STYLUS Asset Management Investments: What You Need to Know
Agenda 1. Setting Investment Goals 2. Investment ABC s Asset Classes Return & Risk 3. Investment Vehicles 4. Investment Accounts 5. Taxation 6. Finding the Right Investment Manager 7. Power of Compounding
What is Investing? The act of committing money or capital with the expectation of obtaining income or profit.
Why Are You Investing? Identify your goals: Retirement Major purchase: house, cottage, trip, car Financial freedom
What Are You Investing For?
Planning Good financial planning leads to good investment planning! Personal Income Statement: How much do you currently spend? How much is left over to re-invest & build your wealth? Personal Balance Sheet: When do you want to retire (i.e. how long do you have to build your assets)? What lifestyle do you want in retirement & what will it cost?
The Investment Cycle Excess Cash Flow Personal Balance Sheet Personal Income Statement Cash Flow Income
The ABC s of Investing
What are Stocks and Bonds? A stock is a share in the ownership of a company. Stock represents a claim on the company's assets and earnings. A bond is a debt investment in which an investor loans money to an entity which borrows the funds for a defined period of time at a variable or fixed interest rate.
What Can I Invest In? Stocks Bonds Issuer Publicly traded companies Government, Publicly Traded Companies Issuer Objective Investor Objective Risk Liquidity through shared ownership Growth of share value; dividends Value of company goes down or bankrupt Access to cash by borrowing money Steady cash flow (i.e. Fixed Income) Issuer can t pay interest; defaults on loan Time Horizon Determined by investor Set maturity
Expectations: Stocks & Bonds 20 Year Average Annual Return Best Return Year Worst Return Year Annual Standard Deviation Stocks Bonds 6-8% 4-6% TSX: 46.8% (1933) S&P 500: 52.3% (1954) TSX: -37.2% (1931) S&P 500: -47.1% (1931) DEX Universe: 35.4% (1982) DEX Universe: -4.5% (1974) 14% 8%
S&P/TSX: The Last 50 Years 18,000 16,000 14,000 12,000 10,000 Time in the market, NOT timing the market is what matters. 8,000 6,000 4,000 2,000 0 1-Dec-67 1-Dec-72 1-Dec-77 1-Dec-82 1-Dec-87 1-Dec-92 1-Dec-97 1-Dec-02 1-Dec-07 1-Dec-12
Other Investment Assets Description Objective GIC (Guaranteed Investment Certificate) Short-term, low interest Preservation of capital Real Estate: Direct REIT (Real Estate Investment Trust) Commodities Private Equity Invest in a residential, commercial or industrial property Invest in a group of real estate holdings Gold, copper, etc Companies that are owned by a smaller group of investors; value is not public Cash flow & appreciation of real estate Cash flow & appreciation of real estate Gain from increase in commodity price Same as publicly traded equities = value of company goes up Cash High interest bank account Value doesn t go down
Investment Risks Market Risk of Loss Concentration Interest Rate Currency Inflation Liquidity
Investment Vehicles
Investment Vehicles Description Costs Pros / Cons Segregated Account Individual investments Transaction fees Pro: Can be customized Con: More work to manage; costs Pooled / Mutual Fund Index Fund ETF Hedge Fund Portfolio of individual investments managed with an overall objective Basket of investments which tracks the Index (holdings & weights) Basket of investments which tracks a subset of the Index Portfolio of investments with varying objectives; not all investments are buy low, sell high Management fees; Fund expenses; Sales charges (1% - 3.5%) Management fees; Fund expenses; Sales charges (0.5% - 1.5%) Management fees; Fund expenses; Sales charges (0.5% - 1.5%) Management fees; Fund expenses; Sales charges; Performance fees (1% - 5%) Pro: Diversifies risk Con: Results must be worth the expense Pro: Lower cost Con: Investor is at the mercy of the Index Pro: Lower cost Con: Investor is at the mercy of the Index Pros: Low correlation to long-only investments Cons: Higher risks
Equity Indexes An index is a collection of stocks that are used to represent a portion of an entire stock market and track that market s changes over time. Indexes are useful to investors to measure their investment portfolio against a specific index; allowing them to see how well their investments are performing. NORTH AMERICAN EQUITIES: Canada: 3,400 stocks Indexes: S&P TSX, S&P/TSX 60, S&P/TSX Venture Largest stock: Royal Bank, $147 (CDN) billion market capitalization US: 5,200 stocks Dow Jones, S&P500, NASDAQ, Russell 1000/2000 Largest stock: Apple, $872 (USD) billion market capitalization
Global Stock Markets The MSCI (Morgan Stanley Capital International) Indexes are used by many as benchmarks for global fund performance. The indexes are a tool to help investors measure global growth. MSCI World Index A collection of stocks from 23 developed markets throughout the world: Market Capitalization: $39 trillion (USD) Comprised of 1,652 stocks Participation by Weight: US 59% Japan 9% UK 7% France 4% Germany 4% Other 17% (of which Canada is roughly 3%) MSCI Emerging Markets Index A collection of stocks from 24 emerging markets throughout the world: Market Capitalization: $5 trillion (USD) Comprised of 838 stocks Participation by Weight: China 30% Korea 16% Taiwan 12% India 9% Brazil 7% Other 26%
Investment Accounts Non-Registered
Building Your Investment Accounts Investment Type Advantage Disadvantage TFSA** RRSP Non-Registered Investment grows tax free Funds accessible without consequences Withdrawals can be recontributed Tax deductible contributions Tax deferral until withdrawal Flexibility for contributions & withdrawals No Contribution Limits Save as much as you like Invested with after tax funds Small contribution limit Taxable as income upon withdrawal Funds not ideally accessible prior to retirement Maximum contribution limit of 18% of earned income Invested with after tax funds Gains taxable on an ongoing basis ** You can invest in stocks, bonds & funds inside a TFSA, just like an RRSP
RRSP Planning RRSPs are most efficient when your tax rate at withdrawal is lower than when you contributed. DECISION: Contributions When to start contributing? How much to contribute? When to stop contributing? Plan Ahead!
Investment Taxation: Non-Registered Accounts Stocks Capital Gains 50% of Personal Tax Rate Dividends 75% of Personal Tax Rate Income 100% of Personal Tax Rate Bonds REIT GICs
Other Investment Accounts ACCOUNT Definition Investment Objective Parameters LIRA RRIF / LIF RESP Locked In Retirement Account. Contributions from a company into a Group RRSP or DC pension program Registered Retirement Income Fund. What an RRSP turns into when client wants to start drawing retirement income. Registered Education Savings Program. Like an RRSP, part of retirement savings. Investments match time horizon on expected need. Depends on how much income is required from the account. Generally, more conservative due to age. Goal is to grow until child reaches university age, then drawn down over the following 4 years. LIRA money can not be withdrawn prior to age 65; some restrictions on withdrawals. At age 72, account holder must start drawing from RRIF at 5.3% per year; taxed as income. Contributions are matched by Government (20% on first $2,500); money must be allocated to education.
BREAK IT s Coffee Time
Building An Investment Plan
Tolerance for Volatility Matching Asset Allocation to Personal Objectives Aggressive Conservative Time Horizon The appropriate asset allocation depends on an investor s time horizon, tolerance for volatility, and overall financial plan.
Diversification Diversification is an important component of risk management in investment planning. Category By Asset Type By Country By Style Reason Stocks, bonds, real estate, commodities all have different return journeys Economic conditions vary across different geographic areas Growth & Value investments have different return/risk characteristics
Hands-On Learning Building a Mock Investment Account Client A 27 years old, working, doesn t need income from investments, 30 year time horizon Client B 47 years old, working, doesn t need income from investments, 15 year time horizon Client C 67 years old, just about to retire, will need to draw 6% per year income from investments
Building a Mock Investment Account Client A Client B Client C Equities Canada % % % USA % % % Global % % % Emerging Markets % % % Fixed Income Canadian Bonds % % % Other Real Estate % % % Bitcoin % % % Cash Cash % % %
Investment Planning: Investment Time Horizons The Buckets Approach Immediate Needs (Next 12 months) Shortest Time Horizon (1-3 Years) Medium Time Horizon (3-5 Years) Longest Time Horizon (5+ Years)
Tolerance for Volatility Investment Planning ALLOCATIONS Growth Equity Long-Term Bucket Bonds Mid-Term Bucket Dividend Equity Mid-Term Bucket GIC Short-Term Bucket Time Horizon
Asset Allocation: Categorized by Objective Stability 10% Speculative 5% Income 20% Growth 65%
Finding the Right Investment Manager There are a number of options when looking at who is going to manage your investments: Investment Advisor Bank Branch Do-It-Yourself (Discount Broker) Robo-Advisor Private Client Firm (i.e. STYLUS)
Finding the Right Investment Manager Portfolio Management Defined Investment Process Superior Performance Active Risk Management Fair fee schedule Client Service Hands On Services Communication & Education Accessibility Alignment of Interests
The STYLUS Investment Process Dynamic Quantitative and Qualitative Analysis Combined with Proven Experience 5. STOCK REMOVAL Efficient Transactions 1. IDENTIFY Investment Opportunities 1. Identify investments based on our quantitative approach 2. Apply our research experience to analyze stock ideas, identify risk exposure 4. MONITOR Every Day 3. STOCK ADDITION Stock / Sector Weights 2. RESEARCH Specific Stocks 3. Stocks added to the Funds must fit within portfolio guidelines 4. Ensure holdings continue to meet Funds investment criteria 5. Transact based on quantitative & qualitative criteria
Performance Over The Long-Term
Management Fees Momentum Growth Value with Income U.S. Blended Equity Management Fee (% of average assets under management) 1.25% annual fee, plus HST & additional expenses Performance Fee Equal to 1/5 of the excess return above 9%. Wealth Protection Management Fee (% of average assets under management) 2.25% annual fee plus HST
Client Service Transparency, Knowledge, Education For our clients: We facilitate all transfers from other financial institutions Access to STYLUS client website. A private site housing STYLUS Fund information, newsletters, and your individual account statements Personal wealth planning reviews to keep you on track to meet your overall investment goals Market review sessions hosted at the STYLUS offices Client events including education seminars and client appreciation events The STYLUS team
Pay Yourself First Bottom Line: Start EARLY & ALWAYS Pay Yourself First!
The Power of Compounding: TFSA (even at $5,500 per year!) $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 Start investing in 2017, compound at 9% Start investing in 2017, compound at 6% Start investing in 2022, compound at 9% Start investing in 2022, compound at 6% $636,000 $401,000 $377,000 $267,000 $100,000 $0 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041
Questions & Answers
We hope you enjoyed our presentation! Rick, Brennan, Julianna, Matteo, Michael, Fiona, Mario & Jordan