Critical Illness Insurance Kicks In Where Others Leave Off

You might have seen the news about Sarah Burke, the professional snowboarder who succumbed to her injuries in January. Questions were raised about whether Burke had adequate insurance coverage when her business manager requested donations to cover medical expenses.

Regardless of the Health insurance coverage limits, it is clear that a Critical Illness (CI) policy could have provided a lump-sum cash benefit that would have helped to cover at least some of her expenses. After the accident, Burke fell into a coma, one of the many conditions that trigger a CI payout.

In 2008, a Canadian runner suffered a heart attack while participating in the Berlin Marathon. He survived and incurred hefty medical expenses. Again, the additional benefits provided by a CI policy would have gone a long toward paying for his medical expenses.

Health insurance coverage can be exhausted rapidly by these and other critical illnesses and occurrences. Consider the multitude of Health insurance variables: In network care vs. out of network, required referrals to specialists from PCPs, etc. — particularly when these events occur out of state or country.

Anyone can be involved in an accident or suffer an injury during a snow outing, while working out, or during any number of other recreational physical activities. Consider the peace of mind that a CI policy could offer.

ONCAP II Hits Home Run With Sale of Canadian Securities Institute

Canadian Securities Institute Global Education Inc. was recently sold by one of Onex’s private equity funds to Moody’s Analytics for $155 million Cdn.

ONCAP paid $25 million for a 91% stake in the company which was spun off by the securities industry back in 2006. Onex’s share of the company was 40%.

When the sale was made back in 2006, the multiple that ONCAP paid was somewhat frothy. However, closing regional offices, converting all exams to mutiple choice for quick computerized marking, coupled with 200% fee increases to take an industry exam made CSI extremely profitable on what can be considered a monopoly as an education content provider in the securities industry in Canada.

As an industry participant, one can only hope that Moody’s will keep fees reasonable as educational requirements keep increasing and double digit course fee increases seem to be the norm.

Your comments are always appreciated.

Action List Worth A Look

Our Canadian research comes from National Bank. Since November, 2009, they have produced an Action list where their analysts provide their best ideas. In conjunction with their recommendations, they also recommend when to sell these holdings based on price appreciation or earnings surprises.

From November 30th, 2009 to June 30th, 2010, 27 names have appeared on the list with 13 still on the list. In the last quarter, five names were removed while six were added.

In the last quarter, the NBF Action List returned 3.76% vs. -0.33% for the TSX. Since November 30, the Action List netted 6.13% vs. 0.81% for the TSX.

The Action List is updated daily. To get the current action list, please don’t hesitate to contact us and we would be happy to email or send you a copy.

Have a great weekend. Your comments are always appreciated.

Tax-Free Savings Account Penalties in Abundance

With 2009 being the first year that people could contribute to TFSA’s, many used the accounts incorrectly and will be subject to penalties of 1% per month on their overcontribution.

70,000 Canadians will be subject to penalties as many used the accounts like regular bank accounts with deposits and withdrawals taking place on a frequent basis. The rules relating to TFSA’s state that individuals have to wait until the next calendar year before they can deposit amounts withdrawn from a TFSA.

If they don’t, additional deposits in the same year will increase the over-contribution amount and penalties. The Canada Revenue Agency has set up a webpage to help Canadians who have received notification of an over-contribution with all forms available to calculate your penalties.

To access the page, you can click on the link HERE.

Your comments are always appreciated.

Consider Corporate Bonds over Alberta Capital Bonds

The Alberta government announced the rate on Capital bonds on Friday with a rate of 3.3%. The rate is equivalent to what is available on 5 year GIC’s. Considering limited liquidity, you may want to consider buying corporate bonds or 5 year Fixed Rate Reset Preferred shares.

The rates on corporate bonds can be as high as 7% depending on quality and maturity and a select number of preferreds are yielding above 5% with preferrential tax treatment.

Call your Rothenberg Investment Advisor today discuss the various options available in the market place. Your comments and thoughts are always appreciated.

It’s Time to Rename Tax-Free Savings Accounts

Reading the Financial Post this weekend, an incredible statistic was reported about TFSA’s. About 90% of all tax-free savings account contributions were held in actual savings accounts earning a paltry .25% give or take. With interest rates like that, who cares if the earnings are tax free as you earned $12.50 over the course of the year on a $5000 contribution.

Part of the problem no doubt were the teaser rates that companies offered for the first three months of the year at 3% – 4%. After that, the rates came down but who could bother changing things at that point. Obviously, 90% of contributors couldn’t be bothered.

Tax Free Savings Accounts should be renamed Tax-Free Investment Accounts. After all, we are allowed to buy stocks, bonds, mutual funds, etc… in these accounts. Corporate bonds still offer yields in the 4% – 7% range that can be very attractive when no tax is being paid. A $5000 investment would yield $200 – $350 per year depending in the bond purchased. Considerably higher than the $12.50 more than 90% of TFSA holders earned last year.

If you did open one of these accounts last year, its time for a review. Oh!!! If you did put your contribution in a savings account, consider talking to a financial advisor about your options as your bank or trust company didn’t do you any favours by paying you .25%. Your comments are always appreciated.

RRSP Loans…Now More Than Ever

With Christmas around the corner, the last thing most people are thinking about right now are taxes and RRSP contributions. That being said, this season is the perfect time to start thinking about saving taxes and building your retirement nest egg.

A recent survey has shown that most Canadians have not contributed to RRSP’s in the last couple of years with the recession and poor equity markets in 2008 as the major culprits. Another sobering statistic is that Canadians closing in on retirement in the next 5 years are those that have stopped contributing the most which will lead to a more difficult retirement.

We have just received our details for RRSP loans for this 2010 season and the borrowing rates are lower than ever starting at 3% on loans up to 24 months. Considering investors can borrow at these low rates and get higher returns on corporate bonds, it becomes very attractive to build back your savings and save some taxes at the same time.

To contact us for more information, you can click “HERE“. Your feedback is always welcome.

Claymore Gold Bullion Trust – A Great Way to Buy Gold

With India adding 200 tonnes of gold to their reserves, gold has hit an all-time high. It was highly anticipated that China was going to purchase this block of gold. With China publicly expressing its wish to increase its gold reserves over the coming years, one can only imagine that gold might appreciate significantly over time.

So what is the best way to play gold? You can buy gold producers but that takes on the risk of an individual companies performance. Some will outperform bullion while others won’t. For those that want exposure to bullion, consider the Claymore Gold Bullion Trust. The symbol is cgl.un on the TSX.

The units trade at a discount to its Net Asset Value (NAV). Today’s closing price was $10.00 and the NAV is roughly $10.40. Most Gold Trusts trade at premiums. Claymore will convert the units into an exchange traded fund if the units trade at a 2% or more discount to its NAV for 10 consecutive trading days starting at the end of November. Once this happens the discount should disappear.

If you buy gold outright as a retail investor, expect to pay a premium over what is quoted in the press. Couple that with any storage costs associated with buying bullion and you will see that Claymore’s product has merit. Another benefit for Canadian investors is that the units are hedged into Canadian dollars.

Typically, commodities move inversely with the US dollar. As gold goes up, the US dollar goes down potentially negating any upside to Canadian investors. In the interest of full disclosure, I do own some of the units personally.

Your thoughts about gold and where its heading are greatly appreciated.

 

 

Life Settlements in Difficulty in Canada

I have seen some ads in the Calgary Herald advertising life settlements yielding 10%. The ads definitely peaked my interest as this was something different than real estate, commodities, equities or even the bond market.

To have a different asset class paying a 10% yield would be quite attractive. Of course, with the rash of real estate deals going south and ponzi schemes rearing their head, one can only be skeptical.

The underlying concept behind life settlements is that a company offers an individual that is diagnosed with a life threatening illness a lump sum while they are alive in return for the proceeds from a life insurance policy upon death.

The company raises money from individuals paying them the 10% interest rate. They are supposed to pay the individuals from the proceeds of the policies which is difficult to pinpoint as they cannot guarantee when a policyholder will die.

The industry is growing in the US with about $12 Billion in policies sold in 2007 according to an article in this weeks investment executive. In Canada, the purchasing of policies is illegal in most provinces so the ones being offered for sale are from jurisdictions outside of Canada.

The main issue that is now plaguing this sector is similar to other unregulated industries. The individuals selling the policies are not registered to do so and are not offering proper documentation to potential investors outlining the risks.

Two companies in Ontario selling these policies have been shutdown while one in Alberta is currently being investigated.

All one needs to do is visit the Ontario Securities Commission or Alberta Securities Commission websites and do a search on life settlements to get more details on some of the issues.

If you have had any positive or negative experiences in this area, your feedback would be greatly appreciated.

 

 

 

Bonds Are Not Stocks

Bonds are not stocks.

The title of this post seems quite obvious in nature yet the amount of calls we received after Manulife cut the dividend on its common shares and how it affected the pricing and interest payments on their corporate debt was quite astounding.

Earnings per share for the company increased to $1.09 in the second quarter compared to $0.66 for the same quarter last year which is a positive.

The dividend cut will save the company $800 million per year. The savings is a positive for bondholders as there is more money available to make interest payments on their debt and pay principal back at maturity.

Unlike common shares or stock where a company can cut the dividend as it sees fit, the company cannot decide to stop making interest payments as part of a change to its strategic plan.

This is why bonds of a corporation are safer than common shares of the same corporation. There is limited upside but you have layers of downside protection. So what happened to the bonds on the day of the announcement? Not much. Manulife’s 10 year bonds dropped about 1% compared to 15% on their stock.

Corporate bonds move up and down in value based on several factors including interest rates, creditworthiness, and the spread between government bonds moving up or down. To learn more about bonds and how they differ from stocks, you can click on the following link HERE on our website that has an educational piece on bonds.

Your comments are always appreciated.