Surplus: $1,834

Liabilities: None

Want a free financial facelift? E-mail finfacelift@gmail.com

Some details may be changed to protect the privacy of the persons profiled

Matthew Ardrey
Presented By:
Matthew Ardrey
VP, Wealth Advisor
matt@tridelta.ca
(416) 733-3292 x230
↓