-Learn how to navigate the ever-changing economic landscape and make better financial decisions. -Discover a new way to save for your first home . -Hear from our CIBC investment experts on how to navigate the markets
Season 1 of the Smart Advice Podcast brought a wealth of financial advice, tips and insights to help support Canadians along their financial journey. We covered a variety of timely and important topics, from the state of the economy and the markets to advice around investing and saving for life’s major goals.
In this bonus episode, we look back at highlights from this season that can better position you for a successful 2024.
If you’re new to the Smart Advice podcast and want to learn more about the topics we cover , or you’re a loyal listener looking for the biggest takeaways of the year, this episode is for you.
[03:43] David Wong: “The more granular we can get in that asset mix, the more we can give better potential reward to risk in our portfolios.”
[14:43] Erin Bury: “This is not something you should be waiting to do until retirement. As soon as you have assets to protect, loved ones like a spouse that you want to ensure know your wishes, or children that you'd want to make sure [are] accounted for, even pets more increasingly these days. It's time to think about getting a will…this is not a really time-intensive cost cost-prohibitive process anymore.
[17:49] Avery Shenfeld: “Interest rates are high enough to do the job. That doesn't mean that inflation is going to magically melt away tomorrow, we're going to have to go through some economic pain, some period of slower growth, [and] a bit of an upturn in unemployment, before we cool spending power enough for inflation to come down. Our view is that…the impact of all those prior rate hikes was kicking in even before the Bank of Canada's last interest rate decision, which was back in July, was slowing spending. And with time, that will bring relief on the inflation front. So we'll need to be patient.”
[20:57] Rob Carrick: “If we were to talk to more people in our position more of our peers, honestly about money, we'd find that there's a lot of people with the same struggles as us, I think that will calm and relax us and make us feel that I have time. And you know what, I got a late start on saving for retirement, but I'm doing it now and I'm 100% committed and I'm going to make up for lost time…getting into the housing market…you could do it in your late 30s, you could even do it in your early 40s. If you are willing to work past 65, time can help take the pressure off.”
[22:11] Rob Carrick: “In your 50s…in your career, start thinking about how am I going to create a post-65 reduced workload consulting type of relationship from what I'm doing now.”
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Carissa Lucreziano: Welcome to Smart Advice, a podcast bringing you financial advice, investment strategies, and economic trends. I'm CIBC’s financial advice expert, Carissa Lucreziano. And today, we're bringing you the best moments from season one of our podcast, which we just wrapped up last month.
The vision behind this podcast is to provide you, our listeners, with advice and tips so you can make the most of your financial ambitions. To help you make your money work harder. Navigate the ever-changing economic landscape, along with insights to help you make decisions towards building wealth for you and your family's future.
During the season, we covered timely topics that are important to Canadians. We had conversations with some of the best and brightest in the industry and the business. And we're already gearing up for next season. So let's jump in.
We kicked off the season with a topic that was frequently seen in the investment headlines. When movements and interest rates and the economic environment have had a great impact on market volatility, should Canadians still consider a traditional balanced strategy to investing? We dove into the 60:40 equity-to-bond portfolio with David Wong, Managing Director and Head of Total Investment Solutions with CIBC Asset Management.
Having a portfolio with a mix of 60% stocks and 40% bonds is historically thought to provide a balance of growth and stability over the long term. Many investors especially during the last year have been rethinking their asset mix for their long-term investments and seeking out options to put their money to work for the future. I asked David how the industry is evolving beyond the 60:40 portfolio. If Canadians should be rethinking their investment strategy and adjusting for more growth potential when investing over the long term. His response may surprise you.
David: So there are no crystal balls in investing. Just to be clear, I don't have one no matter how much study I put into the markets or the economy. But we do know that risk that is related to financial productivity that is diversified tends to be rewarded over the long term. It's as I mentioned earlier, it's never failed over the very long term.
But how do we actually help investors enjoy that? I think that's a really important challenge that we have and I've got some data to kind of support with the challenges and some promising comments around how to actually solve for that. But we know in the short term, there is volatility in the markets. When investors are undiversified, some very bad decisions can occur.
Morningstar runs a study every year on something called the investor behavior gap. It's a very important topic for all investors. What it is is it's really the difference between the returns of mutual funds and the returns of the investors in those mutual funds, which are different. Actually, it's kind of a little confounding, but they are actually different. It's due to, in part, the buy-high and sell-low behaviors of individual investors.
60:40 is a rule of thumb. It's been viewed a little bit skeptically in the financial media over the last several years. But it really doesn't speak to the specifics. It's easy to say 60% equities, 40% bonds. But what are equities and what are bonds?
There are 23 developed countries in the equity markets. There's 24 emerging countries in the emerging markets part of the equity markets. There's a whole spectrum between small cap and large cap. There's a whole spectrum between value investing and growth investing. Inside of the bond markets, there's many different ways to invest in bonds. There’s government bonds, provincial bonds, corporate bonds, etc. And so the more granular we can get in that asset mix, the more we can give better potential reward to risk in our portfolios.
Carissa: For the rest of David's insights, make sure you listen to the full episode.
In our third episode, we talked about the state of housing in Canada with CIBC’s Deputy Chief Economist, Benjamin Tal. The changing landscape of the Canadian real estate market has had many Canadians thinking more about the options between buying versus renting. This episode breaks down the considerations. While homeownership is one of the largest goals that many set out to achieve, Ben makes the case that it shouldn't be seen as the only option.
Ben: I think we have to really change the way we think about renting. I want to create a situation in Canada in which you are 35 years old, you are married, you have two kids, and you are renting. Nothing is wrong with you. The way it is in Berlin, the way it is in London, the way it is in New York. That's the way it should be. We have to create this mentality in which you can choose to rent for the rest of your life if you want to, or at least for a period of your life, and it's fine. There is nothing wrong with it.
In order to do that, we need more supply of rental units. And believe me, the new wave of renters will not be just what we have seen before, students. It will be young families with kids, it will be all the people downsizing. What they want is to deal with a landlord that is a company, not condo owners. The condo market cannot be the rental market and the rental market cannot be the condo market. We need purpose-built apartment buildings, individuals renting, families renting, dealing with the company, achieving stability. That's what we need. We have to change the way we think. In order to do so we need more supply and that's where the government enters the story
In 2022, we have seen no less than 950,000 people entering this country. Non-permanent residents, permanent residents, students, people from Ukraine on a three-year visa. This year I estimate it would be 1.1 million. None of them is carrying the house on the back.
So we have a lot of demand, the supply is not there. The supply of rent and apartments is simply not there. We have to provide incentives to developers to build more purpose-built rentals as opposed to condos. We need to defer HST payment, we have to reduce developer charges, we have to provide tax incentives. All kinds of tricks to make sure that companies developers choose to build purpose-built that will see to the increased amount that we see on an annual basis.
If we build more and more supply, then the demand will be eased, and therefore inflation will be lower when it comes to housing. However, if you ask me for the next decade, what to expect regarding the speed of the changes, I suggest that after falling by about 20%, maybe 25%, this market will stabilize over the next year then start going up. And I will not be surprised that housing price inflation will be higher than overall inflation, three, four, or five percent a year on a regular basis. That's why we need more and more supply to ease the inflationary pressures on housing.
Carissa: In 2023, we saw headlines raging on the collapse of Silicon Valley Bank in the US and other banks, which led to many Canadians having concerns about the impact here at home and the stability of our banking system. In episode four, we discuss the state of Canada's financial sector with David Andrich senior equity research analyst with CIBC asset management. David provided a sigh of relief and detailed the rationale as to why in Canada, the situation is quite different.
David: So I think in terms of Canadian banks, in particular Canadian investors, and also Canadian deposit holders, I don't think that we need to be overly concerned about what has been going on with US banks, in particular, US regional banks and any spillover effects onto Canadian banks. There's a number of reasons for that, why I think the Canadian banking sector is going to be much more resilient and stable.
I'd say first of all, Canada, in general as a country, we are much more regulated, probably across most aspects of our life and financials and our banking system, as well. The Canadian regulator is much more intertwined in Canadian banking operations than in the US and especially in US regional banks where we've seen these issues flare up with Silicon Valley Bank and First Republic.
So in the US, there are over 4500 banks. You can contrast that with Canada, where we basically have six major banks, and maybe another dozen or so kind of material financial institutions, a couple of smaller regional banks, and credit unions of size. So just the sheer number of US banks makes it that much more difficult for US regulators to apply the same kind of scrutiny to each individual bank, the way Canadian regulators can. And the historic stability of the Canadian banking system reflects that ability to really drill in as regulators.
Since 2013, over the past 10 years, there have actually been 73 bank failures in the US. Canada has not had a major bank failure in nearly 100 years. Most of those US bank failures would have been very small regional banks, but it still gives you some idea that is not an uncommon event in the US. It’s more recently, we've seen some larger regional banks fail and that's what sparked some concern.
Carissa: Over the next few years, an estimated 1.1 trillion is projected to change hands in Canada, as the baby boomers begin to pass on their wealth to the next generation. In this episode, we tap into a very intriguing conversation from our CIBC virtual event on wealth transfer. Alongside my CIBC colleagues, Richard Voss, Director of Wealth Strategies, and Marilyn Andrade, senior trust and estate consultant, we talked about the complexities and emotional weight of the decisions around transitioning wealth, the importance of the family conversation, and the changes in mindsets that are impacting traditional behaviors.
Richard: So I would say that one of the first things you want tp think about is really assessing your own situation first. So understand your own financial position. If you have a strong financial position, chances are you're in a good position to be able to make a gift during your lifetime. If on the other hand though, things are tight, you are having a difficult time making ends meet, you don't have substantial savings, then maybe gifting at this juncture is not the right thing for you at this point in time.
Also, when you gift, you have to think about all of the different implications that may arise through that gift. The first one we can explore very briefly right now is taxation. If you're giving away an asset that's appreciated in value and you're giving it to the next generation, there could be tax consequences for you to consider when it comes to actually making that gift.
Another thing you may want to think about is what is the actual gift itself. Am I giving away cash, or am I giving away something like a car that I'm not using anymore? Those will have very different implications in terms of your overall financial position.
Also, certain assets and certain gifts that you give may actually have family law implications as well, in certain jurisdictions. Many parents want to help their kids with establishing and getting their first home. What we have to recognize is, that sometimes that gift is acquiring a matrimonial property, which can have family law implications down the road should the relationship come to an end. So something definitely worth considering.
Marilyn: Every family dynamic is different, every client situation is different. It really is getting to know your beneficiary. So there are clients that love to have that open transparency with their loved ones and there are others that just don't want to share that information. They just feel when the time is right, they will know especially if it's on their passing. Again, it comes down to know your beneficiaries.
The ones that are transparent, they know it won't be a detriment to the beneficiary so they are quite comfortable in having that open dialogue. And again, the opposite is said to be true as well. Some people that know in advance that they're going to be inheriting a certain amount of funds, they may kind of run amok while they're here and just thinking that I'll have this inheritance in the future. What's the point of worrying about money today?
Carissa: An important element of ensuring your wealth is transferred according to your wishes is to have an estate plan. It all starts with having a will. But this very important element of financial planning is often overlooked, and ends up at the bottom of many Canadians to do lists. So much so that 50% of Canadians currently don't have a will.
In this episode, I am joined by Erin Bury, co-founder and CEO of Willful. Her platform revolutionized the process of creating a will, making it easy, accessible and affordable for Canadians all through a digital conduit. In our conversation, she gets to the heart of why we keep putting this off. And we talk about the importance of having a will at any age, at any stage of wealth. In her words, you don't have to be old, rich and on the verge of death to need a will.
Erin : So when we set out to build Willful, we really were thinking about designing it for people like us. My husband and I were in our early 30s at the time and we didn't have a very complex situation. It's like when I used to use the automated tax software in my early 20s because I had a pretty simple situation. Since then, I've upgraded to an accountant.
But really, we built Willful for those folks who have a pretty simple situation and don't need to or don't want to visit a professional to get their estate plans done. So if you're the average Canadian and you're married or single, you have children or pets, you own assets, like a home or have investments, but you don't have a ton of complexity to your situation, then an online platform like Willful can be a really great fit.
And I know we're going to talk a bit about when it may not be the right fit and when you may want to seek out a professional but a lot of folks choose to use Willful around key life moments like getting married, having children, buying a home. And you can always upgrade over time to a professionally drafted will as your situation becomes more complex.
When you think about purchasing life insurance, this is planning for the people that you leave behind to make sure that they're financially taken care of. An estate plan is essentially that but it covers all of the other components of your wishes and gives your family that peace of mind that they're doing what you would have wanted.
I am under no illusion that most 22 year olds are going to be graduating school and putting a will at the top of their to do list but I really want to get the message across that this is not something you should be waiting to do until retirement. As soon as you have assets to protect, loved ones like a spouse that you want to ensure know your wishes, or children that you'd want to make sure accounted, or even for pets more increasingly these days, it's time to think about getting a will. And again, this is not a really time intensive cost-prohibitive process anymore thanks to online tools like Willful
Carissa: To support Canadians with the aspiration of homeownership, which is one of the biggest lifetime financial goals, the Canadian government announced the creation of the first home savings account, or FHSA, a registered plan designed to help Canadians save for their first home. This is another tool along with the RRSP Home Buyers Plan and the Tax Free Savings Account to help save for a down payment.
The FHSA is now available at CIBC. If homeownership is one of your goals, it's an important new tool to explore. In this episode, our resident tax expert Jamie Golombek gave us the rundown on the FHSA, why it is a great option for first time homebuyers, and it's clear advantages.
Jamie: I think the FHSA is the way to go, just plain and simple. The reason for that is that the FHSA allows a first-time homebuyer, meaning you don't currently own a home, you haven't owned one in the previous four calendar years, an opportunity to make a tax deductible contribution of up to $8,000 a year for five years- that’s $40,000. Then as long as you buy a qualifying home within 15 years, you can actually withdraw the entire amount. In other words, your contributions plus any income and growth are tax free.
So in other words, the FHSA is combining the benefits of the RRSP which is a tax deduction with the benefits of the Tax Free Savings Account, the TFSA, in a tax free withdrawal. The difference, and the main difference, I would say, the real advantage is that you pay no tax on the way in and you pay no tax on the way out.
With the RRSP, even the homebuyers plan, you can borrow from your RRSP tax free to buy a home, you have to pay it back over time. Then when you retire, you're gonna take it out. You're gonna have to pay tax. At TFSA, you're funding that with after tax dollars. You pay tax on your income first, before you even have the opportunity to contribute to a TFSA for a down payment. So the FSA think is the way to go for anyone that qualifies as a first time home buyer.
Carissa: The Bank of Canada raised interest rates 10 times since March of 2022, impacting Canadians finances and financial decisions in so many ways. One of our most downloaded episodes featured CIBC chief economist Avery Shenfeld, who joined me to talk about when we expect inflation to get under control. And when we should start to see interest rates go the opposite direction.
Avery: The Bank of Canada isn't fully convinced but we in CIBC Economics Group are more convinced that interest rates are high enough to do the job. That doesn't mean that inflation is going to magically melt away tomorrow. We're going to have to go through some economic pain, a period of slower growth, a bit of an upturn in unemployment, before we cool spending power enough for inflation to come down.
But our view is that what the data are, in fact telling us, is that the impact of all those prior rate hikes was kicking in even before the Bank of Canada's last interest rate decision, which was back in July, was slowing spending. With time, that will bring relief on the inflation front. So we'll need to be patient. And we're hoping that the Bank of Canada will be similarly patient in waiting for inflation to fall, which we think it will over the course of the next year.
So it is a little like the kids in the backseat saying Are we there yet? When can we get out of the car, when can we have dessert and so on. I think the reality is that we may well start to see lower interest rates by the spring of 2024. They'll still be high, they just won't be as high as they have been.
The current rate of interest, 5% overnight rate from the Bank of Canada is, by the standards of the prior decade, very high. And our view is that by the end of 2024, for example, that overnight rate might be, say, three and a half percent. And while that's welcome relief for borrowers, we have to remember that that level would still be twice the highest interest rate we had in the last business cycle. In other words, the one that ended with a pandemic. We never even got the overnight rate up to 2% in that cycle.
Lower interest rates, certainly in the cards in our view for 2024. But low interest rates, what Canadians would think of as low interest rates, probably not in the foreseeable future because unless we have a bruising recession, we're not going to get inflation down sharply enough that we're going to need that sort of stimulus again for a long while.
Carissa: Finally, we ended the season on a really high note with a great conversation with Rob Carrick, a well respected journalist with the Globe and Mail and author of one of the most read personal finance columns in the country on the Globe and Mail. We talked about how to navigate finances in today's economy, particularly the challenges and opportunities that are facing younger Canadians as well as how he got into the world of personal finance, and why it's so important for him to educate the younger generation.
Rob: Today's a great time and tomorrow will work okay as well. You're right. At the same time, as we've got these expanding lifespans and more time, we're also accelerating the timetable by which we have to meet all these goals. The real financial goal getters are buying houses in their 20s and they're saving for retirement and at age 22 and all that. That's great. I applaud people who were able to pull that off.
But if you can't, I wouldn't want you to consider yourself not a success by comparison. Those are exceptions. If you talk to a number of people about what they're doing, you're going to very quickly find that there's a lot of people who are struggling to save for retirement, a lot of people who don't know when they're going to buy a house. I think that if we were to talk to more people in our position, more of our peers, honestly about money, we'd find that there's a lot of people with the same struggles as us. I think that will calm and relax us and make us feel that I have time.
I got a late start on saving for retirement, but I'm doing it now and I'm 100% committed and I'm going to make up for lost time. I have other tools as well to help me. I might work a little longer to take the pressure off. Getting into the housing market as I was just saying, you could do it in your late 30s. You could even do it in your early 40s if you are willing to work past 65. Time can help take the pressure off.
Carissa: We also talked about what retirement looks like these days.
Rob: I think that there is still a mindset that the ideal retirement is one before age 65. I totally get that for people who do physically demanding jobs. Your body breaks down and you reach a certain point where you need to not be working anymore so I exempt all those people from what I'm going to say. But for the rest of the population, I think working longer in a strategic way can be a great way to stay involved, stay active, stay interested, and also take some stress off your retirement savings. I think we're gonna see more and more people do that.
One way to prepare yourself for that is in your 50s in your career, start thinking about how am I going to create a post 65 reduced workload consulting type of relationship from what I'm doing now. If you can see your way to doing that, that might help you get an extra three, four years of working a two, three day work week. Bringing in extra cash, staying active, staying involved, and also bringing in extra cash and sort of helping to lighten the load on your retirement savings.
Carissa: Thank you for listening to our best of season one recap. As we head into the end of the year, it's the perfect opportunity to take stock of your personal finances and identify what you'd like to improve while also celebrating everything you've already achieved. Thanks for listening to this bonus episode. If you enjoyed it. Leave us a rating and a review. We would love to hear from you. You can also share this episode with your family and friends. To make sure you never miss an episode, subscribe or follow us on your favourite podcast platform and visit us at cibc.com/smartadvice for more great advice.