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Emerging markets, RESPs, high mortgage rates, and protecting family while preserving wealth

An opportunity in emerging markets, maximizing RESP benefits, protecting your family while preserving wealth, and managing high mortgage interest rates

Brendan Greenwood, CFP, CIM, B.Comm | September 20, 2023

A case for increasing investment in Emerging Markets

Growth is slowing in developed countries. The International Monetary Fund (IMF) projects real GDP growth in 2024 to be 1.4% in developed markets. The slow growth outlook in advanced economies is cause for investors to consider looking elsewhere for more growth in their portfolios. The IMF projects real GDP growth to be 4.1% in emerging economies. Emerging economies are home to populations that are growing faster than developed nations with a faster growing middle class.

Meanwhile the US stock market, specifically the S&P 500 has recently experienced an exceptional rally, returning almost 17% year to date. The big 7, Nvidia, Apple, Microsoft , Alphabet, Amazon, Meta Platforms and Tesla make up 73% of the S&P 500’s total return in 2023, according to S&P Dow Jones Indices.

This narrow rally has significantly increased concentration risk for a market that is already far from cheap trading at a price earnings ratio (PE) of 22.4, as of July 31, according to the Wallstreet Journal while the MSCI emerging markets trades at a PE ratio of 14.13 as of the same time period, both based on 12-month reported earnings.

According to Bloomberg intelligence after analyzing the market concentration of the five largest stocks since 2000 along with S&P 500 rolling forward 12 month returns, it found periods with lowest concentration showed an average S&P 500 price return of 14% over the next year. When concentration risk was highest, like it is today, the S&P 500 returns were much lower at close to 6% in the year ahead.

With growth slowing in developed economies and a concentrated US stock market rally that may be over done in the short term, investors should consider adding some emerging markets exposure to their portfolio for increased diversification and addition growth potential. Emerging markets are currently attractively valued and could also provide a hedge against slower growth or a pull back in the recent concentrated US stock market rally.

It’s important to also understand the risk before investing in emerging markets. There can be greater geopolitical, economic and liquidity risk than investing in developed markets. Some of these risks can be mitigated by investing in certain ETFs or funds that screen for factors such as countries that are autocracies.

Emerging markets can also pose greater currency risk if the value of local currencies get eroded by a stronger dollar. On the other hand, the currency risk can provide a form of diversification to your portfolio and potential upside if the dollar weakens relative to other emerging market currencies.

The portion of your portfolio you allocate to emerging markets will depend on how much volatility your comfortable with. You may consider adding up to 10% if you have a higher tolerance for risk and around 5% to still experience the potential benefit with less overall volatility.

A financial advisor can be a useful guide in determining when and how much of your portfolio to allocate to emerging markets, as well as what investment vehicle might be most suitable in managing the additional risk.

Unlocking the Benefits: Why Taking Educational Assistance Payments (EAPs) Early from RESPs Matters

Registered Education Savings Plans (RESPs) stand as a crucial pillar in Canadian families' efforts to secure their children's educational future. As your child embarks on their post-secondary journey, navigating the intricacies of RESP withdrawals is essential.

There are two different types of withdrawals:

EAP withdrawals include governments grants and all investment earnings that have accumulated within the RESP. These withdrawals are taxable in the hands of the student. Non-EAP withdrawals involve withdrawals of your contributions to the RESP and are not taxable.

One strategy to increase the likelihood your children receive the full benefit of their RESP involves taking Educational Assistance Payments (EAPs) early.

Let's explore why this approach can be advantageous in maximizing the benefits of your RESP.

1. Tax Efficiency:

EAPs consist of investment earnings and government grants, both of which are taxable in the hands of the student. By taking EAPs early in the post-secondary journey, you can potentially benefit from the student's lower income tax bracket. This approach could help reduce the overall tax liability on the EAP amount, leaving more funds available for educational expenses.

2. Strategic Income Planning:

Starting with EAP withdrawals early allows you to strategically manage the total income your child receives during their post-secondary years. By distributing the EAPs over several years, you can minimize the risk of pushing the student's income into a higher tax bracket, which could lead to a higher tax rate on the EAPs.

3. Flexibility in Use:

EAPs can be utilized for various educational expenses, including tuition, textbooks, accommodation, and other necessities. By accessing these funds early, you can ensure that your child's immediate educational needs are met without delay. This can contribute to a smoother transition into post-secondary life.

4. Avoiding Loss of Grants:

Government grants, such as the Canada Education Savings Grant (CESG) and Canada Learning Bond (CLB), have specific rules regarding their usage. If not used within a certain timeframe after the beneficiary starts post-secondary education, these grants may be forfeited. Specifically, EAPs must have been used before the 36th year of the RESP being opened to avoid forfeiture. Taking EAPs early can help you access these grants before they potentially expire.

5. Plan for Unforeseen Changes:

Life can be unpredictable, and circumstances might change during your child's post-secondary years. By taking EAPs early, you can ensure that these funds are available for your child's education even if unexpected events alter circumstances.

The maximum EAP withdrawal during the first 13 weeks of school is $8,000 ($4,000 for part-time students). After that, there is no limit up to the annual EAP threshold. In 2023, the annual EAP threshold limit is $26,860. Should more than the limit be required, payments can be made from the RESP contributions.

Opting to take Educational Assistance Payments (EAPs) early from RESPs can be a strategic move to unlock various benefits. By minimizing tax liabilities, maximizing the usage of government grants, and strategically managing your child's income, you can optimize the financial support provided by the RESP. As with any financial decision, it's important to consider your family's unique circumstances. Consulting with a financial advisor can help ensure you reap the most benefit from a family RESP.

Protecting Your Family's Future: How Permanent Insurance* Can Help Your Kids Inherit More

Comprehensive financial planning

Life is filled with uncertainties, and as responsible parents, we often find ourselves contemplating ways to secure our family's future. One of the most effective ways to ensure your loved ones are financially protected, even after you're gone, is through permanent life insurance. Let’s explore how permanent insurance can safeguard your family's financial well-being and allow more money to flow to your kids instead of paying it out in taxes.

Permanent life insurance, often referred to as whole life or universal life insurance, is distinct from term life insurance in that it provides coverage for your entire life, as long as the premiums are paid. This coverage comes with several benefits that can play a crucial role in securing your family's future:

Tax-Advantaged Savings: Permanent insurance policies typically come with a cash value component that grows over time, often on a tax-deferred basis. This means your money can accumulate without being subject to annual income taxes, allowing you to build a substantial financial cushion.

Estate Planning: Permanent insurance can be a vital component of your estate planning strategy. When you pass away, the death benefit paid out to your beneficiaries is generally tax-free, ensuring that your loved ones receive the full amount without any deductions.

Protection Against Market Volatility: Unlike other investment vehicles, the cash value component of permanent insurance is shielded from market fluctuations. This stability can provide a sense of security, especially during turbulent economic times.

Legacy Planning: Permanent insurance allows you to create a legacy for your children and grandchildren. You can designate them as beneficiaries, ensuring that they receive a substantial financial gift when you're no longer around.

A financial advisor can help you determine the most effective way to implement permanent insurance into your financial plan based on your circumstances.

Are you approaching the renewal period for your mortgage*?

Comprehensive financial planning (Sturino Mortgages)

Guest contributor: Daniel Sturino, Mortgage Agent

Typically, when homeowners find themselves nearing the renewal date of their mortgage, they may opt for the convenient route of simply revisiting their current lender and renewing their mortgage either in-branch or over the phone. However, it's essential to reconsider this approach, especially in today's financial climate, where interest rates have reached some of the highest levels in recent memory. Instead, it's highly advisable to explore your options by seeking out alternative lenders.

A mortgage broker, will diligently survey the market on your behalf, engaging with multiple lenders to identify the most favorable terms and rates available. It's worth noting that some lenders are currently offering significant cash incentives, which can often offset the expenses associated with transferring your mortgage to a different institution.

One of the key advantages of transitioning to a new lender is the potential to adjust the amortization period, which can substantially reduce your monthly payments when compared to a straightforward renewal with your existing lender. Certain mortgage brokers, hold exclusive partnerships with a select few lenders that other mortgage brokerages do not have access too. This may allow them to secure more favourable terms in certain circumstances. Sturino Mortgages, a mortgage broker with some of these exclusive partnerships, collaborates with certain A lenders (banks, credit unions) to offer an extended 40-year amortization option, that could help to reduce your monthly payments even in the current higher interest rate environment. If you’re buying your first home and your down payment is less than 20%, they also offer an opportunity to obtain a very competitive fixed rate of 5.15% (rates are subject to change).

Brendan Greenwood is an Investment Advisor and Financial Planner with Worldsource Securities Inc. focused on improving the lives of his clients and their families through holistic planning. He specializes in tax advantaged personal pension strategies and leveraging technology to provide progressive institutional style investment solutions for professionals, incorporated individuals, business owners, retirees and their families.

For other articles written by Brendan Greenwood visit his Blog | GreenwoodWealth

To book a discovery meeting with Brendan to see if we can help visit

*Insurance solutions and related services as well as mortgage agents and related services are mentioned in this newsletter as part of comprehensive financial planning services only and are not available through Worldsource Securities Inc. Investments products and services are provided by Brendan Greenwood through Worldsource Securities Inc., sponsoring investment dealer and a Member of the Canadian Investor Protection Fund (CIPF) and of the Canadian Investment Regulatory Organization (CIRO).

Investing involves risk. Equity markets are volatile and will increase and decrease in response to economic, political, regulatory and other developments. The risks and potential rewards are usually greater for small companies and companies located in emerging markets. Bond markets and fixed-income securities are sensitive to interest rate movements. Inflation, credit and default risks are all associated with fixed income securities. Diversification may not protect against market risk and loss of principal may result. Commissions, trailing commissions, management fees and expenses all may be associated with investing in exchange-traded funds (ETFs). Please read the relevant prospectus before investing. ETFs are not guaranteed, their values change frequently and past performance may not be repeated.

This material has been prepared for informational purposes only and should not be considered personal investment advice or solicitation to buy or sell any securities. As well, it is not intended to provide, and should not be relied on for, tax, legal or accounting advice. It may include information concerning financial markets as at particular point in time and is subject to change without notice. Every effort has been made to compile it from reliable sources, however, no warranty can be made as to its accuracy or completeness. Investors should seek appropriate professional advice before acting on any of the information here. The views expressed here are those of the authors and writers only and not necessarily those of Worldsource Securities Inc., its employees or affiliates. There may also be projections or other "forward-looking statements." There is significant risk that forward looking statements will not prove to be accurate and actual results, performance or achievements could differ materially from any future results, performance or achievements that may be expressed or implied by such forward-looking statements and you will not unduly rely on such forward-looking statements. Before acting on any of the information provided, please contact your advisor for individual financial advice based on your personal circumstances.

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