The David Miner Communiqué—Holiday 2008

HAPPY HOLIDAYS & BEST WISHES FOR THE NEW YEAR YEAR!

All the Best for a Happy 2009

2008 has been possibly the busiest that I can remember in my adult life. After the big wedding party in August (see the previous Communiqué), we moved into a new house in October in the west end of Toronto. Dorinda and I did manage a short escape to the Dominican Republic in November. Despite some of the gloom and confusion we sometimes see in the media, I remain comfortable and optimistic about 2009. All the best to you for a healthy and happy New Year.

Tax Free Savings Accounts –
The New Plan for the New Year

Tax Free Savings Accounts (TFSA’s) are a new tax efficient savings vehicle being introduced in 2009. Unlike the RSP, the contributions to TFSA’s are not tax free, but the investment growth on the TFSA’s is tax free over an investor’s lifetime.

RSP’s defer taxes on contributions and investment earnings. TFSA’s simply save taxes on any investment returns.

Beginning January 1, 2009, basic features of the TFSA are as follows:

• Will allow non-deductible contributions of $5,000 per year for Canadian residents age 18 and older.
• Unused contribution room will accumulate and can be used in subsequent years.
• Investment income (including interest, dividends, and capital gains) will grow tax free.
• Withdrawals, including original contributions and investment income) will be tax free.
• Withdrawals are allowed at any time and for any purpose and will create new contribution room for the following year. This new contribution room is in addition to the $5,000 granted each year. Unlike RSP withdrawals which result in a permanent loss of contribution room, TFSA withdrawals will restore contribution room by the amount of the withdrawal.
• TFSA’s can be used as collateral for a loan.
• Interest on money borrowed for TFSA investment will not be tax deductible.
• In general, investments eligible for RSP’s will be eligible for TFSA’s; including, stocks, bonds, mutual funds.

Who should be interested in TFSA’s? In our opinion, anyone who has money in a non-registered “open” account should think TFSA starting in 2009. It can be as simple as transferring “in Kind” from an existing open account.

Everyone’s situation is different. In most cases, a tax payer should maximize RSP contributions first, then he/she can contribute to a TFSA. Parents may wish to contribute first to their children’s RESP before putting money into TFSA’s. Seniors who can no longer contribute to an RSP will be able to greatly benefit from TFSA’s.

If you are confused, contact us and we can help you put together an efficient strategy. Furthermore, we shall be contacting clients with non-registered investments in the New Year. In many cases, simply rolling investments “in kind” from a regular open account to a TFSA on a no-fee basis is the simple and effective strategy.

Especially for RRIF clients

Clients taking out the minimum RRIF payments in 2008 may reduce their minimum payments by 25% and save taxes. If you are receiving minimum RRIF payments because of your age, but otherwise do not need the taxable income, please give us a call. We have until March 1 to contribute back the 25% adjustment amount. This provision is for 2008 RRIF payments only.

The Outlook for Financial Markets in 2009

Investing in financial markets is like riding a roller coaster backward. Particularly in periods of decline like we have seen, the imagination might extrapolate to an ugly future. Putting the world into perspective, however, bear markets and recessions are normal. This bear is not the first and it is not the last. Will it last forever? No.

Here are a few of the many thoughts that come to mind right now.

1. It was only a few months ago, many of the street pundits were foretelling $200 plus a barrel for oil. Since July, the commodity has dropped over 70% in price to current levels around $40. A year ago, many pundits were predicting that the Canadian dollar was going to $1.50 U.S. Today, it sits a little over 80 cents, falling precipitously in the last thirteen months. I have long ago learned to pay little heed to the fortune tellers in the media. Especially today, as in all bear markets and all recessions, the pundits can drag you down if you are not careful. Remember, bear markets and recessions are normal and always temporary.
2. Fact: Since 1970, the Toronto Stock Market Total Return (i.e., dividends reinvested) has multiplied 38 times over. Simply stated, from early 1970 to the end of September 2008, you made 38 times your money in 38 years. During that 38 years there were six periods where you would have seen your investments decline by a third. Typically, the declines lasted an average of ten months. Staying invested is just the smart thing to do. (See Fidelity’s “Stay in the Game”.)
3. A portion of the selling that we have seen in the last few months is a result of:
   1. Institutional selling (e.g., hedge funds selling to meet redemptions)
   2. Tax loss selling
   3. Margin call selling (brokers are forced to sell out clients who are over leveraged)
      - Selling for these purposes does not last forever, but does cause temporary additional downward pressure on stock prices like we have seen recently.
4. There is about $3 Trillion in the U.S. sitting in cash earning virtually nothing. When the stock market starts to show strength, some of that $3 Trillion will start to flow back into the market and add fuel to the next bull rally.
5. There is new management at the White House starting January 20, 2009. I expect that a new president will result in a better investment mood and climate going forward. (The last eight years in the White House have not been impressive. Almost anything would be better.)

Fidelity Private Investment Program

We have had a long association with Fidelity Investments. Fidelity has many of the attributes that we look forward when considering recommendation to clients. Here are a few qualities about Fidelity we like:

1. Depth of management. Fidelity has approximately 600 investment professionals around the globe.
2. Economy. With the large scale that Fidelity offers, most of their funds and wrap programs have below median management expense ratios. Lower cost means higher return to you over time.
3. Tax efficient structures. Fidelity offers corporate class and T-SWP structures to provide more tax friendly investment and income in non-registered accounts.

Fidelity has just launched their Fidelity Private Investment Program for higher net worth individuals. We like the program because of the lower management expense ratios, institutional risk profile, and corporate class efficiency. Minimum per "pool" starts at $150,000. While not for everyone, we shall be contacting a number of clients in the New Year (many who may be already holding Fidelity Funds). And for anyone concerned about financial markets, we recommend that you visit their "Market Concerns?" web site by going to Links and click on Fidelity's "Market Concerns?" button.

Mutual fund performances changes in share value and reinvestment of all dividends but do not take into account sales, redemption, distribution of optional charges or income taxes which may have reduced returns. Fees and expenses are associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Mutual funds are not insured by the Canada Deposit Insurance Corporation or any other deposit insurer and are not guaranteed.