February 25, 2023 – “Talk to the Experts” Radio Show
Chris and Wade discuss the current market situation and expectations going forward and discuss the relevance of establishing a good estate framework.
[00:00:00] Narrator
CIBC Wood Gundy is a division of CIBC World Markets Inc, a subsidiary of CIBC and a member of the Canadian Investor Protection Fund, an investment industry regulatory organization of Canada. Wade Kozak is a Senior Wealth Advisor and Senior Portfolio Manager with CIBC Wood Gundy in Calgary. Chris Porochnuk is an Associate Investment Advisor working with Wade Kozak. The views of Wade Kozak and Chris Porochnuk do not necessarily reflect those of CIBC World Markets Inc. If you are currently a CIBC Wood Gundy client, please contact your investment advisor.
[00:00:30] Wayne Nelson
Welcome to Talk to the Experts on QR Calgary. I'm your host, Wayne Nelson, and I'm pleased to welcome my guests today, Wade Kozak and Chris Porochnuk from the Kozak Financial Group. CIBC Wood Gundy. Check out their website it's KozakFinancialgroup.ca. The phone number (403) 260-0568. Wade Chris, thanks for joining us. Welcome to the show.
[00:00:56] Chris Porochnuk
Thank you.
[00:00:56] Wade Kozak
Good to be here again.
[00:00:57] Wayne Nelson
Well, here we are almost at the end of February, already two full months into the new year. I mean, where has the time gone? My goodness. A lot of talk has certainly revolved around the last Bank of Canada rate increase, January 25th, another 25 basis points. We're at 4.5%, highest rate in 15 years. The bank saying this will likely be the end of the rate increases for now. And I guess that's the important caveat, isn't it?
[00:01:25] Chris Porochnuk
I suppose the for now there we have seen those year over year inflation numbers starting to come down. So that's that's a positive sign. And I would expect we're going to see them come down more in the next three months, mainly because the denominator in that equation came up a year ago quite, quite harshly in the next few months. So I would expect to see the year over year numbers come down even more in the next few months. So we'll and perhaps the Bank of Canada is looking at the same thing and expecting the same thing. As far as investors are concerned, though, they're kind of loving these rates where we can get bonds today yielding 5% plus good quality investment grade corporate, whereas a year ago we were struggling to even squeeze out 3% on a ten year investment grade corporate bond.
[00:02:19] Wayne Nelson
Yeah, and that bond yield has certainly impacted lending rates. From what I understand, you can get a fixed term mortgage rate. Those are coming down. The variable rates are still up there.
[00:02:32] Wade Kozak
That's true. Yeah, the fixed term rates have rolled over a little bit. So a person who was looking at what you could invest into a five or a ten year bond or get a five year locked in mortgage, I would say at the end of October or November, it's actually a little bit lower today. Bonds have actually or rates have actually rolled over a bit at the longer end of the curve. Of course, you know, the government doesn't set those rates. The market sets those rates. The government sets that short bank rate, but at that kind of dictates kind of where the rest of the yield curve goes. But the yield curve continues to be quite inverted. So short rates are actually higher than the longer rates, which is uncommon and typically is the precursor to a recession.
[00:03:20] Wayne Nelson
All right, Chris, where do you see the market for investors right now? Because it's still fairly volatile, isn't it?
[00:03:28] Chris Porochnuk
I would agree. I mean, a lot of the conditions that we're feeding into the volatility in the last year, whether that's the rising interest rate environment or just general concerns over inflation and the direction of the economy, a lot of those concerns still persist today. So it probably will shape up to be a fairly rocky year for investors still. But that said, you know, like Wade said, interest rates being what they are as far as investing goes, now is a great time to be putting money into new bonds with the kind of rates we're seeing today.
[00:03:55] Wayne Nelson
Wade, the philosophy at Kozak Financial has always been on those income oriented investments. Bonds certainly has been the stalwart of the investment portfolio, the investment strategy at Kozak Financial. What other investment types would you be focusing on right now?
[00:04:16] Wade Kozak
Well, obviously, the bonds make up the guaranteed side of the account, but there is the side of the account that is not guaranteed, and that would be the dividend paying stocks. Every stock we own for our clients has to pay a cash flow in the form of a dividend that essentially is giving us a certain amount of rate of return, regardless of whether the stock market goes higher or lower in the next 12 months. We know we're going to get that cash flow coming in from the dividend. And so the dividends rolling in, plus the interest coming in from the bond side of the account amasses into a total amount of income the account is generating. And our goal is to build an investment portfolio, a retirement portfolio, if you will, for our clients where that cash flow that we're generating satisfies all of the withdrawal amount that a client needs in their retirement. In doing so, we can set up a portfolio that has a lot of certainty and a lot of trust and faith built in that year over year as clients see that income rolling in, they get to be very comfortable that through good times and bad, through recessions, through all kinds of different economies, that income tends to roll in uninterrupted.
[00:05:32] Wayne Nelson
It's that consistency in the income stream, right, Chris?
[00:05:36] Chris Porochnuk
Absolutely. I mean, dividends are one of the things you can really point to in the stock market and say that there is some consistency there. Companies are very hesitant to cut their dividends if there's bad times, though it does happen. So it's one thing that you can sort of look at in the broader stock market, which has a lot of uncertainties involved in it and say that this is something you can point to and say, yes, you know, with a fair degree of certainty that this is going to be a recurring revenue stream for you within the portfolio.
[00:06:01] Wayne Nelson
Chris, is there a particular investment that you recommend to your clients that has that consistency of returns?
[00:06:06] Chris Porochnuk
Yeah, dividend paying stocks, especially, you know, Canadian banks or financials, telecoms, utility companies here in Canada, all very strong dividend paying companies and fairly, very consistent and also increasing their dividends year after year. So not only is it a consistent income stream, it's also a consistently growing income stream over time as well.
[00:06:25] Wade Kozak
We're just talking about that, that income growth. Wayne, this past year has been an excellent example of that. We've seen the dividend income from that stock portfolio actually increase a great deal in this past 12 months, more than I've ever seen an increase in one year in my career, quite frankly. And I think it's mostly been due to the inflation. During periods of inflation, you typically expect blue chip dividend paying stocks to increase their dividends. And that's that has happened in this past 12 months in Canada. Our average client, depending whether they're reinvesting the income or now they're retired and they're drawing it out, has seen their income grow in the last 12 or 18 months, anywhere between 14 and 24%.
[00:07:13] Wayne Nelson
That's a significant return.
[00:07:15] Wade Kozak
And you know, and that's in a year when the market has actually been not so great. Right. The the stocks have not been have not done very well this past 12 months. But the income that that equity portfolio is generating has stepped up in this. And it's been, in my opinion, a great year as far as the income is concerned.
[00:07:34] Wayne Nelson
Sure. I don't think anyone would disagree with those rates to get that consistent rate of return on those investments. You've got to do your homework, though, to pick the right investment vehicle.
[00:07:46] Chris Porochnuk
Absolutely. And we've perfected our security screening process over decades that we've been building the portfolios for clients. And it really comes down to a lot of metrics that we use in that security selection process to screen out names we don't want to have within the portfolio and selecting those top tier dividend payers to provide us that consistent dividend stream within the the stock portfolio that we build.
[00:08:07] Wayne Nelson
Do you have a recommendation, a formula that you use to determine how much of a particular investment should be in a person's portfolio?
[00:08:14] Wade Kozak
I think what you're asking about is asset allocation within the equity portfolio. I think the most important thing to consider there is to not be too concentrated and not have in your stock portfolio all of your names related to one particular industry. I'm sure some listeners out there can remember, you know, the oil downturn in 2015 when when a lot of Calgarians who work in the oil industry, you know, their lives were built around the energy industry and surprise, surprise, most of their investments were in the energy industry. And it was devastating that if you had all of your investments just in the energy industry, that would have affected you in a very dramatic way. So we limit how much we have in any one industry group in our equity portfolio to make sure we don't stick our neck out too far in any one direction.
[00:09:11] Wayne Nelson
All right. Wade, we're going to pause for a break. You are listening to Talk to the Experts. I'm Wayne Nelson. I'm speaking today with Wade Kozak and Chris Porochnuk from the Kozak Financial Group, CIBC Wood Gundy, KozakFinancialGroup.ca is the website. If you have any questions or concerns, if you'd like a consultation about your investments or retirement plans, the number to call is 403 260-0568. We'll be back with more on Talk to the Experts.
[00:09:38] Wayne Nelson
If you're just joining us today, I'm Wayne Nelson. And my guests are Wade Kozak and Chris Porochnuk from the Kozak Financial Group, CIBC Wood Gundy, KozakFinancialGroup.ca is the website. And if you have questions about your investments, how your portfolio is doing or if you'd like a consultation, give them a call. The number is. 403-260-0568. Wade, Chris, just before the break, we were talking a little bit about the volatility in the markets. It's still somewhat volatile compared to last year at certain times. Has it eased? Are we better off? What are the January compared to February numbers looking like?
[00:10:22] Wade Kozak
I think I think the trend has continued, I would say since about June of 2022. It almost feels like one month is up, the next month is down. Sometimes you get two up months and then two down months.
[00:10:34] Wayne Nelson
But why? Why would that be?
[00:10:36] Wade Kozak
Basically, since June, the market has been oscillating back and forth between fearing a recession from the increased interest rates and then being optimistic about perhaps seeing the end of the interest rate hikes from the central banks. And so any given month, whichever one of those two factors that seem to have the biggest pull would dictate whether the market was going up that month or down. And so we're we continue to be in that little bit of a tug of war between those two different sides and as we have been since June. So January was actually quite a strong month and we saw the markets actually surge forward and February has been a weaker month. Now, I will point out that the TSX Composite is down about 2.75% month to date. The equity portfolio that we that we run is down far less than that, that only about three quarters of 1%, which is nice to see that those blue chip dividend payers are holding up a little bit better. But we're still in that choppy period while the market is trying to figure out are we going to see a recession or not?
[00:11:46] Wayne Nelson
When is that going to end? You know, is it just someone throws their hands up and goes, okay, now's the time to. I'm more confident now.
[00:11:58] Wade Kozak
Yeah. Sometimes that's what it takes. Or you have to have that that capitulation moment in the market where all the all the weak hands are washed out or you have an upward surge in the market. If we see a really low inflation number come out in the next couple of months and people feel very comfortable that, okay, perhaps we've seen the last of the interest rate hikes from the central bank. And look, the economy is still doing okay. Then you'll probably see the market surge forward. And like one of the sides in that tug of war will will take the day.
[00:12:34] Wayne Nelson
Chris, is there any indication of that dreaded recession?
[00:12:39] Chris Porochnuk
Yeah, I would say there certainly are. I mean, it's kind of confusing out there with some of the economic numbers. You know, you can see some areas of the economy declining or making somewhat declines. But at the same time, the employment figures for both Canada and the United States have stayed quite resilient. So, you know, employment picture in both countries still quite strong, even though the broader economy does show signs of weakness. So it does raise some mixed signals that the central banks now have to sort of interpret and respond as they set their interest rate policy going forward.
[00:13:09] Wayne Nelson
I guess now more than ever is why it's so important to have a trusted financial advisor looking after your portfolio.
[00:13:16] Wade Kozak
And having an overall sense of rationality and strategy in that portfolio. So to a certain extent the way we manage investment portfolios for our clients. It doesn't matter whether there's going to be a recession in nine months or whether the markets are going to surge ahead. As long as that dividend income keeps flowing in, our retired clients will continue to be able to take that withdrawal and spend it and and fund their retirement lifestyle. And it takes a lot of that stress and worry about, am I doing the right thing out of the equation of how you're handling your investment portfolio? So I would I would invite everybody out there who if that income number you're generating, isn't one of the numbers that's highlighted when you do a review of your investments, if that's a number that you don't even know what it is that no one's ever told you how much income your investment portfolio is generating, you should give us a call at (403) 260-0568. And if it sounds interesting to you, the way we manage these portfolios to fund a retirement lifestyle, then you should give us a call and talk to us and see if it's suitable for you.
[00:14:32] Wayne Nelson
All the stress and worry is taken off the shoulders of your clients, put squarely on your shoulders though, because you've got to make sure to put them in the right investment vehicle.
[00:14:42] Wade Kozak
To a certain extent. But when we when we bring on a new client, often there's an initial period where they're, you know, it's all new. They're they're very interested. They're they want to see, you know, exactly how things are working because, you know, this is the first time they've dealt with us. And for that first year, there's a certain amount of hypervigilance, if you will. Right. And how the portfolio is going and how it's running. And after a few reviews where we show them the income the portfolio was generating, and despite the movements in prices of the stocks, that number stays remarkably consistent with the exception of dividend increases and seeing it move from that. And after a number of reviews of seeing that income number being remarkably consistent, you can almost see a calm wash over them that, Oh, okay, I see how this is going to work. And I see that that income is going to roll in regardless of whether the stock market is going up or down. And I can see that that can flow into my bank account. And and there's a calm and almost a you know, just a lack of stress anymore and you get them to stop focusing on is this stock up or down this day or that day? Because it doesn't really matter as long as that dividend can continues to get paid.
[00:16:04] Wayne Nelson
All right. I want to switch gears, Chris. Tax season is upon us. We've got some deadlines coming up that people need to be aware of or reminded of.
[00:16:15] Chris Porochnuk
That's right. The most important one coming up here just around the corner is the RRSP deadline. So that is March 1st of this year. So if you do still have to get your RRSP contributions in, be sure to do it before that date if you want it applied to your 2022 taxes.
[00:16:29] Wade Kozak
And speaking directly to our clients, please don't wait till March 1st.
[00:16:34] Wayne Nelson
Well, that's coming up pretty darn quick, isn't it? I mean, it's next week.
[00:16:38] Wade Kozak
Yes. Yeah. No, it is. It is coming up. And I'm sure there are some people out there who got their notices of assessment back in May and thought, oh, I've got to get this done and are now scrambling to do to sort of get it done in these last few days. So we have until March 1st to get those RRSP contributions done.
[00:16:55] Wayne Nelson
What other kind of tax planning at this stage? It may be a little late, but what kind of tax initiatives should people be looking at right now?
[00:17:04] Chris Porochnuk
Well, at this point, it is it is pretty hard to do anything to impact the previous tax year, but certainly it's never too late to look at the current and future tax years. So one of the things that comes top of mind right now when you are filing your taxes is seeing where your income sort of landed for the year and then from there, seeing if there is any adjustments you need to make in the current year to potentially have an impact at lowering your overall tax bill, for example, or anything else you might need to do into the future there.
[00:17:32] Wade Kozak
It's not too early to start working on what happens for 2023, obviously. So if you haven't made your tax free savings account contribution yet this year, that should be done. If you have a registered education savings plan, we're now in a new year and you can make a new contribution and get a new grant for the education plan. So there are and if you if you fail to do things last year that could have affected your 2022 tax year, now's the time to think about doing those things for 2023 and not leaving it till you're not thinking about it. But right now, after we get past the RRSP deadline, really we're in the reporting period. That March 1st through the end of April is when we're all going to be collecting our tax information slips and getting all of the information ready to either file it ourselves or take it to the accountants. And so a lot of focus is going to be on getting all that information together.
[00:18:31] Wayne Nelson
All right. I'm speaking today with Wade Kozak and Chris Porochnuk from the Kozak Financial Group. If you'd like to perhaps improve the returns on your investments or reduce the costs and risks associated with investing, then you need to call the Kozak Financial Group the number (403) 260-0568. Check out the website at KozakFinancialGroup.ca. We'll be back with more on Talk to the Experts.
[00:18:55] Wayne Nelson
You're listening to Talk to the Experts on SRX Calgary. I'm Wayne Nelson. My guests today are Wade Kozak and Chris Porochnuk from Kozak Financial Group. CIBC Wood Gundy The website is KozakFinancialgroup.ca. If you have any questions about investing or if you'd like the Kozak Financial Group to take a look at your portfolio, then give them a call. The number is (403) 260-0568.
Gentlemen, in this segment, let's discuss a topic that we really haven't discussed too much on this show, and that is estate planning. So let's begin with the basics, if we could. Having a will now, I believe somewhere around 60% of Canadians don't have a will. So let's talk about a will, the importance of having one versus having a Power of Attorney versus Personal Directive. Chris, you're up.
[00:19:46] Chris Porochnuk
Yeah. So having a will is absolutely essential. You know, anyone that has any kind of assets, if you have beneficiaries, any kind of intention with your estate, you really should have a will to outline that because the fact of not having a will can cause some serious problems to your beneficiaries or who is really going to be taking over after you pass. So it is important to reach out to a lawyer and make sure you have a proper will set up in place. You want to also include things like Powers of Attorney or Personal Directives. Both of those documents are in addition to a will, and they provide some other key information for anyone who may eventually end up taking care of you if you become incapacitated in the role of a Power of Attorney or just what your intentions are if you become incapacitated or what your intentions are with your with your estate in a personal directive. So all critical documents to reach out, definitely advise reaching out to a lawyer to getting those things looked after and doing it properly. There are ways you can do it yourself. And if you're, you know of the acumen to do that, you can definitely approach it that way. But. As long as you have something in place so that your beneficiaries or your family, your friends are not left just wondering what your intentions and what you really wanted to happen should you or if and when you pass.
[00:21:01] Wayne Nelson
That's an important point. Should you have that discussion with friends family ahead of time so that they have some indication of your intentions? So it's not just all a surprise.
[00:21:11] Chris Porochnuk
Absolutely. I mean, that's another critical part, right, is they have to know that these things exist out there. It's also important to notify them of, you know, for example, your investments out there as well. You know, often times people will pass and, you know, the relatives come in to try and get a handle on their affairs and they're left scrambling through, you know, maybe piles of random papers, just trying to find where things are at. So it's very important that you talk to your family and to your executor about what it is you have and what your intentions are. And it's not just in the will. It's, you know, all of those pieces together, making sure that it's all going to be an easy picture for them to pick up and take off from that.
[00:21:50] Wade Kozak
So Chris already mentioned this, but it's worth saying again that we are not lawyers or legal professionals and everyone should consult your legal professional to go and get your Will, Power of Attorney Personal Directive set up. But having said that, I think one point of confusion is often what each of those documents is for. So a will is for after you're dead of where you want your wealth distributed to. Whereas the Power of Attorney is while you're still alive, if you're unable to act on on your own for yourself, who do you appoint to act in your place? Basically, who can sign for you?
[00:22:32] Wayne Nelson
Who do you trust.
[00:22:34] Wade Kozak
To to handle your financial affairs, etcetera. And the personal directive is the who is going to decide when the machine gets turned off that's keeping you alive when you're when you're in the hospital is probably the best way to sort of look at it. Who who can make health decisions for you in that in that health care setting? That's probably the probably kind of the most concise way of separating those three distinct documents. And typically, when you go see a lawyer to set those up, all three of those documents are set up. And this past summer, I helped a family friend set up all three of those documents through an online service that was very slick. It was province specific because different provinces require different people to witness things in different ways. It was very inexpensive. And basically there's no excuse for anybody not to have those three documents all in place and squared away.
[00:23:30] Wayne Nelson
Would the person that you employ to help you prepare your your will, your your Power of Attorney, your personal directive, would that be dependent on the size of your estate? In other words, would you or should you be more actively looking for that professional that that will specialist lawyer the greater your estate?
[00:23:54] Wade Kozak
I would say not so much a matter of the greater the size of the estate, but I would say it has more to do with the greater the complexity of the circumstances. So, you know, the typical nuclear family, a married couple, they have children together, there are no other children involved. It's just going straight to each other in the event of the first death and in the event of the second death. It's equally split between, in this case, perhaps the two children. It doesn't matter whether there's $100,000 there or $100 million there. That's a pretty simple will. All right. Okay. But I would say that those people, there's no impediment to getting a will done. There's no charge situation. But imagine another situation where there's a couple who each have children from previous relationships. Maybe they have children from now their new relationship. That's a little bit of a different situation that has a lot more complexity to it and has a little bit more of a charge situation of around deciding how this is going to be dealt with. But it's still something that can't be ignored and and should be dealt with. And that will has to be in place regardless. So I would say it has more to do with the complexity rather than the size.
[00:25:15] Wayne Nelson
Taxation issues in the dispensation of an estate. Chris What should people be aware of?
[00:25:22] Chris Porochnuk
Yeah, so one of the biggest things that most will come to when when it is time to settle an estate is any registered investments that they held. So those are RRSP or RRIF accounts. Essentially those become fully taxable on the on the date of the death of the last surviving spouse. And that can have a pretty big impact on the overall picture for the estate. Obviously, those could be fairly sizable in in value and therefore attract a lot of taxation on them. So it is something to be mindful of and talking to estate planning specialists could be one of the ways that you can approach that to sort of mitigate those potential future estate costs.
[00:25:59] Wayne Nelson
What about probate and executors? Now, I'm given to understand that if you're appointed an executor or asked to be an executor, you need to be aware of what those specific responsibilities entail.
[00:26:13] Chris Porochnuk
Yeah, absolutely. Being an executor is a lot of work. So it is something you want to also ask beforehand. You know, certainly ask the person that you intend to be your executor if they're comfortable with that level of responsibility, because it does come with a lot of responsibility and work involved in settling an estate. You're also personally liable if you make a mistake while being acting as executor. So you want to make sure you do it correctly and you make sure you're acting in the best interests of the beneficiaries of that estate while you're doing that role. You also keep in mind that just because you are listed as the executor on an estate, it doesn't mean you have to act as the executor. If you feel like you're just not capable of acting in that regard, you could pass it off to potentially a contingent executor or hire someone like a lawyer or a trust executive to actually go and do that process for you as well. So you don't have to feel necessarily burdened by it if you feel that it's too much for you to handle because it is an important role in doing properly.
[00:27:07] Wade Kozak
We often find ourselves in the position of advising the children, right, who are now dealing with a client of ours estate. One of them has been named the executor and we can give them advice of what's the best way to proceed. That and often the best way to proceed is to go and get quotes from 3 or 4 different lawyers on how much they would charge to handle the estate and let them deal with all of the complicated paperwork, getting the probate to go and deal with the estate, and they then just act as an overseer to make sure everything is done to the wishes of the will.
[00:27:49] Wayne Nelson
Some people have decided in the past to try to bypass that probate process by sharing or having a joint account, say, with their parents. Have you had any experience in that degree?
[00:28:06] Wade Kozak
People have. People often try to move mountains to avoid probate, and I can see why in other provinces in in Ontario and B.C., there can be significant probate fees, especially for larger estates. Even there, it isn't it isn't an exceptional amount. Here in Alberta. I think the maximum probate fee is $525. So it's not it's not an insurmountable amount of money that should be avoided. And honestly, that granting of probate is essentially an official stamp on the will, saying that this is the last will and testament and you can act on it. And it takes a lot of it takes a lot of the liability out of the situation for an executor and probate is not something I feel that should be avoided.
[00:28:58] Wayne Nelson
All right. We're going to pause for a break. Wade Kozak and Chris Porochnuk from the Kozak Financial Group are my guests today. If you have questions about your investments, call them to set up a consultation. The number is (403) 260-0568. You can also go to the website KozakFinancialgroup.ca. We'll be back to wrap things up on Talk to the Experts.
[00:29:22] Wayne Nelson
Wayne Nelson, back with you on Talk to the Experts. My guests today are Wade Kozak and Chris Porochnuk from the Kozak Financial Group, CIBC Wood Gundy If you have questions about your investments, then give them a call. The number is (403) 260- 0568. See what they're all about. Check out the information on their website. It's KozakFinancialgroup.ca. Wade, just before the break, we were talking a little bit about probate process. We're not quite done with that. I wanted to wrap things up before we move into our next set of topics with probate. If a person who is an executor isn't comfortable with that, as you mentioned, they don't have to be the executor. They can decline that and ask someone else to step in.
[00:30:09] Wade Kozak
They can basically sign that responsibility off. Or when somebody is writing their will, if they don't have anybody that they feel comfortable naming as their executor, they can name a professional executor or a trust company to to handle their estate for a fee, of course. But, you know, if somebody who has no children and perhaps they're close personal friends are similar ages, so they don't really trust that they'll still be around when this will has to be dealt with. Often that can be a good choice, a professional executor or a trust company.
[00:30:46] Wayne Nelson
And my understanding is some of the chartered banks have a division, a probate division within the bank structure themselves.
[00:30:54] Wade Kozak
They do like, for instance, CIBC Wood Gundy works with CIBC Trust often. But all of the big financial institutions have their versions of that. And there are even independent professional executors you can hire.
[00:31:09] Wayne Nelson
All right. Chris, that one question that I wanted to fully address before we move on, and that is the potential issues of having someone have an open a joint account with the person who has created the will. It's? There are some there are some pitfalls.
[00:31:27] Chris Porochnuk
That's right. So a lot of people try to approach that as a way of avoiding probate on on on non-registered investment or taxable investment accounts by having a joint account with usually what's a parent and maybe the children, you know, 1 or 2 children or whatnot. But there are some concerns there. And certainly the industry has moved to to address some of those concerns with with regulatory hurdles and whatnot. One of the the key things there is, is the ownership on the assets in those types of accounts. So the second the money is in a joint account, any person named on that account is just as equal of an owner on those assets as anyone else. So that means if Mom or Dad puts all the money into this joint account with the kids, the kids could in theory have just as much access to that money, day one as anyone else. So you do have to be mindful of that. And it is something we have to watch for as industry professionals to prevent that sort of, you know, elder abuse or financial abuse of assets like that in there. Another a number of other pitfalls as well.
[00:32:29] Wade Kozak
There's a it was a common practice to try to avoid probate in the past by opening that joint account. And often I'll still find situations where a parent has an account joint with just one of their children for the purpose of avoiding probate, and it can cause a real mess in the estate, quite frankly. Whereas technically and legally, when that parent dies, everything in that joint account goes to that one child and there is no legal obligation on their point to share it with their siblings, even if that was the spoken wishes of of the parent.
My advice typically is leave it in your own name and let that probate process take place, because that probate process is designed to protect the integrity of that distribution and make sure it happens properly. And there are a myriad of other problems that can occur if you start attempting to put all of your assets into joint name in order to go and avoid probate. It can cause more problems than it solves.
[00:33:35] Wayne Nelson
Some great advice from Wade Kozak and Chris Porochnuk of Kozak Financial Group. Another reason to get some professional advice when putting together an estate plan. Wade, when someone calls your office, they call that number (403) 260-0568. What is typically the first question that they'll ask?
[00:33:59] Wade Kozak
What's the first question they'll ask? That's a hard question, but typically that first conversation is a sharing of information where that prospective client will be talking to myself or with Chris or with Harry or with Brenda, and they'll just they'll share a little bit more about their particular circumstance and what's the concerns they have that is leading them to call. We'll share a little bit more information that is specific to their circumstance of how it is we may be able to help them or not, as the case may be. And if there's an agreement that we should proceed, then typically we agree to meet in person and have that initial consultation meeting. And that initial consultation meeting is again, just a more in depth sharing of information. We get a better sense of where this particular client is coming from and the issues they're having and what their personal circumstances look like. And then we share in much greater detail than we get into here in the radio of exactly how an investment portfolio might be set up in their particular circumstances to meet their particular goals and objectives and how it might work, how much income could be created, how that income can flow out, and even sometimes to the point of the rough tax levels that might be paid the way this is structured. And then if there's an agreement, you know, that that we should proceed, then we proceed. And if there isn't, you know, but typically, then there's some time to go and think about it. Right? And as to how this all looks.
[00:35:35] Wayne Nelson
How long does that first meeting usually take? Are you flexible depending on the circumstance and the potential client?
[00:35:42] Wade Kozak
Oh, yes, it varies. Like, what would you say, Chris, that.
[00:35:44] Chris Porochnuk
Yeah, I would say depending on how much conversation has had beforehand that. At first sort of initial meeting is usually going to be about an hour to an hour and a half, depending on the level of questions that you may have depending on their investment knowledge. You know, we certainly may have to explain a few things to get them on board so they can follow along. But, you know, typically we can have a pretty good picture of of what it is someone is looking for within that hour to hour and a half space and sort of present our strategy to them in a way that makes sense and gives them a good view of what it is we're trying to accomplish as well.
[00:36:13] Wayne Nelson
All right. And once again, the focus is on income producing dividend assets.
[00:36:20] Wade Kozak
And this message tends to resonate with people who are, I would say, within ten years of retirement, are currently about to retire and already retired, where it starts to make sense that they've been on the train of buying the fad investments and trying to make a killing that way and have come to realize that, okay, this isn't the way to manage my pension plan. And our message starts to resonate as being a pretty good alternative of how to go and build that regular, steady income flowing into the bank account. And I would suggest that it's important to set the portfolio up that way several years in advance of retirement so you can get a sense and feel comfortable as this income is rolling into the account before you need it. It's consistency, how it comes in and just how the portfolios work. You don't want to find yourself dealing with the stress, the psychological stress of retiring and basically giving up the thing you do every single day and trying to figure out, okay, what am I going to do now? And on top of that, add the stress of, okay, how should I handle my investments in this new phase of my life.
[00:37:36] Wayne Nelson
And worrying if you're going to have enough.
[00:37:38] Wade Kozak
And adding all of that layered worry on top of the, you know, just the regular worry and stress about what it means to retire and what you're going to do with your days.
[00:37:48] Wayne Nelson
So the advice start your plan earlier. But really, it doesn't matter when you start it because you've got to start somewhere.
[00:38:00] Wade Kozak
There's not there's never a bad time to to make that change. We have clients who are children of existing clients who are in their 20's who are just starting to build some assets and save up. But essentially we're building them this long term pension plan that will one day pay them dividends and flowing out to their bank accounts just like their parents are collecting right now. It works at every stage of, of the investing process, but it tends to resonate more with people who've been around the block and come to realize that, you know you this is not the lottery. Right. You're not trying to find the stock that goes up a thousand fold or get rich quick scheme, right? You know, it just doesn't work that way.
[00:38:50] Wayne Nelson
Slow and steady wins the race. That's right. Yeah. All right, gentlemen, once again, it has been a pleasure for expert personal investment advice. You need to contact the Kozak Financial Group, CIBC Wood Gundy where there is a focus on income generation. Phone (403) 260-0568. Or visit their website at KozakFinancialgroup.ca. I'm Wayne Nelson for Wade Kozak and Chris Porochnuk of Kozak Financial Group. Thanks for joining us today on Talk to the Experts.
January 21, 2023 – “Talk to the Experts” Radio Show
We take a look at how 2023 is starting and what we are expecting going forward and an closer look at how we build and manage our equity portfolio.
[00:00:00] Narrator
CIBC Wood Gundy. CIBC Wood Gundy is a division of CIBC World Markets Inc, a subsidiary of CIBC and a member of the Canadian Investor Protection Fund, an Investment Industry Regulatory Organization of Canada. Wade Kozak is a Senior Wealth Adviser and Senior Portfolio Manager with CIBC Wood Gundy in Calgary. Harrison Kozak is an Associate Investment Advisor working with Wade Kozak. The views of Wade Kozak and Harrison Kozak do not necessarily reflect those of CIBC World Markets Inc. If you are currently a CIBC Wood Gundy client, please contact your investment Advisor.
[00:00:30] Wayne Nelson
Welcome to talk to the experts on QR Calgary. I'm your host, Wayne Nelson, and I'm pleased to welcome my guests today. Wade Kozak and Harrison Kozak from the Kozak Financial Group, CIBC Wood Gundy check out their website, Kozak Financial Group.ca. The phone number 403-260-0568. Wade, Harrison, thanks for joining us. Welcome to the first show of the New Year.
[00:00:55] Wade Kozak
Yes, Happy New Year to you, Wayne. It's good to be back and you know, beautiful day out there. So nothing to complain about.
[00:01:04] Wayne Nelson
Things are looking good. Well, let's take a look, a quick look back, a very brief summary of what happened in 2022. Would you say that, overall, it experienced a little bit more volatility than normal.
[00:01:15] Harrison Kozak
The thing that I've certainly been saying to clients is that it was a very interesting year. I don't really like to use the word interesting, but interesting is a good word for it. Obviously, the big headlines all last year were inflation sort of at high levels, higher than expected, perhaps. And in response to that, raising interest rates sort of consistently throughout all of 2022.
[00:01:40] Wayne Nelson
Yeah, seven different Bank of Canada rate increases. We're sitting now at 4.25%, I believe, and talk of another interest rate hike coming up next week.
[00:01:51] Wade Kozak
The central banks are not going to stop until they've wrestled inflation to the ground and they know they have it pinned. So that's that's why you're expecting still some further rate increases in 2023. Interesting is not a bad word in some ways. It was exceptional in that we had there really was nowhere to hide. The stock markets were in general weak. Some parts of the stock market were weaker than others. The large cap growth and technology companies were especially weak during during this period of inflation and rising interest rates. The blue chip dividend paying value type stocks did better, but they but they still didn't do great during 2022. Energy was quite strong and even so the the equity side was not so great and the fixed income side because interest rates were coming up hard was also quite weak. So the Canadian Universal Bond Index was down about 7% in the calendar year 2022. So bonds were down, stocks were down. There was really nowhere to hide in 2022, which is uncommon. Normally, if the stocks are weak, you're seeing money flowing into the fixed income side and the bonds are actually stronger. But that wasn't the case last year.
[00:03:13] Wayne Nelson
Well, let's take a look at these past few weeks of 2023. How is that shaping up?
[00:03:19] Harrison Kozak
So far, so good. This year, markets are rising through the early days of 2023. One of the sort of notable things like you mentioned, is that upcoming rate hike. But it feels or it seems as though at least some of what's gone on with interest rates is now officially been priced in to the market, one might say. And it's expected that until inflation is back under control, we're going to continue to see that. So the market's at least adjusted to that idea at this point.
[00:03:49] Wayne Nelson
Isn't there usually a little bit of a delay from the time that the Bank of Canada implements an interest rate hike in order to bring inflation under control? It doesn't happen overnight. It's like six months, a year, a year and a half down the road, if I am not mistaken? And so now we're looking at well, we've just had seven in a row.
[00:04:07] Wade Kozak
And you have to think of it as a really big ship. They turn the wheel. It takes a while for that directional change to actually happen. So the bank, the central banks have turned the wheel and we're now waiting to see what the effect is in the economy. For that reason, the central banks usually go a little too far and they'll actually continue to raise interest rates to the point where perhaps the ship is turning a little too far. They'll have to cease their action and hope things correct a little bit. So it's not uncommon for the central banks to overcorrect at times like this. And I fully expect this time to be similar. There is a large expectation for a recession.
[00:04:55] Wayne Nelson
Yeah, I wanted to talk about that because in the latter part of the year we were talking about recession in the early part of 2023. And now what I'm understanding from some analysts is that that recession may not occur until later in the year.
[00:05:09] Wade Kozak
Or perhaps we're in recession right now. But they don't actually do the measurements and decide that we were in recession until later in 2023. That's usually how it goes. And by the time they actually ring the bell and say, yes, you know, there is a recession, chances are the economy's already coming out the other side of it, quite frankly. So you can't really count on those bells when they ring to take any action on it. You have to you have to take action in advance of that. But the central banks, their primary goal is to bring inflation down and wrestle that beast to the ground. And if that causes a recession, so be it. That's a secondary concern as far as they're concerned.
[00:05:57] Harrison Kozak
Yeah. And keep in mind, a lot of those indicators that Wade's talking about that the government's looking at to determine these things are all sort of backwards looking when they announce inflation numbers on the news. That's always comparing today's prices to 12 months ago. So we're really only getting to the point today where any inflation data is pricing in one of the interest rate hikes from last year or maybe very, very late 2021. So as we get into the year here, as we approach the spring when some of those first really big interest rate hikes hit the markets, that's when I expect we'll probably see a bigger move in inflation and hopefully in the right direction, but remains to be seen.
[00:06:39] Wayne Nelson
So where does that leave the average investor then? Who is looking at all this information? Are they too much focused on headlines and not enough on finding the appropriate financial advisor? Where do you start?
[00:06:54] Wade Kozak
I think it's important that you have to have a strategy that will work regardless of whether inflation is high or low, whether the economy is going great guns or is in recession, or whether interest rates are rising or falling. You can't have a strategy that only works if the conditions are perfect. This is a retirement strategy that perhaps has to last decades through the savings cycle and then the spending cycle of retirement. And during those decades, there's going to be all kinds of economic cycles and things are going to occur that we simply can't predict today. And so the strategy that you employ when it comes to investing your retirement assets and building your pension plan has to take that into account and has to be designed to work regardless of what happens in the economy or to interest rates or anything else for that matter.
[00:07:49] Wayne Nelson
And that's why the strategy at Kozak Financial has been on those blue chip investments, those income oriented investments.
[00:07:57] Harrison Kozak
Yeah. And I mean at the end of the day, the income is arriving in the accounts regardless of whether the market's up, down or sideways from where it was yesterday, those dividend payments keep rolling. The interest payments keep coming in. Yto doou shouldn't be trying to shoot the lights out every single year and get a 50% return, because if you're going to do that, you have to be willing to accept the risk that you could be down 50% every year that you try to be up.
[00:08:25] Wayne Nelson
Exactly. There has to be that consistency.
[00:08:27] Harrison Kozak
Exactly.
[00:08:27] Wade Kozak
So what if to do, if anything, if our clients are listening to this, they'll know that we don't call them up and say, hold everything. The strategy is completely changing, right? The strategy that we follow of income oriented, collect your dividends and interest. Use that to spend in your retirement. It works whether stock markets are rising or falling, whether interest rates are rising or falling, whether you're in a recession or whether you're not in a recession. And I guess you could you could accuse us of being a little boring, right, That our message is very consistent. So consistent, in fact, that if we were to replay a show that we recorded ten years ago, it would sound remarkably similar to a one of these hour long shows that we're recording today because the strategy hasn't changed.
[00:09:18] Wayne Nelson
And that should give some sense of peace to investors.
[00:09:22] Wade Kozak
I think so. Like I said, a sense of comfort that that there is a strategy, first of all, And that strategy has performed well literally for decades and consistently for decades, and allowed people to be retired through every part of the economic cycle.
[00:09:40] Wayne Nelson
Okay. We're going to pause for a break. You are listening to Talk to the Experts. I'm Wayne Nelson and I'm speaking today with Wade Kozak and Harrison Kozak from the Kozak Financial Group, CIBC Wood Gundy, Kozak Financial Group.ca is their website. If you have any questions or concerns, if you'd like a consultation about your investments or retirement plans, the number to call 403- 260-0568. We'll be back with more on Talk to the Experts.
[00:10:05] Wayne Nelson
If you're just joining us today, I'm Wayne Nelson, and my guests are Wade Kozak and Harrison Kozak from the Kozak Financial Group, CIBC Wood Gundy Kozak Financial Group.ca is the website. And if you have questions about your investments, how your portfolio was doing or if you'd like a consultation, give them a call. The number is 403-260-0568. Wade, Harrison just before the break, we were giving a brief recap, I suppose, of 2022 and what 2023 has brought so far. Usually I like to talk about the bonds and we've done a lot in the last few shows on bonds, so I don't want to go hog wild on it. But let's address what is happening with the bond market right now quickly and then we can move on to some other topics.
[00:10:49] Wade Kozak
Well, one of the reasons we have talked about bonds a lot in these last few months is because of how much interest rates have come up and and where I think there is a lot of value to be found is in some of the bond yields that are available right now. Whereas a year ago about the best you could do for a ten year investment grade Corp was around 3%. Right now you can get anywhere between. 4 3/4% and 5 1/4%, depending on the name on an investment grade corporate bond. And I don't think that necessarily is going to last. So I think that that is it is good opportunity and that's why we've spoken a lot about it. Part of the reason that we just came off the other segment talking about potential recession is one of the best predictors of recession is the bond yield curve. And right now the long bonds are actually yielding less than the short bonds. And so instead of the a positively sloped yield curve, where the longer the bond, the higher the yield is. Right now, a six month or a one year government guaranteed bond is actually paying more than a seven year or ten year government bond.
[00:11:59] Wayne Nelson
Is that a harbinger of of a possible recession to come?
[00:12:02] Wade Kozak
Typically, yes. You know, and it generally is a fairly good predictor that a recession is on the way. Now, I can't put the name to this quote, but somebody said that economists have predicted 15 of the last seven recessions. So we have to be careful about predicting the future in that lots of people predict lots of things to go and happen. They don't always come about, but that inverted yield curve is generally a pretty good predictor of a coming recession.
[00:12:32] Wayne Nelson
All right, Harrison, further comment.
[00:12:35] Harrison Kozak
The with the yield curve inverted as it is today, to Wade's point, right now, a lot of value can be found in those longest term bonds because, again, sort of as we mentioned before the break, they're the central banks tend to overcorrect. Right. And so they go a little too far. They raise rates a little too high, and then they have to take a step back and drop those rates again a year later or so. In doing that, it means that those longest term bonds that are paying these really great interest rates will become all the more valuable because suddenly interest rates will drop just a little bit again, hopefully not too far. And hopefully it just sort of stabilizes for a little bit. But it means that all the value you can find out in those long term bonds is going to be there for the next ten years that you're holding on to that bond until it's maturity ten years out.
[00:13:25] Wayne Nelson
So still a good investment strategy.
[00:13:28] Wade Kozak
Bonds It's important to remember that the the bank rate changes. They affect the short end of the curve. So the the government and the central bank has a lot of control over what those very short rates are. The long end of the curve is controlled by the market. The these bonds are buying being bought and sold on the open market and that's determining what that ten year yield is. And so right now the bond traders are saying, well, look at how much they've raised, the short rate they're going to keep inflation in check. If inflation is going to be kept in check, these long term bond rates available are actually pretty attractive if inflation starts coming down. And so the bond traders start buying those long term bonds, driving the prices higher and the yields lower. And so we you actually see the yield on those very longest bonds coming down, sometimes even as they're raising the short rates with the with the central bank. So it's a confusing place to to reside in the bond market. And it takes a lot of experience and years and time of sort of watching watching these patterns. And, you know, we'll move on to the equities now because I don't want everybody to get completely bored about bonds.
[00:14:39] Wayne Nelson
Well, no, and you've got your equities and then you have something called complex equities. So let's start with the basic thing first. Let's I'm still wrapping my head around all this stuff. So we'll talk about basic equity market.
[00:14:52] Harrison Kozak
Yeah. So the the way we invest in stocks is pretty rigorously strategized, right? We don't do anything by flavour of the month, for lack of a better word.
[00:15:05] Wayne Nelson
And you don't have a dartboard.
[00:15:06] Harrison Kozak
Exactly. Exactly. There's a little bit more to it than that. And so when we're looking at investing in our stock market portfolio, which were sort of constantly discussing what's going on in there as a team, we're examining a couple of things. The first thing that we want to be aware of, if you've listened to the shows at all, is that those stocks in our portfolio have to be paying some kind of an income.
Some kind of dividend is flowing into the accounts from them. And further to that, we want to make sure that that dividend that we're earning, we aren't overpaying for. We're looking at the valuation of those stocks in comparison to what we think they're worth based on the different kinds of ratios and math that we can do behind the scenes and ensure that when we're buying that stock for a client, we're buying it for the long haul and we know that there's value to be had in it long term, not not a short term purchase, just to get in and get out quick and earn a couple of bucks along the way.
[00:16:03] Wayne Nelson
I like what you said on our last show, Wade, is that you're buying the same stuff for you. As you recommend to your clients?
[00:16:14] Wade Kozak
Yes, exclusively. So that on that equity portfolio, it's it's very disciplined on on the stock selections we make. So on the core of the equity portfolio, we're simply looking at the largest blue chip companies in Canada. We're sorting them by dividend yield and we're taking the top dividend yields and then sorting those names by their price earnings multiple. And we're looking for the cheapest possible companies based on their price to earnings multiple out of the highest income paying companies, out of the biggest blue chip companies in Canada. And we select the we select the ones that show up in that list and we literally cover up the names and perform that sort. So it's kind of a complete surprise when we uncover the names to see who are the highest dividend payers, who are the cheapest ones and what shows up in that list.
[00:17:07] Wayne Nelson
So you don't have a preconceived bias based on the name.
[00:17:11] Wade Kozak
Exactly. And and I'll I'll tell you, like over the years of doing this and I've been doing this for for over 20 years, sometimes a name will show up. And invariably the one that I kind of sneer at that I say, Oh, I don't want to buy that company. I remember buying that company ten years ago and it didn't do very well or whatever. Right. But invariably the one that I kind of think, Oh, I don't really want to buy, that one ends up being the best performing one over over the next 12 months.
[00:17:38] Wayne Nelson
According to the due diligence that you've done.
[00:17:41] Wade Kozak
Yes. And that's that's because of the fact that it's out of favour. Right. Is is why I kind of turned my nose up at it. And I've learned to keep our subjective hands out of it and and try to not try. But we we keep that subjectivity of I like this stock. I don't like that stock. If you find yourself thinking things like that, then you are letting that subjectivity help make the decision. And that is a mistake.
[00:18:10] Wayne Nelson
Could I simplify it by saying you're looking for the the safest return or sorry, the safest stock or bond that gives you the most bang for the buck?
[00:18:22] Wade Kozak
Sure. Yeah.
[00:18:23] Harrison Kozak
Yeah. That's pretty that's pretty much winds it up.
[00:18:25] Wayne Nelson
Okay. And that's the that's the the basic equities aspect of things. And there is a more complex equity strategy which we will talk about in the next segment because we have to pause for a break right now. Got to pay those bills if you'd like to perhaps improve the returns on your investments or reduce the costs and risks associated with investing, then you need to call the Kozak Financial Group that number 403-260-0568. Check out the website KozakFinancialGroup.ca. There's some great information there. And I'm chatting today with Wade Kozak and Harrison Kozak. We'll be back with more on Talk to the experts you're listening to Talk to the Experts on QR Calgary,
[00:19:10] Wayne Nelson
I'm Wayne Nelson. My guests today are Wade Kozak and Harrison Kozak from the Kozak Financial Group, CIBC Wood Gundy The website is Kozak Financial Group.ca. Now, if you have any questions about investing or if you'd like the Kozak Financial Group to take a look at your portfolio, then give them a call. The number is 403-260-0568. Wade, Harrison before the break, we were discussing the the equity market. Let's just quickly wrap up on the basic equity, what your strategy is.
[00:19:41] Wade Kozak
So we talked about the blue chip core of the of the equity portfolio to round that out because obviously if you if you think of that list of the cheapest pieces out of the highest dividend payers, you tend to get banks, insurance companies, telephone companies and that's pretty much it here in Canada. So to round that out into a properly diversified equity portfolio, we have what we call our high yield portfolio. We add on to it, we use a similar discipline strategy there. But first and foremost, we want to sort it by again, dividend yield. Everything has to be paying a dividend. And then within the industry groups, we want to sort these companies based on their dividend payout ratios to make sure that the dividends they're paying us are actually real and they aren't just handing us the money that's in their bank account back to us. And we also look at their debt to equity and debt to cash flow ratios to make sure that they their balance sheets are in good order and they aren't just super highly leveraged. And at the any moment something could go wrong and the whole thing could come off, all the wheels could come off and we use those other criteria to go and sort these companies down and then set limits.
[00:20:59] Wade Kozak
We are limited to 35% in any one particular industry group to make sure that we don't stick our neck out too far in any one direction. And so you know when the energy downturn came we. Weren't so highly exposed to energy companies that it dramatically affected the overall portfolio or financials, etc., etc.. The one thing that every single stock we own has in common is that every single one is paying us a dividend. And I like to think of those dividends as paying us to wait so that even if we have a bad year in the stock market and 2022 certainly wasn't a great year. Every single one of those companies still has all the cash flow flowing into the accounts to go and fund a withdrawal or to be reinvested into into other stocks and take advantage of the weakness that's happening in the stock market. And our goal is for that income on that equity portfolio to go up every single year. And surprisingly, this past year, where we can look back and say, Ouch, it wasn't a great year for the stock market, We actually saw the income on that equity portfolio grow more than I've ever seen it grow in one year, basically in my career.
[00:22:16] Wayne Nelson
That's the surprising part, not the fact that you picked it.
[00:22:19] Wade Kozak
That's right. That's right. That's largely because most of these blue chip dividend paying companies in the past 12 months have announced dividend increases. We saw a lot of significant dividend increases, which you expect to see during times of inflation. Economic theory says that during periods of inflation, those blue chip dividend payers should increase their dividends. But of course until you're actually see it happen, you're never quite certain it's going to happen. But that's exactly how it worked. And so we've been able to show our clients that even though the cost of living has gone up and perhaps a retired person is needing to take a little bit more money out of the account, the income the account is generating has actually gone up significantly and can keep pace with with that with that withdrawal need.
[00:23:08] Wayne Nelson
And that was to a greater extent than you had expected.
[00:23:12] Wade Kozak
Yes. So normally, even at a in an average year, you see a lot of these companies raise their dividends. But the number of companies that raise their dividends and the amount they raise their dividends in the past year was actually quite surprising and it was nice to see.
[00:23:28] Wayne Nelson
Harrison There are some issues that you have to be aware of when you're investing in the equity side, complex equities.
[00:23:36] Harrison Kozak
So when we get to this sort of stage in the economic cycle, the stock market's down. In this past year, the bonds have been down as well. Suddenly a lot of different types of things come knocking and start suggesting sort of in your ear their strategy and what they're doing. And you occasionally have somebody ask about, well, I saw in the newspaper, I heard something about such and such ETF, such and such exchange traded fund. And when I look it up on my screen and I pull it up in our our systems at the at the office, oftentimes what I find is, yes, it has a sort of a big return this year. But that is because the way that it's structured and the strategy that it's employing is incredibly risky. And that's not always apparent. And in a year where your accounts might be down a little bit, people sometimes start to cast about looking for a better return and then they have. Exactly. And they find it here. Here's this alternative investment that's offering me a better return. And I point out to them that, yes, this return was good in the past year, but that's because this ETF could be it could be levered, it could be making extremely risky trades and stock placements in its portfolio. And really under the hood, it's not clear to the average investor exactly what the plan is with this fund or product or whatever it might be. And it begs the question, if you can't explain it to me how it works and I can't explain it to you how it works, should you be purchasing it if you're not 100% sure exactly what's going on here? Can we be sure that this isn't going to turn around at any moment and bite us?
[00:25:19] Wayne Nelson
Well, and that's that's the crux of it, isn't it, the average person. Because they may have this isn't their full time occupation. They may have other interests, they may have other distractions. And to do the job properly, it's a full time job for you guys. It's you've got to do the work. You know, what steps have to be taken to do that. Due diligence.
[00:25:44] Wade Kozak
Every year there seems to be some flavour of the day. Yeah, right. And whether it's marijuana stocks or three D printing stocks,
[00:25:52] Wayne Nelson
By the way, where are those marijuana stocks?
[00:25:54] Wade Kozak
Right. You know, who knows? It doesn't matter. Right. Or artificial intelligence stocks. There's always some next greatest thing. And sometimes we'll meet somebody and have a look at the overall portfolio. And you can almost see the timeline of that. Okay. This person made an RSP contribution and this year and that's the security they bought because it was it was the flavour of the day that year. And the next year they made an RSP contribution. And this is the security they bought because that was flavour of the day of that last year, that kind of portfolio. There is no strategy to there is no overriding logical method of how is this going to turn into a pension plan for you one day. And that, in my opinion, is is its greatest failing. And often in those accounts you'll see those kind of super complex securities that Harry's mentioning, where you open them up and you try to figure out exactly what they're trying to do and how do they work and sometimes it's so opaque that it's very difficult to do that. Or sometimes you can't figure out how it works and it is just so super complex that you know, it's meant for such a specific purpose that I'm not quite sure who exactly it's meant for.
[00:27:12] Wayne Nelson
It doesn't pass the smell test for you guys.
[00:27:15] Wade Kozak
There are some ETFs that are designed only to be owned for a day. And really, yes. And if you own it for longer than a day, you're doing yourself a disservice. They don't tell you that, right. And it's not part of their advertising that you shouldn't own this for longer than 24 hours. But there's, you know, two times negative leverage, negative inverse leveraged ETFs that are. If you think that announcement's going to come out that the price of oil is going to go down tomorrow. Here is the security to buy. But it certainly isn't a long term investment that you want to hold for two or three or four days because the time value of the options that they're constantly rolling over, we'll just eat you alive over time. And you so you want to be completely aware of what it is you're investing in and how it's designed and what it's designed for.
[00:28:02] Wayne Nelson
You just hit on a key word there, and that's time, because it has different applications depending on how old you are, where you are in your life in terms of your financial strategy. Because someone who is at the cusp of retirement or in retirement doesn't have the time to recover from errors that someone who has been who is still new to the game, they might have 30 or 40 years to recover from mistakes of their investment.
[00:28:31] Harrison Kozak
That's certainly somewhat true. It certainly is sort of the standard financial knowledge that in early days you can take more risk and as you age you should take less and less risk. But in practice it actually doesn't end up working out that way. If you're the type of person who is willing to accept substantial risk in your investments, then you'll probably be that way for the rest of your life, right? Unless something dramatic changes about your personality and your psychology, you're not going to change the way that you think about the markets. And as such, we don't force our clients to do to make any changes based on their age.
[00:29:09] Wayne Nelson
All right. Some great advice. And that's one of the many reasons why you should be approaching the Kozak Financial Group to have them work with you. That's Kozak Financial Group. CIBC Wood Gundy, their website, KozakFinancialGroup.ca or you can call them to set up a consultation the number is 403-260-0568. Wade Kozak, Harrison Kozak from the Kozak Financial Group, my guests today. We'll be back to wrap things up on talk to the experts.
[00:29:36] Wayne Nelson
Wayne Nelson back with you on. Talk to the experts, my guests today, Wade Kozak and Harrison Kozak from the Kozak Financial Group CIBC Wood Gundy. If you have questions about investing, if you have some concerns or some uncertainties about what your stocks or bonds or funds are doing, then give them a call. The number is 403-260-0568. See what they're all about? Check out the information on their website. Some great information there. It's KozakFinancialGroup.ca, Wade Harrison. Let's talk a little bit more about the pitfalls or the pros and cons really, of the complexities of the equity investing.
[00:30:16] Harrison Kozak
Yeah. So one of the things we wanted to touch on this month, because it's sort of timely, right, especially end of the year and taxes sort of coming around the corner here is paying attention to the things you're already owning and what's going on with them. A lot of times individual stocks, individual issuers of financial products will announce events that are going on with that specific stock.
[00:30:41] Wayne Nelson
What what's an event?
[00:30:42] Harrison Kozak
So an event, it could be just about anything. It could be a bond being called away and being taken off the market. It could be a stock issuing an additional dividend or a different kind of distribution. Same thing from an ETF, a type of distribution to keep their financial books clean for lack of a better term. And these are the kinds of things that if you're not paying attention and you miss taking the correct actions, it could cause you a whole big headache, either with the type of tax reporting that you're going to have to do on that event, or it could make a major change to the way your portfolio is structured if you aren't constantly paying attention and adjusting for those events as they come.
[00:31:26] Wayne Nelson
when these announcements are made. Basically, you're saying sit up and take notice.
[00:31:32] Wade Kozak
So for instance, last year I can think of at least three separate times that your US listed securities were being taken over or had a spin off of some type, and they structured it very well for US holders so that it would be a very easy transition for a US citizen holder of these securities, But a Canadian holder of these securities, the way they structured it was that there would be a gigantic distribution that was all taxed as US dividend. A huge amount of withholding tax was going to be withheld and you could have avoided it if you simply just sold the security before they went and made that dividend and then bought it back right after. And you could have avoided all of the headaches and all of the tax issues that that they weren't purposefully putting on Canadians because they were structuring it properly for American holders. But you have to be aware of these things when they happen, when they're happening, and keep on top of it. There is a takeover right now happening of a Canadian security where it's being structured that it might have a $20 per share value, but in the takeover, $10 is coming through as a capital gain distribution and $10 is coming through as a basically a sale of the security. So somebody who bought it just a little while ago is going to have this huge capital gain to declare in this dividend and then this loss perhaps to offset it with on the share. And it probably will all work out okay. But you want to make sure that with your individual circumstances that maybe it's just simpler and better for you tax wise to sell that security just before that takeover happens.
[00:33:16] Wayne Nelson
How many of these happen? You said there was two or three big ones last year. Is this fairly common practice then? Wade, Harrison.
[00:33:24] Harrison Kozak
It is. Some of the more common ones that you might see are the way that income is being distributed out of something like an exchange traded fund or a mutual fund. At the end of the year. They will issue what's called a return of capital, because the way these things are structured, they're structured as a trust and they're not allowed to specifically earn income themselves. And so if they have something left over at the end of the year, they got to make sure the shareholders are actually the one who get it on their taxes. And that's not always unfavourable. Right. It doesn't mean that this is a poor circumstance for you, but it means that if you're not declaring it properly in your taxes, if you aren't having your taxes prepared by an expert who can make the proper adjustments, you might be missing out on something or you might be sort of less advantaged than you possibly could be.
[00:34:17] Wade Kozak
All right. I can think of examples where a Bond had a company wanted to change something in the in the indenture of a bond and to incent people to vote in favor of making this very inconsequential change to a bond holder. But it made a big difference to the bond issuer for where they could hold it on their balance sheet. They actually offered a little sweetener and they were going to pay like a half a percent bonus interest for everybody who voted in favor of it. If you're not paying attention to it, you're not going to collect something like that. And so it's important to not be asleep at the wheel and and pay attention to to those kind of all those little individual security idiosyncrasies.
[00:35:04] Wayne Nelson
Earlier when we were talking about the investment strategy. Wade, you were talking about the way that you do your due diligence. You basically take the names off, you look at how they perform, what the potential return is going to be. Do you focus mostly on Canadian or is there a portion of the investment that includes US or U.K. or other equities and bonds from around the world?
[00:35:30] Wade Kozak
We focus around the world. However, our expertise is on the Canadian equities. And the individual stocks that we select typically are on the Canadian side of the border. We do have obviously US exposure, but we prefer to use broad ETFs and some individual more specific ETFs to go and get exposure to the US and around the world. There's also a bit of a misnomer about diversification if you own nothing but the biggest Canadian companies, quite frankly, a lot of them have a lot of US exposure. So I think, for instance, Bank of Nova Scotia is getting close to more than half of their total earnings coming from outside of Canada. And so you buy it, it looks and smells like a 100% Canadian stock, but you're actually getting a lot of exposure to Central and South America in that company. You buy an electric utility and you get the dividend tax credit. It's a Canadian listed stock. It smells and looks like just 100% Canadian content about half of their revenue comes from the US and from US power projects they have. So you want to make sure you don't over diversify outside of Canada. And one of the greatest and best tax breaks that we have left as Canadians is the dividend tax credit. It can be incredibly powerful for a client who's retired and is generating most of their earned income from Canadian eligible dividends. They can pay a very low rate of tax so we want to take advantage of that Canadian dividend tax credit as much as we possibly can.
[00:37:11] Wayne Nelson
So I guess the diversification amount would depend on the individual what what their risk tolerance would be. Their consultations with you guys at Kozak Financial and your evaluation of where they are, where they want to be. And you would be creating a unique program for them?
[00:37:34] Wade Kozak
Precisely. Everybody's circumstances are a little bit different. The equity portfolios that we manage are very similar across clients. What's different is this client may have a 75% exposure to the stock market, and this client might only have a 30% exposure to the stock market depending on how much risk they feel like they should be taking and how much they want and the guaranteed side of the account.
[00:38:02] Harrison Kozak
And we shouldn't say that we're incapable of investing in US stocks, that kind of thing. Part of what makes the decision is also an individual client's circumstances. So if you're the type of person who maybe has a condo down in Palm Springs or Phoenix and you have a need for some US dollar income coming in every year just to pay the bills down there and make sure it's taken care of, Absolutely. Something that we can organize both on the bond side and the stock side to ensure that your lifestyle is paid for in the most efficient way possible.
[00:38:33] Wayne Nelson
All right. Let's wrap things up with a quick question. Someone wants to get some advice from Kozak Financial Group. They call the Office. They set up a consultation. What's next?
[00:38:44] Wade Kozak
The next step is for that that potential client to come in and actually meet us face to face and hear from us in more detail exactly how it is that we manage money for our clients and whether or not that would be a good fit for them, and also get more detail about their individual circumstances. And we can tailor our approach to their particular situation and see if we can help them out.
[00:39:10] Wayne Nelson
Parting comments today? Harrison.
[00:39:13] Harrison Kozak
I don't think I have too much on the mind. I'm certainly happy to see the warm weather this week and dreading whatever polar vortex is on its way next.
[00:39:22] Wayne Nelson
I heard about that and that's all I need to hear. Wade and Harrison, once again, gentlemen, it's been a pleasure. Thank you for popping in today.
[00:39:30] Harrison Kozak
Thank you so much for having us.
[00:39:31] Wade Kozak
We'll see you next time.
[00:39:33] Wayne Nelson
You bet. For expert personal investment advice, you need to contact the Kozak Financial Group, CIBC Wood Gundy, where there's a focus on income generation Phone 403-260-0568 or visit their website KozakFinancialGroup.ca. I'm Wayne Nelson with Wade Kozak and Harrison Kozak of Kozak Financial Group. Thanks for joining us today on Talk to the Experts.
[00:40:00] Narrator
CIBC Wood Gundy is a division of CIBC World Markets Inc, a subsidiary of CIBC and member of the Canadian Investor Protection Fund, and Investment Industry Regulatory Organization of Canada. Wade Kozak is an Senior Wealth Advisor and Senior Portfolio Manager with CIBC Wood Gundy in Calgary. The views of Wade Kozak do not necessarily reflect those of CIBC World Markets Inc. Harrison Kozak is an Associate Investment Advisor working with Wade Kozak, Senior Wealth Advisor. If you are currently a CIBC Wood Gundy client, please contact your Investment Advisor.
December 9, 2022 – “Talk to the Experts” Radio Show
How much is enough? This month we get in to building a financial plan and preparing for retirement.
[00:00:00] Narrator
CIBC Wood Gundy is a division of CIBC World Markets Inc, a subsidiary of CIBC and a member of the Canadian Investor Protection Fund, an investment industry regulatory organization of Canada. Wade Kozak is a Senior Wealth Adviser and Senior Portfolio Manager with CIBC Wood Gundy in Calgary. Harrison Kozak is an Associate Investment Advisor working with Wade Kozak. The views of Wade Kozak and Harrison Kozak do not necessarily reflect those of CIBC World Markets Inc. If you are currently a CIBC Wood Gundy client, please contact your investment Advisor.
[00:00:30] Wayne Nelson
Welcome to talk to the Experts on CHQR. I'm your host, Wayne Nelson, and I'm pleased to welcome my guests today, Wade Kozak and Harrison Kozak from the Kozak Financial Group, CIBC Wood Gundy check out their website. It's Kozak Financial Group.ca. The phone number 403-260-0568. Wade, Harrison, thanks for joining us. Welcome to the show.
[00:00:54] Wade Kozak
Good to be back here for a December show.
[00:00:56] Wayne Nelson
Yeah, we usually start things off by talking about the markets and of course, this past week, the Bank of Canada raised its key overnight lending rate again, this time 50 basis points. It's what, 4.25% now, the highest level in almost 15 years. There had been speculation by some that it would be a 25 basis point hike. Others said 50 basis point. I guess the silver lining is that the bank has now issued a statement that seems to indicate this could be the end of the increases, but it's it's not definitive. What's what's your comment on that, Wade?
[00:01:29] Wade Kozak
It certainly isn't definitive. I'll point out that the that the bank prime rate has has popped up to 6.45%. That's probably more important to people out there in radio land who have lines of credit or mortgages or anything that's tied to bank prime rate. And that, like you said, high as it's been in 15 years. That's a very, very high number. The Bank of Canada might have made a statement, interpret it as perhaps we're getting closer to the end of the interest rate hikes. Perhaps we're closer to the end then the beginning. But honestly, I think that's about as far as I would take that statement. I you know, you certainly can't take it to the bank, so to say, so to speak.
Right. I think it's really interesting to point out that these last two rate hikes that we've seen come from the Bank of Canada, they've actually caused the long term bond rates to come lower. So the the rates that I can get on ten year government and ten year investment grade corporate bonds have actually come down in the past month. And we're now sitting with one of the steepest inverted yield curves that I've ever seen in my career. The ten year Canada bond rate is a full 1% below the two year Canada bond rate. So it's not just a couple of basis points anymore. It's a full 100 basis points that this this yield curve is inverted, essentially predicting a recession.
[00:03:02] Wayne Nelson
Not good news for an investor who may have their portfolio mostly in the bond market as opposed to the equity market. So should they have had a mix?
[00:03:16] Harrison Kozak
Typically, most of our clients have a mix of both bonds and stocks in their investment portfolio. And in normal times, the reason we hold on to those bonds is to quell some of the volatility of the stocks to kind of level out the way the portfolio moves overall. And that's still true today, even when bond prices move substantially like we're seeing right now, the 10% or 15% that a bond price will move pales in comparison to what a stock can move, right? Some some things this year, especially in the technology market, are down 60 to 70% since January this year, which very much eclipses the amount that a bond price can move. That being said, though, that most concerns of investor who's primarily investing in bonds and really does not want any volatility at all could be a little bit nervous at this point having seen their bond portfolio move so substantially over the past 12 months.
[00:04:14] Wayne Nelson
Yeah, that's what I wanted to get at. Are you then getting calls from your clients going, Hey, like I'm seeing this, not a good thing. What's going on? What can I do?
[00:04:22] Wade Kozak
It's been a difficult year for those most conservative clients because a client who's used to the volatility of the stock market, they've seen what's gone on this past year and the kind of stocks that we own, the blue chip dividend payers, they've actually done reasonably well. They aren't down nearly as much as the overall market is. It hasn't been a terrible year for a stock market investor or somebody who has at least a healthy component of equities in their portfolio this past past year hasn't been remarkable one way or the other. But a client who is very conservative and comes to us and says, look, I just want to have everything that I own to be guaranteed. I want a government or a corporation guaranteeing my principal, my interest payments. And so and there's nothing wrong with taking that approach. Recently, the the interest rates we've been able to get on those kind of securities before this year have been very, very low. So like this time last year on a ten year investment grade corporate bond, we were hard pressed to go and get 3%, quite frankly, whereas now we can quite easily get 5% on a investment grade corporate ten year bond. But because of that, the existing bonds that client holds have dropped temporarily in value. I say temporarily because every bond we hold has a guaranteed maturity date and a guaranteed maturity value. And a guaranteed amount of interest is going to pay each year in between now and that maturity date and the path that you take from when you purchase that bond and when it matures doesn't really matter so much. We know exactly where it's going to end up, but temporarily in the middle. When you look at your statement right now, the value of those bonds are down because interest rates are much higher and that doesn't feel very good to that most conservative investor.
[00:06:19] Wayne Nelson
No, but they have to realize you're going to get those peaks, you're going to get those valleys. But you have to look at the trending overall to maturity date. And I like what we talked about on our last show. Harrison, when you mentioned the ladder type approach to to bond investing.
[00:06:34] Harrison Kozak
Yeah. And so if you if you employ a bond ladder in your portfolio and you have new bonds maturing every year and you're rolling that money over into the longest term bonds, again, you're you're investing in the only real way that you can invest in bonds where you're not speculating on interest rates. This year is a great example. Beginning of this year, if you had said we're only wanting to buy the longest term bonds, locking in those 3% yields and not looking at anything else, you would been making the right choice all the way along because the rate's been climbing higher and higher and higher. You've been getting better and better bonds at every maturity. Whereas if you had said, I'm going to sit in cash and wait till the rates are really good, maybe come this time. Right now the 5% paying bonds are a little bit fewer and further between. Back in August or July, you couldn't look at the list of bonds available and not purchase something that was paying over five. But now things are starting to creep down. Like Wade said, those longest term bonds, the yields have actually come down on these most recent two rate hikes. And that's because those institutional players are out there snapping up all that inventory, saying, hey, this is a great price for this bond. I'm not going to wait around on it. So employing that ladder, staying dedicated to it and not straying from your plan really helps you to avoid the speculation component. You're not guessing what's coming next. You're just acting based on what's available today and you're going to carry forward from that point forward.
[00:08:06] Wade Kozak
If we think back over the past honestly, 12 years and we go all the way back to the financial crisis in 2008, interest rates came very low. And basically, if you think back, like I'd say every month or two, there was a newspaper article talking about how any second rates were going to rush higher. And, you know, I would talk to clients about that and they would say, well, maybe we should hold off, maybe we should take the bond money and just sit in cash and wait until these higher interest rates come along. And if you had done that in 2009 just sort of waited, you would have waited until this year and you would have had that money in cash for the past 13 years waiting for those higher interest rates, essentially earning nothing, sitting in cash, waiting for the higher interest rates this year. Whereas a client who took a more prudent approach and said, okay, let's buy that ladder of bonds, let's buy bonds coming due in one year, two years, three years, four years, all the way out to ten years. And next year, with that 1/10 of the money maturing, if rates are higher, I have money coming due to take advantage of it. And if they aren't, you can still roll it over into the ten year term and you will average over the next ten years. Whatever the average ten year bond rate is that we can we can get. And so today we have money maturing to go and take advantage of the higher interest rates that have been available during 2022. How long will these higher interest rates last? Who's to say interest rates are even tougher to predict in the stock market, quite frankly. But at at the current rates we can get, I'm quite happy to go out and buy bonds coming due in ten years where a year ago I was really having to hold my nose through to when you were looking at the kind of rates that were available.
[00:09:53] Wayne Nelson
Okay. We're going to pause for a break. You're listening to Talk to the Experts. I'm Wayne Nelson and I'm speaking today with Wade Kozak and Harrison Kozak from the Kozak Financial Group, CIBC Wood Gundy. KozakFinancialGroup.ca is their website. If you have any questions or concerns, if you'd like a consultation about your investments or retirement plans, the number to call is 403- 260-0568. We'll be back with more on Talk to the Experts.
[00:10:20] Wayne Nelson
If you're just joining us today, I'm Wayne Nelson, and my guests are Wade Kozak and Harrison Kozak from the Kozak Financial Group, CIBC Wood Gundy KozakFinancialGroup.ca is the website. And if you have questions about your investments, how your portfolio is doing, or if you'd like a consultation, give them a call. The number is 403-260-0568. Wade, just before the break, we were talking about bonds. And the key for me would be making sure you pick the right bond.
[00:10:51] Wade Kozak
There's a lot of information out there, and every single bond issue has a whole lot of attached information. And it takes a lot of experience to go and sift through the bonds and and look at the ones that are rate reset versus the ones that are fixed floaters. And what exactly does that mean? And this is information that honestly you pick up slowly over time from having done this for a very, very long time.
[00:11:18] Wayne Nelson
And that's why you want to hire someone or consult with someone like yourself or Harrison or any of your team members at Kozak Financial Group, because it's tough going if you're trying to do it on your own.
[00:11:29] Harrison Kozak
Not to mention that for the average Joe, it's pretty boring stuff. And, you know, it's there's a lot of information involved. It's difficult to come up with a specific strategy on how you pick things, which is part of what our team's experience is built on. We've been doing this exact type of investing for so long and we have sort of a well defined mandate of whether or not we're willing to own a specific bond when we see it come up on our screen. So it's almost an instantaneous decision. Yes, that one's okay or no, that one's not. And I'm honestly almost couldn't put it into words because there's so many different variables coming into play.
[00:12:09] Wade Kozak
I like owning individual bonds, though, for clients because I think our clients really appreciate seeing their investment account statement and seeing an actual line item of this corporate issue of that corporation. There's the maturity date, there's the guaranteed maturity amount that's stated on the statement, there's the interest coupon that's going to be paid. And based on that information, you know exactly what the days are. You're going to go and collect that interest and we can walk clients through that. And regardless of whether the bond has gone up and down or in value over a certain period of time, you know that on that date this is what the bond is going to be worth and this is how much interest you're going to get on these dates no matter what. It's literally etched in stone. And we don't like to own bonds through mutual funds or ETFs.
[00:13:01] Wayne Nelson
Okay. What is an ETF?
[00:13:03] Wade Kozak
Etf stands for Exchange Traded Fund.
[00:13:06] Wayne Nelson
All right.
[00:13:06] Wade Kozak
And these are essentially collectives of investments. And you can buy all kinds of different ones. And and lots of them are great. I just don't like buying the bond ones. I rather own individual bond issues. So if you buy a Bond ETF, it essentially owns a whole bunch of different bonds for you, typically following some kind of a set of rules that that particular ETF has. The reason I don't like owning an ETF to hold bonds is because I don't have a line item where I can't show here's the maturity date, here's the maturity amount, here's the interest amount you're going to collect that's a little more opaque to the investor. And you can make some assumptions about what the overall collective of the bonds they hold and what it must be. But you certainly have no assurances that that's exactly what it is when you have an actual individual bond line item.
[00:13:59] Wayne Nelson
All right, enough on bonds. As you said, it can be a rather mundane topic for the for the average person, to put it bluntly. Let's talk about retirement and people who are on that cusp of retirement. Now, let's say you have a client who's retired. They typically no longer have employment income. They'll probably be receiving depending on their age, old age, security, CPP, they may have some decent investment portfolios, pension, RRSPs, TFSAs, but that's probably it. So where do you start in developing a plan for them during retirement? Because just like everybody else, there's still bills to pay.
[00:14:40] Harrison Kozak
Yeah, and step one maybe is those bills. Let's collect sort of an estimate if you don't already have a really firm idea, let's sit down and figure out what do my expenses look like month to month. And you know, you want to make an estimate and you want to be fair to yourself as well. It can be pretty easy, especially when you're still working to sit down and say, Oh, well, this was just a one off expense where we replace the fridge. You know, I kind of won't include that in the usual averages and oh well, we did the roof, you know, you don't really include that and you want to adjust all of life's uncertainties into your plan. And so you want to take that pretty good average. What do I spend on a month to month basis to keep me in the way I'm accustomed?
[00:15:23] Wayne Nelson
Now, that requires a four letter word for a lot of people work.
[00:15:27] Harrison Kozak
Yeah, it does require a little bit of work, but it's work well worth doing. Sure. Anybody who sits down and sort of hammers out a pretty rough estimate of that, you don't have to get out sharpened pencil and and start crossing off things on your bank statement or anything. But as long as you have a good idea approximately what you're burning every month to keep yourself the way you like to be, you have a good start. And once you have that foundation set, the work now comes from how do we take all of these different capital pools I have at my disposal my CPP and OAS, my registered plans, like my RRSP. And if you have a pension, all of these different pools that are going to be paying you capital, what's the most tax efficient way to make yourself a paycheck? By taking the CPP amount, the amount, the amount that you can pull from your RRIF to arrive at the amount you need each month to keep yourself in the way that you're accustomed.
[00:16:25] Wade Kozak
And there's there's a couple of things going on there. And I'll point out that that number that Harry talks about, what I call it, the burn rate, what does it take to show up in your bank account each month to keep the wolves away from the door, to keep your lifestyle running the way it is? That's a number that we can't calculate for you. That's a number that the client has to go and calculate for themselves. And everybody's different in that regard. And I remember, like in the in the economic or the oil and gas downturn when, you know, a lot of senior executives were getting layoff notices and the like. And we were talking to some clients who they could have retired years ago, but they were still working. And now suddenly retirement is being foisted on them. And I was asking them, okay, what do you think it is like? What size of a check do you need us to go deposit to your bank account each month to keep everything running? And they didn't know. And it kind of frustrated me until I realized that I didn't know that number either. And so I actually painstakingly set up a spreadsheet and started keeping track of exactly how much our household spent every single month on everything. And I put it into one of a few categories. There was one category of this will definitely still be an expense during retirement, your property taxes, utility bills, all of those things that just have to get paid every month.
[00:17:46] Wayne Nelson
Your groceries costs cost going up these days.
[00:17:50] Wade Kozak
Exactly. Another category was here's what are the expenses. That definitely will not be an expense when I'm still retired. So I'm thinking here about maybe my downtown parking bill that I certainly don't intend to continue to go and pay once I'm not driving downtown every day. And then there was kind of a gray area of are these expenses that will continue or not or will they be continuing at the same pace? And I'm thinking here of, you know, perhaps we were going in vacations at the time, but some of that vacation expense actually included the kids we were taking along with us. And maybe that wouldn't quite be such a big part of the retirement expense.
[00:18:27] Wayne Nelson
If you're cut off now.
[00:18:28] Harrison Kozak
That's yeah, this is how I find out.
[00:18:31] Wade Kozak
Yeah. You know, even in that grocery bill when I was doing doing this work, we still had a couple of university students living at home with us and they were affecting the grocery bill. And so the grocery bill wasn't necessarily completely accurate, right. As to what it was just going to be for my wife and myself in retirement. But in doing that for a full year, you can get a really clear picture of of here's the number. And if you're like most of our clients, once you do that and you're actually coming in to talk to us and set up a financial plan, you pad it a little, right? You say, okay, I'm just I'm pulling numbers out of thin air here. But let's say that number was 7000 or 8000 a month and you're coming in to talk to your Investment Advisor, which is us. And you say, yeah, you know, 7000 or 8000 a month. Like I think I included everything, but I'm not I don't feel 100% confident that I did. Let's tell them eight or 9000 a month just to, just to kind of air in the side of caution and everybody does that. And I understand it, but that's the first number you need for us to go and be able to crank out a proper financial plan.
[00:19:34] Wayne Nelson
Okay. Let's continue that in our next segment. If you'd like to perhaps improve the returns on your investments or reduce the costs and risks associated with investing, you need to call the Kozak Financial Group. The number 403-260-0568. Check out their website. It's KozakFinancialGroup.ca, some great information there. I'm chatting today with Wade Kozak and Harrison Kozak. We'll be back with more on Talk to the Experts.
[00:20:01] Wayne Nelson
You're listening to Talk to the Experts. I'm Wayne Nelson. My guests today, Wade Kozak and Harrison Kozak from the Kozak Financial Group, CIBC Wood Gundy. The website is KozakFinancialGroup.ca. If you have any questions about investing or if you'd like, the Kozak Financial Group to take a look at your portfolio, then give them a call. The number is 403-260-0568. Wade, Harrison before the break, we were discussing that first s in getting your financial house in order. And that is basically a budget item, right? I mean, you're taking a look at how much money are you going to need during retirement to keep up the lifestyle that you're currently enjoying.
[00:20:45] Wade Kozak
And from that point, and this is really important stuff, I want to point out, because at that point in somebody's life, there's a whole lot of fear involved with this. I would compare it to a complete change of careers, right. Where you have one career, you've done a long time and you know exactly how it works. You know exactly what you're doing. You have a lot of knowledge about it, and for whatever reason, you have to quit that job and start doing a different job that has nothing to do with it whatsoever. And there would be a lot of fear and trepidation of like, do I know what I'm doing? Am I going to be able to actually achieve this job and be successful at it? And I think that's the best way to look at making that transition to retirement, because there is a lot of uncertainty and fear that people have of, do I have enough? Is this going to work? How do all these moving parts work together? And I just want to say that we appreciate we appreciate very much having held people's hands across that threshold a lot right over the past decades. We understand how much fear there is, and we're very good at breaking it down into into the little bite sized pieces that need to be done.
[00:22:01] Wade Kozak
But the next portion of that financial plan is kind of twofold. One is how much do you need showing up in the bank account each month to keep the wolves away from the door? And the financial plan does a very good job of working out. Do you have enough? And we can kind of unequivocally answer that that question with that financial plan. But there's a second component and that is how much taxable income should you be showing each year. And this is just as important, if not more important in my mind, because what we want to do for every client is minimize the amount of tax they pay over their lifetime. Not this year. It's really easy to minimize how much tax you pay this year, and sometimes you can minimize the tax you pay this year and you're actually shooting yourself in the foot four years down the road. So I want to show clients what's the best approach to take to minimize the amount of tax they pay over their lifetimes.
[00:23:02] Wayne Nelson
All right. I had a simplistic explanation back in the day, probably shows my age. I was told that if a person had $1 million in the bank and assuming a 5% interest rate, that would pay 50,000 a year. So as long as they left the principle untouched, they would continue to get that 50,000 every year as long as the interest rate stayed at 5%. Now, the reality, of course, is that interest rates have changed, That 50,000 also just doesn't buy what it used to. So what's the magic number today? I mean, back in that day, it was it was
$1,000,000 principal. Now is a million enough or is that just too simplistic an approach?
[00:23:43] Harrison Kozak
You know, I think as time has gone on, it's become more and more clear that there is no magic number for everybody. And that is a question we get quite a bit. People will call and say, look, do do I have enough or I have this much, Is that enough? And the answer to the question is, it depends, right? It depends on a whole multitude of factors. And it's going to take a lot more work to get there. That simple equation certainly sort of gives you this is the salary that you can expect to earn out of your retirement portfolio. And if you know enough about your own expenses, maybe that answers the questions for you. But the the more tricky, more difficult piece of work that we have to go and get done is the answer not to. Is $1,000,000 enough? But what's enough for me? And so that builds in the steps that we've just gone through, right? Sitting down, figuring out what your expenses look like, what they probably will look like in retirement. And then based on what you have available to you or at your disposal, what's the correct drawdown procedure?
Hopefully your principal is paying you all the income you need and it's going to take care of you just fine. You never have to touch a dollar of it and you can leave it to your kids or your favorite charity or whatever the plan is. But in the event that it's not quite enough and you are going to have to draw down the principal, we can help you to develop a plan in how to do so, number one efficiently, and number two, in such a way that you're not going to lose sleep for your entire retirement, worrying that every extra dollar you spend is going to be putting you in the poorhouse down the road at some point.
[00:25:19] Wayne Nelson
Does that advice hold true for those people who have yet to reach retirement age?
[00:25:27] Wade Kozak
Yes. So I think it's very important that everybody out there listening who isn't retired yet actually starts running their retirement investment portfolio as though they already were retired. And looking at it from the point of view of if I was needing this pool of assets to generate a cash flow, an actual paycheck showing up in my bank account each month, how easy would that how easy would that be to set up? Am I having to sell something every month to raise the cash to fund that withdrawal? Are there dividend and interest payments showing up that I could simply withdraw and take into the bank account or or whatever? Right. But you want to be looking at that investment portfolio long before you retire. From the point of view of how does this turn into a regular cash flow flowing into my bank account. And that's why Harrison and I are so are such big believers that every single investment that is held inside of a retirement investment portfolio has to pay an income. The bonds are all paying an interest payment, the stocks are all paying dividend income. And when we do a review with the client, one of the most important numbers we review with them is how much cash flow are we generating each year just in the form of interest and dividend payments. Forget about the growth that may or may not happen each year. We know that income is going to show up and one of the things we do is okay like as this getting close to the number that it has to be in order to go and replace your earned income, because when that cash flow from the investment portfolio can replace your earned income, that's the magic that you can retire without having any kind of step down in in lifestyle.
[00:27:16] Wayne Nelson
I think that statement you made Wade, prepare for retirement as if you're already in retirement would really scare a lot of people these days. A recent report out said 60% of Americans and I would expect that the same holds true in Canada are living paycheck to paycheck. And for the other 40%, there's got to be some trepidation as well about their future investments.
[00:27:40] Wade Kozak
I agree.
[00:27:41] Harrison Kozak
Yeah. And that can be scary. And maybe that scariness is the thing that we need to look at as far as, okay, what changes do we need to make then? Because maybe the answer is the lifestyle is too expensive or maybe the other answer is, well, you're not retiring tomorrow. Most people save the bulk of their retirement savings towards the very end of their career. Right? The kids are out of the house. The mortgage is paid off. Now's the time you have all the excess cash flow to put into the RRSP and you're probably earning the most you ever have as well. And so that panic can sometimes be quelled by the fact that, look, when you're coming towards the end of the game is when a lot of those biggest pieces fall into place. And so as long as you're trusting the process, investing in the run up to retirement as if you're retired, you'll start to see those pieces fall into place. And you can you can rely on experts in your life to to help guide you and give you the advice that you need in order to get there.
[00:28:41] Wayne Nelson
You made a key word statement trust, right? And you're not just trusting yourself. You're, I guess, the fear and as you said, Wade when you're step into retirement age. The fear is all of a sudden now it's like, boy, it's like starting a new job. But you have to have trust in the financial advisor that you have consulted with that you have selected. They have to have a trust in you as well. It's a two way street, right?
[00:29:10] Wade Kozak
And we appreciate that a great deal. And we appreciate the level of trust that our clients have put in us. It's not uncommon that that clients will say to me during a normal review process that, you know, geez, Wade, like, I really just sort of leave this in your hands because A I have no interest in it. And B, you know, I don't really know much about it. And that's a huge responsibility on on our shoulders to take that trust seriously and to treat it seriously that because we only have one chance to get this right, you don't get to retirement age, realize you've handled it all incorrectly and get a chance to go back and try again.
[00:29:51] Wayne Nelson
All right. I want to pick that up in our next segment. That's one of the reasons why you should have the Kozak Financial Group working with you. That's Kozak Financial Group, CIBC Wood Gundy their website, KozakFinancialGroup.ca. Or you can call them to set up that consultation. The number is 403-260-0568. Wade Kozak and Harrison Kozak from the Kozak Financial Group. My guests today will be back to wrap things up on Talk to the experts.
[00:30:18] Wayne Nelson
Wayne Nelson back with you on Talk to the Experts. My guests today are Wade Kozak and Harrison Kozak from the Kozak Financial Group, CIBC Wood Gundy. If you have questions about investing, if you have some concerns or some uncertainties about what your stocks or bonds are doing, then give them a call the number is 403-260-0568. See what they're all about? Check out the information on their website. It's KozakFinancialGroup.ca. All right, Wade, I cut you off just before we were finishing off the thought process on you only get one chance to make it right. So let's expand on that. What do you mean?
[00:30:57] Wade Kozak
So what I mean by that is every decision you make in your retirement savings is leading up to that point. When you're going to start drawing on those retirement savings. And early on in the process, when there isn't much money in the account and you can you can make a few mistakes and make a few errors and have some learning experiences when the account isn't very large. And you can you can recover from that. Right. And you can get yourself back on track. But as you get later and later in the game and retirement is now looming on the horizon, you know, perhaps less than five years away, it suddenly becomes more and more critical that those terrible mistakes and those terrible errors don't occur. And I want to go and show a client that here's a way we can set up your retirement savings, your retirement assets, what I like to call your pension plan, even if you don't actually have a traditional pension plan, because I think that gets people kind of in the frame of mind of looking at it from that point of view of correctly that this is a pension plan. And the one way that I know of setting this up that will work is to focus on that income and focus not on how much is in the account. You asked a question a couple of segments ago of is $1,000,000 enough? What's the rule of thumb? I would suggest that it has nothing to do with the total value of the account has less to do with that and more to do with how much income is that account generating. So in your example, I think the 50,000 figure was a far more important number than the million dollar figure.
[00:32:35] Wayne Nelson
Yes.
[00:32:36] Wade Kozak
And so I want to show a client that here's your overall investment portfolio that's generating all of this interest income, all of this dividend income, and have them have the experience in those five, seven, ten years leading up to retirement of seeing just how consistent that income is, how consistent the interest income is, how how consistent and steady that dividend income is. Because until you actually experience that consistency, you don't really understand, I don't think. And then those clients who've had that experience, they can feel very confident as they cross that threshold into retirement that every dollar they're going to need to spend is going to be coming from that cash flow being generated. And they can have a lot of confidence that the cash flow is going to continue because they've had that experience of seeing it and watching it be consistent, right?
[00:33:30] Wayne Nelson
Harrison.
[00:33:30] Harrison Kozak
And I would like to point out that we talk about this as though it requires a little bit of a change in your mindset as the investor. But I really actually don't think that's true. I would posit that right now when you're still employed and you're earning that salaried income or however you're earning your income, you aren't thinking about what's my bank balance at the end of every single day. You're thinking about how much money is coming in and can I keep paying the bills with the money I'm bringing in? So we're not changing the way that we're thinking about how you fund your lifestyle. Because the fact of the matter is that whether your quote unquote paycheck is coming from your employer or from your retirement pension plan portfolio, that amount of money is what you need to keep yourself in the way you're accustomed. Instead, what we're changing is maybe your investor's mindset. Instead of thinking about how much money is in that account, let's think about the cash flow it's generating. And that's tricky, right? Because it's easy to get caught up into the sort of the media cycle of being focused on that million dollar account. How much money do I have? Because, you know, we're we're sort of simple monkeys, right? We just want to collect more and more golden shells and we'll feel more secure if we have them, right?
[00:34:48] Wayne Nelson
Absolutely. Now, when people call you at 403-260-0568, what typically is the first question they ask?
[00:34:58] Wade Kozak
Oh, gosh. That's will show just how how little we prepare.
[00:35:04] Harrison Kozak
I would say most typically people launch in with questions about have they been doing it right up until this point? And if you're sitting down with us and you have a large investment portfolio and you're now worried about the cash flow in retirement, it doesn't so much matter whether the decisions you made last month with the right ones or not. Let's focus on what we need to do today. Looking into the future. Not so much. Look into what's been going on in your past and how you've invested previously.
[00:35:37] Wade Kozak
And I would invite everybody who, you know, who hears that approach, if that resonates with you, if that if that approach of focusing on the income that's being produced and focusing on that income, replacing your earned income, if that resonates. Give us a call at 403-260-0568 and we'd be happy to chat about how that approach might look in your particular circumstances.
[00:36:03] Wayne Nelson
Wade, you're a fellow of the Canadian Securities Institute, FCSI. What does that mean for your clients? Is it a higher level of expertise to that? Can they expect a greater comfort level, that greater degree of trust when they're talking with you?
[00:36:19] Wade Kozak
They can being a fellow of the of the KCI, the the FCSI designation is probably one of the designations I'm most proud of that I've achieved in this career. Among other things, there is a code of conduct that I'm held to, including acting always in the best interest of the client, which I think almost everybody in this industry does. But it is actually requirement of an FCSI to act as a fiduciary or always in the best interest of the client.
[00:36:53] Wayne Nelson
You're held to a higher standard.
[00:36:54] Wade Kozak
Yes. And there's some other criteria in there as well, too, that I have to live up to each year, including, you know, there was ethical training that I had to take before I was granted that that title. But I know that that's what it means. It basically means I've been in the business a long time and we take seriously what we do.
[00:37:17] Wayne Nelson
All right. Harrison, Kozak Financial Group was also chosen as one of Canada's Top Wealth Advisors for 2022. So you're part of that team. You got to be pretty pleased with that award as well.
[00:37:29] Harrison Kozak
Oh, yeah, absolutely. Wade was on that list last year as well, and he's been able to repeat and be on there again in 2022. And our entire team takes it as a point of pride that our clients receive a level of service from us and a commitment from us that we would like to be the best, not just for them, but for anybody out there who's listening. And one of the things we often talk about is that we want everyone who comes in contact with us to get something positive out of it, whether that's just listening to one of these segments on the radio or sitting down with us in a consultation or being one of our clients for over 25 years. Some of the clients that I deal with, Wade first opened their accounts way back in the in the nineties, and I think that's a testament to the service that we provide and how seriously we take it that we're here for the long haul, taking care of our clients and hoping to answer every one of the questions that they have to the best of our ability.
[00:38:30] Wayne Nelson
Wade, when someone comes in for a consultation as opposed to talking with them in that initial phone call, is there a difference of approach? Is there a little bit more detail, a little bit more in depth, probing into their financial portfolio, their interest? What is that first consultation look like.
[00:38:48] Wade Kozak
With with a prospective client? Yes, there's a whole lot of information gathering going both ways. So we want to share a lot more information with that client of exactly how we do what we do, why we do it that way. Walk them through that process in a much greater detail than we can do here on on the radio. And then there's an information gathering process the other way of finding out exactly what stage of life this client's at everybody's circumstances have nuances and are slightly different. Certainly there are similarities, but everybody's circumstances have slight differences and we want to find out exactly what those things are than what is important to that particular client that we have to consider and keep in mind. And then we set about showing them roughly what their portfolio could look like to achieve those goals.
[00:39:47] Wayne Nelson
Should that prospective client become a client. How long does it take then for that process to to come to fruition as it may to get that plan solidly in place and working for that client.
[00:40:01] Harrison Kozak
It's very,very quick, right from the time that all the paperwork is signed to get the accounts opened up until the transfers have been processed, the money is over at Would Gundy ready to be handled by us? Not too long at all. And then we set about the long process of having that relationship for 20 plus years. Like I've mentioned, in order to answer all those questions and keep it going.
[00:40:27] Wayne Nelson
All right. I'm going to use this sentence from your website. Wade and his team of investment professionals provide valuable insight, personalized attention and expert advice on a client by client basis. And for that expert personal investment advice, you need to contact the Kozak Financial Group, CIBC Wood Gundy where there's a focus on income generation Phone 403-260-0568 The website KozakFinancialGroup.ca. Wade, Harrison once again, it's been a pleasure.
[00:40:58] Wade Kozak
Good to be here.
[00:40:59] Harrison Kozak
Yeah, happy to be here.
[00:41:00] Wayne Nelson
All right. Thank you for joining us today on Talk to the Experts.
[00:41:04] Narrator
CIBC Wood Gundy is a division of CIBC World Markets Inc, a subsidiary of CIBC and member of the Canadian Investor Protection Fund, an investment industry regulatory organization of Canada. Wade Kozak is an Investment Advisor and Portfolio Manager with CIBC Wood Gundy in Calgary. The views of Wade Kozak do not necessarily reflect those of CIBC World Markets Inc. If you are currently a CIBC Wood Gundy client, please contact your Investment Advisor?
: November 24, 2022 – “Talk to the Experts” Radio Show
Key topics this episode include current Interest rate and inflation environment and our investment strategy
[00:00:00] Narrator
CIBC Wood Gundy is a division of CIBC World Markets Inc, a subsidiary of CIBC and a member of the Canadian Investor Protection Fund, an investment industry regulatory organization of Canada. Wade Kozak is a Senior Wealth Advisor and Senior Portfolio Manager with CIBC Wood Gundy in Calgary. Harrison Kozak is an Associate Investment Advisor working with Wade Kozak. The views of Wade Kozak and Harrison Kozak do not necessarily reflect those of CIBC World Markets Inc. If you are currently a CIBC Wood Gundy client, please contact your investment advisor.
[00:00:30] Wayne Nelson
I'm Wayne Nelson and you're listening to Talk to the Experts on 770 C HQ Hour. My guests today are Wade Kozak and Harrison Kozak from the Kozak Financial Group, CIBC Would Gundy, Their focus as part of their wealth management strategy is on income generating investments. Now you can learn a bit more by visiting their website at Kozak Financial Group, CA. The phone number 403-260-0568. Wade and Harrison, thanks for joining us on the show.
[00:01:00] Wade Kozak
Good to be here. Wayne.
[00:01:02] Harrison Kozak
Yeah, glad to be here.
[00:01:04] Wayne Nelson
All right. It's been about a month since your last talk to the Expert show here on 770 CHQR and in that month, the market at least. Yes. And from what I can see to my untrained eye, seems to have made some gains. Is that what's happened here in Canada? And what about the US markets? Where are we sitting?
[00:01:22] Wade Kozak
We have seen equity markets relatively strong. If we go back a couple of months, September was quite weak and now both October and November have actually been positive months for the stock market and that's obviously good news. We've also seen interest rates roll over a little bit where where on good quality ten year investment grade corporate bonds at the ten year end of the curve, we could get around five and one half, 5.6% about a month ago. Right now, that's creeping lower at around five and a 4%. I think that's the bigger story right now. Even more then the stock market move.
[00:02:03] Wayne Nelson
All right. And we'll come back to the bonds in a bit. But it's definitely it's good news, way better than it was earlier in this year on those ten year bond yields.
[00:02:13] Harrison Kozak
That's certainly true with the stock markets on the rise here in the sort of third quarter or towards the end here of 2022. We're seeing a lot of recovery from the early year lows and it's been a bit of a bit of a weird few years, sort of harkening back all the way to 2020 and the initial sell off we saw for the pandemic there pretty severe. It dropped like crazy right at the beginning and then very quickly recovered. And I think now having all that stimulus poured onto the economy, it's all starting to come wash out again here in 2022. We're finally starting to see the sort of results of what's gone on over the past couple of years here in Canada.
[00:02:53] Wayne Nelson
Wait, is there less volatility in the past month than there has been?
[00:02:59] Wade Kozak
There is a little less volatility. Things have kind of settled in a bit. The volatility has come down and that's I think that's calmed a lot of investor nerves where you don't have the the very large swings day to day that we were seeing perhaps in September. Will that hold? We'll see. Right now, I think investors are are affected by the fact that we're seeing early signs that inflation is getting under control. That's that's part of the I think that's the main reason why you're seeing those interest rates roll over at the long end of the curve. And that's making people feel a little bit better about investing a little bit more in a more stable economy. We'll obviously see what the next quarter holds. No one knows the future, but 2022 so far is turning out to be not a great year for the stock market, although it's not a terrible year either, because most of the of the heaviest part of the weakness in the stock market has been concentrated in one sector, and that is the mega-cap growth and technology companies. The kind of names in the US like Facebook, Amazon, Netflix, Google, Tesla, here in Canada, Shopify, those names were just crushed earlier this year. Some of them have made some strides to come back, but they are still sitting at significant losses, whereas the blue chip dividend payers have actually done reasonably well and we've actually seen pretty significant dividend increases over the past 12 months.
[00:04:26] Wayne Nelson
Harrison, would you agree?
[00:04:28] Harrison Kozak
Oh, yeah, absolutely. The the dividend rates being higher towards the end of this year and sort of throughout 2022 has been a huge, huge boon to income investors certainly. And one of the main reasons for that is this high inflation. Typically with high inflation, those larger cap companies that are out there paying dividends are going to boost their dividends to keep up with that inflation and keep their investors happy. And that's certainly been nice to see in these income oriented portfolios that we run for our clients.
[00:04:58] Wayne Nelson
All right. Now, we've touched on those two words that everybody's been talking about for the past several months, and that's inflation and recession. Now, coupled with those discussions, of course, were the series of Bank of Canada rate increases, and those were consistent consecutive rate increases by the US Federal Reserve. And I think the last one was December 7th and another one is expected soon. Fairly significant increases from from both governing bodies. Have the rate hikes and would you touched upon this that you the rate hikes seemed to have had the desired effect of of settling things out.
[00:05:37] Wade Kozak
We're starting to see signs in the year over year inflation numbers that perhaps we're seeing inflation come under control. That isn't to say that prices are going back down to what they were before. It's just that as we measure year over year from where it was a year ago, the numbers are getting slightly smaller in the gains that we're seeing. So what does that mean for the economy? Like the the politicians won't come and say this out loud, but essentially the central banks are trying to manufacture a recession and are trying to bring higher the unemployment rates.
[00:06:13] Wayne Nelson
Why? Why would they do that?
[00:06:14] Wade Kozak
Because that's the only way to slow a slow an economy. That's the only way to slow demand. That's the only way to bring demand down and therefore bring prices down to a more reasonable level and not let inflation get out of its grip.
[00:06:29] Wayne Nelson
It's kind of like trying to stop an out-of-control train from crashing downhill. And the crash really is is the recession.
[00:06:36] Harrison Kozak
That's right. And interest rate changes are more of a blunt instrument than than a sharp, precise one. Right. They sort of hit the economy over the head, give it a few months and check back and see if anything's changed. And it's not the it's not that it's uncontrolled. It's just that you have to be a little bit aggressive when they're trying to wrestle these really high inflation rates. They do not want to keep it this high for this long. This Government of Canada is in the the business of getting reelected no matter who you vote for. And their main effort will be to make sure that we keep the voters happy, which means inflation is under control. They don't keep people unemployed for too long. And so they're going to be working hard to get the economy back on a level more sort of slow and steady growth like they like to see.
[00:07:22] Wayne Nelson
It sounds like there's more of a constant tinkering.
[00:07:25] Wade Kozak
To a certain extent. And if you kind of follow that thought through, if you look forward a year, perhaps we we do actually have a recession that's announced. We have the negative quarters of GDP. The economists all agree that the economy is slowed enough to to call it a recession. Generally, by the time they ring that bell that the recession is on. The stock market has already felt most of the weakness that's going to feel from the downturn. And it wouldn't surprise me if by this time next year the talking heads weren't discussing when are they going to start cutting rates to perhaps spur the economy on and help out some of those people who became unemployed due to the recession, etc., etc., etc.. And the cycle continues.
[00:08:10] Wayne Nelson
Those economists who've been talking about recession, I think generally seem to agree that Alberta won't suffer the same impact as the rest of the country, at least from what I've read. We will still hit. We will still feel the impact, but not to the same extent. Would you agree with that?
[00:08:26] Wade Kozak
Well, like, where do you where do interest rates being higher really affect Canadians the most? And I would suggest that's that's in the housing environment and the housing arena. So what markets in Canada are going where people have large mortgages are going to be affected most by these higher interest rates. And I would suggest that would be places like Vancouver and Toronto where you've seen very, very strong real estate markets, a lot of that driven on very, very low interest pay, borrowed money. And as those mortgages roll over or as those flex where those variable rate mortgages step up and the payments get heavier, that's going to put a lot of pressure on people in those markets where perhaps in other real estate markets that haven't been as hot and the mortgages aren't quite as large as they would be in some in Vancouver and Toronto, it might not affect them that much. And Alberta has the other advantage that the energy sector is actually being quite strong through this. The one bright spot in the stock market, quite frankly, in the past 12 months has been have been the energy stocks where they have not been necessarily the place to be during 2015, 16, 17. Suddenly they have been the very place to be. They still aren't trading at the kind of multiples they were before, and they probably never will again, quite frankly. But the the way the world now views energy companies and we have to kind of get our heads around that. But still, these are companies that produce a necessary commodity that people are going to be using for decades into the future and they will continue to produce. And then right now, that part of the stock market is actually performing quite well.
[00:10:08] Wayne Nelson
All right. We're going to pause for a break. You're listening to Talk to the Experts. I'm Wayne Nelson and I'm speaking today with Wade Kozak and Harrison Kozak from the Kozak Financial Group, CIBC Wood Gundy Kozak Financial Group.ca is their website if you have any questions or concerns about investing. The number to call is 403-260-0568. We'll be back with more on talk to the.
[00:10:31] Wayne Nelson
If you're just joining us today, we've been talking about what the markets specifically about what's been happening of late and what it means for the average person. And we're going to be talking about some of the common mistakes people make, especially when it comes to their investing and retirement planning. I'm Wayne Nelson and you're listening to Talk to the Experts on 770 CHQR. My guests today are Wade Kozak and Harrison Kozak from the Kozak Financial Group, CIBC Wood Gundy Kozak Financial Group.ca is the website, and if you have any questions, the number to call is 403-260-0568. Wade, the recession that we ended our discussion on, it affects different people differently. And if I could suggest that we could probably put those people into three or four broad categories. You've got the unemployed, you've got younger people who are still working, older people who are still working but are on the cusp of retirement and those who have retired. Would that be a fair statement?
[00:11:37] Wade Kozak
Yeah, I think that's quite fair. And, you know, coming off the previous segment where we're talking about the markets and interest rates, these are these are all you know, obviously they're relevant to the investment portfolios. They're interesting. But you kind of have to rise above all of that when it comes to actually putting the investment portfolio together. But the segments you described there are are pretty accurate as to that unemployed person in a recession. He already doesn't have a job, probably is going to be affected very much beyond the fact that it's probably tough to find a job. Right.
[00:12:09] Wayne Nelson
Then tough to make ends meet.
[00:12:11] Wade Kozak
Right. Who it affects most are, I would suggest, those younger people in the workforce who perhaps were amongst the last 20% of the people to be hired in whatever particular business they're working in. And they're probably the most vulnerable to being laid off to a certain extent during a recession. And, you know, that doesn't necessarily describe the bulk of our clients either. Most of our clients would be in those final two categories that you described, either nearing retirement or already retired.
[00:12:43] Wayne Nelson
What kind of an approach do you take with those clients then to make sure that they maximise their investments?
[00:12:52] Wade Kozak
It's very important that the investment portfolio is structured such that at any moment, should it be called upon to replace that family's earned income because of a job loss? Because let's face it, you know, most people don't get to choose their retirement date. Most people, like I would say at least a third of people have their retirement date chosen for them, either by a layoff or a health issue or something else that kind of forces their hand to make that decision. And I'm thinking back here to the energy downturn in Calgary in 2015, 2016, where we saw a lot of layoffs amongst the energy companies and a lot of people who probably thought maybe they were going to work for a few more years suddenly were were forced into retirement. And I can say that in most cases of our clients, it actually ended up being a net positive that these people might not have chosen to retire and, you know, worked until until the day they got put in a box, so to speak.
[00:13:53] Wayne Nelson
Right. Why do you say that? A net positive?
[00:13:56] Wade Kozak
Because I think that I think when you're on that cusp of retirement and even when the the experts who you consult say, yep, you've got enough. Right. When you when you look at the investment portfolio you're writing, when you look at the government programs you're about to receive and you we look at your average spending rate and even assuming your average spending rate might increase for a few years because you have some travel plans, perhaps in the few years of retirement, it's still it's still a very difficult threshold to step across. There's all kinds of fear buttons that get pushed then. And I think the biggest one is that fear of, well, am I really sure I have enough, right? Like, what if it's not these experts who are retiring? Right? It's me who's retiring. And and I you know, as I'm getting closer to that day, I'm 53 years old. I've got a few years left. But I can feel some of that that angst as well. And by being forced into retirement, it kind of makes the decision for you. And after a year or two, they realize that, oh, I do have enough. And in fact, the experts were right that I consulted. I, in fact, have more than enough. And I can pretty much do all the things that I want to do. And I can see how this is going to work throughout my years. And and they go on to have very happy and fulfilling retirement years, quite frankly, whereas otherwise they may have said, you know what, let's just work a few more years and make sure I have really have enough that.
[00:15:28] Wayne Nelson
Premature retirement forces them to re-examine in greater detail what their investments, what their retirement plans are.
[00:15:37] Harrison Kozak
A little bit and and not only re-examine, but it sort of forces their hand to test it. And when they give it that first test and they say to you when they first get laid off, well, I'm going to get another job. This is just temporary. I'm going to take these withdrawals. And then a couple of years down the line, you know, maybe I don't want to start driving back downtown, going to the office every day. Maybe I'm enjoying, you know, doing my woodworking out in the shop or whatever it might be that's occupying their time. And suddenly they're comfortable. But it was the angst in the first place that prevented them from taking that leap.
[00:16:10] Wayne Nelson
The emotional component is a real big part of investing for a lot of Canadians and probably what leads to the greatest number of mistakes. Is that something that you would agree with?
[00:16:21] Wade Kozak
I would partially agree with that. The how that how that draws back into what we do, though, is it's very important as you get to those final I'd say ten years, 15 years of employment, that you start running your investment portfolio almost as if you already are retired. That you're investing it to generate that cash flow that you expect that you're going to need to take out eventually. And instead of withdrawing that cash flow, you reinvest that cash flow because obviously you're still working, but you can visibly see that cash flow being generated in those accounts. And typically our clients, after a few years of watching how consistent that cash flow is and being generated each year, the interest income from the bonds, the dividend income from the equities and they can they can sort of bear witness to their own portfolio on how how consistent and how steady and how that income is actually growing over the years. It makes them much calmer. So when that day does come, even if it's a surprise that they have to start instead of reinvesting that income, start withdrawing that income to live on, they have a lot less anxiousness when it comes to understanding how this is all going to work. Some people we meet, they have, I think, the misguided notion that the way you should be investing is, well, it's all about growing the account (And don't get me wrong, we do want the account to grow) And so they select a whole bunch of quote unquote, growth stocks, stocks that they hope will increase in value that don't necessarily pay dividends.
[00:18:01] Wade Kozak
And during periods of those those stocks that we described are increasing in value. The account looks fine. It looks like it's all going to work. But then a year like this comes along and those stocks have done terribly. They've all come down a lot in price. If you had nothing but growth stocks this past year, your account looks pretty terrible compared to where it was a year ago. And if you if you were to be laid off today and lose your job with that portfolio, it wouldn't be a very warm, fuzzy feeling of saying, well, I understand where the cash flow is going to come from, that I'm going to live on now that my income has stopped. Whereas if you were investing to generate that cash flow and you could actually see it rolling into the accounts and suddenly you lose your job, it's a much, much less angst filled process to say, okay, let's stop reinvesting that income and let's start directing that cash flow into my bank account. And we're talking cash flow here that you don't have to sell anything to go and to go and withdraw. We want to show our clients how they can withdraw those regular monthly amounts they need in retirement without actually having to sell anything, that it just is being generated as cash flow in the account itself that just flows out into the bank account naturally.
[00:19:14] Wayne Nelson
All right. And that's that dividend paying approach that that you espouse. And we'll talk a little bit more about that when we return. We are now talking with Wade and Harrison Kozak. If you'd like to improve your net worth, protect and maximize the value of your estate, minimize all those unnecessary taxes and reduce the costs and risks associated with investing, then call the Kozak Financial Group. The number is 403-260-0568. Check out their website. It's Kozak Financial Group.ca. Again, I'm chatting with Wade Kozak and Harrison Kozak with the Kozak Financial Group. And we'll be back with more on Talk to the Experts.
[00:19:53] Wayne Nelson
You're listening to Talk to the Experts. I'm Wayne Nelson. My guests today are Wade Kozak and Harrison Kozak from the Kozak Financial Group, CIBC Wood GUNDY The website is Kozak Financial Group.ca. If you have any questions about investing or if you'd like, the Kozak Financial Group to look over your portfolio, then give them a call. The number is 403-260-0568. Wade, Harrison Before the break, we were discussing the sort of forced retirement that sometimes people have to deal with. How does that impact a person's position in investing? Should they have been planning like the earlier the better is the old the old adage, is that right?
[00:20:34] Harrison Kozak
Yeah, that's right. If you can, you should start investing your retirement portfolio, how you would invest it after retirement. So in our case, we would always advise folks to to take that income oriented approach and collect the dividends and the interest payments. And while you're still working, you don't need to take those cash flows. You can drive them back into the portfolio for further growth, but it gives you a good visual representation of what you can expect coming down the pipe in the future. Another way that people often find themselves forced into retirement is through health issues either of their own or more typically of a parent, right? The population is aging, and more and more often our clients are reaching retirement age. Their parents are still around and suddenly they need a lot more help because of a health issue or just sort of aging in general. And that can kind of force somebody to take a step back from their career and really need to launch into retirement. One of the easiest ways to reduce your stress in that situation, because it's obviously stressful, is to have already taken those steps to organize your retirement finances in such a way that you understand it's generating that income. You see where your quote unquote paycheck is coming from, and then you can take care of mom and dad and deal with the stress you get from that without having to worry so much about the money and know that you're going to be taken care of regardless.
[00:21:57] Wayne Nelson
So when we're. Talking about an investment portfolio. What makes up a portfolio?
[00:22:03] Wade Kozak
When we're devising an investment portfolio for the average client who is looking to have this be their pension plan and have this have this essentially fund their lifestyle, one day we want to drive it all around that cash flow that the portfolio was generating, the income and certainly the equity portfolio is going to provide some growth. But you know, some years you see that growth, some years you don't you can't count on it, but we can count on that income showing up each year. So on the equity side, we have a very disciplined method of selecting equities based on very disciplined numbers, using dividend yields, using PE ratios, using debt to equity ratios to essentially select the the best, most consistently dividend paying stocks that are trading at the absolute cheapest basis on the relative to their earnings that we can find to generate a very consistent dividend income flow. And we then assess that portfolio on an ongoing basis to make sure that we remain invested in the companies that end up showing up on these metrics. And in the best possible way.
[00:23:16] Wayne Nelson
How often do you do that?
[00:23:17] Wade Kozak
Wade For the for the core of the blue chip dividend paying portfolio, we typically assess those dividend paying stocks every six months for the bulk of what we call the high yielding equity portfolio, which sometimes are somewhat smaller stocks. I'm not talking very small, I'm talking half a billion plus type market cap. But we want to assess those more on an ongoing basis as they as they announce their earnings and as they announce any kind of news that comes out to make sure we're staying on top of. Are the cash flows still being generated? Are the payout ratio still are still attractive?
[00:23:56] Wayne Nelson
So when you're talking about your philosophy of a a blue chip investing approach, it doesn't necessarily mean just blue chip stocks. You have to have some diversity in there as well.
[00:24:08] Wade Kozak
Now, blue chip stocks is is is a is a term that doesn't really have a definition. Right. I think everybody kind of has an image that forms in their head when you when you hear that phrase.
[00:24:17] Wayne Nelson
Yeah. Like the big corporations fairly reliable been around for a few years. Pay out decent returns.
[00:24:24] Wade Kozak
Pay out consistent dividends like a like a large cap stock. Paying out a consistent dividend is what I would call a blue chip stock. And you know, so we're talking the banks, the insurance companies, the telephone companies, other utilities, etc., etc.. Here in Canada, companies that have long term consistent track records of increasing dividends over time and being very, very reticent to cutting dividends. Dividends aren't guaranteed. Any company can cut a dividend. However, typically, to be in that blue chip arena, you have to have a very consistent dividend that that is that is hasn't been cut for many years. And we can point out companies in Canada that have consistently paid their dividends and only increase their dividends for over 100 years.
[00:25:09] Wayne Nelson
That's pretty impressive. But is there still a worry that in those regular reviews that you conduct that you might be tweaking too much?
[00:25:17] Wade Kozak
I think you're I think you're maybe getting a slightly wrong idea about that. If if you look at just the blue chip stocks and say, okay, we're we're we're just going to stick to those biggest dividend payers in Canada. Right. You'll have a portfolio of nothing but telephone companies and banks and electric utilities. And there's not necessarily anything wrong with that. But that isn't necessarily a diversified investment portfolio. If you own nothing but banks in 2008, your account would have just been absolutely crushed because the banks were more affected than other sectors. So in order to round that out, we want to we want to bring in other sectors of the stock market to make sure we do have some exposure to industrials, to the touch energy, to the tech sector to. So we we basically incorporate I would suggest that these stocks would all fall under the category possibly of blue chip, just perhaps not quite as large cap, blue chip, but certainly consistent dividend payers that have proven their ability to pay income through thick and thin, through strong markets, through recessions, through everything else. And we bring in those companies to round that portfolio out for a proper diversified equity portfolio that isn't concentrated in any one sector.
[00:26:37] Wayne Nelson
All right. But again, you have to have that discipline to steady the course, as it were.
[00:26:42] Harrison Kozak
Yeah, that's right. And discipline comes in many shapes and sizes. Maintaining the stock market portfolio is an important component of that. And equally important is maintaining your commitment to the fixed income side of the account, the bonds that you're holding on to. We tend to employ ongoing ten year bond ladders in our client accounts, which means that you have new bonds coming due every single year. And if you don't need that maturity to go and fund your RRIF payment to your lifestyle, as it were, that can go and get rolled over to purchase a new longer term ten year bond at whatever the current ten year average yield is. Whatever good quality company or government body you can purchase it in. In doing that, in maintaining that discipline in that bond portfolio, you avoid speculating on interest rates, which is something that people can often do, especially in the short term. Right. To Wade's point, earlier in the show, at the beginning of the year, you could buy even short term bonds, paying close to close to 6% in some cases. But realistically, if we look at sort of historically how interest rates are going to behave in these markets, maybe it would have been a better choice to lock up that interest rate for the longer term and not anticipate rates continuing to climb without any real evidence to to sort of support that.
[00:28:02] Wayne Nelson
So when designing a portfolio, where do you put your focus in the bond market?
[00:28:05] Wade Kozak
We prefer to get our fixed income exposure by owning individual government and corporate bonds, right, so that we can actually show a client here's a bond you have coming due one year from now. Here's a bond you have coming due two years from now. Here's a bond you have coming due three years from now and so on and so forth.
[00:28:24] Wayne Nelson
And that's what Harrison said about the ladder.
[00:28:26] Wade Kozak
Exactly. Yeah, there there is. And we we actually talked to somebody in the last couple of weeks who who brought up an argument that, well, does that make like a from an efficiency point of view, I only have a $1 million investment portfolio. I'm going to put 30% of it into fixed income. So that's $300,000. So if we want to ladder this out, we're only buying 30,000 of bonds maturing each year, going out, going out through that entire bond ladder. And is that enough? Is that enough to efficiently go and buy a bond and get a good price for it, lock in a good yield for it, and not be affected by poor economies of scale, essentially, because they had been they had been sold on the concept that for a dollar figure, like $300,000, you're better off just putting it into either a bond mutual fund or a bond ETF where you just literally buy a unit trading in the stock market that owns a bunch of bonds for you. And I'm I would say more or less vehemently opposed to owning bonds through third parties like that and basically putting somebody else standing between you and your money. In the bond market. Like where? When I'm buying a client a bond, I can get the very best price, whether I'm buying a
$5,000 chunk of that bond or whether I'm buying a $500,000 chunk of that bond through the relationships that we have with the bond principal desks that we deal with.
[00:29:57] Wade Kozak
And so there is no loss in economy of scale in going and buying your own individual bond securities, certainly nowhere near the kind of economy of scale loss you would need to compensate for whatever fee that intermediary is charging you, whether it's an ETF or it's a mutual fund. Lots of bond mutual funds out there charge between one and one and one half percent per year to go and run their portfolios and think back a year when even buying a ten year corporate bond, maybe you could only get 3% on that. You are essentially handing half of your total expected rate of return to the person who was running the bond fund, which I think is crazy.
Quite frankly. And so we are huge proponents of actually owning individual bonds in that investment portfolio and keeping it as efficiently as possible by putting nobody else between you and the bonds you own except for the account you have to hold them in.
[00:30:57] Wayne Nelson
All right. One of the great reasons why you should have the Kozak Financial Group working with you, that knowledge, that experience, that's Kozak Financial Group, CIBC Wood Gundy check out the website Kozak Financial Group.ca. Some great information there. You can also phone 403-260-0568 if you'd like to set up a consultation. Wade Kozak and Harrison Kozak from the Kozak Financial Group are my guests today. And we'll be back to wrap things up on Talk to the Experts.
[00:31:25]
Wayne Nelson back with you on Talk to the experts. My guests today are Wade Kozak and Harrison Kozak from the Kozak Financial Group, CIBC Wood Gundy. If you have questions about investing or if you'd like some more information, the website is Kozak Financial Group.ca. You can also phone the number is 403-260-0568. Wade and Harrison, Just before the break, we were talking about the bond market and there are some complexities there. We were talking about this latter investing and there's a bunch of other things that other components that go into investing in the bond market. Harrison Do you want to expand on that?
[00:32:01] Harrison Kozak
Yeah, I mean, our point there in the last segment was that that the way we tend to invest in fixed income is by owning those individual bonds. And one of the main complaints that people have about that is, well, it's a lot harder. You're consistently having to check up on these things, roll over your maturities. There's a lot more work and complexity that goes into it rather than just a one decision on which bond mutual fund am I going to buy. And that's true. It is more complex, but that's all the more reason why you're working with us. We are managing that complexity and making sure that when we roll over that individual bond, when we see those interest payments roll in, we're picking up the best available new bond to either fill a hole in your bond ladder, if there was one there, or stretch that bond ladder out and get it out to the long end of the spectrum at ten years. And in any case, we're managing that bond portfolio consistently such that, again, we're eliminating those emotional decisions we aren't basing our thoughts on, well, what are interest rates going to do in the next six months? And we're focusing on what is the long term plan for this fixed income portion of your portfolio.
[00:33:12] Wayne Nelson
And every portfolio is unique to that individual, correct?
[00:33:16] Harrison Kozak
Yeah.
[00:33:17] Wade Kozak
And that the that that laddered bond approach works so well in retirement. If a client is gradually drawing their investment portfolio down because not everybody wants their $2 Million investment portfolio to be to be left to their heirs, some of them want to try to leave this earth and that last check to the undertaker to bounce, quite frankly, and that laddered bond approach works so well in that if you are drawing your portfolio down and you're drawing some of your principal out, you can choose each year. I'm going to take some of that principal out of the bond that I have maturing, or am I going to take that principal out of the stock market portion of the account? And in years with the stock market is done well and that part of the account looks has done well, you can sell some of the equities and take that capital portion out there. And in years where the equity market hasn't done well, you have the bond maturing to go and take that money out. So you're never forced to go and sell the stocks at a time when you don't really want to because it's a weak moment. So that ladder portfolio works very, very well through retirement.
[00:34:23] Wayne Nelson
Now when it comes to taking the funds out and investing them, reinvesting them into a new bond or into a into a new stock. Are there taxation concerns?
[00:34:35] Wade Kozak
There is always taxation concerns and our long time listeners will know how focused we are on minimizing taxes because it's the one thing that we can control. We can't control what the stock market's going to do. We can't control where interest rates are going to go, but we can control as as in certain ways, the tax profile of these accounts. So and that kind of segues well into things you should be looking at at year end in a in a taxable investment portfolio. So a non registered open investment account where you're getting t five slips for your interest in dividends and you have to report your capital gains and losses. Obviously there's an impact on anything you do. Any any buying and selling you do will likely have an impact on the taxes somehow, and we work to structure the accounts to minimize that that tax implication by keeping the types of investment income that attract the least amount of tax inside of those investment accounts that are taxable and keeping the interest bearing things hidden as much as we can inside of the registered accounts. Where you don't get at5 slip, you have to report. And also at this time of year we've already done it, but we're we're looking through our client accounts for opportunities that if there are capital gains that were reported and in most of our equity portfolios, we had some transactions earlier in the year that did trigger capital gains. We're looking for opportunities. Are there things we can sell for a loss to offset those gains and minimize the capital gain that has to be reported this year? These are all things that everybody should be doing, quite frankly, every year at this time in their investment portfolio.
[00:36:19] Wayne Nelson
RRSPs. And as you talked about before, at the start of the show, there is that group of people, those who are either on the cusp of retirement or have retired and RRSPs have to be converted over to RRIFs. I believe, before age 71, and then you can start taking them out after age 71. Is that right? I'm getting close, but I'm not there yet.
[00:36:44] Harrison Kozak
So yeah, the with our RRSPs, you have to convert them to a RRIF in the year you turn age 71 at the latest. You can do it just about any time before that. And typically the sort of charts that you would look up online have withdrawal schedules going out to about age
65. But even before then, you can start withdrawing from your RRSPs via a RIF account at age 71. If you're turning 71 in this year, you should certainly get on top of that. Now, you do not want to find out what happens if you turn 72 and have an RRSP in existence. We luckily have never had a client actually go through that because we stay on top of it for them. But if you're if you're turning 71 next year, good to start thinking about that early. There's no tax consequence for doing that rollover. All it means is that that money is going to start to flow out to you at least starting in the following calendar.
[00:37:37] Wayne Nelson
But it is part of the planning strategy then it is part of the portfolio.
[00:37:41] Wade Kozak
So just to give you an example, I was talking to a client this past week who who, unbeknownst to me, hasn't actually earned an income in 2022. In our conversations that we had throughout this year, he didn't bother to mention to me because he had other cash he was living on. But his employment income ended about this time last year and the only income he's going to have to report on his 2022 tax return is the investment income from the portfolio that we manage for him. And I pointed out that when you look at that investment income and it's going to be split between himself and his wife, the actual amount of total income and total tax he's going to have to pay this year is essentially zero and he has a very significant sized RSP. And so we ran some numbers and it makes a lot of sense for him to make a straight up RSP withdrawal here in 2020. To use up those bottom tax brackets and essentially get a chunk of money out of the RRSPs, very paying very, very little tax. These are the kind of opportunities that I think a lot of people aren't necessarily aware of. And certainly, you know, if it's not something you think about every day and you do for a living, every day isn't something that's top of mind. But these are the kind of opportunities that we're constantly looking for, for our clients as to how can we efficiently get those registered assets out of those registered accounts in as low a tax bracket as possible.
[00:39:10] Wayne Nelson
All right. Some great advice, some great information today. Wade, Harrison, thanks very much. I've been enlightened a little bit more. I'm by no means an investment guru, far from it. But you guys have been doing it for years. Wade, I think you're coming up close to 30, if I'm not mistaken.
[00:39:28] Wade Kozak
Yes close to 30 years in in this job at Wood Gundy correct. All right. It makes me feel old.
[00:39:35] Wayne Nelson
Well, if you'd like to set up a consultation or if you just have some questions, call 403-260-0568. Gentlemen, it's been a pleasure.
[00:39:46] Wade Kozak
Good to be here. And go Canada in the World Cup.
[00:39:48] Wayne Nelson
Absolutely. For that personalized attention and expert investment advice on a client by client basis, contact Kozak Financial Group, CIBC Wood Gundy where they take the mystery out of building a solid financial future? A Focus on income generation. Visit the website its Kozak Financial Group.ca or Phone 403-260-0568. I'm Wayne Nelson for Wade Kozak and Harrison Kozak of Kozak Financial Group. Thanks for joining us today on Talk to the Experts.
[00:40:22] Narrator
CIBC Woody Gundy is a division of CIBC World Markets Inc, a subsidiary of CIBC and member of the Canadian Investor Protection Fund, an investment industry regulatory organization of Canada. Wade Kozak is an Investment Advisor and Portfolio Manager with CIBC Wood Gundy in Calgary. The views of Wade Kozak do not necessarily reflect those of CIBC World Markets Inc. If you are currently a CIBC, would Gundy client, please contact your investment advisor.
October 22, 2022 – “Talk to the Experts” Radio Show
Current market discussion, dialogue on cognitive bias, how to overcome emotions that come with investing & address some important tax considerations.
October Radio Show final with updated photo and disclaimer
Narrator: [00:00:00] CIBC Wood Gundy is a division of CIBC World Markets Inc, a subsidiary of CIBC and a member of the Canadian Investor Protection Fund, an investment industry regulatory organization of Canada. Wade Kozak is an Investment Advisor and Senior Portfolio Manager with CIBC. Wood Gundy and Calgary. The views of Wade Kozak do not necessarily reflect those of CIBC World Markets Inc. If you are currently a CIBC would Gundy client, please contact your investment advisor.
Randy Sharman: [00:00:26] Welcome to another edition of Talk to the Experts on 770 C HQ. R I'm your host, Randy Sharman. Pleased to welcome back Wade Kozak and Harrison Kozak from the Kozak Financial Group, CIBC Wood Gundy. Their website is KozakFinancialGroup.ca. And that all important phone number, 403-260-0568. Gentlemen, welcome back.
Wade Kozak: [00:00:51] Good to be back, Randy.
Harrison Kozak: [00:00:52] Yeah, happy to be here.
Randy Sharman: [00:00:55] Has much changed in the market since a month ago? I think it was about a month ago that you guys were visiting with us. Anything change?
Wade Kozak: [00:01:04] I can't remember the exact date we were here, but September marked a pretty weak month for the stock market. Like stock markets around the world dropped during September, and the volatility certainly has continued into October. We saw some very weak days early in October and then some very strong days in October. And right now, month to date, the equity markets are up a little bit. But I think it's safe to say that the the volatility that we've seen thus far this year is still here.
Harrison Kozak: [00:01:36] Mm hmm. Since we were last here, I think it was September 17th, the Canadian stock market is down a little bit. The TSX Composite down about 2.7%. And the US markets are sort of mixed. The Nasdaq has continued to get hit hard, down about 5% since last we were here. And then the the Dow Jones is actually up just very, very slightly less than 1%.
Randy Sharman: [00:02:00] Mm hmm. It seems to me that volatility is always the word that comes up. We've been doing this a long time, and that's the word that comes up all the time is volatility is So, again, really nothing new?
Wade Kozak: [00:02:14] No. That this the you know, if you if you think back to this time last year, we were coming off a very strong year for the stock markets. Equity markets were performing quite well. They continued to perform quite well sort of through through the end of 2021. And then the year turned over and things changed a little bit. This year to date, though, there's there's been a market change and I think it's it stems around the dramatic rate in rate hikes that we're seeing from the central banks. So the Bank of Canada has increased interest rates several times. The Fed has increased interest rates several times. The markets taking their cues, basically understanding that the central banks want to slow the economy down. They won't say it out loud, but they probably actually want to cause a recession, quite frankly, in order to go and combat inflation, they're going to have to destroy demand. And in order to destroy demand, they have to drive the unemployment rate higher and an attempt to to keep people who are working right now happy about keeping their jobs instead of asking for pay hikes, because those pay hikes will just drive more inflation. So they they are doing whatever they have to do to go and slow the economy, to go and wrestle inflation to the ground. And they will succeed with with the policy tools they have in their hands. So all the eyes right now, I think, are on the next meetings. The Bank of Canada meets August I'm sorry, October 26 for their net rate decision, widely expected to increase rates by another three quarters of a percentage point. And the Fed and the US, they meet next on November 2nd. Also widely expected to increase rates by about three quarters of a point. And then all the eyes are going to be on the commentary. What are what are the wordings in the decision? How close are we to the end of these rate hikes? Eyes are also on the inflation numbers and are we going to are we seeing those sort of brought down? And we've seen them stabilize somewhat but not really come down as fast as the central banks would like to see them come down. And I don't think we have any respite until until we see those numbers start to roll over a little bit. Hmm.
Harrison Kozak: [00:04:37] Yeah, I was just on Wednesday at the Calgary Economic Development Forum, and the economists who are speaking there, a few from more local areas and a few from out east, it was sort of a mixed mixed bag of what they were expecting to come through sort of early 2023. But the one thing they all did agree on was that recession is most likely coming down the pipe. Early days of 2023 at some point and the Bank of Canada is doing everything it can to try and curb that inflation. A lot of people are still thinking about things like car loans and sort of new and used car sales. The topic a year ago today would have been supply chains. Nobody can get anything.
Randy Sharman: [00:05:17] That's true.
Harrison Kozak: [00:05:18] But today the story is more about trying to slow those things down, reduce the ability for a consumer to get a loan, or at least make it more costly and make you think twice.
Randy Sharman: [00:05:29] And that's the whole idea, right? I mean, I was going to ask you, like, what does that mean to the average person? I know you watch the markets all the time and interest rates and that kind of thing. But when it comes to especially if you're in retirement already, what does that mean? Like, what are people calling you about.
Wade Kozak: [00:05:47] To somebody in retirement? A recession, I think, means a lot less to somebody who was still working and and saving and attempting to make a living, quite frankly. Right. Because someone who's retired, they've it might affect your investment account. And certainly our clients are watching the value of the stock portfolios, the interest rates that are available on bonds we can talk about in a minute. But they aren't worried about losing their jobs. Yeah, they aren't losing about they aren't worried about their their incomes getting slashed. Or perhaps people who are at the twilight of their career might be looking over their shoulder in a recession of am I one who might be laid off. And we saw a lot of that in the downturn of the energy sector in 2015. People who didn't get to choose their retirement date, it was chosen for them, I guess is the most polite way of putting it. And they they basically had to come to terms with that and and figure it out. So to a person who's already retired, I think it means less. I've had a lot of conversations with with clients in the last in the last few weeks discussing the markets, discussing the portfolios. One interesting and silver lining we've seen in this past year is economic theory says that during periods of inflation you should expect dividends to be raised from blue chip dividend paying stocks. And I'm very happy to report that's in fact exactly what we've seen this past year. We've actually seen pretty significant dividend increases from some names such that the income, the portfolios that we're managing for our clients has actually grown over the past 12 months and it's grown from typically three three sources.
Wade Kozak: [00:07:42] First, we have seen a lot of dividend hikes. And so the equity portfolio has actually increased the overall cash flow it`s generating from dividends, as we've had bonds mature in in the last six months, we've been able to roll those bonds over into bonds that have much better interest rates. So if we had a bond maturing that we were only able to lock in before 3%; right now I can get nearly 6% on ten year investment grade bonds and certainly in the mid fives all day long. And the other way that income has grown. If a person isn't withdrawing the income, all of that income can be reinvested. And right now it's being reinvested at excellent, excellent income rates, causing that overall income. The account is generating to increase quite significantly. So I've had a couple of conversations where clients say, you know, it doesn't feel good, it doesn't feel good for the stocks to be dropping. Yeah, it makes me feel like we should be maybe spending less and being careful. And I point out that in fact the income they're generating has actually grown. And so their ability to withdraw money from these accounts is actually increased over the past 12 months and that they shouldn't feel that way. So you have to kind of look at all aspects of the investment portfolio and certainly the stock market, as anybody who's spent more than a couple of years invested in it, it doesn't only go up, you have to expect these pullbacks. And if you're expecting the pullbacks and you are prepared for them, they don't shock you as much. And perhaps you're you're better in a better position to take advantage of them.
Randy Sharman: [00:09:21] Which goes right back to your whole philosophy of investing, which we will get into. We're just getting underway with talk to the experts, chatting with Wade Kozak and Harrison Kozak from the Kozak Financial Group, CIBC Wood Gundy KozakFinancialGroup.ca is their website. If you want to give them a call, if you have questions. 403-260-0568. We'll talk more about retirement and retirement planning next when Talk to the Experts continues on 770 CHQR.
Randy Sharman: [00:09:50] This is talk to the experts on 770 CHQR I'm Randy Sharman. Today we have Wade Kozak and Harrison Kozak from the Kozak Financial Group, CIBC Wood Gundy. KozakFinancialGroup.ca is the website. If you have questions, want to give them a call, 403-260-0568 is the phone number. Well, we left off talking about the markets, recessions, what that means for the average person. What kind of things do they come to you with? What are some of the common mistakes people make when it comes to their retirement, retirement planning, those things?
Harrison Kozak: [00:10:30] Yeah. So more often than not, peoples biggest pitfalls that they should be looking to avoid is themselves is their own emotions. We are simple creatures, human beings and we often can make decisions based on sort of how we feel when we get up out of bed that day. More often than not, our decisions, at least in the stock market, are driven by either fear or greed. We're afraid of what could happen, especially in times like today or in better times. We're greedy and we want a little bit more. And both of those things have their benefits, right? There's a reason those are sort of hardwired wired into us to protect us from harm and that kind of stuff. But in places like the capital markets today, not so useful as maybe when we were climbing fig trees as monkeys, you know, millions of years ago. So that's one of the main things people can look to avoid. And often you hear it talked about as behavioral finance, emotional or cognitive biases. And really those are all fancy words for mental shortcuts that we take. We take a shortcut to a decision because it's easier and we want to avoid the the complexity of making a hard choice.
Wade Kozak: [00:11:44] So what's what's a way to to avoid those difficult spots, those emotional decision making pitfalls? Yeah. So I'm thinking here of speaking with. clients in December of 2021, coming off an excellent year, reviews then I would speak with clients and they would say, Oh, you know, I've got some extra cash in my bank account it feels really good, right? Like the year's gone really well, the stock market's up everything,everything looks great in the accounts. They feel really good about investing more money and buying a little bit more and and getting getting some money invested. And so, like, they make the deposit and and we would take our time about it because things were things were quite expensive in getting that invested. Whereas now we've just come off the first nine and a half months of the year, the markets are down. The interest rates that are available to invest in are much, much higher than they were a year ago. And yet the and yet people are saying things to me. Well, it just I just want to wait till it settles out. I just want to wait till it sort of feels better to go and put some cash in when now was a much better time to go and put cash in than it was a year ago in late 2021. I'm not saying that this is the best time. Who knows where the market goes from here. You'll our constant listeners have heard me say a lot that nobody knows exactly what's going to happen in the stock market in the short term and our interest rates going to go higher from here. Can those ten year bond rates that I can get right now, are they going to be even better a month from now? We don't know. But I'll tell you one thing, there are a lot better now than they were a year ago. For instance, last year at this time about the best I could do for a ten year good quality investment grade corporate bond was maybe two and three quarters. Today, I can get 5.8 to 6%. That's a huge move in one year. And quite frankly, that's the biggest move I've seen in one year in my career. And that's that's part of it, I think it affects people emotionally when they see the safe part of their investment portfolio. The bonds have actually dropped as well. That's supposed to be the side that's guaranteed, which it is. And the difference between the drop on the fixed income side and the equity side is that the bonds might be down temporarily but they all still have guaranteed maturity dates and guaranteed maturity values. So one way that we can we use to sort of get over those emotional hurdles is basically setting rules for yourself. The simplest rule in that particular case is instead of letting the money build up and then sort of making decisions about it,like I'm going to put it all in now. Instead, you put a little bit in each month, right? And so people call that dollar cost averaging. You invest a little bit on a regular basis when you just keep your blinders on like a horse and kind of keep focused on that and if you just stay focused on that, it will it will keep you honest and it will prevent you from being your own worst enemy and not investing when everything's less expensive and perhaps investing more when everything is the most expensive.
Randy Sharman: [00:15:04] Yeah. Do people pay too much attention to the headlines? Perhaps. And I'm going to use the example of what happened in Britain with the resignation of the Prime Minister after 40 some days. And you know, the British pound takes a hit and all those things happening, do people sort of pay too much attention to that? And then they're calling you going, Oh my gosh.
Wade Kozak: [00:15:28] That can happen. We call that managing the portfolio by headline, which which isn't which is never the right thing to do. We have we have disciplined methodologies. Those disciplined methodologies are designed to remove the emotion from the decision making process, to make decision based on logic and fact and not get caught up in the day to day headlines, the day to day news cycle. That news cycle is designed (And you know, I know I realize I'm sitting here at a news studio and that's what this station does) but the news cycle is designed to keep our eyes and ears glued to the media so they to sell advertising, not necessarily to convey information in a timely manner. And often that information they convey there's a certain amount of urgency and, you know, sensationalism that attached to it that perhaps shouldn't be. Again, in order to go and keep our ears and eyes glued to the screens and so honestly, we make no decisions at all based on those lead headlines.
Harrison Kozak: [00:16:37] Yeah. And we're thinking back through the last few years here, through the Trump presidency up until today, the big joke on the late night shows was always alternative facts, that kind of stuff. And at the end of the day, depending on where you listen or where you get your news, you could be getting an entirely different story than your neighbor just based on sort of what your political affiliations are.
Randy Sharman: [00:17:00] True.
Harrison Kozak: [00:17:00] And so to Wade's point, we keep our minds out of that and we stay focused on the numbers. We stay focused on the dividend yield, and generating that income in the portfolio. And like he said, putting blinders on like a horse and keeping it reinvested. Dividend yields are great right now, interest rates on bonds are great right now, it's a fantastic time to be buying investments. Do we know when the bottom is or what the bottom is? No. But like Wade said, I'm certainly much more happy to go out and buy a bond today than I was even in January of this year.
Randy Sharman: [00:17:35] Mm hmm. And that's the whole idea, right, of giving you guys a call, your office a call Kozak Financial Group, because that's why you're there to keep the emotion out of it so you're not reading the headlines and to give advice saying, hey, this is a good time to be investing in certain things. Right.
Wade Kozak: [00:17:55] And keeping people focused on on what's important, which if this is a retirement portfolio, what's important is how much you can be pulling out each year as a payment into your bank account if you were retired. And I think that I think that all of our retired clients who have spent a couple of years working with us after they sort of get get that message sunk in, that really what's important is how much they can take out of this account each year to live on. That number stays very static. It increases with dividend increases and as the bonds roll over, but it's not nearly as volatile as the stock markets or interest rates or anything else. And once you start focusing in that number, it takes a lot of the angst and anxiety out of running the retirement portfolio. Whereas before they might have been constantly focused on what's that total value of the account, which on a month by month basis might go high or it might go lower. There might not be any good reason for why it went higher or lower. And so it it makes us feel anxious about will I be able to retire? Will I be able to afford to retire? How is this going to work when I retire? When you start focusing on that cash flow it's generating, it starts to become much, much more readily visible as to exactly how this is going to work in retirement. And it takes the anxiety and the anxiousness out of it.
Randy Sharman: [00:19:28] And if you want to work with the Kozak Financial Group, give them a call. 403-260-0568 or have them work for you. You can check out their website, too. KozakFinancialGroup.ca. We're chatting with Wade Kozak and Harrison Kozak with the Kozak Financial Group. And we'll talk more about retirement and retirement planning next when Talk to the Experts continues on 770 CHQR.
Randy Sharman: [00:19:56] You're listening to Talk of the Experts on 770 CHQR. I'm Randy Sharman. Today we are chatting with Wade Kozak and Harrison Kozak from the Kozak Financial Group, CIBC Wood Gundy. Kozak Financial Group.ca. is the website. If you want to give them a call, if you have any questions or you'd like them to look over your portfolio. 403-260-0568. Last segment we were talking about emotions, and I liked your line about investing by headlines and some of the emotions that people do their investing with. What if you're one of those people that have done that and now you're kind of holding the bag or wondering, can this be fixed? What can you do?
Harrison Kozak: [00:20:39] Yeah. And first step is we got to revisit the original plan. What did we set out to do by investing? And more than likely, it was to develop that nest egg and prepare yourself for retirement. So if you've started out doing that and you've seen your your portfolio take a big hit this year through all this volatility, excellent time to call us and get at least a second opinion on where your portfolio has stood. And we're more than happy to tell you either, hey, it looks like you're doing a good job or or maybe these are the changes we would make and and how we would do that. And obviously, we've been talking for a long time on this show about how we produce investment income and the methods that we use to do that. And so obviously that's our favoured sort of strategy, but everybody's a little bit different. And so we're happy to have a look, offer our advice and give an indication of what we might do next if we were in your shoes.
Wade Kozak: [00:21:32] So we've had a couple of people come in in the past, in the past couple of months, people who aren't clients who were handling their investments a different way and are perhaps, oh, I'm thinking, you know, 5 to 7 years away from retirement or in one case actually already retired. And there was no clear plan or no clear logic behind the overall investment portfolio. So here here is a portfolio of stocks, no fixed income whatsoever, most of them didn't pay dividends. The values are all down and they're looking for some kind of guidance as to, okay, what can I do? Right. And so what we want to do is show them here is how we would make the portfolio look. Here's why we would make it look that way. Here's how much income it would be producing. Here, hopefully, is, you know, that gap you have to fill in your retirement between what you're going to collect from the government plans or the company plans. And this makes up the difference. But we want to show a client that it's that it's not too late, that and you can build a retirement portfolio based on more than just hope that the stock market keeps going up. Because quite frankly, if my investment portfolio and my retirement was based on just hope that the stock market keeps going up, I would feel very, very uncomfortable because who knows whether there's going to be growth this year or not. Whereas if your investment portfolio and your retirement income is based on an actual cash flow and you can see the cash showing up in your account as as payments of interest and dividends and therefore can see how you could withdraw it and spend it, you start to become much calmer and that fair enough. If this stock goes up or down, it's not affecting that overall cash flow you're getting from the dividend. And so you can feel much calmer about your overall retirement. And let's face it, that's why we're doing this. We're not we're not investing for excitement and, you know, to to give ourselves a heart attack. Quite frankly, we're investing to give ourselves peace of mind and to know that we have a path to having that cash flow into our bank accounts when we no longer want to be employed anymore. And so that's what we try to do for our clients.
Harrison Kozak: [00:23:56] Yeah, and we have lots and lots of long standing clients who have been investing with us for literally decades. Those clients today, when they see the markets roll over like they have been through this year, they're not calling us in a panic because they have been with us for a long time. They've seen the process work and they trust it. And so now when they call in times of economic uncertainty or anything like that, their questions are less about, am I going to be okay and everything like that, and more just sort of taking the temperature of the markets and sort of getting Wade's perspective or my perspective on, well, what does it look like today? Should we make any changes? Yes, no, maybe, maybe not. And those decisions that they're making are much less frantic, much less emotionally driven and much more focused on. I just want to produce the income, get a relatively decent return and enjoy my retirement.
Randy Sharman: [00:24:55] And that's because you've trained them over the years.
Wade Kozak: [00:24:59] And we've also driven home the importance of in all of this of taxation, which is the one thing we do have some control over of, of being as tax efficient as we possibly can be in these investment portfolios. We can't control the markets, we can't control our interest rates go, but we can control the having our affairs managed and arranged in the most efficient way possible for to reduce our taxes as much as we possibly can. And we spend a lot of time with clients working with that.
Randy Sharman: [00:25:31] And you do like the dividend stocks, don't you? That's that's a big part of your strategy.
Wade Kozak: [00:25:36] Absolutely. The the equity portfolio that we run, typically, if it doesn't pay a dividend, it can't be included in the overall investment portfolio, in my opinion. Every investment you own and your retirement plan should be generating a cash flow and the goal of your retirement savings is to increase the cash flow of that portfolio is generating year after year after year until that cash flow replaces your earned income. And that's the magic day you can retire. It's as simple as that.
Randy Sharman: [00:26:11] And it is a simple strategy. But like what are some of the other important aspects about retirement planning when someone is coming to you? And by the way, it's a free call, we should say, to to set up with you. 403-260-0568 if you want to talk to the Kozak Financial Group, you can also go to the website KozakFinancialGroup.ca. But what are some of the other aspects of retirement planning that people ask you about?
Harrison Kozak: [00:26:35] Well, to Wade's point, one of the number one things that we're thinking about is is the taxation side of things. And if we think about your life in terms of sort of general stages, you're coming out of your working stage. And you're entering into your retirement stage and perhaps it's you and your spouse and you're looking down the road of all the good times you're going to have ahead. You're probably aren't thinking about what are the tax consequences of what I'm doing today and how does that impact me and my spouse in the future. One of the main things that we're watching out for is when there's two of you around, you can split that RRIF income, which is considered pension income, onto both tax returns. So perhaps you worked for your whole career and your spouse stayed home with the kids. And so you have very, very different sized RRSPs and RRIF accounts. You can split that income and take advantage of these years today, where you have the ability to do so before one of you eventually passes and the other person is left with a much, much larger income on just a single tax return that can't be split up.
Wade Kozak: [00:27:44] So a good example would be recently we brought on clients who were in their seventies. They're getting very they were they were in fact 70. And they were basically at that point where they had to convert their RRSPs into RRIFs. And they'd been retired already for about ten years. And instead of taking any withdrawals from the RSP plans, they were taking all of the necessary income they needed to live in a day to day basis out of their non registered investment account and were actually shrinking their non registered investment account. And so they each showed very, very low taxable incomes, essentially from age 65. It was just the CPP, the OAS, and whatever amount of income was on that investment portfolio, they were slowly winding down and the the RRSPs were significant. There were like a seven digit number in there, and the minimum withdrawals that were going to have to come out were were quite significant to the tune of around $70,000 each. And they, which pushes them up into that second tax bracket. They could have at least been taking out payments from those RRSPs, converted a portion of it to a RRIF and during their retirement been taking payments out and using up those bottom tax brackets to sort of even out how much they're taking out of those RRIFs over their lifetime instead of just leaving them alone. And if one of them ceases to be with us at some point, the remaining RRIF payment is all going to be on one tax return, driving that last remaining spouse into an even higher tax bracket, and likely having all of their OAS clawed back. Had they simply spent those ten years drawing the RRSPs down in those lower tax brackets, they may have prevented that eventual OAS clawback in the future. So these are very simple things, but you have to do them at the time you can do them. Because like for that couple, there was no going back to age 60 and starting again. You got to get this right the first time around. Right? And so it behooves us, I'm talking Harry, myself and the rest of our team, it behooves us to be looking for opportunities like that, and we do. We're constantly as we're meeting clients, as clients age as perhaps one spouse decides to retire and their income drops dramatically lower, but the other spouse is still working, so they still have enough cash flow in the household to run their lifestyle so nobody really thinks about it. But perhaps that spouse who retired should actually start some RRIF payments and use up those bottom tax brackets. These are the kind of things that we have a lot of experience in. Keep in mind, we're not accountants and everybody should always get their own independent tax advice. But having said that, we do have a lot of experience, especially when it comes to drawing down this array of accounts people have built up during their savings years, the RRSPs, the tax free savings accounts, perhaps a locked in RSP, maybe there's a corporate account and the non registered investment accounts. And we can we can give ideas through our our vast experience of what is the most efficient way tax wise to draw these down, what our future pitfalls of doing it other ways and what might this look like. You know at age 70, at age 75, at age 80 and age 85? And what should we be doing today to be as efficient as we possibly can?
Randy Sharman: [00:31:21] Just one of the many reasons why you should have the Kozak Financial Group on your side, Kozak Financial Group, CIBC Wood Gundy. You can check the website KozakFinancialGroup.ca, or you can call them set up a consultation 403-260-0568. Chatting with Wade Kozak and Harrison Kozak from the Kozak Financial Group. And we will chat more about retirement and retirement planning next when Talk to the Experts continues on 770 CHQR.
Randy Sharman: [00:31:54] Welcome back to Talk to the Experts on 770 CHQR. Today, our guests are Wade Kozak and Harrison Kozak from the Kozak Financial Group. Their website is KozakFinancialGroup.ca and the phone number is 403-260-0568. If you want to set up a consultation with them or if you have questions, just give them a call. We are into the end of October. My goodness. Only a couple of months before the year end. What should people be doing now so they're not panicking? December 31?
Harrison Kozak: [00:32:30] Well, we've had we've had a couple of interesting years on the stock market. Last year was up just about everywhere you looked. And so more than likely, if you have a non registered investment portfolio, you've triggered gains at some point in the past two years here. And at the end of October here, there's a good chance you might have some unrealized losses available to go and offset some of those gains and maximize your return that way. So definitely have a look at your tax loss situation. Additionally, we're running into sort of the end of the year when everybody is making those usual decisions about what kind of RRSP contribution should I make or should I make one, and the factors included there. Obviously, if you have some extra cash set aside based on the inflation information, it looks like next year's TFSA contribution is going to be $500 more than it was this year, up to $6,500. But that, I believe, is yet to be officially announced by the Government of Canada. So sort of tune in for that one, I guess. But those are sort of the top things we're thinking about as we're running into the end of the year here.
Wade Kozak: [00:33:39] So in regards to the tax law selling, if a person's out there who has losses this year, you can carry those losses forward forever if you trigger them. And you can also carry them back three tax years. So if you had gains that you trigger that you had to pay tax on in 2021, 2020 or 2019, if you have a loss you can create this year, you can actually carry it back to those years and perhaps get some of that tax back. So it's it's very important that that people go and take a look at that. Harry's right we're actually looking at that for all of our clients right now because we did have gains triggered last year. And looking at it this year for most of our clients, we actually had gains triggered earlier this year. And so the losses we're able to create right now are basically just helping mitigate some of the gains this year, but still reducing the overall tax bill. A couple of quirks. If you're turning 71 this year, but you're still making RSP contributions, you don't have the first 60 days of the next year to make your contribution. You have to have your contribution done by December 31st because you're not allowed to have an RSP next calendar year and the year you turn 72 and occasionally we'll run across somebody who's 71. They're still working, they still have some employment income. They've still been making their RSP contributions each year. And this year you don't want to wait until the first couple of months of the following year. You've got to get that contribution done now, also, the deadline for education savings plan contributions is December 31st. So if you haven't made that contribution yet to your education savings plan, now's the time to do it and collect that grant money. And I think some of those bonds that are available right now are excellent options inside of an education savings plan for the grant money and the client contributions.
Randy Sharman: [00:35:41] And this is all things that you were talking about before or things that you kind of look after for your clients. You're you're the ones calling them, I'm assuming, saying, hey, have you done this? Are you you know, we got this coming up. That's all part of it, right?
Wade Kozak: [00:35:55] It is. Yeah. That's part of the total package we offer. We understand that our clients, accountants at tax time are very busy getting the tax returns done. They don't have a lot of time to lean back on their chair and stroke their chins and think about how things could have been done differently. That's that's sort of that's our job to look for those sorts of opportunities.
Harrison Kozak: [00:36:16] And at this time of year, there's all sorts of things going on. You're busy with getting ready for the holidays and all that kind of stuff. And so it makes sense for us to take the time today, do some of this planning now and involve your tax experts or whoever you might be working with to make sure that the right decisions are being made when we can make them.
Randy Sharman: [00:36:37] The phone number to call. If you want to set up a consultation or if you just have some questions. 403-260-0568. What's a typical first meeting like? I'm assuming different types of clients at different situations and different points in their lifetime, but on average, what's what's it look like so people can be aware of?
Wade Kozak: [00:37:01] It's essentially an information gathering and sharing session. So when we sit down with a with a client who heard us or somebody who's heard us on the radio here who wants to come in and talk to us, typically that very first meeting, we're getting to know a little bit more about them and their specific circumstances. We talk a lot here in generalities, but everybody's circumstances are a little bit different and and find out sort of where they're at in this path of saving and investing, kind of where they've been and the experiences they've had, where they want to be. And then we share a lot more detailed information of specifically what accounts look like for clients who work with us, what in their particular circumstances that account might look like and how it would work for them. And we can often even show them in that very first meeting a rough idea of the total overall income that account could be generating if it was if their portfolio was invested along the lines that we recommend. And then with information they have, we can see, okay, is that enough? Is that income that we could generate actually enough to close the gap of what they need in order to go and replace their earned income with investment income and retirement?
Randy Sharman: [00:38:27] And it's not just about a number, right? Because people say, do I have enough money? And we only have about a minute here. But that's always the question. And that's such a subjective answer, right? It's a question you. And answer it.
Harrison Kozak: [00:38:39] Is. And all the more reason to sit down and have that comprehensive conversation and talk about all the factors at play, what you can be doing to solve those problems for yourself and where you should be.
Wade Kozak: [00:38:52] But I encourage anybody who's interested to call us at 403-260-0568. We're happy to talk to you.
Randy Sharman: [00:39:00] We've been chatting with Wade Kozak and Harrison Kozak from the Kozak Financial Group, CIBC Wood Gundy. You can check out their website, KozakFinancialGroup.ca, or you can call that number that Wade mentioned, 403-260-0568. And they'd be glad to help you out and see if they can help you out even further. Gentlemen, it's been a pleasure.
Wade Kozak: [00:39:23] Good to be here and look forward to talking again with you in November.
Harrison Kozak: [00:39:27] Yeah. Talk to you again soon, Randy.
Randy Sharman: [00:39:28] And you've been listening to Talk to the Experts on 770 CHQR.
Narrator: [00:39:37] CIBC Wood Gundy is a division of CIBC World Markets Inc, a subsidiary of CIBC and a member of the Canadian Investor Protection Fund, an investment industry regulatory organization of Canada. Wade Kozok is an Investment Advisor and Portfolio Manager with CIBC. Wood Gundy and Calgary. The views of Wade Kozak do not necessarily reflect those of CIBC World Markets Inc. If you are currently a CIBC Wood Gundy client, please contact your investment advisor.
September 17, 2022 – “Talk to the Experts” Radio Show
We delve into the current uncertain investing environment and discuss the best way to frame it in relation to your personal circumstances & portfolio.
September 2022 Radio show
Randy Sharman: [00:00:00] You talk to the experts on 770 S.H. QR. I'm Randy Sharman. And our guests today are Wade Kozak and Harrison Kozak from the Kozak Financial Group, CIBC Wood Gundy. You can check out their website, KozakFinancialGroup.ca, and they would love it if you call them at 403-260-0568. Gentlemen, welcome.
Wade Kozak: [00:00:23] Good to be back after. After our little summer hiatus.
Harrison Kozak: [00:00:26] Yes. Happy to be back. How are you doing, Randy?
Randy Sharman: [00:00:29] Well, I'm doing quite well. This summer was amazing. I don't watch the markets like you guys do. Was the summer amazing for people that watch the markets?
Wade Kozak: [00:00:38] Oh, the summer certainly was exciting because we watched the markets. We will we'll talk about all of that in a minute here. But, yes, it's been it's been an interesting year. You know that Chinese philosopher curse? Maybe you live in interesting times and this year certainly has lived up to it.
Randy Sharman: [00:00:55] Well, let's expand on that, because I always think that when a person uses the word interesting, they're just being polite. So let's expand. We always like to talk about the markets to open things up. So, you know, I get the odd newsletter here. It's just a basic news thing, right? And it's US based, but they have a little chart with the markets on there and it's either red or it's green. And I've seen a lot of red lately. You tell me.
Wade Kozak: [00:01:28] For the stock markets, this has been a year to see a lot of red and look spanning in your comment in the US, the Dow Jones Industrial Average is down about 15% year to date. The S&P 500 is down around 19% year to date. The NASDAQ has really taken it on the chin, about down about 27% year to date here in Canada, the TSX Composite, it's done a little better. It's down about 9% year to date, buoyed up a little bit by the energy and resource shares on the that dominate somewhat in the TSX composite but still, you know, pretty weak number. Incidentally, the equity portfolio that we run for our clients is down about 6% year to date. So I'm quite happy that we're we're doing far better than all those numbers. But it still is somewhat of a weaker year after a very, very strong year last year. And just to kind of take people through the progression of 2022 and I know we were I know we were on the radio and we were talking about this back earlier in the New Year. But around about the middle of January, you started seeing a lot of news reports talking about how terrible the stock market was doing in 2022. And if you, you know, if you went and looked at your portfolio like maybe you noticed it or maybe you didn't because it was really just one key sector that was really feeling weakness in those first few months of the year. And that was the the growth slash technology sector, those mega-cap companies, the likes of Amazon, Netflix, Google, Facebook, Tesla here in Canada, Shopify, they were all taking it on the chin really hard and they were just getting hammered. And because they were such big parts of the of the indices, it was bringing the stock market indices down.
Wade Kozak: [00:03:18] But if you owned a blue chip dividend paying, value oriented stock, you really weren't noticing that the stocks were really down at all. In fact, they were they were doing okay for the first four or five months of the year. And then we saw the central bank start to raise interest rates, beginning to combat inflation. And in June, kind of everything dropped, the growth technology stocks dropped and so did all of the other stocks dropped basically on fear that the central banks were going to put the economies in North America into recession by raising interest rates too much, because almost every time you see the central banks go through a tightening cycle like they're going through right now, they end up going too far, whether it's on purpose or by accident, and actually drive the economies into recession. So there was a lot of fear of that in June and stock markets dropped across the board July. Things recovered a little bit. August, they were a little bit down, but mostly flat. And here in September, it's been up and down. And and right now, year to date, the the stock markets are pretty flat. But they were up just, you know, four or five days ago. And now that's all been taken away in the last few days. It's been it's been quite volatile as people continue to wrestle with when do the interest rate hikes stop, exactly what is going to happen to the economies? And are we going to see the economies go into recession? And there is there's a lot of concern in that regard, and there is a lot of confusion in that regard and consternation, quite frankly, amongst investors. Mm hmm.
Harrison Kozak: [00:04:59] Yeah. We're at a place in the business cycle here where we had all of this extra cash poured onto the economy by federal governments looking to quell potential financial meltdown during the pandemic. And now on the other side of it, we're sort of we're sort of paying for it. The governments are looking at ways to get some of that money back and bring inflation back under control, mostly by raising interest rates. And as always, the markets are unsure of that, as Wade mentioned. Businesses always would prefer lower interest rates and borrowing money at a lower cost. And so they're they're starting to bounce around a little bit on the markets. And we're seeing that volatility return that has been absent since the sort of 2020 sell off for COVID 19 in March.
Wade Kozak: [00:05:48] I want to point out that that what we're experiencing right now, honestly, is what we were hoping we would experience back in March of 2020, because the great fear then was that the economies were simply going to grind to a complete halt and GDP was going to just drop into a hole. And maybe the economy's never recover for a decade from mass unemployment caused by caused by COVID, etc., etc.. And instead what we're dealing with is overheated economies, very low unemployment numbers, inflation. These are these are actually the best possible problems we could be hoping to have right now coming. And we should all remind ourselves of that. That isn't to say that we can't be concerned about it today, but but still, this is it's good news that we're having these problems to deal with. We're fighting inflation. We're not fighting deflation, which nobody quite knows how to fight, quite frankly. But it's very clear how you fight inflation. That is, you you put the clamps on the economy and you try to bring it to its knees with interest rate hikes, which is exactly what we're seeing and what the kind of the other side of what's happened this year in the market.
Randy Sharman: [00:07:01] So now when you say we're fighting inflation versus deflation, define them for me. What would a deflation look like?
Wade Kozak: [00:07:10] Well, a deflationary environment would be where economic activity is actually shrinking each year and there is mass unemployment. So nobody has any money to spend like I'm talking, you know, Great Depression type events. And that was the worry as we were heading into the pandemic. And that was why all of this economic stimulus was poured on the economy, as Harry mentioned, and why we're having the problems today of that excess kind of kind of being burnt off. So speaking of interest rates, like we just sort of talked about what's happened in the stock market so far, calendar year to date, looking at looking at interest rates, everybody's quite aware of the Bank of Canada and the Fed funds rate increases. We've seen that's increase the prime rate. Certainly if you have a variable rate mortgage, you're very aware of of exactly what's happening there. But I think people are a little bit less aware of is how it has impacted the the rates you can get on five, seven and ten year government and corporate bonds because an investor that's what they're interested in. Right. Is so as recently as February, about the best I could do, buying a bond for a client, even a ten year term investment grade corporate in February was maybe three 3.1%. Even there briefly, it got down to 2.9%. But today we can easily pick up better than 5%, five and a quarter. I was even buying a bond on Friday, yielding over 5.7% investment grade corporate ten year term. So there are some not quite double, but almost double what the rates were back in February.
Randy Sharman: [00:08:52] Just getting underway. We talk to the experts with Wait Kozak and Harrison Kozak from the Kozak Financial Group, CIBC Wood Gundy. Give them a call if you have questions or if you want them to look at your retirement. Scenario 403-260-0568 is the number. You can check them out, too, on their website, KozakFinancialGroup.ca Okay. And we'll talk more about your retirement and retirement planning next when talk to the experts continues on 770 C HQ are. This is talk to the experts on 770 KCRW.
Randy Sharman: [00:09:26] I'm Randy Sharman. With us today are Wade Kozak and Harrison Kozak from the Kozak Financial Group, CIBC Wood, Gundy, Kozak Financial Group, S.A. as their website and 403-260-0568 is the phone number. Write it down. If you have questions you want to call them. That's why they're here. Okay. We left off talking about interest rates. I'm going to go back into the springtime when we last chatted and we always this always came up. And I always found it very interesting that you liked when the interest rates are going up, because you're looking at it from an investor point of view. Obviously, if you're from a borrowing point of view, interest rates are not good. But let's, you know, expand on your thoughts about interest rates.
Harrison Kozak: [00:10:09] Yeah. So interest rates on the rise for an investor is a fantastic thing. If you're like one of our clients who has a ladder of bonds and GICs, that sort of stuff coming due each year. You were probably trying to grit your teeth and bear it through those really, really low interest rate periods through the pandemic. And now that things are starting to jump up a little bit as far as interest rates are concerned, you're probably jumping for joy, trying to chomping at the bit and pick up those very best yielding bonds today. To Wade's point, just this past week, as we've been reinvesting maturing bonds and client accounts, we're picking up new bonds, paying over 5% even as near-term as four or five years from today. When you're doing that and when you're locking in that yield to maturity, you really don't care what path the price of that bond takes between when you purchase it and when it matures, because that yield that you locked in is not going to change no matter what the price of that bond does. So even if the price of it comes down again with further interest rate hikes, because of course, bond prices and interest rates always travel in opposite directions, even if that bond comes down in price, more doesn't matter if you locked in five and a quarter percent when you picked it up and you have it for five more years at five and a quarter percent is coming to you no matter what happens in the interest rates.
Wade Kozak: [00:11:36] So that, that sometimes those bonds can if interest rates rise, the price of bonds will drop temporarily. But those bonds still have their guaranteed maturity date, their guaranteed maturity value. And like Harry said, you don't really care what path they take to get there as long as they keep paying their interest and eventually mature on that maturity date. Which which is exactly how it's working. So it's it's been I was going to say interesting again. Right. But and honestly, it's interesting in every sense of the word, even the one that you mentioned, whereas this has been a weak year for the stock market, certainly if you were invested in those growth companies, it's been very difficult. But pretty much all stock portfolios are down somewhat this year. And for a bond investor, you're the current market value that you're seeing on your statement is actually down from where it was in January as well. So even though you're getting all your interest payments, etc., and you know, you have a guaranteed maturity date, if you're if you're judging things based on how that statement looks, you're not very happy right now because the value of those bonds have dropped. The value of the stocks has dropped. Not much has worked this year. So it's it's a very frustrating year for investors. And that kind of leads us into why we're here, which is to help guide people through this. And, you know, imagine yourself as somebody who had retired this time last year, you had $2 million in your investment accounts, your RRSPs, your TFSAs, everything all combined. And you had mostly invested in the Nasdaq type stocks because they had been doing quite well recently, etc.. And then you retired, gave up your income and that's it, the $2 million. But right now that account maybe is worth 1.4 million. You've dropped 600 grand in in the past 12 months in value. How does that make you feel?
Randy Sharman: [00:13:43] Yeah, exactly.
Wade Kozak: [00:13:44] Right. As you know, somebody who's now retired, you're not adding any more money into this account if you don't go back to work. And this money has to last for several decades into the future, and you've just seen 28% of it evaporate in front of your eyes. That's not a very warm, fuzzy feeling in the pit of your stomach.
Randy Sharman: [00:14:04] Well, I would think not, exactly. And I guess it goes back to the whole point of, you know, you can talk about interest rates and or the markets and this and that, but how does it apply to me as the retirement person? Right. How does that affect me on a day to day basis? And you kind of touched on that with that scenario.
Wade Kozak: [00:14:23] So and the reason I the reason I kind of drew that stark picture is it really draws a line under exactly why we manage money the way we do it for our clients, in that it's not necessarily about what is that bottom line of what are the accounts worth each day? It's about how much income is being generated by that portfolio that can be directed into your bank account each year to spend in retirement, regardless of which way the value of the account has moved. And quite frankly, like as I do reviews with our existing clients right now, one of the checks I make is I look back to a review we did about a year ago because I keep them, I save them. And I look at how much income was this portfolio generating 12 months ago versus how much income is this portfolio generating today? And despite the fact that the stock markets down, the bond markets down, the income has actually gone up quite significantly in the last 12 months because we've seen some significant dividend increases from certain portions of the stock portfolio as some of those bonds came due and we rolled them over into higher yielding bonds, we've increased the overall income that the portfolio is generating, and there's actually a relatively markedly, markedly good pickup in the overall income that's being generated in the portfolio.
Wade Kozak: [00:15:47] So from my point of view, as a pension plan manager for my clients, I might not be happy with the fact that the stocks are down in value. I'm thrilled to death that the income is completely intact and in fact has grown in the past year. And I can show that retired client that regardless of which way the value of the accounts have moved, their ability to continue to withdraw this money and ongoing basis not only is completely intact, but it's actually improved a little bit in the past 12 months. So it's doing its job as a pension plan. And I guess I just wanted to say to everybody out there who's listening that if if you are a few years away from retirement and you're looking at what's happening in the market right now and kind of, you know, subconsciously it's kind of gnawing at you at like if what if what if you were retired? How how would this be working? I would suggest you you pick up the phone and give us a call at 260-0568. We're happy to talk to you and discuss how our particular philosophy and methodology might work in your circumstance and how much income you could be producing. Mm hmm.
Harrison Kozak: [00:17:00] Well, and to Wade's point, if you are a few years away from retirement and you're thinking that, well, I don't need to start drawing on my, quote unquote, pension plan, my retirement accounts, yet it might give you some some sort of internal calm if you're able to see that for a few years prior to retirement. Sometimes people ask me, well, I'm not retired yet, so does this really apply to me? And I say to them, you know, if you were in a pension plan, this is how it would be investing today. Instead, you're running your own pension plan and your RRSPs, your TFSAs, etc. So why not start early? Get on that income train now and you can really have a picture of, okay, if I'm retiring in three years and I'm producing $60,000 a year in income and that's going to cover my expenses. You can feel pretty secure as you approach retirement and really focus on the personal hurdles that come along with that and less on the financial hurdles.
Randy Sharman: [00:17:57] Yeah, which is the reason that you do the job that you do, right? So people can have fun in retirement, do all the personal things they want to do and not really worry about the markets and interest rates and all those fun things like.
Wade Kozak: [00:18:11] That, that that's the stuff that we worry about. But to Harry's point, if you have a few years under your belt of investing that way, watching the income come in, it gives you a great deal of comfort that when the actual retirement date does come, you can feel very confident that you understand how it works. You can see how the income is coming in. I don't believe the correct way to handle this is to invest one way and then completely change how you invest on your retirement day going forward. I think that would add stress to your retirement, not take it away.
Randy Sharman: [00:18:49] Getting some excellent advice from Wade Kozak and Harrison Kozak from the Kozak Financial Group, CIBC Wood Gundy Kazak Financial Group. Okay. You heard the phone number, 403-260-0568. We'll talk more about retirement and retirement planning when talk to the experts continues on 770CHQR.
Randy Sharman: [00:19:10] You're listening to Talk to the Experts on 770KCRW. Today we are chatting with Wade Kozak and Harrison Kozak from the Kozak Financial Group, CIBC Wood Gundy,KozakFinancialGroup.ca Is the website and give them a call with all your questions or if you want them to have a look at your retirement situation. 403-260-0568. We left off before the break that you're kind of talking about, hey, if you're a couple of years out of retirement and you're thinking this and this and that, are people that invested, though? Are they watching the way you do? Because I of this scenario that they just get their quarterly statement from whoever handles their their money and then they look at it and just kind of toss it aside. And then suddenly retirement day, they go, oh, this is really happening. Do you get that feel from people when they call you or am I just out to lunch?
Wade Kozak: [00:20:06] Like it often you're on autopilot and I have to remind myself that we do this for a living. We sit here staring at this stuff every day, all day long, and we might have a little bit of the impression that other people also do that. Everybody does that, which and I have to remind myself that that isn't the case. And people often find themselves on autopilot that once a year they're making an RRSP contribution. Like I'm talking early in your career. Yeah. Maybe you're making an RRSP contribution once per year. You spend a few moments of thought as to which what you do with it, and then it goes out of your head until the next year. But I think as people get a little bit older, a little bit closer, they start paying a little more attention.
Harrison Kozak: [00:20:46] Yeah, once you're a few years out and you really starting to think about all those personal goals that you have, I want to take that big trip or tackle that big kitchen, Renault or whatever it may be. That's when you really start to ask the question, Well, hang on, can I afford this? And maybe when you're looking at those quarterly statements, to your point, Randy, there's not a clear answer of yes you can or no, you can't. And that's often when people start to call us. They've listened to the show and they think that that sounds like me. That sounds like a question I have. And they call us whether they're looking to completely transition, who's managing their money, whether it's themselves already or another advisor, or whether it's because they need a second opinion and they just don't fully understand, what do I have here and what should my concerns be? And oftentimes those people call in and they say they they have all the same questions of, well, can I retire in three years when I was planning to? And what does that look like at the time? What does my income look like? Not to mention that they could use some help planning for what does CPP and OAS mean to me? What can I expect from any other pension plans or savings that I'm expecting? And suddenly when you really start to think about it, questions you didn't know you had, really start to pop up and seem glaringly obvious when you hadn't been thinking about it middle of your career, when you were just getting your kids through school, that kind of thing.
Randy Sharman: [00:22:13] Well, it's interesting you say that, because I was going to say, you know, life does get in the way. So if you're talking about when your younger. Oh, okay, I don't have any kids yet. Maybe I can sock away some money in an RRSP to that and then things happen and suddenly that money is just isn't available anymore. So it's the first to go right? If it's a choice between paying bills and this and that, while your RSP is not going to be going, so maybe you've forgotten about it for a while and now you're four or five years out and maybe you're thinking you're a little bit behind. So it always helps to have someone take a fresh look at it, I would think. Right. And you have maybe a few years to catch up or do something right.
Wade Kozak: [00:22:51] And as with any expert, we can we can take a quick and dirty look at a situation and get a sense of, okay, like, what does it take? We can ask those questions. What does it take to keep your household running on a month to month basis? How much of that is going to be provided at age 65 by CPP and OAS? That's going to start rolling in how much going to be provided by perhaps a company pension you have and therefore how much will need to be replaced by your own investment portfolio? And then based on the size of your investment portfolio and the number of years left to retirement and your average savings rate, we can quickly work out are you going to get your portfolio to a position where it's going to be generating the level of income to to allow you to retire? And we we can do that just because of our experience in in like in that meeting, whereas it might take a layperson several weeks of gathering information to perhaps go and find that same answer. But we like like Harry says, people often show up on our doorstep when they they look at that collection of statements of all of these different accounts. And they wonder, how does this turn into a monthly deposit showing up in the bank account to replace? The employment income. And they hear us on the radio and they say, okay, that these people seem to specialize in providing that monthly deposit into the bank account based on the investments. And that's exactly what we do. And so we we can help give people a very clear picture of how much income could your portfolio be generating. And based on that income, could you actually retire without touching your principal at all? Or will you be required to draw your principal down during your retirement or anywhere in between, quite frankly. And we can help people come to those conclusions.
Randy Sharman: [00:24:46] Well, I think to circumstances would change. Like, say again, you're using that scenario of your three or four, maybe five years out of retirement. Maybe you got a couple of loans that by the time you are retired, they're gone, right? So your expenses, your whole life situation changes as well. And so that changes the scenario, too. Right.
Harrison Kozak: [00:25:05] Yeah. And people have all sorts of goals that they've thought about fondly for years. Maybe you and your spouse have always talked about wanting to leave some money behind for the kids or leave some money to hunt behind that favourite charity, something like that. But you've never really thought about, well, is that feasible? It's just always been what you've hoped to do and a lot of people show up and those are some of the questions that really start to crop up. The first question they had was, Can I afford to retire? A few days later, when they've been thinking about it for a while, they're wondering, Can I meet these goals? Can I help my kids buy their first home? Can I contribute to my kids, kids RESP to help pay for the grandkids education? And some of those questions are a little bit harder to answer. There's not a Government of Canada website explaining whether or not you can afford that. Like there is about how much CPP can you expect. And so those are some of the things that require a little bit more finesse that people often find. They can't find they can't Google an answer to themselves.
Wade Kozak: [00:26:08] And I would say to people not to panic. The the pattern that I see time and time again is when you're younger and you're you're just starting your career and perhaps you have a mortgage you're paying off and a car loan, there isn't as much capacity to save. Right. To put money away for the future, because you're dealing with all of those other expensive things you're having to set up. And then perhaps kids come along and you're and, you know, kids aren't cheap. They're they come with their own set of expenses. When we tend to meet people is when they're getting closer to having that mortgage paid off. Perhaps the kids are not out of the house yet, but they get a good they're getting close. Hopefully the careers have progressed and that couple is making more money than they ever have before during their careers. And that happens at the exact time that all of the debt gets paid off. And so normally people save the bulk of their retirement savings in that last seven years of their of their earning years, because they're at their peak earning years, they've never made as much money as they have. And they are the kids are out of the house. They've lost a lot of those expenses. The mortgage is paid off. They have more free cash flow flowing into the household than they ever have before. And so a whole lot of that gets gets directed towards savings. We're conditioned to believe by the traditional financial plan that we should all be contributing an equal amount per month during our entire life. But that just in reality isn't how it works out. We end up rear end loading a whole lot of that savings because that's when people tend to have the most free cash flow to save.
Randy Sharman: [00:27:52] Mm hmm. That's what I was getting at that. You know, that is been the model that we see the ads for. Oh, start saving when you're young and compound interest and all this. But the reality is life does get in the way, as you mentioned, all those examples. And suddenly that extra income to throw on an RSP isn't there anymore. But it's good to know that, as you mentioned, the closer you get to retirement, that's when you can really start to make some headway towards your retirement goals, right?
Harrison Kozak: [00:28:23] Yeah. And typically people you start to meet, you start the way you mean to go. You put away a little bit at a time at first and maybe it's not much. It feels insignificant, but you develop that habit so that when you do get to those years where you have all sorts of cash flow and no expenses, then you're already in the habit of putting it away. All that extra cash I've got, I just put away, put it into my RSP, put it into my TFSA or whatever you're doing with it. And by the time you've developed that habit and you're now into that process, it makes it really simple to turn around and reverse it so that when you do hit that day where you retire, you already are kind of in the habit of I make a monthly decision. And when you start, when you open up accounts with us, we sit down and have that discussion right at retirement. About how much? We need to be sending out each month and then boom, it's set up. And then of course, it's a process by which maybe six months down the line you realise, well we've actually gone on that big dream trip and we need a little bit more cash and you're in a bit nervous about it. But a few years down the line you have some of those things out of your system, you've checked them off the bucket list and suddenly your expenses really start to fall in line. And it's all sort of, you see into the future what your life looks like forever.
Randy Sharman: [00:29:36] We are chatting with Wade Kozak and Harrison Kozak. They're from the Kozak Financial Group CIBC Wood Gundy, KozakFinancialGroup.ca is the website call them, 403-260-0568. We'll talk more about your retirement and retirement planning next when talk to the experts continues on 770CHQR.
Randy Sharman: [00:30:00] I'm Randy Sharman. Our guests today are Wade Kozak and Harrison Kozak from the Kozak Financial Group, CIBC Wood Gundy, KozakFinancialGroup.ca is their website and give them a call if you have questions for sure. 403-260-0568. I want to go back to when we were talking about, you know, interest rates and, you know, the markets and recession and all those things. It's it's the buzzwords that we hear in the headlines. But like when you see in the news, for example, you know, economists arguing whether or not we're in a recession with we are if we are for the average person, if they were retirement or even if they're not. What does that mean? Like for day to day thing when I'm going to the grocery store to buy my groceries and all I see is the price is going up and I hear recession. First of all, what does it mean and should I really care? And maybe that's what you guys look at and I don't need to care.
Wade Kozak: [00:30:59] Well, it is important to you. I mean, as as if you are that retired person who is no longer employed. So how well the economy is doing on the surface doesn't seem to have a whole lot to do with you, but it certainly has a lot to do with your retirement savings account. And so if you had $1,000,000 portfolio at the beginning of the year and due to fear of recession or actual recession or whatever, that million dollar portfolio is now worth 800,000. It probably doesn't make you feel warm and fuzzy in the pit of your stomach. And so it is important to you and it is probably something that you're paying attention to. Honestly, I would suggest it has less to do with that person who is just started out in their career. They have their job. They're likely not going to get laid off because they aren't the last person in. But, you know, they're paying their bills. They're make they're making their living and that's the end of it. So honestly, to that retired person and to that new crop of people coming out trying to get jobs in the middle of a recession, I'd say it's probably more important to those those two groups.
Randy Sharman: [00:32:07] Mm hmm.
Wade Kozak: [00:32:08] And we're at a strange point in the business cycle that the employment rate is still very, very high. The unemployment rate is still very, very low. Yet we're we're seeing a lot of these noises being made that these higher interest rates are going to eventually bring economic activity down. And exactly how is that going to work and how is it going to affect everybody's finances? And that's yet to be seen.
Randy Sharman: [00:32:35] But if I want to sleep at night and I don't want to worry about it, I call you at 403-260-0568, because really, that's that's why you're there. You look after the everyday kind of stuff that I might be pulling my hair out otherwise.
Wade Kozak: [00:32:49] And I'll say a couple of things here. One is you've only got one chance of doing this right. You don't show up at retirement date, realize you've mishandled all of your retirement savings and get the chance to go back and try again. Right. This this is a you've got to get it right the first time around. And so I think it behooves us all that we take that seriously and we treat our retirement accounts, our savings plans as a pension plan. And if if you're like most Canadians today, you don't work for the government. You don't work for one of the companies that provides a nice, cushy defined benefit pension plan. You're being left to your own devices to manage your own pension plan, and you better be managing it like a pension plan, not a gambling account.
Randy Sharman: [00:33:35] Mm hmm. So when people do call you and I think I already know the answer because you kind of touched on this, Harrison, what's the first question that people will ask you? Is it do I have enough money to retire on? Is that the million dollar question in quotes?
Harrison Kozak: [00:33:51] Oftentimes that is the first question in one form or another. People also often ask sort of similar questions to what you've asked here about. I'm hearing all this stuff in the news. What does it mean for me and where I'm at today? And often I don't redirect them away from that because I'm trying to avoid it. But I am sort of trying to get them to focus on, well, let's not look at the economy as a whole when we're really talking about your retirement. What is your picture look like? So that turns into what your income needs look like. To Wade's point, what portion of that gets covered by government pensions, CPP and OAS? What portion gets covered by perhaps your your corporate pension that you get from your job? And then what leftover do you need from your retirement pensions, if anything? And if not, if you don't need anything from those retirement plans, what does that mean for your future and how should you plan for your future regardless? So those questions that they come in with are often the questions you're asking, these high level economic sort of macro questions. And really what we need to be answering is, what do you need to talk about today? What is your micro focus on your life look like right now?
Wade Kozak: [00:35:07] So all of what Harry said is completely true. I also get the sense some people first come in there asking without asking directly. They're trying to suss out, okay, I've heard you talking on the radio. I've heard that message you give. Is that really what you do? Is that. Or once. Once I actually show up here and open the accounts, is that something completely different that that you actually show? And I can say unequivocally that this is actually what we do. And quite frankly, you know, we manage over one and a quarter billion dollars for all of our clients combined. It has to be what we do if this is what we're talking about and a lot of our clients are are who tunes it and listens here and we talk. And I just want to share, like anecdotally, I've talked to a few different people and I've gotten the same response. This is such a human response. But that, I think bears talking about back in December, these clients I'm thinking about, we're quite happy to Oh, we've got some extra cash in the bank account. Let's deposit. Like, look how well the accounts are doing. Let's deposit some money in these accounts and get this money invested instead of just having it do nothing in the bank account. They were quite happy to do that back in December. Talk to those same clients today. They've got cash built up in the bank account again because they're still in savings mode. But I don't know, maybe. Maybe we shouldn't invest it right now. Maybe we should wait till things improve a little bit. And so here we are.
Wade Kozak: [00:36:36] Interest rates almost twice as good as they were back in December of last year. The bonds I'm buying today, I can get almost twice as much income yield on as I was able to last December. The stocks were buying today are actually less expensive than they were back in December. And yet, whereas they were eager to invest back in December, they are reluctant to invest today. That's the kind of cognitive human bias that all human beings have. It doesn't really feel good right now. So I don't want to invest. Do I know what's going to happen for the next three months? For sure? Absolutely not. Nobody does. Anybody tells you they do. They're lying to you or more dangerous they're lying to themselves. And they can be very convincing then. But what I do know is that I can get far better cash yield from the stocks and the bonds today than I was able to as recently as six or eight months ago. And so to me now, logically and mathematically is a better time to invest than when everything felt really good back in December. So we have to fight hard against those cognitive biases that as human beings trip us up all the time. And and that's exactly what we spend almost every day forcing ourselves to do with our disciplined methods, with our very disciplined ideas of how we select stocks, of how we manage the balance of those portfolios, and how we look at the income more so than anything else. It helps keep us on the straight and narrow and helps us not get caught in those traps.
Harrison Kozak: [00:38:19] And to kind of tie a nice bow on those two thoughts there. Wade and I believe it or not, are also human and so those cognitive biases are one of those things that plague us as well. However, we are big proponents, of course, of eating our own home cooking. So my investment accounts and Wade's investment accounts look just like all of our clients investment accounts. I'm not telling you to do Method A, and meanwhile I'm doing Method Z in my own accounts. Exactly what I'm doing for myself is what I'm doing for you. And that's because we believe in it. And we understand that because of these cognitive biases and these these sort of traps that we can fall into, we need to avoid those by sticking to the plan, treating this like a pension plan, and making sure we get it right the first time around.
Randy Sharman: [00:39:09] We only have a few seconds. Any final thoughts?
Wade Kozak: [00:39:13] Just that we seem to have a little bit of summer left here and it has been a fantastic summer. I've been really enjoying the weather here in Calgary and let's let's hope it it's this time of year. I always kind of have this faint hope that maybe winter doesn't come.
Randy Sharman: [00:39:27] But we all do.
Wade Kozak: [00:39:29] But you know what is around the corner, so we've got to take advantage of it.
Harrison Kozak: [00:39:32] Yeah. Not looking forward to winter, but I suppose hockey's just around the corner and that's something to look forward to.
[00:39:37] There's that too. Wade Kozak and Harrison Kozak are from the Kozak Financial Group, CIBC Wood Gundy, KozakFinancialGroup.ca. Call them with your questions. 403-260-0568. They'd be glad to help you out. Thank you, gentlemen. Good to see you again.
Wade Kozak: [00:39:54] Good to see you, too.
Harrison Kozak: [00:39:55] Good to see you, Randi. Thanks for having us.
Randy Sharman: [00:39:57] And you've been listening to talk to the experts on 770CHQR.
May 28 2022 – “Talk to the Experts” Radio Show
Wade Kozak and Harrison Kozak discuss current markets and highlights in the episode include a discussion on Intergenerational wealth transfer.
May 2022 Radio Show
Announcer: [00:00:00] CIBC Wood Gundy is a division of CIBC World Markets Inc, a subsidiary of CIBC and a member of the Canadian Investor Protection Fund, an investment industry regulatory organization of Canada. Wade Kozak is an Investment Adviser and Portfolio Manager with CIBC Wood Gundy in Calgary. The views of Wade Kozak do not necessarily reflect those of CIBC World Markets Inc. If you are currently a CIBC, Wood Gundy client please contact your investment advisor.
Randy Sharman: [00:00:25] Welcome to another edition of Talk to the Experts on 770 CHQR. I'm your host Randy Sharman. Today joining me in studio is Wade Kozak and Harrison Kozak from the Kozak Financial Group, CIBC Wood Gundy. www.KozakFinancialGroup.ca is their website and their phone number. If you have questions you want to call them, set up a consultation. You can do that for 403-260-0568. Hello, gentlemen.
Harrison Kozak: [00:00:50] Hey, Randy. How are you doing?
Randy Sharman: [00:00:51] I'm good, thanks.
Wade Kozak: [00:00:52] Good to be back.
Randy Sharman: [00:00:54] We always like to start talking about the markets. I don't follow them like you do, but I do get it like a it's a daily email. It's called the Morning Brew or whatever. And they always have them.
Wade Kozak: [00:01:06] The little talker in the corner.
Randy Sharman: [00:01:07] Corner. Yeah. The top five markets or whatever. And it seems to me a lot of stuff in the red. The last couple of weeks I got the feeling the markets didn't do very well. But you are the experts here.
Wade Kozak: [00:01:21] Well year to date if you're if you're just kind of following it from by that measure or just watching the talking heads on TV, it does feel pretty terrible this year. So from January one, right to Friday's close, markets in North America have been quite weak. The Nasdaq composite down about 22 and a half percent. The S&P 500 down about 13% year to date. The Dow down about 9%. Here in Canada. We fared better with the energy contingent in in the TSX Composite only down right now, around two and a half percent year to date. However, that doesn't really tell the whole story. There is basically been one segment of the market that has been very weak and the rest of the market has done okay. And that very weak segment has been the large cap growth stocks in North America. So, you know, in Canada, the likes of Shopify and Lightspeed are down significantly from their all-time highs and are down quite a bit this year. And in the US, names like Netflix, Amazon, Google, Facebook, Snapchat, all of all of those Mega-cap growth stocks that did very well during the pandemic have given up a lot of those gains.
Wade Kozak: [00:02:40] And because those names make up such a large portion of the overall indices, it's dragging the indices down. What's actually done reasonably well year to date have been the blue-chip dividend paying value stocks. One of the reasons I think they've in general done well is because during periods of inflation in the past, what has protected you from that? Inflation has been blue chip dividend paying, value-oriented stocks. And so that side of the stock market is actually holding up quite fine. So, the equity portfolio that we run at the Kozak Financial Group for our clients, that core portfolio of dividend paying stocks is actually up a little bit year to date, January one to right now because we have some exposure to those large cap growth stocks that that have been weak. But we don't have a whole lot of exposure because they don't pay dividends. So the market has actually had two sides to it and it almost feels a little bit like the the sell off in technology stocks back in 2000 when that one sector was doing terribly. But the rest of the stock market was doing just fine. Thank you very much.
Randy Sharman: [00:03:52] Mm hmm. And this kind of just goes back to your whole philosophy of how to do things. Anybody that's listened to talk to the experts with you kind of knows that's you, you don't get caught up in the highs and lows. That's the whole idea of how you do things. So you can weather the storms or for lack of a better term and those types of things, right?
Wade Kozak: [00:04:11] That's correct. Like the stocks that we want to hold for our clients, we want them to pay a regular cash flow in the form of that dividend so that even during during bad years in the stock market, when those stocks are down, too, that cash flow is still coming in and can fund the retirement withdrawal that a client wants to make. And so that that helps clients feel a lot calmer and makes them less likely to panic and sell out at the bottom. And in my experience, that's a very good way of building a retirement income portfolio. And times like this are an excellent example. If you had retired in December of this past year, just in time to go and see the markets go and take this bit of a swoon, it would probably concern you a great deal. If you were counting on future growth from those names to go and fund your retirement income. But if you're counting on dividends from a dividend paying stock portfolio, whether the stocks are up or down doesn't necessarily affect the dividend that you're getting paid. That cash flow continues to come in.
Harrison Kozak: [00:05:16] Not to mention striking a balance and adding in a little bit of a fixed income component into your portfolio. It doesn't matter whether the stocks go up, down or sideways. The only thing that's really going to influence interest bearing bonds is changes to the interest rates. Of course, we've seen interest rates climb over the beginning of this year, which has pushed down existing bond prices. But that just makes it all the better to purchase new bonds as you have maturities roll into the account and new cash to go and get reinvested in a new bond.
Randy Sharman: [00:05:48] Mm hmm. So let's talk about interest rates, because as always in the news, it seems to be lately. How does when you hear a story of the Bank of Canada is going to raise interest rates to fight inflation, how does that affect portfolios?
Wade Kozak: [00:06:02] That will affect the current market value of the existing fixed income or bonds that a client has. So, you know, our constant listeners will know that the way we invest in bonds for our clients. So, for that guaranteed side of the account, we want to build a ladder. We want money coming due next year. We want money coming due the year after. We want money coming due in three years all the way out to ten years. Typically, we want to build that ten-year bond ladder and then as bonds come due, we simply roll them over. Now an end. Interest rates have moved up during the months of April and May, probably about as much as I've ever seen them move up in that short of a period of time like this has been a very, very steep rise in interest rates. You can get on on bonds at every point in that curve. So, for instance, in January, we were hard pressed to go and buy a ten-year investment grade corporate bond, paying 3%. On Friday, I actually bought a nine-year investment grade corporate bond paying about five and a half percent, which is a huge move in a short period of time. And what those interest rates are that will affect the current market value of the existing bonds, however, that you have in your portfolio now, a bond coming due one year from now is very short. And it's, you know, it has a guaranteed maturity date and a guaranteed maturity value that, you know, you're going to get on that date one year from now. It's not going to move very much. And so that bond hasn't moved very much during during this period of rising interest rates.
Wade Kozak: [00:07:40] The ten year bond may have moved quite a bit, right, if it was only paying you 3% back in January. And a buyer today is demanding 4 1/2% or 5% for that same bond. The current market value of that bond will have diminished somewhat. It still has a guaranteed maturity date. It still has a guaranteed maturity value. So, it only can move so much. But it will have moved, I'd say the like a one, three, ten year ladder, that overall bond portfolio probably has a dropped in value in the last couple of months by I'd say, between 4 1/2% and 5 1/2%. So if you look at that whole ladder, it has diminished in value between 4 1/2% and 5 1/2%, but it is still paying its interest. That bond is still going to come due. We're still going to be able to roll it over at current interest rates and get a better yield than ever before. And I want to point out that if that's how much a bond portfolio can move a one through ten year ladder during a period where this is about as much as we've ever seen interest rates rise in this shorter period of time, I'm not saying we should be, you know, casual and unconcerned about that, but in the grand scheme of things, that's a much smaller move than you would see during a period of volatility in the stock market. You know, we just looked at the Nasdaq down 22% year to date. And so even during periods like this, those bonds tend to be more stable and hold their value better than an equity portfolio.
Randy Sharman: [00:09:10] Just getting underway, chatting with Wade Kozak and Harrison Kozak from the Kozak Financial Group, CIBC Wood Gundy, KozakFinancialGroup.ca, is their website. If you have questions, want to set up a consultation 403-260-0568. So one of our topics this week is going to be intergenerational wealth transfers. We'll chat about that and other things financial with the Kozak Financial Group when Talk to the experts continues on 770 CHQR, Wade Kozak from the Kozak Financial Group and Harrison Kozak from the Kozak Financial Group, CIBC Wood Gundy, KozakFinancialGroup.ca. is their website. 403-260-0568. Gentlemen, when I when I call that number and you pick it up and you say, how can I help you? What are some of the main concerns that people have in general when they talk to you for the first time or even, I don't know, for the 10th time?
Wade Kozak: [00:10:08] Well, for the first time, I think often they're quite surprised to get a human being on on the telephone and not and not a voicemail message. But typically, people, especially after hearing us for years talking about the things we talk about here, they have a general sense of already of kind of what we're about and the kind of philosophy we have. And they just want to know more about how our particular philosophy will affect their investment portfolio and their particular circumstances. So usually they're prepared to sort of share a little bit as far as what their personal circumstances are, and we can then customize our message a little bit to their specific circumstances. Mm hmm.
Harrison Kozak: [00:10:58] Yeah. And when people are calling in for the first time, they've listened to the radio show and want to learn a little bit more about what we do. Often, one of the biggest concerns for them is what is all this look like in transition? More often than not, somebody calling in, looking down the barrel of retirement and are concerned about how they turn their pension plan and their retirement assets into their paycheck. And they want to know how we can help with that. And that's what we spend a lot of time talking about here on the show. Typically, you'll run into a lot of people who are running into those sort of mental hurdles of how do I pull the trigger and know that I'll be okay and make that official first leap of faith hoping for the best?
Randy Sharman: [00:11:45] Well, I would guess because I'm not retired yet. It is kind of a scary proposition, especially if you worked at one career for most of your life and now it's like, Oh, I'm not going to do it changes your whole identity. And, you know, there's other things to consider too, right?
Wade Kozak: [00:12:01] There is fear at all kinds of levels. And, you know, I think a younger investor kind of thinks that the biggest fear button is going to be the do I have enough right and how do I save enough? And how do I get to that point where I have enough that I can retire? And I think the as clients approach that date and they get closer to that date, most of those do I have enough fears more or less go away. They're they're still there to a certain extent. But now the fears that come in are, what am I going to do with myself and what's going to get me out of bed in the morning and where am I going to draw my self-worth from? Like once I see some employment and move on to whatever the next stage in life is. And, you know, to be honest, we aren't trained to give advice on on that side of things. But just by the nature of having, you know, held so many people's hands across that threshold as they make that change, we know what a lot of those pitfalls are. And we can just share our experiences and the experiences of other clients who've who've done this before them as to as to how that ends up working out.
Randy Sharman: [00:13:10] Mm hmm. That number, again, is 403-260-0568, if you want to call and set up a consultation. Kozak Financial Group. Okay. We're chatting with Wade Kozak and Harrison Kozak from the Kozak Financial Group. All right. Let's get to one of our topics today. Inter-generational wealth transfer. What is that?
Harrison Kozak: [00:13:31] So staying on the themes of concern, Randy, one of the one of the biggest sort of question marks for a lot of people when looking at their financial picture is how am I planning to give some or all or part of this to the next generation, to my kids or to my grandkids? And that is that is a little bit of a scary proposition for a lot of people. Sometimes it can be hard to sort of relinquish control officially. And this runs on the scale of maybe you own a family business that's being passed on to the next generation all the way down to just I plan to give my kids a substantial gift for their wedding or to purchase their first home. And more often than not, people will have one or more concerns thinking about, Oh, I'm not sure if my kids are ready for this, if they'll know how to handle it. And that can that can give them pause before they before they do anything. And it can it can sort of give them cold feet to the whole proposition. Very worst case scenario is that the kids find out what kind of assets they're going to receive at the first time. The will is read when their second parent passes. And you don't at that point have the ability to answer questions or address concerns of your kids. So our advice is often to start today. Why don't we open this conversation up to to the kids and include them in the planning and what you're thinking? That being said, I should point out that we are not tax or legal advisors. And so anything that comes to do with the legality of your will and power of attorney etc. Or the tax picture either for your estate or while you're living. You should address those experts as well. Your accountant and your lawyer.
Randy Sharman: [00:15:13] Mm hmm.
Wade Kozak: [00:15:15] So when when Harry first suggested this as a as a topic of conversation, my first thought was, I wonder if he's coming at it from a point of hopefulness. But but that aside, this is this is a question that that we often get. And at a at a very basic level. A question that I'll often get from a client who is considering writing a check to a child for whatever reason is what is the tax consequences this of this like is this a if I write a check to my son or my daughter for $50,000 to help them out with a down payment, is that taxable income to them? And the answer to that question is unequivocally in Canada. No, it is not. It's that is a gift like any other. There is no tax consequence to giving that gift to a to an adult child. There can be tax consequences if you give that gift to a minor child and they start earning investment income with it. That income can be attributed back to the parent because that CRA doesn't want you using your minor children to put investments in their hands and earn income in their hands, and they'll attribute that income back to back to the parent. But if it's just a straight up gift to help out with a down payment for a for a wedding, for just for any reason, that is not taxable income to the child or tax deductible to the parent, for that matter.
Randy Sharman: [00:16:42] And a lot of the stuff is outside of your realm. I get it. If you're talking about writing up wills and those types of things, but you also can kind of point people in the right direction if and when it is outside your realm. Right. There's I'm sure over time you've developed a quite a repertoire of people that you can refer those questions to.
Wade Kozak: [00:17:03] Right. Of course. Yeah. We have we have tax and legal experts in our corner that can can certainly help. And and if we need a third party opinion on certain things, we certainly have those people to bring into the picture. But from a general knowledge point of view, we can, like you say, help steer clients in the right direction on these things. And one thing that comes up quite a bit, especially in today with with housing prices, the way they are in certain jurisdictions, is parents wanting to help their kids with down payments on on houses.
Randy Sharman: [00:17:37] Mm hmm. Great advice. Give them a call. 403-260-0568. KozakFinancialGroup.ca is Wade Kozak and Harrison Kozak and their team, their website. It's the Kozak Financial Group today on Talk to the experts CIBC Wood Gundy again that phone number 403-260-0568. And we'll be back with more financial advice from the Kozak Financial Group when Talk to the Experts continues next on 770 CHQR.
Randy Sharman: [00:18:09] I'm Randy Sharman. Joining us today is Wade Kozak and Harrison Kozak from the Kozak Financial Group, CIBC Wood Gundy, KozakFinancialGroup.ca is their website and the phone number 403-260-0568. We were talking about intergenerational wealth transfers and you talked about in general terms last segment. What about some examples or some scenarios that you can give us a bit with to help us understand it a little bit better?
Harrison Kozak: [00:18:38] Sure. So Wade's example of perhaps you're going to give your kid $50,000 to help out with a down payment on their first house. A lot of times parents will wonder about the sort of implications for this with the kid. How does that impact them? Way to address that. Of course, it's not taxable or tax deductible to the parent, but there are other more sort of minutia related questions about sort of the emotional ties to that money and maybe some potential pitfalls down the road. One question we get a lot is if I give my son or daughter $50,000 to buy a house and they're married or have a long term partner, how do I ensure that that money stays safe and out of the partner's hands in the event of a possible relationship breakdown? Mm hmm. And that's that's a difficult conversation to have, both with your child and for your child to have with their partner. Mm hmm. One of the tips that I can give is you want to start early, and you want to give a lot of sort of advance notice that these conversations can be had so that you can protect feelings as best as you can, while also protecting your interests. In the case of a single child, it's not so much a concern that you might be concerned down the road if the house gets put into dual names. And of course, at that point, the matrimonial home, no real way to protect that money if it's in the in joint hands that way.
Wade Kozak: [00:20:08] There are there are some protections that can be put in place. So cohabitation agreements can basically be set up such that the the partner who is in financially contributing to the purchase of the home basically signs a form saying they understand they're a tenant in this home and they they have no rights to the value of the home and the event of in a relationship breakdown if if it's possible through the debt servicing ratios, etc., the advance can be done through a form of a prescribed rate loan. So technically there's a promissory note outstanding that the parent could demand that money back in the event of a relationship breakdown to go and protect the assets. A lot of that protection goes off the table, though, once there's children involved, right. If if if a couple living together has children and is now a matrimonial home and that that loan might still be outstanding, but you can't it's very difficult to have a cohabitation agreement with somebody you're parenting with. So there's a limited amount that you can go and protect there, mainly because you can't keep that money separate and apart. There, again, we're not legal experts in this regard, but we do have some experience. But if if you receive a gift from your parents and you always keep that gift separate and apart from other household assets, even as a married couple.
Wade Kozak: [00:21:38] So you inherit $100,000 from a grandparent, you put it in a separate investment account, you invest it separately. You don't mix it with other household money. In the event of a marriage breakdown, that account will always be off the table before everything else gets split up. And so there are things that can be done if you arrange your finances carefully to protect these assets. Once it's once it's used to make a down payment on a house in joint names, it's it's by definition, comingled into the into the household assets. So it becomes a little bit more difficult. And you have to be careful. The best way to protect those assets is through equal financial contribution from both partners, quite frankly. Right. And this only becomes an issue when there is lopsided, unequal contribution to to that that house purchase. Otherwise, it's always our advice when anybody receives a significant inheritance to keep that inheritance in an investment account off to the side in a separate account number. So you can always point at it and say that money came from that inheritance and it was never used for any other purpose. And that always keeps it off the table.
Randy Sharman: [00:22:55] And you, Harrison, were talking about having conversations that can be difficult, but it's better to have those conversations now rather than go through that sort of scenario, whatever it is and then. Have to talk about it then, right?
Harrison Kozak: [00:23:08] Exactly. And starting early helps, right. The sooner you start these conversations with your own kids or with your kids and their partners, the better. If you wait until it's too late, it can sometimes feel a bit icky. And you don't want to have that conversation and you think, Oh, it'll probably all be fine, and you might come to regret that down the line. If you can do the difficult work upfront of having that sort of uncomfortable conversation, at least the first time, it'll get a little bit easier and easier as it goes. And you and your kids can develop a understanding of how all this works together. And that doesn't just go for perhaps this gift we're talking about, but for the entire financial picture, if you're a person with substantial assets that are going to be transferring to their kids, you want to plan ahead such that when they eventually inherit all of this, they don't turn into a lottery winner who walks away thinking, Well, I'm set for life now. And suddenly, a couple of years down the line, from that point, it's not so true.
Wade Kozak: [00:24:16] So like that scenario we just described, you're kind of imagining in your head a you know, I'm saying relatively younger children, right? Maybe in their late twenties or early thirties, that's, you know, the stage are they're ready to go and buy a house. Another scenario we run into are more elderly clients who, you know, they've come to a point in their life where they realize that they are never going to be using all of their assets for themselves. And there is going to be a significant sum left over for the estate, and they have it in their head that perhaps they would like to share some of this now. You know, I had a client who called it giving with a warm hand, which is, you know, fairly descriptive. And they and then they perhaps can actually see their kids and their grandkids enjoy the benefit of this. And they want they want some guidance on that. And usually by this stage, there might be fewer issues about I want to protect my child from a relationship breakdown, etc., because there's already grandkids in the picture, etc., etc.. But there's still there's still can be concerns. And what I see where I see the gifter, the parent who wants to make the gift sometimes getting their their head tied up in knots is they want to write this check to each of their children and give this gift, but they want to somehow keep strings attached to it even after the money is changed hands. My advice to them is always to give the gift and kind of forget about it. Right. And you might not approve of maybe what some of that money you might think they're going to use it to pay down a mortgage, but instead a boat shows up in the driveway.
Randy Sharman: [00:26:00] And they're off to Mexico for ten days.
Wade Kozak: [00:26:03] And you just kind of have to get over that, right? Otherwise it'll kind of eat you up inside. And you will you will not be a happier person for having done this. And part of the reason you're making this gift, perhaps, is to. Is to get let them make some mistakes with that money and perhaps learn from some of those mistakes so that when they receive a more substantial sum, when the will is actually being read, perhaps they've actually gained some wisdom from those first gifts. And they they've learned something, and they handle it a slightly different way.
Randy Sharman: [00:26:35] Mm hmm.
Harrison Kozak: [00:26:37] Exactly. And this is more anxiety counseling than it is financial counseling.
Randy Sharman: [00:26:43] Exactly.
Harrison Kozak: [00:26:43] However, it it is worth discussing now. Right. And again, the more time you spend talking about it, whether that's with your financial advisor or your spouse or with your kids, the better, because you'll be more comfortable at that eventual date and you'll be confident in what's going to happen.
Randy Sharman: [00:27:01] Yeah. Yeah. These are people people problems, not financial problems, but your clients are people. So I'm sure this comes up as you're talking about it and it's part of your job, even though you know it isn't part of your job.
Wade Kozak: [00:27:13] But well.
Randy Sharman: [00:27:14] That's the way it is.
Wade Kozak: [00:27:16] That's part of our experience. Yeah. And we can share that experience from other scenarios as to what, what's worked well, what doesn't work well. And there's like there's a myriad of other options, right? Including using trusts, including having having family meetings and counseling sessions to to kind of break all of this to people slowly and there. And all of those options, including trust, have advantages and disadvantages. I would say probably nine out of ten times when we're asked by clients, should, should I be considering a trust in this scenario, we look at it and come away saying no. Like adding the trust basically adds a layer of complexity that is unnecessary in this particular situation. But there are some absolutely excellent situations where where trust can be used and are very useful.
Randy Sharman: [00:28:14] Chatting with Wade Kozak and Harrison Kozak from the Kozak Financial Group, CIBC Wood, Gundy, Kozak Financial Group. Okay. If you want to set up a consultation or if you have some questions for 403-260-0568. We'll chat more with Wade and Harrison when Talk to the Experts continues next on 770 CHQR.
Randy Sharman: [00:28:42] Welcome back to Talk to the Experts on 770 CHQR. Today, our guests are Wade Kozak and Harrison Kozak from the Kozak Financial Group, CIBC Wood Gundy, KozakFinancialGroup.ca is their website, 403-260-0568 is the phone number to set up a consultation. Doesn't cost anything to chat, does it?
Wade Kozak: [00:29:04] Nope.
Randy Sharman: [00:29:05] We were talking about before the break intergenerational wealth transfers, talking about, you know, parents handing down to the children. What about the other way around? What about scenario of the children are making really good money and the parents are struggling and they want to help out their parents.
Wade Kozak: [00:29:23] So we've seen that when it's when there's just one child involved, as in the parents only have one child. It's really easy. The children basically can help the parents as much or as little as they want financially. And they know that, you know, in the end, anything left over is just going to come straight back to them through through the will. It gets a little more challenging when there's when there is siblings and one has the financial means to help mum and dad, but the other one doesn't. And so the one who's helping, you know, I'm not saying this is their primary concern, but perhaps you want to make sure that as much as you're helping, perhaps most of it comes back to you if there's anything left, you know, quote unquote, in the end, so that the scenario I've seen occur is mum and dad are renting. The landlord is is moving them out and they have to find a new place to live at, perhaps an elderly age, which isn't very comfortable. And so one of the siblings says, you know what? Mom and Dad, I'm just going I'm going to buy you a condo. I'm going to buy you a house. I'm going to buy you a condo. Set you up to live in for as long as you are able. And in those situations, I basically tell the client, the son or daughter with the means to buy that property and keep it in their own name. So it's not part of mum and dad's estate. And if they, if they bought that house from mum and dad, that house basically comes back to them when Mum and Dad no longer needed. And that helps keep everything fair and protect the assets for themselves, etc.. Mm hmm.
Harrison Kozak: [00:30:58] And again, I'm a bit of a broken record on this at this point. But if you're if you're going through this and you have a sibling and you're worried about what this looks like down the road, the easiest way to get around that is to talk about it and say, this is what I'm doing for mom and dad. This is how I'm setting it up and why. And if you'd also like to help out, you know, we can figure out how that works or simply this is what I'm doing and you leave it at that. And that way your siblings know up front what's going on and don't feel left out of the conversation.
Randy Sharman: [00:31:30] Mm hmm. Well, yeah, I can see the scenario you're talking about. If you buy them a home or a condo, it's very easy to keep it in your name. Is there any repercussions if, say, I don't know, you give them $100,000 and let mum and Dad do what they want with it or.
Wade Kozak: [00:31:46] Not really, but but I would give them the same advice that I would give the in the other scenario, the parents, that is, if you give them a gift, it's a gift. Right. And however they spend that gift, you kind of have to, you know, not pay attention. Right. Otherwise, it'll drive you crazy if you don't if you don't approve. So if it's a gift, it's a gift. And I more see a matter of children with means, basically taking over a certain number of the bills their parents have. So rather than writing a six digit cheque, they basically say, I'm going to cover off your your utility bills, your Netflix bill, your whatever bill write to and for however long. And so basically it's a gift. It's a gift in kind of utilities or whatever.
Randy Sharman: [00:32:36] Mm hmm. Any other scenarios that come to mind that we haven't covered? Do you want to?
Wade Kozak: [00:32:43] There is one scenario that that will occur is when you have a somebody who's financially dependent on Mom and Dad, even as an adult, that that they are all of their life going to be dependent on somebody. And so Mom and Dad typically then have to make provisions in their will that a certain number, a certain amount of the assets are set aside to care for this financially dependent child throughout the rest of their life. And that may tie up some assets of other siblings. Right. That it might not be as simple will, where it's just divided, say three ways between three siblings, maybe more of Mom and Dad's assets have to be allocated towards making sure that this financially dependent child is taking care of the rest of their life. And perhaps that money has to go into a trust and be administered and doled out to them so that they don't lose their benefits, that they they continue to sort of arrange their financial affairs in as best a way possible. And so those situations can get much more complex and typically need the input of tax and legal professionals and sometimes even social work professionals as to as to how many assets can this child have in their personal hands before certain benefits start getting drawn back? And how do we avoid those those government benefits being from being drawn back? And usually it's one of their siblings that ends up being the trustee of that trust.
Wade Kozak: [00:34:20] So that's a scenario that I can think of that we've dealt with in the past. I've seen clients set up more complex structures where there is a lifetime trust, where all of the income is distributed to the children, and when the children are gone, the principle goes to charities. Oh yeah, they're quite rare, but pretty much anything under the sun is possible with the trust, but always understand that with the trust there's now a separate tax return that has to be filed. There's a trustee that has to pay attention to these things. It is a more complex situation and if at any point you make a mistake with how you're allocating the income out of the trust, etc., you can get into a lot of trouble with CRA and perhaps lose a lot of the benefits that that you thought you would have. And so we typically only recommend that in circumstances where it warrants that level of complexity.
Randy Sharman: [00:35:17] Lots of different scenarios. So that's why you should call them to get a get an appointment made up. It's free. 403-260-0568 KozakFinancialGroup.ca. Today we're chatting with Wade Kozak and Harrison Kozak. We have about 2 minutes. What should people be doing right now? I know the tax season is done as far as getting your filings and everything like that. I don't think tax season is ever done, but anything in particular that people should be looking at before the summer, because it seems to me people will in the summer comes, they kind of forget about what's going on, don't they?
Wade Kozak: [00:35:51] Well, one timely thing is the notice of assessments are out like so you've probably already filed your taxes, you probably have your notice of assessment back. Now is the time. Don't wait till the end of the year, see what the RSP contribution is. Make a determination if you if you if it makes sense to make that RSP contribution this year because you should know by now, right, that you're still employed and have income, etc. And while it's top of mind and that number is still sitting on a desk somewhere and not filed away, get that contribution done.
Harrison Kozak: [00:36:23] What do you and we talked a little bit last time about financial spring cleaning. We've talked a lot about legal stuff today. Yes. Maybe it's a good time to review your will and your power of attorney, make sure that you have both in place. One does not equal the other, so you'll need an executor and a power of attorney and vice versa. And if you don't have those, make sure you get in touch with your legal advisor, whoever that may be.
Randy Sharman: [00:36:46] Mm hmm. Well, it sounds like you have a good team of advisors who've been doing this for a very long time. So, you know, anything that you can handle, you can find someone that could help your clients out, right?
Wade Kozak: [00:36:57] 100%, yeah. And we have some excellent professionals who we've dealt with multiple times, and I trust their opinions and they don't cost an arm and a leg. So I like people who people who I am willing to deal with myself.
Randy Sharman: [00:37:13] Give them a shout. 403-260-0568. To set up your consultation. Kozakfinancialgroup.ca is their website. We've been chatting today and learning a lot from Wade Kozak and Harrison Kozak from the Kozak Financial Group, CIBC Wood Gundy. Some parting thoughts, gentlemen.
Harrison Kozak: [00:37:33] Have a good weekend.
Wade Kozak: [00:37:34] And you know, Summer seems like it's finally here, finally a little disappointed with the with the last hockey game I watched. But, you know.
Randy Sharman: [00:37:43] Football season's here.
Wade Kozak: [00:37:44] Now. That's right.
Harrison Kozak: [00:37:44] Exactly.
Wade Kozak: [00:37:45] You can turn the page.
Randy Sharman: [00:37:46] Exactly. And you've been listening to talk to the experts on 770