investing

A way to support Israel

Raquel Benzacar Savatti, chief executive officer of Israel Bonds Canada. (photo from Israel Bonds Canada)

The phones at Israel Bonds Canada have been ringing off the hook since Oct. 7, according to Raquel Benzacar Savatti, chief executive officer of the organization that sells bonds for the Israeli Ministry of Finance in this country.

Canada has always shined in terms of its large base of retail purchasers of Israel Bonds, Savatti told the Independent earlier this month. That base has grown substantially.

“Jews to Israel are like firefighters to a burning building. When that building is on fire, they run towards it. When Israel is in trouble, Jews in the diaspora run towards it,” Savatti said.

Israel Bonds can be purchased online and Savatti noticed that many new accounts were opened in October.

“The volume was incredible – people I have not heard from in years, people I have never heard from before, young people. We always asked, how are we going to capture the next generation? This was it,” she said. “People understand it’s a very direct way to show their support of Israel.”

Savatti stressed that Israel Bonds is looking to engage as much as it can with the community in Vancouver and beyond. She praised the work of Ross Sadoff, executive director of the organization for British Columbia, noting that a lot of people in the province reinvested after their bonds reached maturity in recent months.

“We have to be together in our support of Israel and for each other. We have to have hope…. Israel has historically proven that after any conflict it has come out stronger and more innovative. I firmly believe we are going to see more of that when this is over,” she said.

Savatti underscored that the war has caused economic devastation in Israel, yet the country still has to operate and, ultimately, rebuild. The majority of Israel’s budget comes from taxpayers and there are a lot of people not working right now. Concurrently, there are challenges with sustaining the farming sector, the shuttering of businesses, the need to house evacuees and missing tourism dollars as a result of the war.

More than $50 billion has been invested through Israel Bonds by people from all over the world since its inception in 1951, creating a direct connection with Israel for many in the diaspora. In 2023, Israel Bonds had set a global goal of $1.5 billion US – by the end of the year, the amount exceeded $2.7 billion US, the bulk of which arrived after Oct.7. In Canada, more than $130 million US was sold last year and the goal for 2024 is $120 million US, though needs could change.

“I am so proud of us as a country,” Savatti said. “We punch so high above our weight given the size of our Jewish community. Per capita, we do better than any other country.”

The bonds are loans to the state of Israel to be used as it sees fit. When a particular bond – there are several to choose from – reaches maturity, the loan is repaid with interest. In the 73-year history of Israel Bonds, the country has never defaulted on the payment of the principal or interest of its debt.

In February 2021, with Savatti as CEO, Israel Bonds (officially Canada-Israel Securities) became a registered broker-dealer.

“This decision to become regulated came under the behest of the government of Israel,” Savatti said. As such, anyone who sells Israel Bonds must take the Canadian Securities Course, which would allow them to serve in an advisory capacity regarding investments as well.

“Whatever investments are being made by the purchaser, we, as the bonds organization, want to make sure they are suitable,” Savatti said. “We are not advising on a full portfolio, only on how Israel Bonds could work in that portfolio.”

For example, a person can invest in a given Israel Bond as part of a Registered Retirement Savings Plan, a Registered Education Savings Plan, a Tax-Free Savings Account and even a First Home Savings Account, depending on the goals of their portfolio. A person can select a variety of bonds with different dates of maturity.

“They really suit everybody and still make very good bar and bat mitzvah gifts,” Savatti said.

Of the types of bonds on offer, there is, for example, the eMazel Savings Bond, which is only available online; it starts at $36, with a maturity of five years. The Jubilee and Maccabee Bonds last as long as 15 years, with a $25,000 Cdn and $5,000 Cdn minimum, respectively.

Savatti has been connected with Israel Bonds since 2001. Before becoming CEO in 2016, she was the director of women’s and synagogue positions, divisional director, human resources manager, and chief customer officer. She was also the executive director of Ezer Mizion, an Israel health support organization, in Canada for two years.

For more information, visit israelbonds.ca or call 1-866-543-3351. Questions can also be put to Sadoff in the BC office, at 604-266-7210 or [email protected].

Sam Margolis has written for the Globe and Mail, the National Post, UPI and MSNBC.

Why pick segregated funds?

Segregated fund products can offer greater peace of mind for those looking to participate in the market but wanting the reassurance of insurance guarantees to help them sleep better at night. (photo from pxhere.com)

Looking for an investment option that can help you sleep at night? Segregated fund products can guarantee you’ll get back some or all of the money you invest.

Segregated fund products, available exclusively through insurance companies, provide the growth potential of market-based investments with the benefits of an insurance contract. They first came into popularity more than 25 years ago, when interest rates began to fall and conservative investors turned to them as a secure alternative to guaranteed investment certificates (GICs). They continue to provide a safe way to grow your assets while providing you with some protection from market downturns.

Are segregated funds a good investment?

Ninety-eight percent of Canadians surveyed as part of the 2015 Retirement Now report said it’s important to have some form of guaranteed income in retirement. At the same time, Canadians are living longer than ever before and many are underestimating their longevity and are underfunding their retirement.

Segregated fund products can offer greater peace of mind for those looking to participate in the market but wanting the reassurance of insurance guarantees to help them sleep better at night. They’re particularly suitable for those who are:

• Seeking enough return on their investments to reach savings goals.

• Looking for a broad range of quality investment options.

• Building their savings but looking for protection against market downturns.

• Seeking insurance benefits, including prompt estate settlement and guarantees.

• Looking for guaranteed income for life.

Segregated funds vs alternative investments such as mutual funds

Segregated fund products have some similar features to mutual funds in that they can hold a range of assets and enable you to benefit from holding a diverse mix of investments. They differ in that they offer the following unique benefits:

• Maturity guarantee: Even if the value of your investment declines, you are still guaranteed to get back 75% to 100% of the money you have deposited, less any withdrawals, in either 15 years or at age 100, depending on the type of product you have selected.

• Death benefit guarantee: Segregated fund products offer a 75% or 100% death benefit guarantee that can protect the value of your estate. The greater of your market value or death benefit will bypass probate and flow directly to your beneficiaries, depending on the type of product you have selected.

• Potential creditor protection: Small business owners and entrepreneurs can benefit from the fact that, under provincial insurance legislation, segregated fund products may offer protection against creditors in the event of a bankruptcy.

Segregated fund products also provide a variety of investment options to meet the needs of people in specific life stages:

• Competitive fees: In the past, segregated funds have typically been more expensive than mutual funds. But some of today’s segregated funds come with lower maturity and death benefit guarantees and carry management fees not much higher than standard mutual funds.

• Lock in market gains: Some segregated fund products provide the option of resetting the maturity guarantee up to several times a year. If your funds go up in value, you can lock in a higher guarantee.

• Guaranteed income options: Looking to fund your retirement? Some segregated fund products are designed to function like an annuity and provide you with a guaranteed income for life.

• Naming beneficiaries on non-registered accounts so that it bypasses the estate and goes straight to the beneficiaries. This is a good tool for estate planning and to avoid any wills variation issues.

• Designate an irrevocable beneficiary who needs to sign off on any account withdrawals or changes. Owner retains control while providing a gift to children or grandchildren.

Philip Levinson, CPA, CA, is an associate at ZLC Financial, a boutique financial services firm that has served the Vancouver community for more than 70 years. Each individual’s needs are unique and warrant a customized solution. Should you have any questions about the information in this article, visit zlc.net or call 604-688-7208.

Disclaimer: This information is not to be construed as investment, legal, taxation or account advice, nor as an offer to sell or the solicitation of an offer to buy any securities. It is designed only to educate and inform you of strategies and products currently available. The views expressed in this commentary are those of the author alone and are not necessarily those of ZLC Financial. As each situation is different, please seek advice based on your specific circumstance.

It’s RRSP and TFSA season again

Registered retirement savings plans (RRSPs) and tax-free savings accounts (TFSAs) are always topical at the beginning of the year. And, for anyone considering these options, there are two primary considerations right now: what new available contribution room you may have for your TFSA, and that you have the first 60 days of the year to make an RRSP contribution against your previous year’s income.

To help you understand the differences between the two tax-sheltered investment vehicles, we put together a general FAQ. However, before going over the mechanics, we want to stress how important it is to use these programs in your financial plan. There is almost no circumstance where it would make sense to hold investments that generate growth or income in a non-registered account rather than in a TFSA.

As an example of the power of the RRSP, we ran some numbers to consider. This is based on a high-income earner, age 30, and compares saving within an RRSP and investing the resulting tax savings as well, for 41 years, until age 71, and then cashing it all in and paying tax thereon, versus simply saving in a non-registered account.

In the example, the individual invested $24,000 per year in a portfolio that generated an income of 5% per year. We used a tax rate of 50%. At age 71, the after-tax cash savings in the hands of the individual, having used the RRSP program, is $808,000 greater than the traditional non-registered plan.

As you can see, the advantage of the RRSP is extremely significant and cannot be overstated.

TFSA basics

The tax-free savings account program began in 2009 to provide Canadians with an account to contribute and invest money tax-free throughout their lifetime. Contributions to a TFSA are not deductible for income tax purposes. Any amount contributed, as well as any income earned in the account (investment income and capital gains) are tax-free, even when it is withdrawn.

The allowable contribution room for a TFSA has changed over the years, and can be seen in Table 1.

TFSA has many important features:

to have one, you must be 18 years of age or older with a valid social insurance number,
there is a tax-free accumulation of income and gains,
you have tax-free withdrawals – at any time, for any reason,
they have no impact on income-tested benefits such as child tax benefits and guaranteed income supplement,
you can invest in any RRSP-qualified investment, such as mutual funds, ETFs, stocks, GICs, etc.,
the interest on money borrowed to contribute is not tax-deductible,
no attribution rules apply – it’s good for income splitting between spouses and can be transferred to the surviving spouse’s TFSA if they are the designated beneficiary,
to avoid penalties, you must be careful to not over-contribute, and
you can recontribute amounts withdrawn in previous years, and there is a 1% penalty per month if recontributed in the same calendar year.

RRSP basics

The registered retirement savings plan program was introduced by the Canadian government in 1957 to help Canadians save for retirement. All income accumulates on a tax-deferred basis and contributions are deducted against your taxable income in that particular tax year. As of 2020, the RRSP deduction limit is 18% of your earned income, to a maximum of $27,230. You should always check this amount with your accountant and/or CRA.

The important features of an RRSP include the contribution period, which is from Jan. 1 to the 60th day of the following year, and that the maximum age to contribute is 71. There is no minimum age for contributing, but, starting in the year after the year you turn 71, you must start making specified annual withdrawals from your RRSP, which now becomes a registered retirement income fund (RRIF).

The Home Buyers’ Plan (HBP) allows you to withdraw from your RRSP to buy or build your first home. In this case, the money must be in the RRSP for 90 days before withdrawal is permitted, and you can withdraw up to $35,000. Regarding repayment of the withdrawal, participants must repay 1/15th per year (starting in year 2), with the total amount paid off in 15 years.

The Lifelong Learning Plan (LLP) allows you to withdraw funds from your RRSP to finance full-time training or education expenses for you or your spouse or common-law partner. You can participate in the LLP for yourself, while your spouse or common-law partner participates in the LLP for him or herself; you can both participate in the LLP for either of you; or you can participate in the LLP for each other. Withdrawals of up to $10,000 in a calendar year and up to total of $20,000 are permitted, and participants must repay 1/10th of the amount withdrawn per year, with the total amount paid off in 10 years.

Philip Levinson, CPA, CA, and Brent Davis are associates at ZLC Financial, a boutique financial services firm that has served the Vancouver community for more than 70 years. Each individual’s needs are unique and warrant a customized solution. Should you have any questions about the information in this article, visit zlc.net or call 604-688-7208.

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Disclaimer: This information is not to be construed as investment, legal, taxation or account advice, nor as an offer to sell or the solicitation of an offer to buy any securities. It is designed only to educate and inform you of strategies and products currently available. The views expressed in this commentary are those of the authors alone and are not necessarily those of ZLC Financial or Monarch Wealth Corp. As each situation is different, please seek advice based on your specific circumstance.

Summit’s sage advice

Gwyneth Paltrow, left, and Zooey Deschanel at the Sage Summit in July. (photo by Dave Gordon)

Some 15,000 entrepreneurs gathered in Chicago July 26-29 for the Sage Summit, to hear keynote speakers, network and browse the exhibitors’ stations, which spanned the length of 10 football fields, according to Sage chief executive officer Stephen Kelly, who oversees the accounting software giant.

Celebrity speakers included entrepreneurs and actors Gwyneth Paltrow, Zooey Deschanel and Ashton Kutcher, all of whom have Jewish connections.

Paltrow, most known lately for her role as Pepper Potts in the Iron Man film series, was also the head of Goop, which touts itself as a “weekly lifestyle publication.” (She left the publication days after the Summit.)

photo - Some 15,000 entrepreneurs gathered in Chicago July 26-29 for the Sage Summit — Some 15,000 entrepreneurs gathered in Chicago July 26-29 for the Sage Summit. *(photo by Dave Gordon)*

“The more you create a vision of where you’re going, the more you can create a vertical. Where do you want it to be, where do you imagine it to be, and ask people ‘where do you want it to go?’ – that’s how you form an execution strategy,” she advised entrepreneurs at the Chicago gathering.

She also offered a morale boost for budding entrepreneurs.

“Unwavering self-belief is everything. Everyone’s going to tell you why you can’t do it, and you have to know in your bones that you can do it … and take disappointments with as much grace as you can,” said the actress, whose late father, film director Bruce Paltrow, was Jewish.

Paltrow’s co-panelist, Deschanel of television’s New Girl, is founder of the website Hello Giggles, an online magazine for young women launched five years ago and acquired by Time Inc. in 2015. She has also invested in a hydroponics company that grows sustainable and eco-friendly organic food.

“Trust your gut and be yourself – and watch your bottom line. Customers will thank you for that,” said Deschanel, who converted to Judaism last November.

Chiming in about knowing one’s limits – and about social media engagement – was Kutcher, who has invested in high-tech ventures including Skype, FourSquare and Airbnb.

“I learned by sitting in the rooms being the dumbest person in there and asking a lot of questions,” he said.

Kutcher last year married Jewish actress Mila Kunis. He has been a student of kabbalah and has visited Israel several times.

“I was aggressively into social media early on,” he said at the summit. “From a business perspective, I think it’s valuable from a customer service, customer relations perspective. Building a social media environment for their feedback in a dramatic and visible way creates transparency and delivers a high-quality product and service. From a marketing perspective, if used right, it can be beneficial.”

But, he noted, there’s a critical caveat regarding marketers.

photo - Aston Kutcher with Yancey Strickler of Kickstarter — Aston Kutcher with Yancey Strickler of Kickstarter *(photo by Dave Gordon)*

“They come up with these elaborate social media marketing plans, which inevitably fail along the way,” he said, “because marketers tend to forget it’s a conversation, and they don’t account for feedback.”

Kutcher cautioned against having fingers in several social media platforms, noting it’s more about quality than quantity.

“I feel a lot of people aggressively chase the latest in social media marketing and waste a lot of time in it. It’s this sort of race to be on the cutting edge, but, in another sense, it’s time on inefficient platforms. It’s like in acting – the fans don’t go to the actor, the actor should go to where the fans are.”

Twitter, Instagram and Facebook already have “huge swaths of people and have really great tools for targeting,” he added.

Co-panelist Yancey Strickler, one of the three founders of Kickstarter, which he described as “the world’s largest funding platform for creative projects,” has also been the crowdfunding site’s CEO for the past three years.

Despite Kickstarter’s online base, Strickler had his own warning about social media.

“I think social media is bad for our brains, and it’s hard to have introspection on these platforms.… I wouldn’t doubt, in 20 years, if they found what social media does to our brains is what smoking does to our lungs.”

“I’m worried about my brain now,” Kutcher retorted.

Dave Gordon is a Toronto-based freelance writer whose work has appeared in more than a hundred publications around the world. He is the managing editor of landmarkreport.com.

Better ways to invest RRSPs

This RRSP season, you can give your portfolio a gift – the potential for better returns and reduced risk. (photo from 401kcalculator.org via Wikimedia Commons)

Many RRSP portfolios struggled in 2015 to produce returns sufficient for the goals of retirement building and wealth preservation. An over-reliance on equities, and particularly Canadian equities, left many RRSPs in negative territory and, so far in 2016, the stock market has continued to erode savings. But, this RRSP season, you can give your portfolio a gift – the potential for better returns and reduced risk.

The concept of what we call a registered retirement savings plan (RRSP) was introduced by the federal government in 1957 to encourage Canadians to save for their retirement. Although the rules have changed over the years, the basic benefits are every bit as valuable today as they were at inception: the ability to contribute pre-tax dollars and thereby reduce income for taxation, and the ability to compound gains within an RRSP while deferring taxes on the gains.

Many of us are good about setting up our RRSPs when we’re young, and dutifully contribute the maximum allowable each year. Typically, our RRSP accounts start out as just another brokerage account with an emphasis on long-only stock investing. But, by the time we reach our 40s, those RRSP dollars can start to add up. For top-earning Canadians contributing the maximum allowable, an RRSP account can hit $500,000 by middle age and keep going from there.

In addition, our risk tolerance changes as we age and our runway of remaining working years shortens. Conventional wisdom is that longer-term investment vehicles like RRSPs can take on more risk, as greater volatility over the long term often yields greater return. Unfortunately, this notion fails to anticipate how long it can take to overcome the drag of a negative year, and the fact that when a major loss occurs late in a life, there may not be enough time for wealth to catch up to needs. Consider, for instance, the unfortunate plight of anyone who had to rely on their RRSP in late 2008, before the Federal Reserve and its counterparts stepped in and refloated stock markets.

The collapse of stock markets in 2008 and 2009 prompted many to take their RRSP money out of the market and rethink their risk tolerance. The disappointment of 2015’s performance will likely reinforce that wariness of the equity markets. An RRSP that closely tracks the TSX would have been down 8.32% last year. That account will have to appreciate by 9.08% just to get back to the values at the beginning of last year. Given average return expectations of 8% per year, it will take 13 months just to recover, let alone get ahead. (And the numbers get worse if you go back further – the TSX is still below the high it reached in 2008.)

Even after our inauspicious start, 2016 may be a great year for equities, or it could be a repeat of 2015 (or worse). Either way, the safer, more reliable route to a more secure portfolio is to decrease downside volatility by employing two of the touchstones of risk mitigation: diversification and non-correlation. Both allow portfolios to absorb and offset downdraft periods, while benefiting from the correlation between return and risk (most assets with a higher-return profile also carry a higher-risk profile).

One of the greatest sources of volatility for a portfolio is the particular market or strategy it’s primarily invested in. The TSX, as an example, has historical volatility of more than 15%, which is quite high. To offset this inherent risk, it’s necessary to incorporate additional components that are both uncorrelated to the TSX and to each other.

Finding diversified, uncorrelated components is easier than you may think. There is a range of non-equity investment options available for RRSPs. Real estate, infrastructure and lower-risk funds of alternative funds can all be beneficial components of a balanced RRSP portfolio. Even the traditional RRSP component of Canadian equities can be turbocharged by replacing a long-only mandate with a long-short manager. And all of the above are available to accredited investors in bite-size pieces appropriate to an RRSP.

As with all portfolios, when constructing an RRSP portfolio, it’s important to distinguish the particular characteristics of each component so the portfolio achieves the greatest possible appreciation with the least possible risk. Real estate and infrastructure both have valued histories as long-term wealth generators with lower volatility, but they usually come with liquidity restrictions, and each is subject to cyclical trends. Funds of alternative funds can combine lower risk and reasonable liquidity while offering access to a range of investment themes far beyond the Canadian economy, an important way to break out of the limitations of living in a country that constitutes less than 3% of the world’s GDP. Long-short equity can achieve market neutrality and have great liquidity, but even some of the better Canadian funds can be highly volatile.

Your investment advisor should be able to suggest suitable choices for each component, and you can evaluate those recommendations (and come up with alternatives) by doing some internet research of your own. When assessing providers for each component, you and your advisor should consider the usual metrics such as beta, volatility, standard deviation, Sharpe Ratio and correlation to the TSX. While the names may be new to you, the concepts are easy to grasp and very useful when comparing performance over time. When it comes to choosing a fund of alternative funds, identify a manager with a proven record of nimbleness, as he or she will have to keep updating the mix of exposures to benefit from evolving market conditions.

Many pundits agree we are likely in the final innings of history’s longest equity bull market. Additional headwinds may result from bonds and credit, beginning a long overdue tightening cycle, which many are expecting will increase volatility. Now is the time for investors to rethink portfolio construction and embrace asset classes that are less influenced by the equity markets. Sophisticated investors like family offices and institutions embraced non-correlated alternatives decades ago. It’s time for the rest of us to catch up.

Ari Shiff is president and chief strategist of Inflection Management Inc. (inflectionmanagement.com), and manager of the Inflection Strategic Opportunities Fund. He has more than 20 years experience in hedge funds and can be reached at [email protected] or at 604-730-9147.