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Investment
FP Answers: What's the difference between a financial plan and an investment plan? – Financial Post
Don has $800,000 in investments. He wants to set lifestyle goals, but also have a road map to the right investment strategy for the long term
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By Julie Cazzin, with Doug Robinson
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Q: What does it cost to get a financial plan drawn up? What about an investment plan? And what exactly is the difference? I’m 39 and have liquid assets of roughly $800,000 (excluding my house) and feel it is time for me to have both. — Thanks, Don P.
FP ANSWERS: You ask an insightful question, Don. It seems straightforward, but there will be a lot of different answers from different companies and advisers in our industry.
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All too often, an investment manager is hiding in advisory clothing. More specifically, clients have the illusion they are getting a complete plan when they are simply buying a manager’s investments. The confusion this creates leads to great questions such as the one you have asked and fuels a debate about the level of fees charged. In addition, there is a regulatory concern in the industry surrounding this issue, leading to title reform measures for advisers that are intended to provide more clarity for consumers.
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Let’s start with defining a financial plan by what it is not. It is not a 50-page printout from a financial planning software package containing charts and graphs beside templated text written by someone you or the adviser has never met. It is not buying insurance products. It is not being sold a registered retirement savings plan (RRSP) or tax-free savings account (TFSA) in a retail banking location, nor is it a portfolio of mutual funds you buy from a nice person.
A financial plan may involve any of these elements, but an effective plan is one you both generally understand and implement. You don’t need to understand all of it. Typically, very few people want to know all the details. Some people appreciate having everything in writing, but many only want a concise summary and enough in-person meetings to have the relevant points explained in understandable terms.
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A complete financial plan should address all financial planning components:
- Cash management plan: income, savings and spending, plus effectively dealing with debt;
- Estate planning: having proper wills and power of attorney documents that accurately reflect your wishes, and reviewing asset ownership structures and beneficiary designations to ensure they are not conflicting with these documents;
- Investment planning: building an appropriate investment plan that aligns with your willingness to assume risk and considers your need for taking the risk;
- Retirement plan: planning how much to save for retirement and spend in retirement, and utilizing the optimal vehicles (RRSPs, TFSAs, corporate savings, non-registered savings) to reach the targets you set;
- Risk management plan: it is generally best to use insurance for events with a low probability of occurring, but very severe consequences. Events such as disability or death require income replacement for your family;
- Tax plan: every Canadian has the right to organize their affairs to pay the lowest amount of tax possible while complying with the country’s tax code.
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Other planning areas may need to be addressed over a lifetime and include education for children or grandchildren, marriage, divorce, second marriages, multiple families, charitable giving and business succession planning.
A financial plan starts with the planner knowing all the current details about every component and building your net worth statement. But, most importantly, the client and planner need to define each person’s priorities and goals. Unfortunately, doing so is rarely straightforward because most people have not given this task detailed thought or defined their future well. (I don’t even know when I plan to retire.)
You can hire a fee-only planner who will charge for this service, and you may find a flat fee for all the components ranging from $3,000 to $10,000 or more. Some planners offer a component service and may charge for, say, a retirement plan only. Other planners will charge an hourly rate, which will widely vary, but $100 to $400 an hour would cover most of the range.
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FP Answers: How do I know if I’m saving and investing too much?
Don, you asked about the difference between a financial plan and an investment plan. First, you will note an investment plan is simply one component of a complete financial plan. The price of an investment plan is typically built into the cost to manage the assets. A good asset manager will create an investment plan and charge 0.75 per cent to one per cent of the assets to manage the money. The problem is that fees are often much higher (1.25 per cent to 2.5 per cent and more), and little additional financial planning advice is delivered for that extra money.
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As well, the industry is fragmented. Banks offer cash management and debt financing, lawyers do wills and powers of attorney for estate planning, and everyone offers investment advice because this is where they make the most money. Certified financial planners (CFPs) provide a wide array of retirement planning value, insurance agents prioritize insurance and accountants prepare taxes. Most of these are one-time events, but financial planning is an ongoing relationship that should last years.
At 39, with $800,000 of investment assets (well done), you have enough money to have both an investment and financial plan. The price you pay should not be the focal point; the value you receive should be. A financial planner should have the CFP designation. An investment manager should have the chartered investment manager (CIM) designation or, better still, the chartered financial analyst (CFA) designation.
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I suggest finding a firm with people who hold those designations and who you can build a relationship with for years to come. You must feel at ease with your adviser(s) and trust them, and they need the ability to explain complex issues in terms you understand.
You are on the right track. I wish you success finding the right firm or adviser(s). Set your standards high, be patient and don’t settle until you find the right partner.
Doug Robinson is a certified financial planner and wealth adviser with Veritable Wealth Advisory in Peterborough, Ont. Veritable Wealth Advisory is a full-service financial planning and investment firm that employs multiple certified financial planners and portfolio managers with offices in Burlington, Kingston and Peterborough. Veritable has advisers specializing in retirement planning, tax planning and estate planning, and most commonly works with professionals, business owners and affluent retirees.
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Compound interest is a thing of magic. It’s also one of your best bets if you’re looking to retire rich.
It might take time and patience but there’s not a whole lot of heavy lifting when it comes to a buy-and-hold investment strategy. What matters most is having decades of time in front of you, which will allow you to maximize the benefits of compounded returns. And, of course, choosing the right investments is equally important.
The magic of compound interest
With a decent return, building a million-dollar portfolio might not be as hard as you think. An initial investment of $15,000, returning 15% annually, would be worth just shy of $1 million in 30 years.
First off, 30 years is a long time, which means you’ll need to be planning your retirement far in advance. However, all it takes is one initial investment of $15,000 and the right stocks to build a $1 million portfolio.
Additionally, it’s important to remain realistic and acknowledge that a stock returning 15% annually is not exactly common. That being said, the TSX certainly has its share of dependable companies with track records of returning far more than just 15% per year.
I’ve put together a list of three Canadian stocks that are perfect for hands-off investors who are looking to retire rich.
Constellation Software
It will require a steep initial investment, but Constellation Software (TSX:CSU) is well worth its nearly $4,000-a-share price tag. When it comes to market-crushing returns, the tech stock has been in a league of its own over the past two decades.
Even as the company is now valued at a massive market cap of close to $80 billion, the impressive returns have continued. Shares are up more than 200% over the past five years. That’s good enough for a compound annual growth rate (CAGR) of 25%.
At a 25% annual return, a $15,000 investment would be worth a whopping $12 million in 30 years.
Descartes Systems
Descartes Systems (TSX:DSG) is another tech stock that’s no stranger to delivering market-beating returns. The company is also only valued at a market cap of $10 billion, leaving plenty of room for growth in the coming decades.
There’s a reason why Descartes Systems is one of the few tech stocks trading near all-time highs today. This stock is a proven winner, with lots of growth left in the tank.
Over the past five years, the stock has had a CAGR just shy of 20%.
goeasy
The last pick on my list is a beaten-down growth stock that’s trading at a serious discount.
The consumer-facing financial services provider has been hit by short-term headwinds from sky-high interest rates. With potential rate cuts around the corner though, now could be an excellent time to be loading up on goeasy (TSX:GSY).
Even with shares down 25% from all-time highs, the stock is still nearing a return of 300% over the past five years.
goeasy was crushing the market’s returns before the recent spike in interest rates, and there’s no reason to believe why the company won’t continue to do so for years to come.
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TORONTO, April 24, 2024 /CNW/ – Flagship Communities Real Estate Investment Trust (the “REIT” or “Flagship“) (TSX: MHC.U) (TSX: MHC.UN) announced today that it has completed its previously announced public offering (the “Offering“) of 3,910,000 trust units (the “Units“) on a bought deal basis at a price of US$15.35 per Unit for total gross proceeds to the REIT of approximately US$60 million.
The Offering was completed through a syndicate of underwriters co-led by BMO Capital Markets and Canaccord Genuity Corp.
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The REIT intends to use the net proceeds from the Offering to fund a portion of the approximately US$93 million aggregate purchase price for the REIT’s previously announced acquisition of seven manufactured housing communities comprising 1,253 lots (the “Acquisitions“) and for general business purposes. In the event the REIT is unable to consummate one or both of the Acquisitions, the REIT intends to use the net proceeds of the Offering to fund future acquisitions and for general business purposes.
The REIT has also granted the underwriters an over-allotment option to purchase up to an additional 586,500 Units on the same terms and conditions, exercisable at any time, in whole or in part, up to 30 days after the date hereof.
About Flagship Communities Real Estate Investment Trust
Flagship Communities Real Estate Investment Trust is a leading operator of affordable residential Manufactured Housing Communities primarily serving working families seeking affordable home ownership. The REIT owns and operates exceptional residential living experiences and investment opportunities in family-oriented communities in Kentucky, Indiana, Ohio, Tennessee, Arkansas, Missouri, and Illinois. To learn more about Flagship, visit www.flagshipcommunities.com.
Forward-Looking Statements
This press release contains statements that include forward-looking information (within the meaning of applicable Canadian securities laws). Forward-looking statements are identified by words such as “believe”, “anticipate”, “project”, “expect”, “intend”, “plan”, “will”, “may”, “can”, “could”, “would”, “must”, “estimate”, “target”, “objective”, and other similar expressions, or negative versions thereof, and include statements herein concerning the use of the net proceeds of the Offering.
These forward-looking statements are based on the REIT’s expectations, estimates, forecasts and projections, as well as assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies that could cause actual results to differ materially from those that are disclosed in such forward-looking statements. While considered reasonable by management of the REIT as at the date of this news release, any of these expectations, estimates, forecasts, projections, or assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those expectations, estimates, forecasts, projections, or assumptions could be incorrect. Material factors and assumptions used by management of the REIT to develop the forward-looking information in this news release include, but are not limited to, that the conditions to closing of the Acquisitions will be met or waived in a timely manner and that both of the Acquisitions will be completed on the current agreed upon terms.
When relying on forward-looking statements to make decisions, the REIT cautions readers not to place undue reliance on these statements, as they are not guarantees of future performance and involve risks and uncertainties that are difficult to control or predict. A number of factors, many of which are beyond the REIT’s control, could cause actual results to differ materially from the results discussed in the forward-looking statements, such as the risks identified in the REIT’s management’s discussion and analysis for the year ended December 31, 2023 available on the REIT’s profile on SEDAR+ at www.sedarplus.com, including, but not limited to, the factors discussed under the heading “Risks and Uncertainties” therein and the risk of the REIT’s plans with respect to debt bridge financing for the Acquisitions not being achieved as anticipated. There can be no assurance that forward-looking statements will prove to be accurate as actual outcomes and results may differ materially from those expressed in these forward-looking statements. Readers, therefore, should not place undue reliance on any such forward-looking statements. Forward-looking statements are made as of the date of this press release and, except as expressly required by applicable Canadian securities laws, the REIT assumes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
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Kim Moody: Ottawa is encouraging people to crystallize their gains and pay tax. That’s a hell of a fiscal plan
Reviews and recommendations are unbiased and products are independently selected. Postmedia may earn an affiliate commission from purchases made through links on this page.
The Canadian federal budget has been out for a week, which is plenty of time to absorb just how terrible it is.
The problems start with weak fiscal policy, excessive spending and growing public-debt charges estimated to be $54.1 billion for the upcoming year. That is more than $1 billion per week that Canadians are paying for things that have no societal benefit.
Why? Well, for the CEI, virtually every entrepreneurial industry (except technology) is not eligible. If you happen to be in an industry that qualifies, the $2-million exemption comes with a long, stringent list of criteria (which will be very difficult for most entrepreneurs to qualify for) and it is phased in over a 10-year period of $200,000 per year.
For transfers to EOTs, an entrepreneur must give up complete legal and factual control to be eligible for the $10-million exemption, even though the EOT will likely pay the entrepreneur out of future profits. The commercial risk associated with such a transfer is likely too great for most entrepreneurs to accept.
Capital gains tax hike
But the budget’s highlight proposal was the capital gains inclusion rate increase to 66.7 per cent from 50 per cent for dispositions effective after June 24, 2024. The proposal includes a 50 per cent inclusion rate on the first $250,000 of annual capital gains for individuals, but not for corporations and trusts. Oh, those evil corporations and trusts.
Some economists have come out in strong favour of the proposal, mainly because of equity arguments (a buck is a buck), but such arguments ignore the real world of investing where investors look at overall risk, liquidity and the time value of money.
If capital gains are taxed at a rate approaching wage taxation rates, why would entrepreneurs and investors want to risk their capital when such investments might be illiquid for a long period of time and be highly risky?
They will seek greener pastures for their investment dollars and they already are. I’ve been fielding a tremendous number of questions from investors over the past week and I’d invite those academics and economists who support the increased inclusion rate to come live in my shoes for a day to see how the theoretical world of equity and behaviour collide. It’s not good and it certainly does nothing to help Canada’s obvious productivity challenges.
The government messaging around this tax proposal has many people upset, including me. Specifically, it is the following paragraph in the budget documents that many supporters are parroting that is upsetting:
“Next year, 28.5 million Canadians are not expected to have any capital gains income, and 3 million are expected to earn capital gains below the $250,000 annual threshold. Only 0.13 per cent of Canadians with an average income of $1.4 million are expected to pay more personal income tax on their capital gains in any given year. As a result of this, for 99.87 per cent of Canadians, personal income taxes on capital gains will not increase.” (This is supposedly about 40,000 taxpayers.)
Bluntly, this is garbage. It outright ignores several facts.
Furthermore, public corporations that have capital gains will pay tax at a higher inclusion rate and this results in higher corporate tax, which means decreased amounts are available to be paid out as dividends to individual shareholders (including those held by individuals’ pensions).
The budget documents simply measured the number of corporations that reported capital gains in recent years and said it is 12.6 per cent of all corporations. That measurement is shallow and not the whole story, as described above.
Tax hit for cottages
There are also millions of Canadians who hold a second real estate property, either a cottage-type and/or rental property. Those properties will eventually be sold, with the probability that the gain will exceed the $250,000 threshold.
And people who become non-residents of Canada — and that is increasing rapidly — have deemed dispositions of their assets (with some exceptions). They will face the distinct possibility that such gains will be more than $250,000.
The politics around the capital gains inclusion rate increase are pretty obvious. The government is planning for Canadian taxpayers to crystallize their inherent gains prior to the implementation date, especially corporations that will not have a $250,000 annual lower inclusion rate. For the current year, the government is projecting a $4.9-billion tax take. But next year, it dramatically drops to an estimated $1.3 billion.
This is a ridiculous way to shield the government’s tremendous spending and try to make them look like they are holding the line on their out-of-control deficits. The government is encouraging people to crystallize their gains and pay tax. That’s a hell of a fiscal plan.
I hope the government has some second sober thoughts about the capital gains proposal, but I’m not holding my breath.
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