investment planning

During a recent client call, the topics discussed included how the media influence people's investment behaviors. This client woke up one day with an 'epiphany' thinking that a market correction was just around the corner. They did admit after a discussion that they had been reading something to that effect in the newspapers during the weekend.

One Saturday, famed investment manager Peter Lynch was working at the office when he decided to answer the phone. The caller was a holder of his mutual fund who was calling to cash in the investment. Peter explained how he was excited about the growth prospects for the economy and his fund and asked him why. As Peter tells the story the caller said: 'Because I am breaking even!'

There are many definitions and meanings for the term 'wealth'. It is often said that it is easier to build wealth over time than it is to keep it! Some confuse high incomes with wealth while others point to assets owned as an indicator of wealth. And, many people use the terms 'assets' and 'wealth' interchangeably assuming they mean the same thing.

The distinction between these two concepts may have an impact on your actions and strategies as you work to build your pot of money or savings during your lifetime.

While we can talk about concepts such as inflation and purchasing power the struggle for many people today is earning enough income on their savings to meet their lifestyle needs. Interest rates and the earnings from capital through dividends, bonds and real estate rental income have dropped dramatically in the past few years.

The Tax-Free Savings Account (TFSA) was introduced in 2009 as a new way for Canadians to build assets and wealth on a tax-advantaged basis. Any capital gains, dividends or interest income are tax-free upon redemption from the account. The initial contribution amount was $5,000 with annual increases of $5,000. This has been increased to $5,500 in 2013 to offset inflation. This brings the maximum contribution amount for a new subscriber, in 2013, to $25,500.

In the last article we defined investing as buying an ownership stake in companies who are profitable today and whose profits are expected to rise over time. Trading is any other form of managing your money which may or may not take into account corporate profits as part of the decision-making process.

There is a concept in biology about the ability of organisms to adapt to changes in the environment. This adaptation process increases the odds of survival for organisms under stress due to environmental changes. A similar mechanism exists in finance that allows economic organizations, otherwise known as companies, to survive and thrive in changing or shifting economic landscapes.

High net worth investors are now sitting back and enjoying the summer weather, breathing a sigh of relief now that they are done with their annual tax filings. The work involved in assembling all of the relevant tax information is made more complicated by the fact they often deal with several investment firms.

U.S. financial research firm, Cerulli Associates, recently found that high net worth investors had, on average, 3.7 investment advisors. Ultra-affluent investors often spread their investments across many more.

During financial crises, stock prices suffer. However, they typically recover over time.

This chart illustrate the cumulative returns of a balanced (60% stock/40% bond) portfolio after five historical financial crises. In the short term, uncertainty from such external shocks can create sudden drops in value. For example, the portfolio posted a negative return one month after the October 1987 stock-market crash. Over a longer period of time, however, returns were much more attractive, and investors who stayed the course reaped considerable rewards.

The newspaper headlines read: 'Roller coaster stock markets have investors feeling queasy' (The Globe and Mail; 'The stock market crash: History repeating itself?' (The Calgary Herald); 'Uncertainty continues to pummel stock markets' (Sudbury Star); 'The next market boom may be a lifetime away' (Financial Times). Interestingly enough, these headlines are from November 2002. One year later, the S&P/TSX Equity Index was up 20.8%; and two years later had soared by 40.7%.