September 16, 2023 – “Talk to the Experts” Radio Show
Discussion about current sideways markets, inflation and dividend increases and current bond yields.
Commercial 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.
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.
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 its kozakfinancialgroup.ca.
The phone number is 403-260-0568.
Wade, Harrison, thanks for joining us on the show today.
Wade Kozak: Good to be back, Wayne.
Wayne Nelson: Well, it's our first show of the fall season.
So let's take a quick look back at what happened over the past few months since we last spoke.
Harrison Kozak: Yeah.
So over the summer the markets ended up being relatively flat since last time we were in the studio here.
We're talking single digit percentage changes in where the both the Canadian and the US markets have been trading. They've gone up and down in that period.
But from May, June to today essentially exactly where they were and that's leading to a lot of frustration and and maybe some concern to be felt out of the the markets, both bonds and stocks.
Wayne Nelson: Well, I think you're putting it mildly when you say frustration, I think that some people are having a sense of outrage at where the inflation has gone, particularly when they look at grocery items.
Inflation is a big topic of conversation these days.
Wade Kozak: It is and it highlights just how important it is to have that inflation protection built into your portfolio, which we'll talk about here in a minute and get to some of the good news.
But what's happened in the last few months is basically a continuation of what's been happening since about June of 2022.
So for over a year now, markets have basically been lurching higher and then lower one month to the next based on the talking heads discussing inflation and the expectations for interest rates and the expectations for recession in the economy.
And it and it's been, it's been like a broken record, right.
There's a lot of anticipation for a recession with how much higher interest rates are and the breaks the central banks have put in the economy.
And I think it's almost as certainty that we do see a recession eventually announced, but it hasn't been yet and everybody just keeps kicking the can down the road.
But it has been over a year of this sort of sideways, up and down volatile pattern,
Wayne Nelson: Bank of Canada rate increase. I guess if we're looking at anything recently that would be a a little bit of good news.
Although Governor Tiff Macklem says that the the rate pause could be temporary and of course he said the same thing back in February and then promptly instituted a series of increases.
So does that contribute to the sense of frustration and where we're at Wade.
Wade Kozak: It does and it and it contributes to the expectation that we will be in a recession. I mean one of the strongest predictors of a recession is an inverted yield curve and we've had a significantly inverted yield curve for quite some time now and it continues to be inverted.
You can get better yields buying a one year bond, then you can buying an 8 or a 9 year bond, which is not typically the way it is and that inversion continues.
And so there there still is an expectation that we will see the economy eventually slow down to this point however, the economy has stayed a surprisingly robust right. The employment figures are still quite positive.
Wayne Nelson: Yeah, we had 40,000 new jobs created last month.
Wade Kozak: We've seen like GDP growth certainly has come down and we actually saw I think a negative quarter in there. Maybe we'll see another negative quarter and we can call it a recession, but the economy in general I think has stayed more robust than pretty much anybody would have predicted with this many interest rates under their under our belt.
Wayne Nelson: Harrison, we were just discussing this prior to the show.
Would it really matter which government was in power? Is this come down to a a, a sense of just plain old ordinary economics?
Harrison Kozak: I think so and I think that no matter your political leanings, interest rates are trading at a place right now that is uncomfortable for the average consumer with mortgage rates being higher and higher.
We always like to say in our office that if you think predicting what's going to happen in the stock market is hard, predicting what is going to happen with interest rates is even harder.
It's hard to put yourself in the seat of that Bank of Canada governor to determine what the right thing is.
Typically you can expect the Bank of Canada and the US Federal Reserve and and most of the the major economies central banks to go a little bit too far when raising interest rates.
And that's that's born out of the anxiety of if we don't raise rates fast enough, quick enough, we'll see inflation get away from us.
So I think it's to be expected that we see the Bank of Canada and the US Federal Reserve take one step too far, maybe put the brakes on the economy harder than anticipated.
And that'll slow the economies down, end up causing that true recession it gets called.
And I think we sort of are expecting to see that in order to get out of this consolidation that we're seeing in the stock and bond markets.
It feels as though the Canadian markets and the US markets are waiting for that shoe to drop for that recession to officially be called in order for there to be somewhat of a resetting of what to be expect moving forward.
And then on the outside of that, I think growth can be expected to return in the longer, medium to longer term there.
Wayne Nelson: So when we get that reset, Wade, what is the impact going to be for the average Canadian?
Is it going to be, you know, hands in the air, Oh my God, the sky is falling.
Is it going to be a good news for them in terms of easing off on some of the inflationary measures?
Wade Kozak: I think, I think a little bit of both.
I mean, you can't have a recession without there without there being some pain felt essentially what the government is trying to do.
They won't say this, of course, is they're trying to put people out of work.
The way, the way you slow down demand and bring inflation into check is to reduce demand.
And to reduce demand you have to take money out of people's hands.
And in order for that to happen, they have to lose their jobs.
And so the the government is attempting to affect the jobs market and create more unemployment.
Of course that doesn't make very good headlines like they're not they're ever going to say that out loud, but that that is what a recession is and that's what they're trying to cause in order to go and bring demand down, that marginal demand to to bring prices down.
There is an argument to be made that the at this point the interest rate hikes are to a certain extent actually contributing to inflation because it is making the cost of certain things more.
And that's being passed along to us as the consumer in one way or another, whether it's rent or however you want to go and measure it.
And it's actually adding a little bit to the inflation number.
So I I think the heavy lifting on the interest rate hikes from the Central bank is probably mostly done.
I'm not saying we aren't going to see another rate hike because we certainly could, but we are seeing signs that the GDP numbers are coming down.
It's yet to translate into the to you employment numbers, but it it feels to me as though the lion's share of the interest rate hikes that we're seeing in this cycle are probably done
Wayne Nelson: For many people though it just can't come fast enough.
Harrison Kozak: Yeah, exactly.
Right.
And then those interest rates are punishing to an extent, but in order to curb that inflation, this is kind of the main tool the Bank of Canada can use.
Unfortunately, changing interest rates is somewhat of a blunt instrument.
You know, you hit the economy over the head with a hammer rather than tighten the screw just fine with a screwdriver.
Wayne Nelson: I like that analogy.
That's very good.
Wade Kozak: I want to point out, Wayne, that like you see, I think he used the word relief in there and I don't think there's any relief here for consumers.
It's not as though prices are going to be coming down to what they were before.
The price hikes we've seen and the inflation we've seen.
Generally, they stick around and all we can hope for is that we bring inflation back down into that target zone and they stop rising as much.
Wayne Nelson: All right, We're going to pause for a break.
We'll continue our discussion.
When we come back.
We'll get into some taxation issues as we move towards the year end, what the third quarter results may bring.
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.
And if you have any questions or concerns, if you'd like a consultation about your investments or your retirement plans, the number to call is 403-260-0568.
We'll be back with more on Talk to the Experts.
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,financialgroup.ca is their website.
And if you have questions about your investments, how your portfolio is doing or maybe not doing, if you'd like a consultation, give them a call.
The number is 403-260-0568.
Wade, Harrison, just before the break, we were going through a brief recap, I suppose of the last few months since our last show.
I'd like to start off this segment by talking about some of the good news.
Wade Kozak: Yeah, and there is good news.
I mean we spent that first segment sort of discussing how frustrating it is to watch the markets going sideways after having that really nice run through like from March of April 2020 all the way through to mid 2022.
Since then we've seen the markets going sideways, which is frustrating for an investor or somebody who's retired watching their retirement assets.
But during that period of time, there has been some actually very good news.
Economic theory says that during periods of inflation we should expect that blue chip dividend paying stocks increase their dividends.
And I want to report that during this last, this last two years, this period of inflation, that theory is actually fact.
We've actually seen significant dividend increases across the board on the blue chip dividend paying stock portfolio.
The rate at which we've seen the dividends rise and the breadth of how many stocks have increased their dividends.
Quite frankly I haven't seen in my 30 year career so the income increase has been phenomenal.
So our clients on average like somebody who is retired and not adding to their portfolio or withdrawing from their portfolio, the income that we're generating from the interest in dividends has actually grown in the past year by about 20% and that almost has exclusively come from the dividend increases from the stocks.
We've also seen a a smaller effect from the bonds because we're you know we're just now we're sort of entering the period of higher interest rates that as bonds are maturing we're able to roll them over into much, much better rates than we were before and lock in higher rates.
And that of course will as time goes by continue to go and increase the overall income we're generating.
Wayne Nelson: Wade, you said that you really haven't seen this type of response in in 30 years in your career.
But really should you be all that surprised because your focus at Kozak Financial is on those income generating, those blue chip dividend paying investments?
Wade Kozak: No, like it's, it's something that you anticipate at times like this, but the the breadth and the amount of those dividend increases quite frankly has surprised even me and it's and it's been great.
So like our clients who are retired and relying on these investments to make a monthly withdrawal and fund their retirement lifestyle.
And as they've seen costs increase, their grocery bills increase, their cost of taking vacations increase, etcetera.
And they call us and saying, oh geez, like we we need to take a little bit more money out per month to kind of keep pace with all of this.
The account's been keeping up with it and the account is actually generating more income than it was before and has the capacity to increase the overall deposit into the bank account to keep up with that inflation.
And that's that's the power of the inflation protection of the equity side of the portfolio.
The stocks typically protect us from inflation in two ways.
One is obviously we hope for capital growth and we hope that the value of that share increases over time and that on top of the dividend and that helps give us a rate of return above inflation.
And the 2nd way is those dividend increases and that we would expect to see the income that portfolio is generating increase over time and we do.
But quite frankly, it's increased more in the past two years than I would have predicted 2 years ago,
Wayne Nelson: Harrison Wade mentioned that the bonds right now it's a good time to buy.
We're seeing greater availability of them.
Is it because the market is down, it is a great time to buy?
The typical time to invest is when the market is down and the time to sell is when the market is up.
Is that too simplistic an approach?
Harrison Kozak: Well, certainly in the stock market, right, buy low, sell high is is the mantra of course with bonds instead of looking at perhaps the price is the first thing I'm concerned with on that bond.
It's going to be that coupon payment, the actual interest payment I can expect into my account for buying that bond when the term is due exactly.
And so today when companies are going out and issuing new bonds and this is across the board, of course they have to enter into that market at market rates.
I as an investor, I'm not going to buy into a a bond issued by a company if they're coming in well below what I feel I deserve.
So the the the Federal Bank rate, the the interest rate that the Federal Bank of Canada announces when they make a change there essentially kind of trickles through the economy.
So that's what a bank has to pay to the Bank of Canada to borrow money overnight.
And so in order to cover that cost, the bank is going to charge you, the consumer a little bit more.
It also means that if the bank issues a bond out to you to buy as an investor, they're going to have to pay a little bit more to keep up with that.
So right now as we're seeing new 10 year bonds being issued from these companies, they're having to issue them at these these 5% interest rates approximately.
That is making it very, very easy in comparison to a couple of years ago today to go and roll that one year bond maturity over into a new 10 year bond.
We're looking at rates coming up in the past couple of years here in a magnitude of almost double. A year ago, if I was looking at a good quality corporate bond to buy in a client's account or a 1 1/2 year ago, I should say best you could expect was 3 1/2, maybe 4%.
Today we can easily get 5 1/2 percent on all sorts of bonds by good quality issuers that I'm very confident in holding for the next 10 years in the portfolio.
Wayne Nelson: But again, the focus should be having striking the right balance for each individual client because they are unique, they have their own wants, needs, desires.
You've got to provide those recommendations as to where they can maximize their returns.
Wade Kozak: So each client has a different balance between the equity side of the account, the stocks, and the guaranteed side of the account, the bonds, based on their own risk tolerance.
And that's something that we spend some time sussing out when we first meet a client.
And that is very specific in particular to each individual client as to what that balance is.
But as our our listeners who've been listening for years will know, the way we invest in those bonds is the same across all of the clients where we have that ladder of bonds coming due, one bond coming due each year over a 10 year period.
And as each bond comes due, we literally put blinders on like a horse and roll it over into a new 10 year term.
And right now as we're doing that, we're actually getting very, very good interest rates.
And you know you may have heard me complain to 2 1/2 years ago at how miserable those those interest rates were and how difficult it was to stick to that task.
Whereas right now I'm gleefully rolling those bonds over.
We can even get some investment grade 10 year bonds yielding just shy of 6% right now.
Like there are there are some excellent interest rates available that we can lock in today even to the point where I was having a discussion with a client yesterday in one of our normal reviews and they had a balance.
And I said, you know, given how high these interest rates are, maybe we should shift a little bit of the portfolio from the equity side to the fixed income side, take some risk off the table and lock more money in at these at these current interest rates, which is obviously a possibility with any portfolio.
Wayne Nelson: All right, time to take another break.
I'm speaking today with Wade Kozak and Harrison Kozak from the Kozak Financial Group, CIBC Wood Gundy.
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 is 403-260-0568.
Check out their website its kozakfinancialgroup.ca.
Some great information there and we'll be back with more.
More on talk to the experts you're listening to talk to the experts on QR Calgary.
I'm Wayne Nelson.
My guests today are Wade Kozak and Harrison Kozak from the Kozak Financial Group, CIBC Wood Gundy.
Their website is Kozak financialgroup.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 so far on the show today we've talked a little bit about some of the frustration that Canadians are are feeling.
Generally you've said that you know what, it's part of the cycle and that there is going to be a downturn in the cycle.
So what do people need to do right now to perhaps ease that frustration?
Wade Kozak: Who I really feel for are people who are basically on the cusp of retirement, where they had perhaps written an X in the calendar here at the end of 2023 and they're looking at their investment portfolios.
They've basically gone sideways here for a year and a half, and it doesn't feel very warm and fuzzy to be retiring into into all of this uncertainty.
The uncertainty of the inflation, the uncertainty of the interest rates, the uncertainty of the stock markets, the uncertainty of the economy and whether or not there's going to be a recession.
And to them, I would suggest that there is a better way of handling this where you can invest and see concretely exactly how much cash that that portfolio is going to generate each and every year regardless of which way the economy goes, which way interest rates go short term, which way does the stock market go short term.
We can show that client just exactly how much cash that portfolio was going to generate through thick and thin at this point in time.
And as we already discussed, that income actually could increase if we continue to see inflation and help keep pace with inflation.
And that's the client who I think I want to reach with that message that there is a better way to handle this.
Where you don't have to bite your fingernails and and and sort of retire in fear of exactly what's going to happen over the next few years.
It doesn't matter what happens over the next few years because we know that portfolio is going to generate income at this pace to go and cover the withdrawal you need
Wayne Nelson: When you're talking to that particular segment of the population. They would seem to be, and I'm getting there, more averse to risk.
And for many people it could be a decade or two or or even more.
And what they've saved has to keep them going
Harrison Kozak: Exactly and so when we're sitting down with that new client or prospective client who is approaching that sort of precipice of leaping into retirement, whether that's you know, retiring from your job with your pension and everything in tow or maybe you're selling your business and and the the proceeds of that sale is what's going to make up your retirement plan.
In any case, what we want to be able to do is point to a number on the page and and firmly say this income is going to show up in the next 12 months in the account and here it is covering what you expect to need to spend.
It then gets, we can get deeper into it and start looking at more sort of in depth financial planning type things to ensure that your ultimate goals throughout the rest of your life are met.
You get to take those trips you have been planning.
You get to complete that renovation you always dreamed of.
You get to give that gift to your kids to help them buy a house or for their wedding.
And we can build those things into the plan and show you that yes, these are achievable.
Here's how we can get there.
And in the meantime, this income is still going to continue to cover that day-to-day expense.
Make sure that the household is kept in order and all of those unknowns that might come up are taken care of as well.
Wayne Nelson: So it's really creating a sense of optimism for these folks
Wade Kozak: and some more certainty and not just basing that withdrawal on, well, I hope this all works out like we we can show you concretely that the income that you're withdrawing is actually going to show up in cash without having to sell anything.
And so I would invite anybody in that category who this sounds interesting to or it sounds like a better way to go to give us a call at 403-260-0568 and we'd be happy to talk to you.
And to to your point Wayne, if somebody's retiring at age 55 or 60 or 65, it's quite likely that their retirement assets are going to have to last 20, 25, 30 plus years and in some cases the number of years may exceed the number of years you were working quite frankly.
So this is not a short term investment plan.
This is something that has to work out over several decades through all kinds of business cycles and through all kinds of uncertainty and future events that we can't predict today.
And it's so important that that retirement withdrawal you're making isn't just based on, well, let's just hope this all works out.
We've only got one chance to get this right and we've we've got to get it right the first time around.
And that's why I think it behooves people to treat those retirement assets as their pension plan and make sure that cash flow is there.
Harrison Kozak: To, Wade's point, we're quite proud of the fact that a lot of our clients we have been working with literally for decades, people who I grew up hearing about are still clients today and their children are clients today and in a lot of cases their grandchildren are clients today.
That long term plan that we like to put together for the clients, that long term focus that we instill in the way we invest is what has afforded us those long lasting relationships.
We aren't thinking about just what are we going to be doing in the next 12 months and trying to to make sort of the maximized return in that short term.
We're wanting to focus on your whole lifestyle being preserved for the entirety of your retirement as long as that might last.
And once again if that is of interest to you, please give us a call 403-260-0568.
Wayne Nelson: Harrison, part of the success of Kozak Financial Group, the hallmark has been that focus on those dividend paying investments.
But it's a pool that you have curated over time that you're constantly reviewing.
Wade Kozak: Yes, but the core of our message I think listeners who've been listening to us like we've been on here since like the mid 90s like close to, it's been close to 30 years Wayne that we've been even coming on the show and sharing our message.
Wayne Nelson: Back when you were Harrison's age.
Wade Kozak: And quite frankly the message hasn't changed in that time, this is a consistently performing way of generating retirement income with without interruption and without worry. And so we it's it's what we do.
It's what I feel comfortable doing with my own money and and my own retirement plan and it's what I feel comfortable doing with my clients.
Wayne Nelson: What's the single biggest mistake that people make when they are investing?
Is it failure to choose the right financial advisor?
Is it just failure to plan or what is it?
Harrison Kozak: I think, I think maybe the biggest mistake somebody can make is thinking in that short term, right, and relying on some of those emotional responses.
It's very easy when the markets are down to panic and want to sell.
And I don't say that from a place of separation there, right when the markets are down, Wade and myself and the rest of the team are equally feeling it as the clients are.
Wayne Nelson: But you're not running around like Chicken Little. The sky is falling!
Harrison Kozak: No. And that is perhaps where the line is drawn.
We are confident in our long term approach and we remain focused on that that long term far stretching goal rather than just what is in the news headlands today, what's on the front page, the paper right now that is perhaps the biggest mistake to think only in terms of what's happening today and tomorrow.
Wayne Nelson: So Wade, what's the most important investment strategy for those people who are approaching retirement or who are in retirement?
Wade Kozak: I think that somebody who's approaching retirement or in retirement has to absolutely focus on that cash flow being generated.
They have to focus on answering that question, how much can I withdraw each year without touching the principal and the way we invest for our clients.
There is a clear answer to that question because it is the sum total of the of the interest income and the dividend income being generated.
I would expand on on your your question before when you said what's the single greatest mistake people make.
I think that I think there are other strategies that can work.
This is the strategy that we use and is the one that I'm comfortable with and I can go to sleep at night and sleep very well on my own behalf and all of our clients behalf.
There are other strategies.
I think the single greatest mistake is attempting to hop around between strategies and one year this works and so like OK let's switch to that and then the next year something else is working better.
So you will you switch to that. That person who's constantly looking for what happens to be doing better in that moment, I think never really finds peace and and you actually can end up doing very poorly hopping around between strategies that way.
Wayne Nelson: All right.
That's one of the many reasons why you should have the Kozak Financial Group working with you to get that proper advice, those good recommendations.
That's Kozak Financial Group, CIBC, Wood, Gundy, their website, kozakfinancialgroup.ca or you can call them to set up a consultation.
That number again is 403-260-0568.
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.
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 what your investments are all about, then give them a call.
The number is 403-260-0568.
See what they're all about.
Check out the information on their website its kozakfinancialgroup.ca.
Wade Harrison, September is drawing to a close.
That means end of the third quarter.
Looking back, how do you think that that third quarter is going to do?
What's the forecast for that, for that last and for the forecast for the last quarter of this year?
Harrison Kozak: It's a tough question, Wayne, and I think the answer is there's no clear answer.
When we're looking at where interest rates are at where the Canadian and US and world economies are headed, it's hard to say precisely when it might happen in the next three or four months, very best guess.
I think we can anticipate that interest rates are going to remain at least close to where they are for the time being.
And as we come closer to the end of the year here, I think we can expect that markets are still going to be anticipating a recession Exactly when that gets called, it's hard to say, right.
The Bank of Canada is hesitant to sort of follow the textbook definition of just two consecutive quarters of negative GDP.
They often like to reach for sort of other metrics that they feel are important, you know durable goods sales etcetera.
So with that in mind, I think what we can expect in the next quarter is to continue what we've been seeing for the past a year, year and a half here.
Wade Kozak: I think there's a good chance that once we actually do see a recession called that the market turns and goes higher.
Is it, is it possible it has one leg down before, before that's done?
Absolutely it is.
But that announcement of a recession, I think the market and the, you know, people in our business will take to mean, OK, we've seen peak Bank rate increases and the likelihood is that the next direction for interest rates whether it's in six months, 12 months or 24 months down the road is probably going to be lower trying to stave off a deep and and bad recession.
So I think that it's very likely that at the moment they're announcing that bad news that yes, the economy is in recession quite frankly the market has already absorbed it all, it has completely adapted to it and the next direction is higher.
And I'm actually very optimistic.
I don't know how things are going to go for the next three months or six months, but I factually feel quite optimistic for how things are going to go for the next four years or five years.
Wayne Nelson: And that's in keeping with what Harrison said.
When I asked the question about you know, what do you expect at the end of the third quarter and he said, well, it's a tough, tough thing to predict because it doesn't really matter as far as you guys are concerned in terms of planning because you're not looking at what's happening right now.
You've got that long term plan in place for yourself and your clients exactly.
Wade Kozak: But if somebody you know got a couple of drinks into me three years ago and said, well, what do you expect the total rate of return to be on a portfolio that's half bonds and half stocks?
I probably would have said that, OK.
Like on the stock side, I basically take the dividend rate we're getting and I double it in the hopes that we get that same dividend rate more in capital growth.
And at the time that probably would have been about a nine percent expected rate of return for the stock market investments.
And that many years ago where interest rates were at the kind of bonds I was able to buy and the kind of yields we were seeing in the portfolio, I would have probably suggested we would expect 3% total rate of return from the bond portfolio.
And secretly in my head, I would have been hoping for 3 1/2, right like that.
But that's just where interest rates were.
And so that's what you could expect from the guaranteed side of the portfolio.
Right now today, the profile of that is completely changed.
You take that dividend rate and double it.
Right now it's closer to 11 - 11 1/2% total rate of return that we would be expecting from the stock market portfolio.
And on the bond side of the account, even existing bond portfolios, one through ten year, we're achieving better than 5% total rate of return and it probably would be closer to 5 1/2 and secretly inside my head, I'm actually hoping for closer to five and three quarter.
So the total rate of return that we're getting on that same 50/50 balance portfolio three years ago versus what we're expecting today has completely changed.
And I'm actually pretty optimistic about the total rate of return we can achieve from the bond rates we can get right now.
The dividend yields and the kind of growth that I would expect to see from these stocks because you can't see those stocks increasing their dividends consistently over 2 years.
And the share price is continuing to stay flat.
Eventually, those share prices follow the dividends higher and you will actually see growth of those.
And it's just, it's patience trying waiting for it, but it does happen
Harrison Kozak: And to Wade's point right, in looking at what our expectations were a couple of years ago versus what they would be today, I think that's a great illustration of what can be expected out of the markets in a long term view. I'm sure, Wayne, that you and a lot of the listeners out there remember a time where people were getting mortgages at at 15 or 20% on their houses?
Wayne Nelson: My first mortgage, Harrison, smoking hot, first time home buyer special 16.2% and that was only good for six months.
Harrison Kozak: OK.
And what a fantastic deal at the time.
I'm sure today though a lot of that Gray hair has retired, right?
A lot of those folks who used to be working on Bay Street and Wall Street and remember those times are no longer there.
And quite frankly, a lot of the people in the market today have only really existed in the interest rate environment as adults since the 2008 financial crisis.
In that, between 2008 and in 2022, interest rates were incredibly low, right 3% for the average mortgage in 2020 and 2021, even lower than that, close to rock bottom.
And today looking at a mortgage with a 7% interest rate seems astronomical.
That expectation I think is what's causing a lot of the stutter stepping in the markets today.
There's going to be some adjustment to be had there.
But to Wade's point on the outside of that, we're actually very optimistic for what the markets have in store.
That bond portfolio is going to be providing a substantially better return than we were getting back in 2020 and the stocks are going to continue doing what they're doing.
The dividends will continue to grow over time and the growth in the stock market will eventually return to follow those dividend rates.
Wayne Nelson: All right, we've got a couple minutes until the show wraps up.
Let's talk about what people need to do to prepare for end of year taxation.
Wade Kozak: So year end, this is the time to start taking a look at the capital gains and losses.
I know that our portfolios, we actually had some gains that were triggered earlier this year and we'll be looking at each of our clients taxable investment portfolios to determine is there anything we can do to offset those gains and this is the time of year to be looking at it.
Don't wait till the last minute.
Harrison Kozak: Other things to think about, obviously, we're coming up to our RSP season.
At yearend, if you've got kids in university post secondary, now's the time to be getting those RESP withdrawals done.
And then obviously to Wade's point, those gains and losses and just sort of preparing for year end, getting your ducks in a row to start looking at your taxes in the spring.
Wayne Nelson: Maximize those TFSA contributions.
Wade Kozak: Yeah, that that you should have hopefully done already this year, but if it hasn't, get it done now.
And the other thing we want to do in the fall is if you're retired and your employment income has stopped, have a look at what your tax, what your taxable income is going to be this year and see if there's room without bumping you into an OAS clawback level without bumping you up a tax bracket.
Could you take a larger withdrawal from your registered plans and use up those bottom tax brackets to get money out of those registered plans efficiently?
Wayne Nelson: All right, Wade, I'm going to put you on the spot here as we wrap up the show.
You're a fellow of the Canadian Securities Institute, FCSI.
Not just anybody gets that level of recognition.
What does this FCSI mean for you and your clients?
Wade Kozak: Honestly, that that's the of all the designations of the various letters I've garnered behind my name from the Canadian Securities Institute.
That designation is the one I'm probably the proudest of.
You have to be nominated by another fellow of the Canadian Securities Institute in order to go and gain that title and achieve just a certain level of education.
And then maintain a certain conduct in your practice in order to go and maintain that designation.
It's probably the, it's the one I'm the proudest of.
Wayne Nelson: Wade Harrison, it's been a pleasure speaking with you again today.
Thank you very much.
Harrison Kozak: Thanks for having us, Wayne.
Wayne Nelson: 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 for Wade Kozak and Harrison Kozak of Kozak Financial Group.
Thanks for joining us today on talk to the experts.
Commercial 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.
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.
May 27, 2023 – “Talk to the Experts” Radio Show
Review of the current market conditions and income investing in this current sideways market. We discuss how we provide stewardship with your plans.
[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. 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.
[00:00:30] Wayne Nelson
Welcome to talk to the experts on Calgary. I'm your host, Wayne Nelson, and I'm pleased once again to welcome my guests today, Wade Kozak and Harrison Kozak from the Kozak Financial Group, CIBC Wood Gundy. Check out their website it's KozakFinancialGroup.ca. The phone number, 403-260-0568. Wade and Harrison, this is our last show until September, and it's been a while since we've chatted. So in that time, let's take a look at what's happened in the markets, if we could.
[00:01:04] Wade Kozak
Well, it's May has been a bit weaker after a reasonably good month for the stock markets in April. May's decided to go the other direction. So basically the pattern that we've been in since about a year ago of the markets kind of thrusting higher and lower based each month on where people thought interest rates were going, whether or not we were going to see a recession, how inflation numbers were playing out, that continues. That pattern is continuing. So we're seeing that. We saw the markets lurch a little bit lower during May. And in fact, we also saw interest rates on longer term bonds actually creep a little bit higher after they had crept lower for the first few months of the year. So that was kind of interesting to see. And it comes down to the inflation numbers that we saw come out were a little bit higher than expected. And so people were speculating that perhaps we aren't done with rate hikes just yet coming from the central banks. And also towards the end of May, it's been coming from uncertainty surrounding the debt ceiling issues in the US as they attempt to negotiate their way into some kind of an agreement to agree to raise the debt ceiling again.
[00:02:17] Wayne Nelson
And certainly that affects the markets and in turn affects what's happening here in Canada.
[00:02:22] Harrison Kozak
Yeah, of course. And it plays a role mostly in the emotional response to what's going on in the market. You see things like the debt ceiling causing some headlines and it's not so much that means there's legitimate fear that the US is going to default on all of its debt. It's just that they're they're sort of promoting a little bit of news here. They're selling some ads in order to get some eyes glued to the screens. The US has this legislative procedure they got to go through in order to talk about the debt ceiling. Et cetera. Et cetera. And so it makes it feel much more urgent and much more dire than it is in reality. And so it's one of those things that every few years it seems we go through it and both parties sort of face off to try and get a deal put through that benefits them a little bit better than their their colleagues.
[00:03:12] Wayne Nelson
Nevertheless, though, as you said, you know, there are those headlines, those headline grabbing announcements and people are hanging on to that information and that is affecting the market.
[00:03:22] Wade Kozak
Right. And words in print on the front page of newspapers like default sometimes cause people to panic when in reality the US is nowhere close to not being able to go and fund all of their debt, etcetera. This is an artificial problem they create for themselves that they now have to negotiate their way out of. And the fact that everybody wants to build in their own soundbite, you know, that they can they can use for a political ad later doesn't help the whole process. So I think I think it's important that as a long term investor, you look beyond this, all of the uncertainty and the volatility you're seeing here in advance of of the debt ceiling being raised and the eventual negotiation coming to a close, I think you see the markets take a breath of relief and surge a little bit higher as soon as that deal is reached.
[00:04:15] Wayne Nelson
In your opening comment, Wade, you said there's still some trepidation about the fear of recession. There's still some uncertainty about, you know, where we are in terms of bank rate hikes. Any insight from from your field as to what's going to happen?
[00:04:35] Wade Kozak
Well, ask me in a year and I'll let you know in arrears like is the most truthful? Answer Yeah.
[00:04:42] Wayne Nelson
Well, especially with recession, because you don't know that you're in it until after the fact.
[00:04:47] Wade Kozak
Basically, the economists are looking backwards and by the time they're ringing the bell saying, yes, we were officially in recession as of this date, the market's usually looking forward six months at better days ahead and the market's already. Starting to enter recovery phase. However, the best predictor we have of recession is the inverted yield curve. And the the yield curve has been inverted as in short, rates are actually higher than longer interest rates, and they have held that way for some time. I do believe we will eventually be in, even if it's only a technical recession, we will have enough negative quarters and enough negative GDP that the economists will will call it a recession. I think it's only a matter of time before we see that. I have to admit, I would as I was expecting to see it already, I was expecting to see weaker economic numbers and perhaps be in that stage already. But I do think that eventually, whether it's nine months, 12 months or 18 months from now, we'll be talking about rate cuts and how much are the central banks going to have to cut rates in order to spur on the economy, to prevent whatever recession that emerges from getting too bad?
[00:06:00] Wayne Nelson
Yeah, there's always that balancing act. And from what I'm hearing you say, then the what's been happening maybe might have been influenced by the higher rate increases from the central bank.
[00:06:11] Harrison Kozak
Yeah, the banks, the central banks have been holding those rates pretty high now, at least sort of in consideration of the past few years here. And it's having its impact on the economy, both in sort of the pockets of the listeners today, as well as the major corporations and the debt issuances that they're putting out there at higher percentage points. Obviously, it's reducing the money supply in the economy. That's the main goal. And obviously that is sort of the main tool the central banks can use to try and control inflation, which is really sort of their ultimate goal at this point. It appears that we're sort of headed towards those lower inflation numbers, sort of, you know, representing themselves in the markets. And it appears that that recession is going to sort of time out around the same time, which means they're going to start dropping the rates again. It would be wise of the politicians out there to ensure that they don't get into a habit of booming and then busting interest rates consistently. It's no way to get yourself reelected if you if you create uncertainty for the people at home. And so I'm confident that we'll see some good controls put in place and hopefully see the economy sort of continue its regularly scheduled growth and sort of optimism for the future here.
[00:07:27] Wayne Nelson
So where does that leave us now moving forward?
[00:07:30] Wade Kozak
I think that I think that we're waiting for employment numbers to look worse. Right. The employment numbers have have stayed, I was going to say stubbornly positive, but I think that maybe sounds a bit too negative. But the employment numbers in Canada have stayed quite robust and in the USA as well, despite the rate hikes. You'll never get the policymakers to admit this, but they essentially want these higher interest rates to cause people to lose their jobs, to cause businesses to pull in their horns, spend less money.
That's how you get inflation down. That's how you slow the economy. And unfortunately, that means putting people out of work. So you'll never get the policymakers to go and admit that that's essentially their end goal here. But that's what it'll take in order for the economy to slow enough to see inflation to come into check. And I don't think we're I don't think necessarily we're there yet, but we will get there. The central banks, they've already shown a willingness to put the brakes on the economy as hard as they have to to bring inflation into check. All right.
[00:08:33] Wayne Nelson
We're going to pause there. We'll continue when we come back. 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, 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.
[00:08:59] 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 their website. And if you have questions about your investments, how your portfolio is doing or not doing, or if you'd like a consultation, give them a call. The number is (403) 260-0568. Wade, Harrison we've heard how the markets are still somewhat uncertain, causing uncertainty for investors. And I guess that brings us to the next segment, which is the importance of having an investment income in this kind of a market. I guess you would call it a sideways market, am I right?
[00:09:45] Harrison Kozak
Yeah, exactly. I mean, to Wade's point, in earlier in the show, the markets almost for the past year now have kind of just been yo yoing on themselves. They're up one month down the next month and vice versa. So with markets moving. Being sideways. That way it can give an investor pause before sort of depositing some more money into their RRSP or whatever it may be.
[00:10:06] Wayne Nelson
Yeah, because they're looking at something and they're going, you know, I'm really not where I thought that I would be. It's kind of flat.
[00:10:12] Harrison Kozak
Exactly and so if you're focused primarily on that value number, right, what is my account worth today versus what it what was it worth yesterday? Maybe you haven't seen much of a change. However, if you've got a good income stream coming into that account in the form of dividends and interest payments and all that kind of good stuff, you've been seeing that cash accumulate, get reinvested, and even if it still continues to be flat, you have more of those bonds, you have more of those stocks that are paying you more and more income and incrementing yourself higher in that way, almost sort of paying for a little bit of surety in the future that there is more there and it's earning more today.
[00:10:51] Wade Kozak
So an investor who's perhaps on the cusp of retirement, they see their account and they look over the past year, year and a half and they see a couple of good months, a couple of bad months, but generally a sideways movement in the accounts. It might give them pause saying, well, geez, maybe I, maybe I can't retire. Maybe, like imagine if over that period of time I was having to make withdrawals each month and and, you know, what would that look like then for being able to take withdrawals for the next 30 or 40 years out of this account? If I'm shrinking the account? That's one of the reasons why we've always heavily focused on income generation and account. So even if the stocks are going sideways during a period like this, they're still generating the cash flow from the dividend payments. Every single investment we own for our clients is generating some kind of income, whether it's a dividend from the stocks or an interest payment on the bonds. And just because the market's going sideways doesn't mean that income flow stops, that income continues to arrive in the account each and every month. And in fact, even over this last period where the markets have been a little lackluster during 2022, we've actually seen significant improvement in the amount of income that those dividend paying stocks are generating. We've also seen improvement as we have bonds maturing, we've been able to reinvest them into far higher paying bonds that are available today and we're seeing the income grow that way. So our average client account, the total income it's generating has grown about 20% in the past two years, even without any new funds added, which is quite remarkable when you consider in the last two years how unsettled the markets have been. But the dividend paying stocks have done their job in that. We've seen significant dividend increases across the board from pretty much every corner of the equity portfolio helping to add to that bottom line of total income being generated and helping our clients be protected from inflation.
[00:13:00] Wayne Nelson
So you said those stocks, those investments are doing their job. But really, when it comes down to the fact that you guys are doing your job in selecting those investments based on their income generation, and that's something that an investor needs to take into consideration.
[00:13:18] Harrison Kozak
Somewhat they select themselves for us, right? If anybody out there listening is sort of sat through an explanation from us on how we actually set up that equity portfolio, it's more a matter of things are eliminating themselves from the equation. So if you don't have that income yield coming in, if you aren't priced at an appropriate level, you're just not a viable purchase for our portfolio. And so we do the math to figure out what are we eliminating, what are we not willing to buy and.
[00:13:45] Wayne Nelson
What the criteria in place that that investment has to abide.
[00:13:50] Harrison Kozak
By. Exactly. And so we end up with a list of things that we say, yep, I'm willing to buy this. And that's what makes up that stock market portfolio for all the clients. It's as simple as that, right? It's a matter of eliminating those things unqualified and arriving at the destination.
[00:14:06] Wade Kozak
And a lot of it comes down to we want the account to look like a pension plan. This is not a speculation account where you're trying to find penny stocks that are going to, you know, shoot to the moon. This is somebody's entire retirement savings and they only have one shot at getting this right and they have to get it right the first time. You don't save for retirement, get it all wrong and have a chance to go back and try again. It's got to be correct this first time. And so we take it very seriously that these accounts have to look like a pension plan and be designed to make that regular payment out to the bank account without fail, regardless of economic conditions or anything else.
[00:14:49] Wayne Nelson
I think that investors should take some reassurance that you guys have your investments in these same portfolios.
[00:14:57] Harrison Kozak
Exactly right. We invest. The exact same way for ourselves as we do for our clients. And that's somewhat key, right? It keeps our finger on the pulse to to the same degree that a client's is on the pulse. And they're they're feeling sort of the same way that we are in their own accounts. It makes it very simple, then to make those decisions and say this needs to change or no, this is working for us. And it makes it very clear and hard to ignore those signals, so to speak.
[00:15:25] Wayne Nelson
It supports that old adage that you treat something a little bit better if it's your own.
[00:15:29] Harrison Kozak
Sure. Yeah, exactly.
[00:15:30] Wade Kozak
And you certainly pay more attention to it.
[00:15:32] Wayne Nelson
Yeah, absolutely. And it is that blue chip approach to investing. Do you add new bonds, new stocks to your portfolio of recommendations weighed on a on a semi-regular basis? Or do you pretty much stick to the same old tried and true?
[00:15:50] Wade Kozak
We we are constantly reassessing. So we'll eliminate stocks like Harry mentioned based on their valuation levels, their debt levels for all kinds of criteria. But we're constantly going back through and reevaluating. It's not like we throw that name away forever. We constantly are going back and looking at the numbers and determining, okay, has something changed in their circumstances that we should now consider them? Have they got a debt issue that used to be, you know, the balance sheet was just offside and now they've got that under control and we should consider adding them to the portfolio. So it's absolutely we add new names. You have to because names often get completely taken off the board. They're taken over or taken private and you have to find new blood all the time.
[00:16:39] Wayne Nelson
Do you try to reach a balance in a person's portfolio? You've got your equities, you've got your you've got your bonds, you've got your different segments of the equity market.
[00:16:49] Harrison Kozak
Yeah and everybody's got their own comfort level to a certain extent. Sort of the big customization we make in client accounts is that balance between stocks and bonds. We have our recommendation of which stocks we're going to be purchasing and we have our recommendation of today what's available in the in the bond list that we can go out and buy. And where the clients sort of preference comes in is the balance between those two. Most people would be aware of kind of those traditional 60 over 40 or 50/50 split accounts, right? But we've got clients all across the board. Some people only want to hold bonds. They're just they're cautious. They want to have all their money guaranteed by somebody. And some people are much more risk savvy and they're happy to have more money tied to the stock market taking advantage of that potential growth. It all depends on how comfortable you are with the swings in the market. And that's where a lot of your sort of personal preference comes into the portfolio building.
[00:17:46] Wade Kozak
And a person's risk tolerance, the you would never want to exceed a person's risk tolerance in investing regardless what the rules of thumb say.
[00:17:56] Wayne Nelson
All right. We're going to pause for a break and we'll continue. When we come back. I'm speaking today with Wade Kozak and Harrison Kozak 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, well, then you need to call the Kozak Financial Group. The number is (403) 260-0568. Check out the website. It's KozakFinancialgroup.ca. There is some great information there. That's (403) 260-0568. The website KozakFinancialGroup.ca. We'll be back with more on Talk to the Experts.
[00:18:35] Wayne Nelson
You're listening to Talk to the Experts on QR Calgary. I'm Wayne Nelson. My guests today are Wade Kozak and Harrison Kozak from the Kozak Financial Group, CIBC Wood Gundy Their website is Kozak Financial Group. Okay. 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 talking a little bit about the meat and potatoes of investing. But there's more to an investment than just having stocks and bonds. There's a whole other realm that goes into a portfolio. So let's talk a little bit about that, if we could.
[00:19:20] Wade Kozak
And that sort of stems to the point of kind of the what what all is involved and what we spend our time doing. So obviously, people want to spend a lot of time talking about what stocks, what bonds and that sort of very interesting.
[00:19:33] Wayne Nelson
Yeah and how much am I going to get back or get out of it.
[00:19:35] Wade Kozak
But that's probably maybe 30% of what we actually do for our clients. Right? There's a big section of it that is that is tax planning and helping our clients make the accounts as tax efficient and their lives as tax efficient as they can. And then there's also a counseling component that takes into account all kinds of different things. So a few of those things are like. Let's talk first about education savings. Where and often Harry mentioned earlier that it's grandparents who actually get involved in this. Now, there are excellent education savings grants available, too, that you can use getting the using the registered education savings plans that are available federally.
[00:20:21] Wayne Nelson
And the reason why more grandparents are taking part or contributing to these plans, is it because the parents are having less disposable income to contribute.
[00:20:32] Harrison Kozak
Maybe, right? It depends on the case. I think more often than not it's more that the grandparents want that sort of warm, fuzzy feeling that they've contributed to the legacy of the family. Right. They've sort of ensured the education of their grandchildren is is solid and sort of affordable in the future.
[00:20:49] Wade Kozak
And let's face it, our clients are the kind of people who have that financial ability to make that contribution. And so it's more likely that they're interested in making that contribution.
[00:21:00] Wayne Nelson
And it's not just a simple contributory method either. There's there's a whole realm of things that go into that kind of contribution, that kind of donation, if you wish.
[00:21:11] Harrison Kozak
Yeah. And so there's, you know, some some sort of administrative work to be done, right? You have to make sure that you're comfortable sort of quote unquote, signing that money off to this account. And usually we advise that that account should be set up in your children's name for their children and not your own name. In an estate, it can be a little bit complex to hand off control of that to the next generation. And so there's some coaching to be had there and some sort of pros and cons to weigh about whose name is this account in who are the exact beneficiaries because again, it becomes quite complex, especially if you're involving cousins from multiple of your children into one big plan. So to sort of make that a little bit smoother for the future in perpetuity, we always advise that the parents are the ones administering that account.
[00:22:01] Wayne Nelson
It's really the stewardship of the family wealth.
[00:22:06] Wade Kozak
Yes. And if like in Harry's example, even if it is the grandparents who want to maintain the taking care of that education savings plan, we recommend they open separate plans for each of the different families. So if they have some grandchildren from one child, they have one plan for that. If they have grandchildren from another child, they open a second plan so they can easily keep the money separated by family that way.
[00:22:32] Wayne Nelson
Is that because of the taxation rules?
[00:22:35] Wade Kozak
It's because when you start taking withdrawals, it starts to get kind of messy as to, well, in this one account, how much is belongs to this person, how much belongs to that person. And it's much easier to keep track of if it's just completely separate accounts. So we all we always recommend that if the grandparents are actually taking control of it and those education plans, on the surface, they seem quite simple. You get grant money from the government that up to $500 per year per child and you can collect up to $7,200 grant during that child's lifetime. And then all of the all of those contributions, all of the grant money and all of the growth on this in the account is potentially available to go and fund education down the road. There's no tax deduction for making these contributions, but the growth and the grant grow tax free, and then they're taxed in the student's hands when you take them out. But there's a whole lot of complexity hidden in that line. They're taxed in the student's hands when you take it out and it gets quite complex when you start making withdrawals. And it's good to have somebody who's done this. Lots to know where the pitfalls are and what the best approach is when that day comes to start making those withdrawals.
[00:23:53] Wayne Nelson
What's the biggest mistake?
[00:23:55] Harrison Kozak
The biggest mistake is perhaps not starting early enough and sort of not paying attention to this plan. You don't want to leave money on the table, so to speak, and have this plan get dissolved in an inefficient way. Maybe that's sort of the biggest mistake that people can make.
[00:24:12] Wayne Nelson
Can you explain that a little bit more?
[00:24:13] Wade Kozak
So I think what Harry's getting at is that the student is starting university and, you know, you've never made a withdrawal from this plan. Perhaps the parents are doing quite well and they they have money of their own. And there's no real urgent need to make withdrawals out of this education savings plan. And so nobody really thinks about it. And they just start funding that student's education just out of their regular cash flow. And they just thought, well, just we'll get to that account later. We'll just leave it alone. A couple of years pass, that student decides to take a gap year and doesn't go back to university. You still haven't made a withdrawal from the education plan. And suddenly there's a question as well are they going to go back to university or not? Because they have to be enrolled as a student. Inch in order to go and make the withdrawals and get that grant money out. I think that's probably the the the biggest mistake people can make with these plans that as soon as that first student starts going to university, we're on top of it and we're kind of needling the client said, okay, we got to start making withdrawals Now. The whole point was to collect this free money from the government for the student, and now we've got to complete that circle by getting that money out and in their hands to pay for education.
[00:25:28] Wayne Nelson
Gotcha, All right, Harry, a further comment.
[00:25:31] Harrison Kozak
No, I don't think so. I mean, that's just sort of one part of the overall stewardship that we offer. Right. Wade was talking about a big part of what we do is that sort of client counseling. And that really comes down to when we're having our regular review meetings or calls the clients, you know, disclosing or sort of bringing to us what's new with their life and whether that's a child has started university or they've started a new job or they're buying a new house.
[00:25:56] Wayne Nelson
A birth in the family.
[00:25:57] Harrison Kozak
A birth in the family, any number of things can change your situation. All of these things can lead themselves to, you know, advice to be had. Right. Whether or not it's all applicable to every single person, there's there's good options available, kind of no matter what your needs are. One thing that a lot of people ask about, let's say, for example, in this year you're getting a larger bonus than normal from your employer. And to offset some of that income, you want to go ahead and make a charitable donation. Easy enough to just write a check to your favorite charity and have that in the mail. But you could also, if you so chose, set up kind of your own private foundation.
[00:26:40] Wayne Nelson
Philanthropy is a big part of of a lot of that stewardship of the family estate.
[00:26:47] Harrison Kozak
Exactly. And there's a legacy there that you're looking to protect and sort of steward for the future.
[00:26:53] Wade Kozak
So it might not be it might not be evident that you would want to share with your financial advisor that, yes, we support these three charities on a regular basis each year to roughly this amount, but that's really useful information for us to have. So if there is a year when something, something unique happens and you have a lot more income to report that year, maybe there's a large capital gain inside the investment portfolio. Maybe you've sold several rental properties and triggered the gains, maybe you've sold a business and and are realizing the cash and there's a whole bunch of corporate gains to go and report and the personal tax return. If we know that you make these regular donations to these charities each year, we can counsel you to, you know what? Since you have this very unique high income year, why don't we front and load that and make ten years worth of those donations just in this one year alone, get all the tax credits in this particular year where they'd be very useful to you, have that donation go into your private foundation.
We've set up and you continue to dole that money out to those same charities in the same amount over the next ten years. But you've now front end loaded the tax credits into the year when they're really useful for you.
[00:28:12] Wayne Nelson
All right. I want to talk a little bit about that private foundation that a person can fund for themselves. You can set up when we come back. But it is time for a break. And some of these strategies are why you need to contact the Kodiak Financial Group, Kozak Financial Group, CIBC Wood Gundy The website KozakFinancialGroup.ca you can call them up to set up a consultation. The number (403) 260-0568. 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.
[00:28:48] 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 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. There is some great information there. It's Kozakfinancialgroup.ca. Wade, Harrison before the break, we were talking a little bit about the philanthropy, the stewardship of of family wealth. And that's one of the components. And you mentioned something about having a private foundation or a charitable foundation. Let's talk a little bit more about that.
[00:29:30] Wade Kozak
So I was before the break, I was talking about how there can have there can be an opportunity when there is a unique year where you have more income than normal. You're reporting. Yes. And you normally regularly support charities to make a lump sum donation into your own private foundation and front end load and get those tax credits in the year. They're really useful to you when you're selling a business or selling rental property and these are triggering a gain or getting a bonus from your work or being laid off.
[00:30:03] Wayne Nelson
Offset the taxation.
[00:30:04] Wade Kozak
All those different things. And I want to point out that all of those different events are a little bit stressful, right? Whether it's, you know, if you're selling your business, your this is obviously a really big decision that you've thought about for a long time and you're kind of selling your job as well as, you know, getting all this cash and you're thinking about all kinds of things you can't be expected to also think about, well, is there a little tax opportunity here because of my charitable donations? That's our job to to know you well enough to know this about you and for you to share it with us, that we can point out that there is a unique opportunity here that you have only in this one year when this unique income is going to be showing up, that you can actually save yourself a lot of tax doing something you were going to do anyways, just front end loading it. And so it I'm just pointing that out as it's one of the things that we take very seriously that we, we look for our clients.
[00:31:03] Wayne Nelson
Would it be as simple way for your client to just give you a quick call and say, hey, here's what I'm doing, I'm selling off this apartment building, I'm selling this building, and just leave it at that so that you have that heads up that this is what's going to be happening.
And then you can take a review of the account and provide that advice down the road.
[00:31:21] Harrison Kozak
That's certainly the first step, right? We get the heads up that something's happening and we can start turning our gears on, okay, what does this mean? Right? What are what are the things to consider? And oftentimes that will lead us to, okay, well, do you make any charitable donations regularly? If you do, and it's a part of sort of what you feel your personal ethos is, then it makes sense to take advantage of this opportunity, make a big lump sum into your personal foundation and carry forward. Now, I think it's important to mention here, if you've been listening to our shows for any amount of time, we are very consistent in our message that you want your life to be simple. You want it to be sort of easy to manage. And I'm sure there are some people out there thinking to themselves, well, geez, if I started up my own personal foundation, there's complex tax reporting and I have to do and I have to get a new accountant to manage that. And this is going to make my life a whole heck of a lot harder. And that's simply not the case. CIBC offers a program called Benefaction, which basically looks and smells like a regular non-registered account to you and Benefaction, the company that sort of quote unquote runs these, essentially does all that background work. They do the taxes, they do all the administrative work on running a foundation or a trust or whatever you want to call it. And so you get to enjoy the tax benefits with none of the work. And then you get to direct it for the rest of its existence. Whether that's just a few years over the course of you paying it out, or maybe you carry this forward and it becomes a part of the family fabric that we're a family that gives back. And here's how we do it. We put some money into this foundation and and continue sort of giving back to the community through this. And you can sort of include the entire family in that decision making process to help sort of steward your entire family's wealth plan for the future.
[00:33:15] Wayne Nelson
Is that something that can be set up in a reasonably short period of time, say, at a at a quarterly or bi annual review of the account?
[00:33:24] Harrison Kozak
Oh, yeah, yeah. That's something that can be done on the regular account. Paperwork requires a signature on all that kind of stuff, but it's nothing outside the norm of what a current client would expect in their own paperwork.
[00:33:36] Wade Kozak
You know, to what you said earlier about eating your own cooking, I, you know, you see all this on paper and you you think, okay, this does sound like a very useful tool. And I can think of I can think of times and places when that would be very useful for, for us to use for our clients. But I still want to kind of feel it and see how this experience is. And so like I myself support a number of charities each year. And so I actually opened one of these accounts myself just to make sure that it was as advertised as to how low cost it was to go and get this done, how easy it was to get this done. And I've kept it going because it's very, very easy to make donations in kind. So one of the ways I use this private charitable trust is that instead of writing checks to the charities that I donate to each year, I'll donate stocks to my private foundation, choose the timing of when I make those donations because there's tax benefits to donating stocks that are at at significant capital gains. And I get that benefit of making that donation. I get the same charitable donation receipt you would if you made it to any other registered charity. And I get the benefit of getting off the hook and the capital gain because it's to a registered charity and then I can manage how I dole that money out to the worthy cause. Is that we support.
[00:34:59] Wayne Nelson
I like what you're saying, Wade, in that you have the personal experience. And that goes back to what I was saying earlier, is that you guys, when you select the stocks, those are the stocks that you are invested in or the or the portfolios, the equities, the bonds, those are the ones that you're invested in. And the same thing with this charitable foundation. So you can speak from firsthand experience.
[00:35:23] Wade Kozak
And that that even goes back to the education savings plan. I have four children I saved in an education savings plan for all of them. And I've gone full circle from the savings stage to the withdrawal stage to the closing the account down stage. And so I've I've experienced every stage of that education plan account.
[00:35:44] Wayne Nelson
All right. As we wrap up the show, Harrison, are there any closing comments that you have about what we've discussed today?
[00:35:51] Harrison Kozak
I don't think so. I think that.
[00:35:53] Wayne Nelson
That's not what I wanted to hear.
[00:35:55] Harrison Kozak
No.
[00:35:55] Harrison Kozak
Well, I'll tell you something anyways. The I think that it can sometimes feel a little bit sort of passé to consider yourself, you know, this sort of family, wealthy family with important considerations to make. And you might think of yourself, No, I'm just a person who owned a small business and I sold it and I did quite well for myself. Right. We have countless clients just like that. And while you don't have to have a family motto or a, you know, a family sort of ethos in that way, maybe you do want to have a plan for what does all this look like? Not just in my hands, but in the hands of my kids, in the hands of my grandkids, in my community. Right. Moving forward, if any of that speaks to you and if you'd like to have sort of a larger overview plan for yourself and your family, give us a call. Right. Once again, the number (403) 260-0568. And we'd be happy to to sort of give you any advice we can on if we were in your shoes, what would we do? And again, tie it back to our own personal experiences.
[00:37:01] Wayne Nelson
And it's creating that legacy going forward Exactly.
[00:37:04] Wade Kozak
For the family, etcetera.
[00:37:08] Wayne Nelson
All right. Well, gentlemen, once again, it has been a pleasure. Thank you for joining us. We'll see you in September.
[00:37:14] Wade Kozak
We look forward to being back in the fall.
[00:37:16] Wayne Nelson
I think there was a song about that. See you in September. Anyways, 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 Harrison Kozak of Kozak Financial Group. Thanks for joining us today on talk to the Experts.
[00:37:44] 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. 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.
April 29, 2023 – “Talk to the Experts” Radio Show
We review recent updates in the Federal budget: Changes to Alternative minimum tax, RESP withdrawal limits and strategy, and the new FHSA.
[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. 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.
[00:00:30] Wayne Nelson
Welcome to Talk to the Experts on 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, it's Kozak Financial
Group.ca. The phone number, 403-260-0568. Wade, Harrison, thanks for joining us today.
[00:00:52] Wade Kozak
Good to be back
[00:00:53] Harrison Kozak
Yeah, thanks for having us.
[00:00:55] Wayne Nelson
Well, it's been a while since we've chatted and since then the federal budget came out end of March and I know there were some
things in the budget that you want to talk about. Let's take a broad overview of how it will affect some of the investments, some of
your clients.
[00:01:10] Wade Kozak
Well, there were some interesting tidbits in there. Probably the most important ones to our clients would be changes to the alternative
minimum tax. I was quite interested to see the change in the registered education savings plan withdrawal rate in that first period
when you have a student going to university. What else was in there, Harry?
[00:01:35] Harrison Kozak
Well, one of the big stories was that new first home savings account that the government is launching in an attempt to help younger
Canadians or Canadians in general buy their first home if they haven't already. A lot of questions around that. If you can remember
back to when TFSAs first launched back in 2008, 2009. Similar sort of confusion today. It's all sort of getting up and going and
nobody sort of has the historical knowledge just yet of exactly how all this is going to play out.
[00:02:03] Wayne Nelson
And in hindsight, we know that TFSAs are a pretty good thing. Let's go back on this alternative minimum tax. We'll start there and
then work our way down. So Wade, what is an alternative minimum tax and why is it so significant?
[00:02:15] Wade Kozak
Well, essentially, it's designed to do an alternate calculation of how much tax you owe using different inclusion rates for some of the
deductions and credits to make sure that that everybody is paying a certain amount of tax and who it's looking to catch are people
who are being able to overly take advantage of capital gains exemptions. And it catches sometimes people with large tax credits. So
if you have a large donation or dividend tax credit, it can catch you and you can owe a little bit of alternative minimum tax. I think
Jamie Golombek did a very good article in the Financial Post a year ago that kind of highlighted here's the different classes of the
types of tax returns that caught up in this. And basically it's often one time events. You sell a business and you get your one time
capital gains exemption for the for the small corporation. You have to pay some alternative minimum tax but then through some tax
planning over the next seven years, you generally are able to go and collect that back. So it honestly, it's not that hugely impactful,
but it's not uncommon that we have clients whose their only income after they cease employment is their investment accounts for a
few years, perhaps before they start their Canada pension plan and the OAS, and they can get caught up in the alternative minimum
tax a little bit due to the fact that they are taking strong advantage of the dividend tax credit.
[00:03:53] Wade Kozak
It has a higher exemption rate. So I think it's going to catch fewer people who are just being caught that way. And it's not going to
have a huge impact on the average Canadian, but it is going to make sure that that people who have these special circumstances
that perhaps occur year after year after year and here I'm thinking about, you know, the few people in Canada whose only income
are coming to them through stock options because that's how that's how they're paid and that's the only income they have. They
could easily get caught up in this. But for the average Canadian taxpayer, it's not. It's going to have very little impact.
[00:04:32] Wayne Nelson
All right. The RESP is available for Canadians of all income levels. What important changes did you see in the budget?
[00:04:38] Harrison Kozak
YEAH, So the one big change we saw in the budget this year was an increase in the amount that you can take out just in that first
semester. So if you're not familiar with an RESP, just in the first 13 weeks that a child starts attending post-secondary, there's a
maximum you can withdraw. It used to be 5000. It's going to be increasing to 8000. Mind you, that's for a full time student. Slightly
different if you're a part time student. There's still it's still pending what they call royal ascension. Basically, the Governor of Canada
sort of signs off on it and says that it's all good to go on behalf of the King now. So we're waiting on that but we should be seeing that
increase relatively soon. And that's in the face of higher costs of education. Right. People are finding it more difficult, especially if
you're going to be relying upon that RESP withdrawal outside that first 13 weeks. There's sort of no maximum. At a certain point, you
have to start showing receipts to prove the money you're withdrawing is actually going to education. But I think it's something like 20
some odd thousand dollars before you have to start doing that. In any case, though, these increases are coming sort of at the exact
same time as we're seeing more benefit get pushed on to the younger Canadians that are the Government of Canada is attempting
to sort of help those people launch out of high school in the first place and then into sort of their adult lives from there.
[00:06:04] Wade Kozak
I'm probably overly excited about that increase from 5000 to 8000, maybe more than I should be. And it is quite important and I'll
explain the reason for it. If you think of the average student starting university in September and they get their proof of enrollment,
perhaps they're 18 or 19 years old. They probably don't have a part time job that's making a whole lot of money so their income in
that last year where they just finished high school in that fall, they're starting university, their income is going to be very low that year.
And so typically that $5,000 they were able to take out in that first 13 weeks, essentially, they paid no tax on it. Now, the following
year, now they're in university. Perhaps they're going to have a summer job for the four months over the summer, they might be
earning a little bit more money. They could they could actually be paying a little bit of tax that year. Most likely it'll all come back to
them because of the tax credits they get from being a full time student. Sure, but being able to get an extra chunk of money out in that
very first semester when they are probably at their lowest income that they're ever going to be for the rest of their lives is is helpful.
And I think it will be useful to anybody who's in that situation.
[00:07:22] Wayne Nelson
And Harry made a good point, too, that some of these initiatives that were brought out in the budget are to help those younger
Canadians. And to that end, we now have the the first home savings account, the FHSA, a lot of rules and regulations about that. So,
Harry, where do we start on that? As you said, it's it still has to have a greater rollout, I suppose.
[00:07:46] Harrison Kozak
Exactly right. The big banks out there are getting their paperwork together to be able to offer these kinds of things and, you know,
sort of TBD when when you're a bank is going to be able to offer that to you. There are complicated plans. You can kind of think of
them as a blend between the TFSA and the RRSP, which makes them even a little bit more complicated. And then because they
have a specific goal in mind, right, purchasing one's first home, the withdrawal restrictions on how you get this money back out are
sort of clamped down on to a certain extent. Obviously, it's early days, right? There's sort of no experts out there on exactly how to
use these things. And sort of as a second warning, I suppose, keep in mind that the CRA typically likes to think of its rules as having
spirits of those rules. I'm sure within the next few years we're going to see a news article about how someone is having their first
home savings account activity disallowed because it goes against the spirit of the rules the CRA laid out. So early days, but sort of
exciting just to sort of get to see how this might start to help those higher net worth Canadians pass a little bit of wealth to their kids if
they so choose. And in general, how young Canadians or Canadians who don't own a home are going to be able to use this tool to to
assist them in purchasing their first home.
[00:09:11] Wayne Nelson
Okay. I want to pick up this conversation when we come back, but we have to pause for a break. You are listening to Talk to the
Experts. I'm Wayne Nelson and I'm speaking today with Harrison Kozak and Wade Kozak from the Kozak Financial Group, CIBC
Wood Gundy KozakFinancialGroup.ca is their website. And if you have any questions or concerns, or 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.
[00:09:40] 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. 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, Harrison Just before the break, we
were talking about this new program announced in the federal budget in late March. The FHSA or first home savings account. Who
should be looking at this thing seriously?
[00:10:16] Harrison Kozak
Yeah, so I mean, I sort of mentioned it before the break here that you can think of it as somewhat of a hybrid between a TFSA and an
RRSP. You get a tax credit for putting money into the account, much like an RRSP. And then as long as you're withdrawing that
money to go and purchase your first home, it comes out tax free as well. So you sort of get to double dip on both those tax benefits.
Obviously, that means that if you're not withdrawing it to purchase a home, then there's taxable consequences. So if you change
your mind and buy a car instead, suddenly you have some tax to pay. And then additionally, sort of up front, the question needs to be
asked, is the person who's contributing this money? Probably a young person. Again, these plans are available to people over 18
years old and they're allowed to exist for 15 years. So if you turn 18, you have until you're 33 to purchase a home.
[00:11:08] Wayne Nelson
It's not like an RRSP.
[00:11:10] Harrison Kozak
It's not in perpetuity.
[00:11:11] Wayne Nelson
You have got a time limit
[00:11:12] Harrison Kozak
Yeah, And at the end of that, if you still haven't purchased a house, you can roll it into your RSP. And then you could use the first
home buyers plan. Obviously that means you have to pay the money back to your RSP that you take out of it to purchase the home.
There's always a bit of a catch there. So that that leads me to is the person contributing this money actually in need of those tax
credits that they're getting? And if not, does it make more sense to fund your TFSA instead? Or first, at least we can sort of look at
people who do this or who contribute their money to their RSP at a very young age, and then they use whatever favorite tax software
there is out there. And very typically those pieces of software want to use that RSP credit right off the bat, whether or not you're
seeing any benefit from it, mainly because they want to avoid people not getting their RSP tax credits and then calling up TurboTax
and complaining.
[00:12:06] Wayne Nelson
So what about a certain income threshold? Does it make sense for someone who is not earning a certain amount of money to be
contributing to this FHSA?
[00:12:18] Wade Kozak
Probably. Probably not. I would say so just to be clear is that if you're a wealthy parent who wants to help your 18 or 19 year old start
saving for a house and you want to give your child money to go and fund into that account, it's the child who gets the tax deduction
for the contribution, not the parent. So that person who's 18 or 19 years old probably doesn't have a very high income and probably
isn't going to get any bang for their buck, if any, on that tax deduction they get for making that contribution. And now you've put it in
there and you have the inflexibility that if you want to get it out tax free, it has to go towards a house down payment, which might be
an advantage, right? If you if you want to give your child money to save for a house and you want to make sure it's only used for a
house, then that obviously works to your advantage. But not being able to use that tax deduction immediately, I would suggest it
would be wiser initially when the income is very low to make a tax free savings account contribution instead.
[00:13:21] Wayne Nelson
Is there a cap on the amount of funds that can be put into this program?
[00:13:25] Wade Kozak
Yes. $8,000 per year for five years for a total of $40,000 deposited. If used properly. This basically will be an extra $40,000
potentially of RRSP contribution that every young Canadian or every non home owning Canadian could have. So there is there is
going to be some gamesmanship there, I think, and this could be used this could be used very much to their to somebody's
advantage, not only to save for a house, but to actually perhaps to get more money into an RSP than you otherwise could. But again,
in order to go and use those tax deductions for the RSP, you actually have to have some income to deduct against.
[00:14:12] Wayne Nelson
Sure. And $40,000, let's be honest, you're not going to get much of a house if that's your only down payment. But at least that
$40,000 would be a contributory factor to helping maybe boost. Or it'll be a tool in the tool box.
[00:14:25] Wade Kozak
Yeah, it'll be another tool in the toolbox to use. There's no question about it. I think what's more important to talk about at times like
this, and this is a question that we often get from clients who want to help their children out in buying a home is how do I how do I
protect this money?
[00:14:41] Wayne Nelson
Yeah, because there's a risk.
[00:14:43] Wade Kozak
There is. If there's a if your child is in a relationship and that relationship breaks down, could that money be exposed as part of the,
quote unquote, marital assets that get split up? Is there anything you can do to go and protect yourself against that? And the answer
is yes. There are some things you can do. But even when done, they don't necessarily protect yourself, protect them completely.
[00:15:07] Wayne Nelson
And is that still because we're early days on in this program, Wade, that they haven't really figured out that.
[00:15:13] Wade Kozak
What I'm talking about there has nothing to do with the FHSA. It's just to do with giving money to your kids and trying to protect it from
relationships that way.
[00:15:23] Harrison Kozak
Yeah. And I think some parents as well struggle with protecting that money even from their own child. They don't want that that host
deposit money or that sort of early nest egg to go towards cases of beer. Right. And so if they can avoid that, they would prefer to the
FHSA, I suppose, provides a bit of protection from that because it means that if you give this money to your child and they put it into
that account, if they want to get it back out again, they got to pay the tax to get that money back out.
[00:15:53] Wayne Nelson
So there's a little bit of a safeguard,
[00:15:55] Harrison Kozak
A bit of a safeguard there. But then to Wade's point, if we're talking more in the future about there's a serious relationship that breaks
down and now suddenly there were some gray areas, these assets were they combined? Were. Not combined. It could put your child
in a in a complex position where even if they did everything right, they never really combined those accounts with their partner.
There's not much that can be done to stop that other partner from at the very least asking the question, well, how much of this am I
owed? Yeah. And maybe the answer you can put on an Excel spreadsheet and find out that, okay, the growth on all this property is
really only $5,000, let's say. Do you want to spend the $50 or $60,000 on lawyers fighting it in court to prove that you only owe them
5000? At that point, it becomes more a question of are you prepared to sort of relinquish control and say, here's this money I'm gifting
to you, my child, and whatever happens to it happens to it. It's no longer within my realm of control. And that can be difficult to to sort
of really relinquish control in that way.
[00:17:02] Wayne Nelson
It's almost like gambling. You should only gamble with the money that you don't care about. If you lose.
[00:17:07] Wade Kozak
That's actually not a bad way of putting it. I will stress here that neither of us are lawyers and and family law lawyers and everybody's
circumstances are a little bit different. And if you are looking to go and protect a gift you're giving to your child from a relationship
breakdown, you absolutely should consult a lawyer who is has a specialty in family law. We can only speak anecdotally from from
events we've seen and real events we've seen unfold and how they work.
[00:17:38] Wayne Nelson
Are you optimistic, though, that this is a good program to help the first time homebuyer?
[00:17:43] Wade Kozak
Absolutely. This is this is very much a decent program that will that will help that will offer some incentive to save for a first home. It
will give that tax deduction as much as it can be used. As for a young person, and if it's used for a home purchase, it can come out of
that account eventually tax free. And if it's never used for a home purchase, it can simply roll into the RSP and be extra RSP
contribution room. So there's nothing wrong with it.
[00:18:14] Wayne Nelson
Okay. Now we're going to pause for a break. I'm speaking today with Wade Kozak and Harrison Kozak 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 is (403) 260-0568. Check out the website. It's KozakFinancialgroup.ca.
Some great information there. We'll be back with more on talk to the experts.
[00:18:40] Wayne Nelson
You're listening to talk to the experts on SRX Calgary. I'm Wayne Nelson. My guests today are Wade Kozak and Harrison Kozak
from the Kozak Financial Group, CIBC Wood Gundy Their 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. All right, Wade, Harrison, before the break, we were talking about the FHSA. First time or sorry, first home savings account. I
got to get used to saying that because I'm still used to thinking of TFSA. So that's in there. But you know, it's been a while since we've
since we've had this show and talked about what's happening about six weeks or so. And a lot has been happening in the markets,
still volatile Wade.
[00:19:28] Wade Kozak
It is, yeah, it's a little bit more muted, but March was essentially was more of a down month for the stock market. And April basically
has reversed that move and basically gone straight up. So we've we're continuing what we've seen basically since the fall where
every month the market is lurching one way or the other based on whatever the news of the day is. Are the headlines coming out
indicating lower inflation numbers and the economy is not going into a steep recession, then the market's, you know, quite
encouraged by that. Or if the numbers come out and it's indicating somewhat higher inflation numbers and perhaps a danger of a
recession, you're seeing the market head down. And so these past two months have been no exception. It continues to lurch back
and forth a little bit. We have seen interest rates gradually creeping down over the past couple of months. And I'm not talking about
the Fed fund rate or the bank rate that's set by the central banks. I'm talking about the actual rates you can get on five, seven, ten
year government and corporate bonds. Those yields have been gradually sneaking a little bit lower as the market is anticipating. I
think that at some point nine months, 12 months from now, we're going to be perhaps seeing interest rate cuts from the central
banks.
[00:20:51] Wayne Nelson
So it's good news when the bond rates go down.
[00:20:56] Wade Kozak
It's not good news for a bond investor who has money rolling over.
[00:20:59] Wayne Nelson
But that's the simplistic approach when we look at what the economy may be doing is when the bond yields,
[00:21:04] Wade Kozak
I would suggest when those bond yields are creeping lower, the bond investors, the money out there that's being invested is telling
us that rates are going to be lower in the future. Okay. And is that because the economy has weakened and we're seeing lower rates
from the central bank? Not sure if we can call that good news, but I do think we are perhaps in a in a calm before the storm. As Harry
mentioned during the break, we're still waiting with bated breath of are we going to see a soft landing on the economy from these
interest rate hikes? You know, we saw everything happen with the regional banks in the US and some things actually broke a little bit
in the economy, both in the US and Europe. Was that the bell that was needed to ring, that sort of is bringing everything back into
check? I think it might be, but you know, time will tell over the next three months or so.
[00:22:01] Wayne Nelson
Again, I think, Wade, that it puts more of an emphasis on why it's so important to take the approach that that you do at Kozak
Financial and having that that blue chip approach to investing. So you've got some consistency in returns.
[00:22:16] Harrison Kozak
Yeah. And so if you if you're able to sort of look at those harder numbers that, you know, your income is going to be solid, right?
We're investing in companies that have good quality dividends, that don't have a history of being volatile In that way. You can sleep a
little bit more soundly, right. And sort of say, okay, this income oriented approach is going to make sure my bills keep getting paid
and maybe we'll see the market sort of bump up or down here, depending on whatever the news is that comes out in the next few
weeks. But in general, that income is secure and therefore your lifestyle is secure. Certainly not comfortable. Right. Not pleasant to
see the markets go go down when you'd prefer them go the opposite way. However you can you can sort of be self assured that that
income is going to take care of you in the meantime, at the very least.
[00:23:00] Wade Kozak
And over over the past year, that income has actually has actually done its job and more so from the equity portfolio that we run from
a year ago, the dividend income it's producing has grown by close to 16% in the past year. So a person who is invested a year ago, if
they were invested such an amount that it was generating $10,000 of dividends per year, today it's generating $11,600 of dividends
per year, even a little bit slightly higher than that. So we've actually seen the income increase over a somewhat difficult period in the
stock market. So I'm very encouraged by that. And to see that income rise, especially during a time of inflation, it's doing its job. As
far as inflation protection is concerned.
[00:23:47] Harrison Kozak
You can sort of couple that even though we've seen interest rates take just a slight step back in the past couple of weeks, I don't have
to tell anybody that over the past year or so here, interest rates have been steadily increasing from the central banks. And so when
you couple that dividend increase that's coming out of the stock market portfolio as well as new investment into better bonds that are
being better interest rates, it works out that when I'm looking at a client portfolio to give them a call and review things depending on
the account and sort of how it's balanced, their income is probably somewhere up between 10 and 20% depending on the account,
which obviously in times of high inflation you somewhat expect. But until it shows up, you're never sure. And in 2022, in the early
days of 23, that income increase has sort of come in spades for the accounts.
[00:24:37] Wayne Nelson
What do we need to be on the alert for moving forward?
[00:24:42] Harrison Kozak
That's a good question. I would say that maybe before some of that banking sector worry out of the US and Europe that we'd
mentioned, the sentiment sort of seemed to be that maybe we can kind of just glance off the top of a recession and return to growth
and carry on. And then when we saw that news come out of the US that some of their small regional banks were sort of collapsing on
themselves, and then Credit Suisse in Europe had its troubles, that sort of put it more firmly in the heads of the market. It seems that,
no, there's going to be some sort of economic reckoning to this when and exactly what that means. It's unclear today, but it seemed
to solidify the idea that the economy is going to slow down and we're going to see things take a step backwards.
[00:25:28] Wade Kozak
And we're starting to see that in in rail shipment numbers. We're starting to see that in the month over month GDP figures that are
coming out. It's not surprising that we're likely to see a negative number this month for GDP out of out of the USA and Canada. And
it's I'd be looking for just how how bad that might get before before it bottoms out by no stretch of the imagination do I expect a 2008
like. Recession and sell off. But the market tends to punctuate those. Those sell offs with some kind of an event.
[00:26:05] Wayne Nelson
What about the government programs? Old age security. Any impact or changes that you can see?
[00:26:10] Wade Kozak
I don't think the government programs will be impacted at all. The Canada pension plan is very, very well funded. Are there changes
afoot eventually for old age security? You know, I know for sure that I don't know if whether what's going to happen in the short term
here. All we know is what the current rules are and that it would be supremely unpopular with the group of Canadians who turn up to
the polls in the greatest numbers to go and make any serious changes there.
[00:26:40] Wayne Nelson
Where do we want to take it from here?
[00:26:42] Harrison Kozak
Well, I mean, we're looking at sort of the end of tax season here. Most people have probably got their all their filings done and are
sort of squaring that away. And as a result, we're kind of coming into a new spot here where the new year is the new tax year, I
should say. What should we be expecting and sort of what action should you be taking now so that you're not scrambling year, end of
2023 or right before sort of that tax deadline in 24? One of the things we were thinking about was those RESP plans that we touched
on at the beginning of the show here. RESP plans for education. Those are, to Wade's point, a little bit of a tricky subject, because
sometimes it can be easy to think that this money is all coming out into the kids hands and we only need X amount of dollars for this
year's education. So that's what we should withdraw. And that's not always exactly what should be done or not always what's in the
best interest of either that student or the parent who's been funding that plan all along.
[00:27:45] Wayne Nelson
What's the recommendation then?
[00:27:46] Wade Kozak
So we will sometimes I think the industry does a very good job of of telling parents about this plan and getting them to make the
contributions. And when you're when your children are young, it makes perfect sense. I put this money in. I get some free money from
the government also in the account and it all can grow together and eventually I can withdraw this to go and fund the accounts where
I see our industry sometimes failing clients is we'll we'll meet a prospective client in our office who has a significant RESP. And then
you ask them how old their children are and their children are just at the very tail end of their university years. Like they they haven't
actually made any withdrawals from this plan. And whoever, whatever individual they are dealing with, I'm not going to say they were
asleep at the switch, but they didn't ask the question of how old the kids are or are they in university yet, because you have to have
students who can prove that they're enrolled in full time university to actually go and make withdrawals from these plans. So it's very
important that as soon as your your kids start going to school, whether it's part time or full time, you notify your financial advisors and
you start making withdrawals from these plans. Because let's face it, the whole point of opening these accounts was to get the free
money from the government and then to get that out and taxed in the children's hands as they're students. And at that point, the
account has served its purpose. And so you should, as soon as their students start filling out the last part of that process and getting
those withdrawals done, it's a little bit complicated. There's paperwork to fill out. You need the proof of enrollment from the
universities. Most universities now, the students can pull that information down online. But if I'm speaking to all the parents out there
right now, if your students were my like my students, it was sometimes kind of difficult to get those those forms from them. And then
you need signatures. And it's a process, but it's important you get that process done so you don't forfeit that free money you got from
the government because you didn't fill these forms out while they were going to school. Get those withdrawals made starting at the
very first year. They're going to school. That first withdrawal they take out probably will have no tax paid on it at all because the
student is in such a low tax bracket, maybe is in later years, they will have a bit of tax to pay, but it'll still probably be far less tax than
you would have paid on that income. And so it's important we empty these plans out while the while those kids are going to school.
[00:30:16] Wayne Nelson
And for all those Johnny come latelies who didn't do it on time, I guess the only recourse you would have is encourage your student
to do some post-grad work. All right. We're going to pause for a break. And again, this is why one of the many reasons why you
should have the Kozak Financial Group working with you. Some great advice. That's Kozak Financial Group, CIBC Wood Gundy, the
website Kozak Financialgroup.ca, or you can call them to set up a consultation. The number (403) 260-0568.Wade Kozak and
Harrison Kozak from the Kozak Financial Group are my guests today. We'll be back to wrap things up on Talk to the Experts.
[00:30:53] Wayne Nelson
Wayne Nelson, back with you on Talk to the Experts. My guest today are Wade Kozak and Harrison Kozak 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, Harrison. Before the break, we
were talking about the RESP, the registered education savings plan, and the need to make sure that you get those withdrawals in a
timely fashion. And that's really important.
[00:31:30] Harrison Kozak
Absolutely. So to Wade's point, before the break there, you want to make sure that you're drawing these accounts down while the
kids are in university. A little bit of work involved. Got to get the forms signed, got to get the proof of enrollment from the university.
But it should get done that first withdrawal you do for each child or each RSP. There's a maximum to it in those first 13 weeks, as I
mentioned at the beginning, it's $5000 currently going up to $8000 here shortly. Once that first 13 weeks is done, the amount you can
withdraw is not limitless, but much, much bigger. Again, as we sort of discussed, when this 18 or 19 year old is in their second
semester or second year of university, they probably still aren't earning a whole heck of a lot of money. But that could change, right?
Maybe your child takes on sort of a co-op program through school and is getting some work experience, earning some money that
way. And suddenly they could actually be in a position where their income is a little bit higher. So don't don't wait around. Right. Let's
get that money withdrawn sooner rather than later. Typically, you want to withdraw that money, not in a specific order, but the way
the withdrawals come out is intentional. You start with the grant money that the government's giving you over the years for your
contributions, as well as the growth that you've earned on your investments inside the RSP. And then finally, the last thing to come
out is going to be the original contribution dollars that you actually put in as the parent. And that's intentional, right? The growth and
the grant money all needs to be taxable in the child's hands. The contributions you have a little bit more flexibility with what's going to
happen there.
[00:33:11] Wayne Nelson
Okay. Now, when we're talking RESP and it's been a while, I don't think they were invented when I had kids. But you can invest in
within the RESP like you can within a TFSA, if I'm not mistaken.
[00:33:27] Wade Kozak
That's correct. Like every eligible investment that you can invest in inside of a registered retirement savings plan, you can invest in in
a registered education savings plan. So the the investments can be anything under the sun that you can put inside of these plans,
stocks, bonds, mutual funds, kind of anything you can think of that's that qualifies to Harry's point, though, unlike an RSP, the original
contributions you put in, you didn't get any tax deduction for that. When you made those contributions, you just you put it in to collect
that free money from the government. Right. And when you take out your original contribution at the end, there's no tax on that. So I
generally coach our clients to withdraw the grant and the growth basically as quick as you can, because the whole point of opening
these plans was to get that grant money, let's get it out and in the student's hands. And then when all of that's out and all that's left
inside the plan is the original contributions, pull it all out in one lump sum, tax free to yourself, and that even if you intend to continue
funding their education with it now it's out of the education savings plan. There's no forms to fill out. There's no proof of enrollment to
get suddenly. It's much, much more simple each year to dole that money out however you want or do whatever you want with it.
[00:34:48] Wayne Nelson
Okay. Some great advice. Now, earlier we were talking about some other tax initiatives, something called the pension tax credit.
What's that all about?
[00:34:55] Wade Kozak
So we we've talked about this often in the past, but now at tax time, I think is a good time to go and review it. If you do not have a
pension from a company that you've accumulated over the years, if you've only got your RSP savings and the government programs,
then you need to take some action to take advantage of the pension tax credit when you turn 65. So everybody out there who's
turning 65 in 2023, I would I would basically ask you to ask yourselves, do you have some pension income from some source that
isn't Canada pension plan or old age security? If you do, that's great. You're able to take advantage of the pension tax credit. If you
don't, you can still take advantage of the pension tax credit, but only if you convert a little piece of your RRSP into a RRIF and start
drawing down at least a $2,000 RRIF payment to yourself each year. If you're doing that, you can now get the pension tax credit and
it doesn't match up exactly, but it attend eventually. Or it basically means you can get that first $2,000 withdrawal out of the RRSP tax
free for age 65, 66, 67, 68, 69, and 71. At age 71, you'll be forced to convert the entire account to a RRIF, and you'll have to show
that pension income. And it might not sound like a lot, but if you can take that $2,000 out each of those years and collect, I collect
2000 times six years or seven years, 12 or $14,000 and get it out essentially tax free. I think that's absolutely worthwhile and it very
often gets missed. Accountants are too busy to kind of pay attention to it at tax time. There are pointed out often the advisors aren't
thinking, you know, with their tax thinking caps on. So it's very important that you think about it that age 65 makes sure you're taking
advantage of that pension tax credit.
[00:37:00] Wayne Nelson
All right. Harry, any further comment on that? You're nowhere near age 65, but not there yet.
[00:37:06] Harrison Kozak
But I know that when I am 65, I'll be on top of it because I'm already hammering on it with all my clients myself. And so I got to, you
know, eat my own cooking, so to speak, in that way. Sure. But no, Wade, just about covered it off in its entirety. If you're 65 or
between 65 and 71 and you haven't already done this, take the time to set up that RRIF. Start getting that payment out. You'd rather
get some out than none out at that very, very low tax rate.
[00:37:35] Wayne Nelson
If someone has questions, and I've mentioned this throughout the show, call your office. 403 260-0568. When someone calls in to
your office, makes an appointment to come down, do you do a broad overview review of their accounts or just does it depend on their
question? What is the process for that initial consultation? What are you hoping to achieve?
[00:37:57] Wade Kozak
Usually in that initial meeting, it's information gathering on both of our parts that the prospective client is coming in to get more
detailed information on exactly how we set up accounts for our clients and how we operate. And they're sharing in more detail or in
detail exactly what their personal circumstances are so that we can give advice to their particular circumstances that they happen to
be in. So that that first meeting is more of an information gathering session on both of our parts to see whether we see where we
should proceed.
[00:38:34] Wayne Nelson
All right. 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 Harrison Kozak of Kozak Financial Group. Thanks for joining us today on talk to the experts.
March 11, 2023 – “Talk to the Experts” Radio Show
We review the current economic climate and suggest an annual “financial checkup” and some advice on making sure finances are a family affair.
[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. 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.
[00:00:30] Wayne Nelson
Welcome to Talk to the Experts on 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. It's KozakFinancialGroup.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, Wayne.
[00:00:55] Wayne Nelson
Well, Daylight Saving Time starts tomorrow. So one less hour of sleep for those people who are listening to this show right now and perhaps don't have the kind of investment strategy and portfolio like that recommended and applied by Kozak Financial, that consistent income oriented investment, they've probably been losing sleep already worry over the past several months because of market volatility. So so let's talk about that volatility. Have the markets settle down, if I could use that expression, or is there still that degree of volatility that causes people to lose sleep?
[00:01:30] Wade Kozak
There's a lot of volatility. I just want to say that's about the most tortured Segway I think I've ever experienced.
[00:01:37] Wayne Nelson
I worked long and hard on that.
[00:01:38] Wade Kozak
So March has started out honestly, even the month of March so far has been quite volatile. It started out on the positive side. In the first few days, markets were looking pretty good last couple of days before the weekend here. We've actually seen the markets back up on Thursday and Friday and month to date. Stock markets are right now down. So we continue the up down back and forth that basically we've seen in the stock market since June. One month, everybody's fearing recession and that's kind of what's gripped everybody right now. And fear about what's going on with the with the bank in California, etcetera. And then the next month, everybody's saying, okay, well, maybe they're about to stop raising interest rates and, you know, the market's actually positive. So we continue to have this back and forth tug of war in the stock market. And incidentally, we're also seeing the similar back and forth tug of war in interest rates. Even in the past couple of days, we've seen interest rates actually on the long end of the curve come down, whereas there are certain bonds I was buying just 4 or 5 days ago with yields of five and three quarters or 5.8 that on Friday. The best I could do on that very same bond was around 5.6, which is a pretty big move just for a few days.
[00:03:01] Wayne Nelson
It sure is. So what is the advice then for the average investor? Taking a look at what the markets are doing right now, get professional help?
[00:03:11] Harrison Kozak
Well, volatility can be can grip you pretty hard, right? Kind of no matter who you are. And so if you can get professional help and get some advice on what you should be doing, it probably would be helpful to you. But perhaps the best piece of advice that I have as far as volatility is concerned is do whatever you can to remove the emotional decision maker from your mind. Right? If if if we looked at examples of good blue chip dividend paying, paying stocks and we looked at them early in the week before this volatility occurred and we thought, I'm happy with these. And now because the market's down a little bit towards the end of the week, we have a completely different opinion that probably isn't logical. Not enough has changed over the past couple of days to to spark an entire portfolio overhaul. So get those emotions out of your head before you start making any long term life impacting decisions.
[00:04:07] Wade Kozak
So the the advice that I would offer in that stead is that you should have some guiding overall principle on the investment decisions that literally bulldozes all of that volatility, that helps guide your decision making in your investment portfolio regardless of whether the markets are up or down or sideways. You have to have a logical strategy that guides your hand, so to speak, and that way you aren't pushed around by those short term emotional decisions.
[00:04:41] Wayne Nelson
And should you then stick with it once you've made that decision, or should you be open to fine tuning?
[00:04:49] Wade Kozak
I was going to say that I think you have to be open to collecting new information and and perhaps changing. Your your attitude based on new information arriving. But. The kind of decisions that we make for the long term investment portfolios for our clients. They aren't the kind of decisions that should be changed lightly, and I don't think people should not be making on a day to day or even a week to week be making decisions of I should be in, I should be out. It's more of a overall asset allocation decision. I'm going to be X percent stock market, X percent fixed income. And as my balance shifts off of that, because the stocks do very well. So now they're more you should pare a little back and add some to the bonds to set it back to your target. And if the stocks are weak and they go down and they're less than the target, you should take some money out of a bond that's maturing and add it into the stock portfolio and take advantage of that weakness and just keep your account balanced to that to that balance that you want.
[00:06:00] Wayne Nelson
Not be overly reactive on the on the day to day.
[00:06:04] Harrison Kozak
Exactly. And those reactions are what can really hurt somebody in the short term. When Wade talks about those guiding principles, that is a very high level thinking about what you're investing in and that new information arriving about the market or about a particular investment that is a lower level, right? You're making you're using your high level guiding principles to help you make those day to day, low level decisions that are going to impact your portfolio in the long term over years and years of growth and development, either through your career or through your retirement. And so to Wade's point, that long standing approach or those high level key metrics you're looking to, to compare yourself to, those are not changing. You want to be reactionary only on those day to day decisions as they come up that are at that low level of sort of importance.
[00:07:02] Wayne Nelson
Sure, because if you've got that long term strategy, you're going to acknowledge that there is going to be some variance.
[00:07:09] Wade Kozak
Of course. Yeah. And in fact, not only acknowledge, but you will accept, right, that there will be volatility and variance. And the beauty of how we we structure portfolios for our clients is that if you're focusing on that income number being generated, it strips a lot of that volatility away, that income tends to be very, very stable.
[00:07:31] Wayne Nelson
Wade you mentioned that horrible word that everybody is on pins and needles worrying about, and that is recession. Earlier in the year, there was still a possibility. Now that we're two and a half months in, what is the feeling right now? Are we headed toward a recession? Are we in a recession?
[00:07:52] Wade Kozak
We very well could be right now. We saw employment numbers come out. They weren't you know, Canada still added jobs in the most recent month. But when you look at the yield curve, it's essentially trying to shout from the rooftops that we should be expecting recession. The long term bond yields are actually lower than the short term bond yields. That has almost always predicted a recession. Quite frankly, I think a lot of the economists are are quite surprised at how robust and the economy has been to this point and how robust the consumer and the employment numbers have been to this point. I would have thought that these higher interest rates would have had a more negative effect on the economy by by now, quite frankly. But I think it's quite likely that we at some point later this year, we're looking back and saying, yes, you know, there there's the recession, there's the negative GDP numbers. How long is it going to be? How bad is it going to be? That's yet to be determined. And quite frankly, is it possible that there won't be a recession, that there will just be a sort of prolonged slowdown, Very, very low growth? I suppose that's possible as well. But normally, these things end with some kind of a flourish, not not a whimper.
[00:09:15] Wayne Nelson
Not necessarily the time to be running around yelling the sky is falling.
[00:09:19] Wade Kozak
Definitely not. I mean, like like we've seen the economy has proven to be much, much more robust, these higher interest rates than I think any economists predicted. And you're on a day to day basis. It's well, will we see further interest rate hikes? Is the government going to continue to put the brakes on the economy and essentially attempt to cause that recession to go and bring demand down and make sure that we crush inflation because that right now the central banks, that's all they're focusing on.
[00:09:49] Wayne Nelson
All right. 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 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 for 403- 260-0568. We'll be back with more on Talk to the Experts.
[00:10:13] 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. If you have questions about your investments, how your portfolio is doing, or if you just like a consultation, give them a call. The number is (403) 260-0568. Wade, Harrison it's that time of year again. People are starting to get their T4s, starting to get their tax information together. What advice do you have for investors right now?
[00:10:48] Harrison Kozak
Well, number one is to your point, Wayne, make sure you're getting all that stuff ready, get it packaged up either to handle yourself or off to the accountant to make sure they can handle it as soon as possible. Obviously, even as our hands are tied to a certain extent with when the financial institutions get those slips actually issued. But keep an eye on the mail and communicate with your advisor or your financial institution to make sure you're getting everything properly. But perhaps this time of year and getting those taxes prepared is a good time to sort of reexamine the broader picture as well. It's a good time to sort of give yourself a financial checkup and just sort of monitor some of those important things.
[00:11:31] Wayne Nelson
What should they be looking for?
[00:11:33] Harrison Kozak
Well, maybe the first thing you might think about is, are you getting a whole bunch of investment tax slips from a whole bunch of different institutions? Do you really know where everything is and how it's all structured? And maybe a bigger question is, do all of your different investment accounts actually have a well appointed goal in mind, and are they helping you to achieve that big picture plan you have for retirement or whatever it might be?
[00:11:59] Wade Kozak
And are they meshed together well? Do they do they sort of add up to a whole that makes sense if they are and in all kinds of disparate places. Is the one you know, we're collecting all of that tax information right now anyways. So a lot of times people use this as an opportunity to review those accounts. And I've said it before, but I'll say it again that one of the numbers, even a person who isn't currently retired but perhaps expects to be retired in the next ten years or so, one of the numbers you should have a handle on is how much total income are my are my investment portfolios generating on an annual basis? How much total income is this RRSP generating? How much total income is that RRSP generating? And you can add it together then and then also add it to what you're expecting from the government programs, etcetera, to get a sense of, okay, is this coming together? Is this adding up to a number that I need to receive on an annual basis in retirement to live on? That's often not a number that is evident on the regular statements. So some sometimes it takes a deeper look and a little bit more a conversation with your advisor. But I would encourage everybody out there to focus on that figure, that actual income number that you're generating from the interest income, the dividend income on the overall portfolio, because that is going to be a very, very important number to know as you get very, very close to retirement and are in retirement.
[00:13:26] Wayne Nelson
In your experience, do you find that it's a bit of an eye opener for most people when they do that?
[00:13:31] Wade Kozak
I would suggest that a lot of investors and a lot of retirement savers out there haven't spent even a moment thinking about that number. And so it becomes it's a revelation to them that that is a figure that they that they should be focusing on and asking about. The one question that everybody has for me when you come in and you are at that magic day that, okay, my employment is ceasing, I'm going to cease depositing money to my investment accounts and I am now going to start withdrawing money from my investment accounts on a regular basis to fund your retirement income. That one question that everybody always asks on that day is how much can I withdraw each year without touching the principal? So I think it stands to reason that as you are a number of years away from retirement, that should be a figure you should have a handle on. That you should know, because that is going to be a question that you're going to want to know the answer to in retirement. May as well find out now what that figure is and you may as well start doing whatever you need to do in your portfolio to drive towards a better answer to that question as you head towards retirement.
[00:14:47] Wayne Nelson
That's some great advice. And I guess the other thing, too, that people would need to consider is that figure might change from their pre retirement plans until to the time that they get to retirement.
[00:14:59] Harrison Kozak
Absolutely. And perhaps another part of that financial checkup is doing the math on what does it take to keep you in the way that you're accustomed. What do you need to be earning from your investments in order to keep the bills paid and make sure that you're comfortable and that number will change as well? The income you're generating will change. So it's important to start now. Look at the income you're generating and the income you need, and then work with your advisor to find the solution. Do I have a shortfall I need to cover? Do I have an excess that I need to to make a plan for? What am I going to do with this and use these early days, maybe before retirement, to start to formulate a plan of, okay, here's what I need to do before retirement, and then once I get there, this is the step by step process I'm going to take to to fund my lifestyle.
[00:15:53] Wayne Nelson
Is it something that a person needs to do on their own or needs to do as a couple?
[00:16:01] Harrison Kozak
So that's a good question. I think that everybody out there listening probably immediately when you said that, had a flashback to an argument that they'd had in the past. And so I think the answer is obvious that you should obviously be working as a family unit to to find the right answer for your family and that that means a conversation and that means involving one another in the decisions and working together to come up with solutions to problems or whatever the case may be.
[00:16:31] Wade Kozak
A lot of times in couples there's one person who takes the lead on on different places in their lives. And we're after the break. We're going to get more into this. But where where it's relevant here is often one person of a couple is more interested and more engaged and is making more of the day to day decisions on the investment portfolio. And I would suggest that it's important that the other partner maintains a hand in it as well, even if it's just being in the room when the decisions are made and being familiar with the language and just the overall broad strategy, but not get right down in the weeds to to get all the details, I think it's important that that both partners have at least a working knowledge of where things are, how they're structured and how they work.
[00:17:22] Wayne Nelson
And I suppose it would be very important. And as you said, Harrison earlier, this is the time to try to keep the emotion out of it, especially when you are working as a couple toward that goal.
[00:17:35] Harrison Kozak
Yeah, and that can be difficult, right? Money is a sensitive topic for everybody. And and so you need to be careful and you need to the earlier the better I suppose, is the answer. The earlier you start working with your spouse to get these questions answered and to form a joint strategy and a joint opinion on how these decisions are going to be made, the better, because that way down the road, when there is a question that needs answering, the two of you know how you're going to come and get the answer, whether that means having a joint meeting with your financial advisor or sitting down and going through the statements and your own record keeping yourselves. And that even comes down to the taxes. If you're filling out your taxes for you and your spouse, maybe it makes sense to make sure that they are in the room and you walk through it together.
[00:18:22] Wayne Nelson
All right we'll pick this up when we come back. I'm speaking today with Wade Kozak and Harrison Kozak 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 is (403) 260-0568. The website KozakFinancialGroup.ca. We'll be back with more on Talk to the Experts.
[00:18:47] Wayne Nelson
You're listening today to Talk to the Experts on Calgary. I'm Wayne Nelson. My guests are 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 talking about couples kind of working together on their financial strategy. And there's a word that you came up with. I don't know if it's the same thing and it's couples cross training. What's that all about?
[00:19:28] Wade Kozak
That came we coined that phrase and it's a terrible phrase. I'm not sure if it's really if it really works well or not, but in the last couple of years, we've had some couples that we've dealt with where one of the spouses has passed away and leaving kind of everything on the shoulders of the remaining spouse. And sometimes if the person who passes away is the person who has, who was the one who was engaged in the financial side of things and was sort of aware of where everything was and how it all worked and maybe they didn't do a very good job of of sharing that information. The remaining spouse is left grasping in the dark of, okay, how does all this work? What do I have to do? And they really are at the mercy of of whoever's in front of them advising them. And I would suggest that's not a very strong position to be in.
[00:20:27] Wayne Nelson
You're finding all the pieces, trying to put that puzzle together. So it makes sense.
[00:20:33] Wade Kozak
Exactly. And so we you know, we can think of examples of, you know, not even in the financial world of of people where where one half of a couple is gone and the person who's gone is the one who did all the cooking in the household and the remaining partner is kind of left floundering, you know, even figuring out how to how to feed themselves without, you know, using skip the dishes every single day. And for the purpose of our topic today, we're going to talk about the financial side. But I've met people who didn't know how to write a check, right, Because that was something that their spouse just always did.
[00:21:08] Wayne Nelson
Or balance the checkbook, for that matter.
[00:21:10] Wade Kozak
Which, you know, who's done that in the past ten years. But absolutely. Like there is all of those financial structures. What information that needs to be put together to give to the accountant. If there is an accountant. And we've people who've heard us here on the radio or been referred to us by existing clients, people who've been handling the financial side of their lives themselves.
They've been managing this themselves, but they also see a day in the future when they won't be able to do that. And they've seen the logic and, you know, maybe we should find somebody we trust who has a similar philosophy to how we want to handle it, so that if I do go first, I know my spouse is being left in reasonably good hands and this will continue to be managed in a way that I'm that I would like to see it even beyond.
[00:22:00] Wayne Nelson
I would suspect that one of the first things they should do is express their wishes to the other person in their life and put together a list of, you know, here is what what we what we have or what I have, and here's how I want it to be handled. Would that not be a good starting point?
[00:22:19] Harrison Kozak
It's a great place to start, right? Compiling a list of all of the accounts where they are and who you deal with when you're when you're working on them. And that could even go so far as including passwords to log ins, things like that, especially if you're you're not doing it together. Um, and from that point then you can explain this is how I've been investing, this is why I do it this way and, and sort of get everybody on the same page. And once again, to Wade's point, this the spouse that perhaps wasn't handling the financials isn't going to overnight develop an interest and a knowledge base that they're just going to launch into. Instead, the the crux of the matter is they want to be in a position where if suddenly they lost their spouse and financial manager in the relationship, they could pick up the ball and work with it immediately, at least with some understanding of what the plan was. You don't want to be figuring out where all of the financial accounts are while you're handling the estate of your spouse after they've passed and realizing that, oh, suddenly there's an account over at this institution I didn't even know was there, and maybe you did know it was there, but because you didn't ever talk about it.
[00:23:38] Wayne Nelson
Or pay too much interest in it.
[00:23:39] Harrison Kozak
Yeah, Yeah. You just forgot about it, essentially.
[00:23:42] Wade Kozak
So it's important, I think, to have a list of, you know, in this realm of like all here, all the financial accounts here are the professionals that we deal with. Here is the overriding strategy that we're using to go and take withdrawals on an annual basis. And like to Harry's point, they're not going to generate a deep interest overnight. But if you just give them the working tools to of knowing where everything is and even just some of the some of the language, that goes a long, long way to help them, to help them be able to pick up that ball and carry it.
[00:24:17] Wayne Nelson
So from what I'm hearing you say, Wade, is that once they start that process, it is a process. They should be getting involved in some kind of consultations, either with their spouse, significant other prior to passing or after that person has passed, getting together with that consultant advisor to work toward that that strategy to to get that better handle on things.
[00:24:43] Wade Kozak
Because the last thing you want is to literally be in your deathbed and trying to shaere's the password to get into this account and here's, you know, here's how this works and here's how that works. Like and honestly, I've seen that happen and that's not the time for it. Right?
[00:25:00] Wayne Nelson
How long does it take, though, to get that or does it vary between couples?
[00:25:04] Harrison Kozak
It varies, certainly. Right. Depending on how complex your situation is and how complex you've you've made it for yourself, right? Some people like to have lots of different accounts and lots of different places, and some people like to consolidate and simplify.
[00:25:16] Wayne Nelson
If you've got different investments, perhaps different accounts, which financial advisor do you go to?
[00:25:24] Harrison Kozak
And and that's a good question. Perhaps what would be best if you're attempting to sort of work together as a team is have a quarterback right. One of the financial advisors, your main financial advisor or maybe everything's at one place, you know that that person is your quarterback and they're going to help you to call the plays, so to speak, right? And organize your life around that, which Wade mentioned it earlier it's important that in those consultations or meetings with your advisors and the professionals you employ in your life, that both spouses are involved, they can both participate in that meeting and at the very least enjoy the flavour of what is supposed to be going on so that when, if or when the financial manager spouse passes away, it's not as if the surviving spouse is starting from square one with that professional. They already have an existing relationship. Maybe they weren't the main point of contact, but they at the very least, have met this person face to face, know their name and can recognize their voice on the phone.
[00:26:33] Wayne Nelson
Wade, are there some legalities that have to be put in place first?
[00:26:38] Wade Kozak
There is work to be done there. Like typically, if things are set up properly on on the first death of a spouse, normally everything in a married couple is held jointly. And so that just that just transfers to the other living spouse. The registered plans should have name beneficiaries of the other spouse that just rolls over. So very often on the first death, there is nothing really in the estate that has to go through probate, but that is something you should check, right? Because it's possible that accounts were opened in the past under a single name, just out of convenience, and no one's ever really paid any attention. And that account should be held jointly for estate purposes.
[00:27:15] Wayne Nelson
All right. Next step.
[00:27:18] Harrison Kozak
Well the next step is to to carry forward with that and start developing that knowledge base and that interest in what's going on with the finances. Doesn't have to be your main hobby, but at the very least you should have a grasp of it.
[00:27:33] Wade Kozak
And this goes two ways, like it doesn't. It's not all finance. Maybe I should know where the Christmas tablecloths are in the house. And maybe the spouse who doesn't cook all the time should have a basic understanding of how to cook a few meals, right? So this there's a lot of information that has to be shared back and forth. My wife likes to call it information that she stores in my head, but of course, if something happens to me, that information is gone and there's lots of information I store in her head that hopefully, you know, I should have I should have written down somewhere. And so I know that, too.
[00:28:08] Wayne Nelson
I'm presuming, Wade, that after our discussion so far that you and your wife have that list with all the accounts and passwords somewhere.
[00:28:18] Wade Kozak
I do. And I do have I do have a spreadsheet that I maintain that basically is in case Wade dies spreadsheet. Right? Here's a whole bunch of information and all the life insurance information and all the investment account information and even a few basic pieces of advice of kind of what to start, what to start with and what's important. But honestly, it could be better even in our case, it could be much, much better.
[00:28:44] Wayne Nelson
All right. We're going to pause for a break. That's one of the reasons, by the way, that you should have the Kozak Financial Group working with you. Some great advice, some great examples, personal experience, knowledge. That's Kozak Financial Group, CIBC Wood, Gundy, the website KozakFinancialGroup.ca. Call them to set up a consultation. The number (403) 260-0568. We'll be back to wrap things up on Talk to the Experts.
[00:29:08] 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 Woo Gundy If you have questions about your investments, 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, Harrison. Before the break, we were talking about that cross training, the spousal cross training, getting the other person involved to the point where they at least have some semblance of what's going on. Does that include adult children in the family?
[00:29:49] Harrison Kozak
Yeah, of course. And I think just before the break, we were talking about Wade and his wife, who is, of course, my mom. And obviously Wade has the benefit of having his adult child involved in this financial business. And my mom could rely on me to help out.
[00:30:07] Wayne Nelson
But not everyone is so fortunate.
[00:30:09] Harrison Kozak
Not everybody is so fortunate, unfortunately. And so instead, what you should be doing is even while you're both you and your spouse are around, you should be making sure you're involving the kids, if not in the decision making, at least in the understanding of the financial picture. And certainly after one of the spouses has passed away, presumably one of your kids will be handling your estate. And it would be better if they already had some working knowledge of what was going on. So same thing. They know where the accounts are, who they should call when you pass and what happens there. Obviously, on our team, we're pretty proactive about that, making sure that we know who we should call if we can't get a hold of you and that seems odd to us. And that's part of one of the steps that we take. And that's true sort of with everything that we've already talked about today. We've had a lot of topics covered in this short our program, and we obviously can help the listeners out there make sure that they have a plan in place no matter what we've talked about today.
[00:31:12] Wayne Nelson
Absolutely. And to just to reiterate that phone number, if people do need help, is 403 260-0568. The website once again Kozakfinancialgroup.ca. Wade, further discussion on this.
[00:31:28] Wade Kozak
I would just say that often we have people come to us. I think I mentioned this before the break, who they've been handling it themselves for a long time and they have a really good working knowledge of it. But they also understand that they won't always be able to handle it. And they felt the need to build a relationship with somebody that they trusted. That they trusted to handle things in a way that they approve of and build that relationship now. So if something happens to them, their spouse has somebody strong there to help them. In a similar way on my list, I do my own taxes. I think it's important that I keep abreast of all the changes and how these investment decisions have an effect on the tax returns. So I do. I do my taxes and my wife's taxes, but I also have a name on that list of if something happens to me, I know my wife has no interest in doing the taxes, and so I have a name in that list of here's somebody you can go to that I know that I trust will do a good job and essentially not rip you off. That and I think sometimes those recommendations from, you know, beyond the grave is maybe a little bit more dramatic. Yeah, but I think sometimes those recommendations do make a person feel a lot more comfortable that, okay, you know. Wait always did this and he's the one suggesting this. So I feel comfortable with that and I don't have to worry about it. Right.
[00:32:56] Wayne Nelson
Harrison, your thoughts on that? Have you got your affairs in order, so to speak? I mean, you're quite a bit younger. So have you got how far are you along on that process?
[00:33:07] Harrison Kozak
You know, again, the same as wait, it could be better, right? I really should sit down with my wife and I should we should prepare the list of everything that we need to have in place just in case it's never too soon to prepare that. And equally, sort of along those lines of that financial checkup, if you review that kind of thing once a year, again, tax time is a good time to do it. You know, -20 temperatures. Staying inside is certainly a good excuse to review this stuff.
[00:33:34] Wayne Nelson
Tax changes coming down the pike as well.
[00:33:36] Harrison Kozak
Of course. Yeah, tax changes coming up here. This is a great time for me to sit down with my wife, make sure we go over that list if we've already had it prepared and add anything to it that needs to be added, subtract anything that we're no longer dealing with, and in doing so, we can put together a good financial starting point so that if one of us was to go, the other one could pick up anything that we're not privy to today and carry forward.
[00:34:06] Wayne Nelson
Wade, when you had have those discussions with your wife, are there questions that come up that perhaps you hadn't thought of that your wife asks about or wonders about that kind of causes you to think, Oh yeah, that would be a good idea?
[00:34:21] Wade Kozak
There can be and often it's a matter of it's information. She's asking for that I don't even think to share because it's second nature. Exactly. You know, and it's just something that. Well, everybody knows that, Right? You know, But very often you're asked that question and it kind of triggers, okay, maybe not everybody does know that. And it's important to go and share that that little tidbit. And I'll just also say that it's tax time as you're collecting those tax slips, kind of moving away from the the spousal cross training side of things, now's a great time to make sure that your investment accounts haven't evolved in a non tax efficient way. It's really easy throughout the year that if cash came in and you made an investment in an account that it's just the account the cash showed up in and here you are at the end of the year and you're seeing your tax slips and maybe there's interest bearing things in a non registered account, whereas you have dividend paying things in a registered account. And it's kind of going a little bit away from the best optimal tax efficiency. You should check on that now at tax time and see if there's any changes you should make to to make that optimal tax efficiency.
[00:35:32] Harrison Kozak
With that checklist in mind, with tax season in mind, make sure that you have a well prepared or a well established process for how you handle tax time, how you handle the investments and put that together with your partner so that both of you are involved and both of you get to have that knowledge and share in the decision making so that you, you know, why the decisions are being made and and how they're being made.
[00:36:00] Wayne Nelson
And to Wade's point, make sure that your investments are not working at cross purposes.
[00:36:05] Harrison Kozak
Exactly. We talked a bit about accounts in different places. Maybe it's a good time to sit down with one or both or however many advisors you have and say, is this all harmonized? Is it tax efficient as best as it can be? Are we perhaps overexposed to an investment because we have it in so many different places? Or quite frankly, is our our overall asset allocation way out of whack? We would like to consider ourselves, you know, conservative investors. But it seems that we've let each of these different accounts become more aggressive over time, sort of accidentally. And it's a good time to reassess that and bring everything back within the bounds in which you're comfortable.
[00:36:44] Wayne Nelson
A good time to reassess its tax time. Wade The focus once again at Kozak Financial is on those dividend paying or consistent income oriented investments.
[00:36:56] Wade Kozak
I feel that's the best way to plan for retirement income and the most consistent way to plan for retirement income. So if that if there's any listeners out there who any of this resonated, by all means, I invite you to give us a call at (403) 260-0568. We'd be happy to sit down and chat.
[00:37:15] Wayne Nelson
Wade The website at KozakFinancialgroup.ca says you were chosen as one of Canada's top wealth advisors for 2022. Does that mean a higher level of expertise and a greater level of responsibility to your clients and really an added comfort level for them?
[00:37:33] Wade Kozak
I think so. The group that made that determination through the Globe and Mail was independent and it was, you know, it was made with free and clear information. It wasn't a list that you just pay to get on, if you catch my drift. So we are quite proud that our team and I consider it a team effort that that we made that list that we were considered one of Canada's top 100 advisor teams. And I do think that I do think we bring a a level of service to our clients that warrants it.
[00:38:09] Wayne Nelson
And I know that you're especially proud to, as having been named a Fellow of the Canadian Securities Institute. Not just anybody gets on thatlist.
[00:38:18] Wade Kozak
That you have to pass a whole lot of courses and do a whole lot of designations, and you have to have been in the business for a long time that that basically is what that designation means.
[00:38:28] Wayne Nelson
All right. Well, another great reason to be talking with the team at Kozak Financial Group. Okay. For expert personal investment advice, you need to contact them. Cibc Wood Gundy, Kozak Financial Group.ca There's a focus on income generation. Phone
(403) 260-0568. Again, that website is KozakFinancialgroup.ca. I'm Wayne Nelson for Wade Kozak and Harrison Kozak of Kozak Financial Group. Thanks for joining us today on Talk to the Experts.
[00:38:57] 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. 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.
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.