Spring Clean Your Finances
An insightful discussion on how to spring clean your finances, and focus on the things important to you that require planning, money and time.
Episode 105 Spring Cleaning
Thanks for attending our presentation today.
Normally, we'd see many faces in an audience, at a venue, maybe a swanky restaurant, or something like that. But, of course, it is not like that as we're presenting virtually, as we have been for the last two years.
Although, we have started to have in person meetings again, which is nice to do, It's nice to see people.
But we have not been so bold as to host larger events in person.
And that will change over time.
But it's because of current issues that we decided to host, an event focused on the importance of tending to your financial decisions that we're calling Spring Cleaning.
The stock and bond market results from January to today have had a lot of people asking questions about their finances, their investments, and ultimately asking if they're going to be OK.
For those of you that don't know me, my name is Colin Andrews, and I am a Portfolio manager and senior wealth advisor with the CM Group.
CM Group has been in existence for almost 40 years, and in that time we've been through many different market cycles, and it helped many people accomplish financial goals, linked to things like retirement, estate planning, education funding, in other forms of goals based planning.
Just a couple of housekeeping items to attend to before we get into the presentation. There is an option to ask questions during the presentation.
The questions will be managed by our organizer.
We will answer them as best we can, and when we can, if we don't get to your question during the presentation, we will e-mail you back or response to your specific question.
Secondly, technology is great when it works, and I assume that today is going to go without a hitch.
The WI fi is going to be strong. Everything's going to work.
However, if you're having any technical issues during the presentation, rest assured that it is being recorded, and it will, there'll be available for viewing at a later time, or date that works for you.
So usually I would also take this time to tell people where things like the washrooms are located, or the food and beverage it's available, but again, I assume that given this digital format, you're kind of on your own for that.
Which reminds me, you can see me and the presentation, however I cannot see you.
And all attendees cannot see each other, or even know who else is is on the webinar today. So just sit back, relax, and enjoy the presentation.
Now, let's get into it.
Today, we're going to talk about facts and have a little fun.
This will not be a chart heavy presentation is, that's just not required.
There will not be a test at the end of the presentation, and the focus of this presentation isn't on charts.
It is on what works to improve your financial life, looking at what areas you can improve on, to improve your chances of achieving the goals that are relevant to you through Spring Cleaning.
So the way that we are, is based on the aggregation of all of the decisions that we have made, our health is based on each decision that we make, such as, Should I eat that chocolate cake?
Should I stay up late and get up early?
Should I brush and floss my teeth each time we make a small decision?
It doesn't seem like much at the time, but if you aggregate them.
That is to say, if you add them up, it can lead to massive results, good and bad, based on the decisions that we're making at the time.
For example, eating a piece of chocolate cake won't do cheatham won't do much.
Eating a whole chocolate cake every day, well, probably leads to results that we might not want.
The same is true in our financial being.
If we choose to spend our money on one-off items infrequently, then perhaps it's not such a big deal, but if we choose to spend our money on those items, many times a day, a week, a month, a year, it can lead to larger consequences down the road.
The extreme example of this that we run into is when we meet people that have not saved anything, but want to talk about their upcoming retirement next year versus meeting people who put away a little bit each month into a saving strategy and had that money invested over many years for many different cycles.
Chances are, the second person will be much better off financially because of their aggregated financial habits.
I'm going to recommend a book to those on this webinar.
You'll notice the top of this slide, it says Aggregation of Marginal Gains.
The book is called Atomic Habits, it's written by James Clear.
In the book, he talks about being 1% better every day, that, if you do that, you're something like 30% better.
At the end of the year, it is the layering or stacking of those decisions that leads to the most drastic results.
So, to help people down that path, today, we're gonna look at a couple of general spring cleaning items for your finances, and then get into spring cleaning your investment portfolio.
I'm gonna start with the budget. This is the Spring Cleaning portion.
A budget is looking at your cash flow. Ideally, there's more money coming in than going out.
It will also list your assets and liabilities.
The budget is always the starting point of planning.
It helps you in your current financial situation and allows us to determine where we can make changes to meet our goals.
A budget can be broken into a few different items: fixed expenses, variable expenses, mandatory or non discretionary expenses, and discretionary expenses.
So fixed expenses are just what they sound like. They're ongoing costs that don't change in amount or frequency.
They might be weekly, monthly, or annual payments, but they're pretty easy to budget for because they're fixed.
They can be both discretionary or mandatory payments.
Variable expenses, well, the amounts change, or they may change every payment, which makes them a little tougher to budget for.
An example of this might be your monthly utility bills, which costs less than September than they do in July, because, in July, you're running your air conditioning unit.
They cost less than September than they do in January, because in January, you're running your heat, These can also be mandatory or discretionary, mandatory expenses, or what must be paid in order to maintain a minimum standard of living.
Examples of this might be mortgage or rent payments, utilities, groceries, These are all examples of non discretionary expenses.
We'd also maybe include savings in this category.
Well, we usually determine discretionary expenses by asking, is this a want or need.
This, of course, can vary from person to person, and it can even vary within the same household.
In today's day and age, it's easy to sign up for things like subscription services, there all around us.
And sometimes, we don't know that when we signed up for a free trial, A payment kicks in if we don't opt out before the trial ends. It's happened to me. The companies that are selling us, these subscriptions, know what buttons to press to get us to pay.
So, here's an example of subscription creep.
At our house, we have cable TV, like a lot of people.
But in order to watch sports, I needed to upgrade our cable package, not a big deal, only a few extra hours per month.
But then there are shows on things like Netflix that people in our house want to watch.
Well, we need a Netflix subscription again, on its own, not a big deal. It's about 16 or $17 a month.
But some people in our household also want to watch things on Amazon Prime, which is another six or $7 a month.
And my kids well, they often want to watch things on Disney Plus, which is another $9 a month.
When I start to aggregate the cost of these streaming services, it becomes a much larger number. I mean, in this example, now I'm up to $200 a month or so for cable, internet and subscription services, and this doesn't include any movies, rented or downloaded.
I guess that's the same thing, but the number starts to become a real number.
So you start to question, is it worth it, and I know I'm going to sound kind of old here, but I remember growing up with three TV channels, and one of them was in French, and we did not speak French in our household.
quite a bit different.
What about our utility costs? As mentioned in the previous slide, do we opt for a variable plan for utilities, or do we choose a fixed rate plan? Not here to give you the answer to that one. I'm just simply asking you to be aware of those incremental costs.
Greg Kamensky on our team who many people on this broadcast will know likes to use the term creeping incrementalism to describe this.
I think that is a great way of looking at it, those one-off costs, or not much on their own. But they start to add up when you add them together. They become a real number.
We haven't talked about things like food.
We live in a day and age where we can order groceries. We can order meal kits from companies like Hello Fresh.
And others, fresh prep, or if we don't feel like cooking, we can go to skip the dishes and we can just order from our local restaurant or Uber eats.
These are not necessities. These are nice to have services.
So, the question is, are you budgeting for things like this? Do you consider them when you're looking at your monthly budget? And again, it's just a question to ask yourself.
Because the price of goods has gone up a lot in the last year, I'm sure everybody's aware of that.
There are many contributing factors to that, but let's look at how goods are priced.
Let's assume that for any good, there's a demand for it as represented by an aggregate demand curve.
Now, that demand might be large.
It might be small depends on the good that we are talking about, but the supply of that good, and where it intersects with the demand of that good.
It's how we get pricing.
That's the price per quantity. It's basically economics 101.
But let's see what happens when the supply of that good shrinks, which has happened in the last I don't know, the last year or two.
The supply curve moves up and to the left and where it intersects with the aggregate demand curve where the new price is set.
This is called inflation, Price goes up, quality goes down.
If demand stays constant or even grows and supply shrinks, then the price of that item is going to continue to go up.
Now, the good news is that all of those suppliers out there see the sales that they are missing out on by not having enough supply.
So they work really hard to fill that gap.
Perhaps new suppliers come into the market, or existing suppliers increase their output.
Eventually, there's enough supply to go around.
The supply curve moves back down to the right, and the price comes back down. But that takes time, You know, people use the word transitory.
Transitory could mean a few weeks a few months, a few years, but it is transitory.
Central banks only have two levers to pull when it comes to dealing with inflation.
That is controlling interest rates and what is called open market operations.
By raising interest rate, costs go up, and it's thought that the demand will fall. So eventually brings prices back down.
This is essentially called monetary policy, and it is effective, but it can take some time to work.
In the interest of time, I'm not going to get into open market operations. Say, I do like talking about it.
So, if you ever want to chat about what that is, let me know.
Let's talk about those silent killers, that is taxes, fees, and expenses.
There isn't much we can do about taxes.
I suppose you could try to not pay them, but you might not like the outcome that this brings from a legal perspective.
So, if we have to pay taxes and we essentially are using after tax dollars to pay tax on items we purchase to which the seller is getting taxed, which makes me dizzy thinking about it, we must do our best to reduce the tax burden.
So, what can we do?
Well if you filed your taxes you received your notice of assessment.
If so it'll point out if you have any unused RRSP room or TFS a contribution room.
Can you use that RRSP room to reduce your taxable income?
Can you top up your tax free savings account to create a tax free income stream or tax free growth rate?
have you reviewed and updated any monthly contributions that you're making to registered retirement savings plans or tax free savings accounts?
Are you contributing enough to just your taxes payable, maybe taking you into a lower tax bracket?
Do you have any capital losses or gains that you can crystallize now and use for refile in going back three years are few or going into indefinite years in the future.
A great example of a housekeeping item that we've been doing recently, is selling some items with capital losses.
To do this, we're selling things like a mutual fund that shows a capitalize currently, based on what's happened from January to today. But, we're re-investing the proceeds into an exchange traded fund of the same investment solution.
They haven't gotten out of the market, but you've created a capitalize that you can use in the future. Just an example of a minor housekeeping item that you can do.
An item that tends to get overlooked by many is estate planning.
I mean, when was the last time you reviewed or update your well? What about your personal directives and power of attorney? These are really important documents.
They provide a blueprint to your heirs of how you want your estate to be distributed.
Who's your executor? Is that person older or the same age as you?
Do they have any health issues that might have them predecease you?
If so, do you have an alternate executor named me, Not too many people like to talk about death and dying, but if you don't clean it up now, your family will be cleaned up later, and it might not go so well for them.
Speaking of family, have there been any birth or deaths, Divorces, health issues, all important stuff to attend to, and we would recommend that you deal with a professional when it comes to your estate plan.
Speaking of planning, this whole presentation is based on the idea of having a financial plan.
So, the question is, when was your financial plan last updated?
Have there been any major life changes since then?
Any large purchases or sales of items, such as property or anything, what about your employment? Has that changed in the past couple of years? I know that some people that we deal with were full-time employees a few years ago, and they're now contracting.
There's consequences to that change. Maybe they're just things like a pension plan.
Do you have a pension plan still?
Is it a defined contribution plan, or is it a defined benefit plan?
Those are very different things.
Have you picked up an expensive hobby during any of the numerous Corvid lockdowns?
Again, not judging just asking and asking you to ask yourself.
Where are you're spending your money?
So the items were reviewed up to now our general items to review, to sort of clean things up.
If you're feeling overwhelmed with items such as these, don't be, working with a professional, can help remove the stress of ensuring that you're making good decisions, and you're on the right path, or whatever it is that you want to accomplish.
But we're not done yet, We're going to get into something that we call it, 10 things to do, to clean up your investment portfolio.
So, number one, embrace market pricing.
With each trade, buyers and sellers bring new information to the market, which is how prices are set.
No one knows what the next bit of new information will be.
The future is forever uncertain, but prices adjust accordingly, and they adjust quickly.
This doesn't mean that a price is always right, there's no way to prove that, but investors can accept the market price as the best estimate of actual value.
If you don't believe that market prices are good estimates, if you believe that the market has upraised wrong, well, then you're pinning your beliefs and hunches against the collective knowledge of all market participants.
Number two, Don't try to, Oh, guess, the market.
Many fund managers believe they can identify misprice securities, and convert that knowledge into higher returns.
But fair market pricing works against such efforts.
as indicated by the large proportion of mutual funds that have underperformed their benchmarks, The chart I'm showing here, it's showing a 20 year period.
The blue one at the top would be equity funds or stock market funds. And this is US data.
So in 2001, there were 2903 stock market mutual funds in the US.
By the end of the time period, the end of 2020, only 41% of those funds actually continued to be in existence and only 19% of the 2903 funds actually outperform their benchmark.
In the fixed income market, it's the same story.
Beginning of the period, there were 1779 bond mutual funds in the marketplace.
By the end of the time period only 45% continued to be in existence and only 11% of the original, almost 1800 funds actually outperform their benchmark.
Number three, resist chasing past performance. So some investors may resort to using track records as a guide to selecting funds.
Like in the last slide you might say, well for me I'd invested with the 19% of fund managers that outperform the market. I'd be much further ahead.
Your reasoning that manager's past success is likely to continue in the future.
I'm going to tell you, this assumption doesn't pay off regularly.
The research offers strong evidence to the contrary.
This exhibit shows that among equity funds ranked in the top quartile, so the top 25% performing funds on the previous five year returns, Only 21% of those fund managers continued to be top quartile quartile in the following five year period.
In the bond market, only 30% of the original top 25% continue to be top quartile in the next five year period.
Stock and bond returns contain a lot of noise and impressive track records may often result from good luck.
The assumption that strong past performance will continue, often proves faulty, leaving many investors disappointed.
Number four, let markets work for you.
Most people look to the financial markets as their main investment avenue, and the good news is that the capital markets have rewarded long term investors.
The markets represent capitalism at work in the economy, and historically, free markets have provided long term returns that have offset inflation.
Even today's inflation rate.
This is documented in the growth of wealth.
This graph, which shows monthly performance of various indices and inflation since 19 85.
These indices represent different areas of global equity and bond markets.
The data illustrates the beneficial rule of stocks and creating wealth over time. T bills or treasury bills and barely covered inflation in that time period.
Well, longer term bonds have outperformed inflation, but at a lower amount.
Global stock returns have far exceeded inflation and significantly outperform government bonds.
Keep in mind that there's risk and uncertainty in the markets.
Historical results may not be repeated in the future, but they certainly can, right?
Nevertheless, the market is constantly pricing securities to reflect a positive, expected return going forward.
Otherwise, let's face it, people just would not invest their capital.
So, let's look at the growth of a dollar, going back to 1971.
50 years of data If, in 19 71, you came in to see the CM Group and he said, Look, I've got no appetite for risk, and I just want to ensure that I don't lose any money.
Well, the advice would be to invest in something like US Treasury Bills.
These are known as the risk free rate in finance.
Over that 50 years, your $1 would have grown to $9.
But if, in 19 71, you said, look, I have 50 years ahead of me before, I need to start pulling this money out, or my family needs some money, or whatever the case might be, well, you could have invested in the S&P 500, that $1 would have grown to $176.
Isn't this a significant difference in outcomes?
Number five, consider the drivers of return.
What the last slide showed us is what we call the equity premium.
That being that expected returns for equities are higher, then for bonds over long periods of time, well what about some other premiums.
Rather than viewing the market universe, in terms of individual stocks and bonds, investors should define the market along the dimensions of expected returns to identify broader areas or groups that have similar relevant characteristics.
Now, this approach relies on academic research and internal testing to identify these dimensions, are: these factors are these premiums, which point differences in expected returns.
In the equity market, the dimensions are size, which is, small companies versus large companies, relative price, just value stocks versus growth stocks, and profitability or corporate profitability being high, highly profitable corporations versus low profitability corporations. In the fixed income market, these dimensions are term credit and currency.
The return differences between stocks and bonds can be considerably large as demonstrated in the last slide.
As can the difference among a group of stocks or bonds.
Should it be considered a dimension, a factor, a premium, whatever you wanna call it, it has to meet some criteria.
It must be sensible.
It has to be backed by data over time and across markets.
It has to be cost effective to capture in diversified portfolios in a dimensions or factor based approach capturing returns, does not involve predicting which stocks, bonds or market areas are going to outperform in the future.
Rather, the goal is to hold well diversified portfolios that emphasize dimensions of higher expected returns, controlling costs, and have a low turnover.
So if we carry on that discussion about the growth of a dollar, what we showed in our historical data, was that $1 invested in the S&P 500, which is the largest companies that trade in the US market, grew to $176.
What about the different size of companies? I mean, they're not all large companies that trade in the market.
There's large companies, mid-size companies, small companies.
And there's a difference in return characteristics between large companies and small companies.
So in that same time, period 1971 to 20 20, if you would invest that $1 in small companies, instead of large companies, it would have grown to $451.
This is called the size premium.
So if we know that the largest companies grew to $176, and we know that small companies, $1 investment grew to $451, what about the price premium?
This is sometimes called value investing.
Well, if we tilted our investments, too small company value stocks.
So the bottom left quadrant, that same $1 grew to $1083.
So we went from $9 in T bills, $176 in the largest companies, to $451 in small companies, and ultimately $1083 in small company value stocks.
This is why the investment solutions that we offer clients have a small cap value tilt incorporated into them.
It's not because we don't believe in big companies.
It's just that we believe in the factors of return and we cannot ignore the size and preys premiums they come into play.
Number six, Practice smart diversification.
Many Canadians concentrate their investment in their home stock market.
This is called home country bias and if we're giving this presentation in Australia, it'd be many Australians concentrate their investment in their home stock market.
If we're giving it in the US, it would be many US citizens concentrate their investment in their home stock market, it's pretty normal.
But in Canada, Canadians tend to choose Canadian stocks and mutual funds.
Or they use several brokers who focus on Canadian equity investing and consider their portfolios diversified, in some cases only holding a small group of securities.
Yet, from a global perspective, limiting one's investment universe to one stock market, is a concentrated strategy with possible risk and return implications.
So what this slide shows is that if you had concentrated your portfolio in the TSX Akkadian Composite Index over the time period, you would've had an annualized return of 8.44%.
And a measure of volatility, or a measure of risk, of 14.9%.
But instead, if you had held 10, equally weighted asset classes, is represented by corresponding indices in the Canadian US and international markets.
Over this period, your rate of return would have gone up to 9.67%, and your volatility measure would have dropped to 11.79%. So diversification should not be defined by how many stocks or funds an investor owns, or how many brokers one uses.
A diversified portfolio should be structured to hold multiple asset classes.
The represent different market areas across the world.
So we call this to get rich versus lose everything portfolio.
This is quite common in Calgary, by the way.
Over the years, we've met many investors that own, maybe a few oil stocks. Maybe a few gas stocks, maybe a combination of eight oil and gas stocks to be diversified.
This is not diversification.
If you invested in those eight companies and it's just an example, and you put all of your wealth into those companies, what is the range of outcomes?
Well, you could absolutely get rich if all of those companies do really well.
But what if they don't?
What if a few of them fail, or half of them fail or more.
Then you absolutely could lose everything.
So we would advise investors that if you want to own those AI companies to do so, but own them in a broader basket on them in a diversified basket of companies, limiting the range of outcomes from get rich to lose everything to something in-between.
Number seven, remember, we're only doing up to 10, so we're almost there.
Number seven is avoid market timing.
Even with a globally diversified portfolio market movements, contempt investors to switch asset classes based on predictions and future performance.
I run into this question all the time right now.
With the stock market being in a negative return year to date, the bond market being in a negative return year to date.
Quite often, investors are saying, should we be doing something different?
The answer is no. This slide features annual ranked performance of major asset classes in the Canadian US and international markets over the past 15 years.
The asset classes are represented by corresponding market indices.
It looks like a quilt. It looks like a patchwork quilt.
The patchwork dispersion of color shows that the relative performance of asset classes is unpredictable across period's.
Investors who follow a structured, diversified approach are actually well positioned to seek returns whenever and wherever they occur.
Diversification also reduces the risk of being heavily invested in an underperforming asset group in any given year.
Number eight, Manage your Emotions.
The 20082009 global market downturn otherwise known as the Global Financial Crisis are the Global Credit crisis offers an example of how the Cycler fear and greed can drive investors reactive decisions.
We've seen other Cycle's since we saw March of 2020 when covered head and the quick selloff in the stock market.
Some investors fled the market early.
So in the example of the global financial crisis, maybe they fled the market in early in 2009, just before the rebound began.
They locked in their losses, and then experienced the stress of watching the markets client.
Staying disciplined through rising and falling markets can pose a challenge, but it's crucial for long term success.
And it's hard, it's really hard.
It's hard to watch others make money when we're not.
When markets are expensive, we tend to want to buy in for fear of missing out.
But markets operate in cycles and ultimate.
Ultimately, they trade down from a peak to trough and back to a peak.
It's during the time when they treat down to trough that our biases want us to get out.
Sell Now is what, what we feel, fear is, what we feel.
But that is bad advice as these markets will go back up.
And many people repeat the same pattern over and over.
Our advice to you is just don't, don't even think about it, stay invested.
Number nine is look beyond the headlines.
News and financial commentary can influence people's views of investing without a strong investment philosophy to guide them. They also may follow the advice of friends, neighbors, family members, especially if the so-called incyte promises a fast easy return.
But growing wealth has no shortcuts.
Success requires a solid investment approach, a long term perspective, and discipline to stay the course. These headlines are not actionable advice items. We would call them entertainment advice.
You're not going to make changes to your portfolio based on seeing a headline that says something about the looming recession or housing market. Boom.
Number 10, final slide in our presentation today, actually, in the final of the 10 steps to your investment portfolio spring Cleaning, focus on what you can control to have a better investment experience. People should focus on the things they can control.
It starts and they're listed out here with having an advisor create an investment plan based on market principles, informed by financial science, and tailored to meet specific needs and goals.
Along the way, an advisor can help clients focus on actions that add investment value, such as managing expenses and portfolio turnover, well, maintaining broad diversification.
Equally important and advise you can provide knowledge and encouragement, almost be a cheerleader to help investors stay disciplined through various merc conditions.
I've had a lot of calls in the last few months, from people that said, I'm not worried, but, which indicates to me that they are actually worried, and it is OK to feel that worry. It's OK to feel that fear.
It's not OK to make a change to your investment strategy based on what you see today.
So maintain that diversification, diversify globally, stay disciplined through market dips and swings.
Focus on things like asset location, not just Asad allocation.
So have the rate investments and the rate taxable accounts and non taxable accounts and do regular rebalancing.
Market timing does not work In case you didn't hear me.
Market timing does not work. But regular rebalancing does.
Having a regular rebalancing strategy means that at various times, throughout the year, you're selling securities that have gone up in value and buying securities that have gone down in value. Which simply increases your expected rate of return going forward.
Well, that's the presentation.
Thank you so much to everybody for joining us today, appreciate you taking that time out of your day, and again, this presentation is being recorded and will be available for distribution in the next day or two.
Thank you for your time.
RE-GENERATE TRANSCRIPTSAVE EDITS
CIBC Private Wealth Management consists of services provided by CIBC and certain of its subsidiaries, including CIBC Wood Gundy, a division of CIBC World Markets Inc. “CIBC Private Wealth Management” is a registered trademark of CIBC, used under license. “Wood Gundy” is a registered trademark of CIBC World Markets Inc. This information, including any opinion, is based on various sources believed to be reliable, but its accuracy cannot be guaranteed and is subject to change. CIBC and CIBC World Markets Inc., their affiliates, directors, officers and employees may buy, sell, or hold a position in securities of a company mentioned herein, its affiliates or subsidiaries, and may also perform financial advisory services, investment banking or other services for, or have lending or other credit relationships with the same. CIBC World Markets Inc. and its representatives will receive sales commissions and/or a spread between bid and ask prices if you purchase, sell or hold the securities referred to above. © CIBC World Markets Inc. 2022.
Email fraud and how to avoid it
This video highlights the latest types of email scams, how to stay vigilant and prevent them.
Email fraud and how to avoid it
[CIBC Private Wealth logo]
[Soft music plays]
[A woman looking at a laptop]
[Email fraud and how to avoid it]
Email fraud is common, and we’re all targets. This widespread criminal industry has totaled over
4 billion dollars in misappropriated funds.
[Animated numbers increasing from about $3,900,000,000 to about $4,200,000,000]
[Source: Federal Bureau of Investigation, 2020 Internet Crime Report]
It usually happens in one of two ways:
Firstly - False email accounts.
[A still image of a man looking at something on a tablet]
[1. False email accounts]
A fraudster creates a false email account to look like a trusted person or company.
[An icon of the head of a robber, with an arrow pointing at an envelope with a piece of paper
with the of the robber on it.]
Their goal is to access your private information, to access your money.
[An email inbox. One email is highlighted – the sender is ‘Revenue Agency’, and the subject
reads: ‘Urgent: Please confirm login credentials’.]
For example, you may get an email or text about an incoming Interac eTransfer.
[A text message on a phone, reading: ‘Hi Cindy, click the link to accept your e-transfer:
You click on the link and get sent to a fraudulent webpage.It looks like the real thing, but it was
created by the fraudster. You input your card number and password.
[A homepage for a banking website. In a blank field for ‘Card number’, a card number appears.
In a blank field for ‘Password’, a password appear.]
The fraudster then has your digital fingerprint to bypass security by pretending to be YOU. Other
common misleading scams can be about package deliveries, gift cards or timeshares.
The second way that email fraud tends to happen is an email account takeover.
[A still image of a woman looking at a computer]
[2. Email account takeover]
In this case, the fraudster hacks into a real account.
[An icon of a robber and an icon of a desktop computer. The robber icon enters into the icon of
the desktop. Arrows followed by an envelope with a piece of paper with the ‘@’ symbol inside
begin emerging from the desktop.]
Once they’ve accessed it, they can start sending emails from that account, pretending to be the
owner. And with access to all of the owner’s emails, the fraudster can find sensitive information
and use it to make the impersonation seem authentic. Takeovers of email accounts can happen
to anyone, including trusted professionals.
[Takeovers of email accounts can happen to ANYONE]
Here’s an example: you’re buying a cottage, and your lawyer’s email gets compromised by a
fraudster, who then goes into past emails to gain information about your purchase.
[An email inbox. One email is highlighted – the sender is ‘Cindy Smith’, and the subject reads:
‘Transfer funds for Gold Lake Cottage purchase’.]
[An email body. The subject heading, partially cut-off, reads ‘RE: Transfer funds for Gold Lake
Cottage purch-’. The sender of the email is Brendan Jones,
email@example.com. The content of the email is mostly immaterial; the gist is
that this email contains information that could be sensitive.]
The fraudster then sends you an email pretending to be your lawyer, with instructions about
where to wire money before the closing date. You assume it’s authentic and instruct YOUR
BANK to send money to the fraudster’s account. And your funds become irrecoverable almost
[An icon of a robber in a desktop computer, on top of which is text that reads “’Lawyer’
(Fraudster)”. An arrow emerging from the computer points to an envelope with a piece of paper
with the ‘@’ symbol inside. Another arrow points from this envelope to an icon of a person, on
top of which is text that reads ‘You’. An arrow emerges from the person icon and points to a
telephone icon. An arrow emerges from the telephone icon and points to a bank icon, on top of
which is text that reads ‘Your bank’. An arrow emerges from the bottom of the bank icon,
pointing left, back towards the desktop icon. Dollar bill icons begin emerging from the arrow and
move towards the desktop icon, and eventually disappear into the desktop icon.]
Here are some tips to avoid getting hacked:
Follow up with a phone call to confirm instruction details first of all with the recipient of the funds
(your lawyer in the previous example) and also phone your bank.
Follow up with a phone call]
[An icon of a robber in a desktop computer, on top of which is text that reads “’Lawyer’
(Fraudster)”. An arrow emerging from the computer points to an envelope with a piece of paper
with the ‘@’ symbol inside. Another arrow points from this envelope to an icon of a person, on
top of which is text that reads ‘You’. An arrow emerges from the person icon and points
downwards to a telephone icon. An arrow emerges from the telephone icon and points to a
person icon, on top of which is text that reads ‘Your lawyer’.
Another arrow emerges from the ‘You’ person icon and points to a telephone icon. An arrow
emerges from the telephone icon and points to a bank icon, on top of which is text that reads
- This is especially important for emails involving large financial transactions. And be sure
to use the phone number in YOUR RECORDS rather than one that is emailed to you as
the number may have been altered by the fraudster. A short phone call could be worth
thousands or millions of dollars.
[In illustration of a cellphone. The screen shows contacts, including ‘Brendan (Lawyer)’ with their
phone number highlighted beneath. An email body appears beside the phone. The subject
matter is mostly cutoff from view and immaterial; of primary importance is a highlighted line that
reads ‘To confirm, please call 516-284-3617.]
Use strong passwords]
- Use STRONG passwords.
- Many of us use very ‘hackable’ passwords.
- For example, 24% of people use ‘Qwerty’, ‘password’ or ‘123456’.
- Avoid passwords which follow a simple pattern.
- Use random numbers and, where possible, randomize using letters and special
- And finally: a passPHRASE is better than a passWORD.
[An account sign in screen for the fictional character Cindy Smith. An empty password field is
field with several different passwords in succession, to correspond with the preceding
- Create UNIQUE passwords ESPECIALLY for your email account.
Create unique passwords]
- Two out of three people use one password for ALL of their accounts. But this is
dangerous, as most email compromises are because of re-using passwords. Keep these
passwords secret; don’t tell anyone or email them, not even to yourself.
[Four different account sign in screens for the fictional character Cindy Smith. Each screen uses
the same password.]
[Keep passwords secret]
- And consider using a password manager. This enables unique passwords for each login
and takes away the stress of remembering them all.
[A password manager webpage showing over a dozen different passwords for different
purposes (for example, ‘Bank account’, ‘Personal email account’, ‘Social media account’, etc.]
Think before you click!]
- THINK before you click. If you’re not sure about a link’s source, find the website
separately to ensure it’s genuine.
[A homepage for a banking website.]
- Watch out for phrases like ‘unusual transaction detected’ or ‘please login.’
[An email inbox. One email is highlighted – the sender is ‘Revenue Agency’, and the subject
reads: ‘Unusual transaction detected – please login’.]
- Malicious emails often sound urgent to compel you to act now. And remember: CIBC will
NEVER e-mail you and ask your for passwords, social insurance numbers and other
[CIBC will never email you asking for
social insurance numbers
NEVER open attachments unless you’re expecting them]
- NEVER open attachments unless you are expecting them from the sender.
We hope you now better understand email fraud and how to avoid them. CIBC remains vigilant
and on high alert, and we do everything we can to protect our clients.
[A montage of a variety of still photos showing different people on computers and tablets and
talking on phones.]
With a little help from you, we can make sure that we’re working together to create the safest
possible environment for you and your assets.
[CIBC Private Wealth logo]
[The CIBC logo and ‘CIBC Private Wealth’ are trademarks of CIBC, used under license.]
Erik Ristuben, Looking Beyond 2022
Colin Andrews interviews Erik Ristuben to discuss the landscape going in to 2022. Erik is the Chief Investment Strategist at Russell Investments.
Hi, everybody. Before we get started, we're just going to do a short sound check on our end. So, it'll be an awkward pause for a moment while we do that, So please bear with us.
OK, we got that out of the air, So, welcome, everybody, to today's presentation. We're really pleased to have Eric ..., Chief Investment Strategist with Russell Investment's join us for today.
Before we get started, we just got a couple of housekeeping items.
Number one, I just wanted to remind everybody that you can't see each other, you can't hear each other.
As a matter of fact, nobody knows who's on the webinar, except for us, of course. So, feel free to enjoy the presentation.
Whatever attire is comfortable Normally we would have this presentation at a fancy restaurant and we would serve some nice food maybe a nice bottle of wine and things like that.
But obviously Durian Covert Times things are different so we're we're doing this digital or virtual presentation I believe.
This is our fifth one in the last 18 months and as such. We tend to do them every three months or so.
It's something we should be better at doing, but when you do something every three months, you're not always great at using the, the software.
So we're going to do the best we can, hopefully, today goes off without a hitch but if it doesn't, it is being recorded, and it will be available for distribution at at a future date, so you can feel free just to enjoy the presentation and share the link when it's done.
So my name is Colin Andrews.
I am a Portfolio Manager with the CM Group at CIBC Wood Gundy, and I'm going to give a short presentation just a look back at our last webinar that we did and just set some of the foundational aspect for for Eric's talk today.
So, for today, we want to talk about why people invest, and Eric is gonna get into that a little bit, but, you know, why do people invest, you Know, when we think about investing, there's a few avenues that we can, We can do that with a few conduits for capital as it's called, and one of them is to purchase stocks. We can buy stocks because we want to receive in return from our investment.
When we purchase stocks, we become equity owners in a company. And it gives us certain things like the right to vote at the general meeting. Or perhaps it gives us the right to receive a dividend from some of the cash generated from that company. But that's just one way of investing.
The other way of investing is to purchase bonds.
And when we purchase bonds, we are essentially becoming the bank, too, a company, or a country, or a province, things like that, where we are lenders of our money to that company. And in return, we receive interest payments. And the third, and most common way of investing is actually to do both to have an allocation to stocks and allocation to bonds.
And that asset allocation. And the level of which you hold things are just going to be based on.
How much risk is appropriate for you and trying to achieve your goals?
So I just wanna talk with the stock market real quick. When we talk about the stock market, lots of times, people reference things like the Dow Jones Industrial Average and you see it in the news every day. It's reported.
The Dow did this. The TSX did that. The price of oil was here, the Canadian dollar was here. But just a quick reflection, the Dow Jones Industrial Average is only the 30 largest stocks that trade in the US market. So it's not a true reflection of the overall market.
But you'll often hear things like if the Dow was down one day, perhaps the commentator will say something like, There are more sellers and buyers in the market, and the Dow Jones was down today. I just want to comment on that. This is mathematically statistically impossible to have more sellers and buyers in the market, because in order for there to be a transaction, there has to be a seller for every buyer and fire for resellers, just that.
Perhaps one side might be more motivated than the other, which forces the price in a certain direction.
But so quite often, if we know that the Dow is only 30 largest stocks, you might think of the market as being the S&P 500, which is the 500 largest stocks that trade in the United States. Of course, a better representation than the Dow. But it is not the overall market is.
In the US, there are roughly 3600 stocks that trade on a daily basis.
So, you know, when we look at the Dow 30, we're sort of ignoring a majority of the market, but let's face it, it's a big world out there. They were just talking book. That was the US stock market.
The global stock market is, well, it's massive. And Canada only makes up a small portion of that. Canada is only 3% of the global stock market, whereas the US represents somewhere around 54%.
So whatever happens in Canada does affect us as Canadians, but it doesn't necessarily have a huge impact on the rest of the world.
Ironically, most Canadians have a majority of their wealth invested in Canada, which doesn't make a lot of sense if you had something like 90% of your money invested in, something that's represented by 3% of the market, and the size of the global stock market is about $70,000 billion. So it's, it is a very big global market.
The problem is that, know, we know what the stock market is. We know we can buy stocks and things of that nature, but we don't always know what to buy, what, what to invest in. So we get these these things that come out. Like Forbes puts out a magazine that says 365 Ways to get rich.
Usually aligning the stock market with wealth creation time puts out something that says, you know, you might be worthy of being rich based on your religious beliefs.
Money since put Soda Magazine about getting Rich now without even trying, which I think is pretty difficult but, Or you might read the Millionaire Next Door, which has some some good principles in it, but it still doesn't tell us how to invest.
So Money Magazine might put something out there about, well, here's what you invest in, here's the best options for this year, but as we know, being invested in the market itself has rewards people over long periods of time and we go through different crises. We've gone through one just in March of 2020, the global pandemic and Economic locked down where we saw the US market fall 35% in two weeks. It was a very impactful, sell off, and do sell offs occur pretty frequently pretty regularly. So this 50 year chart just shows some of the past crises.
And what it's meant to show is that as long as somebody's state invested, they are rewarded over that long period of time by staying invested.
But the issue is, we have all these headlines that surround us and things like, Currently, we hear about Bitcoin or Ethereum or .... What are those things, should we be investing in them?
Couple of years ago, it was all about wheat stocks.
Last year, it was all about a short squeeze on AMC Theaters and GameStop and, know, participating in a Wall Street Bets Forum on Reddit with our Diamond Hansen. A group of other like minded investors.
So these things, I believe, to be, in most cases. noise.
And I know Eric is gonna get into that a little bit, but Is the problem is, It's a really complicated thing and our brains aren't always wired for this stuff.
No, we we think that well like March of 2020, when the stock market was down, 35% to two weeks, that was. that was a tough time. That was a scary time for a lot of people.
And when we have those types of issues, there's a, there's this bias or biases or heuristics.
It tends to want us to flee when there's financial danger.
We tend to want to flee and sell stocks exactly the wrong time.
So you know, we're not gonna get into a lot of the behavioral finance aspects today, I just want to make people aware of that, that these things exist and their mental shortcuts. And some of them are there for a reason like when we were in caveman days and bienstock by saber toothed tiger clean was probably the right.
Brain function to get out of that situation when we're in a stock market and it's got a very fast decline. Fleeing might not always be the best option.
Quickly, we will just talk about the bond market. The bond market is much bigger than the stock market globally.
Canada, is only 4% of the global bond market.
And the bond market has a lot of power, and its size is roughly $128,000 billion. So it's roughly two times the size of the global stock market. Yet, We never, but we tend not to hear about bonds that often.
Maybe recently, we've heard about things like interest rates in the US. 10 year Treasury movie, Not things of that nature.
But normally, if you turn on the news, they talk about the things I mentioned the Dow Jones Industrial Average, the TSX, the price of crude, and the KT dollar. But perhaps we'll spend a little bit time on her presentation talking about the bond market, but with that for today, I want to introduce our guest speaker. He is, as I said, the Chief Investment Strategist at Russell Investments.
And I want to thank Eric ...
for joining us for today's presentation.
Good morning, gone. I will actually ask you to explain what Diamond hand was. But you did that.
Yes, And the fact that I actually don't know, and I'm very happy to admit, I don't know, probably should tell the audience what I think of read it as an investment of source of investment ideas.
It's, it's usually people trying to convince you to buy something that they already own, which is something you should always be a little bit leery of.
Yup, I like to talk about the caveman days. I think you probably heard me tell the story when I was a kid. I you know. It'd be the answer is I think It's the same database, because I've always lived near the border by life. You'd be at 6 30 on Sunday evening it would be Marlin.
Perkins: You know, you know, the Wild kingdom and it'd be followed by the wonderful world of Disney at seven We all saw those pictures of the African playing with the zebra herd of zebras on the African plane. And they always eventually they went to the shot of a single zebra on their own.
And we quickly realized, Nothing ever good happens to that, that that zebra. They're not elected zebra queen, or, or anything else, where they're usually horrible things happen to them. And that idea of staying with a herd, and when you had your picture of the brain out there, that is an incredibly powerful thing for us as human beings.
It is, However, as a general rule, as it relates to investing, it is a wealth destroying urge, because we, we want to sell on the herd of selling. And that's what the market is falling dramatically.
So I think that, you know, people are often looking for reasons to, to invest my view, is, you should always be invested, and you should have a longer term view of kinds of things. And kinda what you're investing, can change modestly over time.
But as a general rule, I completely agree with your, your View that in the end, it's the disciplined investor that actually generally does the bath. So hopefully, what we talked about today will help people get a sense of comfort and allow them to be disciplined, because, you know, I've noticed in my lifetime that media companies generally don't lead with everything, is great in the world. Don't worry about anything.
They tend to, they tend to lead with stories That, just going to people, right? Because if you scare people, don't watch abroad. So, Yeah.
Yeah. I think to keep that in mind. You know, the last, you know, two years, you know, a lot of things to be afraid of legitimate. We afraid of the virus impact, as you mentioned, that was stunning, stunning.
Down, a drought, fall in economic activity and therefore, stock prices.
In fact, it is in our my, it will almost undoubtedly go down as the shortest recession, in certainly US equity, US market history, it's going to end up being about a 2.5 to 3 month recession.
But it was huge in terms of its impact.
And we'll kind of all a little bit shellshock coming out of that is, you know, we're all kind of, you know, peeking out of the foxhole to see are things that are safe and and there's a constant kind of, you know, refrain of new things to be afraid of so far this year. It's been a great Yeah. I mean, it's been a great year. Or yeah, the TSH is up 23, and change 23% and change on a year to date basis. Yeah. Oil has been very, very good to people in the last in the last year.
And oil has been, really, really strong, because economic activity globally has been spectacularly strong.
The US market, US economy, We're expected to grow about 6% this year.
That if you think about what we think the long term average growth rate for the US is likely to be over the next 20 years, that number is around 1.7%.
So, 6% growth is three times bigger than what we think is going to be the average growth rate of the United States.
Similar numbers, Canada, the US, I mean, if you look at kind of a broad Europe, if you will broadly in the world, that is pretty much what you're seeing. The pattern, particularly the developed world.
Really, really strong economic activity, when we look at, you know, you know, current data around how business people are feeling about their business, all those surveys are strong.
They're not as strong in the last couple of months as they were in the summer, in the beginning of the summer. But they're still really strong so the the and that that actually is what's leading to this, you know, to put it into Canada perspective.
That's it's leading to this almost insatiable demand for raw materials and oil. Right it is this the fact that we were the kind of the global economy went from zero miles per hour, 100 miles per hour in a very short period of time.
That's created some difficulties, frankly, in the supply chain and other places for the economy. So when we start thinking about what's happened so far this year, it has been a spectacular year of economic growth.
It is. then it's very, very strong euros of equity returns even after what we saw in Qatar, from May to December period last year, which was all like ridiculous least drawn.
Give me a sense of it in the year on year, between February of 2020 in February, or I guess March of 2020.
And in February of 2021, the small cap Index from the in the US, the Russell 2000 doubles, in terms of over 100% return.
So, I mean, you've seen a really big response, and, and so people are saying, well, are stocks too expensive now, Well, yeah, they're expensive.
But the thing that's also happened along with that really good economic activity in those really good stock returns, is that corporate earnings have been spectacular over the last, you know.
Certainly almost a year now, probably a year when you look at the earnings growth that we've seen in Canada, Italy, US, Europe. We're talking about just absolutely monster numbers.
And so, you know, if you think about, kind of, in the long run, right?
In the long run, what drives equity valuations, like, what a company's stock is worth, it's what is their ability to maintain earnings, now, and into the future.
Though, the greater probability they are able to maintain high levels of earnings in the future, the more valuable the docket, not, this is not rocket science.
And in the long run, that's what drives companies valuations in the short run, Lots of things, like short squeezes on AMC and dry spot.
But you have to ask yourself if you're buying a AMC yes. Ask yourself, am, I really, is this really a smart thing to do to buy a movie theater chain in a world where digital streaming is becoming the norm?
Isn't that kind of, like, why shares of blockbuster in just before cluster went away?
Yeah, I go to the movie theaters, I hope that by going to Blockbuster satisfied with that, but I do Title, I go into the movie. Get the pop, or the experience of seeing it with other people. Good thing. But, Yeah. Can I just take it back to just for our listeners, people that are attending today?
The questions we get pretty regularly, and you mentioned it in a roundabout way just a few minutes ago, are based around inflation like, inflation numbers are running really high, much higher than historical norms, and some are calling it transitory inflation, Some are calling it hyper inflation. What's what's your take? What's Russell's take on where inflation is and where it's going?
Well, yeah. I know there are people who are out there saying Maybe it's hyper inflation, I can tell you right now, categorically. It's not hyper inflation.
Hyper inflation is paying you know, $2 billion each marks in the late twenties for a loaf of bread that hyper in place.
This is But inflation has been running hotter than the Federal Reserve would like it.
As an American, I have intensely aware that I talk about my country a lot, even when I talk to Canadians, and I talk to Europeans and I talk to people in Japan and Australia, I talk about the US a lot.
And I was really happy you showed those charts earlier about there's a reason for it is that there's lots of reasons for it.
We're half the world's market capitalization of the equity market of that. You know, debt market, we are an uncomfortably large portion of the debt market. Even at the national level?
Probably closing in on $30,000 billion of that, 123 julianna that you said it wasn't the most recent numbers. But, you know, from our national debt is about a quarter of it.
So, you know, we think about it is, and the other thing is, is that, because the US Dollar is the currency of the world, and what that means basically is every central bank in the world, the Bank of Canada, right?
European Central Bank, the Bank of Japan, every central bank in the world, holds some of their reserves in US Dollars.
Right? Because they're all queries and dollars, primarily Lots of market clearing dollars.
And, and it's that that PI currency, is the reserve currency.
So that is both a very much a privilege and an advantage for the US.
But it's also no, it's also got responsibility with it. And one of the things is we're often responsible for exporting inflation.
See? You have the reasons inflation, guess what, folks are going to export it to everybody else.
Thanks a lot for that, by the way. We tend to be patient zero a lot, Which is probably not the greatest thing in the world. I apologize for a lot about the bad, I apologize. For the global financial crisis, I apologize.
So, when we have an inflation issue in the United States, right? And and currently, you're right, absolutely inflation's running uncomfortably hot in the US.
We think most of it's transitory, right, And we think the Federal Reserve is viewing it. Most of it is transitory.
Now, I'll tell you right now, we were wrong about how quickly it would be proved to be transitory, right.
You know, we thought it would take as long as it's going to take to get those inflationary forces out of the market, but when you look at what's causing that inflation or have been causing the inflation, most of it was in parts of the economy that really weren't going zero miles an hour a year ago, You know, lodging, airline, car, purchasing, car rental, right, used car market.
I mean, all of those things were on the balls of their fate last year, and, and because, know, the economy opened up.
Because consumers around the globe, largely in face, in part, well, largely thanks to what our governments did, to keep us in good financial knickers consumers, right?
All those benefit programs that were put out, as soon as we felt it was safe to go out and buy stuff, new, probably going to go out and buy stuff and that's what we did. And we had the money to do it.
And so really disinflation has been, it's a demand shot, right?
It's the very little bit about a year ago and just ridiculously high demand now.
Everybody carrying the system has to adjust and, and that is when you think eventually those adjustments are made, there's lots of reasons for it. Historically, that's been the pattern.
If there is demand, you know, somebody will find a way to meet that demand.
And so what you'll find is supply eventually rises up to the level of demand, and inflation begins to alleviate itself. But the one kind of wrinkle in that is if we are paid more, right?
If wage wages are rising at a higher rate, that actually can lead to persistent inflation.
So, when we've seen persistent inflation in periods in the US, In pretty much every country, it's because wages rise to meet those new price levels.
Then, price levels go up again, and so then companies have to pay people more.
And then, it's this, it's this kind of vicious circle where you become the official spiral, where because we can afford to buy more, we get paid more, and then they raise prices because we're paid more, and then, you know, one thing to get to. And so when the Federal Reserve gets worried about inflation is win, win.
Win, that those wages are moving up.
And that's been something that's going to watch what in the United States because the wage tracker that our lineup that does, our federal reserve is actually an amalgamation of lots of regional banks, and each of them have their own specialty. Atlanta. The thing that we look for them to do is this wage tracker.
And the wage tracker says the average American worker is, is wage growth, is running at about 3.9% a year.
Meaning, that I'd have a time where they're being paid.
Um, and when it gets historically to four, that's when the fed becomes concerned.
Because that's when this wage price spiral can kind of start to really take hold, and so what they typically do is when they get close, before they become a little more reactive, how do they become reactive? What what measures do they put into place?
So right now, money is free and they're making more money, freely available at a kind of historical levels and they're doing it two ways. one, interest rates are at zero, right.
But the second thing is, they're purchasing assets in the open market.
What purchasing asset's does?
I just it's a little confusing for investors because interest rates and prices are inversely related in the bond space.
So the, if you see, if you see a drop in interest rates, that mean that, that you see that bond prices go up, and if you see a rise in interest rates, bond prices go down, which, you know, seems a little less intuitive.
So, because they are buying so many bonds, what they're doing is they're creating their own demand for bonds and that keeps interest rates low because they're out there buying the bonds and they're driving the price, they're driving the price up and the interest rates down. That's kind of that moment. That's what quantitative easing is if people have heard that term, that's what it does. That's what it's meant to do.
The first thing they typically do and they've always done quantitative easing twice in the US.
So, this is our second go round with the global financial crisis, right? Exactly, yeah, So, yeah, it So what's the first thing they do when they get worried about inflation, Right? And the economy potentially overheating.
They start, they start buying fewer and fewer bought.
And then the natural expectation is that that'll allow rates to rise.
And I think they announced in September that they were going to start by their start this paper.
What the paper is just means we're going to taper off our buying of bot.
Over time, we're gonna go from here to here, and then eventually we're not going to buy any bonds at all.
And they announced that they're gonna start to taper, and that was probably really a reaction to that, that, that wage number. Right?
That, they want to begin to prep the market.
You know, if you think about it, is pretty money, is like a sugar high for the market, and it can be very disruptive. It helps When you're in crisis, it becomes this rapid. Going back to the beginning, to kind of take the free money out of the system, slowly.
We'll do that paper over time.
Then once they're done with that call, and the next step, is we're actually going to raise the interest rates in the price of money.
And what that does is when you raise the cost of capital that has a tendency to slow down economic activity, right?
To keep it from overheating, to keep it from creating that wage pressure that we get to inflation.
So, but let me let me take it back to our individual investor level. No. Because in Canada, the overnight lending rate between the Bank of Canada. and the big banks is zero point 25%. And so you call it interest rate zero. I mean, zero point two five is pretty close to zero. But, you know, there's some debate or discussion of whether or not the bank of Canada will raise rates to 0.5%.
And it's sort of worrisome to some investors.
You know, in some people, use terms like interest rates will go up 100%. Or interest rates are going to double, which, of course, is mathematically. If you go from zero point twenty five to zero point five, they do, but what's your take on where interest rates go?
Maybe not in Canada. Maybe in Canada, if you have that number, but, just globally, like, you mentioned, rates are going to go up. What do you mean by that? Is it a quarter of a percent?
Well, there are, as you mentioned earlier, right? They already went up and the third quarter kind of as a result of probably that, that better. Now, it's with that they were going to taper.
And, by the way, I mean, you put you've noticed this too, right over the last, it's more than the last decade, but the, over the last decade, the fit between Canadian interest rate in US interest rate are unbelievably type, though, like we tend to mirror each other in the movement of interest rates pretty closely. There are lots of reasons.
You're our largest trading partner, where your largest trading partner like, but there's a reason for that. Yep, so when I talk about rates going up, We think the Fed, we think so first of all, the overnight rate is academically interesting, but in your real life makes no difference at all that much at all, right? Like how many people in your how many of your clients are borrowing money overnight?
Hopefully, the poor planning events are following that.
We tend to get, so we tend to care about like interest rates on a 10 year loan or a five year loan, a little longer loan, or maybe a 30 year loan with mortgages, right, I know.
So, those weights that are the ones that matter and the Fed doesn't get to control those. The market gets the control loads.
All they control is that overnight rate between what banks basically charge each other and what they charge the banks to lend money.
And so we think those rates right now, there are around 1.5% in the United States, and we think they may move up over the course of the entire market cycle this time.
So I, 2.25 to 2.5.
Um, and, you know, there'll be some ups and downs.
There's always volatility, but we know our expectation is, is that in 12 months, maybe they get up to like 1.8% in the US. And I think you kind of think about equivalency for Canadians and won't be exactly the same number. But there'll be the same relative.
No goal rollout of area. We think that's the most likely bad, Right? Which, your 10 year Treasury, which is the 10 year Treasury, 1.5, 2, or something like that, today rates.
And, and there was, there was some worries in the markets a few months ago, or a month ago. I can't remember exactly when it was, but the US tenure went from 1.15 to 1.6, and then pull back, and now it's at 1.5 is what you're saying that that's probably going to go to 1.8 over the next 12 months. Something like that.
Something like that. Yeah. It's there.
So, yeah, about that early move in the year was really the market taking like low inflation expectation at all at the end of last year and said, you know, inflation is probably not going to be zero.
And so they readjusted their inflation expectation, the latest rise has nothing really to do with inflation expectations, it's actually more around what they think the bed going to do.
So, they're going to go up, that'll put a little bit of negative pressure on bond prices, but if they go up 28 basis points over a year, you're still gonna get positive bond returns. I can tell you, I did the math. Yeah, yeah.
So, yeah, you know, the good news, you know, about Bob, you're absolutely completely wrong about the reputation of the economy, will be strong next year, both in Canada and the U S if we're wrong about that, I'm going to be really happy you on board.
Those are the things that offset your equity, your, your, your equity risk in terms of your total portfolio And, you know, and we're thinking that Canada is probably going to grow about 4% next year.
The US, around 6% next year.
So it's still well above average in terms of what the long term trends are, but not quite what we're doing this year, but still strong growth.
I think it's important to understand.
The reason the Federal Reserve is is taking some of that free money out of the system, is because business is really good, right? Business is so good that we have to hire people, and I got to compete with you to hire somebody by shop, right?
And then, because labor is not, it's been a little tighter than we would have expected.
That means I gotta pay him more than you are, then, for you to keep them. You're gonna have to pay them more to stay.
And then you're probably going to pay everybody that has that job that works for you, that amount of money.
And that's that wage pressure, Know, hopefully, none of the members of our staff are listening to that, you know. The reasons, I don't think monies are a good reason to allude to to change a job. The other reason everyone I know those are above that didn't like how it worked out.
So the so the reality is is that the fed is doing that.
So that growth doesn't become overheated.
It's, that's always important to keep in mind. It is just, but it's this weird relationship in financial markets.
We're good news can be bad news and bad news. Can't be good news.
It sometimes, it's really hard for individuals who don't live and breathe just like you and I do, for the kind of follow the thread, but in general terms, we actually think, and the other thing that's a huge advantage for like, the stock market, if you're thinking about over the next five years or so, is we just started a new economic cycle.
So, I am very confident that we are farther away from the next recession today, Then, we were in December of 2019, because we just started a new economic cycle, right, for the system, just reset.
And so, we have, we have spare capacity in our labor markets relative to where we were then spare capacity in a lot of areas, and that means you're tend to be longer, the next recession seems to be pretty far away.
And to give a sense of empowerment for investors perspective, what that means is a 20% drop in equities is fairly unlikely in the next, yeah, certainly 2 or 3 years.
It can happen, but it's, it would be unwise. Very unlikely. If you look at kind of historically.
I always tell people that you should always be brace for a 10% drop in equity because they do it a lot like, well, it doesn't happen almost every calendar year at five to 10% drop in equities at some point during the year, 5 to 10, yes, 10%, six out of ten, so, more often than not.
So, you just know, it's a bad thing that's going to take you from 10 to 20 and these, yeah, This is literally true.
But it's a, it's the way, I think, of the world.
to go. from 10 to 20. You need a recession.
Like, you may hit 20, but a day can hold if you don't have a recession.
It just won't, right.
I've got a couple of questions from the audience, actually, and I'm trying to monitor them as we're as we're speaking. But one came in earlier, and it was, and I'm just going to read it.
Given the current state of the energy energy industry in Canada, going forward, how will that affect the overall economy?
Um, I'm not sure what they mean, is that, I guess the question would be, if, there's two ways I can interpret that, right? In, business is good for oil oil, magic oil, you create an oil companies. Right now, globally. Right, price is high. Much higher, than it has been. Profits are. good.
They've gotten a little more disciplined about how they, they bring new capacity aligned in their level of investment.
So generally, oil companies are much better nek than they were a few years ago, so that's a good thing.
If they're alluding to kind of ESG issues, you know, environmental social and governance issues that are very much front and center for a lot of investors.
Uh, And, you know, I think I think there's a lot of people that are thinking Well, ESG, Dooms Integrated Oil Company.
And, well, first of all, integrated oil companies globally are the largest investors in alternative fuels of any company in the world because they're not Giddy it. They know who's coming in. They're beginning to try to diversify their business model.
The second thing is, is from a policy standpoint, if you're really dedicated to Europe, is dedicated to ESG.
one of the best ways to catalyze that movement in the economy is to make energy expensive.
Um, right, so you have a financial incentive to do the change.
So, these people who are talking about the cattle tourism, the the apocalypse Armageddon That's going to have integrated oil companies and oil companies in general?
Yeah? Maybe in 30 years. Yeah. Over the next 10 years, there's a good chance business is going to be pretty good Considering that people are still burning coal.
Isn't that a whole other part to that argument But OK, I got it. Thank you branch.
And I have another question from from the audience and it is if you look at strong government actually in the face of the pandemic it seems the US Government in particular will not allow the market to go down. And in Canada, the housing market seems like it's gotten too big to fail.
Do these examples mean we should do anything differently as investors? Should we consider stocks less risky?
So, the death of the Canadian real estate market, the rumors of the death of the Canadian Real Estate Market, has been greatly exaggerated for awhile I show you should treat who, I know you go read article. He wrote actually two versions of the Article, one for Canada on the Property.
So I would encourage you, if you haven't, you know, maybe May kind of highlight that for your clients. They have a deeper read for somebody who's looked at it more seriously than I have.
And then you get it from a US perspective, right, because this is Drumbeat. Because real estate in the US has been really, really strong.
And, basically, his comment in the US, one was, if you get US House prices are unsustainable, you should look at my friends in Canada and good Lord, look at the Australia. Like. A chart. It probably varies with Sydney at that. And they happen, that's for 20 years.
So I think, yeah. I mean, I think, you know, any time something is, is, is high, It contains risk. So if you're thinking about your, your total portfolio.
No, I don't, I'm not saying it's cataclysmic for their homes. I'm just saying that, you know, they're, they're not cheap, equities aren't cheap, either, You gotta kinda do roadmap as to which one do you think is more expensive?
No, I think that the reality is that real estate, conceptually fits between equities and bonds in a portfolio, kinda permits return potential.
And so I think if you think of it that way, yeah, kinda thinking about your total portfolio. This is where your team really does all the work, right?
It's helping people understand their own situation, their total wealth portfolio and help them, you know, kind of merge the two. The problem of housing is you've got to live in it so you can't live off of it.
Sorry, I didn't mean to cut you off. Let me ask a follow up to that, and it's it's something I was thinking about we also get a question all the time about how, you know, the stock markets at an all-time high. Is this a good time to invest, And, you know, isn't it a bad time to put money into the market when it's at an all-time high?
And quite often we talk about things like, yeah, but so is the milk production is also at an all-time high in the world, but, you know, I don't know where that goes in there, But, what, how do you approach that question?
Where are the markets at and, you know, talking about peak growth? And are we there?
How would you approach that question?
So, go back to that one of the charts that you showed, right? You actually hit it right on the answer to that question, right. On the head, and your, your, your, your charts to start? Just lock your soft ball. That's that's yeah. Let me show the chart that I was, I can't remember the effect of the S&P 500, but is distinctly sloped up into the right?
If you really look at that chart, what you find is the market, you know, establishes new market highs.
I'm an extraordinarily regular basis.
At some point, in the future, so far in the past.
At some point in the future, it is going to establish an even higher high, that's what they do, right? That is your economy expand.
You're capitalizing more and more economic activity, right, which means shares, you know, stock prices go up as the economy expands. I mean, that's the relationship.
So, the fact that you meet new high, particularly after you've recently had a recession, it's not particularly troubling for folks like me, right.
It's whether or not the economic activity underlying economic activity support Those stock prices is there, and whether those companies are able to translate that activity into earnings.
And remember, I said, early on, earnings in the long run, the capacity of a firm to create and maintain earnings into the future is what drives the stock price go, know.
And if the, if they are able, if the economy is expected to grow and they have shown the ability to translate economic growth into better earnings, you know, over time, and that's, that's why over 20 year period stocks usually beat all comers.
Again when I say usually, I mean almost always there's only a few notable exceptions in terms of the data and those around a quarter by quarter basis on a 20 year rolling basis and that was in the global financial crisis.
Let's talk about different factors of return and stock price.
Another question we often get is value stocks versus growth stocks and how growth stocks to lead the way for quite a while we hit this global pandemic and Economic shutdown and value stocks led the charge out of that. Where do you think we are in that cyclical relationship of value to growth?
So we like we still prefer, on the margin, right. Value Overgrow.
Right now, value stocks tend to be more cyclical.
And all that, when we say a second ago, what that means is their earnings tend to be more influenced by the, the economic cycle and the growth rate of the economy.
So, when, when the economy starts to improve dramatically, as we saw, it goes into recovery, Their earnings value companies, usually their earnings grow much faster than the growth company, Um, because they're more, they're more.
Like, if you think about, kinda, particularly the tech that we had, The last thing you do is, is, is, is, is cut down in your Facebook usage, right?
I mean, it's just like their earnings are not hugely influenced by the site.
Those kind of big growth companies, that, the positive and the negative. But that, you know, in that context is positive.
Where at all Company, Right, is a value company That is highly favorable stock. When the economy starts expanding, your oil goes up in the profit for, and that's been the case, this last year, right, or value stocks have been out earning, in terms of their growth rate, gross box.
Basically, since we've had this recovery, that's a normal relationship.
We think the the opening trade in the US is largely not completely over, but it is getting into later stages, because our economy is filled in that hole of damage in 20 20.
Other economies, yourselves included happened, like, you still are, in that early recovery phase. And that usually is good for cyclical stocks, which are more or less value stocks that are highly correlated between the two.
Not all value stocks are cyclical, but, latimore, let me ask you another question I get all the time is, in Canada, we've been trained, well, trained over the years, that, you know, you should invest in dividend paying stocks, because that's the way to go, get paid the way to something that we hear all the time.
What is your take on, should you focus on a dividend strategy or just collect dividends as a natural byproduct of being invested, OK, so there's lots of questions around that, right? It really depends on where you are in the life cycle of your investment and your sense of comfort.
Like, I know a lot of investors, I'm sure your clients, some of your clients, are among them.
They don't like to sell things to fund their own kind of expenses in retirement, right.
So, they want the income that naturally comes off their investment to fund their spending.
Right, And so, but those people, high dividend yielding stocks are more attractive and and and sen.
There are more old people in Canada now that have been in the past, or more old people in the United States that have been in the past were aging demographics.
Yup, That that preference, you know, has had a tendency to probably reward high, dividend paying stock.
The middle row, that's really important to understand for people who looked historically at what I dividends have done.
High dividend stocks. They've done really, really well.
But the bomb proxy, meaning what you get paid looks a lot like interest rate, looks a lot like in interests and so they tend to have, they tend to be influenced by where interest rates are going.
And in a 30 year world where interest rates did nothing but go down in the US and Canada, that's been the path for both of us.
Those stocks get that tailwind.
We're now in a world where interest rates aren't going to keep going down. Right. You cannot go lower than zero.
You can, but that's not healthy and it's not good for anybody in the long run. So this is the tailwind for dividend stocks. I'd just be aware of it, and if you think of it as a bond replacement, which I unfortunately, I think a lot of investors do, you gotta remember their stock.
Yeah, it's like, there's not going, There are not bonds, and if you're only going to buy those stocks, you tend not to own, you know, a large portion of the market, and a lot of those growth companies, right?
His drug companies, as a general rule don't pay high dividend because they'd rather re-invest the money in their own businesses and give it back to you, because you're gonna earn more, if they do.
So, it's, I think, it's more of a financial planning issue for me and a comfort level with how do you want to fund your spending in retirement.
Pre-retirement, you should always own high dividend yielding stocks.
But, my opinion, probably not more than what the market is, You know, the composition of the market, yeah. I subscribe to that as well on the markets. Don't, don't try to be smarter than the marketers.
Maybe you are, but I know I'm not. Anyways, the, Let's talk about, we've just got 10 minutes left here.
Supply chain issues, you you talk, you touched on supply chain issues and it's something that's relevant and real can you just expand on that a little bit?
So, there's, there's tons of issues, right? There's a huge semiconductor chip shortage, right? But, you know, again, the companies in that business will figure it out. I get more capacity alive and to meet that demand because it's in their best financial interests. If we could sell more, let's do what we can to sell more. And there's a lab you can open up on factory tomorrow, or you can't. You know, there's there's a little bit of a lag but are beginning to do those things.
The other thing is there have been shipping challenges.
You know, I took a picture not far from where I AM this morning. I took a picture of the of the lineup container vessels going into the Port of LA, and in fact, one of those ships evidently drop the anchor on the pipeline, the offshore oil rig here in California. So there are a little bit farther off shore than they were few month ago when I was last year. But that line extended, In fact, the last paper in that line right now is fully 25 miles away from the Port of LA, and there's just a line of them all to the port of LA.
So it's a lots of different pieces, but eventually what happens is, it's kind of related to that growth peaked growth bang, we rolled over in terms of peak growth.
Know? This year, the US is going to grow it, you know, You over the next 12 months, you know, this year, 6%. We're going to slow down next year, right? So we're not grow, because when you come out of recession, you're that's when your fastest growth rate.
So being passed, peak growth is not like that should concern people all that much, but the question is, the number is still positive. That is, it's still over what the averages. And we think it's going to be solidly that.
What happens is that once you pass the broke, the demand function comes down a little bit, Supply is naturally coming up to meet the demand and eventually find equilibrium.
So, you know, it, you're beginning to see some signs in terms of manufacturing in China and some of the shipping things that are happening. But that's beginning to happen. But it's taking a little while.
I think that's just a function of just, the massive demand globally, is people who got it, started living their lives again.
Interesting, OK, two last questions, and then we'll get you off the hot seat here.
But one came in, What about changes to taxation?
There's always talk about capital gains, inclusion rates, and things like that, or do you see any major changes to taxation where you are, where we are?
Major, depends on who your categorization of major is.
I mean, yes, I think, yeah, I think they are gonna go up.
As capital gains, there is no evidence in the United States or any other country, that the Capital Gains Tax has any effect on stockmen.
Right. Because the capital gain results, it relates to anything you get, all, right.
Just people think of about a stock, You have a home, and you sell a for-profit, You get a capital, same capital gains tax.
If you own a bond and you set up a profit and use other thing, you know, it is a non discriminatory equal opportunity tax. So, it doesn't like that.
It doesn't work equities more than it hurts anything else.
It just lowers your return, which is great for you as an investor, but yeah.
You only get to vote to control that by represented you're lucky, you're representative.
The, in the US, The one tax that, that does matter is, obviously, the corporate earnings tax, and, and that is likely to go up. I don't think it's guaranteed to go up, it's currently at 21.
It's probably going to go to 25 and ... at the highest.
That will be a drag on earnings, but not an enormous drag relative, certainly. So, you know, last quarter earnings in the S&P 500 grew by 90%.
I think tax rates go up 4%, it's probably about a four to 5% drag on earnings growth.
So, yeah, yeah, it's not great, but it's not, probably going to fundamentally change the picture for investors.
A lot of that in the world. So taxes are probably going to go up.
Will you just lead into my last and final question?
Global debt levels, we get this one a lot.
Should we be concerned about where global debt levels are and what can be done about it?
I think concern is probably a good thing.
I wouldn't keep me up at night.
Debt is an interesting thing, because debt insolvencies are two different things, so like when you think about home prices in Canada, right, the headline is on home prices, and it's relationship, generally, to your income.
But what it doesn't factor in is the cost of the debt.
You're paying really low interest rates, so when you look at kind of your, your daily life, how much of your overall budget that you're spending to own your house?
When interest rates are low, it's pretty low, and that's what's kind of fuel disability for, for housing prices to move up.
Paper governance, right?
Yeah, we have a shitload of debt, but a lot of it is like 2% or lower interest rate.
If I'm concerned about it, I'm not saying that's a great thing, and no, don't worry about it at all, But, debt is this weird thing.
It, it's only because it's a chronic issue for most economies.
And but there's a point at which it becomes critical and potentially gray, you know, Japan has debt to GDP ratio of 250%.
High, and the 10 year interest rate on their, their sovereign bonds? or, you know, you know, they're, they're laminated at less than 50 basis point, but that half a percent. I mean, when I say lessons that, he basically went through, usually, like, 10 to 20.
So when the Japanese government money for 10 years in Europe, those numbers are negative, right? So.
It's an interesting thing. It has an effect Japan in any real way. They owe most of that money to themselves. The vast majority, as do we, in the US.
And as you use Canadian, it, It's kinda chronic.
It's a chronic issue because then your budget that you use the service that the rus productivity gains.
Kind of a west growth you'll experience. So, think of as high debt levels.
The one thing that is inextricably linked to high double, what the debt levels are probably incrementally lower economic growth rate Not necessarily apocalypse but no lower than you could have been.
There's a point at which your lenders decide, Yeah, we're done. Now with the critical issue. We don't, let me touch on that, just a quick follow up, like, I hate to bring it up, but every grant is an issue, right? A debt issue. And I think there's like 170 lenders that are at stake here. Can you just touch on the significance of that?
So, ever grand, so, any, in our industry, most of us have been talking over the good portion of the last decade, around the fact that there's a troubling level of debt in China.
That, because of the way the economy is run, they have been able to largely suite those issues under the rug, although, kinda everybody knows there there is the rug has a huge lump in it. So, you can see the lump, but you can see exactly. What's under the hood?
But, the reality is, is that, um, I think this is one of the the inferences, you know, that we're going to see over time.
Of that, kind of everybody knew it was an issue.
The issue, actually, coming the way mm. We don't think it's a layman of that.
Like, I don't think the market thinks it's the lame in light of that, that that, But the Chinese government certainly has enough money to paper over it and shove it back under the rug if it wants to.
I don't know. I think I want some pain experience, because they want people to stop taking that much leverage.
Real concern we have around ever grann's, it somehow starts a wave of Chinese being less willing to buy property.
If they become less interested in home buying, and the whole buying visit slows down, significantly, whole building for every country, but for China, in particular, is a hugely important growth engine for your economy.
So, if you do see kind of the this lack of competence and housing, then, really dramatically affecting the propensity of Chinese to buy homes, and that then leads to a slowdown in home building, that'll slow their economy More than we would like to see. And I'm sure more than the Chinese government would like to see, That's the number one risks that we see right now.
There was an article I saw this morning that little bit of a chicken little article saying, Oh, my god, this guy falling in his house prices fell 0.08% last month.
Point 0 8, OK, I'm not sure that I'm not sure that's the point at which I'd be terrified, but it is, it is, you know, if it gets worse, it will be, there'll be a problem, not a cataclysmic problem likely, but it kinda lower growth rate China. And there are a lot of second largest economy in the world that's gonna affect us.
Well, listen, I think that we should, maybe wrap up your talk there. That was, that was really interesting. I hope you see the screen. I tried to find the diamond hands lake leanness of Eric ...
on. Some pony in kind of visual that you said that I did. Yeah. There's about 12 of them.
Well, in all sincerity, Eric, thank you for taking the time to to spend this hour with us.
It was very valuable in answering questions that people ask all the time because they're important, and it's always great to have it come from somebody like yourself.
I appreciate happy to do a column.
Alright, and I just want to let everybody know that a couple of items here, you can follow us on Twitter, LinkedIn, Facebook. We do have a weekly podcast. This episode will be posted next week on the podcast, it's called SEM pre-launch. and thank you so much for everybody joining us today.
And we look forward to our next webinar, Eric, you'll be off the hook for that one. But we're going to come back to you for commentary quite regularly. I'm sure. I hope you're open to it.
All right. Thanks very much, everybody. Have a great day.
CIBC Private Wealth Management consists of services provided by CIBC and certain of its subsidiaries, including CIBC Wood Gundy, a division of CIBC World Markets Inc. “CIBC Private Wealth Management” is a registered trademark of CIBC, used under license. “Wood Gundy” is a registered trademark of CIBC World Markets Inc. This information, including any opinion, is based on various sources believed to be reliable, but its accuracy cannot be guaranteed and is subject to change. CIBC and CIBC World Markets Inc., their affiliates, directors, officers and employees may buy, sell, or hold a position in securities of a company mentioned herein, its affiliates or subsidiaries, and may also perform financial advisory services, investment banking or other services for, or have lending or other credit relationships with the same. CIBC World Markets Inc. and its representatives will receive sales commissions and/or a spread between bid and ask prices if you purchase, sell or hold the securities referred to above. © CIBC World Markets Inc. 2021. Colin Andrews and Greg Kraminsky are Investment Advisors with CIBC Wood Gundy. Steven Molina and Blair Howell are Associate Investment Advisor working with Colin Andrews and Greg Kraminsky. Clients are advised to seek advice regarding their particular circumstances from their personal tax and legal advisors
Health and Wealth Webinar: With special guest speaker Dr. Kevin Fonseca
Dr Kevin Fonseca, a clinical virologist with Alberta Health Services, presents on all things COVID.
HEALTH AND WEALTH WEBINAR With special guest speaker Dr. Kevin Fonseca
Thank you, everyone, for joining us today for our next version of our Health and Wealth seminar. In the past, we've held these events in person, renting some swanky space and serving some food and beverages at a venue. But of course, this is not like that, representing virtually, I guess, for the fifth time in the last year as we find ourselves in this not so new world. And it's because of current issues that we decided to host an event focused on two really important things your health and your wealth. My name is Colin Andrews, I'm a portfolio manager and first vice president with the CM Group at CIBC, which I'll be presenting in a moment following my presentation, we'll have Dr Kevin Fonseca present on all things COVID. Dr Fonseca is a clinical virologist with Alberta Health Services and he presented for us back in October of 2020 and we're very thrilled to have him join us again. So just a couple of housekeeping items to attend to. First, there is an option to ask questions during the presentations. The questions will be managed by our organizer, Paige Hilton, and we'll answer them as best we can and when we can. Now, technology is great when it works. I assume that today is going to go without a hitch. However, if you're having any technical issues during the presentations, you can rest assured that they are being recorded and will be available for download and viewing at a later time or date.
That works for you. And usually I'd let people know about things like where the washings are located or the food and beverage availability. But of course, I assume, given that everybody's virtual, you're on your own for those things. Which reminds me, you can see the presenters and the presentation. However, we cannot see you and all attendees cannot see each other or even know who's on the webinar today. So you can sit back, relax and enjoy the presentations. So for today's short presentation, I'm going to take you on an adventure that will hopefully link an understanding of things like diamond hands, milk production, calcium intake and the stock market. To answer the big question, we have the data. We've done the work to come to the conclusion that we've solved the investment puzzle, we've solved the investment piece. In other words, we know what works. We know what doesn't work, and we know what to avoid. Now I'm going to show you these awesome charts and graphs to prove the points. And I clearly understand the charts can be hard to understand or hard to follow. I also clearly understand that many of us don't like to admit that. I'm sure that is more for the people that didn't attend state than everybody who's watching is a charity expert. But if you aren't, don't worry about it. There will not be test at the end.
And the focus of this presentation isn't on charts. It's on what works. So in investing, there are two fundamental ways for companies to raise capital or better said, to raise money. Firstly, they can sell ownership of the company to investors through stock issuance by issuing stock. Those stocks that trade on the secondary market or what we would call the stock market, the first stock markets date back to somewhere around sixteen hundred. And the first North American stock market was the New York Stock Exchange, and that started in seventeen ninety two. So there's definitely some history behind stock markets here. We won't get into all that. I just wanted to point it out as a point of interest. Anyways, when a company sells stock, they raise money for themselves. And when that stock starts to trade on an exchange, there is a downside to doing this for the company as they give up ownership or control potentially of their company. The second way for companies to raise money or perhaps countries or provinces or cities, for that matter, is to issue or sell bonds to the marketplace, essentially issuing a loan from that company or country to investors. Investor in this case essentially becomes the bank to the company. They lend the company their money in exchange for an amount of interest to be paid back and a maturity for that loan when they will receive the original amount that the company had borrowed.
The upside to this for the company is that they don't give up ownership. However, the downside is that we all know what happens when a person or a company or country takes on too much debt, and that is they might fail. So stocks and bonds are two of the main investment options available in the capital markets and are the primary methods through which public companies access capital from investors. So, again, from the investors point of view, bonds can be considered a loan to a company and stocks can be considered a purchase of ownership in a company. Now, due to the characteristics of each type of those securities, each has a different expected rate of return and each plays a unique role in an investor's portfolio. But what is the stock market, I'm sure most everyone on the call has at some point watch CNN or has seen the closing numbers of the Dow Jones Industrial Average, the S&P five hundred or the Toronto Stock Exchange. These are all representations of markets or at least of small parts of markets. One that seems to get the most attention is the Dow Jones. However, the Dow Jones Industrial Average is only the 30 largest stocks that trade on the US stock markets. That's it is just 30 names. The S&P. Five hundred is the five hundred largest companies, the trade on the US market, which seems like a lot.
However, every day in the United States, there are roughly thirty six hundred publicly listed companies that trade on different exchanges just in the US alone. Excuse me, this doesn't include private companies or companies that trade over the counter or in other words, companies that aren't listed on an exchange. Now, the stock market is an auction market where buyers and sellers come together, meet and agree on a price in order for a trade to occur. This is the first thing that must be accomplished. So any time you hear somebody say something like there are more sellers and buyers in the market, so that's why the market went down, you know, this can't be true. There has to be a buyer for every seller or transaction just doesn't occur. Now, one side might be more motivated, so they may be willing to accept less or pay more. But mathematically, there has to be a buyer for every seller. But why do people invest in the stock market when I think about investing, I think about all the headlines that surround us on a daily basis. We get unsolicited advice in an area that is very little true understanding people or investors are looking for some certainty. That is some certain returns on their investments in a market that is forever uncertain. The stock market is a complex organism, but instead of getting a better understanding, many of us fall prey to the headlines because they fuel our inner desire for greed.
Now, here are some examples of what I mean. Forbes gives us three hundred sixty five ways on how to get rich. Time just told us that our religious beliefs might determine if we're worthy of getting rich. Here's money since. To tell us how to get rich now without even trying and I'm sure many people have heard of or read the millionaire next door, and if you don't know what to invest in. Well, money since. Gives you the list, it tells you all of the best moves now, so it seems pretty straightforward, pretty easy. But let me be clear on a very important point. Most people don't get rich from the stock market. There are only a few examples of those people out there that do. Most of us use the returns, your stock market to grow our wealth at a reasonable rate, to use it as a tool to stay ahead of things like losing purchasing power. Now let's look at some details on geography and size of the global stock markets, because it's a big world out there. So this car diagram or map illustrates the balance of equity investment opportunities around the world. In other words, the global stock market, the size that each country has been adjusted to reflect its total relative capitalization or relative size. As you can see, Canada is only three percent of the global stock market, while the US represents over 50 percent.
I should point out that this data is a couple of years old, but still very relevant. With the US side, this is why when something catastrophic happens in the US, like back in two thousand eight two thousand nine, the global credit crisis or global financial crisis, it affects all other markets. As you can see, countries that get a lot of attention in the news these days. There's things like the BRIC countries, Brazil, Russia, India and China, describing these countries as areas of emerging markets with higher growth rates. But if you look at them on this map, Brazil only represents one percent of the global stock market. Russia doesn't even make the map. So it's less than one percent. India is one percent and China is three percent. Now, I should point out, we've been tracking this data for about ten years. Ten years ago, Canada was four percent. It's fallen to three percent. The US was around forty six percent. It's grown to fifty four percent. China was at one percent. And it's grown to three percent. So it is a changing environment. Now, I'm not saying that the Brazil, Russia, India, China type of trades are good investments. They might represent good areas to invest in for growth. I'm just pointing out the relative size compared to the peer group. Because the global stock market is worth 70 trillion dollars. That's a big number, the valuation of the aggregate global stock exchanges is 70 trillion US dollars and as I said, Canada, that only represents three percent of the subset.
This must lead people to question things like why they invest, in many cases as much as 90 percent of their wealth in a market that is only worth three percent of the global market. Now, there is this thing called home country bias, that is where investors feel more comfortable investing in things that they're familiar with, companies that they feel that they understand it makes it feel better or safer. Familiarity, bias in home country, bias or cognitive biases or heuristics, these heuristics are fascinating to me and for today we will spend very much time on them. But for those that are interested, there is a lot of literature out there in behavioral finance that focuses on the common biases that we all have. But what about the bond market? They said the two main ways for companies to raise capital is through issuing stock in the stock market or issuing bonds in the bond market. And we don't have time to get into the intricate details of the bond market today. But let's just say that not all bonds are created equal. The power of the bond market is massive. If the stock market was worth over 70 trillion US dollars. How big is the bond market, you might ask? It's almost double that one hundred and twenty eight trillion dollars.
That's one hundred and twenty eight trillion US dollars. Yet nobody talks about the bond market, not you got to ask yourself, why is that? I read a book a few years ago called The Ascent of Money. And in the book they talk about how well money came to be, what cash was, what stocks were, what bonds were. The story that they told was how the end of the US civil war was actually attributed to the devaluation of US cotton bonds that were trading on the London Mercantile Exchange. And this left the Confederates broke. So again, why doesn't anybody talk about the bond market when it's almost twice the size of the stock market? Well, for one, as I mentioned earlier, the stock market operates as an auction market where buyers and sellers meet on an exchange. So it's fairly easy to see who was buying, who is selling and at what price. The bond market is not a centralized auction market. So typically bonds are issued by a country or company and they're traded between various institutional bond desks, not retail, but institutional bond desks, meaning that the price is not always easy to look up. This is very different than turning on the TV to see what the S&P five hundred did or the Dow Jones Industrial Average or the Toronto Stock Exchange. Let's face it, bonds just aren't sexy. There's nobody out there bragging about how they picked up 40 basis points over the US 10 year Treasury on a trade.
Instead, we hear about other things. It's things like Bitcoin. Or ethereum or dogecoin. A couple of years ago, the big one was wheat stocks and most recently some short squeezes on a couple of companies like AMC Theaters and the most notable one, GameStop. Anybody here bragging about how they have diamond hands on a credit Wall Street bets forum? Let's be clear, there is investing and there is speculating or gambling, participating in a short squeeze on GameStop with your diamond hands because of your Wall Street bets. Credit for community is not investing. It is speculation at its best, being part of dogecoin is not investing. Dogecoin was actually created as a hoax, but these are the things that get headlines. There's just sexier than talking about picking up 40 basis points over US 10 year Treasury note. The problem with this is linked to the consequences of investing in something that you don't really understand and not understanding what the potential outcomes could be. So I'm going to talk about GameStop for a minute because I found that one to be fascinating to watch. I'm sure that you've all been studying about things like the death of brick and mortar stores. It's evident in the market here that companies like Amazon have in GameStop, for example, example here is a store located in strip malls that sells video games and equipment, which sounds a lot like the same path to Chapter 11.
The blockbuster went down in today's day and age. Trust me, nobody needs to go to a video game store to buy a video game. You can ask my kids, either download it immediately or order it online. And the theme for the controllers and all the gear you just order from an online retailer or ETF. So what can the future look like for GameStop is such there are these evil hedge fund managers that shorted the stock, meaning they sold the stock without owning it because they were betting on GameStop feeling. But the way the rules are in the US, they actually shorted or sold more stocks than actually exists. Now, credit to a couple of opportunists that saw this and created this uproar on an online forum to bring down Wall Street. Tapping into a couple of things here. The first due to covid. We have a lonely board, disconnected cohort. And here comes a movement that you can be part of. The message of the movement is that you're going to get rich and stick it to the man taking from the rich and giving to the poor. The second is just pure, old fashioned greed. The stock went from four dollars a share to four hundred and eighty three dollars a share very quickly. And right now, it trades somewhere around two hundred dollars per share to remember, there's a buyer for every seller and the seller for every buyer.
Well, there's not a transaction. So somebody out there bought this stock at four hundred and eighty three dollars per share during the peak of the euphoria with their diamond hands. This seems like crazy behavior. Why do people do that? Why do they need trades like that? Well, for one, we're surrounded by noise about things that we don't necessarily understand, which creates stress. Secondly, we often don't ask the right questions or even know which questions to ask and focus on, which creates additional stress. An example of this is the stock market. The stock market gets a lot of attention. Everyone with an iPhone can easily look at stocks and charts of stocks whenever they want. But why doesn't that just fuel more stress that you should know what to look at and what to do? I mean, if it comes down to executing a trade that pretty simple, entering the buy or the sell in a trading system is pretty straightforward. You simply need to see the price and put your trade in the market. I think it's fair to say that if I get everyone on the call access to a trading platform on their laptop or smartphone that you'd be able to figure out the buy button from the sell button doesn't seem so hard. So what could possibly be stressful about that? A lot of people like, isn't it difficult to invest in the markets and I'm like, not if you're using E-Trade, making a big investment is as easy as a single click boom.
I just bought some stocks. See, it was totally easy. Check this out. Boom. More stocks, boom. Asset backed securities. Boom, credit default swaps. Boom, boom, boom. Oh, I don't even know what half the stuff means, but thanks to E-Trade, I can wait. What is this line going down? 400 points. This is not happening. Dear Lord, I made a horrible, horrible mistake that struck before. But I to get back to work I think fell the eight. It's all gone plus my entire life savings. Oh God. Instead of saving private school tuition would be sick. Yeah. I would jump out the window now. Now, I use that video for years and I have to apologize for some of the crudeness from it, but the message is pretty clear. Executing the trade is simple. The problem is not knowing what you're executing the trade off. So let's talk about the growth of a dollar. If you had come to our group, the CME Group, fifty five years ago and you said I didn't want any risk for my money, I just want to give you my dollar and I want it to grow, we don't want any risk. We would have put it into a US Treasury bill or something of that nature.
US Treasury bill is actually known as the risk free rate. So your one dollar over that fifty five year period would have grown to twelve dollars. But if you had the ability to accept more volatility than the risk free rate and you put it into the S&P, five hundred, that one dollar would have grown to two hundred and eight dollars, which is a lot better. So this is called the equity premium or the market premium, also known as the equity factor or the market factor. I'm going to go through a few factors of return. What if I told you that not all companies are created equal, that that one dollar growing to two hundred and eight dollars was the largest companies, as I pointed out at the beginning of the presentation. It's one of the largest five hundred companies that trade in the US. But there's all kinds of sizes of companies. Obviously, there's large companies, there's midsize companies all the way down to small companies and micro companies. How did that Wendler do if it was invested in small companies instead of large companies? Well, it grew to seven hundred and ninety dollars in the same time period. Now, with more volatility, mind you. But that is called the size premium. The next factor or premium I want to talk about is the price premium. So what if we looked at value stocks versus growth stocks? Value stocks can simply be thought of as stocks that are on sale.
It's kind of like going to the store and that shirt or a pair of pants or that car, for that matter, is 40 percent off. It's a better buy growth. Stocks are the opposite. They're expensive. Now, my son likes this name brand called SIPRI. I don't know if anybody's heard of it, is just a clothing brand and they make these things called Bunny Hugs in Saskatchewan or hooded sweatshirt. You're not from Saskatchewan. And they just say the cream across. There's nothing fancy about them at all. They retail for about one hundred dollars us and they sell on the secondary market for three to five hundred dollars us. This is kind of like a growth stock is just priced high. So in our example, if we invested in small companies. But also with a value tilt. How did that one dollar do in the same time period? Well, two thousand and seventy seven dollars. A much better number, this is called the price premium for price factor. In investing in the stock market, you have a choice. Well, actually, you have many choices, but we look at what you call the get rich versus lose everything scenario if you only invested in this example in a company. So in the box on the left. You could pick the eight companies that skyrocket and you would get rich, an example of this might be 20 years ago you invested in Apple, Amazon, Microsoft, maybe you got lucky and got into Tesla early.
Something of that nature. You absolutely could get rich. But what if you picked one, two, four or six companies that didn't make it? And the outcome is that you could lose everything, which is the least for. So to offset that risk, that concentration risk, we advise people to pick an outcome somewhere in the middle, you won't get instantly rich, but you definitely not lose everything. So instead of owning those eight companies alone on them in a broader basket, and this is basically called diversification, something I'm sure many people have heard of. So let's review the factors that return. Market size and price, there is an additional factor of return, but I won't get into too much. It's corporate profitability basically if you have two similar companies in similar industries doing similar things and one is just more profitable than the other, and it's expected rate of return is higher. There are factors of return in the bond market to their listed here term credit and currency. In the interest of time, we're not going to spend any time on those today, but I did want to call them. In investing, there are many themes out there, themes like dividend investing. Something that Kevin O'Leary has made a name for himself on the importance of dividends and in getting paid to wait to wait for the stock price to go up and collect income in the meantime.
But it's just a thing you don't actually have a higher expected rate of return by focusing on dividend paying stocks. And there's been a lot of work over the years done on that's called the dividend. Irrelevant theory. As a matter of fact, companies that pay dividends in theory have their current stock price discounted by the dividend that they're paying versus companies that are keeping those funds and retained earnings and investing in growing their companies. Now, I know that all university students out there that study finance will study things like dividends and the dividend discount model, and it's good to understand the model, but to me, there are models and there's reality. I might be stepping on some toes here, but in the dividend discount model, the expected stock price in the future is based off of either a fixed or variable dividend rate or an expected dividend rate. This is in technical terms, but this is just the model. And this picture is straight out of my corporate finance textbook for World Rhodes University. And that is my highlight, getting ready for a test on dividend discount model in the real world. There are things that happen that no one sees coming, things like a credit crisis or a global pandemic and global economic shutdown. I don't ever seem to recall in my studies reading about the expected stock price of either a dividend paying company or a non dividend paying company during a global economic shutdown.
The reality is focusing on dividends actually can add more risk to your investment portfolio risk that isn't easily understood and it can be diversified away. So instead, we advise clients to invest in the broader market, cap the aggregate of dividends without taking on the company specific risk of a high dividend paying company. Because it reminds me a lot of those drink milk commercials, those commercials where they told us we needed to drink three glasses of milk to get the right amount of calcium for our bones in our diet. But those commercials were funded by dairy producers that sell milk. So obviously, they want you to drink three glasses of milk because the more milk they sell. We all know how that works. But wait a minute, if we just have a well-balanced diet, we probably are getting enough calcium from things like vegetables without focusing on drinking three glasses of milk added. So to me, dividends are like Kalsi, instead of focusing on dividend paying stocks, you can just invest in the broader markets and capture the aggregate of all the dividends that are being paid. Now, I have to apologize for this slide. I don't think that it comes across very well, but the typical trading pattern of investors is that when things are going well, like they are right now, there's a desire to want to buy into the market.
And whether you want to admit it or not, it's actually fueled by an inner desire for greed or maybe a fear of missing out when we see other people getting rich, when things start to sell off. People actually tend to buy a little bit more because there's this thing called dollar cost averaging that comes in or they say I'm going to average down my cost. But as things really sell off like they did in two thousand eight, two thousand nine or even in March of 2020, there is a tendency to sell out of the markets at the exact wrong time. There's been a lot of work in behavioral finance on this as to why people have this trade behavior. And apparently there's a part of your brain that treats financial loss the same way it treats mortal danger. So it makes sense that people flee or sell when things are tough. So our advice is just don't do that. You need to write out various market cycles and stick to your plan. As this slide shows, there have been many cycles over the years. The most recent, of course, being covid-19 something that Dr. Fonseca is going to talk about in just a few minutes. But we've had many different crises Brexit, US subprime, 9/11, Y2K, many, many different cycles over the course of history.
If somebody stayed invested through those cycles or even better, if they rebalanced their portfolios when the markets were down, they did way better than if they sold out at the wrong part. Because let's face it, our brains are not wired for this stuff. We all have these biases I mentioned or these heuristics, and they help us make decisions like when we were cavemen and there was a saber tooth tiger tracking us. Now, there was a cognitive bias to flee. That makes sense. We all have biases. It's part of being human. Some of them include things like hindsight, bias, how things look obvious after the fact when looking in the rearview mirror. The fact is that it was not obvious or you would have made a different decision at the time. Self-attribution bias. When you pick something and it goes up and you take all the credit, the minute it goes down, you blame everyone and everything else. This sounds a lot like the past US president currently familiarity, bias where you're investing in things or companies that you're familiar with. Something I mentioned earlier, home country bias. There's many of these biases that exist. Don't let them create more stress in your life. Just understand that they're there. Stick to the plan and avoid the noise. For. We're all going to have those little moments that time when one of your friends or colleagues tells you about a no brainer, a get rich quick scheme, a no brainer stock, maybe it's GameStop.
The advice we give to clients is either don't do it or only do as much as you're willing to lose. Stick to the plan with the rest. Look beyond the current headlines, and this is my last slide, by the way, there will always be headlines that tell us how great things are or how bad things are. This is just noise, it's noise that will drive stress if you let it. It's also something we call entertainment advice and it's not actionable investment advice. It should only be used for entertainment purposes. I mean, how many times have we heard? Yeah, but it's different this time. It never is. The headline itself is slightly different, but the underlying message and principles have stayed the same through many different cycles. So thank you for your time for my portion of the presentation. I just wanted to call on a couple of things. For those that aren't aware, we do have a weekly podcast that we run called CNN Group Free Lunch. It's available for download on Apple, Google, Spotify. Wherever you download the podcast from, you can follow us on Twitter at CMG Free Lunch at LinkedIn, at the CME Group and through Facebook at the CME Group at CMG Free Lunch. And with that. I just need a minute to get my mouse working again. And I'm going to pass over the presentation to Dr. Fonseca.
Thank you, Colin.
Oh, it's in the minute to get your slide deck up perfect. OK, you should be able to click show main screen and you slide deck.
What were you not showing it or do you want me to show it?
It's going, yeah, OK. Actually, just give me one second, Fonseca and I will fix this. Perfect. OK. The floor is yours.
Ok, so thank you, Colin, and thank you for the invitation to have another chat about covid part to cater to the audience, it gives me a chance to talk to you about one of my favorite viruses, covid. Probably not everyone's, but certainly one of mine. So today I'm going to start off and recap maybe a little bit on some. Colleen, how do you move the slides? Whereas the movement thing. Colin.
You should be able to click in the main body and it should move decide for you.
Tell me where.
Just click on the PowerPoint itself. OK, and then move. There you go.
Oh, perfect. OK, so these are my conflicts of interest. And I thought what I would talk about are a couple of things where we are now. What's new with covid? Because certainly the outbreak continues to or the pandemic continues to progress. And of course, the current topic that's on everyone's mind is variants. So I think we've all heard about variants and their impact on vaccines and their impact on outbreaks. So I'm going to focus on that as well. So here's one of my original slides that I showed everyone. I think there is little doubt now that this virus has actually originated from bats. How it actually got from bats into humans is still a matter of uncertainty. And despite the number of missions that have been held, we still don't know how that happened. But it is important because I think it will help us focus on where we are going to do surveillance and it'll also help us in the future because we could face further pandemics with this virus. So this kind of chart shows you how close. And if you can see my point here, you can see how close the virus is to the bat virus because this is a kilogram, which shows you the degrees of closeness. And you can see the closest neighbor is this particular sequence from a bat. So as you know, it is an envelope RNA virus. You can see the envelope here.
It's got these spike proteins, which are of particular interest to us, not only from the aspect of transmission, but also in terms of preparing vaccines to it. And the reason it's called coronavirus is because if you look down here, you'll see these little blobs, which resemble very much the sort of little blobs on a coronate from the royal people. So that's why it got its name as a coronavirus. And you're probably also familiar with the fact there was the original SARS coronavirus sometime around 2003, which also originated from China. And as well, we also have other human coronaviruses, which annually cause sort of mild colds and coughs and fevers. So I think this is a really broad group of viruses. And this is these are viruses that will continue to circulate in the human population, but more importantly, in other mammalian hosts that are found in the world. So moving on to the next slide, some new pieces of terminology that I'm going to talk to you about. So the first thing is when this SARS coronavirus originally escaped from its mammalian host into humans, there were two probably main groups. And the reason we know there were two original groups is because we've been able to go back to the original strains and sequence them. And we know they were almost identical. So they were called A and B. So that's how we have divided them up into two lineages.
So the word lineage implies that these are distinct strains. So think of a lineage as a hockey team. So, for instance, the Calgary Flames or the sort of Edmonton Oilers or whoever it happens to be, and within lineages, we also have a terminology called clades. So a clade is like the individual positions within a hockey team. So, for instance, the goalkeeper or the center back or the center forward are more of a football person myself. So I think of these as goalkeeper's center backs forwards. But, you know, whatever your sport is, it's fine. You can use the same analogy. And then, of course, the most recent addition to our vocabulary are variants. So what is a variant? Well, a variant is one of these original lineages, and that lineage has mutated to acquire a number of changes which make it a little bit more superhuman. So it's probably better at transmission. It probably causes more infection or probably reacts less well to the vaccines. So those are the three groups that we think of now. So the lineage, which is a wild type, the clade which is within the lineage and of course, the variants which are these sort of supercharged lineages which are causing so much of the problems that we are seeing at the moment. So. covid, or sars-cov-2, has continued to evolve and evolving as we sequence these different strains, we see more and more changes. So in order to differentiate these different lineages from each other, we give them numbers and names.
And that's why we get like be one one, seven or a two, etc.. And you can see on the right hand side here, as these viruses circulate in different continents on the on the globe, they evolve even further and become even more specialized. So we are seeing these huge collections of different lineages and of different clades. And then, of course, when we have intercontinental travel or travel between different provinces and people are infected with these clades or these variants, they bring them back. And what does the virus do? Well, it takes off in whatever area you happen to be. So it's kind of really important that we are keeping our eyes on the circulating viruses by doing a lot of work in terms of sequencing them to determine what the RNA genome comprises of. And I apologize if I use terms that you're probably not familiar with. I hope it will become increasingly clear as I go through the talk. So here is what was happening in Alberta. So you can see this from the Alberta Health website. And of course, really back in February of last year, we had the introduction of sars-cov-2 into Canada and into Alberta. And then we went into our first wave or on May, and then we had a series of lockdowns and trying to understand what the virus was about.
And really initially we had a relatively poor understanding of what the virus was about, what its transmission patterns were like. And I think as you can see from the news, you know, we've learned a lot more. We've now we now understand how it's transmitted, the importance of social distancing, the importance of masking. But despite that, because this virus can grow and transmit so easily, you can see fairly quickly if you don't take sufficient precautions, you can end up with a second wave, as we recently had over the winter. And that's not uncommon with a lot of respiratory viruses. You do tend to get them occurring much more with higher frequency in the winter. And then more recently as we had our lockdown's, we had the introduction of variants, the most well known being the UK variant, the one one seven, and that has largely driven this most recent peak in this infection. So you can see variants have had a very important part in the way in the epidemiology of covid, and they will continue to have a big part as we go forward unless we can actually control that. So this graph also shows you the numbers of cases, the number of active cases which are down here in the bottom, so every time you have an outbreak or you have a wave, you also tend to get these freaks in a number of cases that are occurring.
Of course, most people recover, but as well, a lot of individuals do die. So the importance of this is that in order to control the virus, we really only have two main applications. More recently, it's been vaccination, which has been really important. And I'll come to that further on. But also in terms of social distancing, in terms of the measures to separate us because of transmission of the virus, which is largely a contact and four, the transmission route. So this is a relatively recent graph of the variance that we have in Alberta, so you can see at the top here, as of the 7th of June, we had a total of about close to 50000 variant of concerned cases, the greatest, greatest proportion of these, actually, the U.K. variance. So you can see close to 45000 to about 44000, and that's to be one one seven Var.. We also have a few variants from South Africa. Thus far, they don't seem to have done much more than be a very small minority. The Brazilian variant, which is P1, which is of some concern as well, because at the moment it is causing large outbreaks in South and in South America. And of course, the most recent one, which is the Indian variant, I think of it as the hot and spicy variant. This one is definitely one that we need to keep our eye on because from reports elsewhere, it can literally take over fairly quickly.
And then we have a bunch of other presumptive areas of concern, which I'll come to shortly. But you can see the variants do, in fact, account for a large number of hospitalized cases. And down at the bottom here, you can see probably around this point here, which will probably be in January, we had a sporadic number of these introductions of these variants. But how quickly the B one one seven variant, which is in orange, took off and you can see how quickly it drove the third wave. The reason the numbers seem to have dropped off is not because they've actually dropped off is because at the provincial lab where we do all of the variant testing, we had to be a lot more selective in terms of the positives we were testing for because we were also having to deal with doing the sort of diagnostic testing for people who were sick with covid. But you can see how quickly the numbers arise. And in fact, we were testing every single positive. So you can see, you know, the proportions as well of the other variants in this graph. But the point I'm trying to make is that in about two to two and a half months, we went from a fairly low number of cases with this variant to a very almost completely the majority of cases were due to the UK variant. So let's talk a little bit about variants.
And I'm showing you this cartoon. I know it looks incredibly busy, but just bear with me. So there are three diagrams. So this top one here, which is entitled Single Stranded RNA Genome, shows you what the virus actually looks like. So the virus has a number of different enzymes and proteins which allow to replicate in the human host cell. And that's all of these first few ones. The most important one is the spike protein. This is the one everyone talks about. This is the piece of the protein of the virus to which we make our vaccines. And it's this little piece here at the tip of the outer periphery of the virus. So this is the spike protein which mutates and is the one that gives rise to these different variants and in part to the different lineages. So I'm going to take you from this protein to show you what it actually looks like on these models. So what this first one is showing you is a model of what the proteins would look like when they bind to the human receptor cell, which is this one in green down here called ASW or angiotensin converting enzyme number two. You can see these three sites here. See our one see are two and C are three are the active binding sites. And what it means are these sites are most closely in contact with this receptor site on the human cell and it's color coded down here.
So changes at these points actually improve the fitness of the virus or can make it more lethal for the virus. So they are so they will die. So when we talk about the emergence of mutations, I've highlighted a couple here. So this one in black and this other one here in black as well. And so these are areas where there has been a single amino acid change. And if you remember from your chemistry in the past, amino acids are the building blocks of proteins. So when you join up amino acids, you get different structures. And if you change the charge or the shape of the amino acid, you can also alter the rest of the structure of the virus. So these are two important amino acid changes which have resulted in the emergence of these new variants. So. These have occurred on the spike protein over here and down here on the left, you can see how we've used this information. So, for example, for the UK, variant B one one seven, there is this amino acid change here where it's gone from an aspiring gene donated denoted by this letter N to a tyrosine amino acid change. That single change has allowed this virus to become a variant with improved transmissibility. And there are a couple of other changes here. So one for the South African variant, one for the Brazilian variant, and the most recent one for the UK variant, which is the one we are all concerned about.
And I reflected these changes over here. So now you kind of understand why it is so important to keep looking for the emergence of these mutations on the RNA of the virus, to map them, then to changes on the spike protein, because in turn it can actually affect the vaccine or it can affect the properties of the virus itself. So over the page here, you can see what happens when the virus first meets human cells. So this is the virus. It finds its target on the surface of the meaning of the of the human cell, which, as I mentioned, previously used this receptacle, Aissatou. It then tricks the cell into gobbling it up very much like eating a sort of cookie. And it's enclosed in this little ball called the endosome. And when it's in there, it actually under the surface proteins, which are the actual spike protein, undergo a change so that they split the virus open and allow its RNA to get into the cell. And the RNA then codes for the extra amino acids. And in turn, those join up to from proteins and as well the nucleic acid, which then releases a brand new virus. And on it goes on its way. So you can see that the receptors are the key in terms of where the virus attaches.
And making this receptor bond stronger improves the ability of the virus to transmit as well. So what we've been finding is that these receptors, Aissatou and more recently for the Delta variant, which is the Indian variant, it has another receptacle. Furin allows it to actually spread more widely and produce a lot more virus, which can have consequences in terms of transmission as well. And so here you can see this receptor spike protein. Here you can see it consists of three components and within it's the furin. And this is the active point which actually binds to the human cells. So you get a sense of how important the receptors are to the virus itself. And that's why its goal is to continue to evolve, to become a lot more and to change to accommodate anything. So what is a variant? Well, there are two groups of variants. The first one are the variants of concern. So these are the ones that are actually causing increased transmission or they cause worse disease or worse outcomes. They have an effect in terms of the vaccines or the therapeutics. And the show has actually classify these because previously we were using lineages and numbers and it was getting confusing for everyone. So down here now we have the alpha variant, which is the UK, which originated in the UK, which is B one one seven, and that originated in about 2020.
And I mentioned previously these are the ways we classify them. They are different classifications, but let's stick to the actual label. So the alpha variant is equivalent to be one one seven. The beta variant is the South African variant, which is B one three five one, and that actually emerged in around May of 2020. We have the gamma variant, which is the P one variant, which is also of concern, and that came from Brazil and around November 2020. And then the Delta variant, which is the Indian variant. And there are a number of different varieties of this of this particular variant. But this one initially was a variant of interest. So what that meant was that we noticed that this variant was replicating or transmitting extremely quickly in India, and it was then upgraded to a variant of concern in May when it was realized because of its properties, that we really should we should actually be following it much more closely as it actually continues to circulate. So those are variants of interest. So those are variants of concern. I apologize. A variant of. Interest is similar to a variant of concern, but at the moment, it's not causing huge big outbreaks. But we need to keep our eyes open so that if it actually acquires more mutations, then clearly it is going to going to become a lot more significant as an agent of concern. And so we have a whole bunch of these down here, and I'm not going to go through every single one.
What I'm going to talk about now is the different types of tests that we use. So the majority or the most front line tests for the diagnosis of covid are molecular tests. And the way we do the diagnosis is quite, quite complicated. But it's an important component of the testing that we are doing here are the problem. We are doing much of the testing that's restricted to outbreaks, health care workers. And of course, if we are seeing cases where the vaccine, where the where the individual who has been fully vaccinated then acquires the infection, that's really an important aspect in terms of identifying those variants to see whether they have acquired these mutations. And the way we do that actually is fairly neat. So you've probably heard of the polymerase chain reaction or PCR, and there are two cycles to it. So there's a hot cycle and a warm cycle. So the hot cycle is when the when the two strands of DNA because, you know, DNA is complementary, there are two strands of DNA. So when we separate the strands of DNA, we then add primers and primers are little chunks of DNA which will bind to a complementary set on that initial template. And then when we cool it down and add an enzyme that recognizes these double strand of pieces, it will amplify it.
So we have a cycle of separating the DNA off, then cooling the DNA and then measuring the signal using a probe. And each cycle is called a CTY value. And so if you start off with a lot of DNA or RNA, then you can appreciate that the signal will come up sooner. So a lower sweet value or cycle threshold value allows you to infer that you have a lot more DNA or RNA present. And whereas if the curve is further down, you know, there's much less of the DNA or the RNA present. What you can what we also do as well is to use that technology to figure out where these mutations can occur because every amino acid is coded for by three of these base pairs. So by targeting where the change has occurred, you can actually determine whether the particular virus you have carries that mutation. And I and I'm trying to simplify it as best as I can, but it's actually a really clever way of doing it that allows us to do it fairly quickly. And so those are what we use as targeted assays for mutations. But as well, in some cases, we can't figure out what it is through these assays. So we have to literally sequence the whole length of the virus and that process is a lot slower. So we've been using a combination of both these assays to actually determine, you know, which of the strains that we're identifying have these mutations.
So we can tell relatively quickly what is a UK variant, what is a South Africa variant we have. It takes a little bit more time to get it to a Brazil variant and it takes a little bit more time to get to an India variant. But we are working on some methods which we hope will allow us to do that a lot more quickly, because what we want to know is what these strains are and where they are. And that's important in terms of vaccination. It's important in terms of what is causing these outbreaks, and it's also important in terms of who's being affected. So you can see down here on the right hand side, a lot more of our hospitalized cases are from younger individuals. And in part that's due to the fact that quite a few of these people have not been vaccinated. So the importance of vaccination is really quite apparent. But as well, it depends on whether they've had one dose or two doses of the vaccines, because that is also becoming an important component in terms of variant transmission. So I'm going to moving on to the next piece and in terms of variance, so as I mentioned, contact and droplet is the most important component of transmission. You can see this gentleman here who's sneezing and sort of expelling this cloud of particles which carry the virus.
And so for the most part, it's this cloud that you want to keep yourself distant from, which is why wearing a mask is so important. And as well, if you're unwell, staying at home is also extremely important. But in addition, we are also finding that you can have some of these particles actually carry in the air for a period of time. And that's why we are seeing probably some more cases of aerosol transmission and as well with some of these variants, because we have these changes associated with increased transmission. That's why we are also seeing another component of increasing transmission or increasing infection. The other issue that we're concerned about is do these variants cause more severe disease or less severe disease? And earlier on, when we were finding out about the U.K. variant, it was thought that the U.K. variant, in fact, did not give you any more severe disease than the standard wild type lineage that was circulating. But since then, we've learned that it's probably slightly different and it can result in more hospitalizations with the more recent India variant or the other or the Delta variant. What we are finding is that this virus in India has been associated with higher rates of gastrointestinal upsets or blood clots or strokes. Thus far, the same hasn't been seen in other areas where it's widely circulating. But, you know, it still remains to be seen.
The data is still fairly short, short in terms of when it has since has first emerged. So what's really important in trying to control these, the circulation of the parents who are clearly vaccination is the big key. And you can see down here the number of doses administered and the doses received and all. And though we know that one dose of the vaccine is generally reasonably good, certainly against the more recent variants, it probably is not as effective as we would like, which is why it's becoming increasingly important that especially for the sort of Indian variant, that we actually are a lot more vigilant in terms of increasing our vaccination rates, because that is going to increase the ability to keep the virus out of the circulating population as much as possible. Oh, as my computer frozen, no. OK, so this slide actually shows you the efficacy of the different vaccines against the variance. So you can see on the left hand side, there's the Pfizer, Moderna, JNJ, AstraZeneca back. So as you know, the Pfizer and Moderna are the two RNA vaccines, Amarone vaccines. Johnson, Johnson and AstraZeneca are the sort of vector mediated vaccines. And Sinabung is actually a whole cell virus, which is not being used in in in America or in Canada, but it's widely used in China and Southeast Asia. And it doesn't have as good a property or as good protection against these variants as, in fact, the MRSA or the other vector vaccines are bad for the most part.
You can see that against B one one seven. These vaccines are fairly reasonable against B three five one know there's a degree of variation and the same is true against P one, which is the Brazilian variant. So clearly, even though we have people being vaccinated, it is really important to see how the vaccines behave in the background of the variants that are circulating, because when a lot of these vaccines were being developed, in fact the variants were not circulating at the time. These variants have only come along since the virus has been allowed to continue its spread across the globe. So. So this is my almost last slide, but and I know it looks terribly complicated, but it comes from a recent pre-print of the effectiveness of covid-19 vaccines against hospital admission, especially with respect to this new Delta variant, the Indian variant. So in broad strokes, the first of the key points is that two doses of either the Pfizer, which is the MRSA versus the AstraZeneca, which is the vector vaccine, are pretty good. So they can significantly reduce symptomatic disease or hospitalization. The key point here is the lower this number is, the better it is. So 51 percent means your odds are 50 percent. It's not always like point one three, 13 percent, because deriving odds ratios is a little bit more complicated.
But what it does show you that either having two doses of the vaccine certainly reduces your risk of symptomatic disease for the UK variant. It also reduces your chances of ending up in hospital from 78 to 92 percent once again for the UK variant and similarly for the Indian variant. You can see, although it's less effective against the Delta variant, it certainly still has its relative efficacy. The second dose is one dose of Pfizer versus one dose of AstraZeneca are fairly similar. But it's only when you have your two doses that in fact the RNA vaccines have a slight edge over the current, have a slight edge over the current. Vector vaccines, so I think that that is something that a lot of the pharmaceutical and vaccine producing companies are focusing on in order to improve the sort of vaccines that are being made, especially to target them against the variants which are beginning to emerge. Now, I think that's going to continue to be an emerging story. So what do we have to look forward to? Well, I think we need to keep our eye on the ball. I think it is really important that we continue to follow this virus really closely. The other thing that we really do need is a lot of global cooperation in terms of sequencing the virus, exchanging the data, doing more clinical trials of different vaccines.
It's also important that we have global fairness in the distribution of these vaccines because there's no point in all of us in North America having two doses of the vaccine while we allow this pandemic to rage on in Africa or in India or in South America, because guess what's going to happen? We're going to have the emergence of new variants. And with time, those variants will come over to North America and then we will be in the same position as before. So basically, it is really important that we have globally, you know, we have a global approach if we're going to try and keep this virus at bay, because I don't think we're ever going to be able to eliminate that. I know that sounds really probably pessimistic, but I think the odds of us actually eliminating covid-19 are pretty much vanishingly remote. So in summary or finally, I don't think we are there yet. I think we have a way to go. But I think certainly now that we have vaccines, we're beginning to better understand the virus that, you know, our chances of actually mitigating the severe disease. The number of deaths that we were seeing in the earlier part of this pandemic are going to decline. And I think that is something that we are going to have to continue to work with and to understand. And with that, I'm going to close unless someone has and take any questions.
Well, Dr Fonseca, first off, I just want to say thank you for a very detailed discussion on what covid-19 is and the progress that's being made in your community, I think in the interest of time, because we have gone over the one hour allotment. Any questions that you have for Dr Fonseca in regards to covid-19? Please send along to our group. And if it's OK with you, Doctor Fonseca, we'll just ask you those questions and get the answers to the people individually.
Yep, sorry about that. I talk too much.
It was good. It was all good. It was a great presentation. And I really appreciate you taking the time to do that and very much appreciate everybody who's attended today, taking a time to No. One, talk about health and how we deal with this covid-19 pandemic. As you point out that probably here for a while. And number two, what do you do in the investment community in regards to dealing with various crises? So, Dr Fonseca, thank you and thank you to all of the people who joined the call today. And with that, we will end the webinar, have a great day, everybody.
A COVID tax season—Are you ready?
A COVID tax season—Are you ready?
Thank you for attending our presentation today called a Covid tax season. Normally, we'd see many friendly faces in an audience at a venue, but of course, today is not like that. We're presenting virtually for the fourth time this past year due to the circumstances we're all faced with. My name is Colin Andrews. I'm a First Vice President and Portfolio Manager with the CM Group at CIBC Wood Gundy in Calgary. And joining me today are Blair Howell and Jamie Golombek. Blair will be moderating the discussion, is a certified financial planner and wealth manager on our team, the CM Group. And he has over 20 years of experience working in finance and banking. And of course, we have our presenter, Jamie Golombek, who is the Managing Director, Tax and Estate Planning with CIBC, is a member of the CIBC Retail Markets team, working closely with Private Wealth Management and CIBC Wood Gundy to support their high net worth clients and deliver integrated financial planning and strong advisory solutions. So Jamie joined the firm in 2008 after 12 years of working in a global investment company where he was involved in both internal and external consulting on all areas of taxation and estate planning. Jamie, before we get started, I just have a couple of housekeeping items to address for the crowd. There is an option to ask questions during the presentation. The questions will be managed by the organizer and we will answer them as best we can. And I know you have a question. Answer session, heat up at the end. But if for some reason we cannot get to your question during the presentation, we will email you back response or set up a call to answer that question. Now, technology is a great thing when it works, as we were just talking about before launching this. If for some reason there's any glitch in today's presentation because it does happen, I'm sure today will go off without a hitch. But if it does, the presentation is being recorded and will be available for viewing at a later time. Indeed that works best for you. And at this time, I usually tell people where the washrooms are located and what food and beverage we're having, because usually it's a lunch and learn format. Of course, given today's global pandemic and lock down in our current situation, everybody is viewing this from their own remote location. So I guess you're on the hook for your own your own food and beverage. Which reminds me, you can see the presenters myself, Jamie and Blair. You can see the presentation. However, we cannot see or hear any of the attendees and you cannot see or hear each other. So you can sit back and relax, enjoy the presentation. Although, Jamie, I got to tell you, discussions about tax and relaxation don't always go hand in hand. So we're going to get into it in a minute. I just want to carry on introducing Jamie. Jamie is quoted frequently in the national media as an expert on taxation, writes a weekly column called Tax Expert in the National Post, has appeared as a guest on BNN, CTV News, The National. And I got to tell you, Jamie, probably your most famous presentation was when you joined us for a podcast, Free Lunch back a few a few months ago. And thanks for doing that again. In his spare time or in your spare time, I guess you also find time to be to teach MBA course at the Schulich School of Business, which is pretty remarkable considering all of these list of accolades that I could go on and on. And and different organizations you are part of, and things like the Investment Funds Institute of Canada's Tax Working Group, the Ontario Institute of Chartered Accountants, the Illinois CPA Society, the Estate Planning Council of Toronto, the Canadian Tax Foundation and the Society of Trust and Estate Practitioners. And that's quite a mouthful, Jamie. So obviously I wanted to get those out there so that our our viewers can see that we have a real expert today and we're really keen to have you here and welcome, Jamie.
Well, thanks very much, Colin. And welcome, everyone. Thanks to Blair and Paige and everyone else who organized this today, I'm going to spend 30 minutes to take you through the hot issues. My agenda is three parts. Number one, filing your tax returns and just some tips for the next six weeks. Number two, our best three ideas. Number three, our crystal ball. What can we expect in a budget next month or perhaps later in the year from a wealth planning or perspective? So let's begin with the basics. Filing your tax return. I'm going to go pretty quickly. I think a lot of you are familiar with some of the material, but then, of course, we have the Q&A at the very end. So, again, just a reminder to type your questions into the chat. We'll try to address as many as we can before the top of the hour. So, again, the due date has not changed as of today at 12:00 p.m. Mountain Time. That could change this afternoon. That could change tomorrow. As you saw yesterday, the US IRS extended the deadline by a month to May the 17th. From April the 15th. I had to call into the CRA I heard from this morning. As of today, there have been no changes. I wouldn't be surprised if they extend it in the next few days. However, you didn't hear it from me. The deadline is still April 30th. If you have self employment income, it's June the 15th. However, if your income was under seventy five thousand dollars and you received some Covid related benefits, even if you file on time, you will not be charged interest if you don't pay as long as you make the payment by April 30th 2022. So a bit of relief there for those whose income is under seventy five thousand dollars. In terms of the other things to think about taxable Covid benefit. So we have a number of covered benefits in 2020 that were received. Some of them were are subject to tax. Some of them are not subject to tax. These are all the ones that were subject to tax. And again, some of them have received withholding and some of them have not. So I think it's important to remember that all these things must go on the tax return for the CERB or the student benefit. There was no tax or could not be a tax owing to the other things like the recovery benefit. There is a 10% withholding that was already applied, which may not be enough. So many people might actually owe money when they file a tax return for 2020, depending on your personal situation. Of course, all these benefits would have been received on a T slip. So again, you'll know about it. It's on the T4A or the T4E, depending on how you apply. It's all considered to be other income on the tax return. The biggest question a lot of people are asking is working from home, you can clearly see that I'm working from home also home office expenses, right. A few things different for this year. Two methods to do it, temporary Flat-Rate method of the detailed method. There's a special form for Covid. The T77S can be followed with your tax return as part of all the software. And a tax preparer, of course, would certainly have that have that information.
So let's go into it. The temporary method, that's the easy method. Two dollars a day for every day you work up to two hundred days. Again any full or part time days, count sick days, days off vacation. Obviously, those don't count. The best thing about the temporary method is you don't have to keep track of any expenses. You don't have to have your receipts. You don't even need a form from your employer saying that you are working from home. So two dollars a day, that's a simple method. The detailed method, on the other hand, is a little bit more complicated obviously. The detailed method, if you qualify, you've been working for as a result of Covid, then you can take the actual expenses and then you prorate them by the ratio of work to use the personal use. You're going to need a signed form from your employer, the T2200 or the short form version of that, to be able to claim those on your return. Now people ask me all the time, what do you mean detailed method? What's deductible, what's not deductible?
Well, again, on the detailed method, you can deduct your rent, utilities, your access to the high speed internet. Certain maintenance and repairs. And if you're a commissioned employee, can even write off your home insurance and property tax. That being said, what's not deductible is your mortgage. Which means, as you'll see in a second, for most people that are home owners, it doesn't make sense to use the detailed method because when you add up utilities, you really prorate it. And then if using a shared space you prorate it further by the number of hours you work in a week. You'll see that it's not a lot in terms of deductions. So again, not deductible capital expenses, furniture, wall decorations, things like that. For the whole workspace to be using the detailed method, you can really only use the portion of the space that you use for work. So, again, if you've got a designated workspace, so this here is a designated space. This is a spare bedroom. I'm in my daughter's spare room. She's off at university, although, of course, there's no classes there. They're all doing it remotely. I guess it's more fun to do it remotely from a home that's not your parent's home. But anyway, this is a spare room. I use this full time for work. No one else uses this room. So this is a designated space. On the other hand, if you're working from a dining room table or kitchen table, you'd have to prorate it based on the work size, other words the square footage that that room is part of the home and also about the number of hours that you work at that kitchen table divided by the 168 hours in a week. There's more than one worker, by the way, you could calculate your own workspace. So very simple example. We've got Brit, Brits a renter, and she works 37.5 hours a week, 9.5 months. And she's renting. She rents a thousand square foot home or condo, and effectively she has a spare room and she's working from that spare room full time, so we calculate out of the detailed math and she takes her twenty seven hundred dollars a month of expenses for 9 months. She prorates it by 20%. And you can see that her deduction is very generous. Her deduction in this case is approximately five thousand two hundred and thirty dollars. If she used the two dollars a day method, of course, that would only be a maximum of four hundred dollars. So our renter is generally better off using the detailed method than a homeowner. Let's take a look at a homeowner. Sasha works the same amount of time during the same type of home, but this time Sasha owns his home. Texture condo, he pays condo fees of 600 bucks a month and utilities of two hundred dollars, the condo fees are not deductible. So effectively, what you have to do is take the two hundred dollars a month of utilities multiplied by the ratio of the square footage of the kitchen, which is 20 percent, and then multiply that by 37.5 hour work week over one hundred and sixty eight hours. You can see that under the dump method, Sasha can only claim eighty five dollars for the year. As a home office deduction. Better off using the two dollar day method. So again, for homeowners, two dollars a day makes sense. If you don't know what to do, just go online, use the CRA calculator. You can calculate the Home Office expenses. It will tell you what method is best for you.
Let's move right on. What else is new on the 2020 return? It's not a lot, but if you're a digital news junkie like myself and you get a digital newspaper on your iPad or On your phone or your PC, you can write off 15% of nonrefundable federal credit on any amount you spend for eligible digital news, up to five hundred dollars. So at 15% that's a credit, that's worth seventy five dollars. By the way, if you're like me and you have a combined digital and print subscription, that gives you the digital copy, but you've got a physical paper on a few days a week, let's say like me, the weekend, you can only use the digital portion of that for the expense. You can go online and see what the cost of a digital only subscription would be and use that on your tax return.
All right, let's move on now to our best three ideas. The second part of our presentations that we're going to move on from the tax season and talk about what can we do for 2021, because not a lot you can do on your tax return. Because that's basically retrospective. It's last year. What can we do this year? Number one, maximize all registered plans. We just run a brand new piece of a few weeks ago on building family wealth or registered plans. If you're interested, take a look at it. In terms of building wealth with RRSPs and TFSAs and RESPs and even disability plans. Just spend a few minutes on this for you. Reminder, we're in a new year. RRSP limit for this year, twenty seven thousand eight thirty. You had income of at least one hundred and fifty four thousand last year at 18 percent. You're going to hit that maximum less any pension adjustment. Or in the New Year of TFSAs. If you haven't already made your 2021 TFSA contribution, great time to do it. That's another six thousand dollars. And by the way, TFSAs, of course, have only been around since 2009. So, again, depending on how old you are and how old your kids are and how old your grandkids are. This is an amazing opportunity to catch up on TFSA room to a maximum of seventy five thousand five hundred. In other words, if you're at least 30 years old this year and you never had a TFSA, you could put it seventy five five. You can give your spouse another seventy five five to open up their own TFSA. If you've got kids that are at least 18, you can give them money to open up their own TFSA. Some of our wealthiest clients are using TFSA for intergenerational wealth transfer. So again, take a look at this. It's certainly a great opportunity. We've written a lot of reports on RRSPs versus TFSA versus paying down the mortgage. You see, mathematically, they're all the same. So five fifty hundred dollars income when I choose to contribute to my RRSP and I'll pay tax now. That money grows and at the end of the year, if I cash it in, I pay tax. I have a thousand and fifty dollars. TFSA works exactly the same way in reverse, right? If I earn fifteen hundred dollars of income, I pay tax on the income. I put the after tax amount into my TFSA and grows tax free if I'm paying down debt and my rate on my mortgage was five percent. That again exactly the same thing I'm using after tax dollars to pay down my mortgage, I save a thousand dollars capital fifty dollars of principal of interest and again I'm ahead by a thousand and fifty.
So again, mathematically that's all the same. In reality, of course, we know it's not the same. So I think the common rule that we all say is that if you're at a high rate now, you're going to be a lower rate when you retire. Do RRSPs, then do TFSAs. When it comes to paying down debt, if your mortgage rate is 1.5, 1.6, 1.7%. To me, it doesn't make any sense at all to aggressively pay down a mortgage no matter how big it is. If you're not maximizing your tax free savings inside of your RRSP and TSFA. We actually wrote a report a few years ago called Mortgages or Market, which is all these reports are available online through CIBC. We'll give you a website at the very end of have you download them, but basically said, you know, people are aggressively paying down their debt. But if your mortgage was at three percent, but you can get a rate of return over the next 30 years on average of six percent, you'd be crazy not to do your RRSP or TFSA before pay down any of that debt. And that close to true in this scenario, because simply you're already taxed for investment returns, there are simply higher than a low interest rate mortgage. So, again, it's something to talk about, certainly with your advisors. But this is certainly a strategy that's worked for for many of our clients. Register plans are also very helpful for business owners. I've heard so many people say, well, you know, a business owner, I own a professional Corp, I'm a doctor, I'm a medical Corp, I'm a lawyer, I'm a legal Corp. I just have a small business. I leave all my money in the business every year. I don't bother with RRSPs or TFSAs, you're wrong. You're basically wrong. You don't believe me, take a look at our brand new research reports. RRSPs and TFSAs where we prove mathematically that most, not all, but most business owners would do well, paying themselves enough salary to make a maximum RRSP contribution and, pay enough income every year, whether it's salary or dividends, to be able to pay out enough money to make a six thousand dollar annual TFSA contribution. Remember, at the end of the day, yes, you got a deferral in the corp, but that corp is paying tax at about 50 percent on the investment income, whereas if it's inside of a TFSA at the tax rate on that income is zero. So, again, something to look at. And again, if you believe me, please read my reports and then call me.
Let's move on to the next strategy, personal insurance. Again, I'm not here to sell any one life insurance, but I can tell you that among our very successful clients, life insurance plays a huge role, whether it's universal or life, a whole life in terms of a replacement for fixed income. I call it insurance for people who don't need insurance, the opportunity to use a portion of your wealth park it into a permanent life insurance policy to increase the value of the estate on a tax free basis, because the income inside the policy is reinvested on a pretax basis and on death, the entire amount goes Tax-Free to the beneficiaries as a tax free benefit down death. So again, this is a great alternative to fixed income. We've seen some very, very high yields on some of the whole life product being offered right now. I think it's worth taking a look at it.
Our third idea is to prescribe rate loan idea that just confirmed recently that the CRA prescribed rate will remain at 1% until June 30th. That gives you three more months. If you haven't done this already, to set up an income splitting family loan, prescribed rate loan. We call it the 1% solution.
We wrote about this last year. Happy to get you a copy of this material. But basically, there's a big spread right between the top rate number and the bottom rate on interest income, regular income. Forty eight percent of the high rate. Twenty five percent of the low. That's a twenty three percent spread. So if we can move income from a high income family member, low income family, a spouse, maybe it's a partner, maybe it's children, we can actually save some sort of amount of tax within the family. Got a simple example here of Jack and Diane. If you know the reference, you can probably age where I was in about grade seven in this case is our high income earner. Jack is our low income earner. We're going to do a prescribed rate loan to show you how the math works. But again, if Diane's not top Alberta rate of forty eight percent. Jack's my bottom rate of twenty five percent. We're going to do is going to take Diane's money instead of giving it to Jack, because if we gave it to Jack, all the income gains would attribute back to Diane. We're going to loan it to him. We're going to make a five hundred thousand dollar loan. We're going to charge the minimum CRA prescribed rate at one percent. By the way, if you do this before June 30th, you can lock in the rate for life. So even if rates go up one day, you'll be able to lock in a prescribed rate for life at one percent. So on this example, on a five percent rate of return, we get twenty five thousand dollars of income again. Normally, this is a mix of Canadian dividends with the dividend tax credit, capital gains realized deferred, 50 percent tax, a little bit of foreign income for a tax credit. To make the math really simple today, just pretend that it's all just straight income. So you got twenty five thousand dollars of income. We got to pay five percent sorry, one percent interest on the loan for this to work for CRA, not one percent on five hundred thousand. Five thousand dollars. That's a deduction to Jack, but it's taxable to Diane. That's a real opportunity. There is not twenty five, it's only twenty. Well, we income split the twenty if we have the top rate of forty eight, the bottom rate at twenty five to twenty three percent spread. So in twenty thousand forty six hundred dollars of tax savings every year and a half million dollar loan, so this works great with spouses and different tax rates partners, it also works with children.
I got three kids I would never hold my youngest, who is now 15 and half a million bucks because you never pay me back. So instead, what I would do is set up a family trust, get a lawyer, of course, get this done properly, set up a family trust, make a loan to the family trust, have the family trust, do my investing, and then have all the investment income paid or payable on behalf of the kids. The kids are in private school. They have summer camp that doing hockey was doing lacross. Any expenses the kids can be paid for out of the trust. So effectively what you're doing is using pretax dollars to pay all the kids expenses that the kids have no tax and no income. They're going to pay zero if any tax. In fact, the magic number for Alberta for 2021 is fifty four thousand dollars in Canadian dividends. In other words, an individual in Alberta with no other source of income can earn fifty four thousand dollars a year of Canadian dividends without paying one cent of federal Alberta tax because of the basic personal amount and the dividend tax credit. So again, this is a great strategy. Many of our clients are using a dividend portfolio in a family trust to pay all the kids expenses. They're doing this for grandkids as well. So, again, certainly a great opportunity for income splitting in 2021.
RESPs again, if you've got kids or grandkids, there's any remote chance I get to go to school, post-secondary education, I hope your maximizing RESP. Typically what happens is we tell clients to open up the areas the year the kid is born. The parents say, you know, these kids are expensive. I've got diapers, I've got childcare. I got to buy a car seats. Expensive. So they wait, they wait and wait. And finally they start at age 10 they put it in a box and they try to catch up. Because there's the kind of education savings grants which are worth 20 percent on the first thirty six thousand dollars of contributions. So the maximum grant is seventy two hundred dollars, which means you've got to put in thirty six thousand. But they wait, they do at age 10 and they try to catch up because you only catch up to years at once and that works out OK. Because if you start at age 10, by the end of the four years of school, they're able to take out about thirteen thousand dollars a year for four years. Now, could you do better? Obviously, you could right, because if we convince a client to put in the same thirty six thousand dollars, which started in the year zero, the year the kid is born, we put in twenty five hundred dollars a year to maximize those annual grants of five hundred dollars. And we stop. We hit thirty six thousand dollars. We got the seventy two hours of grants for all of a sudden if we wrote again, we're using a very conservative three percent compound annual rate of return, all of a sudden we've boosted four years of education at sixteen thousand three hundred fifty four dollars three hundred fifty dollars a year. That's about sixty five thousand dollars over four years. And all of it in many cases, as you'll see, is tax free. The best strategy is the ability to over contribute and actually put in fifty thousand to an RESP, not just thirty six. You're not going to get a grant anything above thirty six. So the strategy is to put in the 16,500 at birth, which is the extra 14 plus the twenty five hundred. You need to get the grant and then continue on twenty five hundred dollars a year to age 14. Effectively what happens here is you because you upfront funded the RESP, that I'll pay for twenty three thousand dollars a year. Four years of education and using just a three percent conservative rate of return, as I alluded to earlier, this twenty three thousand a year, which is barely four times that's about ninety thousand bucks, is all tax free. Why? Because when I take out that ninety thousand dollars, fifty thousand after tax contributions that comes out tax free, the other forty thousand dollars is educational assistance payments payable to the child. The child has the basic personal amount and they have tuition as a credit. Remember the tuition right now at six thousand dollars is the average undergrad tuition in Canada, that's twenty thousand dollars your income, but only taking out ten thousand of income annually from the RESP. And our best case scenario, we're basically talking zero tax or minimal tax on RESPs. I think of RESPs as a TFSA for education. Again, if the kid doesn't go to school, he can give the money to another kid. You don't have any kids that are going to school. Always take your contributions back then all the income and growth you take back if you have RRSP room, great. You put it into RRSP. If not, there is a 20 percent penalty tax. So the government grants have to be repaid downside and all that stuff is pretty minimal. So you're seeing lots of parents and sometimes grandparents set up RESP for all of the children.
Finally, five minutes left, we'll open up for your questions, What's my crystal ball? We did a video on this a few months ago. I want to give you some of the highlights of what could happen in tax policy in Canada. Number one, tax rates. How high can you go? And I've been asking this question for years. I thought we could go no higher than 50, but I was wrong because in Alberta, 8 of the 10 provinces have a top rate of 53 or 54%. So a question, can you go much higher? And I'm not sure that you can. You've seen the arguments, the Laffer Curve. You know, higher rates don't necessarily mean more revenue. There is certainly a psychological disincentive to work with your rates over 50%, not only that. People start hiring accountants and lawyers to do tax planning and use all the things that I just showed you the last 20 minutes to reduce their tax below the top rate. So I'm not sure we're going to go much higher. In fact, if you look at our statutory rate, we're number seven in the world in terms of tax rate. So could you go much higher like Sweden or Japan? I guess it's possible, but I think we're pretty high, especially compared to the US. The top rate, California, federal California's rate about 50%. You move to Florida, the top rate, is only 37 because there's no state income tax. So, again, we have very, very high rates, obviously, Alberta is a tax haven, that's what we call it, out in Ontario. Lowest province in Canada other than Saskatchewan, if you exclude the territory. So, again, most of Canada, very, very high rates. I don't think we're going to go any higher, although there is rambling, rumblings of a super high rate. We saw the announcement yesterday by Joe Biden that the United States is going to tax U.S. people making over four hundred thousand dollars as a family at a higher rate. So, again, we're seeing these changes globally could it come to Canada. There is rumors that there could be an ultra high rate in Canada as well.
Now, in terms of who's paying taxes, we already have the top 10% paying the majority of taxes. If you look at some of the research done by the Fraser Institute, the top 10% of income earners in Canada are already paying 50% of all the personal income taxes paid. So I'm not really sure that we can go much higher than that. If you break it down, one final slide here, if you look at all the different tax payers in Canada, we have 28 million people file the tax return for the 2017 tax year. That's the most recent data we have. Of those, those with income over one hundred thousand comprise about 9% of all tax payers. But the income is not evenly distributed. Most of that income, in other words, if you look at the top 9% of people, 35% of all the income in Canada was reported by the top 9% of income earners. But what's more astounding is the tax. The top 9% of Canadians paid 55% of all personal income tax in Canada. So I don't know. I think we're already pretty taxed very highly on the high.
Capital gains, inclusion rate, that's probably the question I get most every single day, almost every single week. The capital gains inclusion rate used to be zero before 1972. It jumped up to 50 percent with tax reform. The current provision, they had that for many, many years until 1988. It went up to two thirds. After that, we peaked at 75% in 1990. It stayed that way for a long time until it dropped twice in the year 2000 and now we're back at 50%. So again people ask, could we raise the inclusionary? I think it's possible because look at what this government has basically said, in terms of taxing the wealthy, bringing in that top rate five years ago. This is not a well friendly government. So, again, if they look at who earns capital gains, who pays capital gains tax is for the most part, the wealthy. And therefore, I think that's certainly on the table. I'm not sure they'll do it in a budget next month because politically, with a minority government, it's very unpopular. But if they get re-elected, if they have a confidence vote and a spring election, they get re-elected, especially if the majority. I wouldn't be surprised, if you see an inclusion rate bump.
Principal residents concerned the sacred cow of taxation, you would never tax a principal residence, would you? Right now in Canada, there's an unlimited gain on the principal residence, which can be tax free. That's very, very different than the situation in United States. United States, the only tax the gain above two hundred and fifty thousand dollars per person. Five hundred thousand US per couple. So, again, politically, I think it's political suicide. I don't think they're going to do it. But that being said, I think at some point you're going to see some type of tax. I don't think it would be retroactive. That would be unfair, would punish people who've been saving their entire life via their principal residence, assuming it was going to provide tax free retirement. However, I think what they could do is prorate the gain. So if they start taxing this in 2022, they could basically say years of ownership prior to 2022 are tax free, years after that are taxed. Well, they wouldn't get you wouldn't have to get a valuation. That's too messy. So what they would do is just prorate it. So if you sell your home next year and 2022 and you had it for 20 years, they would take one twentieth if 20 years is the year of ownership and then say you have to pay tax on the gain one twentieth of the gain. So I guess it's possible it won't be in a budget, but it could come as future tax policy.
What about wealth tax? We got lots of questions about a wealth tax rate. Last summer, the Parliamentary Budgetary Office said if they imposed a one percent wealth tax on people with over 20 million dollars, there'd be about fourteen thousand families that would pay to bring it about five and a half billion dollars of revenue. That's not an insignificant number. Now, they tried this November of course, it was defeated in the house was proposed by the NDP. So, again, the wealth tax is controversial. If you look at the pros and cons, you can read dozens of articles about it, whether it makes sense, double taxation, you've already paid tax once on it. Do you pay tax a second time? It is certainly a way of trying to deal with some of the inequality. Canada doesn't have a wealth tax. Again, very few countries do. You go back to 1990, 30 years ago, you had 12 countries of the wealth tax. If you advanced to the year 2000, you only had about nine countries that still had a wealth tax and have actually, if you go to today, today, right now, as of 2020, there's only four countries in the world that still have a wealth tax. And in fact, could Canada be the fifth? I'm not sure that's a lot of problems with measuring it, with double taxation, with policy. How do you measure the value of the family farm? How do you measure your artwork hanging on your wall? How do you measure small businesses? There's no liquidity. I'm not sure we're going to go with a wealth tax. What might be happening, though, is an estate tax. We don't have any form of estate tax. Some provinces, not Alberta, some provinces have a significant prorate. Significant like one and a half percent. But that's not an estate tax. Take a look at the United States. Right. The United States has a 40 percent estate tax. And if you read the Biden proposal, he wants to bring that to 45 percent and he wants to bring the US exemption from 11.7 Million, US down to 3.5 Million, the rate it was in 2009. So right now, very few people pay the estate tax. Only two thousand people are estimated to have died last year and paid the estate tax in the United States. But again, this is a way of getting money for very, very wealthy people before it transfers to the next generation. In Belgium, the rate is 80 percent. So could we see some form of the estate tax? It's possible we already taxed capital gains on death on a realize basis, they don't do that in the US, but they're talking about that as part of the Biden proposal as well. So, again, I think all those ideas that I just thought about, the inclusion rate, some kind of estate tax federally, it could happen. It probably won't happen in a budget next month, but long term down the horizon, I wouldn't be surprised if we see some of this. Now, all of the information that we talked about today, certainly available online. We can get you copies of our slides afterwards. However, if you want details of the bulletins or any of the brochures, anything we really talked about, certainly all available CIBC.com under a section called the Advice Center. We have a tax tip area. My own website, jamiegolombek.com authorized by CIBC. I have everything I've ever written in 20 years. All my National Post columns are updated three times a week. In addition, in all 100 bulletins we've read, the first part of CIBC are all posted online. So I think with that I will stop talking and I guess we'll turn it back to you for maybe some questions.
Well. Thanks, Jamie. I don't see any questions coming in. If anybody has one, you can ask questions to the webinar screen or the chat. Just kind of going back, there was a lot of great stuff there, Jamie, a lot of information. But one thing you did talk about is, you know, the planning for 2021, as you know, seeing groups very big on having goals and plans and looking for efficiencies ahead of time. A lot of clients have asked about kind of doing the spouse alone or or the prescribed rate. But that's always just want to clarify. That's always after we've used up RRSP and TFSA. And these are your dollars.
But what if you have one major income earner and they're putting money in their RRSP and they're tax free, would the loan apply to kind of an RRSP loan from one spouse to another in terms of just making sure they're topped up or going into a tax free savings account?
Yeah, you certainly can gift money. You don't even need a loan. Right. You can give money to the other spouse to make their own contributions. So while the money is inside of the recipient TFSA, there's no attribution of any kind. So that's a very common strategy as well. If the other spouse doesn't have the cash to give them the money to make their own contributions, that's sort of our strategy for sure.
Another question I had, and it came up just to kind of your views, you know, we have a lot of clients who make regular RRSP contributions or even lump sums for the year earlier on in the year. But as we know, a few people have lost income for the year. And if they had made RRSP contributions, obviously, is there a strategy or is there any point putting that off to claim it for the following year just to.
Yeah, thought also at the time value of money question, so I think for the most part, unless you have a really wildly high swinging income from one year to the other, it's usually good to claim it right away, assuming you've got some kind of tax payable. Might as well get 25% back now that maybe 30% back next year, because you've got the time value of money. Obviously on the refund perspective. That being said, if you're really in the low bracket this year, I wouldn't claim it. You might wait till next year when you're back in a higher bracket. People that are on maternity leave, paternity leave. People lost their jobs. Certainly is a valid strategy. Obviously you want to make that contribution to get the income all tax free while it's inside the plan? But certainly you may not decide to claim that for a year or two to be able to claim that deduction when it's more valuable to you.
Jamie, I got one for you. You speak with passion and conviction, which is great, and I know you're going to speak passionately about this when I listen to you on BNN, maybe a week or so ago and a caller called in and made some comment about the conspiracy theory that all of the wealth management firms have around RRSP investment, how silly it is. And you I just want to make it clear for all of our viewers, listeners and future listeners, your opinion on is an RRSP worth it? I know you can speak professionally.
I would say for most people, it's worth it. I mean, maybe 90% or more, because what's the alternative? So we can get into a debate of RRSP versus TFSA. That's not the debate we're having. So for some people, they shouldn't do RRSPs if they have maximize their TFSA. The question that I try to answer most common that the viewer had on TV is if I do an RRSP I lose the benefits of the capital gains at 50%, I lose the dividend tax credit, which is beneficial for Canadian dividend stocks and funds. So wouldn't I be better off without an RRSP? In other words, the question doesn't become RRSP versus TSFA. The question becomes RRSP versus no RRSP. So I ask them what's the alternative to the RRSP? And the answer is, well, just open up a regular non registered investing account. I said, but the problem with that is you're going to pay tax on that money, with an RRSP you actually pay no tax on the investment income. So we can prove to you mathematically, we have a report called Just Do It, just like the shoe company Google, just do it Golombek. That'll be the first hit on Google. We already prove mathematically that no matter what scenario you're in, an RRSP will be a non registered account. Because there simply no tax on the investment income. Remember when you put money into the RRSP then the deduction from your income. In other words, if you're in a 50% or 40% tax bracket, you actually have double the amount working for you, then you would have you pay tax on your income first. Then you invest in a non registered account. So in fact, the mathematics, people get confused with this refund. We wrote another report called Blinded by the Refund. So take a look at that. Google Blinded by the Refund Golombek. First hit on Google. Very easy to find. But basically we prove mathematically the refund is of no consequence to you at all. Because of that tax later on right? So it just depends on what rate you're in today, versus what rate you'll be at in the future. That's where the RRSP versus TFSA. But in all cases, the RRSP is going to be a non registered investment hands down. So take a look at our report that we have the seven common myths of an RRSP. You can take a look at that one as well, because we go through all these in great detail. We put all the math behind it. Analyze this to the depth.
And as I said, I could speak with passion and conviction about it, so I wanted to ask it the I have a follow up to that. And that is, could you maybe just spend a minute talking about the benefits of doing a spousal RRSP contribution versus not.
Oh, absolutely. I mean, the idea of a spouse RRSP is that you contribute based on your contribution room, you get the deduction, but your spouse gets the money. So assuming you're okay with that. The advantage for that is that when the spouse takes the money out in retirement, they're theoretically at a lower rate than you. So we see this very common way. There's a big difference in income levels between two spouses or partners. Once a high income spouse, the other one's a zero or a stay at home or low income spouse. And this is where the spouse RRSP works perfectly because the high income person has all his income and all of these assets in their name that they have a pension plan. The lower income has nothing or virtually nothing. So the idea is by every year the high income spouse contributing to the RRSP of the other spouse, the high income person gets the deduction. They need it to reduce their taxes by 48% and over the long spouse get the cash, which means that when they take the money out there, the bottom rate, they're basically paying 25% tax on the withdrawal or no tax if they have no other income in that particular year on the first 40 thousand or so. So spousal RRSPs are the way to go when there is a massive difference in tax rates between both spousal or partners. Absolutely.
And one follow up to that, and this would be the last time I bug you about that, but let's say you're this isn't a personal situation, by the way. But let's say you want to make a Spousal RRSP contribution, but maybe you're hesitant about where your relationship is going in the future. Doesn't the assets still fall under like a family asset that would be split in a marital situation anyways? Or could you talk about that?
Absolutely. People asked this question all the time. There's zero risk. I mean, the end of the day, whether the RRSP is in your name or their name on a division of property upon marriage breakdown, doesn't matter whose name it's in, it's all going to be split anyway. And you can always split it on a tax free basis. You can move assets between spouses, RRSPs between spouses. And we have some things on TFSAs. All tax free upon divorce or breakdown of the common law relationship. So there's really no concern there. You're giving them all the money. But at the end of the day, unless they spend that money, because there's nothing left, right, that's always a risk. But if the money is there, then, of course, absolutely nothing that would be part of the family property and you'd split that no matter whose name it is. So no concern there Colin.
Right. Blair, you had a question about RESPs we were talking about before the recording.
Well, yeah, I mean, it was yeah, it was kind of nice you brought that up, you know RESPs are obviously a very important part for not only younger families, but growing families, kids going to school. Maybe talk a bit about, you know, we always go through family RESPs kind of having that group RRSPs compared to having a separate RESP for each child. And I guess really kind of what comes out, because it's kind of a combined the end of the day, a combined income, but all of a sudden child one's starting university. It's expensive. And, you know, you're taking it is going to be enough left for child three and how that's calculated.
Yeah, a big fan of the family plan. I set up a family plan, you know, twenty years ago. My daughter is now 19. She's in her second year of school. It's working fantastic. So I'm very happy. I have all three kids on the same plan. The kids are only two years apart each. Right. So in six years, I guess four years, really, they're all two years apart. So I think RESPs worked very well for families. I would keep one family plan if the kids are relatively close in age, relatively close meaning like under ten years, I would say from oldest to youngest, because they're all within ten years. It makes sense because really these RESPs can last for thirty five years. That's more than enough time for your kid to graduate medical school. So, you know, I'm not worried about it in terms of running out of time where we see second marriages, where we see kids, where there's a big age gap, that's when you want to start another plan for that new young kid or that kid of the second marriage, etc. third marriage, whatever it is, because then you could run out of time before they're ready to go to school or finish medical school or whatever. You're up at the thirty five. You're thirty nine. You're actually thirty nine years I think. Thirty contribute for thirty five to thirty nine. So a lot of flexibility. That wasn't always the case. Right. That's recently. But in terms of the hodgepodge of money, that's the part I like the best, because the only requirement for these family plans is that no, not more than seventy two hundred dollars of grants can be paid to any one child. So like other than that, it's game on. Like, you can do whatever you want. So you don't have to ever give money to kids two and three. If you want to give all the money to kid one great. It's family plan, you're the controller. The only restriction is that kid A cannot get more than seventy two dollars of grants. So once you've taken out EAPs, in which case they do proration based on totally EAPs to total grants, once they receive more than that, those grants can't get paid to that kid. So the end of the day could be stuck paying back some grants. If you have the kids going to school, but you have such flexibility. Remember, the contributions are your money as the parent. You always get your money back, right? So if you put in fifty thousand dollars for three kids, that's one fifty. That's the parent's money. You can do whatever you want with that money. It's only the income and the growth that's used for education and the grants. So I love the family plan. It gives me enormous flexibility. Now, I might I do have a spreadsheet where I am tracking how much I'm spending on kid A and then how much I want to spend on kid B, because I want to be fair, not to give one kid a disadvantage over the other and start applying for student loans, but I don't have any legal obligation to do so. So I love the family plan.
Hey Jimmy, we actually do have a question coming in, and I think you spoke to it, I think it's a bit more of a clarification. But sorry, let me just the question is, you mentioned loaning money to a child with the current one percent prescribed rate to be taxed in their hands. All they see is their concern and then manage it properly. But is there a minimum age you could provide a loan to a child that have those gains taxed in their hands?
So, again, I would never do a loan directly to a child if they're under the age of majority. I think it's 18 in Alberta is that right?
Yeah, so if they're under 18, I wouldn't give a loan directly. I would do a lawyer, do a family trust because you don't want children entering into binding contracts that they are going to sue you if something goes wrong. So at the end of the day, I don't want to do loans to minors. There's legal issues with that and we strongly discourage it. The strategy still works. You can do it with a two year old. We've got clients doing this to pay for their families' nanny for their two year old and their four year old and all their preschool and all that stuff. Right? So I would do it for a family trust. If you want to do a direct loan to a child, make sure that child is at least 18 years of age and has the ability to sign for that loan.
I don't think I'll be giving my 17 year old any money in the form of a loan or a gift, because I know that it will go away quickly. Are there any final points you want to make before we wrap it up for today, Jamie?
Well, I think the most important thing to remember is that we just scratched the surface today. I went super fast and I don't expect anyone to even remember anything. I want people to understand that just there are things that can be done. So they should book an appointment, come and talk to us. They are not going to charge you. Just come in and we'll go through the strategy. We can sit down and go through this deck with the one page at a time. In other words, make an appointment. Let's talk to you. We can do it virtually, be doing whatever you want, but there's lots of great ideas here. I give you at least seven or eight different ideas. There's got to be at least one thing that applies to every single client that's on the call. So I think it's a wonderful opportunity to really engage. Now is a great time to get ready for 2021. Last year is already history. We're already filing our returns. It's not much you can do. Claim some home office expenses. Good for you. You already paying those expenses. That's historical. What are you going to do in 2021 to be able to reduce the amount of tax that you pay and effectively save for retirement, kid's education and the future.
Excellent, excellent. Well, that's great, thanks. Thanks again, Jamie. We really appreciate it. And we're looking forward to I'm going to have you back on the Free Lunch podcast at some point in the in the near future and encourage everybody that joined the call to take advantage of those resources. And Blair and I were talking before the presentation that it really all comes down to planning. What kind of planning have you done? What kind of planning can you do? So please reach out to us. We're always happy to talk about this stuff with with all clients we deal with and friends and family members of those people to get a lot of questions. So thanks, Jamie, and thanks, everybody, for joining us.
Yeah, thanks, Jamie.