The Financial Benefit of Investing in Your Health
Investing in your health, sound odd?
TFSA’s, RRSP’s, open trading accounts, GICs, maybe buying revenue properties. You hear about these standard investment options all the time. But what about something a bit alternative; health and well being?
I’m not a doctor or a personal trainer. I am an Investment Professional, and can tell you when I’m doing financial planning for people approaching retirement a person’s health becomes vital in making it all work. If you’re a young person and just read “approaching retirement” don’t change the channel. You have the most to gain, having the most time on your side.
What am I on about here? When you retire the better your health the smaller your monthly budget. From experience I can tell you most clients doing planning still carry life insurance in their retirement years. This is for numerous reasons; they may still have a mortgage, or loans on other properties, they may want to leave an inheritance or depending on their situation their estate may face a large tax bill when they pass on. They also may have Critical illness coverage and they’ll be paying the full share of their benefit plan for health/dental/vision/
If you wanted to retire at 65 and now need an additional $300 per month, or $3,600 per year above what you’d need if you were healthy is that it? No. You’ll have to factor tax in to your withdrawals. If you have a tax rate in retirement of 16% that’s now $4,386 per year we have to withdrawal if it’s coming from your RRSPs or Pension.
If you think you will live to age 85 that’s an additional $87,720 we are going to have to come up with in order to pay your expenses. Spoiler alert, I’m either going to have to tell you to work a few more years or that you need to accept a lesser lifestyle in retirement. Not ideal. In this example, being in good health would fast track someone for retirement by several years.
Now some people will be quick to ask; what’s it cost to be healthy? Let’s assume someone does a fitness related activity 4 times per week, on average all things considered eating up 2 hours of time per session. The non health inclined person is probably going to spend that time on a different activity instead, and it’s fair to associate $15 on average to that activity per session. This could be going to the movies, a meal out, 2 drinks and a tip, the casino, a sporting event.., you name it. $15 is not hard to spend and may even be a low average to take but let’s stick with it. This person at $15 x 4 days a week x 52 weeks a year would spend $3,120 on their various forms of entertainment. Comparatively $3,000 for the fitness person will get you exercise shoes and clothes, your choice of an annual gym membership, spin class membership, yoga studio membership, etc and you’d still have close to $2,000 to spend on health food/products at a supplement or wellness store. It’s worth mentioning if you spend $2,000 per year on various health supplements your probably on the extreme high end.
I’m not telling people to not enjoy various forms of entertainment as that’s also part in parcel of happiness and mental well being. I’m just illustrating that investing in your health isn’t overly expensive compared to other entertainment and will really pay off when it comes to your financial strength entering the later years of your life.
Someone will be wondering; what if I just invested the $3,000 per year for 35 years and didn’t exercise OR spend the money on social entertainment? Yes; you’d be way further ahead financially than either of the previous examples, however very few people are going to do this so it’s best to assume then money will just get spent on exercise or a different hobby. Otherwise would be very rare, you’d really have to like Netflix. I rarely see a monthly budget where someone’s entertainment and pocket money is less than $400.
Alas, regardless of anyone’s health we strive to help all our clients to the best of our abilities and yes, despite anyone’s best choices and habits unfortunately sometimes illness or disability can still strike. That’s out of your control. But if you’re fortunate enough to have the ability to take control of your own health I’d highly encourage it; you’ll thank yourself later.
Food for thought.
CEO and Financial Security Advisor
Fonger Wealth Management
35 Ominica St W
Moose Jaw, SK
(306) 694 0078 ( office )
(306) 631 9344 ( cell )
Do headlines and elections have you nervous?
Here’s some historical events that teach us as long as you’re properly diversified to stay calm and maintain the course.
Another place you may have money
It’s not your mattress. When an emergency strikes, or opportunity arises how many people do you know that can write a check for $50,000 without calling the bank or cashing in RRSPs? Likely not many. The most likely person to be able to do this is someone with a Whole Life Insurance Policy.
Whole Life Coverage does not work like term insurance or the creditor term insurance you may find on a mortgage or standard loan. Whole Life Coverage builds cash in the policy in the form of Paid Up Additions that grows cash as an investment. This is your money, not the insurance companies. Not only does it grow the death benefit of your coverage, but it grows cash you can take when the need arises. The cash is an asset on your balance sheet.
This begs the question, why take a loan from the bank when you can take a loan from yourself? You have some options too. You can do the loan and pay yourself the interest, which will allow the policy to grow by its standard dividend every year. You could also do a straight withdrawal of cash, which would reduce the amount of coverage in force in the event of death. In either case in the event of death the policies death benefit is reduced by the amount of the loan outstanding or withdrawn. Some clients purchase Whole Life policies and then make systematic withdrawals in later years to create cash flow at the same time as reducing their coverage, as needs for coverage elapse. To call these plans flexible is an understatement.
However, the key takeaway from all this is over 1 million Canadians currently have a whole life policy. If the policy has been in force for several years it can be a good place to turn to in the event money is needed. Some people forget about this and run to registered investments, not only hindering their future growth but incurring income tax on the withdrawal. A loan from your insurance policies cash value is a much more beneficial way to get your hands on cash. The loan is only taxable above the adjusted cost base of insurance, but the interest payment would keep the policy growing. The best of both worlds.
Whole Life policies have another whole set of advantages if they are owned by a corporation, but that’s a topic for another day. Just don’t forget about your Whole Life policy when needs arise, and if you don’t have one maybe it’s time you get one. I do know a guy…
Fonger Wealth Management
Moose Jaw, SK
Should I Put My Children on My Money?
In the process of Estate Planning we are often asked “Should I make my children joint on my accounts & investments? I understand they will not have to Probate my estate and I can save them that cost, and delay to settle my affairs”. This usually comes up when one member of a long term relationship passes away.
There are several reasons that this is not an advisable thing to do. What clients need to be aware of is that joint in death is also joint in life. Firstly, a joint with right of survivorship account will allow any one owner access to the full balance without any consent from other owners. Secondly, all balances are open to the liabilities of all owners from a legal perspective, for example; bankruptcy or divorce of any one owner. Thirdly, if one of the owners is being sued as a result of an accident or situation where they have caused loss to a third party, the joint account & investments are now drawn into that lawsuit.
There is, however, a way to bypass probate and still maintain complete control of your investments for your lifetime.
Segregated funds are a way to invest your money in your name under an individual insurance contract and provide the insurance company with your named beneficiaries. Only you, as the owner, can change or appoint the beneficiaries. The London Life Insurance Company shelf of Segregated Fund Investments provide estate protection and historically provide a very competitive rate of return compared to the equivalently invested mutual fund. Upon the death of the owner the funds are paid out just like an insurance contract, thus passing the Probate process. Also the owner can invoke principal protection on their investments that provides that the estate will receive at least the original investment, less withdrawals if the death occurs in a down turn in the markets, and if the markets are up the estate receives the higher amount.
There is a slightly higher management expense ratio for the protection that is received, however we find that the final rates of return after that is considered are vey competitive with a Mutual fund investment, while mitigating risk. It’s worth looking into.
May 31, 2019
“Shoulda Woulda Coulda”
Candidly, I can tell you a few things about being an investment professional. Firstly, yes buying and selling stocks is fun. Secondly, people who self direct love to tell you about their strategy. Unfortunately for them its always the same conversation. They tell you about the few wins they’d had then when I ask overall how its been going it’s always well “I shoulda..” or “If I woulda..” , “If I only coulda…” . Its extremely predictable. You know the whole gamblers only tell you about their wins thing? Its that. On steroids.
Statistically I’m right. Studies done on the Value of Advice ( link at the bottom ) show people who use an advisor end up with 2.65 x the wealth of those who don’t by age 65. This is also regardless of income, $50,000 annual income up to $500,000. The statistics show a consistency. You get what you pay for and the value or advice comes out as the major winner. Reasons? It’s not what the self directed person knows, its what they don’t. Even with educated clients I usually have to explain strategies like dollar cost averaging, leveraging ( and whether it works for them or not ), IPPs, RCA’s, how to use a TFSA properly, whether they should sell the house now or later? Should they have corporate owned whole life insurance as an investment strategy? Is a spousal RRSP better for them? Do they panic in this market? Is this emerging market going to work with my current strategy? Do they take ownership of their pension or not, if so what spousal benefit should they select? What age should they take CPP based on their needs? Should I lose sleep at night because CNN says the world is ending?…. Are you starting to get the picture?
Most of these are conversations self directors aren’t having with themselves. I know because they casually try to ask me questions in social settings, but I don’t crack. Advice is worth something. Some of these conversations not only involve the financial advisor but also the lawyer and accountant. Ever notice how most billionaires aren’t self directing? Some of the smartest wealthiest people on earth… they will have floors full of professionals working for them. That may not be feasible for most, but investing in using an investment professional, accountant, and lawyer is certainly a good decision. You’ll get your return. Historical stats are a slam dunk on this.
Oh by the way, self directing isn’t free. Who do you think pays for those expensive Questrade ads that run during Prime Time TV? Their clients. If you even want to call them clients, they don’t even have anyone to talk to. Let’s call them the people who pay to have no advice and end up with 265% less in retirement. It’s a more accurate picture of them.. anyway back to the original topic.
Generally Mutual and Segregated Funds aren’t as exciting as buying and selling stocks, but if you want to make money that’s the way to go. There’s always people who’ve hit that penny stock and become rich but way more people are failing and making critical errors along the way, namely panicking in bad markets and cashing in a loss. I sometimes joke I’m a large walking Xanax pill, but that’s a good thing, it works.
So here’s my suggestion; see an advisor ( me ) and get them ( me ) to make a plan for you. Consult the lawyer and accountant as well if the needs are more complex. Find out what strategies you need to deploy and what it’ll cost for your plans and future to work. After that, if you’re monthly budget has some residual go put that into the stock markets and play, because if it fails it doesn’t matter. Your plan will still work. You can make money and still have some fun too, just have to keep the distribution in perspective. Treat the stock market self directing like casino money; be comfortable that if you lose it all your future will be ok.
Value of Advice Link : https://www.ific.ca/wp-content/uploads/2013/08/New-Evidence-on-the-Value-of-Financial-Advice-November-2012.pdf/1653/
May 15, 2019:
Looking out for Grandma and Grandpa
Let me start by being blunt; seniors are at risk of being taken advantage of. While the degree of this varies, as does the dishonesty or morals the culprit it happens all too often and as advisors it’s a tricky road to navigate.
Elder abuse is something I professionally must watch out for. I’d like to be able to tell you that all children and grandchildren are paying attention to their grandparents but sadly it’s. Or maybe they are paying attention, but are forgetting a few areas of their life. You should be as concerned about their financial dealings as you are their driving ability.
Confidentiality is strict in the financial world. If we suspect someone needs help, we cannot just reach out to a family member and tell them what we are seeing, or what’s happening. A Power of Attorney document makes reaching out easy and clear on who to contact, but if the senior does not have one things can get tricky.
Put simply, if you have people in your family who are reaching an elderly age ( I’ll leave the definition of elderly up to the reader, but I’ll casually suggest someone approaching 80 ) don’t be afraid to ask if they have a will, or a Power of Attorney document. If they don’t it’s worth asking them if they’d be willing to have them set up by a lawyer. If no Power of Attorney exists, its also worth asking if you or a family member they trust could accompany them to a meeting with the financial advisor to gain an understanding of their situation. This would quite often be a saving grace from my experience. Just because grandma or grandpa don’t talk about money or ask for help it does not mean all is well. While a consensual meeting with the senior and their advisor will allow you to gain knowledge, a Power of Attorney will be required before you, or the individual(s) they appoint can act on their behalf. That being said, do ask. Don’t prod too much, but I think from experience you’ll find more often than not the question is a welcome one.
At this point I legally have to advise you there are different types of Power of Attorney documents and I’d suggest the grandparent or senior in question consult a lawyer to determine the appropriate selection.
So why bother paying attention in the first place? What can happen? There are several concerns. Firstly, they may just be making awful choices or have a spending pattern that is out of control. This usually stems from the client being senile, having a poor memory and loosing an understanding of their financial situation. I can advise a client they are going to run out of money if they keep making poor choices, but at the end of the day I am only an advisor and they can sign for a withdrawal if they want to, even if I say it’s a bad idea. In all financial meetings not all the advice the advisor gives the client sticks, but in a case where the client is experiencing Dementia or Alzheimer’s their retention of the advisor’s advice becomes confused at best. More likely low if no zero. This lack of memory of their spending and comprehension of how much wealth they do or do not have leads to the second problem.
Problem two; being taken advantage of. This is a broad category and sometimes involves illegal activity, and in others not illegal but certainly immoral. As an example, and I do not mean to offend anyone of a religious background but in the past 4 years I’ve had multiple situations where elderly ladies were being signed up for extremely generous religious donations by certain organizations. In one case the donations built up to over $3,000 per month over the course of time. How these donations were sold I cannot say, having not been present but my client in both situations did not realize they would often be a recurring monthly expense. Had they known, or realized how much they were going to give they would not have signed up. They also experienced attempted guilt shaming when they tried to cancel their donations. This lead to me having a stiff conversation with a minister in the southern United States who did not want the donations to slide. We’ve rectified a few of these situations and I’ll say questionable morals were being displayed at best, and a competent individual would not have been in this position. It’s classic taking candy from a baby, or in this case generous good-natured elders who had no idea how much they were giving. This is only one example of many of how a senior can be taken advantage of. They could be lending money to friends and forgetting to reclaim, or making large purchases at above market value in cash. I’ve seen that. The list goes on, but a competent individual paying attention will be able to see it quickly.
Thirdly we land on the scariest one; attempted theft. This could be a family member or a complete stranger. We have dealt with situations before where an individual starts cuddling up to a senior who is a widow or widower and over the course of time starts displaying undue influence over the client. Potentially even duress. We’ve even seen them get the Power of Attorney over a client. This abuse usually starts with a period of time where trust is being built between the client and the individual. The aim is to be able to get their hands on the senior’s money via either joint accounts or becoming the beneficiary. Seniors with a diminishing capacity are unfortunately easily fooled and may not see the individual’s true intent as they have seemed to be convincing in the trust building stage of the relationship. Thankfully once an individual is deemed to have lost capacity by the courts, they cannot appoint a Power of Attorney. Unfortunately, the damage could be done while the client does still have legal capacity. Anyone can be fooled whether they have capacity or not, but a senior is more susceptible than most.
If trusted family members are paying attention to the elders, these situations are less likely to happen. Best case scenario? The eventual Power of Attorney starts working with the client to some degree long before diminished capacity exists. Usually it results in proper estate planning if anything. So next time you wonder how grandma and grandpa are doing don’t be afraid to ask about their financial situation, they’ll probably be glad you did. So will I. So will you.
Hop on the faster moving elevator
So you made an investment and it tanked. Maybe it was oil stock? Or a real estate property? Or that company your Uncles dog’s kid’s lawyer’s ex who lives in a van and smells a bit odd said was going to take off. Just you wait! Sorry we hear that exact scenario a lot.
The common narrative is that when an investment goes down you need to wait for it to recoup before making a switch. Investing 101 after all is that buying high and selling low is a disaster, and that you only fully realize the loss if you cash out. While that’s 100% accurate, and obviously the goal is instead to buy low and sell high it’s not the end of the story.
The goal is to grow your wealth, not a particular investment per say. What says you have to hold on to the losing investment and let it recoup? You want your money to recoup, not the investment itself. Big difference. The real villain or bad strategy here is selling your investment and leaving the money out of the markets on the sidelines in cash or cash equivalents.
My advice? If there’s a faster moving elevator to the floor you want to get off at, lets get on it. While there are some investments that could recover quickly, or even reasonably there are some that are just lemons. Why hold on to an investment hoping to recover 30% over 2 years, if not longer, or ever when there’s a higher likelihood another investment could hit over 20% average in those 2 years? The investment your holding probably will never catch up.
Investments with a long recovery rate usually have a few things in common. They are usually in one sector, or are just one company or holding. From experience, when those types of investments go down if they don’t recover quickly, they are usually either down for the count or for a long time. If this is the case your odds of recovering your money are better in a diverse portfolio where one company can’t make or break you. I’ll get into the risks of holding a non diversified portfolio in another blog but it really hits home in these scenarios. We’ve seen a lot of markets and sectors lately that have done very well. Being in a long bull market before the fall 2018 correction helped, but that correction even recovered extremely quickly. The point is you don’t need to take a risk on one company or sector to achieve high rates of returns. Funds may seem less exciting than that one stock you really like or your real estate holding but in funds one bad tweet, one scandal, one bad trade deal, or one lawsuit can’t destroy you. Various diverse equity funds on our shelf have averaged over 13% annually since their inception in November 2009. These include funds like the Science and Technology Fund and American Growth Fund amongst others.
Put simply, if you bought Oil Stock or funds in mid 2014 and let it ride, you’d likely still be down. If we want to be specific, stocks like Crescent Point Energy, Husky, or Cenovus are all trading at less than one third of the price from what they were 5 years ago. So what if you’d had gotten into one of the funds I mentioned instead? You’d be in the 70% positive gain range give or take a few percent depending what day you made the switch. This is the faster moving elevator. Oil will never, ever catch up. Even if it took off again today.
What if you bought an even $10,000 of Husky stock 5 years ago today ( May 6 2014 ) and let it ride?
The value of your funds today would be $3,116.
What if on May 11th 2015, you sold the Husky stock at a loss of 37% and bought the Science and Technology Fund (LC)?
The value of your funds today would be $11,637. You’d be up 85% on the Science and Technology fund itself from the date it was purchased.
Selling your investment at a loss isn’t a disaster. Selling it at a loss and leaving it uninvested is the disaster. Besides, a capital loss you can use to offset gains may come in handy. Talk to your accountant about it, and if your holding on to a long term down investment come see me. We’ll get you on a faster elevator going up.
May 6, 2019