Recession Proof Investments

To identify with real life experience
Printed with permission of my clients Roberta and Marty. Here are their comments:
In the summer of 2007 and early in 2008 Gordon warned us several times that a market crash was coming in 2008 or 2009 and wanted us to invest in these new Guaranteed Minimum Withdrawal Balance segregated funds. He said they would help us avoid the major cost of a market downturn.

We were dealing with other advisers and wanted to think things over before we shifted our business to Gordon. By the time we got our funds moved into these new GMWB products the crash had actually taken place. Ouch! We wish we had acted sooner.

We were dealing with advisers at two different banks and a mutual fund company before we shifted to the GMWB funds. What we find hard to believe is why didn't any of those advisers see this coming?

In any event these GMWB funds guarantee a 5% annual increase to your retirement portfolio. In 2010 our funds grew well over the 5% so our adviser was able to manually reset our funds into a new contract. Now your guarantee is over 6% annually if you calculate back to when we first invested. The reason for the higher rate is not a change in the GMWB product, rather it is due to the reset to the higher amount arranged by our adviser. Where else can you get a 6% guarantee annual increase in your retirement portfolio?
That ends their comments.

There is no better time to get involved with Guaranteed Minimum Withdrawal Balance (GMWB) funds that today. They work to save your investment in down markets and are also a great tool to increase wealth during rising markets.

Another client, Bob, did move before the downturn for safety sake, but stayed invested in equities. His funds dropped nearly 20% in 2008 but his Withdrawal Balance increased by 5% in 2008, 2009, and 2010. He wants to retire this year. Even though his investments are only back to the value they were in early 2008 he will get 5% of the higher amount guaranteed for life. Let's look at actual figures:
June 2008 funds $100,000 which dropped to $80,000 in the fall of 2008. They are now back to $100,000 three years later. That is the way equity funds work. But Bob's withdrawal balance has grown to $115,000 (5% per year) so he is now guaranteed a minimum of $5,575 per year for the rest of his life even if his funds run out his income will never run out.

Bob is happy, as he knows if markets rise enough his income will also rise. Every increase he gets will be guaranteed for life. It takes the financial worries out of retirement and the fear of outliving his money is gone.

Understanding Fund Managers and Politicians

Has a fund manager, or an investment banker advise you to get out of their investment fund? Of course not! That would cause a run on their stocks and they don’t want that, now do they?

Do you ever hear political leaders or finance ministers tell you that we are in for a depression real soon? Like that’s ever going to happen! No way! Not until it has already happened, then they talk. It’d alarm people and grind the economy to a halt faster than if they feed you candy coated talk. So you get the sweetened version. It helps them save face and protects the economy from a sudden drop. (supposedly)

There are two common ways to lose money in the markets.

#1 Market timing – that's reacting to daily, weekly or even monthly events in he economic world - most people do it wrong most of the time. (That's short sighted investing– one should focus on the 2 to 5 year range)

#2 Staying invested during a serious prolonged systemic failure in the markets.
When markets drop 50% like they did in 2001 and 2002 it takes about 5 years for funds to get back up to a break even point. Zero returns for 5 years in anything but smart investing! Markets dropped over 50% in 2008 But we knew that would happen back in 2007.

Get out when a systemic failure is coming – and we knew for several years that this downturn was coming – it had to happen. You can’t do really stupid lending and wildly drive up house prices by making ridiculously bad loans all across a country as large as USA and not have it fall apart. CNN has been keeping us informed of this crisis for several years now. Nobody that owns a TV should be surprised by recent declines in markets. Some would have us believe that the recent US bail out means we are at the bottom I don’t agree.

In 2007 I protected my clients by advising them to move 60% to 80% of their investments from mutual funds into daily interest accounts. That was because we knew the mortgage crisis and US real estate market fiasco was going to implode sooner or later. We knew that would cause serious economic repercussions during 2008 and 2009. I predicted a 40% to 60% drop. The TSX was between 14,500 and 15,500 when I was moving my client’s money to safe ground. In Sept 2008 it was now about 12,000 so it is about ½ way down. Again I predicted it would drop to about 8,000 during 2008 and 2009 before it levels out and begins a growth period and I see no reason to change my view now. (Actually it could go even lower)

My clients are happy now because they have been earning interest but more importantly they are in a position to begin buying back into the markets and that will make them a lot more money.

If you’re tired of mutual fund salespeople telling you what the fund managers told them to tell you and you want someone with insight to look after your interests instead of their interests then call me. I’d love to help you. Call me to find out what to do now.


Gordon Hughes FCI, ELP, CFP
York Financial Phone me at York Financial 443-7777 or home office 459-2224 or residence 472-7308
Services Inc. email me at ghughes@nb.aibn.com
Check my website www.smartchoicelife.ca