January 5th, 2017

Key to successful investing: Make a plan, implement, monitor and stick to it.

Simple to say, tough to do. 2016 was a good example of how important it is to follow this program. Markets dropped dramatically at the beginning of the year, terrorist strikes around the world, Brexit, drama of the U.S. Presidential Election, Trump gets elected!

Yet, 2016 was a good year for investors. We are all happy with the end results.

Congratulations for having discipline and patience, as we all stuck to our plan and reaped the rewards. But it was painful to endure the volatility and negative doom and gloom pundits.

This pain which we all felt is the price we pay to make a rate of return higher than the risk free return rate of 1% by owning Government Bonds.

I continue to believe we are in a long term Bull Market, and we have just endured the first correction and are now on the next leg up.

Advice: Stick to the plan. Invest more if you can. Don’t look at your portfolio every day.

Taxes: 53% is the highest marginal tax rate in Ontario. The new cap and carbon tax in Ontario just added at least 4 cents a litre to gasoline, and has anyone noticed our incredibly high hydro rates!

I can’t do anything about filling up your car, and the electricity charges for your home and business, but I can do something about the income taxes you pay. So you can either just pay the income taxes, or do something about it.

Here is the idea: We buy units of an investment product called a Flow Through Limited Partnership. The investment in this Limited Partnership is 100% Tax Deductible. .

There are several Flow Through Limited Partnerships available for sale now, and I would be happy to speak with you about how this investment may be suitable for you, and in what amount, and which LP would be best. As a rule of thumb, you would only want buy an amount of Flow Through Shares equal to 30% or less of your gross income.

As a caveat, there is some concern in the Mining and Energy Industries in Canada that The Federal Government may eliminate Flow Through Share investing in their March budget. If we are going to purchase any Flow Through Shares for 2017, I recommend we buy them before March.

  • There are several strategies to reduce income taxes, including:
  • If you borrow money to make an investment and earn income (such as buying an income producing property) the interest expense is tax deductible. As an example, if you borrow $1 Million at an interest rate of 3%, you will have interest expense of $30,000 in the first year. At a marginal tax rate of 53%, you will save $15,900 in income tax.
  • If you make the maximum annual RRSP contribution for 2016 of $25,370, this is tax deductible. At a marginal tax rate of 53%, you will save $13,446 in income tax.

If you invest $100,000 in Flow Through Shares, this is tax deductible and at a marginal tax rate of 53% you will save $53,000 in income tax. Further, if you borrow the money to buy the Flow Through Shares, your interest expense on the loan is tax deductible.

There is a lot more involved in each of the above investment and tax saving strategies, which must be reviewed thoroughly before making a decision to proceed. Call me if you would like to discuss any of the above ideas in more detail to determine if they may be suitable for you.

You may be interested in some of the projects we have worked on over the last quarter for clients:

  • To invest proceeds from the sale of their business in a diversified portfolio of 6 different money managers.
  • Estate and Tax Plan.
  • RESP portfolio for client’s grandchildren.
  • Added Barometer Global Macro Pool and Turtle Creek Equity Fund to portfolios.
  • Purchased Oberon ETC Flow Through Share LP for 2016 Tax Savings.
  • I would like to share a couple of thoughts which were recently part of client reviews:
  • When markets do well, and our portfolios do well, resist the urge to be more aggressive.

When a long time Investment Manager or Fund which has consistently given us good returns, has a flat or slow period in performance. Be patient, unless something dramatic has changed with the Manager.

If there is any topic or idea in this letter that you would like to discuss with me, or anything that you need or want related to your investments, I would be delighted to hear from you.

We will keep a steady hand on our Investments, and not waver. We do not want to invest and put our capital at risk, and we strive to make a rate of return in the range of 6% to 8% per year. There will be periods when we underperform, and also, outperform. Our portfolios will not go up in value in a straight line as on a chart. It can be painful when there is a crisis and markets go down, and our portfolio values go down. We just have to put up with this price volatility if we want to make a rate of return greater than offered by Savings Accounts and Bonds. I believe the way we have structured our portfolios we will have far less volatility than the overall market.

Investing our way is boring, but it works.

Thank you for the privilege of helping you protect, manage and grow your wealth.

Sincerely yours,

Fred Banwell


The opinions expressed in this report are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Richardson GMP Limited or its affiliates. Richardson GMP Limited, Member Canadian Investor Protection Fund. Richardson is a trade-mark of James Richardson & Sons, Limited. GMP is a registered trade-mark of GMP Securities L.P. Both used under license by Richardson GMP Limited.