U.S.stocks were particularly buoyant in the first quarter, with the S&P 500 Index making broad-based gains of 12.6% (10.6% in Canadian dollars). The U.S. financial sector rose more than 22%, as several banks passed stress tests and raised dividends. The information technology sector was also strongly positive, with robust results reported by several large technology firms and cash-rich Apple Inc. announcing its first dividend since 1995.

Other global equity markets also performed well over the three-month period. Japan’s Nikkei Index soared 19.3%, Hong Kong’s Hang Seng Index was up 11.5%, Germany’s DAX Index added 17.3%, and the MSCI World Index rose 10.6% (all in local currency terms). Moves on the Canadian market were muted somewhat by evidence of slower economic activity in China, the world’s largest buyer of raw materials. Nonetheless, the S&P/TSX Composite Index finished the period with an increase of 4.4%, based on strong results in the financial and consumer discretionary sectors.

The global economic recovery continued in the first quarter, and investors were especially encouraged by indications that the U.S. economy is strengthening, with improvements seen in employment, retail sales, manufacturing and even housing. At the same time, the ongoing sovereign debt crisis in Europe abated somewhat, though investors have recently begun to focus on problems in Spain. In the first quarter, Greece reorganized a large part of its debt and the European Central Bank extended long-term credit to stabilize the region’s banking system.

The result was much calmer market activity than in previous quarters, as much of the investor anxiety that accompanied these concerns subsided. The VIX index, a measure of equity volatility, reached a five-year low during the period. In addition, U.S. and Canadian government bond yields rose and prices fell during the quarter, a reversal of the “flight to safety” that occurred last year. Overall, the bond market registered a slight decline during the quarter.

Looking ahead, there continue to be many economic and structural challenges that concern investors. However, there are also many positive factors that are supporting the markets, including low interest rates, low inflation, economic growth and high levels of corporate profitability.

The past four months show how share prices can make quick, strong gains, even as the headlines remain negative. That’s why it makes sense to remain invested in a diversified portfolio that’s tailored to your individual investment objectives.

If you have questions about the current market environment or your portfolio, please do not hesitate to give me a call. Thank you for your business.

The information in this letter is derived from various sources, including CI Investments, Signature Global Advisors, Harbour Advisors, Globe and Mail, National Post, Financial Times, Bank of Montreal Economics, MSCI, and TD Newcrest. This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources; however, no warranty can be made as to its accuracy or completeness.

There’s a tidal wave of wealth coming — and it may help baby boomers who are drowning in debt right now keep their heads above water as they approach retirement, experts say.

The ubiquitous boomers, those born in the period just after the Second World War through the mid-1960s, are set to inherit an estimated $1 trillion from their parents over the next 20 years.

Economists say it’s the largest intergenerational transfer of wealth in Canadian history. Real estate, stock markets, Canada’s widening income gap and personal finance will all be affected as this enormous wealth changes hands. The baby boom generation has become nearly synonymous with living for the moment, living life to the fullest and, more recently, living beyond one’s means — despite facing high costs as retirement looms. “The most expensive years are the final years of your life,” said Craig Alexander, chief economist at TD Bank.

But boomers’ thrifty parents were a different story. “The parents of the baby boomers were savers. They survived a war and went through difficult times and their propensity to save is much higher,” said Benjamin Tal, deputy chief economist at CIBC World Markets.

The inheritances that they pass down, real estate, and for many, the accumulation of a lifetime of modest living, are likely to help alleviate the rising household debt levels that many baby boomers face today, economists say.

“People talk about how much debt there is without looking at the size of the potential assets to come,” Tal said. “Debt is relative to your income today, but your wealth tomorrow will improve when an inheritance comes.” But financial planning experts also warn that Boomers who are counting on a big windfall to fund their golden years may be in for a rude awakening. (More on that later.) Tal believes that not just baby boomers will benefit from those inheritances, but their children as well, especially when it comes to real estate.

“Many of these people own their homes and the value has gone up significantly,” he said. “I think much of that transfer will go to the children of baby boomers.” That means we’ll see houses being renovated, but not a huge increase in the number of homes up for sale, he said.

The stock market may also get a big influx of new money as boomers opt to invest their newfound wealth, Tal said. “At this point, the fear is that Baby Boomers are getting so close to retirement, they will be more conservative with their investments and they will stay away from the stock market. But with this, they will have more money to play with, and some of it will probably go to stocks.” The downside is that transfer of wealth would widen the country’s income gap. “Many people with relatively wealthy parents are also wealthy so the income gap will widen,” Tal said.

The real estate market is likely in for a boost in several ways, said John Andrew, a real estate professor at Queen’s University and director of the Queen’s Real Estate Roundtable. “Are they going to go and build their dream house? Probably not. Most people at that age are downsizing. Even if they don’t say, ‘I’m going to buy more real estate to live in,’ real estate may be a component of the potential investment.” For example, real estate investment trusts may become more popular. REITS, as they are known, are trusts that typically invest in large blocks of residential, multi-unit or commercial real estate. They typically pay yields that can offer a regular stream of income for conservative investors.

Andrew sees two real estate trends ahead: baby boomers buying luxury condos, and second homes in warmer locales such as Arizona and Florida. Downtown Toronto now boasts five luxury condominium projects. There are another 105 residence highrises either proposed or under construction — three times as many as in New York City.
“Here’s a potential supply of buyers for those types of condos,” Andrew said. The trend toward buying a winter place fits nicely with the condo trend, he added.
“If you have a condo, you can walk away from it for four or five months each year, and there’s no need to worry about cutting the grass or shovelling the snow. That’s what people are looking for, peace of mind.”

Experts caution, however, that how much wealth will trickle down is an open question. The inheritance may not be the windfall that some baby boomers are counting on. Add that to the fact that people are living longer, healthier lives and it means the pool of wealth could be smaller.

There could also be sales of both stocks and real estate that could depress markets, TD’s Alexander said, although he considers this an influence rather than a driving force.

Also, as any investor knows, the stock market was unkind through the 2000s.

A recent survey by Investors Group found that more than half of Canadians are expecting an inheritance and, of those who believe they know the size, 57 per cent expect the value will be more than $100,000. But when the poll asked those who have already received an inheritance about the amount, the average was $57,000. Nearly one in five (18 per cent) said they received $100,000 or more while one quarter (26 per cent) received less than $5,000.

“We tell clients it’s a gift, not a guarantee. They shouldn’t be banking on it,” said Christine Van Cauwenberghe, director of tax and estate planning at Investors Group in Winnipeg. “If you get it, great, but it’s impossible to know when it will come and how much will be there.”

In some cases, taxes take a bigger bite than the beneficiaries expect, Van Cauwenberghe said. In others, second relationships and blended families mean the pie is carved up into more, and smaller, slices. But experts say that even if the anticipated tidal wave turns out to be a trickle collectively, it can still have an impact on an individual’s personal finances.

A study released in July 2009 by the Bank of Montreal found that of those 65 and older who have already received an inheritance, three-quarters didn’t speak to a financial adviser about the windfall. And of those 45 to 65 who had received an inheritance, 80 per cent didn’t speak to an adviser.

“That’s a cause for concern from our perspective,” said Tina Di Vito, director of retirement strategies at the Bank of Montreal. “When you get an unexpected amount of cash, it has implications for your financial well-being.” That’s particularly the case for baby boomers, many of whom are juggling consumer debt, mortgages, saving for retirement and may also be helping pay for a child’s education, Di Vito said.

Gordon will be presenting at 8:30am-9:30am on “How to Build a Successful Retirement Plan” and then again from 10:30am-11:30am on “Investment Strategies for the Year Ahead”

Gordon’s latest book, Retirement’s Harsh New Realities, was published by Penguin Canada in January and appeared on several best-seller lists including The Globe and Mail and Amazon.ca. His other best-selling investment books include The Ultimate TFSA Guide and Sleep-Easy Investing. During his career, he has written or co-authored more than 40 titles.

As well, Gordon is the editor and publisher of two financial newsletters: the weekly Internet Wealth Builder and twice-monthly Income Investor. He is also a regular columnist for The Toronto Star, Insurance Journal, Zoomer Magazine, and GlobeInvestorGold and is a frequent guest on radio and television business shows.

Please contact Rocco Faiella or Chantal Weloski at 705.560.3430 in order to confirm your attendance and to receive more details.

The conventional argument in favour of variable-rate mortgages is that over time, they’re more affordable than fixed-rate alternatives. This makes sense. The security that comes with a fixed rate – a commitment from your financial institution to hold your mortgage rate over the term of the agreement no matter what happens to interest rates – has value. Consumers pay a premium for that promise.

What to make then of the current mortgage rate war among Canadian banks? Ten-year fixed-rate mortgages have dropped to 3.99%. A five-year fixed is available at 2.99%. I asked Gordon Pape, the personal finance writer and broadcaster, what he thought of these extraordinary numbers. Here’s an excerpt of our discussion.

Did you ever imagine a scenario where a fixed mortgage was a loss-leader?

If I was in the mortgage market right now I’d be locking in 10 years at 3.99 very happily. Even the five-year at 2.99 is very attractive. I’ve always been a believer in paying the lowest interest rate possible. I always advised my kids to choose a variable-rate mortgage, and then to pay as if you were carrying a 5% rate or something like that. So you’ve got some built-in flexibility in terms of the household budget and at the same time you’re paying down the principal faster than you normally would. But given the unusual circumstances we find ourselves in right now, and the fact that it won’t go on forever, this is perhaps the classic time to move away from the pay-as-little-interest-as-possible and lock in a very low rate for a very long time.

It’s not an overstatement to say that the conventional variable vs. fixed mortgage argument no longer applies.

No, because it’s based on historical data that have no relation to the reality we’re living in today.

How should a homeowner or prospective homeowner decide how much mortgage debt they can afford?

If you’re going to look at a 10-year rate at 3.99%, that’s a long time. A lot will happen over the next 10 years. If you’re assuming a financial situation where your salary is likely to increase over time, then I think you can pretty safely just look at what the carrying cost is going to be on the property at 3.99% over 10 years. You don’t have to make any further adjustments to it. If you’re going for a variable at a very low interest rate, then you need to look at the scenario where that rate is going to be doubled in maybe two or three years, which is very possible. In that situation, look at what the carrying cost is going to be if the current interest rate is double. See if that is a manageable rate for you. If not, you need to scale back the capital cost that you’re going to commit to.

This all comes at a time when Bank of Canada Governor Mark Carney is working to tamp down household debt across the country. “It’s a big fight over market share,” Pape told me. “But [the banks are] encouraging people to go even more into debt by putting out these very attractive interest rates. I can’t imagine that Mr. Carney is very happy about that situation.”

Gordon Pape is editor and publisher of the Internet Wealth Builder. His new book is Retirement’s Harsh New Realities. Also, check out Gordon Pape says interest rates are headed higher.

Did you know that you can’t keep your retirement savings in an RRSP forever? You have to move your money out of it by the end of the year you turn 71.

Learn how a RRIF can convert your RRSP into an income stream to fund your retirement.

All life insurance is designed to provide your loved ones with financial security when you die. When you buy a permanent life insurance policy, both the premium and benefit are typically guaranteed for the rest of your life.

Learn more about the advantages of permanent insurance:

Your home is likely the biggest asset you’ll ever own. And if you’re one of the majority of Canadian homeowners who have a mortgage, you need to ensure your home is protected should something happen to you. The question is what’s the best way to do this?

Canadians held $855 billion in mortgages on their principal residences in 2011, according to the Canadian Association of Accredited Mortgage Professionals, and the Statistics Canada Survey of Household Spending reports 57% of Canadian homeowners have a mortgage.

To protect these mortgages, homeowners have options: mortgage insurance provided by a financial institution, or mortgage protection using life insurance and critical illness insurance provided by an insurance company.

• Mortgage insurance: Works by paying off the outstanding principal balance of your mortgage should you die, have an accident or suffer a terminal illness, up to a specified maximum amount.
• Mortgage protection:
  • Term life insurance: Covers you for a set period of time – such as five, 10, or 20 years – and can be suitable for homeowners looking for low-cost insurance. While the premium may be low for the initial term, the cost will increase when the time comes to renew.
  • Permanent life insurance: Can be more expensive initially, but provides coverage for life. Premiums can either be guaranteed or variable, depending on the type of plan you choose.
  • Critical illness insurance: Provides you with a lump-sum payment you can use for medical expenses or to pay off your mortgage should you be diagnosed with a serious illness that’s covered under the policy (and you meet the other policy conditions) – how you use the benefit is up to you.

Key differences between mortgage insurance and mortgage protection using life insurance and critical illness insurance

The main difference between mortgage insurance and mortgage protection using life insurance and critical illness insurance is that mortgage insurance pays the lender, and the coverage declines as your mortgage balance declines. On the other hand, critical illness insurance pays you a lump sum that can be used to pay your mortgage or other expenses as you choose. Life insurance pays a tax-free benefit to your chosen beneficiary when you die. The payment can cover more than just the mortgage, as the beneficiary may use the proceeds of the policy in any way you need to.

Beneficiary: In the case of mortgage insurance, the lender is the beneficiary. While with critical illness insurance, you’re the beneficiary and with life insurance, you can name the beneficiary.

Portability: If you change mortgage providers, your mortgage insurance doesn’t automatically move with you. If you move your mortgage to another lender, you will be required to submit evidence relating to your health, and will be subject to the current rate of the new mortgage provider. With life and critical illness insurance, you can take your policy with you if you transfer your mortgage to another company, with no need to re-apply or prove insurability.

Flexibility: With mortgage insurance through a lender, your needs may change over time, but you don’t have the flexibility to change your coverage. Term life insurance and term critical illness insurance plans can be converted into permanent plans at a later date.

Cost vs. coverage: With a lender-offered mortgage insurance plan, the benefit decreases as you pay down your mortgage, but the premiums remain the same. If you pay off your mortgage, you lose all your coverage. With life and critical illness insurance policies, the amount of coverage does not decrease over time (even if you repay your mortgage).

Guess what new retirees say their biggest surprise is when they finally leave work? “Seven days of fishing or golf just isn’t as much fun as they thought it would be,” according to Eileen Chadnick, principal and certified coach at Big Cheese Coaching. She and I spoke earlier this month about the value of a retirement plan that takes more than financial questions into consideration.

“After the immediate [retirement] honeymoon, a life filled exclusively with leisure stops being leisurely,” Chadnick told me. “All rest, no stress, no challenges becomes really very unbalanced. People need to find balance or they will get bored. People who don’t have a plan – who don’t have activities and ways to engage all aspects of their personality – don’t do well in retirement.”

Chadnick counsels her clients to begin thinking about that plan soon after their 40th birthday. If that’s already passed, start now. It’s especially important to begin early if you decide you’d like to do something in retirement that’s dramatically different from what you do now. Some see retirement as an opportunity to begin a new career, for example. If that requires training, work that into your plan.

Don’t wait to think about retirement

“How do you shift gears? You need to get your mind around that and prepare to think about other possibilities for yourself,” she said. “I think people make the mistake of waiting until it’s too late.”

What are you supposed to spend all that time thinking about? Chadnick prepared this checklist of seven questions for us:

1. What will be most important to you in retirement? What will give you a sense of purpose? What will be your passion?
2. What kind of work do you want to do, if any? Will it be strictly paid work or include unpaid, volunteer work?
3. Do you want to remain in your existing career? Would you rather do something entirely different?
4. Leave aside the financial importance of work for a moment. How important will work be to you in terms of intellectual and social fulfillment?
5. In the absence of a work schedule, how much structure do you want in your day?
6. How will you replace some of the good stuff of work: intellectual engagement, challenge and growth opportunities? If you’re not getting the social interaction you had in your workplace, how will you stay connected?
7. What do you need to stay motivated, inspired and engaged? What do you need to stay healthy, vibrant and resilient?

Clearly, this is not your grandfather’s retirement. It may not look much like your mother’s, either. Chadnick attributes this shift to the baby boom generation and its dedication to active living.

“Boomers will not hang out on the porch,” she said. “Boomers have always been known to defy the rules. Retirement is no different. We get a lot of meaning through work. We want to be relevant in all our life stages.”

Click here to read the report – Federal Budget 2012 – Canada’s Long Run Action Plan