Here is an interesting article that was published in the Globe and Mail last July (2016). In light of the recent publicity about fees on investment funds, and disclosure to clients, I thought this is a very timely article to share with you.
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Your Largest Asset
For most of us, our home is our largest asset.
Home ownership accomplishes several objectives including a forced savings plan, builds personal equity in the difference between the market value of the home and the outstanding mortgage, and it provides security. Equity created by home ownership is very important in the long run.
With the home being such an important asset, it is vitally important to ensure the home is retained in the event of premature death, or disability, of the prime income earner. Funds must be available to pay, or pay off, the mortgage through life insurance coverage issued on each of the homeowners, or mortgage insurance provided by an insurer, or critical illness coverage, or disability income insurance.
Mortgage Insurance Provided by the Banks
Mortgage insurance is offered by the banks to those who are taking out a mortgage. Many individuals do not realize that:
– Mortgage insurance provided by the bank is not mandatory
– It is sold by bankers who are not required to be licensed, and therefore do not understand all life insurance products
– The coverage is provided on a declining basis, thereby keeping the coverage in step with the amount of mortgage
– The bank is the beneficiary of the policy
– If the mortgage is switched, the insurance doesn’t follow
– The bank coverage is issued on a post claim underwriting basis, which means medical underwriting begins after the claim is made. If the medical history is unsatisfactory, the claim can be denied.
– It is far more expensive than an equivalent amount of term life from an insurer
– There are no riders available
Mortgage insurance provided by the banks is trumped by term insurance from insurance companies in every situation.
What is going on?
What’s going on in the markets these days? When will the drop in oil prices end and start to make a recovery? Where is the bottom for equities? Are bonds and GICs safe? What sort of damage are the current economic conditions doing to my RRSPs, TFSAs, RRIFs, and Investment accounts? I’m sure that many of us are asking ourselves these questions. Many are concerned about the future of their investments and it’s no wonder. As an individual, where do you think the price of oil and the equity markets will be in 2 years time? Do you think they will be higher than they are today? If so, that means that we are in a time of great buying opportunity.
There was a very good article in the Financial Post section of the Edmonton Journal (and I’m sure the Calgary herald as well) on February 8th, 2016. It was written by Peter Dobson, CEO of 5i Research Inc. The article is entitled ‘Time to go Back to Basics’. I thought it was a very good article about market timing, dividends and the value of investing in a down market. I would urge all investors (especially during this volatile time) to read this article. I think you will find it very worthwhile. The portion of the article that captured my attention dealt with “time in the market” vs “market timing”. It dealt with a Business Insider report that looked at how important the big up days in the market were to investment performance. In a 10-year period (2003 -2013) a buy and hold strategy returned 9.2%. If you were out of the market on the 10 best up days, return dropped to 5.5%. If you missed just 60 days in that 10 year period, your return dropped to negative 4.4%. Wow!
If a person is trying to time the market, it would be best not to miss any of the good days.
– Jim Galpin