Tag Archives: Canada

Market Jitters – Why the Chaos

 

market-jitters

Have you been reading the news lately? There has been a massive sell off of equities on the worlds largest stock exchanges. It seems to have started in China, but has spread like a virus.

There are a lot of factors involved in the sell off. Generally, when investors don’t have confidence in the market their money’s in, they sell their shares. How does this work if we’re supposed to be like Benjamin Graham and use a buy-and-hold investment strategy? Shouldn’t all investors be holding?

The thing to remember is that there are different kinds of investors. Most of the money that’s in stock exchanges doesn’t come from people like me or you, it comes from massive funds that need to constantly withdraw money from their investments and need to be sensitive to short term happenings.

Take pension funds for example. Massive pension funds worth billions of dollars exist in most states and provinces (Ontario Teachers Pension Plan has over $150 billion in assets). Pension funds are constantly withdrawing money and need to make sure they have enough money to see them through any slowdown without draining too many funds.

So though large institutional investors like pension funds will use a buy and hold strategy, they will also need to withdraw some money when they think the market might dip too much. What they are doing is basically guessing what the market will do.

Does that mean you should too? No, it is nearly impossible to accurately and consistently predict what stock markets are about to do, there are simple too many uncontrolled factors to take into consideration. For large funds, decisions are largely based on statistics. Institutional investors will attempt to time the market with mixed results, but the idea behind a buy and hold strategy is to buy into companies that will be resilient through a market downturn. In fact, if your favorite company’s share price goes down 20% because everything else has gone down 20%, what a great opportunity to buy more and watch it regain 20% almost as quickly as it shed it.

When the market has its bad days (and there will be plenty more bad days mixed with the good days), your best strategy is to take comfort in the fact that you’re in it for the long haul and to see momentary blips as opportunities to buy premium stocks at discounted prices, not reasons to panic and sell as a knee-jerk reaction.

As for the latest market shenanigans, it is largely a Chinese phenomenon that has reverberated around the world. In the years leading up to the current crisis, Chinese investors plowed money into the Shanghai Stock Exchange, inflating the value of many companies and effectively created a bubble. The Chinese government hasn’t helped by interfering in the market and introducing measures designed to keep the value of the stock market artificially high, rather than letting the market run its course and correct itself.

Wills – Even Death Has a Fee

death-tax

I recently got a will. I went through a lawyer, and was quoted a notarized will for my wife and I at $400 each. With the lawyer, it was an intimidating experience at first, but I did some research on my own and found that you can get a will drafted for free, and notarized for as little as $15. Currently, I am in the process of trying to get a more competitive rate.

How did this all come about? I remember a few months ago seeing a story about a wealthy, well respected family being torn apart over an inheritance. Millions were collectively spent on lawyers. I don’t know how that mess turned out, but I’ve heard about crazy family members who launch lawsuits over an inheritance dispute. To add to the deep emotional damage such a conflict would inflict, the truth is that the only people guaranteed to benefit will be lawyers.

It seems that every family has crazy relatives, and it seems that if you have any considerable worth in your estate at all, you might want to spend the extra time and money to be clear on how you want your estate divided and passed on and stop any potential conflicts from ever happening.

What kind of things are part of your estate? The first thing to be factored is any debt you have, including credit cards, mortgages, and car loans. They are paid off before your estate and any estate beneficiaries. Once debts are settled, all your remaining assets with financial value, such as insurance policies, cash, TFSAs, homes, cars, appliances, and furnishings are added up and considered to be the value of your estate. If your spouse survives you, your estate is considered to be shared 50/50.

Once the value of your estate is ascertained, the provincial government will then proceed to tax it. As per the Ontario Ministry of Finance, the inheritance tax will be $3100 on an estate valued at $240,000.

Note that your RRSPs can be directly transferred to a family beneficiary with no tax penalty at all. You can setup an RRSP tax beneficiary at any time. If you don’t, your RRSP will be converted to cash and taxed as income in your final year and added to your estate to then be subjected to the inheritance tax.

If you don’t have a will, it will be up to the government to decide how to divide your estate. You should check how your province divides your estate as different provinces follow different guidelines. Often, your spouse and/or children will get everything. If you want to leave something for siblings, friends, charities, your community, university, or any other person or thing, you’ll want to put a will together. If you are looking for some ideas, you should search to see what unusual things people have left in their wills.