Archive for the ‘insurance’ Category

Everyday on the news we are reminded that the Canadian health care system is in a state of crisis.  Those who have family or friends on long-term care waiting lists or in a facility already,know that the situation is becoming desperate.  The shortage of long-term care beds is so severe hospital beds, already in short supply, are occupied by those awaiting transfers to long term care facilities. Often that wait can last years.  Even 20 years ago when my great grandfather waited for placement in suitable facility given he had Alzheimer’s, the wait was over a year.  That was 30 years ago, today the situation is far far worst!

With growing pressure from an ageing population, the system simply cannot handle the increasing burden. Consider this:

  • In 1900, 7% of all adults were over age 65
  • Currently, 17% are over age 65
  • By 2020, over 23% will be over 65
  • The number of Canadians aged 80 and over will double in the next 20 years – and triple in the next 40 years
  • The number of seniors in Canada has increased by one million in the last decade
  • By the year 2036, it is expected that there will be between 4.6 million and 5.1 million seniors with disabilities
  • By 2020, there will be as many seniors as children!

Currently we are spending $4.1 billion each year on Alzheimer’s and dementia. In 20 years, the number of seniors afflicted with some form of dementia will more than double, to 750,000.  With an ageing population comes the increasing costs.

Our medical system is already unable to deal with this. Even in general, the system is overburdened.  Have you had wait in an Emergency Room lately?  How about wait for an appointment with a specialist?  Or how about the dreaded surgical wait list?  Do to the increased demand and pressures there has been a shift towards “less costly” community-based care and a dramatically increase in the demand for home care.  At the same time the average number of home care hours you might have received a few years ago has dropped from over 20 hours per week to just 2-4 hours per week!

Again, those of us who have elderly parents and friends might be forgiven for feeling somewhat cynical about the current debate surrounding two-tier medical services. When it comes to long- term care for our loved ones, it is readily apparent that a two-tier system is already well entrenched. In short, the services are available, if you can write the cheque.

So…what are the chances that you will need long term care? It’s true, we are living longer – in fact, in 1996, life expectancy at age 65 was 18.4 years, 5 more than in 1941. But the other side of the coin is that of those 18 years, on average, 9 are relatively healthy, and the other years include 3 years each of slight, moderate, and severe disability. In fact, it is estimated that at least 40% of all people over 65 will need some form of long-term health care services.

Traditionally, we have counted on the government to provide for our medical needs, but when it comes to long-term care, you can expect the following from our medical system:

  • Long waits, up to three or four years just to get into a facility,
  • Outdated and overcrowded facilities,
  • An annual financial assessment, to determine the level of subsidy received,
  • No choice of location, both in terms of which facility and which community! (You could end up in a town awy from friends and family)
  • Reduced services.

The combination of high cost for private home care or facility care and public care or financial assistants being based on an analysis of your financial means… You could find your retirement savings liquidated in a few short years.  Consider the following:

  • Current home care costs about $30 per hour, and up to $50 per hour for some services
  • Even a government facility will cost you from $750 to $1500 per month, in addition to the subsidy
  • Private facilities range from $2500 to $7000+ per month! And don’t forget, this is the cost per person, not per couple.

There is an option to help protect your choices and your finances.  Long-term care insurance covers virtually all of the expenses of long-term care, either in your own home or in a facility, for periods ranging from a few years to lifetime coverage.

Those of us involved in financial planning, long-term care insurance may be the most important financial tools available to Canadians.   Long term care insurance may be the only option to protection us from the loss of our lifestyle, our independence, and our control over our health and finances.

As I once heard it so eloquently put , “Most people want to choose where they go, instead of having to go where they are taken…”

How do you determine the amount long term care insurance you need, given the future is so unpredictable?  Simply buy as much as you can afford.  The demand for and costs of are going to increase and increase a lot!

Dollar cost averaging

Dollar cost averaging is a technique designed to reduce market risk through the systematic purchase of securities at predetermined intervals and set amounts. Many successful investors already practice without realizing it. If you participate in a regular savings plan, you are already using this tool. Many others could save themselves alot of time, effort and money by beginning such a plan.

 Dollar cost averaging can lower an investor’s cost of investment and reduce his risk of investing at the top of a market cycle.

The beauty of dollar cost averaging is that you buy more shares when prices are low and fewer shares when prices are higher. The result is an average cost that is better than trying to time the market with your investments.

What is Dollar Cost Averaging

Instead of investing all his money at one go, the investor gradually builds up a position by purchasing smaller amounts over a period of time. This spreads the average cost over the period, therefore providing a buffer against market volatility.

In order to begin a dollar cost averaging plan, you must do three things:

  1. Decide exactly how much money you can invest each month. To be effective, you should have sufficient funds to continue investing through the market cycle.
  2. Select an investment (index funds are particularly appropriate) that you want to hold for the long term, preferably five to ten years or longer.
  3. At regular intervals, weekly, monthly or quarterly, invest that money into the security chosen.

An example of a Dollar Cost Averaging Plan

Here’s how it works. The principle is simple: Invest a fixed amount of money in the market at regular intervals, such as every month, regardless of whether the market is up or down.

Let’s assume you have $12,000 and you want to invest in a stock. You have two options: you can invest the money as a lump sum now, walk away and forget about it, or you can set up a dollar cost averaging plan and ease your way into the stock.

You opt for the latter and decide to invest $1,000 each month for one year. Assume further that the stock started at $10 per unit and reaches $16 per unit a year later.

Had you invested your $12,000 at the beginning, you would have purchased 1,200 shares at $10 each. When the stock closed for the year in December at $16, your holdings would only be worth $19,200!

Had you dollar cost averaged into the stock over the year, however, you would own 1,643 shares as shown in Table 1; at the closing price, this gives your holdings a market value of $26,228.

 

Why Dollar Cost Averaging Works

The system works because it takes the emotion and temptation to time the market out of the process. You establish an amount that is comfortable for you to invest and let the market work for you. The system takes the decision-making elements of how much to invest and when to invest out of your hands. Dollar cost averaging solves this problem by eliminating the need to predict an entry point.

Chart 1 shows what happens when you invest $1,000 per month for twelve months in an investment that fluctuates in price. The average market price per unit is $8.08. Look at Table 1, your average cost per unit = $12,000/1,643 which is approximately $7.30. Thus, the example shows that you don’t have to guess when to purchase shares to get a better price.

Will dollar cost averaging guarantee you a profit? No system can do that. However, if you buy quality investments and continue dollar cost averaging over a long period, you will have a much better chance of success than trying to get in and out of the market at the right times.

Buy Low, Sell High

For long-term investors, dollar cost averaging is a powerful tool that takes much of the emotion out of investing and lets the market work for you. One of the major problems facing individual and professional investors alike is determining when to buy a particular stock or, in other words, how to find the bottom of a price swing. The problem is that no one is consistently correct in calling this point on individual stocks and certainly not on the whole market. If you miss this point and the stock begins to move up, you have lost some of the potential gain by not buying at the right point. Very few people buy at the bottom. Those who do, typically happen to have been averaging all the way down.

Market timing is a dangerous game, especially when practiced by beginners, who typically tend to over expose themselves to the market. Market timing is an attempt to predict future price movements through use of various fundamental and technical analysis tools. The real benefit of knowing what is going to happen is that your return from buying a stock before it takes off is better than if you had bought the stock on its way up.

Market timers are the ultimate “buy low and sell high” traders. Day traders, who move in and out of positions in minutes or hours, are the extreme market timers. They look for small profits by the dozens each day by capitalizing on swings in a stock’s price.Most market timers operate on a longer time-line, but may move in and out of a stock quickly if they perceive an opportunity.

There is some controversy about market timing. Many investors believe that over time you cannot successfully predict market movements. Market timing becomes more of a gamble in their opinion than a legitimate investing strategy.
Market Timers and the Next Big Thing

Some investors argue that it is possible to spot situations where the market has over or under valued a stock. They use a variety of tools to help them predict when a stock is ready to break out of a trading range. Usually, the market proves them wrong. Stock prices do not always move for the most logical or easily predictable of reasons.

An unexpected event can send a stock’s price up or down and you cannot predict those movements with charts. The Internet stock bull market of the late 1990s was a good example of what happens when investors in the excitement of the moment, consciously or not, overpay for their investments. Those who bought then are not likely to have made much money.

Everyone has a hot tip about the next “big thing” and investors are always jumping on stocks as they shoot up. Unfortunately, most of these collapse just as quickly as many investors typically hold on way too long. The disastrous result is usually the exact opposite of what they were hoping for. In the end, it is usually a case of “buying high and selling low”. For most investors, the safer path is sticking to investing in solid, well-researched companies that fit their requirements for growth, earnings, income, and so on.

In conclusion, dollar cost averaging takes the emotion out of decision-making and is a useful tool for the individual investor who wants to buy and hold a stock for the long term. Over time, it will usually result in a better entry price than timing when to buy.

If you look for undervalued stocks, you may find one that is poised for moving up sharply given the right circumstances. This is as close to market timing as most investors should get.

Estate planning: 10 things you need to know – Moneyville.ca.

Talking to your family about estate planning now can save trouble later after you're gone.

Many Canadians haven’t taken the most basic estate planning step which is writing a Will. They should.

Without a Will, your estate doesn’t automatically go to your spouse and children, but ends up being distributed according to the rules of your province For example,Ontario’s rules differ from those in Quebec and Manitoba. In addition, without proper planning, almost half the value of your assets could disappear to cover capital gains taxes and probate fees.

Here are 10 steps that can help ensure your final wishes are carried out simply and smoothly.

#1: List your assets

The first thing is to figure out what you have. So prepare an inventory of your assets. A net worth calculator can help you through the process.  The list should include your home, vacation properties and investments such as RRSPs or RRIFs. It should also include bank accounts, pensions, personal property like cars, boats or jewellery and the value of any insurance policies.

You should also list any debts that relate to these assets – such as loans or mortgages – and record the account numbers and institutions where the debts are held.

#2: Who gets your stuff?

Once you have a picture of what you have, you can figure out how to distribute it. In addition to family members, you may also wish to recognize other people and charitable causes as part of your legacy. In the case of charitable donations, a professional advisor can help you structure these to maximize their value for the recipient and for your estate.

Read the rest of the list…. Estate planning: 10 things you need to know – Moneyville.ca.

Five Risks to Future Income

Longer life spans mean cash flow assumptions need to change

Filed by Staff, editor@Advisor.ca , Aug 7, 2012

In a recent speech at the Canadian Institute of Financial Planners annual conference in Ottawa, Peter Drake, vice president, Retirement and Economic Research, Fidelity Investments Canada ULC called attention to the new retirement realities facing Canada’s baby boomer generation and highlighted the importance of taking account of the five key risks to retirement income as part of the retirement planning process.

Drake emphasized that the conventional wisdom about retirement planning needs to be adapted to suit the new environment faced by today’s Canadians who are retired or about to retire. He pointed out that financial advisors can play a crucial role in helping Canadians understand that their retirement planning choices must not only reflect the longer lives we are now living and the volatility of capital markets, but also changes to Canada’s retirement income system.

via Five Risks to Future Income | Canadian Capital.

via U.S. best tax haven of all, author tells Canadians | MoneySense.

Forget the turquoise waters and white-sand beaches of offshore tax havens. Take your hard-earned Canadian pension and head stateside. That’s the advice Robert F. Keats has for snowbirds in his latest book, “A Canadian’s Best Tax Haven: The U.S –Take Your Money and Drive!”Thumbnail Image

Roughly 1,000 baby boomers retire each day in Canada and too many of them don’t know how to protect their money, according to Keats, a dual citizen and president of cross-border wealth management firm KeatsConnelly.

“Snowbirds are getting the wrong advice with respect to taxes, medical coverage and immigration,” he recently told MoneySense.

While it’s true that anyone with a sizeable RRSP or corporate pension could see upwards of 40% of their nest egg gobbled up by federal and provincial taxes once they begin withdrawals, relocating to the Caymen Islands or the Bahamas isn’t the answer.

Traditional tax haven islands aren’t havens at all for high-net worth Canadians, Keats said. The idea that you’ll keep more of your money on a tropical island is a “myth.”

Read the rest…. U.S. best tax haven of all, author tells Canadians | MoneySense.

Buyer Beware: The Dangers of Greed and Fear:

When the economy (and financial markets) are at its extremes, either doing extremely well or extremely poorly, dangerous financial products and ideas become more prevalent.

Portus, Eron Mortgage Corp, Shire International Real Estate Investments, and Arbour Energy and just a few Canadian examples. The one common denominator they share, is they all are categorized as Exempt Market Securities.

What are Exempt Market Securities?

…when companies (issuers) sell securities such as stocks, options, or bonds, they are
generally required to file a prospectus. This document contains material facts about both the issuer and the security. However, in certain cases securities can be sold without a prospectus and these investments are called exempt securities; the sale is called an exempt distribution or a private placement.

What should I know about Exempt Market Securities?

These investments are not for everyone. A prospectus is meant to ensure an investor has key facts to be able to make an informed decision. Without it, you may be taking a greater risk with your money. Be aware that:

  • If you buy an exempt security, you may not have the same legal rights as you do under a prospectus.
  • Most exempt securities are subject to resale restrictions. This means you may not be able to sell them for a certain period of time.
  • Even if no resale restrictions apply, there might not be a market for the securities you purchased, either because you would not be able to find any purchasers or they may not qualify to purchase the securities.
  • Some exempt securities are not liquid. Liquidity means that you can sell an investment in a short period of time and turn it into cash. Some exempt securities, such as hedge funds, may require longer periods to redeem.
  • Because these investments are bought without a prospectus, there may be very limited information available on which to base your investment decision.
  • When an issuer sells its exempt securities, it may not use a registered dealer as an agent. This means, when you buy from an issuer, you may not get the same protection you would get when you buy from a registered dealer.

–from a release by the Nova Scotia Securities Commission and circulated by the other regulators

A disclosure document put out by the BCSC includes this simple explanation:

They are called exempt market securities because two parts of securities law do not apply to them. If an issuer wants to sell exempt market securities to you:

  • The issuer does not have to give you a prospectus (a document that describes the investment in detail and gives you some legal protections), and
  • The securities do not have to be sold by an investment dealer registered with a securities regulatory authority.

There are restrictions on your ability to resell exempt market securities.Exempt market securities are more risky than other securities.

Disclosure documents (be it a Prospectus, when regulated by the Securities Act, or a Policy Contract/Information Folder, when regulated by the Insurance Act), exist for a reason, To protect the investing public. There is no evidence proving the absence of disclosure documents increases potential return, but it is well known to increase risk.

Policy Contracts and Prospectuses are the financial world’s equivalent to seat belts. Hopefully you won’t have to depend on them in a life or death situation. The best option for most regular folks is to just avoid these dangerous investments. Just like it is always advisable to wear your seat belt.

Before trading in your home for an even larger one, ask yourself if you are truly ready for the super-sized financial commitment and the sacrifices that often come with it.

via Wealth: A new way to look at “How much house can I afford?” | MoneySense.

There are two very different ways to answer this question. The first is the traditional way—the way the lenders and realtors answer it: Based on your down payment, income and expenses, how much can you afford to put to a mortgage each month, and therefore how much can you borrow? Lenders are incented to encourage debt because, provided you don’t default, the more you borrow, the more they make. Realtors have a similar motivation because the more house you buy, the higher the commission.

[more…]

Insurance you shouldn’t buy | MoneySense.

 

Having insurance falls under Gail Rule #4: Mitigate Your Risks. But “the right kind” of insurance is often confusing for folks. So here are three types of insurance you should skip and save your money.

Mortgage life insurance
If you have a mortgage you’ve no doubt been offered mortgage life insurance by your lender. Don’t buy it. It’s expensive. It’s single-purpose. And it can be denied down the road, since it isn’t “approved” until you try to make a claim, which is not when you want to find out you aren’t covered.

Read more at moneysense.ca Insurance you shouldn’t buy | MoneySense.