{"id":1178,"date":"2023-07-06T15:23:24","date_gmt":"2023-07-06T15:23:24","guid":{"rendered":"https:\/\/advisor.wellington-altus.ca\/wagner\/?p=1178"},"modified":"2023-07-13T20:56:07","modified_gmt":"2023-07-13T20:56:07","slug":"summer-2023-newsletter-the-wagner-investment-management-team","status":"publish","type":"post","link":"https:\/\/advisor.wellington-altus.ca\/wagner\/2023\/07\/06\/summer-2023-newsletter-the-wagner-investment-management-team\/","title":{"rendered":"Summer 2023 Newsletter \u2013 The Wagner Investment Management Team"},"content":{"rendered":"

Download this PDF here.<\/a><\/p>\n

The Future Looks Bright, Indeed!<\/h4>\n

It has been said that millennials \u2014 those born from 1980 to 1994 \u2014 were the first generation worse off than their parents financially. Skyrocketing housing prices, a higher cost of education and a challenging economy, among others, were to blame. And while things didn\u2019t look so great for the millennials a decade ago, recent studies suggest a different story.<\/p>\n

Millennials have caught up to previous generations and are expected to thrive. As they begin turning 43 this year \u2014 the average age when we \u201cstop feeling young\u201d \u2014 their household income is higher than previous generations at the same age: $9,000 more than the median GenX (1965 to 1979) household income and $10,000 more than the Boomers (1946 to 1964), in 2019 dollars.1<\/sup> While these are U.S. figures, a recent Canadian study paints a similar picture of a more highly-educated younger population, which has contributed to their success.2<\/sup><\/p>\n

The future may look bright, after all. As they enter their peak earning years, millennials will continue to support the economy, including in investing. Today, millennials hold just 2.3 percent of total U.S. stock and funds,3<\/sup> a trend that is likely to change as greater wealth is accumulated and assets are invested to meet their future goals.<\/p>\n

This narrative isn\u2019t unique; every generation has had its challenges. GenX entered the job market during a recession and was subjected to \u201cdire predictions\u201d about their economic futures. This was just 30 years ago, in 1993, when Joe Carter\u2019s home run would win the Blue Jays their second consecutive World Series. It was a challenging economic period. Canada was emerging from a recession described as \u201cthe deepest since the Great Depression.\u201d<\/em> Unemployment had soared to over 11 percent after interest rates were aggressively raised to fight inflation.4<\/sup> Then-Prime Minister Mulroney would end up resigning after his popularity fell from imposing the then-seven percent GST two years earlier. Canada\u2019s future economic prospects looked bleak for the near term: An editorial to start 1995 referred to \u201cBankrupt Canada\u201d<\/em> as \u201can honourary member of the Third World.\u201d<\/em>5<\/sup> Yet, the years that would follow would be in significant contrast. Canada would post consistent budget surpluses to end the 1990s (a concept foreign to many governments today), and GDP growth would surge.<\/p>\n

Indeed, time can be the great equalizer. Economies are cyclical, and the rebound of the 1990s \u2014 and the millennials \u2014 should remind us not to get too caught up in the present. This, too, may be true in investing. Consider that an investment of $100,000 in the S&P\/TSX Composite Index during this seemingly bleak period 30 years ago would have grown to $628,273 today, or $1,318,767 with dividends
\nreinvested.6<\/sup> However, participating in this growth required having confidence in the prospect of better days ahead.<\/p>\n

While the summer is the season for well-deserved downtime, make sure that your assets are working hard for you \u2014 money needs no vacation. Keep time on your side. Continue looking forward and positioning your assets for the brighter days ahead!<\/p>\n

[1] www.wsj.com\/articles\/millennials-turning-40-feeling-old-1df2c83b; www.theatlantic.com\/magazine\/archive\/2023\/05\/millennial-generation-financial-issues-income-homeowners\/673485\/<\/a>; [2] www.desjardins.com\/content\/dam\/pdf\/en\/personal\/savings-investment\/economic-studies\/canadian-youth-education-employment-17-april-2023.pdf<\/a>; [3] U.S. Federal Reserve, \u201cDistribution of Household Wealth in the U.S. Since 1989,\u201d at Q4 2022; [4] www.bankofcanada.ca\/2001\/01\/canada-economic-future-what-have-we-learned\/<\/a>; [5] www.reuters.com\/article\/us-crisis-timeline-idUSTRE7AK0FF20111121<\/a>; 6. S&P\/TSX Composite and Total Return Indices, 01\/29\/93 to 1\/31\/23 (3,305.47 to 20,767.40; 6,124.83 to 80,772.20).<\/p>\n

PLANNING AHEAD
\nHas the Hot Housing Market Changed Your Outlook?<\/em><\/h4>\n

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After a slowdown that lasted almost a year, largely blamed on rising interest rates, the spring brought a revival to Canada\u2019s housing market. Supply fell to a 20-year low to start the residential sales season, which helped to push prices higher. Will the rebound continue? For many investors, the significant gains in housing prices over the past decade have changed the way we plan for retirement. Here are two challenges:<\/p>\n

1. Relying on home equity in retirement.<\/strong> Sometimes a home\u2019s value may be viewed as a potential source of retirement income, but we often suggest exercising caution for a variety of reasons. While your home equity certainly counts as part of your net worth, the main way it can be turned into investable capital is through its sale. Of course, loans such as a home equity line of credit (HELOC) grew in popularity when interest rates were at historical lows, but the significant cost of interest payments as rates have risen should not be overlooked. For those who wish to sell their homes, one pitfall is failing to consider the \u201ctrue\u201d value of a home. Future real estate values are never guaranteed, and there are often unanticipated costs associated with a sale, such as renovations or maintenance. At the end of the day, you still need a place to live, and this may be more costly than anticipated. Still, others eventually find that selling a lifelong home ends up being too emotionally difficult. There are exceptions: some choose to become renters; others retire abroad to more affordable destinations. However, even in these circumstances, planning for contingencies is important \u2014 you may be unable to find a suitable long-term rental property, or perhaps you will eventually decide to move back, such as to access Canada\u2019s healthcare system.<\/p>\n

2. Supporting future generations to buy a home.<\/strong> With the cost of home ownership becoming increasingly out of reach, many have been assisting children\/grandchildren. By some accounts, the average gift in the two most expensive markets, Toronto and Vancouver, ranged from $130,000 to $180,000, with some gifts in excess of $300,000.1 Given these substantial amounts, it is important to carefully factor in how financial support may affect the gifter\u2019s own retirement plans \u2014 a recent survey suggests that 34 percent of parents are using their retirement savings to help adult kids.2<\/sup><\/p>\n

Consider also the different ways to provide support, such as purchasing a property in your name, gifting cash or lending funds to the child. Each comes with various tax and family law issues. For example, if the home is not designated as a principal residence, there may be a future capital gain payable upon its sale or disposition. Or, if the child is married\/common-law, what happens if there is a marital breakdown? We recommend seeking the advice of tax and family law professionals.<\/p>\n

These are just two of the challenges that may impact retirement planning. For a deeper discussion, please get in touch.<\/p>\n

[1] www.theglobeandmail.com\/investing\/personal-finance\/article-parents-gave-their-adult-kidsmore-
\nthan-10-billion-to-buy-houses-in\/; [2] www.theglobeandmail.com\/investing\/personal-finance\/<\/a>
\nyoung-money\/article-nine-in-10-parents-are-helping-their-adult-kids-financially-heres-how\/<\/p>\n

The $10-Billion Bank of Mom and Dad<\/h4>\n

$10 Billion: According to one estimate, that\u2019s how much parents gave kids in 2021 to fund a down payment on a home.1 Back in 2015, the average gift was $52,000; in 2021, it was closer to $82,000, an increase on average of 9.7 percent per year.1 One personal finance expert suggested we may be at a \u201ctipping point for parental obligation.\u201d Is this the new normal, where parents now plan for this expense alongside their own retirement?<\/p>\n

BEHAVIOURAL FINANCE & INVESTING
\nTake a Vacation from Checking Your Portfolio
\n<\/em><\/h4>\n

An article in the Washington Post offered a different perspective to the view that kids these days get too much screen time. There\u2019s another demographic struggling to put down their devices: baby boomers. As one man put it: \u201cMy 75-year-old dad\u2019s phone may as well be an implant; he lives with it like a teenager!\u201d1<\/sup> Of course, this has implications for our investing ways. With easy access at our fingertips, we may all be guilty of checking investment accounts too frequently. This summer, why not take a vacation from checking your portfolio? Here are some reasons why:<\/p>\n

The more you check, the greater likelihood of seeing negative performance.<\/strong> History has shown that by checking the stock market daily, the chances of seeing a negative return are 46 percent. However, this reduces to 0 percent for 10-year rolling monthly returns. As the graph (right) reminds us, the longer you extend your time horizon, the better the chances of seeing positive returns.<\/p>\n

Emotions can impact our investing decisions.<\/strong> Behavioural finance suggests that we feel losses twice as acutely as we feel gains of a similar size. \u201cMyopic loss aversion\u201d can occur when we react too hastily to avoid these losses, often making decisions that are not in our longer-term best interests. One important variable for investing success is how long you can stay invested. As Warren Buffett\u2019s business partner Charlie Munger often says: \u201cThe big money is not in the buying or selling, but in the waiting.<\/em>\u201d<\/p>\n

Investing often involves patience.<\/strong> When the S&P 500 Index hit a level of 4,200 in May (rising 20 percent from its October trough), some market pundits asked: Is this the start of a new bull market? While the S&P\/TSX Composite hasn\u2019t officially entered a bear market, the S&P 500 has been in a bear market since last year. Over the past 50 years, there have been six S&P 500 bear markets that lasted on average 15 months from peak to trough. In order to regain those losses, it took an average of 30 additional months.2<\/sup> After the last bear market \u2014 the shortest ever at a mere 33 days during the pandemic \u2014 we may have been conditioned to believe the markets quickly rebound. Yet, enduring bear markets can often take time. The good news? Markets are cyclical: history reminds us that they\u2019ve always recovered to reach new highs.<\/p>\n

[1] www.washingtonpost.com\/technology\/2022\/11\/12\/boomers-screentime\/<\/a>; [2] Based on: awealthofcommonsense.com\/2023\/03\/why-the-stock-market-makes-you-feel-bad-all-the-time\/<\/a><\/p>\n

Chart: How Often is the S&P\/TSX Composite Positive?<\/strong><\/p>\n

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A POTENTIAL INTERGENERATIONAL WEALTH TRANSFER TOOL
\nFHSA: Opportunities for High-Net-Worth Investors
\n<\/em><\/h4>\n

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The First Home Savings Account (FHSA) is a registered account that offers significant tax-savings and growth opportunities, intended for the purchase of a first home. Eligible Canadian residents ages 18 or older who are first-time home buyers can contribute up to $8,000 per year, to a lifetime maximum of $40,000. Contributions are tax deductible, similar to the Registered Retirement Savings Plan (RRSP), and withdrawals are tax free, similar to the Tax-Free Savings Account (TFSA), if used to purchase a first home. The FHSA can generally stay open for 15 years (or until the year after the first qualifying withdrawal or the holder reaches age 71).<\/p>\n

Beyond the opportunity to support those purchasing a first home, the FHSA may provide opportunities for high-net-worth (HNW) investors:<\/p>\n