New at the supermarket

Charles Mandel
Sun

Low-mercury fresh fish could soon land on Canadian supermarket shelves and in restaurants thanks to new technology that measures mercury content in fish in minutes rather than in days.

In California this week, wholesaler Pacific Seafood Group introduced the Safe Harbor brand of fish, which is guaranteed to have low mercury levels. The company uses a scanning system developed by San Francisco-based Micro Analytical Systems (MAS) that assesses mercury levels in different fish species in roughly 40 seconds.

Previously, retailers would have to send fish off to a laboratory for testing, a process that cost about $800 US and would take seven days for results. “It just wasn’t practical,” said Chuck Holman, a Sacramento, Calif.-based sales manager with Pacific Seafood Group.

MAS installs the machines in wholesale or production facilities and provides inspectors to run the systems. Fish inspectors use a biopsy needle to pull a 50-milligram sample from the fish’s muscle. Using a touch screen on the machine, the inspector matches the species of fish to a preloaded menu in the machine and then inserts the sample.

The machine weighs the sample and then compares the mercury concentration to U.S. Food and Drug Administration data, choosing a level below the median for comparison. In the U.S .the average allowable amount of mercury is about 1.0 parts per million.

The company charges a per-kilo fee for tested fish that pass inspection and become branded as Safe Harbor products.

In Canada, most commercial fish are allowed mercury levels of .05 parts per million. While hailing fish as a high-quality protein low in saturated fat, Health Canada advises pregnant women, women of child-bearing age and young children to not eat more than one serving per month of shark, swordfish and fresh and frozen tuna. Everyone else should limit their intake to one serving per week, according to the agency’s website.

At Calgary’s Catch Restaurant, executive chef Brad Horen said Thursday he’d “definitely” purchase low-mercury fresh fish if it was available in Canada. Catch buys about 907 kilos of seafood weekly.

“We’re very conscious about what we use,” Horen said. “Larger fish like tuna, we want to make sure it’s a high grade, but we also want to make sure that there’s no contamination.”

Ron Schindler, a New Brunswick-based senior vice-president at Cloverleaf Seafoods, said the company’s quality assurance staff are already looking into the technology, which he said is still unproven.

Based on the current guidelines, MAS expects to reject half the fish it tests, said Malcolm Wittenberg, the firm’s CEO, who noted those fish would be sold in the marketplace regardless. “The stuff we reject, which is legal for sale in the United States, will simply be vended to someone who’s not part of the Safe Harbor program.”

© The Vancouver Sun 2006

CRA finding new tools in quest for avoiders, including use of snitch lines, lawyer advises

Fiona Anderson
Sun

Canadians may give many reasons for fudging their tax returns: the government has a surplus; members of Parliament are overpaid; or in the case of “detaxers,” taxing is illegal. However, there is one very good reason to be open and honest when telling the government exactly what you made: it’s a crime not to.

“Canadians are very highly taxed, so they naturally say they don’t want to pay any more than they need to,” said Paul DioGuardi, a tax lawyer with offices across Canada, including Vancouver, “but it’s not true. You [must] pay your taxes.”

People don’t realize how serious tax evasion is, or they just think they won’t be caught, DioGuardi said.

Being caught can lead to fines of up to 200 per cent of the tax sought to be evaded, plus five years in jail. On top of that, the taxes, plus daily interest, still must be paid.

“The daily interest alone can wipe you out,” DioGuardi said.

In 2004, 68 per cent of people surveyed told the Canada Revenue Agency that, given the opportunity, they would hide income or overstate an expense or deduction to avoid paying tax. Seventy-six per cent of those surveyed believed the CRA would not know about income received in cash unless the taxpayer declared it.

Yet, in the last fiscal year, the CRA yielded 250 convictions for tax evasion or fraud, which led to fines of $13.3 million and more than 26 years worth of prison sentences, the agency’s annual report to parliament said.

Some evasion can be inadvertent, such as seniors who don’t realize they must include foreign pensions as part of income, DioGuardi said. “If you are a resident of Canada, you [must] pay tax on your worldwide income,” he said.

The most common forms of evasion — not reporting self-employment income, over-stating expenses, or not declaring money made offshore — are usually not so innocent, he said.

Also, it’s becoming harder and harder to get away with tax evasion. Even if money is hidden in so-called tax havens, governments, in the name of anti-terrorism, have new sophisticated techniques of finding it, DioGuardi said.

CRA’s “snitch line” enables disgruntled ex-partners or jealous neighbours to anonymously tip off the government of possible under-reporting, he said.

In 2001, CRA received more funding to carry out more audits, according to its annual report.

Also, the CRA’s extensive powers to gain access to documents from all kinds of sources, including the taxpayer’s bank or accountant, it is only a matter of time before cheating taxpayers are caught, DioGuardi warns. There is no statute of limitations, he said.

However, there is possible relief for Canadians who have been less than completely honest when filing their tax returns: Canada’s volunteer disclosure or tax amnesty program.

“Canada has one of the best amnesty programs in the world,” DioGuardi said. “The beauty is you can repair a bad mistake [and] get on with your life.”

Under the program, taxpayers can approach the CRA about omissions in previous tax filings. In return, the CRA will look at granting the taxpayer concessions, such as forgoing criminal prosecution and lowering the fines that would be payable, said Dave Morgan, CRA’s communications director. The taxpayer will still be required to pay the tax and interest, he said.

If the CRA already has the taxpayer in its sights, it’s too late, Morgan warned. The disclosure has to be completely voluntary and not because the taxpayer is being audited, he said.

Also, the taxpayer must be completely honest and forthcoming about previous shortcomings. If the information is less than the whole truth, any agreement with the CRA is void and the government can use the information the taxpayer provided to go after the taxpayer.

Approaching the CRA in hopes of obtaining a reprieve from past sins can be a delicate situation, warned DioGuardi, who has written a book on the topic. If the negotiations fall through, all the information provided to the CRA can be used against the taxpayer.

The CRA allows “no-name” disclosure to enable discussions to take place anonymously until a deal is reached. Only then is the taxpayer required to provide his name. DioGuardi cautions that only a lawyer can protect the client’s identity if a deal is not reached. Even an accountant, or a friend, acting on behalf of the no-name taxpayer, can be subpoenaed to provide information, including the taxpayer’s name. Only a lawyer has solicitor-client privilege.

However, Morgan says that if the disclosure is voluntary and the taxpayer is completely honest and forthcoming, a deal will be struck, so there is nothing to worry about.

Most people in Canada are honest, Morgan said.

“The vast majority of taxpayers in Canada want to comply,” he said. “It’s just a matter of us providing them with the means and information they need.”

Taxpayers who aren’t sure what needs to be reported and what can validly be deducted can check out CRA’s website at www.cra-arc.gc.ca.

Those who want to seek amnesty can go to DioGuardi’s website at www.taxamnesty.ca.

© The Vancouver Sun 2006

Management fees can eat up much of your return

Wayne Cheveldayoff
Province

It is definitely a good idea to have bonds in your RRSP to provide regular income or to balance out the risks of holding equities.

But many Canadians make costly mistakes in how they invest in bonds.

Investors are usually encouraged to own bond or balanced mutual funds. The problem is that the annual mutual-fund management fees, which benefit the advice-givers, draw away a substantial amount of the annual return to investors.

Take, for example, the Talvest Bond Fund, which Globefund.com says returned 5.32 per cent annually in the past 10 years.

The fund has an annual management expense ratio of 2.12 per cent, which is approximately the amount by which it lagged the Scotia Capital Universe Bond Total Return Index, which had an annual return of 7.49 per cent over the decade.

In the case of balanced funds, bonds are mixed in with equities. Yes, it is a convenient, one-fund solution to having a balanced portfolio, but the high MER is applied to the bond component as well as the equity component.

A good example is the Fidelity Canadian Balanced-A Fund, with its 2.36-per-cent MER applying to its 45-per-cent holding in bonds.

With Canadian yields for high-quality bonds in the four- to five-per-cent range, almost half of the expected yield-to-maturity on the bonds is being drained away by fees.

Unfortunately, Canadians choosing bond or balanced funds may be attracted by the decent long-term returns.

However, historical bond returns were boosted by capital gains on bonds as interest rates fell gradually over the years. With interest rates expected to be stable or to rise slightly in the future, investors should expect only the coupon return on bonds, and that makes it all the more important that fees be minimized.

The smart approach, therefore, is to invest directly in high-quality bonds (or GICs). This is fairly easy to do.

One can replicate the work of a fund manager simply by buying a package of bonds known as a bond ladder (one bond maturing in each year for the next 10 to 15 years).

The only time it makes sense to use a bond fund is when you want to invest in high-yield, risky corporate bonds.

Studies show you need to diversify into 20 such bonds in your portfolio to effectively insulate against a bankruptcy or two, and unless you have a very large portfolio, this can only be achieved through a fund.

One can also easily own real-return bonds directly. These inflation protectors are ideal for an RRSP since they provide a real return, currently about 1.5 per cent, plus the rise in the consumer price index.

For anyone preferring the simplicity of a fund for their core bond holding, the best choice would be one of the iUnit exchange-traded funds offered by Barclays Global, given their low annual MERs of 0.35 per cent or less. The TSX-listed funds replicate their respective bond indexes.

Even these low-fee funds, however, can’t provide the benefits of owning strip bonds in your RRSP.

A strip, also known as a zero-coupon bond, is a bond’s principal sold separately from its coupons.

The advantage is not only convenience, since you don’t need to reinvest coupon interest each year, but also the insurance factor.

If stock markets fall apart, bond yields would likely eventually decline, and the resulting capital gains in bonds would offset losses on equities. In the case of strips, a decline in yield produces a bigger capital gain.

Wayne Cheveldayoff is a former investment adviser and professional financial planner.

© The Vancouver Province 2006

Money is still the subject of secrets and lies

Inez Dyer
Province

EDMONTON — These days you can hardly open a magazine or turn on the television and avoid hearing someone discussing their most intimate sexual practices or fantasies.

If that turns you off, you can always flip to another channel and watch someone having breast implants or giving birth.

No matter how personal, just about everything is in your face

24/7. So why is it, with all this over-the-top public display, people’s personal finances are still hidden deep within their closets and not a subject for polite conversation?

It’s way past time to wake up and smell the coffee, folks!

All those dark financial secrets you’ve been keeping are likely the root cause of most family fights, insomnia, alienation from your grown children and why so many of you will eventually find yourself slugging it out in divorce court.

Sad as it sounds, I hear from readers who tell me they buy their kids expensive gadgets, even though they can’t afford it, because they don’t want them to feel left out. How inappropriate is this, and what kind of message are we sending kids who are growing up in a fool’s paradise, believing mom and dad are human bank machines with endless supplies of cash?

There is no question society is to blame for all the secrets people feel they must keep about their money. We are conditioned from birth to have one face for the public and one face for our private lives. The public face must be consumer-

driven, in charge and always positive. Admitting you have a problem with money is admitting you have a chink in your armour: It’s just not acceptable in this age of perfect white teeth, perfect hair and a perfect size-four body.

Our consumer culture has elevated money to the most desirable commodity on Earth, often ahead of honesty and personal integrity, and if you happen to be lacking it, you mustn’t admit it or risk losing your place in society or, worse, disappointing your family.

If we want to stop this nonsense and improve things for the next generation, we have to start now, preferably around the dinner table, and begin to discuss money like we discuss school, sports, politics and relationships. Your children need to understand that money is not a way of evaluating a person’s character or substance and especially not a yardstick of measuring their own self-worth.

We polite, oh-so-proper Canadians have a long tradition of keeping our mouths firmly shut about our personal finances.

While it may be hard to start talking candidly about your money, I guarantee it will reap substantial rewards, both on the home front and with your bank balance.

You’ll also feel less personal stress because you’re no longer alone in dealing with your financial problems and insecurities.

It’s way past time we searched within ourselves and began to understand why we allow money to rule our lives, define who we are and feel embarrassed and inadequate about talking about it.

It’s been my experience that once people get over the fear of being judged for admitting they have a problem, financial or otherwise, they take advice to heart and start making excellent progress in overcoming their problems.

When it comes to your money, silence is not golden!

© The Vancouver Province 2006

Wayne Cheveldayoff
Sun

Here are 10 guiding principles in RRSP investing that will help you achieve your ultimate goal of having enough money for a comfortable retirement.

1.Don’t pay fees unnecessarily unless you are getting good value for your money. Fees drag down returns, so you definitely want to minimize that unless you are getting something useful in return. Not all advisors will volunteer what the fees are, so be ready to ask for a full explanation. You’ll also have to judge if the fees are worth it. A prime example is a bond fund holding government bonds and charging a management expense ratio (MER) of 2 to 2.5 per cent a year ? thus chewing up half or more of the expected return. Similarly, it doesn’t make much sense to own a balanced fund where the usual 2.5-per-cent-plus MER is applied to the bond and cash components as well as the equity component. Paying that much for a pure equity fund may be worth it but you should try to invest directly in government bonds or at least in a low-fee bond fund, such as one of the iUnit bond exchange traded funds (ETFs) that charge an annual MER of less than 0.5 per cent.

2.Do your homework. Research investment alternatives or use an investment advisor to achieve the highest possible longer-run returns. An initial sum of $10,000 will grow into a lot more at a 7-per-cent return compounded over 30 years than it will at a 5-per-cent return. If you doubt it, check this on one of the free RRSP calculators located at a bank or mutual fund website or at www.investorED.ca.

3.Don’t take funds out of your RRSP unless you are in a dire emergency. Not only will the withdrawal be fully taxed as income, you will miss out on the tax-free compounding of your nest-egg. With interest rates low, it may make more sense to borrow the money you need. Even for tax-free sums taken out for education or a house purchase, there will still be a drag on RRSP growth since they will earn no return until they are paid back.

4.Don’t borrow to contribute into your RRSP unless you are sure you can easily pay the money back within a year. Interest on such borrowings is not tax-deductible. While some people can’t bring themselves to save unless they are paying back a loan, it would be wiser instead to adjust your budget and start up and stick with a ‘pay yourself’ regular monthly contribution plan. The sooner you start, the more you’ll have in retirement.

5.Do contribute to an RRSP as early in the year as possible. By waiting until the last minute, you are giving up tax-sheltered investment returns that can compound into a sizeable amount over the years.

6.Don’t ignore the income-splitting benefits of contributing to a spousal RRSP. Depending on your situation, it may lower your tax rate when you and your spouse ultimately withdraw the funds to pay for your retirement.

7.Don’t forget to diversify your RRSP investments. Large pension funds spread out investments among stocks, bonds, and income trusts. They also use hedge funds but such investments are not easily accessible for most Canadians except through principal-protected notes.

8.Do make use of international investments. Diversification lowers risk while maintaining or increasing returns over time. By sticking only with Canada, you are missing out on potentially greater opportunities. Canada has few world-class companies, especially in technology and pharmaceuticals, which can dominate their markets and thereby profitably reap the rewards.

9.Don’t make the mistake of thinking that trust is enough when dealing with any financial institution or investment advisor. Yes, you need to feel you can trust, but you also need to verify. Particularly when you are unsure about an investment product or the advice you are getting, ask for things in writing and read the fine print.

Don’t drift or procrastinate when it comes to contributing to an RRSP or managing the investment. It’s not going to happen by itself. The problem won’t go away if you ignore it. You need to take action and be decisive. Make the time. Seek whatever help you need. It’s your money and your life in retirement.

Wayne Cheveldayoff is a former investment advisor and professional financial planner. He is currently specializing in financial communications and investor relations at Wertheim + Co. in Toronto. His columns are archived at www.smartinvesting.ca and he can be contacted at wcheveldayoffyahoo.ca.

© Canadian Press 2006

SUPREME COURT: Business groups worry ruling gives city approval to override property rights

JOHN BERMINGHAM
Province

A streetcar is his desire.
Kerrisdale resident Brandon Norman wants a trolley line along the Arbutus rail corridor after Canada’s top court ensured it will be protected for future public use.
The Supreme Court of Canada yesterday upheld the City of Vancouver’s right to use the 11-kilometre-long Arbutus rail line for transit and greenway uses.
“It’s a place that time forgot. It’s like I’m back in time,” said Norman, 28, who lives next to the tracks and walks the line daily.
Norman would like to see a historic streetcar with heritage-style train stations along the Arbutus route.
“It’s an important heritage piece, and it should be preserved as much as possible the way it is,” he said.
Five years ago, the city passed a bylaw limiting uses on the Arbutus corridor to rail and transit, with a cyclist path and pedestrian greenway.
“We strongly believe the Arbutus corridor should be preserved as a whole, to be used in the future for transportation and greenway uses,” said Mayor Sam Sullivan in a statement from Turin yesterday.
   COPE Coun. David Cadman wants it turned into a public transportation route.
   “It is now time for the CPR to sit down with the city and start the process of turning the corridor into a public amenity that could include pedestrian and cycling paths, community gardens, greenways and transit,” he said. But business groups are worried the court ruling gives the City of Vancouver the green light to override private-property rights.
“This is now going to be a red flag to investment,” said Maureen Enser of the Urban Development Institute, a property developers’ group. Enser said it means the city can pass a bylaw and designate private land public without negotiating purchase of the land.
Business groups want property rights enshrined in the Charter so governments would have to negotiate fairly with private landowners.
CP Rail spokesman Paul Clark said the court decision doesn’t alter the fact that CPR still owns the land.
“It’s private property. It’s a freight-rail corridor, and the decision does not provide for the corridor to become public land,” he said.
“Any change in the freight-rail use will require purchase of the land from CPR.”
CPR wants to sell the property, not develop it. Clark wouldn’t put a price tag on the 18-hectare parcel, which runs from Marpole to Granville Island and is only 20 metres wide at some points.
The line has been owned by CP since 1886, but was closed in 1999.
The city’s victory doesn’t mean it’s going to buy the property or do anything more for the forseeable future. Any development has to conform to the city’s bylaw.
A streetcar route could connect the Arbutus corridor to downtown, through Gastown, Chinatown, False Creek and west to Stanley Park. No money has been approved for a streetcar route in the city’s three-year capital plan. 

 

Peter Wilson
Sun

British Columbia has the climate — both in terms of weather and its push towards technology for everyone — to attract the people who will drive the economy of the future, the new president of Microsoft Canada said Thursday.

The city and the province attract people who love the outdoors and want a healthy lifestyle, Phil Sorgen said in an interview following a speech to the Board of Trade.

“But what’s particularly great is the work that British Columbia is doing through the Premier’s Technology Council to really help push broadband access to every community,” Sorgen said.

And, added Sorgen, British Columbia is almost there with 89 per cent of the population with access to broadband.

“That’s along with the drive to get more Internet access into more homes with six of 10 having that today.”

Using the concept of “the creative class” — a term coined by Richard Florida, a professor at George Mason University — Sorgen said that this class would certainly be attracted to B.C.

Sorgen — who has been in his new job for just 45 days — said the creative class comprises those in computing, science, technology, legal, health, artistic and entertainment sectors.

Sorgen said that if people subscribe to the idea that the creative class works in a society to build competitiveness and a culture of innovation, then their coming here “should be music to the ears of the people of Vancouver.”

In Canada in 1950 the creative class amounted to about five per cent of the workforce.

Now it accounts for more than 50 per cent, Sorgen said.

Turning to the problems faced by the Canadian economy as our dollar rises and the price of our tech goods and services rise along with it, Sorgen pointed to conclusions reached the Microsoft-hosted Can>Win conference in Toronto in December, 2005.

“That was our business leaders, our government leaders and our education leaders coming together, making sure that our tax codes support foreign investment, make sure that we have the right education systems, make sure that we’re thinking about how to collaborate between industry, government and education to make sure we potentially commercialize the kind of R&D that is happening in Canadian universities.

“And I think that’s the right formula,” Sorgen said.

As for the future of technology, Sorgen said that there were four big things that will be prominent in technology development over the next decade.

“Clearly one of those is search and regardless of your search portal today when you search you’re only getting the right answer 50 per cent of the time,” Sorgen said.

“But in 2015 when more and more of your information is going to be online, that has to be refined.

“And there’s a lot of competition there and a lot of investment going on in that area.”

Another is the proliferation of mobile devices and their ability to have their information in all places at once.

“So their ability to have it in their hand. they have it on their laptop and they have it at home.”

On the business side, there will be an increased need for collaboration and cooperation across continents and time zones.

“And the last one is the benefits coming out of Windows Vista, including great connectivity, the ability to have ubiquitous search, to have improved security and ultimately the sharing of information.”

© The Vancouver Sun 2006

But there’s still no clear decision on final use for the west-side railway land

Maurice Bridge
Sun

The City of Vancouver won the battle of the Arbutus Corridor in the Supreme Court of Canada Thursday, but everyone involved in the situation cautioned there is still no clear decision on a final use for the land.

The court affirmed the city’s right to enact its Arbutus Corridor official development plan, effectively killing a proposal by CP Rail, which owns the 11-kilometre west-side corridor, to sell or develop the land for commercial or residential use.

Vancouver Mayor Sam Sullivan, currently in Turin for the conclusion of the Winter Olympics, hailed the victory in a news release.

“We are very pleased that the Supreme Court of Canada has upheld the powers of the city to enact the Arbutus Corridor ODP and preserve the Arbutus Corridor,” said Sullivan. “We strongly believe the Arbutus Corridor should be preserved as a whole, to be used in the future for transportation and greenway uses.

“Preserving the corridor for the benefit of Vancouver residents has been a long-standing council policy, and contributes to the livability of the city.”

A CPR representative noted the court’s decision does not change the current status of the property as a rail-freight corridor, nor does it provide for the corridor to become public land.

Paul Clark, vice-president of communications and public affairs, said a change in use would require a change in ownership, and he did not rule our restarting rail service on the line, which has not been used since 2001.

He said a public discussion is needed to determine the best use of the land.

“That public discussion should go on to say what it is that we could do here, because simply having it sit there as a rail line with suspended operations is not bringing great value to the communities along the line,” he said.

The court’s decision drew sharp criticism from the Vancouver-based Urban Development Institute, whose executive director termed it “intolerable.”

“What a terrible time to be sending such a signal to the investment community when we are inviting the world to come for the Olympics and we are trying to attract investment,” said Maureen Enser.

“We work hard to purchase our property, to build our homes. We work hard in business to get ahead, but all of that can be for naught if the city decides it wants your property [for other purposes].”

Vancouver city Councillor Suzanne Anton called the UDI position “a gross overreaction.”

© The Vancouver Sun 2006

Pick some home-run-hitter funds to boost your return

Wayne Cheveldayoff
Province

The Canadian equity-mutual-fund landscape is changing. The lines are blurring and investors wanting to know exactly what they own or are about to buy would benefit from a Sherlock Holmes-type magnifying glass to read all the fine print.

Canadian equity mutual funds used to be pretty standard — 95 per cent equities and about 5 per cent cash. The stocks were at least 70-per-cent Canadian, given the government’s 30-per-cent restriction on foreign content for RRSP eligibility.

The government restrictions have been lifted, so an equity mutual fund labelled “Canadian” could have very high foreign content or none at all.

An equity mutual fund is normally thought of as holding stocks, but many have also started buying income trusts — a natural move, since income trusts, in practical terms, are really high-yield equities.

Another innovation of late is that some equity mutual funds have had their prospectuses changed so that they could take short positions in stocks of up to 10 or 15 per cent of net asset value — a little bit of hedge fund thrown in under the mutual-fund banner.

If that is not enough to sow confusion and have you reaching for the headache pills, consider that some mutual-fund managers have also issued closed-end funds, traded on the TSX, that mimic the returns of their mutual funds. To date, this has mainly been in the income-trust sector.

A key difference is that these closed-end funds have the ability to borrow up to 20 per cent of the net asset value — meaning they use leverage to, hopefully, boost returns versus their mutual-fund counterparts.

Before you tell your adviser or personal banker to “just put it where you think it makes sense,” consider what the cost would be of not working hard to get the highest return possible.

The RRSP Savings Calculator at the website www.investorED.ca shows that a $40,000 RRSP, with no further contributions, would increase to $402,506 in 30 years if it obtained an eight-per-cent compound annual rate of return. That would supply $37,706 annually for 25 years of retirement.

But if you were able to squeeze out another two percentage points of return each year over 30 years — obtaining a 10-per-cent annual return — the RRSP at retirement would have $697,976 and would supply you with $76,894 annually for 25 years in retirement.

So it obviously pays to peruse the mutual-fund stats to get the right managers for your RRSP.

It is true that looking at only last year’s return in judging a mutual fund isn’t the best way to go.

Take, for example, the Sprott Canadian Equity Fund. It has a top five-star rating from Globefund.com and it has handily beat the S&P/TSX total-return index over three- and five-year periods.

Sprott’s three-year return after fees is 26.6 per cent annually, versus 21.6 per cent for the index. Sprott’s five-year return is 32.3 per cent annually, versus 6.6 per cent for the index.

But if you looked only at Sprott’s one-year return of 13.19 per cent, versus 24.1 per cent for the index, you would probably give it a pass.

This raises the question of why some funds have so much volatility versus the index. Sprott aims to hit home runs, whereas other managers may be content with singles (matching the index). Home-run hitters sometimes strike out.

But if you want to be sure to get the best longer-run returns, you will need to know who the successful home-run hitters are and make sure you have at least some of them on your RRSP’s team of managers.

You aren’t likely to do as well if your team consists of managers who are trying to match or exceed the index by a little.

Instead of having “closet indexers” in your portfolio, you may be better off with index-related exchange-traded funds with rock-bottom management expense ratios (less than 0.5 per cent). At least, then, you will be assured that you won’t underperform the index.

What should be obvious by now is that you need to do a lot of research, or lean on the help of a knowledgeable investment adviser, to make sure you get the right mutual funds into your RRSP.

 

Accelerating your returns

Doing better than a GIC means extra risk

TORONTO — Common prudence dictates that investments not be made up of equities alone, which is why the classic portfolio consists of 50 per cent stocks and 15 per cent cash anchored by a solid 35 per cent in fixed income.

Some investment strategies even eschew potentially volatile equities altogether and stick strictly to fixed income, which just goes to show how important they are in providing financial stability.

Either way, the problem is the same — how to maximize those fixed-income returns.

It’s especially challenging in these days of low interest rates that show little hope of going much higher. If anything, the Bank of Canada and the U.S. Federal Reserve could move to send rates lower again later this year. The challenge, then, is to get percentage returns above the low single digits.

“What can someone do and be sure of getting their money back? They can do four per cent,” said Brendan Caldwell, president of Caldwell Securities.

“So if you sat down today and said: ‘Right, I would like to invest my money in something secure that I know I will get back, in three, five, seven, nine years, in my RRSP,’ you’re looking at four per cent or some variation on the number, give or take a quarter.”

Getting above that level means more work — and more risk.

Even getting that four per cent or so requires making a choice or two.

There’s not a great deal of difference between a guaranteed investment certificate and a 10-year Government of Canada bond — but Caldwell favours the bond route.

“We find that bonds are better for most people and they typically pay a higher rate of interest,” he said. One reason for that is that interest is calculated on a semi-annual basis for the bonds and on an annual basis for GICs. And if you’re compounding more often, your money grows faster.”

As of mid-February, the yield on a 10-year Government of Canada bond was 4.2 per cent. They’re relatively easy to buy — just ask your investment adviser or bank branch.

Past the territory of four per cent or so, things get a bit tricky.

“Really, you could almost be assured that if you’re getting a higher yield, you’re taking more risk to get it,” observed Caldwell.

“If you want five or six or eight per cent, you’re going to pay increased risk to get that.”

Patricia Lovett-Reid, senior vice-president at TD Waterhouse, suggests that one area to look at is foreign-pay bonds.

She thinks they are a good way to diversify your portfolio because you are purchasing a bond that’s denominated in another currency.

“And the Canadian dollar is expected to depreciate against the U.S. dollar by four per cent this year, against the euro by 5.8 per cent [and] the Japanese yen by six per cent,” she said. “So the example is: If a bond yields six per cent, and the currency depreciates four per cent, you’re only going to get a two per cent gain — but it also works the other way.”

Reid also points to short-term floating-rate notes — a note that has a variable rate of interest: “So adjustments are made to the interest rate on the note every six months, and they tend to be tied to a benchmark. So what this does in a rising-interest-rate environment — which most think this environment is — you could look at a short-term floating-rate note.”

Both Reid and Caldwell advise investors to take a good, hard look at corporate debt before jumping in, because you can get into trouble investing your money in some of the best-known companies.

Reid cited Ford’s corporate debt, which has been downgraded by Moody’s Investor Services to B high: “What that means is, it has a one-in-five chance of default on its interest and/or principal.”

She added that General Motors Acceptance Corp., GM’s finance arm, “has a double-D [rating] with a negative outlook. It has a one in 10 chance of default — and it pays nine per cent.”

If you have a limited appetite for risk in order to get that higher yield, Caldwell said “the only way for most investors to attack it would be some sort of ‘barbell’ portfolio . . . government bonds on the one hand, high-yield bonds on the other, in a pool.”

© The Vancouver Province 2006

 

study: Report says it wouldn’t run close enough to major population centres

William Boei
Sun

LOWER MAINLAND – Rapid transit will not work in the Trans-Canada Highway corridor “for the foreseeable future” because new development east of the Port Mann Bridge will not be dense enough, says one of the studies done for the Gateway Program.

Gateway is a $3-billion provincial government proposal to widen the highway, twin the bridge and build new truck routes on both shores of the Fraser River by 2014.

A rapid transit line along the highway and into the Fraser Valley as far as Chilliwack has been suggested by some regional politicians — including former Vancouver mayor Larry Campbell — as an alternative to the Gateway plan.

But a study on future transit needs notes that rapid transit in the highway corridor wouldn’t run close enough to the region’s major population centres.

As for future growth, “Although there will be a significant growth in the population east of the river, it will be over a large area — significantly larger than the City of Vancouver, for example — and will tend to be less dense over the larger area,” says the study report.

That means high-capacity rapid transit for the area east of Langley is not practical “for the foreseeable future.”

In the long run, a rail-based commuter system might work if it runs on existing tracks to keep capital costs down. The report says regional planners should try to keep that option open.

“In the shorter term, the focus of transit planning in the corridor should be on providing fast, easy access to the existing rapid transit system by both bus and car,” the report says.

Lanes designated for transit over a twinned Port Mann Bridge should be used for express bus operations, possibly shared by car pools and van pools, it says. If rail transit eventually becomes practical, that space could be converted for its use.

The report also says capital costs would be too high to extend the Millennium SkyTrain line to Langley, Cloverdale and new developments along the Fraser Highway, and buses should be used in those areas.

Another report outlines a $50-million plan for cycling infrastructure in the highway corridor. Most of the money would go to build multi-use cycling and walking paths on the new Port Mann Bridge and its approaches.

About $7 million would be used to connect the bridge paths to cycling networks in municipalities adjacent to the bridge.

The report says there is also potential for $10 million in shared-cost projects to connect municipal cycling networks on opposite sides of the highway.

There would be no bicycle paths on or along the Trans-Canada, but the North and South Fraser Perimeter Roads could accommodate cyclists on their shoulders, the report says.

Another report, on land use, counters arguments that the Gateway Program will encourage strip development and urban sprawl along the highway. It says local governments have enough planning powers to “direct land development patterns towards community objectives while maintaining the benefits of transportation improvements.”

It cites several U.S. examples, including the East Portland Freeway, which was built 30 years ago and did not result in development outside designated growth boundaries.

The studies can be found on the Gateway Program’s website, www.th.gov.bc.ca/gateway/.

© The Vancouver Sun 2006