Commentary - Hans H. Mathisen
It doesn't pay to procrastinate -
It appears that many Canadians are only partially prepared for retirement and don't really know what to expect. LIFE LETTER for May discusses the downfalls of putting off the planning required for a comfortable retirement.
LLMature for June points out how the Baby Boomers are wedged between the dependency of aging parents and the needs of their childeren.
THE STOCK MARKETS – The financial problems of the Eurozone have brought down stockmarkets around the world. As of the end of the second quarter of 2012, the S&P TSX stood at -3.00%. The Dow Jones gained 5.42%, and the NASDAQ grew 12.66%. In Europe, Germany’s DAX fell 7.2%, France’s CAC was down 15.98%, and England’s FTSE 100 declined 5.57%. In Asia, Japan’s NIKEI lost 11.94%, and Hong Kong’s HANG SENG shed 15.60%.
So, with all this red ink, where are the markets likely to go? Most economists have been saying that the members of the Eurozone have been doing too little too late. However, the action of the 17 nember countries in the Eurozone on Thursday, June 28, 2012 indicates that the group has now decided to abandon the band-aid approach to the economic crisis, and this gave the world markets a big boost on Friday, June 29. And even though the financial problems of the Eurozone are far from over, it appears that the action taken on June 28 represents a turning point.
One of the analysts Hans Mathisen listens to is Canadian investment expert Michael Ryval. I quoted him in my January/February, 2012 Commentary: “Choose a Canadian equity fund that invests in solidly run companies that can make it in good times as well as bad. And if markets remain volatile, patience is key”.
Your porftfolio of funds contain only solidly run Canadian companies that can make it in good times as well as bad.
How about bonds? If you have realized a return of 4% over the past two or three years, 2% has been taken by taxes and 2% eaten up by inflation. Net return: ZERO.
How about equity? It isn’t always easy being a value investor, but any lapse in conviction can seemingly be cured with a one-day dose of Warren Buffett. In May, 2012, about 35,000 people of all ages descended upon Omaha, Nebraska for the Berkshire Hathaway annual meeting and hung on to the words of the world’s most successful investor.
“It’s an important reminder of sticking to the basics. When you get away from that, that’s when you get in trouble” says Hardev Bains, president and portfolio manager of Winnipeg-based asset management firm Lionridge Capital Management. “Focusing on the long run get the best outcome for clients but it can often lead to ‘less-than-spectacular’ short-term results”.
How about gold? Warren Buffett says, “If you own an ounce of gold now and you caress it for the next 100 years, you will have an ounce of gold. It’s very hard for an unproductive investment to be productive for any period of time. If you own 100 acres of farm land, 100 years from now you would own 100 acres of farm land, but you have earned income for 100 years. When Birkshire started, gold was at $20.00 an ounce and Birkshire stock was at $15.00. Now, gold is at $1,600.00 and Birkshire at $120,000.00”.
It doesn't pay to procrastinate
Many people have no idea. Some people have a vague idea. A few people, a very few, have it all worked out. When it comes to retirement planning, many people don't take action until forced to by a mid-life event (career change, death of loved one) or by hearing about seniors running out of money. It's strange that people find it so difficult to plan for their retirement. As all the basic financial books say, you start by recording your expenses, see where you can cut back, and then determine how much you need to save to achieve your retirement income goals. Yet, far too few Canadians take these presumably simple steps for their own financial success.
It is a weakness of human nature to put off that which is not demanding our immediate attention. We easily respond to a ringing telephone or stop to answer texts or e-mails, but something out in the future, however important, has a much less significant pull on our awareness. After all, there's always the nagging fear that we are not saving enough, and to get on the right path might require making hard choices or sacrifices.
A recent Fidelity Investments survey of couples yielded some surprising results. Less than 40% of couples agreed on the date they should retire. There was less agreement on whether they would continue working in retirement.
Amazingly, one in three of already retired couples could not even agree how comfortable their current lifestyle was. Even for those who work with a financial advisor, more than half the couples surveyed couldn’t agree on how long they had been using them. It seems that in dealing with financial matters, the most preferred method is sticking our heads in the sand. If something doesn't have an immediate effect on us, it can be too easy to put off.
It appears that many Canadians are only partially prepared for retirement and don't really know what to expect. For those without the financial acumen or stomach to analyze the situation themselves, the best way forward may be working with a qualified financial advisor.
The basic problem is that most people wait until they suspect they are in trouble before they seek professional advice. The primary role of the financial advisor is often to clarify facts and help people see the reality of their situation. Even those with large incomes and/or savings sometimes worry about the future, but a skilled financial advisor can help explain the impact of key financial factors (inflation, taxes, investment returns, etc.) that affect an individual’s overall financial health.
As with many Canadians, if you are not coasting along towards a comfortable retirement, and you think some changes may be required, a financial advisor can provide an objective view of how you are really doing financially. It is always far easier for a detached professional to evaluate your savings strategies and spending patterns, so if you are having difficulty getting a grip on your finances, speaking with your financial advisor may well be your best financial action plan.
Start Planning Now! – because it’s the right thing to do.
Call Hans Mathisen today at (306)242-7042.
Copyright © 2012 Life Letter. All rights reserved
How to achieve personal financial sanity
As the sovereign debt crisis makes its way around the world, creating havoc in its wake, we can be thankful that Canada has weathered the storm in fairly good shape. The media has given us a play-byplay on the action and many people are concerned with the outcome. While we can’t solve the sovereign debt crisis individually, we can focus on our own financial situation. Here are 5 keys for achieving sanity in your personal finances:
Reduce Your Debt - If we have learned anything from the financial crisis, it’s that too much debt can have a devastating effect on the economy. Not just the global economy, or national economies, but on our personal economies as well.
For most, the solution can be relatively simple - find ways to pay down discretionary debt such as credit cards and lines of credit. If your debt load is a little more than you can bear, you may be able to consolidate debt at lower interest rates and payment amounts. Avoid new consumer spending and think it over before using that credit card again.
Increase Your Savings - In any financial downturn, those that survive it best have savings they can fall back on. It is recommended that you have three to nine months of living expenses as an emergency fund. If you haven’t already developed the discipline of saving this amount, a monthly pre-authorized deposit into a savings plan is a great start. With interest rates so low, only keep enough to handle emergency situations. A Tax-Free Savings Plan may be an excellent place to put these savings.
Invest Your Excess Savings - The stock market these days can be very volatile. It can be difficult to predict the markets. As we have seen, events elsewhere in the world can have a devastating impact on local stock markets.
Investment funds can be an excellent way of investing in the markets and you benefit from the built in expertise of professional money managers. You can also benefit from dollar cost averaging if you invest regularly and systematically over time.
Have Sufficient Insurance Coverage - Whether its life, accident and sickness, home or auto, it’s important to have adequate insurance protection. Most of us know of someone losing a family member without sufficient life insurance and the devastating effect it had on the survivors. Or of someone becoming disabled and not able to earn a living. We like to believe it won’t happen to us, but it's foolish to not plan for the possibility.
Protect Your Estate - The last thing you want is for the government to decide who gets your life savings. A properly prepared and valid will names a trusted executor and establishes guardianship for minor children. This is not something to be put off. Do-it-yourself wills are an option, but they can cause enormous problems if not completed properly.
A trusted financial advisor can take you through the options best suited to your individual circumstances. Together you can tailor make a solid plan for accumulating and keeping your wealth.
Plan for Personal Fianancial Sanity - because it's the right thing to do.
Call Hans Mathisen today at (306)242-7042.
Copyright © 2011 Life Letter. All rights reserved
Mutual confidence is the power that binds together all harmonious human relationships.