Monthly Archives: June 2020

Financial Planning in the Wake of COVID-19

We are all going through some unprecedented times right now as a result of COVID-19. With that in mind, we wanted to share some financial tips you may find useful.

Source: MemeZila

Save Those Gardening Receipts! 

Do you know you can potentially make a portion of your home maintenance costs, including those gardening expenses, tax-deductible? If your employer has required you to work from home, you are able to designate a room or space in your house as an office. Dividing the square footage of that office by the size of your residence and multiplying that by the percentage of your business hours worked from home gives you the portion of home expenses that can be applied against the income you earn from your job. Start saving all property tax bills, telecommunication charges, condo fees, utilities, etc., for next year’s taxes and get your employer to sign off on a T2200 form to file with your taxes.

Behind on Tax Filings? – File It Now! 

The government is and has been waiving any new fees and delaying interest payments on filings. While we don’t know exactly what this means for every situation, it will be difficult, administratively, for the CRA to pick and choose who to penalize and who to not as penalties are system generated. If you or your business is behind on filing any personal, business, payroll, or HST filings, now may be the best time to do it.

The Importance of a Will 

As your province starts opening up, one of the areas of fallout will be Probate/Estate courts. All current court cases have been delayed by the government shutdown. Add to those cases already in the system, all the new cases related to people who pass away intestate (without a will) or those that have a contestable will, and the backlog could be years rather than months.

The problem with not having a will, or having a contestable will, is that an inheritance may be tied up and thus not available to those that need it.  If you intend to will your assets to your spouse but someone else in your life objects, the assets can be tied up in the courts until the case is resolved. If your spouse needs that money to live right now, it may mean serious hardship for them until the case is resolved in the courts.

Please get your will professionally done. The will kits you can buy on the internet can be easily contested.  A professional will make sure you and your beneficiaries are protected.

Review Your Will Regularly 

Your assets may have been on a bit of a roller coaster ride these last few months.  Be it a significant move in the market or a change in the value of your real estate or other investments, it is important to review your will from time to time to ensure that your assets will be distributed as you intend.  Think of the situation where you want to give one beneficiary a family cottage and another a piece of your investment portfolio, with the intent of providing both with equal value. The beneficiary that receives the lower amount may contest the will. Again, a professional will help protect you and your beneficiaries from this situation.

When you review your will, you should also review your Powers of Attorney (POA). Your POA for Property allows the individual you designate to deal with your financial affairs on your behalf. Your POA for Personal Care allows the designate to make decisions regarding your personal care (including medical) if you are incapacitated. Make sure the people you choose for these roles are still willing and able to do so.

Investing for the Long Term 

Having experienced the recent dramatic drop in the stock market caused by COVID-19, you may be asking yourself if investing in equities is right for you. At times like these, it is important to remind yourself that you are investing for the long term.   The chart below depicts the rise in the S&P 500 Index from 1970 to 2020.

Source: Thomson Reuters Eikon

At first glance, we can see the chart moves higher over time but with several sell-offs lasting 1-2 years.

How can we measure its true long term productivity amidst the volatility? We suggest the 20-year annualized return chart.

This chart tracks the 20-year return for different year ends. In simple terms, had you invested on Jan 1, 2000, a peak, your return in December 2019 would equal 4.0% per year. Similarly, an investment in 1980 would have earned a 13.9% return. When you have a long term focus, short term events and volatility is easier to look through. When the market hits 5yr lows don’t sweat it because you are a long-term investor. When the market reaches all-time highs don’t go on a spending spree because you are a long-term investor.

Even if you are approaching or in retirement, you don’t need all your retirement savings all at once. Depending on how long you live retirement can last 40+ years. You too are considered a long-term investor.

Excellent long-term savings accounts include TFSA’s and RRSPs.

If you have not taken advantage of tax optimization accounts this year or at all, please contact us at The Murray Wealth Group and we can help.

 

This piece is written by our CFO, Ryan McCabe.

This is a series of independent research produced by the Murray Wealth Group Research Team.
The purpose of this series is to provide insight into our portfolio construction and how our research shapes our investment decisions.
We welcome any feedback or questions you may have on these monthly commentaries.

May Portfolio Update | 2020

Thoughts on the Market: May Edition

Equity markets posted a second consecutive month of gains in May. Volatility indicators calmed, providing some comfort to investors, and focus shifted to the re-opening of economies. Notably, most companies have reported financial results and were able to provide investors with some clarity regarding the depth and duration of the impact of the Coronavirus. With social distancing measures still in effect as economies re-open, businesses that can generate revenue in the face of depressed foot traffic, through delivery, click-and-collect or digital services, have grown their share of wallet to the detriment of those industries that have been affected to a greater extent.

Investors remain anxious, with many in denial of the market recovery. However, tangible data points are pointing to a solid change in both market and economic indicators. From a technical standpoint, more stocks in the S&P 500 are above their 50-day moving averages, a measure of relative short-term stock support, than at any other time in the last 20 years, with a reading of 95%.

At MWG, we often opine the benefits of a recession as a chance for businesses to recalibrate operations, trim excess and win market share from weaker competitors. Similarly, recessions have a wash-out effect on investors as losing positions are dumped once and for all, long-term winners are sold to book profits and new positions are established to benefit from the recovery. This portfolio re-organization creates a musical chairs-like scenario as investors race to position for the recession only to find out they have missed the market bottom. As more and more stocks recover, investors lament on missing the rally, tricked by the market they were so sure they could time, only to later submit and re-enter at higher prices.

To be clear, there will be another sell-off/correction/recession, but it is unlikely to be caused by the Coronavirus. Companies have adjusted operations to manage through lockdown/social distancing measures, governments have a playbook on how to help affected business and better therapies or vaccines should be available in short order. That’s not to say heavily affected industries such as travel and entertainment won’t see further deterioration but growth in other discretionary sectors and digital expansion should persist.

Interest rates remain accommodative, digital growth is fueling economies and households appear apt to start spending and re-opening. We believe we should see markets continue to move higher.

GLOBAL EQUITY GROWTH FUND

The MWG Global Equity Growth Fund rose 5.0% in May, bringing its year-to-date return to –5.2%. Over the past twelve months, the portfolio has returned 6.5%.

The portfolio benefitted from strong returns from our most recent purchase, Twilio, which rose 79% on very strong results, as well as Royal Caribbean (24%) and Linamar (18%) on recovery hopes. Tapestry and Alliance Data were our weakest performers during the month, although we believe both companies will provide lots of torque in an economic recovery (the two companies have returned 23% and 26% in June).

We made no additions or deletions to the Global Equity Growth Fund. Our target weight changes were driven purely by market fluctuations. Upon reviewing each position, we felt the relative performance and new weightings were justified given the outlook for each company.

INCOME GROWTH FUND

The MWG Income Growth Fund fell -1.6% in May and is now down 28.2% year to date. Over the past twelve months, the portfolio has returned -20.3%

We made no changes to target allocations during the month. After a strong rebound in April, many positions reversed gains in the first half of May as the market rotated towards growth over value stocks, which compose a large segment of the fund. Real Estate, Financials and Industrials continue to be impacted by COVID-19 concerns; however, we believe there is the potential for above-average returns over the next 18 months. Case-in-point, preliminary data suggests the portfolio has returned 11% in the first week of June.

We have stress-tested all the companies in the portfolio, and we believe that as the economy opens up, business activity will normalize and the profitability of many companies will return to 2019 levels. As such, share prices should follow. We continue to find opportunities for companies paying dividends in the 6%-10% range that are covered by cash flow once adjusted for the impact of COVID-19.

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