Investments

Smart Investing with AWM 

Alberta Wealth Management Smart Investing

At Alberta Wealth Management Inc., we help you reach your financial goals by offering a wide range of investing options. We understand how overwhelming organizing your investments can be. Allow us to relieve your stress with our expert advice.

Segregated Funds or GIFs 

A segregated fund or a GIF is a type of investment administered by Canadian insurance companies in the form of individual, variable insurance contracts, offering certain guarantees to the policy holder such as reimbursement of capital upon death. As required by law, these funds are fully segregated from the company’s general investment funds, hence the name segregated. A segregated fund is an investment fund that combines the growth of a mutual fund with the security of an insurance policy, sometimes referred to as mutual funds with an insurance policy wrapper.

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Like mutual funds, segregated funds consist of a pool of investments in securities such as bonds, debentures and stocks. They can be held in RRSPs, TFSAs, LIFs, LIRAs, SRSPs and open accounts.

Features:

  • Maturity Dates: All GIFs have a maturity date, which is not to be confused with maturity guarantees (outlined below). The maturity date is the date at which the maturity guarantee is available to the contract holder. In either case, the annuitant or the beneficiary will receive the greater of the guarantee or the investment’s current market value.
  • Maturity and Death Benefit Guarantees: Guarantee amounts are offered in all GIFs whereby no less than a percentage of the initial investment in a contract is 100% and will be paid out at death or contract maturity. In either case, the annuitant or beneficiary will receive the greater of the guarantee or the investment’s current market value.

     

  • Reset Option: A reset option allows the contract holder to lock in investment gains if the market value of the GIF contract increases. This resets the contract’s deposit value to equal the greater of the deposit value or the current market value. You can invest in the market with up to 100% of your assets in equity funds for your estate and can select from a wide range of investment funds across all asset classes and risk tolerance. Some GIFs offer up to 100% death benefit guarantee with automatic annual resets until age 80. This means that each year, the GIF will look at the market value of the investment and if the markets have performed well, the guaranteed amount available to the beneficiaries (the death benefit) will automatically increase. Automatic annual resets are a valuable tool to help make the most of market gains and because you don’t know when the death benefit will be passed on, automatic annual resets take the worry out of timing. With annual resets, your investment captures and protects growth more frequently.

     

  • Creditor Protection: Granted certain qualifications are met, GIFs may be protected from seizure from creditors. This is an important feature for business owners or professionals whose assets may have a high exposure to creditors.

  • Probate Protection: If a beneficiary is named, the GIF may be exempt from probate and executors fees and pass directly to the beneficiary. If the beneficiary is a family member such as a spouse, child or parent, the investment may also be secure from creditors in the case of bankruptcy. The proceeds pass quickly and privately to beneficiaries and no legal, estate or administration fees.

     

  • Cost of Guarantees: Today the cost of these guarantees has gone down substantially over the years. With the advent of the large volume discounts and the use of short term maturity guarantees on investments, the cost of the MER (management expense ratio) has added to this large decline in expenses. Today the MERs are about the same as mutual funds or just slightly higher, which is worth all the guarantees.

Segregated Funds

Commonly referred to as Guaranteed Investment Funds. These funds are similar to Mutual Funds but they provide you with guarantees and Legacy Benefits. Upon your death your Guaranteed Investments Fund bypasses your will and probate and goes directly to your beneficiary. It is Creditor Proof if a Primary Beneficiary is used. The have excellent performance, anyone over the age of 50 should be in a Segregated Fund. It has estate planning benefits that other investments do not provide. 

Estate Planning & Segregated Funds

When it comes to estate planning, you can take many different steps for your future to help ensure that you and your loved ones do not endure any additional stress during a difficult time. 

Segregated Funds offer you the ability to name a beneficiary. When a beneficiary other than your estate is named, the money goes directly to them and allows them to receive their inheritance quickly and privately. This can allow you to even be able to leave your beneficiary more than in comparison to other types of investment products. 

4 Key Advantages of Estate Planning with Segregated Funds

  1. Speed: Estate settlements can be time consuming and very lengthy if the will is challenged. With the ability to name a beneficiary other than the estate, death benefit proceeds of a segregated fund contract can pass directly to the beneficiary and avoid delays.
  2. Cost: Legal, estate administration and probate erode the value of an estate, diminishing the amount of money the beneficiaries receive. The proceeds of a segregated fund contract can bypass these fees. 
  3. Privacy: Having the ability to bypass the estate, and therefor probate where applicable, can preserve confidently as probate is  matter of public record. Payments made to named beneficiaries of an insurance contract do not flow through the estate and are therefore a private matter. 
  4. Control: Use the Annuity Settlement Option to automatically transfer segregated fund proceeds upon death into an annuity. Replace a lump sum benefit with smaller, scheduled payments while providing savings of legal, estate adminstration and probate fees, increase privacy and potential creditor protection. 

GIFs – Guaranteed Income Funds

What are GIFs? 

GIFs or Guaranteed income funds are an investment very similar to Mutual Funds but have an insurance wrapper. This wrapper is for its guarantees and legacy. Unlike a Mutual Fund the GIFs has at least 3 guarantees:  

What is the 3 Benefit of GIFs?

  • Growth & Maturity: The allow you to participate in the market through investment in stocks, bonds and index funds. Through Sun Life GIFs, we invest in funds that expert money managers watch, with the goal of increasing their value. Additionally it will be the greater if the market value or a percentage of your deposits. This is either 75% or 100% depending on the contract. Most sold today have a 75% guarantee.
  • Guarantees: These guarantees protect your investment from market declines. The market value of your investment may go up or down, but the amount you or your beneficiary receives won’t go below the guarantee amount.
    • Death Benefit Guarantee: when you die your beneficiary receives the greater of the market value of the death benefit guarantee. The market value of your investment may go up or down, but the amount you or your beneficiary receives won’t go below the guaranteed amount.
      • An example of the death benefit/DB is $100,000 (the amount you contributed): 
        On March 15th, 2015 you purchased $100,000 GIF.
        On March 15th, 2016 the Market Value is $112,00, we reset the DB (Death Benefit) to $112,000.
        On March 15th, 2017 the Market Value is $109,000, as this is lower than the last guaranteed DB, the DB remains at $112,000.
        On March 15th, 2018 the Market Value is $126,000 which is higher than the current DB of $112,000, we reset the DB to $126,000.
        On March 15th, 2019 the Market Value is $132,000 which is higher than the current DB of $126,000, we resent the DB to $132,000.
        On March 15th, 2020 after COVID-19 correction, the Market Value is $107,000, we keep the DB at $132,000.
        On May 1st, 2020 the client dies. His current Market Value os $111,000. 
        We pay the DB (Death Benefit) to the beneficiary in the amount of $132,000.

         

        We know that markets rise over time but it’s not a straight-line increase. There have been and will continue to be periods of significant correction. If the client dies during these downturns, we know the beneficiary will always receive the higher of the Death Benefit that the contract has locked in. If the contract holder dies when the market value is higher than the last reset, we pay our the current marketing value. Death benefit is always the highest death benefit guaranteed or MV. Unlike a Mutual Fund that the proceeds go through the estate and must be probated. The GIF does not go through the estate and is not probated. It goes directly to the beneficiary while the Mutual Fund may take months to get to the beneficiary, the GIF comes to them in 10 days. The GIF is also private, so no one knows the amount or how it was paid to the beneficiary. For any person age 50 or older the GIF is the strongest investment for them. Many young people use the GIF for its guaranteed and legacy advantages. 

    • Lifetime Guaranteed Income: Some contracts offer this feature so you receive an income for life. With this joint income option, you and your spouse receive income for as long as you both live.  
  • Legacy: This allows you to decide if you die before your contract reaches its maturity date. The proceeds from a GIFs contract don’t need to go through your estate, speeding up the process to share your wealth, reducing fees for transferring it to your beneficiary, and providing flexibility if your situation changes. 

They provide you a way to take advantage of a large, professionally managed collection of investments. The key difference is that only insurance companies can offer GIFs. They provide benefits that mutual funds do not, including guarantees and estate planning advantages. 

    The performance of GIFs can be extremely profitable. Case in point just using a couple of Sun Life’s funds:

    • The MFS Global Growth earned 27.5% in 2019 and since inception 13.1%.
    • The MFS US Growth Fund earned 28.6% in 2019 and since inception 17.3%.
    • The MFS International Value Fund earned 17.2% in 2019 and 12% since inception. 

    These returns are not indicators of future values and are not guaranteed. 

    Whole Life with Dividends

    5 Key Principals:

    1. Safety: Market volatility is very unpredictable, we all think the market is going up, but in a mont, a day of even a minute “BAM” the market is back down. Back in 2008 over 2 trillion was wiped out in the time it took you to brush your teeth, and people had to put their retirement on hold. We ride the roller coaster and hope for the best. Life Insurance companies have gone through every market cycle and have always paid their dividends and death benefits. They have gone through the great depression and zero interest rates in 2008. Life Insurance is so safe that banks buy billions of dividends paying Whole Life to put on their books as tier one assets. The banks call this BOLI or bank-owned life insurance. If it’s good enough for the banks, it will be good enough for you. Life Insurance is the safest investment with the most amount of growth for the least amount of risk. 
    2. Tax Benefits: Life Insurance grows tax free similar to your RRSPs, it is exempt from accrual taxation while we are living and tax free on death. This may be the last place for this advantage. Slow and steady wins the race. 
    3. Acces to Capital: We all need some capital during our lives; it could be for the purchase of a new vehicle, credit card debt, to pay down your mortgage and many other needs. As an example, look at a client that needs access to a large amount of money immediately. They look at their RRSP, but finds they would pay far too much tax to get their money out. They talk to their banker, however with all qualifying information and credit checks it could be week before that would ever have the loan. Lastly they look at their Whole Life Policy, they could borrow the amount they need and have it sent to them ETF in three days. All they have to do it discuss it with their agent. 
    4. Income at Retirement: When we retire, we exchange our accumulation assets into income producing assets. A good example is converting your RRSPs into a RRIF. You’re going to pay taxes and economists suggests we use 3% as a rate of interest for future assumptions. This transaction hardly makes sense. What is we are in a down market for the next 7 years before is come back up? Could we recover from these losses and have the RRIF last to age 90? It would be doubtful. On the other hand, a well-engineered whole life policy could pay a higher income for life. If we use a collateral loan to access out cash value the income to you would be tax free. Whole Life is an effective way to provide an excellent income at retirement. It would be better than converting your RRSP and this must be done in the year your turn 71. 
    5. Leaving a Legacy: We all wish to leave something to someone when we are gone. A husband who is properly insured, doeSn’t need to worry about leaving enough to the surviving spouse. The life insurance bucket is always full to pay our beneficiaries. I remember working on a case with a retired accountant and his spouse who had 4 dependant children, all had personal issues ad needed their financial support. This situation caused them to live below their means. I recommended a million whole life paid on the second death. This would mean when the last of them pass away the children would inherit over on million tax free. It’s higher than the million because the clients agreed to purchase paid up additions with their dividends which increases the amount of coverage. They can now afford to live within their means with the knowledge that their children will be looked after when they are gone. 

    THERE IS A BETTER WAY!

    AWM Recommendation!

    Becoming Your Own Banker” by R. Nelson Nash is the perfect book for anyone wanting to understand “The Infinite Banking Concept describes the power of dividend-paying whole life insurance.”

    Annuities

    As retirement approaches, you may have asked yourself how can I turn my savings into secure retirement income? Income not just for your living expense, but also for lifestyle envision. 

    An annuity can be part of the solution. It can help reduce the stress of keeping expenses covered by provided a guaranteed income. An Annuity has a contract owner and an annuitant who received the income. The contract owner gives the insurance company a lump sum of money and in return the annuitant (you) a guaranteed cheque for as long as the contract owner chooses. It’s that easy. 

    Compare Potential Annuity and RRIF Payments

    Before December in the year, you turn 71, you have two options when it comes to your RRSP. You can convert it to an Annuity or roll your funds to a RRIF. 

    FEATURES

    BENEFITS 

    Income For Life Option

    Life Annuity – you can never outlive your retirement income.

    Joint Life Annuity provides lifetime income for your and your spouse. 

    Market Risk 

    Your income isn’t affected by market or interest rate fluctuations.

    No need to make investment decisions. 

    Inflation protection You can choose an annua income increase to offset inflation. 
    Low-Maintanence Income

    No investment decisions to make or manage.

    Protected from Market downturns.

    Death Benefit You can choose a period during which, if you die, a benefit will be paid to your beneficiary.
    Tax & Estate Planning

    Tax-effecient income for non-registered annuities-interest only.

    Income may qualify for tax credits and pension income splitting.

    Attractive Income Guaranteed income can be higher than many other products.
    Customizable Many options to make the annuity fit your needs. 

    You can pick an annuity that works best for you ad they even have special needs annuities. Income payments to suit you should you want a level, indexed, joint life annuity or with integrated payments. 

    Please contact me for other issues such as taxation advantages for non-registered annuities and much more.