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July/August 2002

Commentary - Hans H. Mathisen

Everyone Needs an Estate Plan- LIFE LETTER for July emphasizes the importance of having an up-to-date Estate Plan. I don't see any need to elaborate on this bulletin. But please, feel free to call me if you want to discuss Estate Planning.

How to Start an Investment Plan - All Investment Plans look very attractive on paper when first conceived. As LIFE LETTER for August points out, we need to know the difference between saving and investing. Then, we have to set goals for our short and long term plans. But, all too often, we don't take action on that Investment Plan which looks so attractive on paper.

The relatively small reductions in Life Style Expenditures mentioned in this issue of LIFE LETTER demonstrate the power of compound interest. While I don't have any reason to suggest you should cut back on smoking, lunches, movies, or anything else, it may be worth your while to have a look at your Life style Expenditures. And you can easily use the savings illustrated and extrapolate these to your own situation. And, any questions you have I'll be glad to answer.

THE STOCK MARKETS - I'm trying to explain what's happening in the two special enclosures:

A. In my letter to you, THE STATE OF THE STOCK MARKET, I'm encouraging you to communicate with me about your investments. It is important that I know how you are feeling in this time of volatile markets.

B. WHAT GARTH TURNER SAYS... Garth Turner tells it the way it is. I recommend that you read Garth's commentary, which should give you considerable encouragement. And, as always, I'm looking forward to receiving your comments and feedback..

HAPPY INVESTING!
Sincerely,
Hans Mathisen



 

LIFE LETTER

Everyone Needs an Estate Plan

Ralph became concerned about what would happen to his hard earned estate after seeing what had happened to some of the people he knew.

Vivian had remarried and chose to cut costs by using a do-it-yourself will kit. Because she had not allowed for the obligations set out in her deceased husband's will, it took years and cost thousands of dollars in legal fees to settle her estate. Her heirs had to pay income taxes on income they hadn't received.

James had a substantial farming operation on the outskirts of a small town. The town grew and eventually annexed his land. He did not have a will when he died. It took nearly a decade to settle his estate and also affected the commercial and residential growth of the community.

Catherine suffered a stroke and was incapacitated for several months, unable to look a her affairs. Because she was joint owner with husband on their home, the mortgage could no renewed because she couldn't sign the papers. Her business had to be closed because no one else had authority to run things in her absence.

Roy, a wealthy barber and widower, owned the building that housed his shop, RRSPs and other investment assets when he died. He happened to die when the markets were low and real estate in his city was depressed, especially commercial property. His kids had to sell his assets at bargain basement prices to pay the income taxes owing. They received less than sixty cents on the dollar after taxes and fees.

Helga's children fought for two days about funeral arrangements when she died. T hey were divided on cremation or burial. A brother and sister are still not speaking to each other after three years. As Ralph wants to be remembered for the man he was, not the problems he leaves behind, he made the following estate planning checklist :

1 . Have a properly prepared, up-to-date will that distributes my assets according to my wishes. This is the cornerstone of every estate plan.

2. Have a Power of Attorney that appoints someone I trust to manage my affairs if I can't.

3. Have a Living Will or Personal Directive that addresses my health-care wishes.

4. Make sure there will be enough money to look after the lifestyle needs of my dependants.

5. Make sure there will be enough money to pay off all my debts and obligations.

6. Make sure there w ill be enough money to cover my taxes and other estate settling costs.

7. Make sure my family is aware of my funeral and burial or cremation wishes.

Once he has established his estate plan, Ralph will review it every few years or whenever there is a Significant change in his situation.

Want help with your estate plan?
Call Hans Mathisen today at (306)242-7042.
or email -
hans@mathisen.ca

Copyright © 1999 Bowen Financial Inc. and Donald F. Pooley, Inc.
All rights reserved

 

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LIFE LETTER

How to Start an Investment Plan

Wouldn't life be better if it was easier to ahead? For many, there's just too much month left over at the end of the pay cheque. After all, you've got a mortgage or rent and utilities to pay, food and clothes to buy, and a vehicle to operate.

First, let's understand the difference between saving and investing. Deposits in a savings account are for short-term goals like a vacation, new furniture or a killer home entertainment system. Investing is for our long-term goals, like education or retirement. It is very important that we don't disturb our "nest egg" or else our future plans won't be able to hatch.

Second. it's important to set goals for short and long-term plans. After all, how can we expect to hit the mark if we don't have a target to shoot for? It helps to write our goals down.

And, third, we must take action to reach our goals. You don't need a lot to get started. After all, the best way to eat an elephant is one bite at a time.

Okay, so you've set a goal and want to begin an investment plan. Where's the extra money going to come from'? Let's see what others have done:

Rob quit smoking and started putting his daily expense in a jar on top of the fridge. After two months, there was over $300 in his plan and he didn't even notice the money missing. He set up an automatic monthly deposit RRSP plan and, at 8% compounded annually, his $150 per month will grow to $82,372 in 20 years.

Deanna bought her lunch every day. When her favorite restaurant raised their prices, she reviewed her budget. By making her own lunches, but still treating herself on Fridays, she was able to free up $200 per month. Invested at 8%, she will have $175,454 in just 25 years.

Kurt and Karen went to a movie every Saturday night. Admission and snacks cost about $35 week. By simply cutting their movie going in half, they are able to put aside $900 more per year. In 35 years, again at 8%, they will have an extra $155,000. The drop in revenue is not hurting Hollywood.

Terry had a large latte every day. At four bucks each, it didn't seem like much. He decided to have one every other day instead and put the difference aside. The two bucks a day invested at 8% will grow to about $20,000 in just over 15 years.

Lifestyle expenditures are the easiest place to find the "extra" money to start or increase an investment plan. Here are some tips to help improve the chance of success for your investment plan:

1. Start Right Away. It's so easy to put things off, especially if there are no obvious consequences.

2. Make it Automatic. Set up a pre-authorized withdrawal plan for your investments. You can even have deposits made every payday.

3. Stick With Your Plan. Obstacles can get in our way. Make adjustments and you will get by them.

Want help getting your investment plan going? Call today!

Call Hans Mathisen today at (306)242-7042.
or email -
hans@mathisen.ca

Copyright © 1999 Bowen Financial Inc. and Donald F. Pooley, Inc.
All rights reserved

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The State of the Stock Market
Hans Mathisen -July 25, 2002

These are gut wrenching days for stock investors. When the market closed on Monday, July 22, the Dow stood at 7784.58. After losing 525 points in two trading days, the Index had reached its lowest level since October 1998, 33% below its January 2000 high. The S&P 500 was down 46% from its March 2000 peak, retreating back to its May 1997 level. Many investors, who have remained focused on their long-term strategy up to this point, are giving up.

During times like this, it is important to remain focused and rational. People whe were eager to enter the market when the S&P 500 was over 1500 now question the market's value when the S&P 500 is closer to 800. The compelling opporunities now are in buying rather than selling stocks, but more and more investors are selling. Paper losses turn into realized losses and become part of long-term returns. As they sell stocks, people are moving into bonds during a period when bonds have outperformed stocks by 55%. That is the second largest differential in favor of bonds since 1929! Fear is driving investors. Emotions, not fundamentals, are determining stock prices.

Psychology and emotion can drive stock market returns in the short-term. In the long-term, returns are driven by the earnings growth of corporations. Given the recognized strength of our country, and its superior financial markets, there has been a strong historical upward trend in the stock market. While past performance doesn't guarantee future results, if you look at the S&P 500 Index from 1926 on, when the stock market has fallen from its high in the past it has moved back to its old high and gone higher. With inflation low, the economy moving into recovery and the corporate sector benefitting from the cost cutting and restructuring efforts that have taken place over the past decade, corporate earnings are recovering. Stock prices should begin to move up as well. Although we are in the early stages of the second quarter reporting season, over 66% of reported earnings have been higher than expected. The improvement in earning may be occurring faster than most corporations or analysts had anticipated.

We cannot predict when the stock market will begin to recover. Our concern right now is that our clients are posed for the recovery when it occurs. As always, I am here to speak with you about the markets in general or about your investment strategy specifically. Communication may be more pleasurable when the markets are moving up, but it is most important during times like these when the markets continue to move down.

My direct line is (306)242-7042. If I am not at my desk, you can leave a voice mail message. I will get back to you quickly. I want my clients to remain committed to a long-term strategy that makes sense for them. Just as important, I want them to feel comfortable doing so, regardless of the day-to-day gyrations of the market.

Best regards,
Hans H. Mathisen

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What Garth Turner Says
About The Doom & Gloom Market!

OH NO, NOT ANOTHER DEPRESSION, July 14, 2002 Here's a no-brainer:

After weeks of U.S. accounting scandals making huge headlines and as stock markets grind lower, a new poll finds almost 40% of Canadians have no faith in the financial system. They think CEOs, CFOs and maybe even UFOs are lying to them. And another poll found only a quarter of people believed audited financial statements.

Of course, most Canadians wouldn't know an audit if they fell over one. Even fewer know how to read a financial statement, and about one in 100,000 of us have ever even seen a balance sheet.

Nonetheless, thanks to the media know-it-alls, we have been told that corporate executives are lying crooks out to steal the money of hapless investors. So, it's a quick segue to net redemptions of $ 1.1 billion from mutual funds last month, to a prediction from the stock market columnist of one of our national newspapers days ago that a bull market in hard assets, like gold and houses, is at hand.

Face it: Folks are in a funk. Distrust is rampant in the land. Everyone in the financial business is out to fleece someone. The great motivator for most people has turned 360 degrees in less than two years, from greed to fear. And there are those who are always ready to capitalize upon naked fear.

In the I 980s, a time of inflation, stock market turmoil and a massive real estate bubble, U.S. prognosticator Ravi Batra scared the juice out of a lot of people with his book, The Great Depression of 1990. He predicted real estate values would go to zero and the American government would default on its bonds, ushering in the mother of all crises. But, he was wrong. 1990 was just fine, followed by a mild recession.

A decade later, Bay Street financier Andy Sarlos published "Fear, Greed and the End of the Rainbow" in which he predicted a stock market crash akin to that which ushered in the Great Depression, which would impoverish an entire generation. Anyone who followed his advice missed one of the greatest bull markets of history.

As the last decade ended, of course, there was the Y2K with many otherwise-sensible people predicting that the entire world's financial system would be tested and probably defeated by the millennium bug. Canadian financial advisor Stephen Gadsden tried to scare a lot of people with his co-authored "Krash." Of course, no krash took place, and not even a crash.

So, it is happening again - a new batch of disaster books as the current bear market comes to its inevitable end. The current crisis flavour of the month is "Conquer the Crash," by Elliot Wave theorist Robert Prechter, who is predicting massive deflation which, a la Ravi Batra, will send stock markets tumbling at the same time it wipes out every dollar you have put into your house.

There is a simple lesson in all of this:

Make up your own mind. Right now the economic fundamentals in Canada are excellent - some of the best conditions we have had in a generation. There is no inflation, and yet a rapidly growing economy. Interest rates are low and job creation is on a roll. The government has a surplus, not a deficit, and the national debt is being paid of for the first time in generations. We're in the middle of a technological revolution as, every day, more and more people become bound together through the Internet. In short, there are serious reasons to have faith in the future, not to run screaming from it.

This may be the best time in years to invest in the stock of good companies, when it is truly at a discount. As for hard assets like houses, there is always room in a good portfolio for real estate and I do not foresee any massive devaluation on the horizon. But neither do I see a sustained housing boom, thanks to demographics and the absence of inflation. Stocks, mutual funds and other financial assets should be held for the predictable growth they will give, while real assets play a role in giving you shelter.

The most extreme danger to investors today comes from extreme positions, which are in evidence all around us. There is no magic bullet strategy. There is no reason to have all your wealth in cash. There is no Depression on the horizon. In fact, rarely in the last 50 years has the world been this prosperous, or this much at peace. Those retreating into the perceived safety of gold, cash, bricks and mortar or Harley-Davidsons should stop reading the newspaper. Except this one, of course.

Garth Turner

 

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Mathisen Financial, Inc.
335 Redberry Road
Saskatoon, Saskatchewan S7K 4W5
Bus. (306) 242-7042 Fax. (306) 242-4314
Email:
hans@mathisen.ca