Words on Wealth. Welcome to the fall edition and the new look of Meridian s Words on Wealth! Meridian FALL 2014

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1 Meridian Words on Wealth FALL 2014 Welcome to the fall edition and the new look of Meridian s Words on Wealth! It seems people aren t thinking about risk these days as much as they used to and it s too bad. Although most financial markets have been quite strong over the past few years, it s always good to balance long-term returns and riskmitigation strategies. This issue features great ways to reduce your investment risk, while also providing some information on intergenerational wealth transfer strategies. We also have a great interview with Gavin Graham, Chief Strategy Officer at INTEGRIS Pension Management Corp. on the state of retirement in Canada and personal pensions. So read on and benefit from these hot topics as we approach the coming cold season! FINANCIAL PLANNING HOT TOPICS INVESTMENTS EXPERT S Make plans to take Markets move care of your family in two directions What happens after go? 6 CORNER Retirement and personal pensions Transferring wealth from generation to generation Diversifying your portfolio for the future Strategies for saving, solutions for life Gavin Graham provides retirement tips for individuals and small business owners

2 Words on Wealth FINANCIAL PLANNING Make plans to take care of your family Learn ways to transfer wealth from generation to generation more effectively We hear more and more about intergenerational wealth transfer these days. Although it may sound complicated, what intergenerational wealth transfer really boils down to is simply developing a sound strategy for passing along assets to your children and grandchildren. Insurance products are also an effective way to transfer wealth to your heirs. For instance, you can name children and/or grandchildren as beneficiaries of a life insurance policy, so payouts will be immediate upon your death and not subject to probate. Studies show that many adult children have never met their parents financial advisor or participated in a wealth transfer planning discussion. Without a proper strategy, however, a significant portion of your wealth could end up being paid in taxes instead of going to your loved ones. 75 % 70 % of parents say their adult children have never met their advisor of advisors say baby boomer clients don t include their adult children in these discussions Intergenerational wealth transfer strategies When you work with financial professionals on handing down assets to your family, there will likely be a focus on several basic strategies. If you have young grandchildren who are not yet old enough or responsible enough to handle an inheritance, you can set up a trust for them. When you pass away, your grandchildren, as beneficiaries, will receive the assets from the trust according to your specifications. As an example, you can stipulate that your grandchildren not gain access to the money until they are 18 years old, and that they will receive a certain amount at certain intervals. Source: Family Wealth Conversations Are Not Happening Financial Advisor Magazine, June 2013 Take advantage of experts in the field One of the wisest first steps you can take to maximize the wealth you transfer to your family is to consult with a Meridian Wealth Advisor. Where required, your advisor can engage the services of other professionals like a tax consultant, accountant or estate planning specialist, to help execute on certain complex aspects of your plan. Please contact me to discuss ways to transfer your hard-earned money efficiently among generations. 2

3 FALL 2014 HOT TOPICS Markets move in two directions Position your portfolio so that you don t have to worry about which direction the markets move next You have probably heard that many global financial markets have reached their historic highs over the past year, and have risen considerably since the 2008 financial crisis. Canada s equity market over the past five years What this means is that if you have an investment portfolio, you have probably seen its value increase considerably over the past few years. While seeing your investments rise in value is great, it s a good idea to remember that market volatility is a fact of life, and there is always a risk that the investments you own could potentially fall in value. There are, however, a few ways to manage your investment returns, while reducing the risk of a significant loss of your hard-earned capital. One popular risk-mitigation strategy is diversification. 16,000 S&P/TSX Composite Index 15,000 14,000 13,000 12,000 11,000 10,000 Sept Sept Sept Sept Sept Sept As of September 30, Source: 3

4 Words on Wealth Remember the old adage Don t keep all your eggs in one basket? It s actually a good rule to follow! Many experts are referring to the recent market gains as a bubble, which implies we may be in store for a correction. This is because strong markets have always been followed by a drop in equity values to reflect economic reality (and not just investor enthusiasm for equities). Regardless of which direction the market goes, diversification is a prudent investment strategy. Although it s great to be invested in the asset classes, countries, sectors and/or investment styles that are outperforming each year, no one knows exactly which investments will be the top performers year after year. By diversifying your portfolio across all asset classes, countries, sectors and investment styles, you will always be invested in the strongest-performing asset classes. Smaller weightings in the weaker-performing areas of the financial markets will be less of a drag on your portfolio s performance. Access the world s outperformers each year The performance of different asset classes varies each year. By diversifying your portfolio into many of these asset classes, you will always have exposure to the strongest-performing areas of the financial markets! Please come into our branch to speak to me about how diversification and our many other investment strategies can help reduce your risk when the markets inevitably weaken, while also potentially increasing your long-term returns. 4

5 FALL 2014 INVESTMENTS What happens after go? Ready, set, go! Some think that saving is a sprint. We think differently. We see saving more often as a marathon: a long-term process that should be adapted to your unique situation because your savings goals are varied and complex. Your savings goals when taken together are complex Let s take a look at why you save. We think that your savings goals probably fall into four key areas: Solutions that help You have many options at Meridian. We can help you meet your short- and near-term savings needs with our high-interest savings accounts or GIC strategies, while also helping you meet your longer-term needs (like saving for your retirement) with wealth solutions like mutual funds.* 1. To provide income at a later date (your retirement) 2. To give to others (your estate) 3. For a specified goal (large purchases) 4. To ensure you are financially secure (peace of mind) As you can see, most of these are not shortterm goals. In fact, some could be over 50 years away. That s why it is important to get practical advice about the right solutions and strategies that will help you reach them. A wellplanned savings strategy will balance all of your priorities from paying bills and financing your child s higher education to buying your next home and funding your retirement through a combination of solutions. Good to Grow Savings Account Wealth Management Solutions GIC Strategies Index-Linked GICs It is important that you get advice from an expert, make your savings automatic and stick to your long-term strategy, so please come in and ask me about how you can use these solutions to reach your goals. 5

6 Words on Wealth EXPERT S CORNER Retirement and personal pension advice Retirement myths, tips and a special focus on business owners THE EXPERT Gavin Graham, Chief Strategy Officer, INTEGRIS Pension Management Corp. As Chief Strategy Officer for INTEGRIS, Mr. Graham is responsible for establishing and executing key strategic priorities as well as overseeing the development of partnerships with other financial institutions to reach the company s overall goals. Mr. Graham has over 30 years of investment experience, including 10 years as Chief Investment Officer at Guardian Group of Funds. While at BMO Asset Management, he oversaw the management of over $50 billion in assets. What are some of the more common myths when it comes to saving for retirement? One of the biggest myths is that you have to start saving when you re in your 20s, or you won t be able to make up for the years you have missed. While I believe that starting to save as early as possible is always a good idea, it s truly never too late to start saving for retirement. It shouldn t matter if the market has been up, down or sideways, taking that first step towards achieving your retirement goals is an important step. Another big myth is that, as you get nearer to retirement, you should increase the percentage of your investments held in fixed income products (bonds) to reduce your risk and increase your income. With government bond yields at 60-year lows, it doesn t make sense to me at this time to switch money into bonds, as this strategy won t really reduce your risk or provide that much income right now. In my opinion, increasing your holdings in diversified managed income solutions is a better way to lower risk and increase income. What are some of the tips you recommend to people when saving for retirement? The first tip I tend to give is to Pay yourself first. What this means is, take 5% or 10% from your salary and put it immediately into your pension/ 6

7 FALL 2014 savings even before it s put into your bank account. If the money isn t available to you, you won t spend it so easily. These smaller amounts can really add up over time. Another tip I offer is that, if your employer matches your contribution, take it. That s free money! As long as you keep your money in the savings plan for a minimum period at the job, usually two years, your employer s contribution is yours to keep. Most large employers (and some smaller ones) will contribute 50 cents or more for every dollar you save. You should definitely take advantage of that type of benefit. Last tip: when you get your income tax refund, don t spend it. That s your hard-earned money, which the government has held for you throughout the year. Contribute it into your registered retirement savings plan (RRSP) and benefit from those additional tax savings. Set up a tax-free savings account (TFSA) so you can also benefit from the non-registered tax benefits offered by this vehicle. What retirement solutions would you recommend to owners of small- and medium-size businesses? I would first recommend finding a team of financial experts who can help you create a retirement savings plan that is tailored to your individual needs. For the incorporated small-business owner who is looking to save more for retirement and wants to do so taxeffectively, I recommend considering the Personal Pension Plan (PPP). What are the benefits of setting up a Personal Pension Plan as opposed to an RRSP? There are numerous benefits to setting up a PPP for an incorporated business owner. A PPP allows you to contribute a lot more money each year than is possible in an RRSP. This solution is tailored to suit your business cash flow needs by giving you the option each year to contribute either on a defined benefit or defined contribution platform. Unlike the RRSP, another huge benefit is the ability to tax deduct all of your investment and administrative fees and provide you with a 33% HST credit refund. Last but not least, your savings within a PPP are creditor protected. What this all adds up to is that a Personal Pension Plan can provide you with more retirement savings and will allow up to 60% greater taxdeferred compounding until you retire. For more information on retirement myths or strategies, please contact your Meridian Wealth Advisor. Proud member of Credit Unions of Ontario 7

8 Words on Wealth WHY MERIDIAN WEALTH What does wealth management mean at Meridian? It means: Trust. Advice. Planning. As your trusted Meridian Wealth Advisor, I take the time to build a strong relationship for the long term, as well as to understand your unique needs. My goal is to translate where you want to go into an effective and achievable roadmap, and to find the right investment solutions to help you save, protect and grow your financial assets. Words to Ponder Risk comes from not knowing what you're doing. Warren Buffett Here is how I look forward to building our relationship and your trust: I provide an unbiased, honest perspective, and my decisions are based only on your best interests. I have no bias toward any particular solution apart from the one that most effectively helps you meet your objectives. I ensure you clearly understand your wealth planning options and align your portfolio with the right solutions to help you reach your goals. We will review your finances together on a regular basis, and I will keep you well informed so you always feel knowledgeable and comfortable. As a Meridian Wealth Advisor and your neighbour, I am committed to working with you to create and build the right approach for your family s financial security that is tailored to your needs, your objectives and your values. * Mutual funds are offered through Credential Asset Management Inc. Mutual funds, financial planning and other securities are offered through Credential Securities Inc. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Unless otherwise stated, mutual fund securities, other securities and cash balances are not insured or guaranteed and are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer that insures deposits in credit unions. Mutual funds and other securities are not guaranteed, their values change frequently and past performance may not be repeated. The information contained in this report was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete and it should not be considered personal taxation advice. We are not tax advisors and we recommend that clients seek independent advice from a professional advisor on tax related matters. Credential Securities Inc. is a Member of the Canadian Investor Protection Fund. Trademarks of Meridian Credit Union Limited. 10/14 meridiancu.ca