Two types of retirees: dreamers and savers


lorne_bnn_feb16Lorne Zeiler, VP, Portfolio Manager at TriDelta Investment Counsel was a recent guest on BNN’s Your Money Month to discuss sources of income for retirees featured in TriDelta’s ‘Canadian Retirement Income Guide’

Click here to watch the interview.

Lorne Zeiler
Posted By:
Lorne Zeiler, MBA, CFA
VP, Wealth Advisor
416-733-3292 x225

The five things to do after you win the lottery


By: Olivia Glauberzon, Special to the Star, Published on Tue Jan 26 2016

When it comes to buying lottery tickets like ones this month’s $1.5 billion Powerball, players put plenty of thought into picking their numbers. But how much goes into the plan if they actually win?

In 2001, Vicki Damant was close to the dream that many lottery players have: second place to the jackpot. A Torontonian living in the U.S. at the time, to her shock, her ticket had five of the six winning numbers.

lottery“It was 7:30 a.m. on a Sunday morning. When I check the numbers on the computer, I had one match, then another, then another . . . then I started screaming,” says Damant. “I was so loud that my husband came running into the room thinking he had to kill a spider.”

While the couple hadn’t won in the millions, Damant did win $103,682 (before tax, as it was a U.S. lottery; in Canada, lotto winnings aren’t taxed as income).

“That’s when we started making all of our phone calls,” she says. “It wasn’t a life-altering amount of money, but it was enough that we were able to buy ourselves new cars, invest in an annuity and send both of our parents on vacation.”

Whether you’ve won a modest amount like Damant or $528 million (U.S.) like one Tennessee couple this month, here’s what the financial experts say you should do next:

1. Cool off for 30 days

That’s the suggestion of Larry Moser, regional manager with BMO Investor Line, based in Ottawa: “You don’t want to start writing cheques before you have a chance to figure out how you want to spend your prize.”

Since most lotteries are required to make the winners’ names public, the prize announcement (depending on its size) can wreak havoc on your personal life. “All sorts of people are going to come out of the woodwork. I’ve even heard of people getting blackmailed,” says Moser. “You need to be prepared for how you’ll handle various situations.”

A cooling-off period also gives you time to reflect on how the winnings will add to your happiness, says Ted Rechtshaffen, president and CEO, TriDelta Financial, a Toronto-based independent financial planning firm. “Whether you’ve won $500,000 or $500 million, it’s not about the investments you make, it’s about how the money helps your lifestyle going forward.”

Rechtshaffen recommends using the old adage of “Spend $1, save $1 and give $1” to allocate the winnings to your personal and financial goals. Just be warned, adds Rechtshaffen, that deciding how much you want to spend, save and give can be a complex psychological and emotional undertaking. “You may want to talk to a psychologist before doing anything else . . . that could be the best investment with your winnings you’ll ever make.”

2. Get professional help

Once you’ve figured out how to divvy up your winnings, find a lawyer or financial advisor who can help structure a financial plan for you.

“Whatever you do, don’t go flipping through the phone book and call the first lawyer or investment advisor you see,” says Moser. “Ask your friends and family for someone they recommend and trust.”

Another way to screen for a good advisor is by noting the balance of personal versus financial questions he or she asks you. “The best advisors will always spend more time figuring out who you are as a person before structuring a plan,” says Rechtshaffen.

3. Calculate your income needs

Depending on how much you’ve won, you may decide to stop working or splurge on a big-ticket item like a house, trip or boat.

Just don’t blow all of your winnings on one big trip to Vegas, says Moser. “Every dollar you spend today is less you have to invest for tomorrow.”

A financial plan will help you determine how much money you need to maintain the lifestyle you want to lead without working, especially if it includes a larger home or second property with bigger annual expenses.

4. Sort out your give-aways

Decide how much money you’ll give away to charity, family and friends. Like Damant, it’s not uncommon to want to share your newfound fortune with family and friends, or your favourite charity.

“With family and friends, one idea might be to share your good fortune in the form of a one-time only gift,” says Rechtshaffen. “If you are disciplined about it, you will be less vulnerable to being asked for money down the road.”

For charities, giving can be complex depending on the amount of the donation.

If you are planning to donate over $5 million, Rechtshaffen recommends setting up a private charitable foundation. “By donating through a foundation, you have an ability to generate large tax credits you can use to offset any investment income you may have.”

If you want your foundation to continue donating long after you are gone, Moser says it’s also critical to hire an estate lawyer for the set-up. “You won’t be able to set this up yourself with a $29.99 kit you buy at a store.”

5. Invest tax efficiently

Once you’ve determined how much money you’ll need for your lifestyle and how much you can part with, chances are the amount left over may be too much to place in a registered savings account. This leaves your wealth in unregistered territory, which makes minimizing tax exposure on income-generating investments a priority.

Investments can range from a diverse equity portfolio — which takes into account your risk tolerance — to a permanent life insurance policy, which allows you to grow your money tax-free.

“An advisor will help you navigate your investment options and do so in a way that minimizes your tax exposure,” adds Rechtshaffen.

TriDelta Investment Counsel – Q4 2015 Investment Review


26158252_sSome people believe that the grass is always greener on the other side of the fence. Well in 2015 it was true, if you were a Canadian and your fence looked over at the U.S. border. From an equity and currency perspective, the U.S. meaningfully outperformed Canada.

Although 2015 was a difficult year, with Canadian equities down over 11%, most TriDelta clients, depending on their asset mix, were roughly flat on the year. No one heads into a year hoping to have a flat investment year, but given the very weak Canadian markets, and our focus on protecting capital in tough times, we believe that we added meaningful value to clients in 2015.

Executive Summary – 4th quarter equities were down for Canada, but up for International Developed markets

It was a challenging 4th quarter and year as a whole, for investors in Canada. Canadian bond returns were mildly positive and Canadian equities remained very volatile, down 2.2% in the quarter. The economic and stock market weakness in Canada, unfortunately, was driven by excess global supply of oil and other commodities, causing commodity prices to fall.

Even with Europe’s issues in the first half of the year, China dominated the world stage this year with its economic slowdown. The lion’s share of growth in global demand for virtually all commodities, including oil, has emanated from China over the past decade. With its economy growing more slowly, prices of most commodities have weakened materially. Moreover, due to China slowing along with many emerging market economies, the U.S. Federal Open Market Committee (FOMC) was reluctant to raise rates until the end of the year. On December 16th, the U.S. Federal Funds rate was finally increased by 0.25%.

China still faces deflationary pressures

  • Dragged down by sluggish domestic demand, weak exports and a property downturn, China’s economy expanded by 6.9% year-over-year in the third quarter, the lowest quarterly growth rate in six years.
  • China’s consumer inflation (CPI) grew 1.6% year-over-year in December, which is well below the government target of 3%. Moreover, producer prices (PPI), a measure of cost of goods at the factory gate, fell 5.9%, marking the 46th straight month of decline. Price fluctuations usually first appear at the production level before being passed on to consumers; therefore, the deflationary forces acting on China’s PPI does not augur well for its CPI. Prolonged deflation will pose risks to the Chinese economy by eroding growth potential and could possibly put the economy at risk of a downward spiral.
  • To combat the economic slowdown, the central bank of China has cut the benchmark interest rates and the reserve requirement ratio of its banks several times since the beginning of 2015. We suspect more aggressive policy easing will be forthcoming to stabilize growth in the coming months. There certainly is ample room for more measures to fight deflationary pressures and stabilize growth, such as reserve ratio cuts, relief in tax and fees, and increases in fiscal spending.

A Tale of Two Markets: International Developed Equity Markets were up (in Canadian dollars) and the Canadian Equity market was down

  • The Canadian equity market, as measured by the S&P/TSX Composite Index, was down 2.2% in the 4th quarter, ending the year down by 11.1%.
  • Due partly to the weakening of the Canadian dollar over 2015, European, U.S. and Asian developed equity markets were up generally for the 4th quarter and for the year as a whole, as measured in Canadian dollars.
    • TriDelta made the decision to not currency hedge our U.S. and International equity investments, which was beneficial to our clients’ portfolios.
Forecast for 2016
  • TriDelta remains cautiously optimistic about 2016 as the U.S. and Europe appear to be on more solid ground; however, China will continue to be challenged in its efforts to stabilize its economy as it transitions from an export-based to a consumer-based economy.
  • The economic outlook for 2016 is supportive of developed market equities with inflation and oil prices remaining low, a continued mid-cycle U.S. economic expansion with cyclical leadership coming from the U.S., the U.K. and Europe, and with the U.S. FOMC possibly moving rates up gradually.
    • Since 1950, the median performance of different asset classes six months after the first U.S. Federal Funds rate hike has been very positive for markets: U.S. Equities up 9%; Developed Market Equities up 7%; Emerging Market Equities up 8%; Commodities up 4%; and, Investment Grade Bonds up 1%.
    • Oil prices will continue to be weak in 2016 owing to global excess supply, exacerbated by the expected rise in Russian and Iranian oil production, as well as weaker economic growth from China. China has accounted for roughly 45% of growth in global demand for oil during the past decade.
  • We have been actively adjusting our clients’ portfolios, reducing our exposure to Canadian equities in favour of U.S. equities, given our concern with continued weakness in the Canadian dollar and commodity prices, especially oil.
  • We continue to closely monitor European equities for purchasing opportunities as they represent good relative value.
  • With low positive returns expected from bonds in 2016, we believe our clients need to maintain their equity exposure, especially given that many equities have dividend yields in the 2% to 5% range.
  • We expect returns to be lower than long-term averages. We are now recommending alternative investments, from our well researched approved list, where appropriate, to clients for additional diversification in their portfolios to reduce risk and to enhance returns.

Risks to the Outlook

  • China fails to stabilize growth, increasing deflationary forces globally.
    • China’s renminbi continues to depreciate.
  • A credit crisis occurs in the emerging markets.
  • Heightened geopolitical instability (e.g., Saudi Arabia and Iran tensions, Russia, ISIS, and the like).
  • Profit trends weaken in the developed equity markets.
  • Faster-than-expected improvement in the U.S. labour market causes the Fed to raise rates faster.
Equity Market Commentary

10884799_sThe 4th quarter witnessed a decent bounce in global equities after a very rough 3rd quarter. Most equity markets rallied and came close to recuperating the losses suffered in the third quarter. Unfortunately, Canada did not participate in this rally.

In local currency, global equity markets were some of the top performers. Germany and Japan represented the best performing major equity markets, up more than 11.2% and 10.7%, respectively. Closer to home, the S&P/TSX Composite Index continued its losing streak, down 2.2%; whereas, the S&P 500 Index bounced back, returning 6.5% in local currency. The strong U.S. dollar was again a positive factor for our portfolios as measured in Canadian dollars. The U.S dollar strengthened 4.1% relative to the Canadian dollar, adding to the total return of U.S. holdings.

For the S&P/TSX Composite Index, volatility in the 4th quarter was substantial as the Index had a number of moves up and down greater than 5%. October turned out to be a positive month as the market rallied 1.3%; however, November and December were down months, consistent with the fall in the price of crude oil. November declined almost 2% and December was down 3.4%. The three worst performing sectors in the quarter were Health Care, Consumer Discretionary and Telecommunications, down 37.0%, 5.7% and 2.8%, respectively. In contrast, the three best performing sectors were Information Technology, Materials and Financials, up 10.3%, 3.1% and 0.6%, respectively.

The S&P 500 Index performed much better than the Canadian market, up 6.5% in the 4th quarter. The Index posted a great October, up more than 8%. Despite a couple bumps in the road, it eked out a small gain in November before falling 1.8% in December. All sectors in the 4th quarter were up except for Energy, down 0.6%. The three best performing sectors were Materials, Health Care and Information Technology, up 9.1%, 8.8% and 8.7%, respectively.

TriDelta Core Equity Model

Our Core Equity Model was up 2.1% for the 4th quarter, outperforming the S&P/TSX Index by 4.3%. During the last three months, the Core Equity Model was very active.

  • In October, we sold a couple of stocks, redeploying the cash during the November correction. We also increased our weight in U.S. equities in early December to take advantage of a stronger U.S. dollar, which has continued to strengthen since our purchase.
  • We purchased the Canadian energy market opportunistically, using the exchange traded fund, XEG, as it looked as if seasonal, technical and fundamental factors were turning positive, but sold it quickly thereafter. Unfortunately, this was a losing trade as Saudi Arabia revealed it would increase production, leading to potentially lower prices.
  • Other detractors from performance that were sold at a loss were Valeant Pharmaceuticals, which fell due to some concerns about accounting irregularities; and, Amaya Inc., the online gaming company, which fell as revenue and profit guidance from the company was cut.

In contrast, a number of our stocks, especially those in the U.S., had a great quarter and positive results were found in all sectors, including Energy.

  • Our holding in TransCanada Corp. was up over 8%.
  • Other top performers were Avago Technologies Limited, AmerisourceBergen Corporation and Verizon Communications Inc., up 20%, 13% and 11%, respectively.
  • Five companies, in the Core Equity Model, raised their dividends in the 4th quarter with none reducing dividends: Alimentation Couche-Tard Inc., AmerisourceBergen Corporation, Zoetis Inc., AbbVie Inc. and Sun Life Financial Inc.

TriDelta Pension Equity Model

Our Pension Equity Model was up 0.7% during the 4th quarter, as our more conservative strategy, outperformed the S&P/TSX Index by almost 3%. The Pension mandate focuses on stocks with solid and growing dividends and other less volatile characteristics, leading to less trading relative to our Core Equity Model.

  • We entered the quarter with excess cash, and opportunistically added a couple of new holdings during periods of market corrections in November.
  • Positive performance for the quarter was driven mainly by our U.S. holdings as the strong U.S. dollar helped bolster returns.
  • Health Care stocks in the U.S. led the gainers in the portfolio as Abbott Laboratories, Johnson & Johnson and GlaxoSmithKline were all up more than 10%.
  • In contrast, Canadian Utilities Ltd. declined along with the rest of the Utilities sector as investors feared higher interest rates would threaten earnings and dividend growth. Home Capital Group Inc. declined on fears that the economy was weakening and the real estate market would burst, leading to an increase in homeowner mortgage defaults.
  • Ten stocks that we hold in the Pension Equity Model increased their dividends during the quarter and only one stock reduced its dividend, namely Cal-Maine Foods. Some of the stocks that raised their dividends include Emera Inc., Enbridge Inc., AbbVie Inc., Telus Corp. and the Canadian Imperial Bank of Commerce.

Quarter Ahead for Equities

At the end of the 3rd quarter, we believed that the majority of the decline in the equity markets was over, and we were looking for opportunities to be fully invested again in the coming months. Looking forward, we continue to believe that the September 2015 lows will hold for the S&P 500 Index, but may be temporarily breached by the S&P/TSX Index. We still have some cash in the portfolios, and are looking for the right time to become fully invested again.

We believe that the heightened volatility that we have experienced in the 4th quarter, and throughout 2015, will continue in 2016. The equity markets generally appear to be fairly valued, which could lead to more volatility if economic headwinds or geopolitical events surface. Earnings, as usual, will continue to be a major focus for investors, looking to be reassured that earnings are continuing to grow and valuations remain fair.

Fixed Income Commentary

iStock_000001104529SmallFor the majority of 2015, volatility in the fixed income market was unprecedented. The initial cut to the Canadian overnight interest rate in January, to be followed by another cut in the subsequent months served as a testament to the Bank of Canada’s concern over the negative impact of much lower oil and gas prices on energy companies, and its impact on the Canadian economy.

For most of the year, investors have been wrestling with the following:

  • The prospect of the first U.S. interest rate hike in 9 years;
  • A substantial decline in commodity prices;
  • A strengthening U.S. dollar; and,
  • The relentless negative headwinds from the Greek default drama and the Chinese economic slowdown.

As noted earlier, the U.S. FOMC finally raised the Federal Funds rate by 0.25% in December.

TriDelta Core Bond Model

Our Core Bond Model maintained its exposure throughout the year in high yield bonds as we were, and we continue to be comfortable with our holdings. Given the heightened investor concern over the U.S. raising interest rates, we started the year owning bonds that had shorter average maturities and gradually raised the average maturities of the Model through the investment in a 30-year Government of Canada Bond in the fourth quarter.

We were able to add value to the portfolios with this strategy towards the latter half of the 4th quarter. In addition to raising the average maturities of the bonds, another purpose of owning this 30-year high quality Government of Canada bond was to reduce the overall risk of the portfolio, especially in the current environment where investors are uncertain about the U.S.’s resolve to hike interest rates and its ability to continue with a series of hikes in the coming year.

TriDelta Pension Bond Model

Our Pension Bond Model benefited from not having any exposure to high yield bonds this year and in the 4th quarter. The strategy of managing the Model with a shorter maturity bias at the start of the year, followed by extending the average maturity with the purchase of the 30-year Government of Canada bond, mirrored the same strategy as the Core Bond Model.

Quarter Ahead for the Bonds

With an eye towards 2016, we expect the volatility that we have experienced in 2015 to continue. With continued Bank of Canada concerns over our economy, heightened geopolitical risk, and an uninspiring global macro-economic environment, we will continue to limit risk in the bond portfolios by maintaining our bias for the long-dated Government of Canada bond. However, our aim in 2016 is to take advantage of this volatility at the opportune time, and eventually move funds out of Government of Canada bonds and into investment grade corporate bonds.

Preferred Share Commentary

Not since the financial crisis has the preferred share market witnessed such a negative period. One fundamental difference between 2008 and today was that the drop in 2008 was disorderly – panic driven – while the current environment is slightly less disorderly and driven by three converging factors working to conspire against the preferred share asset class.

  • The Bank of Canada’s surprise 0.5% cut to the overnight interest rate was contrary to the market consensus expectation of multiple rate hikes in 2015;
  • Bond and equity investors became more risk averse, producing a great deal of volatility in the markets, which negatively impacted the preferred share market; and,
  • Canadian chartered banks issued Non-Viable Contingency Capital (NVCC) compliant preferred shares due to a new regulatory requirement. In short, an abnormal supply of preferred shares from the banks was issued into the market, causing downward pressure on preferred share prices.

The beneficial characteristics of preferred shares within a well-diversified portfolio remain very much intact, but the recent weakness in this asset class has left many disenchanted. Considering the attractive yields and the beneficial tax treatment of dividend income, we still believe that preferred shares will be a positive investment in 2016.

TriDelta High Income Balanced Fund
  • The Fund was up 2.1% in the 4th quarter, but down 4.2% for the year. Since inception, the Fund has earned an annualized return of 5.5%.
  • The performance of the bond component of the Fund started 2015 very well; however, the unanticipated interest rate fluctuations – both interest rate levels and corporate spreads – were negatively impacted by the leverage employed in the Fund to generate a consistent targeted overall bond yield of 8%.
  • Until December, the Fund had a substantial U.S. dollar exposure to take advantage of U.S. dollar appreciation. This position was held because of the divergent monetary policy in Canada (i.e., a bias towards reducing rates) versus the U.S. (a bias towards raising rates). Given the uncertainty surrounding U.S. interest rates and possible geopolitical events in 2016, the leverage employed as well as the exposure to the U.S. dollar have been reduced.
  • In contrast to the bond component, the equity portion of the Fund had a good year in 2015. U.S. equities, which were consistently about half of the equity component of the Fund, were the major driver of positive performance. This positive performance was mainly due to U.S. dollar appreciation, since it was up 19% for the year.
  • The performance of the S&P 500 Index, in local currency, was slightly negative for the 2016; however, the hedging strategy used by the Fund with respect to U.S. equities was a positive contributor, adding 1% to the return.
  • Canadian equities, which constitute the other 50% of the equity component of the Fund, outperformed the S&P/TSX Index, since the Fund held cash in the range of 5% to 10% throughout the year, and had a very small exposure to Energy relative to the Index. The Canadian equity strategy started out the year overweight income generating financial stocks. These positions were reduced during the 1st quarter and the Fund shifted into some gold and other resource stocks like Cascades Inc. and Claude Resources Inc.
  • The Fund also increased its Consumer Discretionary and Industrial sector weightings during the year, including Air Canada, Hardwoods Distribution, New Flyer Industries and Transcontinental, as we were searching for stocks that showed value with earnings growth potential.

2015 was a challenging year for Canadian equities and bonds, although the 4th quarter was generally up across international developed markets. As mentioned, there is potential for negative surprises in 2016 given the large number of global issues, including currencies volatility, political turmoil, increased terrorism activity, low oil prices and very low global economic growth. As a result, we forecast markets to remain volatile this year, but expect returns to be generally positive, however lower than long-term averages.

Happy New Year and All the Best in 2016!


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

David Oliver

Chief Operating Officer

Lorne Zeiler

VP, Portfolio Manager and
Wealth Advisor

How a couple with a net worth of $10 million and annual income of $215,000 can pay $0 in income tax


We are all hearing the calls to tax the rich. The assumption being, if you are rich, you will pay a lot of tax, but is that always true?
Are you rich? Here’s how to tell — and why you should care

Here is an example of a couple with a net-worth of $10 million who are set up to pay exactly $0 in tax in 2015.

Here is how they would do it.

coupleTom and Mary are a recently retired, 65-year-old couple, living in Vancouver. British Columbia isn’t the only part of Canada where a $0 income tax bill is possible, though — the dream is alive in Alberta, Saskatchewan and the Territories, too. In Ontario, they would have no tax, but would pay $1,500 for the health premium, which is essentially a tax.

In West Vancouver, they live in a $3-million home, which they bought 20 years ago for $400,000. They also have a $1.4-million cottage near Whistler, B.C., and a $600,000 house not far from Phoenix, Ariz. That’s about $5 million of real estate assets.

They will pay no income tax on the growth in value of their home, but will ultimately have to pay capital gains tax on the Whistler and Phoenix properties — but only when they sell. Of course, they do pay property taxes, but no income taxes.

Tom is a retired lawyer and Mary is a retired accountant. Despite being tempted over the past few years, neither decided to set up a corporation. They wanted to keep things simple. As a result, their $5 million of investments looks like this:

— $4 million in a joint non-registered investment account: This account primarily holds stocks, roughly two thirds of which is Canadian stock. They don’t aim to have very high dividends on the account, but they still end up with a dividend yield of about 3.75 per cent. This is expected to translate into $50,000 of Canadian dividends and $25,000 of foreign dividends for each of them.

Typical stock holdings would be BCE Inc., Royal Bank of Canada, Enbridge Inc., Apple Inc. and Johnson and Johnson.

They still manage to generate about $5,000 each in interest income from money market funds and high interest savings accounts and their total investment income from dividends and interest on the account is $160,000. Because it is a joint account, all of this $210,000 in investment income can be split equally between Tom and Mary.

They left the income in the account to be reinvested, but for cash flow they sold and withdrew $240,000. This generated a total of $50,000 in capital gains.

– Tom and Mary also have $100,000 combined in their TFSAs and $900,000 combined in their RRSPs.

To balance of some of their investment risk, they have most of their TFSAs and RRSPs in bonds, preferred shares and some private mortgage funds. They have decided not to draw any money from their RRSP, but instead set up a RRIF account and moved $3,000 each to the RRIF. They then withdrew $2,000 each from the RRIF. The reason they did this was to take advantage of the $2,000 Pension Tax Credit. They can’t withdraw it tax-free, but they can withdraw the first $2,000 at a significantly reduced tax rate, and they want to draw RRSP/RRIF money whenever they can, at a low tax rate.

Because Tom and Mary are now 65, they have an option to take Canada Pension Plan and Old Age Security. They have decided to defer the CPP, but take the OAS and see how much might be clawed back.

Tom and Mary work with an investment counsellor who charges a one per cent fee on their investment assets. Of this fee, the amount that covers the taxable account is fully tax-deductible. As a result, they can each deduct the $20,000 of investment counselling fees from their taxes. They also receive some tax related and planning advice from the investment counsellor.

Tom and Mary believe in giving to charity, and as their wealth has grown, so has their charitable giving.

This year, they plan to give a total of $34,200 to various charities. While this seems like a lot of money, it represents 0.34 per cent of their net worth. In addition, Tom and Mary would rather direct some of their funds to charities that they like, and benefit from lower income taxes. Where possible, they donate shares of stock that have a large capital gain.

So where does this leave the $10-million couple when it comes to tax time?

The good news is that they pay a grand total of $0 in income taxes. Yes, you read that correctly: Zero.

The sort of bad news: They each get $4,800 of their $6,800 OAS clawed back. But they still get a total of $4,000 from OAS after tax.

Now, before you protest in front of their home, it is worth keeping a few things in mind.

Tom and Mary have paid a lot of taxes in their working years. They clearly made good incomes in order to attain the wealth that they have, and because they didn’t get aggressive with tax planning, every year they would have been paying a good percentage of their income in taxes.

In addition, just because Tom and Mary are paying $0 in income taxes in 2015 doesn’t mean that they will be able to do this for too much longer. They have several tax issues coming up in the years ahead.

These include their $900,000 of combined RRSPs, which they will need to begin drawing down after age 71, and it would likely make sense for them to draw some money down sooner than that. They will be paying some level of tax on all of that $900,000.

Tom and Mary also have a cottage and a U.S. residence that will likely face meaningful capital gains taxes when they are sold. They will likely also have higher capital gains taxes to pay on the portfolio in the years ahead. It is also possible that they may have some U.S. estate taxes to deal with on not only their Phoenix house, but also on the U.S. stocks in their portfolio. For now, though, they are OK holding the U.S. property. Finally, in B.C. they will potentially face probate taxes of almost 1.4 per cent on their estate.

What I find most interesting is that there’s no advanced tax deduction strategy used: Everything Tom and Mary are doing is pretty plain vanilla planning. The most important components — in addition to their deductions for charity and investment advice — are the focus on tax-efficient investments, ensuring that they have a good percentage of income from Canadian dividends and that they are able to take full advantage of income splitting.

The other positive is that Tom and Mary recognize that using capital gains and return of capital to cover cash flow needs is usually much more tax beneficial than trying to boost income by having higher investment yields.

As the saying goes, there really are only two certainties in life: death and taxes. Even if the rich can avoid paying any taxes for a period of time, just like the Mounties always getting their man, the Canada Revenue Agency is pretty good at eventually getting their taxes.

Ted Rechtshaffen
Written By:
Ted Rechtshaffen, MBA, CFP
President and CEO
(416) 733-3292 x 221

Helping to Care for Aging Parents


by Raynia Sauvageau MSW, RSW

When it comes to helping aging parents, many feel they are ill-prepared for this part of life. As children, we looked up to our parents to care for us, protect us, and eventually help launch us. Many of us go on to marry, have our own families and set up the same pattern of caring for our children. We are not expecting that our parents will age and possibly that we will be the ones to provide care as they once did for us.

parentsSome people say that the roles “reverse” ; that as your parents once parented you, you are now “parenting” your parent. This conception however is not entirely accurate. The reason being, is that while our parents may be losing some of their independence, whether mentally or physically, they are still and always will be our parent. Even though they may have “lost” some of their abilities to do certain things, or may have increasing challenges, they are still the driver of their decisions as long as their capacity for that is intact.

One of the frequent questions I have been asked is “How do I help my aging parents?” and the answer will greatly depend on the individual situation. The following is a good place to start:

  • Engage in a dialogue about their wishes. This may seem small but this is a critical step. Too often, I have observed that discussions do not take place until after a crisis happens and adult children are left having to guess or make decisions on what they think their parent may want. This includes asking your parents how they envision “the next five years”, helping to map out a plan for modifying the home if needed or any possible transition from their home, and ensuring that Powers of Attorney for Personal care and Property exist. These conversations are not always easy, particularly given the different relationships and dynamics of your relationship but they are important ones to have.
  • Define “help” by how your parents define it. In an effort to help our parents, sometimes our own worries and needs obstruct our abilities to help in a way that is meaningful to our parents. I have often observed very well intentioned adult children making plans and providing assistance that their parents feel they don’t need. To avoid this, you might want to ask your parent directly what they would find helpful.
  • Get Informed. Whether or not your parents are ready or at the stage of accepting help, it doesn’t stop you from knowing what is available in their community and in the market. With the increasing aging population, there are many services and products available to help people stay independent. There are also programs available from local agencies. These may include someone to come to the home to help with bathing, personal care, cleaning, meal preparation or transportation. Keeping informed of what exists helps you in knowing what is available to your parents and can be introduced to them when they are willing.
  • Accepting help is a process not an outcome. If you can shift your focus from “what” to “how” it happens, you may be pleasantly surprised. Some adult children become frustrated when they are met with rejection when offering to help their parents. Sometimes however, it takes time before your parent is “ready” to accept the help and so remaining patient and involved through this process is key.

Helping your parents, while not a part of the lifecycle that was necessarily planned, can be a positive experience with the proper help and support around you.

Raynia Sauvageau has a private practice as a Geriatric Social Work Consultant and has a strong passion for working with aging families and assisting them through transitions and experiences. She has spent most of her career working in acute care hospitals as a professional social worker with aging patients and their families. To find out more, you can visit her website at or reach her directly at

TriDelta Investment Counsel – Q3 2015 investment review


Executive Summary – Stock Market Corrections have a Silver Lining

Well, that wasn’t a fun quarter for anyone. We do believe that much of the damage is now behind us, and in most cases, clients remain in positive territory for the past year during a time when the Toronto stock market has dropped 11%. In this report, we will explain what happened and why we are generally positive at this point.

Periodically, markets experience corrections of 10% or more. We believe these corrections are necessary to cool off an overheated stock or bond market. Despite these sell-offs, the equity markets have enjoyed historical returns of over 8% per year for long-term investors. Presently, even with the recent declines, equity markets are substantially higher today than in 2007 (pre-financial crisis) and 2011 (last major decline).

In fact, these market corrections create buying opportunities when stocks, bonds or the overall markets have reached lower price levels.

Our Perspective on Market Volatility

14498871_sThe third quarter witnessed a sharp drop in the price of global equities and commodities. This high market volatility is not unusual from a historical perspective. In fact, some of the best market returns come after turbulent times (e.g., after the 2000-2002 Technology-Media-Telecommunication bust and after the 2007-2009 global financial crisis).

Why are markets so volatile recently? We believe the following are key contributing factors:

  • Concerns over China’s weakening economic growth and surprising devaluation of its currency on August 11th, resulting in downward pressure on global inflation. China’s action also negatively influenced emerging market currencies and bonds;
  • The fall in commodity prices, including oil prices; and,
  • Investor discomfort with the rising likelihood that the U.S. Federal Reserve will move to gradually raise rates this year due to signs of strength in the U.S. economy.

Concerns about China’s weak growth and currency devaluation

China and the other emerging market economies rose markedly over the past 30 years, currently representing 57% of the global economy (30 years ago it stood at 35%) and over 80% of global growth in recent years; therefore, its influence on the global economy and the markets generally, is substantial. So, when the Chinese economy is slowing as it is presently, investors are concerned. Fortunately, China has put in place a number of reforms, in recent years, to transform its economy for sustainability and higher economic development.

Falling commodity prices

Prices of most commodities fell sharply this year. Prices fell because of rising supply, as well as commodities being priced in U.S. dollars, and the U.S. dollar continues to appreciate. The supply of commodities increased owing to rising production and stockpiling over the past number of years in anticipation of strong demand, which did not materialize. We expect commodity prices to continue to fall until these excess supplies start falling.

Expected Rise in the Fed Funds Rate

The argument in favour of a rate hike in the near future in the U.S. is based on reasonably solid economic growth and a falling unemployment rate. In contrast, the argument against a rate hike is based on slower global GDP growth, falling commodity prices and currency devaluations, which reduce the rate of inflation (a key metric for the U.S. Federal Reserve). Regardless of where you stand on this argument, it is important to realize that when rates start rising, which they will at some point, it will likely be gradual and slow. This likely slow and gradual pace of rate rises should not hinder the global economy.

Even with this high volatility, the prudent approach to investing does not change:

  1. Suitable investment plan/strategy: In times of uncertainty, you may be tempted to change your investment strategy, but often change is not necessary and may be detrimental to your long-term return. We take great care to ensure that your portfolio’s asset allocation and strategy is consistent with your risk tolerance, goals, financial situation and time horizon. Unless your goals and/or financial situation change, you should not make major adjustments to your portfolio based solely on market volatility.
  2. Diversification: Spreading your investable funds across a portfolio of multiple asset classes – equities, bonds, as well as alternative investments such as real estate, infrastructure, and the like – and within each asset class will dampen volatility in your portfolio. Why is it the case? Different securities within and across asset classes do not all move in the same direction and/or with the same magnitude over time; therefore, a well diversified portfolio will fluctuate less than a portfolio with very few securities over time.
  3. Stay invested: Trying to time the market can be very costly to investors because a significant portion of the market’s gains historically occur in very short periods of time. If you are not invested during these small windows of opportunity, you may miss most of the up market. Furthermore, many of these short periods of time occur during very unpleasant market environments when you may feel compelled to sell.

Equity Market Commentary

5186232_sThe third quarter of 2015 was a rough one for equity investors around the world as fears of a global slowdown, emanating potentially from weakness in the Chinese economy, hit the markets. Other factors came into the fray as the energy market continued to weaken and politicians in the U.S. stirred the pot by raising concerns about pharmaceutical pricing, which hit all stocks in the health care sector.

In local currency, the Chinese market was the worst of the major indices down more than 19%; whereas, the Swiss and Italian markets were some of the best performing, down just over 3% and 5%, respectively. Closer to home, the TSX Composite was down 8.6%, and the S&P 500 was down 6.9% in local currency. The U.S. currency was a positive factor for our portfolios, as measured in Canadian dollars, as the U.S dollar strengthened 6.8% relative to the Canadian dollar, severely curtailing most of the loss in the U.S. equity market.

For the TSX Composite, it was a volatile three months, since all months had decent declines and rallies, but in the end all three months were negative. From a sector level, the three worst performing sectors in the quarter were Materials, Energy and Health Care, which were all down between 17% and 20%. In contrast, the top performing sectors were Consumer Staples, up around 6%, followed by Technology, Telecommunications and Utilities, which were up marginally.

The S&P 500 was a slightly different story. July posted a marginal gain; whereas, August had a big decline, down more than 11% at one point, before rallying at the end of the month to stem the decline to only 6.4%. All sectors but Utilities, up about 2%, were negative for the quarter. Similar to the TSX Composite, the major decliners were Materials, Energy and Health Care. Consumer Staples was the least negative performing sector, down 2%.

Core Equity Model – For higher growth-oriented clients

The Core equity model was down 4.2% for the quarter, outperforming the TSX index by 4.4%. During the last three months, Core accounts were very active. Early in July, we reduced our equity exposure by around 5% for most clients, selling the S&P Mid Cap ETF; and later in the quarter, we also had two other sales that went to cash as we did not find attractive purchases that met our criteria for ownership.

We did two trades in the Energy sector: the first trade was to sell our S&P TSX Energy ETF position, which was one of our bigger negative contributors for the period; and, we purchased Suncor, which we were able to eke out a small gain plus a dividend before it failed our criteria for ownership and was sold due to negative earnings revisions.

Some of our higher growth companies detracted from performance in our Core model as Concordia Healthcare and Valeant were hit by the broad decline in pharmaceutical stocks.

On the positive side, a number of our consumer staple stocks, including Weston and Alimentation Couche Tard, had strong performance. Moreover, O’Reilly Automotive, in the Consumer Discretionary sector, continues to execute on its strategy and had a solid quarter. Three companies in the Core equity model – Altria, Verizon and Royal Bank – raised their dividends during the quarter.

Pension Equity Model – For clients requiring higher income and lower volatility

The Pension equity model was down by 2.5% during the quarter, as our more conservative strategy outperformed the TSX index by 6.1%. Based on its Pension mandate, less trading occurred in the third quarter relative to the Core model: we reduced our equity exposure in the model at the beginning of July by selling the S&P 500 ETF, and late in August we sold our Energy ETF and purchased Potash, which was eventually sold with the proceeds going to cash. For the past 12 months or so, the model has been underweight the Energy and Materials sector, which has reduced the impact of the broader market declines. That being said, Enbridge, Potash and the TSX Energy ETF were the worst performing names in the model along with Home Capital Group. Home Capital declined over the quarter because of concerns over the economy and repayment of mortgages. The company’s stock was further hampered by U.S. short sellers that were taking large short positions in July. We continue to hold the position, since we believe management at Home Capital will continue to grow earnings and dividends and it is trading at less than 8X projected earnings. A number of our stocks had good quarters, including Transcontinental, General Mills and BCE. Five companies in the Pension model increased their dividends during the quarter: Emera, Bank of Nova Scotia, CIBC, Verizon and Royal Bank.

The Quarter Ahead for Equities

It is our view that the majority of the decline in the equity markets is over, and we are looking for opportunities to be fully invested again in the coming months as each model currently has cash available to purchase two equity positons. Overall, the equity markets appear to be fairly valued with a number of undervalued sectors, the cheapest being Financials. For this reason, along with a number of other factors, we added Sunlife to the Core model at the end of September. Potential catalysts to higher equity prices include positive third quarter earnings announcements, and a possible U.S. interest rate hike in December based on the more moderate tone by the U.S. Federal Reserve.   Historically, equity markets tend to have above average performance for about six months after the first rate hike.  

Fixed Income Commentary

iStock_000010237072lThe third quarter was again rife with extreme volatility in the bond market. The cause of such volatility was threefold. First, bond market investors were getting mixed signals from central banks: the high expectation of the U.S. Federal Open Market Committee (FOMC) to start raising overnight rates paired with the softer tone coming from the Bank of Canada (BOC), where the latter lowered rates on July 15th for the second time this year (taking overnight interest rates to 0.50% down 0.25% from the last ease on January 21st). Second, the lack of liquidity in the fixed income markets; and third, the sharp moves in global equity markets.

The source of the economic weakness in Canada continues to emanate from the energy fields as oil prices (WTI) ended the quarter down 25.4%. Surprisingly, with such a sizable and sustained move, the BOC did not allow the effects of a 6.6% decline in the Canada-U.S. exchange rate to work its way through the economy, and lowered overnight rates for the second time this year. Perhaps the BOC was also concerned about the economic deterioration abroad, especially in China, and decided that the Canadian economy needed the extra support/stimulus.

The FOMC wrapped up one of their most divided regularly scheduled meetings on September 17th (economists placed the odds of a hike at 80%, while Fed Funds futures contracts placed the odds at about 40%), highlighting global economic concerns as the source of their hesitation to follow through with their first interest rate hike in over 9 years.

Core and Pension Fixed Income Models

The fixed income models have slightly shorter average bond maturities than the DEX Bond Universe Index heading into the third quarter as the global economic situation still warrants a defensive posture since both the FOMC and the Bank of England (BOE) are poised to hike overnight interest rates, and any economic fallout from Greece has already been eliminated.

Our present strategy is to remain overweight corporate bonds in near term maturities (as we view the BOC and FOMC as incapable of delivering any tightening of monetary policy) and opportunistically adding to longer term maturities because we believe that the weak economic landscape will cause the yield curve to flatten. This strategy should prove beneficial for our models over the next couple of quarters, as we believe any rate hikes by the FOMC would cause long interest rates to fall and short interest rates to rise with credit spreads narrowing, and thus bond prices rising. This forecast is premised on the notion that raising rates may trigger a higher probability of an economic slowdown.

In contrast, should the FOMC not follow through with their many hints of a rate hike as soon as October 28th, bonds will benefit on the premise that the FOMC’s mandate of price stability (i.e., 2.0% headline inflation – currently at 0.2% year-over-year) has not been achieved, and again, global economic headwinds will continue to play a role in their decision process; thus, validating lower interest rates.

The Quarter Ahead for Fixed Income

As we head into the final stretch of 2015, it appears that monetary policy globally will remain quite accommodative, meaning rates will stay low. As mentioned earlier, China’s economy is slowing and it has devalued its currency; moreover, the FOMC just balked at the much anticipated rate hike, and Japan is planning to restart “Abenomics”.

Prime Minister Shinzo Abe recently unveiled new growth initiatives, including targeting GDP at 600 trillion Yen (i.e., expanding by roughly US$10 billion), and social programs to assist families to care for the elderly. In conjunction with the Bank of Japan (BOJ), the Labour Democratic Party (LDP) will do its “utmost” to lift wages and consumption. As Japan endeavours to roll this program out as soon as possible, the Europe Central Bank (ECB) is under pressure to expand its Quantitative Easing (QE) program by extending it beyond September 2016, and by increasing asset purchases above 60 billion EUR per month. The end of easy money may not be as close as previously thought.

We believe high volatility in the bond market will continue until the end of the year; and, we are prepared to extend/lengthen the maturities of our bonds in the models further as yields approach our target.

Preferred Share Commentary

Preferred shares experienced the following problems in the quarter:

  1. Reluctance by the BOC to raise the overnight interest rate (a cut actually materialized) has caused the Government of Canada 5-year bond yield to remain stubbornly low. In fact, the yield is now roughly 0.55% below where it was at the end of 2014.
  2. Equity volatility, credit concerns and ultimately, risk aversion by investors caused a widening of market spreads for all five-year fixed reset preferred shares. As a result, the price of preferred shares fell.
  3. The persistently heavy preferred share issuance from financial institutions exacerbated the already fragile preferred share market (because banks and insurance companies are being subjected to punitive tier 1 and 2 capital requirements, thereby forcing them to raise more capital).
  4. Energy and resource based issuers (e.g., TA.PR.D & TRP.PR.B) were particularly harder hit because of the depressed level of oil prices and various other commodity prices.

The Quarter Ahead for Preferred Shares

The extraordinary capital gain offered in early 2009 (post financial crisis) on preferred shares may not be repeated this time around; however, the slow appreciation back to higher price levels will come about from the narrowing of credit spreads. In the meantime, the yields at current preferred share price levels are providing a very favourable after-tax income.


Although the markets have been tumultuous year-to-date, we believe that our clients’ portfolios are well positioned to weather the storm and take advantage of market weakness. That being said, it is often good to review, with your TriDelta Wealth Advisor, your investment plan/strategy during these periods of high volatility in the markets; however, staying the course is usually the best policy, assuming that your financial situation, goal(s), time horizon and risk tolerance have not changed.

As a final comment – Let’s Go Blue Jays!!


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

David Oliver

Chief Operating Officer

Lorne Zeiler

VP, Portfolio Manager and
Wealth Advisor