As we continue to see financial markets react to the ongoing coronavirus (COVID-19) outbreak and its related effects, I am writing to you with an update on the latest developments and how to view your long-term cash flow producing investment plan as a result.
What were the large market developments this week?
- The U.S. Senate and White House came to an agreement on a US$2 trillion stimulus package, while Canada passed emergency legislation to provide $82 billion in support to Canadians weathering the ramifications of COVID-19. On March 27, the Bank of Canada again slashed rates by a half percentage point, cutting the overnight rate target to 0.25%. It also introduced the Commercial Paper Purchase Program (CPPP) to help alleviate strains in short-term funding markets for businesses and announced it will begin acquiring Government of Canada debt in the form of bonds (a minimum of $5 billion CDN a week).
- Both the Canadian and U.S. markets were incredibly volatile, recovering from a large dip on March 23 with a powerful three-day relief rally that saw the Dow Jones Industrial Average return to a bull market and Canadian stocks on the edge of doing the same.
- Unemployment claims surged in Canada, as jobless claims had soared to almost one million by March 24. Unemployment numbers in the U.S. hit a record-breaking 3,283,000 (seasonally adjusted).
- The oil price war between Saudi Arabia and Russia continued unabated, and on March 25 the U.S. intervened, asking the Saudis to reduce oil production.
- The World Health Organization stated that the U.S. could become the new epicenter of the COVID-19 outbreak, as Italy showed signs of stabilizing and Spain’s deaths continued to surge. It was estimated that by midweek, approximately 20% of the world population was subject to lockdown measures.
What does this mean for my investments?
We are living through circumstances that most people have never experienced. You would be unique indeed if you were not feeling the tiniest bit unsure about the world or your investments given recent events. Yet there are two vital points to keep in mind:
- This is an event-driven decline, and while the recovery may prove to be a slow and gradual one, the COVID-19 pandemic will one day end. As far away as that may feel, it will run its course. In the meantime, the difficult part is avoiding the emotional decisions that can tempt investors to make ill-advised changes.
- We did not build your portfolio to last until the next event. We built it for long term conservative growth, coupled with predictable, sustainable monthly cash flow distributions. This does not come with the expectation that your investments would never experience declines; rather, your portfolio is built to withstand them so that it can carry you through to the next recovery and future gains.
Please keep these two foundational points in mind as you turn on the news or look at the day’s market action, which can admittedly add to your feelings of fear and uncertainty.
We believe that results are measured by a combination of investment returns, cash yield, tax efficiency and how well your overall plan achieves your financial and estate planning objectives. With that in mind, you may still have specific questions about your portfolio and investment plan. If you do, our team is always here to address them. Please do not hesitate to contact us.
Reduction to RRIF Minimum Payments for 2020
Due to the impact of COVID-19, the federal government announced their intention to reduce required RRIF minimum payments for 2020 by 25%. The move was made to provide flexibility for seniors, and particularly those concerned that they would have to liquidate RRIF assets to meet minimum withdrawal requirements. Locked-in plans are subject to the same tax legislation as registered plans and the proposed legislation will also apply to life income funds (LIFs). The Quebec government has also announced it will reduce the mandatory RRIF withdrawals by 25% for the 2020 tax year.
The federal government indicated that the provision would take effect immediately (as of March 18, 2020) with formal supporting legislation introduced on March 25, 2020. Although this measure is now law, administrative questions remain as the legislation did not provide sufficient detail as to how the provision will work. Further guidance in this area is required and is expected to be received from the CRA shortly.
In the meantime:
- If you have already taken your RRIF minimum for the year and wish to recontribute we need you to wait until additional details are released as the legislation made no reference to recontribution.
- If you wish to reduce the amount you are withdrawing from your RRIF to align with the new rules you can do so at any time. As before, if you have any questions or want to make changes to your existing 2020 RRIF payment, please feel free to contact our office.
Helping to navigate through these uncertain times
As we all head into a third week with kids off school, many of us working from home, your home may look like a combination of the movie Old School meets Lord of The Flies. While it can be challenging, we are making the best of it and enjoying the extra family time. I can’t recall the last time we all had lunch together on a Wednesday (unless it was a vacation). Thought I would forward this information. Every little bit helps to get us through this challenging time. Be safe everyone!
With many places being closed and group sizes being limited (I believe its 5-ppl max right now), one thing you can count on is mother nature! Ironic, because she’s basically sent us all to our rooms. With the weather getting warmer, try and get outside for a walk, run, ride, hike. If you’ve got trails in your neighborhood or maybe it’s a short drive, do yourself and your family a favor and get outside. Benefits may include decreased stress, laughing, burning excess calories (for that extra glass of wine)!
For the kiddos:
- Learn at Home – Government of Ontario
- Virtual Museum Tours
- Learn to Draw – Art for Kids YouTube
- Scholastic Learn at Home – click your grade and you can begin!
- NASA Kids Club – Learn all about space!
- Funbrain – Games, reading, videos
- Scrabble, Monopoly, Checkers, etc. – all great games for counting, strategy, spelling, and capitalism!
- Apple App Store: Wordscapes game
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Chairman of Investment Committee