Retirees Must Add Risk Back

Traditional investment methods teach investors to make a transition from growth to capital preservation strategies as they approach retirement. This allows investors to focus on preserving wealth and preventing losses and generating income. It has been used by millions of Canadians for decades and will continue to be used, but this strategy still advised by professionals is becoming outdated because of today's low interest rate economy.

Low interest rates will remain a part of the global economic plan until growth in confidence is restored and for most governments, including Canada, elevated interest rates won't be available until at least 2015. For retirees with capital preservation strategies, their savings will be diminished at an alarming rate, especially to the millions that have wealth locked up in RRSP accounts.

Needless to say, low interest rates will reduce returns, especially for those invested heavily in bonds. A 10-year government of Canada bond is yielding 1.62 per cent (view Bank of Canada yields here). That is less than the target rate of inflation of 2 to 3 per cent. If returns can not keep pace with inflation, it forces retired investors to sell more than they expected, reducing their overall wealth and the lifespan of their nest egg.

For those that have most of their savings in RRSP's, they will notice that mandatory withdrawal amounts exceed returns. Although this is already a common downside with RRIF accounts, low yields will continue to force investors to sell more of their bonds. It is this reason why retirees must consider adding risk back into their portfolios.

CPP and OAS (if qualified) will cover basic expenses but is it enough? Choosing to re-balance back into riskier assets like stocks is a tough decision especially having gone through three recessions in the last ten years and stock market volatility will never cease to exist. But great deals can be found in Canada that allows investors to save a little wiser.

Canadian investors looking to stay north of the border will find billion-dollar companies with generous and growing dividends. Although the risks of the stock market will always be in play, dividends will remain consistent in our economically better country. Yields above 4 per cent can be found in 16 of Canada's 60 biggest companies as of September 25, 2012. Click here to view an updated-daily list of the TSX 60's yields. These 16 stocks include major banks, competing telecom providers, and energy and resource companies creating a fairly diversified portfolio.

An added benefit to holding equity over bonds is that one can sell just a few shares of a stock to cover, while bond holders would have to sell one unit which in this day in age would be near $1,000, even if the investor required just $200.

The capital preservation techniques devised years ago are not applicable in today's economy. It assumed yields near 4 per cent (that is what we used in college), but that is not realistic for the foreseeable future. Investors must shift more focus back into risk if they plan on living off their life savings. It isn't right that so many millions of Canadians will blindly follow the advice of an advisor simply following the traditional investing methods. Investors must think outside the box and come to the realization that their savings are being hurt by fiscal policy meant to bolster economic activity. Otherwise, individuals in retirement would have to go back to work just to make ends meet.

A Fan's Plea at the 10th Hour

No matter how many times the NHL will abuse this fan, like a low-esteemed boyfriend, I will always come crawling back to you. That is how much I love this sport. I grew up watching and playing hockey and I intend to watch and play it for another 60 years. But if what we're hearing from the NHL and NHLPA discussions are true, the NHL will probably cease to exist. The only benefit is that the Canucks will never reign as Stanley Cup Champions, but I digress.

Please reach a deal, compromise, and move forward. There is no need to hinder the growth of the sport by fighting for personal rights which can be negotiated off the ice while players show case hockey and generate revenue on the ice. A lockout is a last resort tactic that Bettman will reluctantly impose, and I firmly believe Bettman does not want this, considering he had a very emotional tone of voice when speaking about it last night. But nobody wins in a lockout, not the players, not the owners, not the employees, not the fans, not the bookies, not the bars and restaurants, not merchandise retailers, not a single entity stands to gain when a lockout occurs. So why force a lockout and accept to be locked out? It is a lose-lose-lose-lose-lose situation.

Bettman has to stop the tactic of using lockouts to string the NHLPA into agreeing with its proposed terms. It has damaged the sport and this third lockout will undoubtedly do more damage than ever. Even I am hesitant on supporting the league right now, when a short-term solution can be found that keeps the game on the ice and allows owners and union members to work on a better deal.

Conversely, I believe that Fehr and his lackeys at the NHLPA must acknowledge how good their employees have it. Their rights are more equitable than the rights of other professions. Unions were designed to give a voice to the front-line staff who were not paid enough to make ends meet, did not earn overtime, and worked in unsafe conditions. Instead, we have a union fighting for every penny when members don't necessarily need it.

I understand that the NHL and NHLPA want to battle for what's right and fair and I believe they should, but both parties must also accept that their biggest stakeholder is the fan, which happens to be their consumer. We represent a fraction of the revenue, but without any fan, there would be no revenue at all. We buy tickets, but businesses pay to advertise along the boards, to televise and broadcast the games, to sell hats and shirts and flags and cups all to us. Consumers and fans do not have a voice. Instead, we are heard through consumption and trends and businesses know that. This is why it is so critical that a deal is worked out because the NHL stands to lose too much over a few million dollars in a billion dollar industry.

I am not asking for the NHL and NHLPA to bow down to our every wish because the fans deserve it. No, I want both parties to create a perfect CBA agreement that simply can be renewed without work stoppages or disruptions for a very long time - a pipe dream perhaps. All parties want the same end result so listen to the fans that want to cheer for every great moment that your sport delivers, listen to the players that wish nothing more than to play for a shot at the holy grail, and listen to the owners that need to operate a business.

Please Mr. Bettman and Mr. Fehr, for the enhancement of the game, to respect the wishes of the fans, players, and owners, please find a way to come to terms to prevent a lockout. I can barely stand summer, you think I can survive another year?

An Ode To Ben Bernanke

Ben Bernanke is an American hero. He has never been given any credit in his role. He has exposed nearly every century-old financial theory as wrong. He has shown resilience, perseverance, and leadership exemplifying the adage, "If at first you don't succeed, try, try again," with his actions as Chairman of the Federal Reserve. It is the start of a new macroeconomic system that governments have started to employ in their arsenal, all thanks to Ben. He is a king among men and it should be known.

Ben challenged the current economic system by proving that the books were inaccurate. What we learned in university was simply a ruse, a brainwashed methodology that ensured the middle class followed the rules, paid our tuition, watched our investments like sheep, and thought supply and demand existed. How we were wrong. Ben brought to light the misleading information that was clearly developed by a secret society to control fiat currency, to control the world's government, and keep the middle class at bay.

Ben made it clear that hyperinflation was just a scare tactic developed by this secret society, at least in first world countries. When the Fed started printing money in 2008 and 2010, economists all over believed that the value of the American dollar would decrease, that this devaluation would eventually lead to major inflation. People were outraged at the possibility that their money would not buy as many goods and that the country was putting itself in major debt. But Bernanke ignored the fears and acted like a leader, doing what he thought was right, not popular. To the economists that cried the sky was falling, where are they now? Too busy buying goods that cost virtually the same as they did years ago I assume.

My boy Ben unknowingly showed that the stock market is not a leading indicator of the strength of a national economy, a traditional school of thought we blindly followed. The US stock market today is higher than it was in 2007, which formerly would have indicated that the US economy is as strong as it was five years ago. Clearly, with unemployment near 9 per cent and GDP growth tepid, Ben has proven that the stock market acts with free will with no correlation to the despair in America.

And Ben, what resilience you have; all the better to lead us with my dear. The first round of quantitative easing failed and did nothing to help the common folks, so he tried again in what is known as QE2. It failed too, so today he announced a round of bond purchases that will occur every month until the labour market strengthens.

If it were any one else, I would have questioned how buying bonds and keeping interest rates near zero helps create jobs, but because it is Ben, the man that has shown our economic models are wrong, he deserves the benefit of a doubt. In fact, since quantitative easing, unemployment has dropped from above 10 per cent to around 9 per cent today. And in another three years, he predicts it will fall to 7.5 per cent. In 20 years, you will have enough citizens that can afford to purchase a home as you maintain record low interest rates.

The simple plan Ben developed could outlive his tenure as Chairman as well. It allows future Chairmen to follow in his footsteps by lowering America's unemployment rate 1 per cent every three years just by spending $40 billion a month on bonds.

Nobody will give you credit Ben. People will argue that it was the private sector, that you hold no power over unemployment, but look at the proof. You initiated strategies that have existed while unemployment lowered and stock and bond markets rose. Countries adopted your strategies. You are a leader and have enlightened and frustrated the best economic thinkers with your rebellious ways. You stood above when the crowd said "No." You want everyone to own a house by creating super low mortgage rates for the next 20 years. You created a debt so large that you exposed the Chinese as frauds with their "elite" math skills. You inspired millions to start saving and stop spending because it was necessary. Don't listen to the critics. Ben, it was all you.

Canadian Banks A Must Buy

Ironically, the best place to put your money is in the banks. It just so happens it's in the bank stock and not your bank account.

Canada's big five released record earnings amid a difficult macroeconomic environment proving that Canada's financial system is deserving of its number one rank in the world. With Europe still in turmoil and American banks fighting for one last pulse, cough Citigroup (C), cough Bank of America (BAC), it is a great to see our banks create massive profits in a heavily regulated system. Management has been pleased and has shown confidence in the system and all five banks raised dividends, which should please investors too.

The fundamentals for Canadian banks have always been strong even through the credit crisis. I remember buying shares of Bank of Montreal (BMO) below $30 in 2009. My regret was selling it a year later, but I digress. The strength of the banks should be a strong reason to buy any one of these companies, since competition in Canada is limited to just a few. And as fees re-enter the banking world in Canada and interest rates remain low, expect profits and margins to be maintained at these levels.

This should lead to rising share prices too. I consider them to be undervalued by at least 15 per cent based on current growth projections and current prices. Two of the five banks have a P/E below 10 and no bank is trading above 12. Dividend yields are more enticing than a 10-year bond. Four banks are yielding more than 4 per cent. For investors looking to generate income, we may start to see capital flow into Canadian banks and away from bonds. This will lead to demand in stock and an increase in price.

The numbers in short:

Name (Symbol)	Price	P/E	Dividend (Yield)
Bank of Montreal (BMO)	$57.62	9.72	2.88 (5.00)
Bank of Nova Scotia (BNS)	$52.90	10.39	2.28 (4.31)
CIBC (CM)	$77.48	10.15	3.76 (4.85)
Royal Bank (RY)	$55.96	11.35	2.40 (4.29)
Toronto-Dominion (TD)	$81.74	11.76	3.08 (3.77)

*Information based on September 6, 2012 close.

Personally, I believe the banks should be priced closer to a P/E of 13 or even 14. They have managed to grow at double-digit rates for a lengthy period of time. Dividends are rising almost annually it seems. They have made acquisitions in key areas of America and overseas which will bolster profits when the world's economy stabilizes. It appears that Canada's bank stocks are positioned finely to climb over the next decade and shareholders should feel that too.

Disclaimer: My household is currently long Bank of Nova Scotia and Bank of Montreal. I do not plan to initiate any transactions in any of the above stocks mentioned in the next 72 hours with the exception of a possible covered call. Image used does not constitute a purchase.