First Quarter 2012 Market Update
With the first quarter of 2012 now behind us it appears that confidence in the economies of the world are looking up. Investors have returned the recent market depressions of the last 8 months to new recent highs, led by the increasing likelihood of economic prosperity in the US. If there were ever a time to eschew the virtues of accepting market volatility and the frequent short-term rises and falls of investing in equities, the last 8 months provides an excellent example to do so.
Since the recent lows of late 2011, the S&P index has recovered 21% and the Dow has once again surpassed the 13000 mark. The US markets have over-contributed to a very speedy rise in first quarter composite world markets.This is best shown by first quarter returns of the Nasdaq of 18% and a more global benchmark, the MSCI All Countries World Index, trailing with a respectable first quarter gain of 10.5%.
For investors who choose to be invested by and large in Canada, the returns have not been so generous.The first quarter return for the TSX composite index was 3.7%, trailing many other country indexes for the same time frame. This serves as a reminder that Rowe and Mali prefers to invest in global equities and/or fixed income investments at ALL times of the economic cycle due to the loss of opportunity to our clients portfolios.
Next for markets.
We believe that equity markets are still undervalued overall. Much of investor money which was pulled from equity markets during the downfall of 2008 has not yet returned in force to move markets into the next phase of fair valuation and back to all-time highs. Furthermore, governments continue to promote growth exercises for their respective economies which should reduce fears and provide a catalyst to invest in equity markets above fixed income investments.
We are placing the risk within global equity markets at 30-40%, which means that there is a lower amount of risk for investors looking for gains in equity markets than there will be if the market had been overvalued, in a high interest rate atmosphere,(which is an obstacle to equities), lower job or economic growth forecasts, etc. One of the key benchmarks in reviewing the overall equity market risk for our clients is the current level of markets to their all-time highs. At the current time, most markets continue to sit about 10-20% below those highs and so our equity market risk will remain low.
For the remainder of 2012, we expect to have positive market numbers in the range of 10-13%. Also, expect that there will be an inevitable correction in markets at some point and that the pace of the first quarter will not continue to grow uninterrupted of volatility. For our clients with high Canadian equity component in their portfolio, we think that Canadian stock will rise at a faster pace for the remainder of the year than most other markets, especially if other markets continue to perform well, most notably the US market.
Got questions? visit us at roweandmali.com and use our contact us link or comment below.
Saturday, 31 March 2012
Monday, 20 February 2012
Misleading Advertising for Investments and Insurance
A Sarcastic View of the Trade Between Those who Have Money and Those who Want Money.
We are now in the thick of RSP season in Canada and with that comes the ramped up advertising to get your savings deposits before the deadline. So with this in mind I thought it would be best to share some less than truthful advertising gimmicks of getting your money into their accounts.
1. The hook - Up to 3.5% a year RSP.
What this sounds like - Wow, I could get 3.5% on my money over the course of 2012!
What this really means - First, please understand that an RSP does not pay interest. The investment in the RSP pays an interest, or loss, or flat etc. This advertisement is a sales ad by a bank for GIC's . They don't care if it is an RSP or just a regular savings account. Banks sell GIC's...alot! You could get 3.5% in the fifth year of a locked in 5 year GIC if you put that GIC into your RSP this year. Actually, you will probably get a much lower rate this year, maybe 2%, moving slowly upward into your fifth and final year assuming the prime rate in Canada moves in that direction.
2. The hook - Open an online trading account and receive 5 free trades.
What this sounds like - 5 Free trades.
What this really means - is that it is possible to grow money this way assuming you have the expertise, emotional control and judgement, but most likely what most people should read into this is "once your 5 free tades are done, and your money already much lower, we will begin charging you $27 per trade". Enjoy.
3. The hook - "I no longer doubt my investing skills"
What this sounds like - Your now a investment genius. You have mastered the art of economics, analytics, mergers, aquisitions, hedging, swaps, derivitives and can now probably become a sugar commodity broker buying forward contracts.
What this really means - See #2.
4. The hook - "...with no medical. Get up to $250,000 coverage for as little as a dollar a day.
What this sounds like - I'm 56. You mean I can get 250k in life insurance for $30 a month even with my high cholesterol?
What this actually means - If your 22, you can get 250k in insurance for $30 a month...maybe. If your 56, with high cholesterol - forget it! Not for 30 beans that's for sure. Besides, how many 22 year olds really need to purchase medfree life insurance anyway. Most are in great health and can get better rates from another underwriter.
5. The hook - Same returns, less risk
What this sounds like - the holy grail of investing.
What this actually means - (This ad is referring to bond mutual funds which have had a similar return to stock mutual funds over the course of a two year period I believe, 2010-11' I think.) Until you look at the bond market upheaval which left Greece bondholders in its wake, and continues to be the catalyst for both the borrowing and capital markets on this planet. They are not talking about Canada Savings Bonds people.
In summary, your best provider of insurance and investments is a broker. Understand what your buying, who's managing your money and ask lots of questions.
Shawn Lariviere, FMA
Rowe and Mali Wealth Management Services.
Wednesday, 28 December 2011
2012 Investment Outlook and Review
Wealth and Capital Management
roweandmali.com
Transfer your RRSP/RESP/TFSA to Rowe & Mali Wealth and
Capital Management
WE DO THE REST
2012 Market Outlook and Review
This year, daily market volatility and glum economic headlines has tested the resolve of equity investors. Frequently in 2011, markets have moved up or down 3% or more day-to-day. Many investors have concerns that a new recession is on the horizon for 2012 based on news, mainly out of Europe . So what are investors to do you might ask?
First, we will take a look back at the advice that we(Rowe & Mali ) gave going into 2011. Then, we will examine the reality of regional performances around the globe and review how we judge the performance of portfolios, and lastly we will give you our recommendation for the year that lies ahead.
Did you know….although this year has been relatively flat for equity investors, the MSCI World Index is up almost 50% since the low of 2008.
What We Said – 2011
For most clients comfortable investing with some volatility in order to obtain a possible enhanced rate of return, 1. we continued to advise that they hold a larger value of their portfolio in regional equity investments. Typically, this meant that they created a global portfolio with investments held in regions such as North and South America, the Far East, Europe, etc. Many of these investors had already created a global equity portfolio in the two years previous to this one and so no changes really needed to be made. 2. In the middle of the year during, uprisings in the Middle East, and after the fall of much of the value to ME indices we called investors to allocate a portion of their portfolio to this region.
Markets in Perspective – 2011
Although much of the news causing investors to question whether the sky is falling is coming out of Europe , and with good reason, investors will be surprised to find out that with a globally diversified portfolio, not all new is bad news.
For example, the Morgan Stanley US index is up 0.55 % this year. Yes, UP! Considering the amount of flak some people throw at our southern neighbors, this may come as a surprise to many. Chances are quite high that you have a portion of your portfolio invested in this area and it is probably paying your account a dividend to boot.
Some markets that have not fared so well include, of course Greece Egypt Bangladesh Argentina Canada
However, even in a year such as this there remains some areas that have posted gains for their regions. They include Ireland Indonesia
For the record, most regions and individual countries have a positive, many double digit growth, over the course of the last 3 years.
It is important to note that although these market indices are posted as such, they do not include the dividend payments that investors normally receive by holding certain equity investments. The index value given is from trade day ONE in 2011 to the current date (YTD). In investment portfolios, the amount of gain (or loss) in an index value is constrained by making regular deposits which purchase those investments at varying values.
Quick Fact.
If you deposited money monthly into your portfolio and your portfolio mimicked the MSCI World Index exactly for 2011, assuming the index was down 7%, you may still have a positive return on your investments due to periodic dividend payments and averaging your purchase price of new deposits.
Judging Portfolio Performance – Benchmarks and Investment Style
Rowe & Mali Wealth and Capital Management continues to use three different Benchmarks to measure productivity of a portfolio. They are as follows.
- For Canadian Only Portfolios - The S&P TSX Composite or MSCI
Canada
(Currently -14% YTD)
- For Global Portfolios - The MSCI All world Composite Index
(Currently -7% YTD)
- For Conservative or Income
based Portfolios - The Existing Canadian Prime Rate.
(Currently 3%)
At R&M, we do not adhere to a buy-and-hold strategy of investment management. Instead, we believe that we can enhance the rate of return of portfolios by assessing risk in the overall market and utilizing “riskier” investments during times of lower risk in the economy and vice-versa.
What we are saying now – 2012
2012 will see a return to positive growth to markets after satisfying market participants that a return to negative global GDP will not happen. Any hint of recession will be muted by single quarter or alternating quarters of GDP growth/decline. If, indeed, two consecutive quarters were to show negative GDP growth( classic definition of recession), this would be short lived. The return to positive market performance will suggest that global economic expansion which started anew in 2008 continues. Look for regions which benefited in 2009-10 to show above average growth during this resurgence. It is not new for markets to succumb to corrections throughout any year, for whatever reason, such as in 2010 and 11, and the coming year will be no different. This should be treated as a “matter of fact” by investors, even though it may be a hard pill to swallow, as it drags out such as it has done this year. Notably, most countries expect a slowdown of economic growth not a retreat, and the IMF’s own outlook for global GDP in 2012 is slower in the first two quarters increasing above 4% in quarters 3 and 4.
For the upcoming year we suggest…
- Investors should continue to hold a larger portion of their portfolio in equity investments - Global Large Caps. This is the same as last year. We do not imagine that volatility in the market will go away, however, it is our belief that sovereign debt management will be resolved and the market in 2012 will foreshadow further proof of existing economic growth, even if that growth is lower than forecasted previously. What fear lies in the market at this point is negative economic growth, so even flat growth should enable market gains and a continuation of the market growth which started in 2009. Governments will continue to interest rates low, creating a still good environment for equity investing.
- Investors should continue to buy into different regions of the Globe. Emerging, or rather emerged, markets now contribute 50% of the global economy and growing. Many of these regions continue to be deflated due to global fears but have a regional outlook for economic growth that would surpass the global average. This can enhance your RoR over the course of the next couple of years if you can handle some volatility. Also consider a small portion of your investments into Frontier markets if growth is your main motivation.
- The global economic expansion is not yet done and will continue. By our guesstimate, we view equity markets at between 40-50% risky, last year we would have put it at the same or slightly lower but in 2009 we assumed most risk in the market had disappeared after share prices fell and money evaporated from equity markets. We are in year 3-4 of the current market and economic cycle. Markets are still lower than their previous market cycle highs. When the markets reach the previous highs of 2007/8, it will be assumed that the risk in the overall market is 50-60% which has not occurred as yet. Most markets still sit about 20-30% below their previous highs. The natural path for the economy is to expand. This expansion of global production is reflected in the markets. Assuming an 8% unemployment rate in any country but an annual population growth of 3%, would mean in simple terms, that more people are working than the previous year. Correspondingly, production is becoming more efficient and thus production per
capita is also typically growing, most notably and quickly in emerging industrial countries.
- Investors should prepare for day-to-day volatility. Personal emotion, news reaction, more money, investment tools and the higher degree of derivative investments all play a factor in the increase in the degree of change in our financial markets more than ever.
If you have any questions regarding this article, your portfolio or any other item, please feel free to contact me at shawn.lariviere@rogers.blackberry.net. Or find me on facebook at our business page Rowe and Mali Wealth and Capital Management or Shawn Lariviere, FMA.
To all, a blessed and prosperous New Year!
Friday, 18 November 2011
Incorporating in 2012 - Rowe and Mali Wealth Management Services
To my Valued Clients,
As many of you have already heard, I will be leaving my current life sponsor, London Life, to incorporate my own insurance, investment and capital management firm early in 2012.
The name of the firm will be Rowe & Mali Wealth Management Services and will provide more products and services to my individual and small business clients. Furthermore, the move should allow me to better price current product offerings and allow for online investment account accessability.
The web site being developed currently will have the domain roweandmali.com and should be online in December along with a toll free number for clients outside of the Greater Toronto Area.
My main motivations for making the move are to better control future personal and corporate taxation, expensing, staffing and commissions.
I have teamed with associate broker advisors to offer a full range of small business financial tools including corporate savings, insurance, pensions and benefits, share buy-outs and small business(SME) start-up and expansion capital.
On the individual side, as a broker, I can now offer my clients a wider range of personal insurance and investments (RSP/RESP/TFSA/life insurance/etc) than before and with the introduction of margin, limited partnership and real estate investments, am better suited to offer my clients a large shelf of options. I will also be introducing brokered mortgages to my clients in the coming year, subject to approval from the Financial Services Commission of Ontario (FSCO).
All small business accounts including corporate savings plans and health plans will not notice any visible change during the initial transfer to my new firm.
It has been a pleasure working with new clients and meeting new people thus far and all current clients are invited to follow me to Rowe & Mali. I will be contacting each one of you to ensure that you are aware of the transfer details, changes of accounts or signatures needed, if you wish to continue with me. Please contact me directly if you have any questions or concerns for me.
Rowe & Mali is committed to Canadian Small and Medium sized Enterprises (SME). We provide financial tools to ensure a successfull start, continued growth and eventual succession of Canadian Small Businesses with 1-100 employees.
As many of you have already heard, I will be leaving my current life sponsor, London Life, to incorporate my own insurance, investment and capital management firm early in 2012.
The name of the firm will be Rowe & Mali Wealth Management Services and will provide more products and services to my individual and small business clients. Furthermore, the move should allow me to better price current product offerings and allow for online investment account accessability.
The web site being developed currently will have the domain roweandmali.com and should be online in December along with a toll free number for clients outside of the Greater Toronto Area.
My main motivations for making the move are to better control future personal and corporate taxation, expensing, staffing and commissions.
I have teamed with associate broker advisors to offer a full range of small business financial tools including corporate savings, insurance, pensions and benefits, share buy-outs and small business(SME) start-up and expansion capital.
On the individual side, as a broker, I can now offer my clients a wider range of personal insurance and investments (RSP/RESP/TFSA/life insurance/etc) than before and with the introduction of margin, limited partnership and real estate investments, am better suited to offer my clients a large shelf of options. I will also be introducing brokered mortgages to my clients in the coming year, subject to approval from the Financial Services Commission of Ontario (FSCO).
All small business accounts including corporate savings plans and health plans will not notice any visible change during the initial transfer to my new firm.
It has been a pleasure working with new clients and meeting new people thus far and all current clients are invited to follow me to Rowe & Mali. I will be contacting each one of you to ensure that you are aware of the transfer details, changes of accounts or signatures needed, if you wish to continue with me. Please contact me directly if you have any questions or concerns for me.
Rowe & Mali is committed to Canadian Small and Medium sized Enterprises (SME). We provide financial tools to ensure a successfull start, continued growth and eventual succession of Canadian Small Businesses with 1-100 employees.
Wednesday, 5 October 2011
Managing investment client expectations.
Oct 5 2011
By Shawn Lariviere, FMA
The current global market environment is testing the suitability of investment portfolios and is a great time for Advisors to exercise prudence in determining the real risk of clients.
As of today, many global markets have broken bear territory (a decrease of 20% from highs) and the coverage is highlighted daily on news and business channels. However, before we start panicking, lets examine first off, what is happening to many investment portfolios which are not invested in guaranteed products.
Many equity portfolios are have depressed values over the summer months reaching bear territory, previous to that, they rode the wave continuation of market growth that had started in 2008. This returned, by index values, roughly 10 % at the beginning of the year. Typically, following market indices, an all stock account (used for example to provide volatility) started in January is down about 5-8% at this time, but the same account started in June may have a 20% loss thus far. It is not yet a given that 2011 will be a losing year for equities however, portfolios may have an easier time reaching parity as investors can grow deposits at a value over the summer, with dividends, to create a positive rate of return for the year. Long-term accounts such as youthful client RSP's and locked-in accounts may have an easier time accepting the volatility whereas short term speculation accounts, Margin, & Leveraged investors will all be wearing their risk in plain view. Some, especially longer term and locked in account holders may feel (wrongly) that they cannot do anything about it anyhow and so attempt no such action. In cases such as this it is the Advisor who must take a personal analysis of the client. The investment, age of investor, and the type of account all play a role in guaging the clients "actual" risk parameter.
The first thing to assume when a client is invested in market performance items is that either the Advisor or the client has determined that the client is suitable for some degree of volatility in their search for larger returns. Secondly, it seems, either the Advisor or Client has a general understanding of the underlying investments within the portfolio and an agreement to invest as such.
In the search for greater Rate of Return on the portfolio many clients may take on more risk initially than they are comfortable with, in fact the presumed risk of the portfolio beforehand affects them much less than the actual risk of the market on their money. It is absolutely paramount, that Advisors reach out to clients during downturns in the market to guage the level of comfort that they are feeling when the situation is at hand rather than an envisioned scenario. It is not uncommon for many clients to stay the course that their Advisor has recommended but their are plenty of instances where the short talk will cause the Advisor/client to determine that a comfort zone has been breached. In other instances, the Advisor may realize a new short term goal that must be taken into consideration within the portfolio and, of course, it is not uncommon for the client to speak of a situation that would invite referrals, hence, evidence that these talks provide dual benefits.
Many clients, if not most, working outside of a private client services realtionship, will ever get a call from their advisor unless it is a sales call( ie,bank). This part of due diligence will ultimately bring you closer with your clients, attract new ones, open new cases, and prevent large falls to your client and your own investment account and assets under management.
Shawn Lariviere, FMA
can be reached on the go at shawn.lariviere@rogers.blackberry.net with any questions or concerns that you may have, on facebook or at roweandmali.com.
By Shawn Lariviere, FMA
The current global market environment is testing the suitability of investment portfolios and is a great time for Advisors to exercise prudence in determining the real risk of clients.
As of today, many global markets have broken bear territory (a decrease of 20% from highs) and the coverage is highlighted daily on news and business channels. However, before we start panicking, lets examine first off, what is happening to many investment portfolios which are not invested in guaranteed products.
Many equity portfolios are have depressed values over the summer months reaching bear territory, previous to that, they rode the wave continuation of market growth that had started in 2008. This returned, by index values, roughly 10 % at the beginning of the year. Typically, following market indices, an all stock account (used for example to provide volatility) started in January is down about 5-8% at this time, but the same account started in June may have a 20% loss thus far. It is not yet a given that 2011 will be a losing year for equities however, portfolios may have an easier time reaching parity as investors can grow deposits at a value over the summer, with dividends, to create a positive rate of return for the year. Long-term accounts such as youthful client RSP's and locked-in accounts may have an easier time accepting the volatility whereas short term speculation accounts, Margin, & Leveraged investors will all be wearing their risk in plain view. Some, especially longer term and locked in account holders may feel (wrongly) that they cannot do anything about it anyhow and so attempt no such action. In cases such as this it is the Advisor who must take a personal analysis of the client. The investment, age of investor, and the type of account all play a role in guaging the clients "actual" risk parameter.
The first thing to assume when a client is invested in market performance items is that either the Advisor or the client has determined that the client is suitable for some degree of volatility in their search for larger returns. Secondly, it seems, either the Advisor or Client has a general understanding of the underlying investments within the portfolio and an agreement to invest as such.
In the search for greater Rate of Return on the portfolio many clients may take on more risk initially than they are comfortable with, in fact the presumed risk of the portfolio beforehand affects them much less than the actual risk of the market on their money. It is absolutely paramount, that Advisors reach out to clients during downturns in the market to guage the level of comfort that they are feeling when the situation is at hand rather than an envisioned scenario. It is not uncommon for many clients to stay the course that their Advisor has recommended but their are plenty of instances where the short talk will cause the Advisor/client to determine that a comfort zone has been breached. In other instances, the Advisor may realize a new short term goal that must be taken into consideration within the portfolio and, of course, it is not uncommon for the client to speak of a situation that would invite referrals, hence, evidence that these talks provide dual benefits.
Many clients, if not most, working outside of a private client services realtionship, will ever get a call from their advisor unless it is a sales call( ie,bank). This part of due diligence will ultimately bring you closer with your clients, attract new ones, open new cases, and prevent large falls to your client and your own investment account and assets under management.
Shawn Lariviere, FMA
can be reached on the go at shawn.lariviere@rogers.blackberry.net with any questions or concerns that you may have, on facebook or at roweandmali.com.
Saturday, 3 September 2011
Personal Insurance - Life, Mortgage and Group Insurance Understood.
One of the most frequently misunderstood aspects of finance, but one that is very frequently requested, is the product of personal insurance. The difference between life, mortgage, and group insurance can be daunting. I hope that after this blog you will have a better grasp on what insurance may be best for your situation.
To understand insurance at all, one must grasp the role of insurance and the point in the insured's lifetime that it will be needed, if at all, and understand that personal insurance can be temporary or it can be permanent.
Temporary (Term) Insurance
This type of insurance covers the insured for a set amount of time(the Term),5, 10, 20 years and no longer, usually to an age maximum of 75-80. Insurance such as this is usefull for individuals that have a large debt that is expected to go away in the future such as a large mortgage or young children who will eventually outgrow their dependancy on parents.
The lower cost of term insurance is due to the fact that during the term of the individual it is unlikey that the insured will decease. It is therefore insurance against premature death. Having said that, most of us can recall an example of someone relatively close to us passing at a youthful age.
One thing that is vitally important about Term insurance is its conversion element. This means that if term insurance is in force at the time that an individual loses their health, the insured has the ability to change this product for permanent insurance without any medical explanation any time during the term.
To magnify the importance of this element of term insurance, let's take the simple fictional example of Noah, a 48 year old male, with two daughters aged 4 and 7 and a wife Christa with whom he shares a $210,000 mortgage. Noah has just learned that he has been diagnosed with cancer and has to prepare his family to possibly live on his wife's income alone. Can you see the value in creating a permanent insurance product, based on good health? Im sure Christa can.
Permanent Insurance(whole life/universal life/etc)
Simply,permanent insurance guarantees the insured a payout at death. Due to this, it is more expensive for the same amount of coverage as compared to a term insurance product. Insurance such as this is for individuals who foresee the cost of burial etc, taxes on property, income, or have a desire to leave behind an inheritance for a benficiary or to provide money for taxes payable on the succession of ownership of shares as part of their estate.
The premiums for insurance such as this can be designed to be payable for a set amount of time, or for the life of the policy. Over time, in both situations, the premium is reduced due to the time value erosion money purchasing power. Ie; $20 today may feel like only $10 dollars fifteen years from now and so on.
Mortgage Insurance
Mortgage insurance is a creditor insurance product that covers the Term of a mortgage. Becasue this is creditor insurance, it covers only the balance of your mortgage. This means that year after year of your term, you are paying the same premium for less coverage, due to your decling mortgage balance. Also, due to the fact that this is creditor insurance and not Term insurance, you have no ability to convert in the event of a loss of health. Case in point, in year 3 of a 5 year term, you have fallen ill to a mild stroke. Your mortgage balance is still $210,000. When you renew your mortgage, under good faith,you will have to forego mortgage insurance due to health reasons. You can try to get life insurance but will either be rated with a higher premium or declined altogether, once again due to health reasons.
Group Insurance (workplace, associations etc)
Group insurance is term insurance for individuals who will maintain their association with their workplace, assoc, chamber etc and is a "benefit" offered at a discount for being part of the group .
This is term death benefit insurance that covers the term of "while employed, associated, etc" up to an age maximum of usually 65.
The death benefit coverage is dictated by the employer or provider of your benefits package with options to select more coverage at an additional cost.
The conversion of this type of insurance for those leaving the group is dictated in the benefits manual for the company, assoc,etc.
Consider
1. Utilizing a combination of term and permanent insurance in order to keep premiums low while debts and responsibilities are large. Forego mortgage insurance for term insurance. The prices will be comparable if not cheaper, but the contract will be tied to your life rather that the lenders collateral. This will give you options in the event of "What if?" which is what term insurance is specifically designed for.
2.Select the minimum of Group insurance available from the group. All other insurance should be linked to your own name, health and circumstances from a licenced insurance agent.
3.For assistance with estate planning and succession planning of corporate shares etc, consider doing this at the earliest time due to the cost savings and time value erosion of your permanent insurance premiums. Plans can be tailored to suit multiple beneficiaries, corporate partners or the corporation itself and charities.
You can contact Shawn at contact@roweandmali.com or on the go at shawn.lariviere@rogers.balckberry.net for your insurance needs or use the Rowe & Mali Free online quote banner on this blog page.
Shawn Lariviere, FMA
is the Principal Advisor at Rowe & Mali Enhanced Wealth Services
roweandmali.com
To understand insurance at all, one must grasp the role of insurance and the point in the insured's lifetime that it will be needed, if at all, and understand that personal insurance can be temporary or it can be permanent.
Temporary (Term) Insurance
This type of insurance covers the insured for a set amount of time(the Term),5, 10, 20 years and no longer, usually to an age maximum of 75-80. Insurance such as this is usefull for individuals that have a large debt that is expected to go away in the future such as a large mortgage or young children who will eventually outgrow their dependancy on parents.
The lower cost of term insurance is due to the fact that during the term of the individual it is unlikey that the insured will decease. It is therefore insurance against premature death. Having said that, most of us can recall an example of someone relatively close to us passing at a youthful age.
One thing that is vitally important about Term insurance is its conversion element. This means that if term insurance is in force at the time that an individual loses their health, the insured has the ability to change this product for permanent insurance without any medical explanation any time during the term.
To magnify the importance of this element of term insurance, let's take the simple fictional example of Noah, a 48 year old male, with two daughters aged 4 and 7 and a wife Christa with whom he shares a $210,000 mortgage. Noah has just learned that he has been diagnosed with cancer and has to prepare his family to possibly live on his wife's income alone. Can you see the value in creating a permanent insurance product, based on good health? Im sure Christa can.
Permanent Insurance(whole life/universal life/etc)
Simply,permanent insurance guarantees the insured a payout at death. Due to this, it is more expensive for the same amount of coverage as compared to a term insurance product. Insurance such as this is for individuals who foresee the cost of burial etc, taxes on property, income, or have a desire to leave behind an inheritance for a benficiary or to provide money for taxes payable on the succession of ownership of shares as part of their estate.
The premiums for insurance such as this can be designed to be payable for a set amount of time, or for the life of the policy. Over time, in both situations, the premium is reduced due to the time value erosion money purchasing power. Ie; $20 today may feel like only $10 dollars fifteen years from now and so on.
Mortgage Insurance
Mortgage insurance is a creditor insurance product that covers the Term of a mortgage. Becasue this is creditor insurance, it covers only the balance of your mortgage. This means that year after year of your term, you are paying the same premium for less coverage, due to your decling mortgage balance. Also, due to the fact that this is creditor insurance and not Term insurance, you have no ability to convert in the event of a loss of health. Case in point, in year 3 of a 5 year term, you have fallen ill to a mild stroke. Your mortgage balance is still $210,000. When you renew your mortgage, under good faith,you will have to forego mortgage insurance due to health reasons. You can try to get life insurance but will either be rated with a higher premium or declined altogether, once again due to health reasons.
Group Insurance (workplace, associations etc)
Group insurance is term insurance for individuals who will maintain their association with their workplace, assoc, chamber etc and is a "benefit" offered at a discount for being part of the group .
This is term death benefit insurance that covers the term of "while employed, associated, etc" up to an age maximum of usually 65.
The death benefit coverage is dictated by the employer or provider of your benefits package with options to select more coverage at an additional cost.
The conversion of this type of insurance for those leaving the group is dictated in the benefits manual for the company, assoc,etc.
Consider
1. Utilizing a combination of term and permanent insurance in order to keep premiums low while debts and responsibilities are large. Forego mortgage insurance for term insurance. The prices will be comparable if not cheaper, but the contract will be tied to your life rather that the lenders collateral. This will give you options in the event of "What if?" which is what term insurance is specifically designed for.
2.Select the minimum of Group insurance available from the group. All other insurance should be linked to your own name, health and circumstances from a licenced insurance agent.
3.For assistance with estate planning and succession planning of corporate shares etc, consider doing this at the earliest time due to the cost savings and time value erosion of your permanent insurance premiums. Plans can be tailored to suit multiple beneficiaries, corporate partners or the corporation itself and charities.
You can contact Shawn at contact@roweandmali.com or on the go at shawn.lariviere@rogers.balckberry.net for your insurance needs or use the Rowe & Mali Free online quote banner on this blog page.
Shawn Lariviere, FMA
is the Principal Advisor at Rowe & Mali Enhanced Wealth Services
roweandmali.com
Tuesday, 16 August 2011
Wild Volatility in Global Markets
Global Market Volatility in Perspective
Global markets in the last couple of weeks have seen wild swings in index values, sometines by as much as 5% per day. Although swings such as these are not usually welcome by investors when they bring the market lower, keep in mind that when markets are further along in the economic cycle,reaching euphoria, we also have wild swings such as these which cause markets to raise the value of indexes. In Canada, who can remember 300 point daily increases in hte value of the TSX? They did happen, more than once. Rememeber Nortel? Remember what followed?
The common denominator of these wild swings is reaction, and in particular, over-reaction to news hype. Invariably, volatility such as these have emotions at their root many times.
Since the current economic cycle began its expansion phase we have had at least 3 different emotional reactions that caused the market to fall. Greece, Japans tsunami and nuclear scare, and the US debt downgrade by S&P. Keep in mind that none of these events have caused the markets to retreat for long and that up until now, we have had two years of positive markets and postive economic indicators, for the moast part.
It is my beleif that the current economic cycle will continue to expand led by asian countries as they are further along in their own regional growth than that of the west and Europe. This may now be the beginning of eastern countries who have lower industrialization of their workforce and thus lower wages, leading the way into and out of future economic cycles. Trade, with these countries will become more valuable as time goes on for its partners. The US economic picture has not diminished, maybe been overtaken due to its inability to consume, lend and thus grow, but the engine of the US will roar once again. Time, and some hard lessons, has not been kind to our neughbors.
Global markets in the last couple of weeks have seen wild swings in index values, sometines by as much as 5% per day. Although swings such as these are not usually welcome by investors when they bring the market lower, keep in mind that when markets are further along in the economic cycle,reaching euphoria, we also have wild swings such as these which cause markets to raise the value of indexes. In Canada, who can remember 300 point daily increases in hte value of the TSX? They did happen, more than once. Rememeber Nortel? Remember what followed?
The common denominator of these wild swings is reaction, and in particular, over-reaction to news hype. Invariably, volatility such as these have emotions at their root many times.
Since the current economic cycle began its expansion phase we have had at least 3 different emotional reactions that caused the market to fall. Greece, Japans tsunami and nuclear scare, and the US debt downgrade by S&P. Keep in mind that none of these events have caused the markets to retreat for long and that up until now, we have had two years of positive markets and postive economic indicators, for the moast part.
It is my beleif that the current economic cycle will continue to expand led by asian countries as they are further along in their own regional growth than that of the west and Europe. This may now be the beginning of eastern countries who have lower industrialization of their workforce and thus lower wages, leading the way into and out of future economic cycles. Trade, with these countries will become more valuable as time goes on for its partners. The US economic picture has not diminished, maybe been overtaken due to its inability to consume, lend and thus grow, but the engine of the US will roar once again. Time, and some hard lessons, has not been kind to our neughbors.
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