Archived Newsletters

Your Financial Security - Issue 2, 2013

Staying on track to achieving your investment goals

The volatile ride in equity markets and the uncertainty of the global economy may have you feeling weary and questioning your investment decisions and your portfolio. Here’s some insight into today’s equity market conditions, what’s happening with them, and how to confidently reach your investment goals by sticking with them over the long term.

Equity markets: big picture view

With ongoing concerns, many investors are expressing desire to get out of equities.

The media has a big influence in shaping perceptions. If you’re wondering what the reality is, it’s been a case of two steps forward, one step back.

Clearly there’s no shortage of macro-economic challenges. However, the fundamentals of the companies that make up the stock market show a much brighter picture.

Over the 10-year period ending March 31, 2012, the S&P 500 rose by a total of 23 per cent, but its company earnings grew by 130 per cent. In other words, there’s inherent value in the companies that make up the stock market, which isn’t necessarily reflected in the share price.

Bottom line: there’s a lot of opportunity for equity investors to harness growth potential over the medium to long term to capture returns in their portfolios – for those with patience.

Fixed income – safe-haven investments?

With all the challenges and worries in the markets today, it’s easy to understand why investors are attracted to perceived safe-haven investments. And for many, that’s been fixed-income investments.

Investors have become accustomed to very attractive returns in the Canadian bond market

over the past decade, in the range of six to seven per cent. Now, in sharp contrast, returns are down in the two-per-cent range.

There are two challenges for bonds with the current low-yield environment:

  1. With interest rates as low as they are, investors aren’t likely to see the same results they’ve been used to. And really, bond yields don’t have much room to go any lower.
  2. In an environment where interest rates could rise, bonds are likely to show negative returns. And the longer the term of the bond, the greater the risk and impact.

Diversification is just as important among your bond funds as it is for equities.

Over the past decade, we’ve seen several equity market corrections. In each instance, diversified investors with both equities and fixed income saw bonds provide far superior returns versus cash.

Volatility is expected to continue and fixed-income investments are expected to continue to provide an important stabilizing effect for a diversified portfolio in today’s market environment.

For more information about the markets, current opportunities and your investment plan, please contact your financial security advisor and investment representative.

One solution to help small business owners creditor-proof some assets

It’s common for small business owners, self-employed individuals and professionals (such as doctors and lawyers) to use personal assets as collateral for a loan for their business. It’s also common for them not to take the necessary steps to protect their uncommitted property.

So what happens in the unfortunate event that your small business or practice ultimately fails? You may wish to have the potential for creditor protection if you face:

  • Litigation against a company – as owner or even as an officer or director of a corporation you may be held personally liable if lawsuits are filed against the corporation
  • Personal litigation – for example, a serious injury not covered by property or casualty insurance
  • Bankruptcy

In addition to losing your business, you may often have to cope with losing some or all of your personal assets, such as your home or automobile or investments.

How a segregated fund policy can help

Like a mutual fund, a segregated fund is a pool of money invested in a variety of securities through professional fund managers. However, unlike mutual funds, segregated funds are only available through an insurance company. Because segregated fund policies are life insurance contracts, they

have special protection features.

When a life insurance policy meets certain criteria, creditor protection may be available under

provincial insurance legislation. This legislation is intended to protect the rights of the beneficiaries under the insurance contract. This means during the policyowner’s lifetime, the assets covered by the policy are potentially untouchable by creditors when there’s an appropriate beneficiary designation. And after the policyowner’s death, the assets pass directly to the beneficiary, bypassing the estate.

Creditor protection may be achieved by ensuring the beneficiary designated on your life insurance contract is:

  • The spouse, child, grandchild or parent of the life insured (in all provinces except Quebec)
  • An ascendant, descendant or a married or civil union spouse of the policyowner (in Quebec)
  • An irrevocable beneficiary

Beneficiaries that would not qualify a policy for creditor protection include your estate, corporations or charitable foundations.

Find out more

Segregated funds can be a useful tool for potential creditor protection. If you’re interested in protecting your hard-earned assets from creditors and building wealth outside your business, you should seek

legal advice as to whether the protection would be available based on your personal circumstances. Your financial security advisor can help you obtain this advice and assist you in making the right decision when it comes to investing using segregated fund policies.

Creditor protection depends on court decisions and applicable legislation, which can be subject to change and can vary from each province; it can never be guaranteed. Talk to your lawyer to find out more about the potential for creditor protection for your specific situation.


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