Buying Canada

Bull & Bears May-June 2007 VOL. 9 NO. 11 INSIDE... Coffee Pacifica Adds Ethiopian Coffee Beans To Its Menu of the Worlds Best Gourmet Coffees Commercial Gold Production Begins at Aurizons Casa Berardi Mine in Quebec By Roger Conrad Personal Finance Canadian income trusts have endured more than their share of turmoil during the s i x m o n t h s s i n c e Canadas minority ruling Conservatives announced a scheme to tax them as corporations begin- ning in 2011. Amid all the uncertainty weve also seen takeovers priced well above pre-deal prices, strong names moving to all-time highs and even the weakest gaining ground. Oil and gas producers have been hit doubly hard as a year of falling energy prices finally caught up to cash flows, triggering some two dozen dividend cuts and dragging even the strongest down in sympathy. As it stands now, the Conserva- tives taxation scheme is still in effect. The budget introduced in March includes the so-called Tax Fairness proposal and was loaded with enough goodies to ensure the support of the Bloc Quebecois and ultimate passage. Theres a proposal in the US to codify the taxation of trusts distributions as ordinary income, unless the payer is registered in this country. And 15 percent of your dividend is still withheld at the border. Trusts with vibrant cash- generating businesses, however, have attracted a whole new group of buyers private capital and theyre buying Canada in record numbers. Since Halloween, weve already seen 20 takeovers of trusts by a wide range of private buyers, including a unit of Growth Portfolio pick Macquarie Bank (MQBKY). Several have been the result of Continued on page 3 Buying Canada The best Canadian income trusts are in recovery mode. But the world has changed since the Halloween massacre. Heres how were playing it.  By Andrew Leckey You may already be well along the road to a fine retirement. You started early, invested regularly, used tax- advantaged retirement accounts, didnt borrow from them, diversified your assets, monitored them and didnt overinvest in your employers own stock. No wonder youre so tired. But before you get cocky during that final approach to your retirement destination, realize the last stretch of road can have potholes, speed bumps and rough pavement. Maybe even a boulder or two. Dont expect to see the following potential hazards on your road map or in your drivers manual. Road hazard No. 1: Divorce obliterates many retirement plans. Divorce is the most common cause of retirement failure and devastation that I regularly encounter, said Malcolm Greenhill, certified financial planner and president of Sterling Futures in San Francisco. Even if spouses werent great at accumulating assets in the first place, theyd have done fine in retirement if they stayed together, but separately it becomes a much different story. Money set aside often isnt enough to finance two separate retirement lives. In some cases, the spouse who entered the marriage with the greater financial assets is especially unprepared to retire with a reduced lifestyle after the divorce settlement. Panic sets in when retirement living expenses become evident. Road hazard No. 2: Treating your house as your primary retirement vehicle isnt so shrewd. People have seen home values increase over the years and figure someday theyll be able to cash in to retire, but homes are not the financial panacea they seem, said Michael Boone, a certified financial planner and owner of M.W. Boone and Associates of Bellevue, WA. You have to live somewhere in retirement, which takes a good chunk of that cash elsewhere, and in most cases people finally decide they dont want to move after they retire. Retirees accustomed to a city with easy access to entertainment, transportation, family and friends often decide a more remote retirement location wont meet their needs. They often cant stand to sever their attachment to their home. And remember, home values sometimes do decline. Road hazard No. 3: Hucksters know youve socked away retirement money over many years and they want a piece of it. Ive seen so many investors nearing retirement get suckered at seminars into buying property or other investments sight unseen just at the absolute wrong Home Stretch To Retirement Often Fraught With Pitfalls time in their lives, said Greenhill, noting pre-retirees can be eager to swing for the fences. They start to believe investment diversification means buying gold and condominiums. Many clients coming to Greenhill suffered financial damage from listening to all that noise, he said. All assets will go up and down in value, but most of the hard-sell marketing of assets is done to convince investors to buy something that has already gone up in price, he warned. Investors often lack a thorough understanding of relative risks. Road hazard No. 4: Your withdrawal strategy may be nonsense. So many times retirees see the big pile of money they amassed and begin in retirement to use a much higher withdrawal rate than is prudent, said Boone, who considers the safe annual withdrawal rate to be 5 percent. Theyve run their own calculations in which their withdrawal rate is based specifically on what they determine their portfolio will be earning. Projected returns often consider only the best years of the past and the effects of inflation may be ignored. With 4 percent annual inflation, the cost of living doubles every 18 years, Boone said. That means those retiring at age 60 may face a doubling of their cost of living twice during their retired lifetimes. Road hazard No. 5: Making plans based on living to the same age as your parents or grandparents can mean extremely lean final days. Continued on page 29 P.O. Box 917179, Longwood, FL 3791 (407) 68-6170
Publisher: The Bull & Bear Financial Report Editor: David J. Robinson
The Monetary Digest, 1 year, 1 issues, $88.

Comments