The recent tragic death of David Carradine brought to mind some wisdom he once imparted – advising that "you should never buy anything from someone who is out of breath!"  I believe he gave us this advice with respect to life in general.  But when I heard this wisdom repeated by a CNN commentator, I thought immediately of the world of investments.  Were the CDO (Collateralized Debt Obligation) and othe Asset Backed Paper salesmen out of breath when they made their pitch?  Were Investment Dealers pushing Bernie Madoff’s fund also out of breath?

We’re often advised to jump on bandwagons by brokers and advisers who are out of breath with enthusiasm.  My own history includes buying Dome Petroleum at the top of the market when everyone was out of breath pushing this stock.  We know what happened to Dome but there was a silver lining for me personally.  When those same brokers, analysts and advisors pushed Bre-X at me, I stuck by the old saying "once burned – twice shy" and avoided this loser.

Tony Almonte June 9/09

BMO Nesbitt Burns Technical analysts have provided the following currency exchange prediction (May 27, 2009 – Relative Strength Research Notes)

"Technically, we (BMO Nesbitt Burns analysts) expect the Canadian $ to appreciate to the .93 to .97 cent zone.  The only question is whether we get there in weeks or months." 

Another view expressed by Avery Shenfeld CIBC Economist (on June 8/09) was  that "we still see the Loonie averaging not much below 90 cents (US$) over the next four quarters. 

So, should we wait for the buck to get to the .93 to .97 cent zone or buy now at about .90 cents? 

During the week of June 1, the Canadian $ did climb to almost .92cents.  I, therefore, went ahead and bought $1000. for our US Savings Account which is used to fund our  winter getaways.  My strategy is to buy US$ whenever the Loonie hits a new significant high against the US greenback and build enough US$ reserves to pay for a few months down south come winter.

Tony Almonte, updated June 9, 2009

If there is only one rule you must follow as a retail investor, it is to "buy low and sell high".  Easy eh!  So why can so few investors point to a record of consistent success?  

Dan Richards in a recent Globe and Mail article points out that the root of this investing mystery lies in our emotional reactions to market movements, creating an impulse to buy high and sell low – exactly at the wrong times.  Peter Lynch, a famous and successful fund manager was also puzzled by the extent to which investors who owned his funds had dramatically lower returns than the funds themselves. The reason for this, quite simply, is the typical investor’s inability to stomach the markets ups and downs – buying at the peaks and selling at the troughs.

So here’s the lesson we’ve learned, take some valium and  "buy low, sell high"  easy eh!

For a complete read of the referenced article, see the Globe and Mail (Business Section) of May 25, 2009.

 From an article  published in the Ottawa Business Journal in April 2009

Canada‘s workforce is clearly aging, putting increased pressure on employers to find new ways to attract young talent. At the same time, Investors Group reports that 58 per cent of all working Canadians – and 67 per cent of those are in the 45 to 64 baby boom age group – definitely plan on working during retirement.

For this group, retirement will no longer signal the end of working, but rather a career and lifestyle transition.

To do this effectively, you’re going to have to develop a "deceleration" phase in your career, says Tammy Erickson, author of Workforce Crisis: How to Beat the Coming Shortage of Skills and Talent. People tell her they enjoy their colleagues and their work, and would definitely consider staying on longer if options to slow down a bit were more available. This way, they could ease up and step down, without the angst that comes from leaving altogether, she maintains.

Trouble is, though, that most of them are still going to want to get paid.

Recognizing this, more employers are creating programs that allow older workers to ease out of their jobs by reducing their work time, rather than just showing them the door when they hit a magic number of combined age and years of service.

But this causes problems when it comes to calculating future pensions, particularly for participants in defined benefit pension plans such as those enjoyed by teachers and public sector workers.

In these cases, employees have been prevented from working and earning additional pension credits while receiving a pension from the same employer. Either the pension had to be postponed, or the additional pension accruals had to stop.

Some companies have found ways to get around this by hiring former employees as consultants or contractors. However, the resulting loss of seniority and job security — to say nothing of forgone medical, dental, and future pension benefits — often makes these arrangements both unwieldy and unpopular.

Happily though, changes in the rules regarding how pensions are treated are starting to solve this problem for many people.

Last year, the federal government changed the pension rules so that workers 55 and older, who are eligible for a full pension from a DB plan, will be able to draw as much as 60 per cent of their pension while still continuing to work and earn benefits.

Under the new plan, as income decreases with lower hours of work, pension payments can actually increase.

In the past, employees who opted to stay on the job despite being eligible to receive a decent early retirement pension often ended up working for substantially less than the wages received, taking into account the value of missed pension payments. But that’s changing now.

The big winners here are plan members whose spouses are in a lower tax bracket.

Now, they’ll be able to negotiate a reduced work schedule, earn a matching salary, take a partial pension and split at least some of that income with their spouse for tax purposes – as they do now with Canada Pension Plan benefits.

If you file for a CPP pension at 60, for instance, you’ll get a reduced benefit that will stay reduced for the rest of your life. However, because benefit payments are based on how much, and for how long, you contributed to the plan, you could rack up bigger monthly cheques by staying on the job longer and not collecting CPP payments.

Waiting until full retirement later in your 60s raises the payment 20 per cent to 30 per cent, depending on your age.

Or, at age 60, you can draw a CPP pension even if you continue to work full-time. You can work as much as you want without affecting your pension amount, but you aren’t allowed to contribute to the plan on any future employment earnings.

To get CPP between the age of 60 and 64, you either have to stop working or earn less than the current monthly maximum CPP benefit ($909) for the current and prior month in which your pension begins.

It remains to be seen whether the 60-per-cent pension with ongoing accrual will be enough to entice employees to remain at work instead of collecting 100 per cent of their pension, and working elsewhere or for the same employer as a contract employee.

And, while the option of returning to work and starting to build up a pension again may be attractive to some retirees, others will have to see whether stopping their current pension payments and stepping back into a phased retirement makes good financial sense.

I (Tony Almonte) work hard to find wines at afforable, everyday prices given we consume 3 or 4 bottles of wine per week. An article by Beppi Crosariol in the Saturday April 18 Globe and Mail provides some guidance when buying cheaper wines particularly those popular reds such as Cabernet Sauvignon, Pinot Noire or Merlot. Here’s the article excerpt. He goes on to say…

When I aim to spend no more than $15 on a wine, I have a rule. I generally ignore three red grapes: cabernet sauvignon, merlot and pinot noir. It’s simple. Those grapes cost top dollar at the wholesale level, largely because of popularity. In Napa Valley, Calif., for example, cabernet sauvignon fetched two and a half times the price per tonne of sauvignon blanc last year.

If a wine based on cabernet is cheap, you can almost bet that the fruit was of poor quality and likely farmed factory-style on high-yield, valley-floor vineyards with pesticides and lots of irrigation to pump up weight at the cost of flavour.

One big exception to the cabernet sauvignon part of my rule, I should add in fairness, is Chile. The South American country manages to churn out a good number of impressive examples for $12 or $14, such as Santa Rita Cabernet Sauvignon Reserve ($13.95 in Ontario, product No. 253872). Most of the time, though, I zero in on less-ritzy varieties when I have less than $15 to spare – Malbec from Argentina, say, or montepulciano d’Abruzzo from central Italy.

An article in the Feb. 19th edition of the Ottawa Citizen indicates that economic troubles are delaying retirement plans.  The article states that 28% of Canadian boomers plan to delay their retirement.

Refer to http://www.ottawacitizen.com/Business/Boomers+postpone+retirement+plans/1304257/story.html for an on-line copy of the article.

The data comes from an Ipsos Reid poll conducted for the Royal Bank of Canada between Oct. 16th and 23rd, 2008.  The poll results were released on Feb. 18th and included 3, 113 Canadian respondents of boomer age with assets of at least $100,000.

After some further searching on the internet, I found out that this is the 19th annual poll conducted.  Information from the Ipsos Reid website indicates that further poll details are considered premium content and you must subscribe to obtain further details …… refer to http://www.ipsos-na.com/news/pressrelease.cfm?id=4285 for more information.

The article presents the following findings:

• of those polled owning businesses, 37% were pushing back retirement
  • retirees dependent upon selling their business aren’t in a good position to sell their business given the economic situation

• of those polled who were pushing back retirement (the 28% who indicated this fact:
  • 43% were delaying by 1 or 2 years
  • 37% were delaying by 3 to 5 years
  • 9 % were delaying by more than 5 years
  • 3% were delaying less than an year

The article goes onto to indicate that delaying retirement can be good for the economy because boomers who work longer will most likely spend more money thus increasing economic activity.  Some negative impacts could be less tourism, since working boomers travel less than retired boomers, and less opportunity for younger Canadians to fill the work positions available due to retirement.

Other interesting points in the article indicate that:

• only 30% of Canadians have pension plans with defined benefits which means the majority of Canadians rely on retirement funds that have been negatively impacted by the economic downturn.
• there is a trend among those approaching traditional retirement age where individuals are reconsidering whether retirement is something they really want to do.
  • if you are 55, you probably have another 30 years to live – what are you retiring to?

It isn’t surprising that Canadian boomers are looking at delaying retirement given the recent economic downturn.  One of the most interesting points noted in the article is that 30% of Canadians have pension plans with defined benefits which clearly indicates that the majority of Canadians will be relying on their own savings, RRSPs, government benefits and possibly other means to get by in their retirement.

Lane Smith – reach me at Lane@lifepast50.ca

An article in the Jan. 29th, 2009 Business & Technology section of the Ottawa Citizen by Derek Abma discusses the results of a survey that shows almost 1/2 of working Canadians intend to work a decade later than that and then some – refer to the online article at http://www.ottawacitizen.com/Life/Freedom+retirement+plans+thing+past+survey/1229299/story.html

The survey was conducted by Sun Life Financial.  The article doesn’t identify the actual name of the survey or the date of the survey but a quick Google search uncovered what appears to be related information from the Sun Life website.  An article there indicated a Sun Life Financial, Omnitel survey was conducted in January 2008.  Refer to the following link – http://www.sunlife.com/global/v/index.jsp?vgnextoid=c9012cb8ea29d110VgnVCM100000abd2d09fRCRD&vgnextchannel=331f2b6a1bc4c110VgnVCM1000009b80d09fRCRD&vgnLocale=en_CA

Reasons for the intention to work well beyond age 65:

• unsure about financial security to retire completely
• stay in the work force for positive reasons – enjoy their careers, staying active, interact with co-workers
• lifestyle reasons

The most recent decline in the stock market has had an obvious impact.  Despite the stock markets recent and quick decline, trends identified by the Conference Board of Canada indicated that retirement age was edging upwards before the market recent fall.

One factor affecting this is greater number of knowledge based jobs versus physical labour positions.  Other factors include the fact that that age isn’t as much of a barrier in today’s market, and employers are aware of the impending labour shortage due to baby boomers approaching retirement.  Some organizations are offering incentives to entice boomers to stay.

The article goes onto to present a view that retirement is an “artificial construct” created decades ago to make room for boomers entering the workforce and to sell financial planning products.  The article also identifies that older workers are looking for flexibility – they want less responsibility and want to continue to practice what they are great at.

Lane Smith – Lane@lifepast50.ca

BY GEORGE ATHANASSAKOS
December 17, 2008
Globe and Mail, December 17, 2008
George Athanassakos is a Professor of Finance and holds the Ben Graham Chair in Value Investing at the Richard Ivey School of Business, The University of Western Ontario. gathanassakos@ivey.uwo.ca

With the carnage in the equity markets around the world over the past few months, and negative news hitting the media daily, it’s tempting to ask “are equities dead?” A historical perspective will put this question in context and help the millions of baby boomers approaching retirement figure out what to do with their investments to secure a comfortable future.

I looked at the performance of four asset classes from 1957-2003: small-cap stocks, large-cap stocks, government of Canada bonds and treasury bills. I surveyed the entire universe of more than 1,200 Canadian stocks, using the Canadian Financial Markets Research Center’s database at the University of Western Ontario. The average annual return of small-cap stocks was about 16 per cent, large-cap stocks 10 per cent, government of Canada bonds 7 per cent and T-bills 6 per cent.

While these were average 1957-2003 returns, the actual annual returns of these asset classes varied by different amounts around these averages, depending on their risk. For example, 70 per cent of the time, small-cap stocks’ returns, the riskiest asset class examined, varied between a loss of 4 per cent and a gain of 36 per cent; those of T-bills, on the other hand, the lowest risk asset class, varied between 5 per cent and 7 per cent. However, it would take, on average, 20 years to double your money if you invested continuously in T-bills and only five years if you invested continuously in small-cap stocks.

Is history a good guide of the future? Typically, it has been. The 47-year period covered by my research was a period of severe recessions, mild recessions, high inflation, low inflation, high interest rates, low interest rates, a market crash in 1987 and a bubble burst in 2000.

Will such market behaviour repeat? Chances are it will. It’s tempting to say that this time things will be different. But as the late Sir John Templeton said “the most expensive words to say are that this time things will be different.”

However, future returns may end up being lower than historic ones. Financial market deregulation, financial market innovations and ample availability of cheap credit over the past 20-to-25 years, increased people’s willingness to borrow. This fuelled economic activity and financial markets.

Future performance may be curtailed by possible regulatory changes at financial institutions, which may hinder similar leveraging.

Restricting credit will lead to lower gross domestic product, lower corporate profits and stock price appreciation compared with historical experience. But despite the prospect of possibly lower returns, the relative relationship between the various asset class returns will be maintained. In the long run, investing in equities is the better move.

Equities produce dividends, growth and growing dividends, as opposed to fixed income securities whose income remains constant. Government bonds have historically and in the long run underperformed equities; currently their yields are at a historical low point. Moreover, inflation may be an issue in the future that will hurt bonds.

Recent injections of massive amounts of liquidity into the global system may provide short-term gain for long-term pain. When confidence returns in the financial markets, watch out! Inflation is bound to increase – stocks are a good hedge against inflation; bonds are not.

So what about baby boomers approaching retirement? They need to invest in securities with low volatility. This will prevent a repeat of this year’s scenario, with people postponing retirement as a result of the collapse of the financial markets. This does not mean staying out of equities altogether.

My advice is for soon-to-be-retirees to avoid commodity and high-tech stocks. They should invest in high-quality stocks that pay large dividends, specifically companies that have increased their dividends in good and bad times, including utilities, wealth management firms, consumer staples, health-care stocks and good quality consumer companies that make things we all need and use.

On the fixed-income side, inflation protected (or real return) bonds offer the best option.

Instead of investing in high MER mutual funds, look at exchange-traded funds (ETFs) that offer good diversification at low cost – while avoiding sectoral ETFs and country-specific ETFs. Investors need to remain diversified using ETFs that cover a wide cross-section of the markets, domestically and globally.

In terms of individual stocks, value stocks in the long run beat growth stocks. Investors should avoid high P/E and price/book stocks, instead focusing on low P/E and low price/book companies, as well as companies that produce things we need regularly, especially those with a significant competitive advantage that will prevent competitors from entering the market.

Retirement is a point in the human life cycle. It is not the end. People live well into their retirements and need to ensure that in 20-30 years they don’t outlive their money. The best way to do this is by investing in high-quality equities.

Those in early retirement can allocate a larger percentage in equities than fixed income. Later on, the weighting of fixed income needs to increase as the need for steady and frequent income outweighs the need for growth.

For investors still in the market, it is too late to do anything. There is more upside at this point than downside. Historically, individual investors have tended to buy high and sell low; so at this point investors should hold on. At the end of the day, however, investors should educate themselves and realize that there is no free lunch – higher returns in the long run normally go with higher risk.