(An audio version of this letter can now be found as Episode 41 of The Unlimited Podcast by Ginsler Wealth. Use the link provided or find us on your favourite podcast app.)

To Ginsler Wealth’s Clients:

A few weeks ago, I experienced what all financial advisor parents dream of. I came home to find my youngest daughter’s Grade 8 Financial Literacy test on the dining room table. She had earned a mark of 95%. I couldn’t have been more proud, and thought about ordering Ginsler Wealth business cards for her right away!

But I might have gotten ahead of myself…

Later that day, my wife and kids were going to Walmart to pick up a few things they needed. Recalling the financial literacy test topic of “needs vs. wants” (see above), I reminded Penny that while she is shopping to truly focus on buying what she needs rather than everything she wants when she is there.

Penny looked at me stone-faced and said: “I need what I want.”

I guess I won’t be ordering those business cards just yet.

THE STOCK EVERYBODY WANTS

As we hit the mid-year mark of 2024, the U.S. stock market – as represented by the S&P 500 Total Return Index – has continued its positive run, up just over 15%. This is a fantastic 6-month return, more than a typical investor would need to prudently grow their wealth. (To be clear, this is a simplified example, as you know your Ginsler Wealth portfolios are far more diversified than having exposure to a single stock market.) Our Canadian equity market – as represented by the S&P/TSX 60 Total Return Index – has returned a fine, but relatively underwhelming, 4.9% so far this year.

However, the stock everyone wants is Nvidia, which is up over 150% in 2024 and which briefly became the most valuable company in the world with a market value above $3 trillion. In fact, it is important to note that Nvidia alone is responsible for approximately 30% of the S&P 500’s gain so far this year.[i]

Nvidia is a fantastic company that is powering the current artificial intelligence revolution. Most of our clients will have exposure to Nvidia through the broad market equity holdings in your portfolios.[ii] But we always caution investors against having too much exposure to a single equity, or any investment for that matter.

NEEDS-BASED FINANCIAL AND INVESTMENT MANAGEMENT

This is because our role as your financial and investment advisor is to approach the management of your wealth from the lens of “needs” as opposed to “wants”.

Our clients do not need 150% 6-month returns, nor do they want the corresponding risk that comes from striving for that level of return. In fact, most of our largest families ignore individual stock or stock market performance and focus instead on the performance of their diversified portfolios, which target steady growth—at a rate meaningful to their specific circumstances and needs. This is because they understand that meaningful wealth is typically created by operating and growing businesses or professions they control, rather than by picking the day’s hottest stock. And staying wealthy happens through prudent investing, and prudent management of their financial and tax affairs.

SCHOOL’S OUT FOR SUMMER

When you try your best, but you don’t succeed
When you get what you want, but not what you need
—Coldplay, Fix You

Speaking of tax affairs, the Coldplay lyrics above sum up our current Liberal government’s approach to fiscal management, the prime example being the recent increase to the capital gains inclusion rate.

As you know, we spent a significant amount of time this past quarter reviewing these changes and taking action in your portfolios with the goal of reducing the overall tax liabilities that these changes could create. (Listen to The Unlimited Podcast episode Federal Budget Breakdown featuring tax expert Ali Spinner, to get a refresher on what changed.)

While the government wants the wealthiest Canadians to pay “just a bit more” (as it did in 2016, 2017, 2019, 2021, and 2023)[iii], what it actually needs are taxation and other policies to encourage investment and productivity. No less an authority than Bank of Canada governor Tiff Macklem said just last week, “figuring out how to make Canada a better place to invest is critical…”. Increasing taxes on the fruits borne from investment surely won’t accomplish this. While school is now out for summer, perhaps our country’s leaders could brush up on their financial literacy education as well.

WHAT GINSLER WEALTH NEEDS

This past quarter Ginsler Wealth was pleased to be named by Wealth Professional, a publisher focused on the Canadian wealth management industry, as an Excellence Awardee in the category of Holistic Advisory Team of the Year and a 5-Star Wealth Management Firm – a listing of some of the best wealth management firms in Canada.

Most firms want industry accolades, but we prioritize your satisfaction above all. At Ginsler Wealth, our main focus is ensuring you are happy with the service we provide. While industry recognition is nice, our greatest need is knowing that we’ve done a great job for you.

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Have a wonderful summer. We hope you get to enjoy both what you need and what you want.

Thank you for your trust, support, and confidence. We are available 24/7 should you need us.

Sincerely,

Brian Ginsler
President & CEO

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[i] https://www.wsj.com/finance/stocks/ai-frenzy-propels-stocks-to-monster-first-half-620229cc?st=i80f4h4e79q2onh&reflink=article_email_share

[ii] For the balance of this letter, please recall that our clients have different investment goals, objectives, and risk tolerances, and therefore will have different portfolios, which may not include some of the strategies or securities detailed herein.

[iii] Years determined with the help of Perplexity AI, which scanned 15 sources to compile the applicable years, and with the help of OpenAI ChatGPT 4o, which conducted a similar operation. Sources included: Grant Thorton LLP Canada, The Fraser Institute, The Canadian Press, Reuters, The Financial Post, Canadian Taxpayers Federation, Reuters, CBC, CTV News, The Associated Press, Wealth Professional, The Liberal Party of Canada, among others.

(An audio version of this letter can now be found as Episode 37 of The Unlimited Podcast by Ginsler Wealth. Use the link provided or find us on your favourite podcast app.)

To Ginsler Wealth’s Clients:

You may have heard the joke about two economists walking down the street and seeing a $20 bill lying on the sidewalk. The first economist says, “Look at that $20 bill.” The second says, “That can’t really be a $20 bill lying there, because if it were, someone would have picked it up already.” So they walk on, leaving the $20 bill undisturbed.[i]

The notion above is that there can’t be “free money” lying around in plain sight. The “markets” are efficient and opportunities like the above cannot exist.

I beg to differ.

A few weeks ago, I was in a long line at Burger Shack, our family’s favourite burger joint, to pick up food for dinner. There were at least six people ahead of me placing and collecting their orders. As I waited for my turn to order, my eyes gazed at the floor directly in front of the cashier and I saw a loonie and a quarter lying in plain sight on the ground.

With that old economist joke in my head, I watched in disbelief as person after person completely missed, or ignored (?), the FREE MONEY lying on the ground.

When it was my turn to order, I promptly reached down and picked up the free money, and placed it in the tip jar for the staff.

Clearly, $1.25 is not a large sum of money, but if you can find $1.25 in many places, it can add up. At Ginsler Wealth, we believe a critical part of our job, is to find you “free money”.

THE SEARCH FOR FREE MONEY

Investing is hard. What I have learned in twenty-five years in the business is that you should jump at opportunities to earn a risk-free return (the investing equivalent of “free money”). As we oversee your finances and investments, here are examples of what we are doing, and have done, to seek out free money for your benefit.

1. Tax and Investment Holding Structuring

The first step is to ensure your family has the appropriate tax structure in place to conduct your activities – with the goal of the highest after-tax investment and financial outcomes. For example, we have helped many of you set up holding companies and family trusts. These structures aim to either defer the payment of taxes or reduce a family’s overall tax burden. Similarly, simply making use of government-provided registered accounts (like the RRSP, TFSA, RESPs, etc.) can save a dramatic amount of taxes over time. In the case of the RESP[ii], the government literally gives you “free money” when you contribute. When you structure, or maximize the use of registered accounts, to defer or save taxes, the result is money you get to keep instead of handing it over to the CRA.

2. Negotiating Fee Reductions

We are very conscious of the investment management fees you pay, and we strive to keep them as low as possible. Once we have determined that an investment strategy is a suitable addition to our roster, where possible, we go to work negotiating the fee structure (and sometimes other terms). Our investing scale often results in our clients paying a substantially discounted management fee. For example, with one of the strategies we use, the management fee is reduced by 0.75% for Ginsler Wealth clients. This equates to an additional “risk free” 0.75% return on this investment in your portfolio.[iii] This fee reduction has, on average, represented an annual 8% enhancement to the return on that investment over the past 3 years. We utilize several strategies with discounted fee structures to benefit our clients.

3. Taking Advantage of Discounted Dividend Reinvestment Programs (“DRIPs”)

Similar to a fee reduction, we love finding investment funds than enable our clients to automatically reinvest monthly distributions at a discount to their market value. A number of the strategies we use offer a 2% or 3% reinvestment discount. This means that you earn an immediate, risk-free return on each distribution that is reinvested. Like the small change on the Burger Shack floor, it may not seem like a lot of money, but—as the chart below shows—if you can collect small amounts every month in perpetuity, they can add up.

In addition, certain strategies we use will pay distributions, not in the form of income (which is taxable), but rather as a “return of capital”[iv] (ROC) which are not taxable in the year received. Instead, the investor will incur a higher, but more favourably-taxed, capital gain at a later point when the holding is sold. This ROC acts as a tax deferral and tax reduction mechanism. Which leads us into the next item below…

4. Re-characterizing Income into Dividends or Capital Gains

As you likely know, interest income is taxed at the highest rates in Canada. That is why, in addition to the prospect for high returns, investing in equities—whose returns come in the form of capital gains only when sold—tends to be the most tax-effective way to grow wealth inside a taxable investment account. But for those who wish to invest in other potentially less-volatile or less-risky asset classes for a portion of their portfolios, we have found a few select investment strategies that either pay dividends instead of interest, or have a legacy legal structure that enables all returns of any type to be treated as capital gains. The above strategies can potentially reduce your taxes between 25%-50% on each dollar of income. Put another way, a 5% return on the aforementioned tax-advantaged strategy would be equivalent to a regular bond portfolio that returns 8% in the form of income. While 8% sounds better than 5%, ultimately, the net return after taxes is the true measure of portfolio performance and our effectiveness as portfolio managers.

5. The Use of Whole Life Insurance, Especially Inside a Corporation

Whole life insurance is a permanent insurance policy that grows in value over time by participating in distributions from the insurance company’s pool of investments. This type of policy offers a significant opportunity to boost wealth and estate value, for two key reasons:

1. The policy’s value grows tax-free and is typically distributed tax-free[v] upon death, and
2. When held within a corporation, the proceeds can be paid to your estate on a tax-free basis[vi] without being subject to additional taxes like most other corporate assets.

For someone with a corporation, the additional after-tax value of dollars invested in a whole life insurance policy can be potentially double what could be achieved without the use of insurance.[vii] Now that’s what I call “free money”!

For a deep dive into whole life insurance, along with a more concrete example of the above, please listen to the latest episode of The Unlimited Podcast—Insurance 201 with Sterling Park.

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Why am I telling you about all this? First, we want to ensure you know what we are doing and how we are thinking around meeting your long-term wealth and investing goals. Second, we have always been clear that we don’t have a crystal ball and can’t predict the future. To mitigate this limitation (which we believe all investors and forecasters have, whether they admit it or not), we want to stack the deck in your favour by taking advantage of as much risk-free money and opportunities that we can find. This approach is akin to shifting the starting line of a race closer to the finish line.

Now, if only I could get that line at Burger Shack moving a bit more quickly!

THE ONLY THING “LIMITED” ABOUT YOUR GINSLER WEALTH EXPERIENCE…

Like most other businesses, Ginsler Wealth can be found on popular social media platforms including LinkedIn, Instagram, Facebook and X (formerly, Twitter). And of course, we have The Unlimited Podcast that is available to all as well. While we are active on those platforms, over the past few months I have realized that I have a lot I would like to share with our clients and closest “friends of the firm”, but not necessarily with our large number of public followers. And I wanted to do so in a way that would not bombard your email Inboxes.

So contrary to prevailing social media wisdom, we have created @ginslerwealthx, a private X account, to provide you with inside access to what we are thinking about and working on – on your behalf. Please note that while the account is private, once you follow it (and we let you in!), you will be able to see the other Followers and vice versa.

Think of it as the only thing “limited” about your Ginsler Wealth experience.

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Finally, I would like to congratulate my colleague Safal Bhattarai—who many of you know well—on becoming registered by our Regulator, the Ontario Securities Commission, as a Portfolio Manager[viii], and as such his promotion to Portfolio Manager at Ginsler Wealth.

Thank you for your trust, support, and confidence. We are available 24/7 should you need us.

Sincerely,

Brian Ginsler
President & CEO

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[i] Text taken from: https://www.cbsnews.com/news/efficient-market-thinking-is-inefficient/

[ii] Registered Education Savings Plan.

[iii] The additional 0.75% return is “risk free” because it is a direct subsidy by the manager and does not depend on the underlying performance of the investments themselves, which of course always carry some level of risk.

[iv] This return of capital (ROC) may be a full (i.e., 100%) or a partial return of capital, depending on the fund.

[v] The tax-free nature of whole life insurance may not be absolute under certain circumstances, including in shorter duration insurance policies. This letter is meant only to provide a high-level overview of the benefits of whole life insurance and is not comprehensive. Please speak with Ginsler Wealth Financial Services Inc., a FSRA licensed insurance agency, or your own insurance advisors for more specific details.

[vi] Ibid.

[vii] The precise outcome of utilizing these types of insurance policies will depend on the age, gender, and medical profile of the insured(s) at time of entering into the policy and the age of death of the unsured(s) amongst other factors. Talk to Ginsler Wealth Financial Services Inc. or you own insurance advisor for more precise details.

[viii] Technically, the registration category is called “Advising Representative” but is known in the industry as a “Portfolio Manager” registration.