Spring/Summer 2021 Newsletter

Christine Fortin - May 17, 2021
Spoiler Alert: The biggest economic risk is the one that no one is talking about...And are stocks too risky? We also talk bitcoin & taxes.

How Houdini's Death Parallels Investment Risk ​

The biggest economic risk is the one that no one is talking about. Christine created a quick video to talk about why our clients were bullet proof in 2020 and the risk in investing that other investors should be employing. Click here to watch the video.


Are stocks TOO risky?

Each time the stock market hits a new all time high (which are frequent over the course of Christine’s 28 year career) we still hear rumblings of someone who “lost money” or feel it is “too risky”.  Read more on musings as to why investment failure is not caused by the equity market.

Let’s start with what seemingly could be a dirty 4-letter word: RISK.  Risk = volatility.  The more “risk” there is, the more “volatility” there is.  Somehow it gets forgotten that volatility is in both directions: up *and* down.  Which means, if we want to build wealth in a way that will provide us with a respectful retirement with the same quality of life as we have while working, then we *need* volatility because volatility is what provides for higher values.  
So, why do we perceive volatility/risk as negative?  Because it means the value of the only asset class to consistently outpace inflation will go down temporarily?    The key word is temporarily.   So, unless your investment objectives are improperly matched to your goals, one should not be concerned about temporary losses for the purposes of achieving permanent gains.
Now, not all equities (stocks) are created equally.  So, full disclosure, I am referring to companies that have demonstrated a history of profitability and driving shareholder value and pivoting to be nimble and adaptable.  This is not a comment about companies that are in pre-profit stage, or even early stage growth with no demonstrated track record. 
If one invested $25,000 dollars in the S&P500 at the beginning of 1970, and in early stages of retirement about now (50 years later), they would have $4.5 million dollars.    And, they have another 30 years potentially of retirement that they need to fund.  So, the need for volatility continues.  And, there have been 11 bear markets (our calculations), including 3 of the largest declines since the Great Depression: 48, 49 and 57%.  
The investor who despite the repeated behaviour of equities failed to earn money we would refer to them as making the fatal flaw.  A 10% compounded rate for nearly 100 years is almost droolworthy, thus we still hear from those who have not been able to eek out a positive returns.  Were they swinging for the fences with an improperly diversified portfolio?  Did they hang there hat on the gambling of funds on an untested company? 
Investment failure is not caused by the equity market, which can do nothing but enrich those that are the Turtle (recall my email on turtle vs. hare).  Investment failure is always and everywhere caused by one or more critical mistakes on the investor’s part – unforced errors that he/she need never have made.

Enter stage left (I must imagine for a while that I can actually attend a live event), the Behavioural Counsellor who was sent into the world (that would be us). Our intervention in the rare instances of volatility to the downside, are the critical reason why our client drive their long term wealth higher. I will share next newsletter the white paper on what actually drives investor wealth from a Wealth Advisor, in the interim – the sneak peak is that 2% annually of returns are simply derived from Behavioural Counselling.  It is a critical reason why there is a large divergence in the average returns earned at the self guided on-line platforms, vs. those that work with a designated wealth advisor.  When there is a problem with ensuring investors are doing the right thing – there is an antidote in the form of us in this industry who truly act as Behavioural Counsellors.

(source: yahoo finance historical data)

Let’s Talk Bitcoin

Because it has gotten some press – we wanted to put our personal opinion stamp on this.  If you want to save reading the full comment, let me say the literal bottom line of the essay that we are linking below from Johns Hopkins economist Steven Hanke “Bitcoin’s fundamental value is zero.  It’s almost all speculative.” Click here to read the WSJ article “Bitcoin’s Value Is All in the Eye of the ‘Bitholder’.”

We are not advocating for cryptos to be included in client portfolios at this point. This is not because they are not viable as investment in our view but rather because we don’t have any degree of comfort around their current valuations. We tend to view Bitcoin and Ether through the lens of digital precious metals and we feel they parallel very well Gold and Silver respectively. All four of these investments don’t appear to be viable means of exchange, resulting in them being used solely as stores of value (gold and bitcoin) or stores of value with some real world application (silver [industrial applications] and ether [smart contracts, ICOs etc]). To that end we expect both to perform similarly with Bitcoin acting as an inflation hedge for younger and predominantly retail investors. While bitcoin has gained momentum and notoriety it still lacks major adoption by institutions and central banks. This influx of hot money and lack of large institutional holdings makes us prefer gold over bitcoin at this time as gold has underperformed and performs a similar function and has more natural demand than bitcoin. The downside scenario for us on this is if we see more widespread adoption of bitcoin by institutions or even merchants (beyond TSLA). Our views on why I prefer silver over Ether are similar but  we think the investment case is closer. Silver has historically not been as good of a safe haven currency largely due to its industrial applications being tied to the economy. As economic activity falls silver demand also falls causing its price to be less resilient in corrections. We would anticipate Ether to have similar issue as ether is used for NFT exchange, ICOs etc which may slow if blockchain hype or the economy slows down the transaction volume falls alongside. That said we don’t believe Ether is going anywhere from a transactional perspective and many of the things it is used for are more “new economy” oriented which should have relatively strong staying power.
The main downside risk facing any of these currencies is that the retail interest wanes and central banks or large private companies develop their own version that are more broadly adopted and push out these currencies. Bitcoin or Ether are unlikely to disappear in a scenario like this due to their decentralized nature, that said they could very well be marginalized causing a significant dent in demand and price.
Lastly, we are sure some of them will be successful but picking a winner from the bunch will be like picking the best penny stock, everyone will have a story of a friend who has done it but most people will lose a significant amount if they try.
p.s. we aren’t advocating purchasing gold or silver either.


2021 Top Personal Marginal Income Tax Rates

Click here to view the 2021 top combined Federal and provincial/territorial marginal personal tax rates.  The rates apply to taxable incomes over $216,511 in all jurisdictions, with the exception of the following thresholds:  $200,000 in Ontario; $222,420 in BC; $314,928 in Alberta; and $500,000 in Yukon.



As always we love to update you with personal and professional updates about our team...we are each in the office one day a week to access items needed or print documents or send cards but other than that we, as are most, fully functional remotely.  We have re-created our offices with multiples screens and fast hardware and Christine is going to be piloting Softphones starting February 2021 for the firm.

Sadly this time we have no lovely photos to share of any of us vacationing somewhere lovely.  Alas, perhaps by the end of summer we can show some photos of summer fun in and around BC presuming that travel restrictions are lifted after the May long weekend.
Christine earned the prestigious designation of Associate Portfolio Manager.  It enhances our ability to be able to act quickly on behalf of all clients. After 28 years in the industry, it was a large undertaking for her to write all of the exams.  The model portfolios we have been running for over 10 years are impressive, however she still needed to get through the exams while working Full time + and managing a family.  Congratulations Christine!
Not to be outdone, we are so proud that Sofia has earned her full securities license.  She can now execute for clients and it closes the loop on cash management for client contributing or withdrawing on a schedule.  Congratulations Sofia!  Again, studying in our 40s with a family is not an easy task.
Christine continues to wallpaper.  If you have had a virtual boardroom meeting with Christine you will no doubt notice that black crocodile print wallpaper in her home office.  During Covid a lot of people started cocktail making, or growing plants, Christine has started wallpapering each room in the house.   The latest project was Kase’s bathroom in something Christine calls Mr. Blow.   If you have been thinking of grasscloth or some other way to spruce up your space – reach out to Christine, she will be happy to provide the name and contact info for the female duo power team that handles her wallpaper selections and installations.  
Christine continues to hold a position on the Investment Advisor Advisory Committee where she liaises with Senior Leadership of BMO Private Wealth to discuss issues that are most pertinent to clients and how we can continue to shape our firm to be the most desirable place for the top teams in Canada to work as well as provide the most value to clients.  Obviously our Quarterly meetings cannot be in person in TO, but we can still have a bit of fun.  Our last 5 hour virtual meeting finished off with a wine tasting. Then a group of us advisors stayed online for another 2 hours to discuss best practises. If we aren’t always learning then what are we doing!
Christine continues to be a key member of the BMO Women’s Advisory Team. A group of top women at our firm in areas of wealth management and planning, commercial banking and private banking that share a common goal of the best experience for the clients’ needs. 
Spencer has been invited to be part of the newly formed sports and entertainment group.  With his comprehensive sports background, starting at a young age, he played in the US college league as well his expience with  going through the drafting makes him the perfect candidate. BMO is now the exclusive group to work with the NHL coaches and assistant coaches association.  There are unique challenges related to managing wealth for professional athletes, including short work time and long retirement time and cross border banking and investment needs.  Next time you are speaking with Spencer, give him a virtual high five and know that while he is providing you advice – he may just be providing your favourite Canuck with advise as well. Click here for an article on the reality of professional athletes with respect to financial planning. 
Christine is going back to school!  Harvard! Little known fact is that when Christine was in junior high school she made the decision to do a B.Com, followed by a Law Degree and an MBA. She wanted to attend Osgood Hall for Law and Harvard for MBA but as she attended a couple of Law Courses at UBC while doing her B.Com, she realized that there is *a lot* of reading.  And, she would have to be someone’s associate for a very long time; that crushed the Law dream and she was also receiving lucrative job offers in Finance, so her Harvard dream was abandoned. 
Fast forward almost 30 years and Christine is now fulfilling her goal of a Harvard education. She is taking the ManageMentor programme at Harvard.  It’s a transformative leadership programme that draws from the subject matter expertise of prominent thought leaders – including Harvard and Harvard Business School faculty, as well as authors and experts from Harvard Business Review and industry.  She has already started the first program and is looking to employ strategies in our practise designed to continue to deliver the high level service that define us.