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Why you probably shouldn’t ever want to own a cottage

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August 1, 2015 ,

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As you are reading this on what is hopefully a beautifully sunny and warm day, sitting on your dock on the water, what could be better than being at your cottage.

There is no question of how nice it can be, but do you really have to own it to enjoy it?

Occasionally clients ask our view on buying a cottage. This question usually leads to a broad discussion where the financial equation is only one part of the picture. Their stage of life, kids’ ages, desire to explore or stay put, comfort with property maintenance, and even their experiences growing up, play a big part in deciding whether to buy or not.
cottage
For me, I am pretty certain at this stage of life (with three school-aged children), we are not cottage buyers. I know that not everyone will agree with this opinion, but I know it is the right decision for me and my family. Here are five reasons why I won’t buy a cottage.

  1. Trying to juggle the summer plans of our kids leaves only two to four weeks of possible time the kids could be at the cottage each summer. At a different stage in life, cottage ownership could make more sense.
  1. We want the freedom to explore different parts of Canada in the summer (maybe even beyond Canada), and don’t want to feel that we are tied to one location. In addition, we can rent a cottage that is ideal for the age and stage of our kids — both in terms of water safety, and with an eye to places to visit within an hour of the cottage.
  2. I can’t fix anything myself. My wife is pretty good at it, but neither of us wants to spend our time away working on the property or even feeling guilty about what needs to be done. We want to enjoy it.
  3. Financially, there are better investments. Over the last 35 years, residential real estate in Canada has averaged a gain of 5.4 per cent annually. Over the same period, North American stock markets have averaged 10 per cent returns or more. If the growth is tax free on a personal residence, then the gap is smaller, but for a cottage there are usually capital gains taxes to deal with. For those who talk about needing to deduct investment management fees from returns, that can be true, but you would also need to deduct real estate taxes and non-capital expenses from the return on the cottage. Looking at the options, I would rather not lock up my capital in a cottage.
  4. Finally, no more freeloading friends and family to worry about. I know that many families love to invite people up to their cottage. It is often greatly appreciated. However, it can get very tiring after a while, and when it isn’t greatly appreciated, it can become a real weight on the relationship. When renting, you can occasionally invite people to join you, but they know not to expect the annual invite.

 
Reproduced from the National Post newspaper article 31st July 2015.

Ted Rechtshaffen
Written By:
Ted Rechtshaffen, MBA, CFP
President and CEO
tedr@tridelta.ca
(416) 733-3292 x 221

Market Turmoil – Why your portfolio is not as bad as the market

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October 20, 2014 , , , , , ,

Over the past 6 weeks, but especially in the past week, the stock markets have experienced a meaningful pullback.

From its peak to close yesterday, the TSX was down 11.5%.

The US S&P500 was down 7.9% from its peak.

Dow Jones Germany was down 14.8% from its peak.

Our clients have typically fared much better during this period for the following reasons:

  1. The Canadian Bond Universe is up 0.7% since September 1. This is one of the main reasons to own bonds – in most cases they act as a counterbalance to stocks during weakness in the stock market. In addition, it isn’t just owning bonds, but also making the right choices in terms of corporate bonds vs. government bonds, and owning long term bonds vs. short term that can further benefit a portfolio. Fortunately, at TriDelta we have been predicting lower long term bond yields, and have benefitted from owning longer term bonds.
  2. TriDelta looks at volatility risks and builds stock portfolios that are meaningfully less volatile for our more conservative clients, but even for our growth clients, there is an element of capital preservation in our stock selection. As a result, while our stock portfolios have declined in value, we have meaningfully outperformed the TSX index over this rough period. Conservative clients would have outperformed the TSX by 8% on the stock part of their portfolio since the beginning of September (decline of only 3.5%). Growth clients would have outperformed the TSX by 3% on the stock part of their portfolio.
  3. All this means that your asset allocation and risk profile have an important impact on performance when things are going well, and when things are not going so well. For example, a conservative TriDelta client with only 40% in stocks would be down roughly 1% since September 1st. A growth TriDelta client who is 80% in stocks will be down roughly 7% since the peak of the market. In addition, our High Income Balanced Fund is down just 1.5% since September 1. While we never want to be down, this should give you a better sense of how your portfolio has fared within the pullback.

13797194_mA final note on asset mix. We believe that if your asset mix was right for you 6 months ago, it is probably still correct for you today. The only reason for a meaningful change is if your cash flow needs have changed significantly or if your overall financial position has had a meaningful change. If those haven’t happened, we wouldn’t recommend changing now. Keep in mind that in February 2009 it was almost impossible to get people to invest in the market – with most late RRSP contributions going to cash. For the full year 2009, the TSX had a return of 35.1%. The point is that it is very difficult to pick a market bottom, but we do believe it isn’t far off from here. When the bottom hits after a sudden pullback, there is quite often a very strong rally. Investors with a long term perspective do not want to miss that rally.

We will continue to monitor various factors closely, and may make some changes to portfolios as we do throughout the year, but for now, we believe it is not the time for major changes.

One factor we are monitoring is Ebola. We do not know what Ebola will become on a global basis. We do know that over the past 90 years, the fear factor on ‘new’ diseases and viruses has been much greater than the actual global impact. How many of us even remember the Swine Flu? In June of 2009, the World Health Organization and the US Centers for Disease Control announced that it was a Pandemic – and fears were rampant. While not equating the two, we believe that it is very likely that today’s fear will prove to be overdone on a global basis.

As always, we are happy to talk to and meet with all clients at any time. If you have questions or concerns, please do not hesitate to contact your Wealth Advisor.

Thank you.

TriDelta Investment Management Committee

Cameron Winser

VP, Equities

Edward Jong

VP, Fixed Income

Ted Rechtshaffen

President and CEO

Anton Tucker

Executive VP

Lorne Zeiler

VP, Wealth Advisor

First quarter earnings

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April 30, 2014 , , , , , ,

TriDelta offers investment solutions that consist of a variety of targeted, discretionary portfolios to deliver superior, risk adjusted returns. These include Canadian, US and global solutions ideal for non-registered, RRSP and TFSA’s.

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TriDelta 3rd Q 2012 Market Outlook

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October 11, 2012 , , , , , , ,

What Happened in the Quarter

The third quarter can be summarized by two major government announcements:

  1. The European Central Bank announced the Outright Monetary Transactions programme aimed at providing significant monetary support to ensure that the “Euro Will Not Fail”. The new bond-buying plan is aimed at easing the eurozone’s debt crisis. The ECB aims to cut the borrowing costs of debt-burdened eurozone members by buying their bonds.
  2. Later in September, the US Federal Reserve Bank headed by Ben Bernanke announced Quantitative Easing 3. This included a commitment to buy $40 billion in mortgage backed securities each month from Fannie Mae and Freddie Mac (the US version of the Canadian Mortgage and Housing Corporation – CMHC). This is in addition to the $2 trillion in Treasury bonds that it bought in QE1 an QE2.

Both of these actions and the expectations of these actions drove markets higher during the quarter. Among the biggest beneficiaries were precious metals, energy, and other commodities – sectors of the market that lagged for much of the year.

The Toronto market was up 6% on the quarter after having fallen over 6% in the previous quarter.

The bond universe market was up 1.2% on the quarter.

How did you do?

At TriDelta Investment Counsel we have two main types of clients. The first group seeks conservative growth and income and are invested in our ‘Pension’ model. The second group is looking for growth, which is delivered via our ‘Core’ model.

Pension Clients:

This group is typically in retirement or close to it and looking for less volatility, higher income and steadier 5% to 10% gain, especially while interest rates and GIC rates are so low.

Most pension clients grew by 1.5% this quarter (after fees).

Our Pension model (based on 60% stocks and 40% bonds) returned 5.5% year to date (after fees). So far on the year we are very pleased to see that our Pension portfolios are delivering the type of returns that they were designed to deliver.

While the performance this quarter was not as strong as the super charged stock markets, it is important to remember why. Our approach is based on finding a mix of bonds, preferred shares and dividend paying stocks that will provide a steady level of income. The capital gains growth from the portfolio will usually come from companies that are rarely flashy in the short term (like the precious metals index) but act more like the tortoise than the hare. Companies like Trans Canada Pipelines, Philip Morris, and Colgate Palmolive.

These are the type of companies that will not jump meaningfully upon hearing about the latest round of quantitative easing.

Dividend Changes in Q3 – Pension

One area of Pension focus for us is to hold companies with stable and growing dividends. In terms of dividend changes this quarter we saw 7 dividend increases and no decreases:

  • Microsoft boost its quarterly dividend by 15%
  • Phillip Morris boost its quarterly dividend by 10.4%
  • Norfolk Southern boost its quarterly dividend by 6.4%
  • BCE boost its quarterly dividend by 4.6%
  • CIBC boost its quarterly dividend by 4.4%
  • Emera boost its quarterly dividend by 3.7%
  • Verizon boost its quarterly dividend by 3.0%

 

Core Performance Clients:

This group of clients is looking for greater growth, less concerned about income, and want to beat the market over time. Ideally for peace of mind, these portfolios will still have less volatility than the market overall. We call this group Core Performance portfolios.

Most Core Performance clients grew by 2% this quarter (after fees).

Our Core Performance model (based on 60% stocks and 40% bonds) returned 9.7% year to date (after fees), with a healthy part of the gains coming in the first quarter.

The numbers are quite positive although we saw a little portfolio drag of higher cash balances in the Q3 performance in our Core Performance portfolios. We look forward to adding some more momentum to the portfolio over the next few months as opportunities present themselves.

Some of the trades we made this quarter and why?

In Pension Portfolios:

  • We sold a Manulife bond that had a coupon of 4.08% and came due in 2015.
  • We bought a Manulife bond that has a coupon of 5.06% and comes due in 2041.

Rationale – The short term Manulife bond had a yield to maturity of 2.57%, and we replaced it with a bond from the same company that has a yield to maturity of 6.02%. The 2041 bond also has a current yield (the coupon payment of 5.06 divided by the purchase price of $86.50) of 5.85%.

We will not likely hold this bond to maturity, but feel that the significant increase in yield (while holding the same company), will benefit investors in the short to medium term, while we remain confident that long term interest rates will remain low (or lower) over that time.

  • We sold Barrick Gold

Rationale – This was a difficult decision. The stock was purchased for most clients around $40, dropped to $31, and came back to $37 when we sold it for Pension clients. The volatility is what made us sell the stock. It remains in our Core portfolios as it passes the financial hurdles of the Core model and the speculative nature and volatility of the stock is more appropriate for that mandate.

In Core Portfolios:

  • We did the same Manulife bond trade as noted above in the Pension portfolios.
  • We bought Tesoro Corporation. It is up 16% since our purchase.

Rationale – Tesoro is an independent petroleum refiner and marketer in the United States with two operating segments: refining crude oil and selling refined products in bulk and wholesale markets and selling motor fuels in the retail market. They had a great earnings report this quarter and continue to prove themselves as one of the best operators in the refining space. Growth wise they have two expansions that should contribute positively to earnings shortly and help accelerate growth. The stock ranks very well and is breaking out of a 11/2 year range that should provide substantial support.

  • We sold Discover Financial Services.

Rationale – The stock had a really good run and was up 45% YTD when we sold it. There was some concern about high valuations and their entry into new market segments such as student loans. So far the stock has continued to do well in August and September.

Our Investment Outlook and how it will impact your portfolio

We believe that some of the market gains in Q3 have been driven by ‘hot air’. By this we mean that it is relatively easy for governments to print and throw money at a major economic problem. What is difficult is seeing fundamental economic improvements on the ground and in the economy.

On the positive side there continues to be signs that the US housing market is stabilizing, with price gains in many markets. Housing market changes tend to move slowly, and a turn from one direction to another can be a significant signal. We are hopeful that this slow shift in US housing will provide one of the foundations for an improving economy.

The other big positive is that historically when the government provides economic stimulus and provides lower than average borrowing costs for consumers and companies, the markets tend to benefit. We have certainly seen some of this benefit in the U.S. market, and think that in the medium term that will continue.

On the negative side, there are a few items:

  1. The China Purchasing Managers Index is at 47.8. This is very low and suggests weak growth in China.
  2. Eurozone Purchasing Managers Index is at 46.0, historically a very low level, and one that indicates a continuing high unemployment and low (if any) growth in the region.
  3. Spain, Greece and Italy have been out of the news for a while, and markets have seen solid increases. At some point, they will make negative economic headlines again and the market will see a pullback.
  4. The U.S. “Fiscal cliff” is the popular shorthand term used to describe the conundrum that the U.S. government will face at the end of 2012, when the terms of the Budget Control Act of 2011 are scheduled to go into effect.

Among the laws set to change at midnight on December 31, 2012, are the end of last year’s temporary payroll tax cuts (resulting in a 2% tax increase for workers), the end of certain tax breaks for businesses, shifts in the alternative minimum tax that would take a larger bite, the end of the tax cuts from 2001-2003, and the beginning of taxes related to President Obama’s health care law. At the same time, the spending cuts agreed upon as part of the debt ceiling deal of 2011 will begin to go into effect.

TriDelta’s defensive stance (with higher than average cash balances) will remain until we see a meaningful 5%+ pullback in markets, so that we can find some better entry points. An example might be outside of Canada. We currently have a meaningful position in the U.S. markets. We will likely be expanding our non-Canadian positions for two reasons. The first is that the Canadian dollar is currently very strong, and we believe it is at the high end of the range making it a good time to invest outside of Canada. Also, we continue to look for greater diversification from the core energy and materials that Canada has in abundance.

When we look at the movements of the markets in the last quarter, through the list of positive and negative items that we are facing, we believe that one of the list of four negative items will be the focus of markets’ attention at some point this quarter, and will lead to a pullback that we can take advantage of.

In the meantime, our portfolios (while a little conservative) are well positioned to continue to see some growth in most market situations.

TriDelta Investment Counsel Investment Committee – October 2012
Cam Winser, CFA, VP Equities
Edward Jong, VP Fixed Income
Ted Rechtshaffen, MBA, CFP, President and CEO
Anton Tucker, CFP, FMA, FCSI, VP, TriDelta Financial Partners

 

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