Artisan Autumn 2012


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Artisan Autumn 2012

  1. 1. THE ARTISANIssue: Autumn 2012 The ArtisanIssue: Autumn 2012 Quarterly Newsletter by Northland Wealth ManagementThe Markets: Deleveraging – Slowly Making ProgressUpdate & In previous issues of the Artisan the problems of an over leveragedOutlook Western World were outlined. The process of deleveraging, paying down excessive debt, and its impact on economic growth were Deleveraging described. Consumption must be reduced to match actual income, or 1 below it, if debt is to be repaid. In the U.S., individuals have in the Slowly Making Progress last four years paid down debt, with credit card debt balances reduced… numbers seem to be signaling and mortgage debt either paid down or defaulted. In Canadabetter economic growth ahead … individuals have increased their debt loads – a cause for concern. However the Canadian Government is expecting to have a balanced budget in 2015 which means no more increases in debt. While the What’s New: U.S. Government’s stimulation programs have kept economic Origins & momentum going in the U.S., they have been financed by increased Understanding government deficits - that is more debt with no firm plans for reduction. The upshot of this is that four years into this deleveraging …Northland welcomes 2 process only minimal progress has been made in both the U.S. and Victor Kuntzevitsky… Europe and real solutions are still lacking. The only conclusion one can reach is that years of further restructuring remain ahead. While Canada has so far avoided the worst effects of this major economic dislocation, our major trading partner, the U.S., is still experiencing significant difficulties. Canada is too closely tied to the U.S. to be Brush Strokes: unaffected by economic problems there. Northland Wealth The present situation the Western World faces is not unsolvable. has relocated Canada in the early 1990s faced a huge government debt problem. At that time projections showed that if government spending continued 4 at the current rate of that time, and revenues were unchanged in five ... 8965 Woodbine Avenue, years, the annual interest payable on government debt would be in Markham, Ontario … (continued on page 2) Perspectives: Planning Files: What you need to know about Education Savings Converting your RSP to a RIF What are your options? For the majority of readers who are not yet 71 years old, this information will prove valuable to you some day, so it is definitely … help loved ones avoid the 6 worthwhile reading it. For those who currently have an RSP account, onerous costs of post-secondary one day you will probably have a RIF account so it makes sense to education … understand all the rules and options available to you. There are many similarities between an RSP and a RIF. The main difference between the two is that the RSP is used to accumulate money via contributions, whereas the RIF disburses money via withdrawals. Rules for converting RSP to RIF  You have until December 31st of the year you turn 71 to convert each RSP to a RIF. (Continued on page 5) 1
  2. 2. Issue: Autumn 2012 The Artisan (Continued) excess of 50% of government revenues. Draconian measures were put in place. Government expenses and government jobs were cut and the Canadian public was handed the much hated G.S.T. Fortunately it all worked and in five years Canada was in good economic health. It should be recognized that while Canada was restructuring, the rest of the world was in much better shape than it is today. Once we accept that we are in an economic restructuring that will take years, the next step is to attempt to predict what this means for financial markets and individual What’s New: investors. Deleveraging is not uncommon - as pointed out earlier, Canada went through such a process some twenty years ago. The world has seen the process at work Origins & in recent years in Central and South America, and Understanding historically in the Western World in the Great Depression. Once it became apparent that deleveraging Northland Wealth Management is pleased to was in process it became the focus of many economists announce the addition of Victor Kuntzevitsky to our and financial market theorists. From a historical team. standpoint some common threads emerge. The first, which we have already mentioned, deleveraging, to Victor joined Northland Wealth in August 2012 as completion takes three to four times as long as a typical an Associate. His primary role is to support recession. Eventually governments offset this long and Portfolio Managers with trading and research arduous process by printing money, which creates functions, and assist with projects to improve inflation and results in devaluation of currency. There efficiency and client reporting. Bringing knowledge is a transfer of wealth from the wealthy to the less well beyond his years, Victor will most definitely wealthy as savers earn little on their investments and prove to be an asset in many facets of our firm. borrowers pay little on their loans. Armed with an Honors Bachelor of Commerce In describing deleveraging there can be good deleveraging degree from McMaster University, Victor has also or bad deleveraging. This is not to say that the so called completed the Canadian Securities Course (CSC) good deleveraging is without pain, it is just that a bad and is a Level 1 CFA Candidate. While at deleveraging can be economic catastrophe. In a good McMaster, Victor was the lead supervisor at the deleveraging, governments move in early to stabilize a Allen H. Gould Trading Floor and Senior Trader collapsing financial system, injecting capital where with the McMaster Investment Club. (continued on page 3) Victor is an avid sports fan and his passion for philanthropy is highlighted as the Founder of ‘Get Swabbed’, an annual bone-marrow drive held in Canadian Universities in partnership with Canadian Blood Services (CBS). As we continue to expand the breadth of our services, new additions such as Victor, will enable us to maintain the high3) standards of service and efficiency our clients have come to appreciate. 2
  3. 3. Issue: Autumn 2012 The Artisan(Continued)needed, and managing the takeover of failing financialinstitutions by more viable counterparts. Interest ratesare driven lower and held low. Once the financialsystems are stabilized, a combination of economicfiscal stimulus (paid in part by tax increases) andausterity measures (to reduce government costs)eventually brings government deficits under control.However the fiscal stimulus must be aimed at creatingreal assets that have lasting economic value. Simplyhanding out these funds for social programs, whilepolitically attractive, will have little long term positiveeffect on economic progress. In time this approachwill bring the economy back to a condition where Speaking Engagementsnormal balanced growth can begin. It is in this latter Arthur Salzer, Chief Executive Officer & CIO, willperiod where governments historically still faced with be a speaker at the upcoming North Americanlarge debt loads, turned to the printing presses. Family Office Conference – Creating a NewThere can be two types of bad deleveraging. In the Generation of Wealth held at The Taj, Boston,first type, austerity alone is used to fight government Massachusetts on the 13th & 14th of November.deficits. Government cutbacks further add to Arthur will be sharing his professional insights oneconomic woes and a depression occurs. In the second the panel discussion of The State of the Family Office intype, governments react by printing money Canada. This exclusive and private meetingimmediately to solve their deficit problems and allow organized by Campden Conferences and The Institute ofthe excess funds to stimulate the economy. The Private Investors is considered to be one of theinflation caused is at first seen in a positive light as the pinnacle global events for families of substantialeconomy begins expanding. Inflation then accelerates wealth and their trusted advisors to learn from eachto the point that the currency becomes worthless and other in the areas covering family business, familyeconomic collapse occurs. office and wealth management issues.The U.S. and Great Britain have accomplished the firstpart of the good deleveraging. The U.S. is now at the Fixed income investors will find returns on fixedpoint where the politicians must construct a program income portfolios will fall to prevailing coupon yieldsof fixed stimuli, tax increases and government as capital gains no longer occur. This means returns inausterity. The upcoming elections will decide who will the 2% to 3% range on an annual basis - hardly enoughcarry this out and how. In Europe the lack of a truly to cover inflation.empowered central banking system is hampering This is an example of savers transferring wealth to theprogress and so far only austerity measures are being borrowers. In this type of environment the secure highimplemented. This may well lead to political upheaval quality dividend stocks, income producing real estate,and social problems – only time will tell! infrastructure and opportunistic credit trading strategiesWhat does this all mean for financial markets? With become even more attractive. With economicCentral Banks holding down interest rates, and slow uncertainty a worldwide fact of life, equity marketeconomic growth, interest rates will remain low. volatility will remain with us to test the courage of equity investors. With the U.S. pledging to hold interest rates down until 2015 the pattern of financial Important Notice markets today is likely to continue at least until then. Painfully slow economic growth, relatively high December 31st marks the deadline for RSP unemployment, low interest rates, and volatile conversions for those turning 71, 2012 RESP sideways equity markets will be the order of the day. contributions, 2012 TFSA contributions and the This dictates investment strategies that emphasize secure cash flows from high quality sources. A end of the 2012 tax year. Act now to ensure moderate investment should be deployed in gold your financial plan is in order. bullion funds or gold stocks as insurance against any (continued on page 4) 3
  4. 4. Issue: Autumn 2012 The Artisan (Continued)Brush Strokes: unforeseen significant economic trauma inWe have relocated! the U.S. or in Europe.In an effort to become accessible For investors the environment described isto more of our clients and hardly encouraging. However there areprofessionals we work with, bright spots. So far for North America theNorthland Wealth Management deleveraging has been handled successfully. In Canada we have experienced only a mildis moving to new premises. recession, no housing meltdown andEffective October 1st, 2012 our head office will be located at 8965 confirmation that our banking system is oneWoodbine Avenue, Markham ON, L3R 0J9 (Located on of the best in the world. In the U.S., theWoodbine Avenue between Hwy 7 and 16th Avenue). added weight of sub-prime mortgages and financial institution misdeeds causedWhat Will NOT Change: considerably more economic damage.  Our main phone number 416 360-3423 However recent signs of revival in the U.S.  Our toll free number 1 (888) 760-6596 housing market and improving employment  Email addresses numbers seem to be signaling better  Website addresses economic growth ahead. Another  Employee extension numbers significant difference in this deleveraging process is that a major part of the economic We encourage you to visit our new system – the corporate sector - is in excellent location and join us for a cup of coffee in shape with flush balance sheets. Many our lounge area. This new location corporations, with markets outside Europe provides us with ample space for meetings, and North America that are growing rapidly, future growth, and our own private are still showing increasing earnings. parking lot (access from Buttonville Hopefully the positive influence of the Crescent East) for staff and guests. corporate sector health will soften the negative elements of deleveraging forWe are thrilled with our new home and look forward to greeting individuals and there. David Cockfield, MBA, CFA Managing Director & Portfolio Manager 8965 Woodbine Avenue is located 1.0 km south of 16th Avenue accessed from Buttonville Crescent East. 4
  5. 5. Issue: Autumn 2012 The Artisan (Continued from Page 1) you to take advantage of the $2,000 per annum  You can convert your RSP to a RIF any time prior pension credit by means of withdrawal. to the deadline, although documents should be submitted for processing by early December of the One of the main differences between a RIF and an year you turn 71. The rollover from an RSP to a RSP is that you have to make at least one withdrawal RIF is usually to meet retirement income needs per year from your RIF account starting in the year and/or for tax planning purposes. you turn 72. To make that happen you have to select a  Mandatory or minimum payment option. The payments – payments government rules say that begin the year after you set you have to withdraw the up your RIF account. mandatory amount from There is a minimum your RIF by Dec 31st of that percentage amount that year. There is a lot of must be withdrawn each flexibility in how this can be year and this is calculated set up: using a government  Payment frequency – formula. The withdrawal amount increases as you What frequency of payment get older. is most efficient for your  Maximum withdrawal situation? amount only applies to  Payment form – Funds locked-in plans which are can be deposited directly to usually the result of a pension plan payout. your bank account. You can  All withdrawals from RSP or RIF accounts are also have the payment transferred to your non- considered taxable income. registered account or TFSA account at the same  A RIF account can hold the same investments as an institution as long as you have contribution room. RSP account. Assets in a RIF account are still  Withholding tax –There is no minimum “registered” so you don’t pay tax on the income and withholding tax on the mandatory annual there are no capital gains or losses. minimum withdrawal amount. If you take more  Once you have converted an RSP to a RIF you can than the mandatory amount then the withholding no longer make contributions to the plan. tax levels applied are the same as for RSP  Investments can be transferred in-kind from a RIF withdrawals. In either case you can (and probably to a non-registered account or to a TFSA account. should) ask the institution to withhold a higher You don’t need to sell the actual investments in percentage. The amount withheld will create a tax your RIF to complete a withdrawal. credit on your next tax return but you could still  You can have more than one RIF account, however owe more money especially if you have other consolidation at conversion is suggested. income sources.  You can make multiple transfers to the same RIF account from your RSP account. Please feel free to contact our office to discuss your  Opening a small RIF account at age 65 can allow options in further detail.Planning Files: There are several ways you can help loved ones avoid the onerous costs of post-secondary education. The first optionEducation Savings - for most people should be the registered education savings plan (RESP). In fact 52% of families have already startedWhat Are Your Options? RESP’s for their children/grandchildren.With household debt growing to record levels, student RESPs are simple to open. Once you obtain a socialborrowing has emerged as a special concern for Canadians -- insurance number for your child/grandchild and choose awith good reason. Average student debt on graduation grew plan provider, you are on your way. As a subscriber to anto $18,800 in 2005, up from $15,200 a decade earlier, and individual or family RESP, you control the assets inside themore than one in four borrowers -- some 27% --had debt loads plan, much as you would your holdings in your RSP orof at least $25,000 by the time they finished school. TFSA. (continued on page 6) 5
  6. 6. Issue: Autumn 2012 The ArtisanAlso, as with other registered accounts, contributions inside  Unlike RESPs, there are no restrictions on the amount youan RESP grow without attracting any taxes. can contribute  Also, unlike RESPs, if the child does not pursue post-What is most appealing about RESPs are the government secondary education, the child may use the money forgrants they attract. Over the lifetime of a plan, each child is another purposeeligible for Canada Education Savings Grant (CESG) of upto $7,200. Thats calculated as 20% on the first $2,500 Family Trusts / Educational Trustscontribution to an RESP and allocated each calendar year, A family trust or educational trust is a trust arrangementwith unused annual CESG room accumulating until the end typically established by a formal trust agreement drafted by aof the year in which a child turns 17. lawyer. A formal trust allows you to specify exactly how your funds are to be invested and exactly how and when the trustAn RESP may have a single beneficiary or, in the case of a will pay out to your beneficiary. There are no contributionfamily plan, multiple beneficiaries who are in the same limits, however a tax return must be filed for the trustfamily and related to the subscriber by blood or adoption. In annually. Although certain preferential tax treatment for suchcases when the plan beneficiary does not pursue post- trusts has been eliminated in recent years, some advantagessecondary education, subscribers of individual and family still remain.RESPs have several options. For example, funds can beallocated to a sibling who is also part of the plan or has been How do other education savings options differ from RESPs?added to the plan. Or, if contribution room is available, the  Unlike Registered Education Savings Plans (RESPs), thesubscriber could choose to transfer to his or her RRSP or a government does not add grants to your savings. Keep thatspousal RRSP up to $50,000 from an RESP. Even without in mind as you choose how you will choose to save.RRSP room, the accumulated income from an RESP can bepaid to the subscriber. In this case, payments are subject to  There are no rules about what your child does with theregular income tax and an additional tax of 20%. This does money when they reach legal age. They can use the moneynot include grants made to the plan. Those have to be paid to pay for their education, but they might also decide to useback to the government. it for a first home, or keep it for other purposes.Other ways to save for your childs education Tip: For some families, having fewer rules is a good thing. For others, it could lead to problems. Suppose your child decidesIf youre looking for alternatives to an RESP, you may wish to use the money in some way you don’t approve of, such asto consider other savings options to provide additional buying a new sports car instead of going to university? If thisflexibility and growth potential. (Government grants do not worries you, look for savings plans that offer ways to keepapply.) control of the money.In Trust Accounts Education savings is an important component of theA simple way to save for future education costs is to open a Northland Wealth Planning Process. If you are interested inregular (non-registered) investment account as an "in trust" completing your own personalized Northland Wealth Plan,(informal trust) account. Two features of an "in trust" please contact our office.account can make it an excellent savings vehicle for a childs Jeff Sproul, PFP, BBAeducation: Vice President, Wealth Management Europe Today and Tomorrow by Joseph Ratzinger, Pope Benedict XVI Written in late 2004, shortly before Joseph Ratzingers election as Pope Benedict XVI, this book addresses the serious issues concerning the new European Union and the drafting of a European Constitution, events with far-reaching consequences for the West and, indeed, the world. Thinking, Fast and Slow by Daniel Kahneman Daniel Kahneman, the author of this exceptional book, and Amos Tversky (who died in 1996) made economics and other disciplines a lot more realistic--and tougher--for economists, researchers and students. Prior to their work, economists and others maintained classical theories and explanations that relied on certain seemingly logical assumptions about human behavior... 8965 Woodbine Avenue Markham, Ontario L3R 0J9 (888) 760-6596 (NLWM) 6