Words on Wealth. Welcome to the winter edition of Meridian s Words on Wealth. Meridian W INTER 2015

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1 Meridian Words on Wealth W INTER 2015 Welcome to the winter edition of Meridian s Words on Wealth. The holiday season has passed, which can only mean one thing: it s time to turn (at least some of) your attention to registered retirement savings plan contributions and deciding what investments are right for you. Aligning your investments with your goals is a great way to start the year and to stay on track for the long term. This issue features different ways to make contributions to your retirement accounts easier, reduce stress and give you more time for the other important things in your life. We also have a great interview with Peter Drake, Vice President of Retirement and Economic Research at Fidelity Investment Canada, with an update on the current state of retirement and retirement planning in Canada. Read on and get ready to make 2015 a year to remember! HOT TOPICS FINANCIAL ADVICE INVESTMENTS EXPERT S The year Contributions in review made easy Index-Linked GICs 6 CORNER Reconsidering retirement risk What happened when and where The how, the why and the benefits We have what you're looking for An update from Peter Drake

2 Words on Wealth HOT TOPICS The year in review A year of big changes for economies and financial markets It s good to start the year thinking ahead and planning for what comes next. But before we get too far along, let s take a moment to reflect on the economic and financial market news that impacted all us Canadians. Canada and oil If we re going to talk about Canada in 2014, we have to discuss oil. Last year, the price of oil went down way down. After spending the first half of the year at around US$100 per barrel, the price of crude oil began to slip, and, after the Organization of the Petroleum Exporting Countries (OPEC) announced that it would not reduce its output, oil plummeted to below US$55. US$100 US$55 Mixed markets abroad Five years ago the U.S. economy was in trouble. High unemployment and a collapsing housing market sent ripples of concern around the globe. How times have changed! By the end of 2014, the U.S. had proven once again that it is an economic powerhouse, with housing improving and unemployment figures continuing to drop. Conversely, European governments and central banks tried their hardest to boost that region s economy to no avail, as high unemployment and low productively plagued Europe. China s slowing economy was also in the news throughout While it is true that China s economy didn t grow as much as it had in the recent past, let s remember that it still grew at around 7.5%! We learned that there was a paradox of oil in Canada. Although collapsing oil prices hurt our stock exchange, they also led to dramatic savings at the pumps for Canadians. Thinking longer term, low energy prices also help manufacturers and farmers who depend on gas and oil to produce their goods. Despite the fall of oil prices, the Canadian stock market posted a gain over the year. Diversity in your portfolio As you can see, there was a lot of uncertainty in 2014, which may continue into That s why it s important to ensure your portfolio is well diversified. Who better to help you diversify your savings then your partners at Meridian? Stop by your local Meridian branch today to speak to your Meridian Wealth Advisor. 2

3 WINTER 2015 FINANCIAL ADVICE Contributions made easy Pre-authorized contributions (PACs) are an effective way to build your wealth Average RRSP contribution for the 2013 tax year* 2013 $3,518 You know it s wise to contribute each year to a registered retirement savings plan (RRSP), since you receive a nice tax deduction and your money grows on a tax-deferred basis. Then, seemingly out of nowhere, comes the RRSP deadline and you find yourself short of cash to make a lump-sum contribution. Sound familiar? Many Canadians go into RRSP season with good intentions but don t have the funds for a significant contribution. While it s best to contribute the maximum amount allowable, whatever contribution you can make will provide a tax benefit and help you save for retirement. Of course, you can change your future monthly contribution amounts as your financial circumstances change (e.g., you get a raise or bonus), which is a good idea to both boost your savings and ensure that your savings plan and goals are still aligned. It also helps you keep pace with inflation, which can erode your purchasing power over time. You can also adjust the frequency (e.g., from monthly to semi-monthly). With a PAC plan, you invest regularly and will never have to worry about lump-sum payments. It s a convenient, disciplined way to save. *Source: Pollara/BMO online survey, November Pre-authorized contribution plan Using a PAC plan is an easy way to invest in your future. Here s how it works. Let s say you budget for a $7,000 RRSP contribution. When you set up a monthly PAC plan, you will invest $ per month, and it s all done automatically so there s no fear of forgetting to make a contribution. 3

4 Words on Wealth Another reason to use PACs Since PACs let you invest a set amount at regular intervals, you may also benefit over the long term from dollar-cost averaging (DCA). With DCA, you buy fewer units when the fund price goes up and more units when the price goes down. Consider a $500 per month investment in a mutual fund (see example below). For this example, in two of three months your average unit cost is lower than the actual price. Sure, if you lucked out and made a lump-sum investment in April, your per-unit cost would be lower, but the strategy behind DCA is to avoid the risk of market timing. PACs are not only for RRSPs PACs are suitable for any type of regular investment, including tax-free savings accounts (TFSAs) and registered education savings plans (RESPs). At least once a year, it s a good idea to review all of your accounts to see how a PAC might make life a little easier and to help you reach your goals. Please contact me to discuss how a simple PAC plan can help you invest on a regular basis. Benefits of dollar-cost averaging Contributions Unit price of mutual fund Number of units purchased March $500 $ $ April $500 $ $ May $500 $ $ Total contributions Average cost per unit Total units purchased $1,500 $6.86* $ * Average cost per unit is calculated as total contributions/total number of units purchased. In this case, $1,500/ = $

5 WINTER 2015 INVESTMENTS Introducing s 3- and 5-year terms No fees or commissions RRSP & TFSA eligible Protect your investment and access the growth potential of stocks Many Meridian Members want to save for their goals and benefit from stock market returns. There is, however, a certain amount of volatility that Members need to be comfortable with if they are going to invest in the stock market. That s because markets go up some days and go down others and these shifts can be unexpected and dramatic at times. What s a conservative (or new!) investor to do if they are looking for higher returns to achieve their goals? We ve got good news for you. We can put safety in the stock market with Meridian s. With s, you get to participate in the potential growth of stock market indices while your principal remains guaranteed. Deposits insured by the Deposit Insurance Corporation of Ontario (DICO) S&P 500 U.S. S&P/TSX 60 Canadian Index- Linked GIC Natural Resource Consumer Staples Index- Linked GIC 100% principal guarantee* You have seven different s to help diversify your portfolio: Invest in 500 of the largest companies in the U.S. Invest close to home with 60 of Canada s largest companies. Invest in commodities including copper, corn, oil, natural gas and gold. Invest in household brands that sell everyday necessities. If the underlying stock market index goes up, you benefit from those positive returns. If the market goes down, your initial investment is protected. With s from Meridian, you get protection and the potential for equity-like growth. If you want to add s to your diversified portfolio, please contact me today. Financial Services Health Care Global Markets Invest in some of Canada s largest financial institutions. Invest in pharmaceutical companies from across the globe. Invest in markets around the world. *At the bare minimum, your initial investment will be returned to you at the end of the term. 5

6 Words on Wealth EXPERT S CORNER Reconsidering Retirement Risk Changes in risk and your retirement plan THE EXPERT Peter Drake Vice President, Retirement and Economic Research, Fidelity Investments Canada Fidelity Investments is a sub-advisor of some Managed Solutions offered at Meridian, and one of Meridian s valued partners. Fidelity combines expertise in Managed Money Solutions and an understanding of key economic events to deliver a positive impact on investors and Meridian Members. Given the economic growth experienced in the past couple of years, we asked Peter Drake to update our Members on the issues facing those near and in retirement. In our winter 2012 Words on Wealth newsletter, you outlined the five risks of retirement as longevity, inflation, asset allocation, withdrawal rates and out-ofpocket health care costs. Have you seen any of those risks change over time? Much has changed, but many things remain the same. Longevity and out-of-pocket health care costs remain key risks to retirement. Asset allocation also remains a key issue as both pre-retirees and retirees look to equities to provide their required returns, while also holding enough fixed-income securities to manage volatility. Inflation now looks like it s less of a risk than it was two years ago, but over the course of a retirement which for many could be 25 years or longer inflation remains a significant threat. Even a small amount of inflation can severely damage your purchasing power over time. Finally, with withdrawal rates, we are seeing a move away from the set-and-forget process to one of more frequent adjustments involving the retiree's risk tolerance, time horizon and current market performance. 6

7 WINTER 2015 Roughly six years removed from the global financial crisis, do you think Canadian pre- and current retirees are more aware of how the global economy affects their current or future retirement income? In the years preceding the global financial crisis, the term risk was intrinsically linked to the notion of greater returns. Since the crisis, investors are now more aware of the downside aspects of risk in their portfolios and are adjusting for that. There is also something of a generational divide. Millennials, many of whom were coming of age during the crisis, have been shown to be much more risk averse than older cohorts of investors. Since the crisis, I believe that all investors, whether retired or not, have had a good lesson in how global economic events can impact retirement income. The result of this is that we are seeing many investors taking advantage of opportunities around the globe and diversifying some of their portfolios outside of Canada. When asked about planning for retirement, what is the number one piece of advice you tend to give people? My number one piece of advice is to think about your own retirement, not somebody else's retirement. Probably the greatest risk facing investors is failing to prepare adequately for what they want in their retirement. At the end of the day, every retirement is unique and you need to really look at your own situation. That means everyone should give a lot of thought to what they want in retirement and how they are going to get there. There is no better way to do that than by speaking to a financial advisor. Look for the conclusion of this interview with Peter Drake in our next edition coming in the spring 2015! HIGH INTEREST SAVINGS ACCOUNT Meridian s Good to Grow High Interest Savings Account offers a rate so high you ll be glad you compared. Open an account online, in branch, or call us at for a very different kind of banking. nofineprint.ca No minimums No fees to access your money RRSP & TFSA eligible 7

8 Words on Wealth WHY MERIDIAN WEALTH What does wealth management mean at Meridian? It means: Trust. Advice. Planning. As your trusted Meridian Wealth Advisor and your neighbour, I take the time to build a strong relationship for the long term, as well as to understand your unique needs. My goal is to translate where you want to go into an effective and achievable roadmap, and to find the right investment solutions to help you save, protect and grow your financial assets. Words to Ponder Before beginning, plan carefully. Cicero Here is how I look forward to building our relationship and your trust: I provide an unbiased, honest perspective, and my decisions are based only on your best interests. I have no bias toward any particular solution apart from the one that most effectively helps you meet your objectives. I ensure you clearly understand your wealth planning options and align your portfolio with the right solutions to help you reach your goals. We will review your finances together on a regular basis, and I will keep you well informed so you always feel knowledgeable and comfortable. I am committed to working with you to create and build the right approach for your family s financial security that is tailored to your needs, your objectives and your values. * Mutual funds are offered through Credential Asset Management Inc. Mutual funds, financial planning and other securities are offered through Credential Securities Inc. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Unless otherwise stated, mutual fund securities, other securities and cash balances are not insured or guaranteed and are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer that insures deposits in credit unions. Mutual funds and other securities are not guaranteed, their values change frequently and past performance may not be repeated. The information contained in this report was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete and it should not be considered personal taxation advice. We are not tax advisors and we recommend that clients seek independent advice from a professional advisor on tax related matters. Credential Securities Inc. is a Member of the Canadian Investor Protection Fund. Trademarks of Meridian Credit Union Limited. 01/15 meridiancu.ca