Emerging Market Investing with Rohit Khuller on The Unlimited Podcast

Most Canadian investors focus on developed markets, mainly in the U.S., Canada, and parts of Europe. However, there’s a world of untapped potential in select emerging markets—regions that drive a substantial portion of global GDP. While these markets carry a unique blend of risks, they also offer powerful growth opportunities that investors shouldn’t overlook.

On this episode of The Unlimited Podcast, Brian explores the world of emerging markets investing with Rohit Khuller, Partner and VP of Investment Management at Letko Brosseau & Associates Inc. As the Lead Portfolio Manager of the firm’s Emerging Markets Equity portfolio, Rohit breaks down what defines emerging markets, highlights the investment opportunities they offer, and shares examples of some of the fund’s top holdings.

Rohit Khuller is Vice President & Partner at Letko Brosseau & Associates, an independent investment manager, managing approx. $18 billion in assets, with offices in Montreal, Toronto and Calgary. In addition to his role as Portfolio Manager, he is a member of the firm’s Investment Council, overseeing portfolio strategy and risk management for all of the company’s assets, and he is the lead portfolio manager responsible for the firm’s emerging markets equity investments. Prior to joining Letko Brosseau, Mr. Khuller’s career in various industries such as automotive, aerospace and banking in several countries enabled him to deepen his knowledge in different fields. Rohit has successfully completed the General Management Program (GMP) from Harvard Business School, has an MBA from McGill, a bachelor’s in engineering from Delhi College (B. Eng), and is a CFA charterholder.

This episode can be found here or find us in your favourite podcasting app, including Apple Podcasts, Spotify, and Amazon Music.

If you like what you hear, please don’t hesitate to rate us kindly. And if there are particular topics you’d like covered, please let us know.

Ginsler Wealth Third Quarter 2024 Client Letter – Do Nothing Edition

(An audio version of this letter can now be found as Episode 45 of The Unlimited Podcast by Ginsler Wealth. Use the link provided or find us on your favourite podcast app.)

To Ginsler Wealth’s Clients:

This past August, in the middle of this past calendar quarter, equity markets around the world experienced significant declines. This was particularly evident in the U.S., driven by several of the Magnificent Seven[i]. Contributing factors included a slowing economy, job creation not meeting expectations, Buffett selling half of his favourite stock (Apple), and companies investing billions in NVIDIA processors and chips not seeing the anticipated returns.

Coincidentally, I chose the August long weekend to visit a resort in my favourite place on earth, Algonquin Park, where there is no cell reception.

Or so I thought.

In the very early hours of Monday (August 4) morning, a faint, single bar of service must have magically appeared, and a few errant texts slipped through, along with a single Wall Street Journal news alert notification…

“Oh shoot,” I said to my wife. “Japan’s stock index fell 12.4% last night!” (Full disclosure: I didn’t actually use the word “shoot”).

Despite my excitement about being disconnected for a few days, I felt this news warranted driving out of the resort until we found reliable cell reception. We were like characters from the movie Twister, but instead of chasing tornadoes, we were chasing cellular service.

When I saw two bars of reception on my screen, we pulled the car over to the side of the dirt road, and I quickly caught up on what was happening in the world and markets.

It wasn’t pretty.

 

DO SOMETHING!?!

During those ugly days in early August, the Japanese stock market was actually down about 25% from its July high and the U.S. stock market was down about 8.5% from its July high. See chart below…

With 2022 now far behind us, investors may have forgotten what it feels like to have a big down day (or a few days). This is normal for equity markets. For investors, this is the required cost of striving for solid long-term returns. But history has shown that the “Average Investor” often reacts impulsively or out of fear when markets suddenly decline—with a feeling that they must do something. As the table below shows, historically, this has resulted in the Average Investor significantly underperforming relative to almost any relevant asset class or benchmark. While the data below is a few years old, I am confident its conclusion has not changed materially in the last few years.

So what happened following August’s sudden declines? As is often the case, the markets’ steepest declines are quickly followed by steep increases (as you can see in the chart below). By the last day of the quarter, the S&P 500 closed at an all-time high, and Japan’s Nikkei index had recovered much of its decline.

When viewed on a longer-term basis, these market blips become irrelevant (see chart below); but in the moment can feel like they are the beginning of the end! Over the past ten years we have experienced numerous events that have shaken the markets. Here are ten big ones as summarized by ChatGPT:

  1. 2014 Oil Price Crash: A sharp decline in oil prices, beginning in mid-2014, impacted global markets, particularly energy stocks and economies reliant on oil exports.
  2. 2015-2016 Chinese Stock Market Turbulence: A selloff in Chinese equities and a devaluation of China’s currency led to global market volatility and declines.
  3. Brexit Referendum, 2016: The United Kingdom’s vote to leave the European Union on June 23, 2016, caused immediate market uncertainty and declines, particularly in European stocks and the British pound.
  4. 2018 Trade Tensions: Ongoing trade disputes, especially between the United States and China, led to market volatility and corrections throughout the year.
  5. COVID-19 Pandemic, 2020: The onset of the coronavirus pandemic led to one of the most severe market crashes in history, culminating in significant declines in March 2020 as global economies went into lockdown.
  6. 2020 U.S. Election Uncertainty: The uncertainty surrounding the U.S. presidential election results and associated political tensions contributed to market turbulence in late 2020.
  7. Supply Chain Disruptions, 2021: Global supply chain issues, exacerbated by the pandemic, led to inflation concerns and subsequent market volatility.
  8. Ukraine-Russia Conflict, 2022: The Russian invasion of Ukraine in February 2022 resulted in geopolitical instability, rising energy prices, and global economic uncertainty, affecting global markets.
  9. 2022 Inflation and Interest Rate Hikes: Rising inflation rates and subsequent aggressive interest rate hikes by central banks, particularly the U.S. Federal Reserve, led to market corrections and increased volatility throughout the year.
  10. Banking Sector Concerns, 2023: Issues within the banking sector, including the collapse of several regional banks, triggered market declines and fears of financial instability.

Interestingly, ChatGPT neglected to include the horrific events that occurred one year ago on October 7, 2023, and the subsequent unbelievable events that continue to this day. I feel it is important to acknowledge this sad anniversary. I continue to pray for the return of innocent hostages taken into Gaza, for peace in the Middle East, and for an end to the abhorrent antisemitism we have seen all over the world.

The events above, along with countless others, profoundly influenced global stock markets, each causing varying levels of uncertainty, fear, and shifts in investor sentiment. And yet, simply holding the S&P 500 index through those last ten years of market blips, would have generated an approximate annualized 11% price return (or 13% total return, when including dividends).

On the topic of doing nothing, the latest episode of The Unlimited Podcast featured award winning author and my first finance professor at Ivey Business School, Stephen Foerster. We discussed his latest book, Trailblazers, Heroes, & Crooks: Stories to Make You a Smarter Investor. Professor Foerster specifically recounts a few stories of trailblazers and heroes who were masters of the art of doing nothing – or as Steve labels it: Masterly Inactivity. Rather than repeat those stories here, I encourage you to listen to the episode if you haven’t already.

 

SO WHAT DID I DO? (TAKE A GUESS…)

Back to the side of the road…

With my pulse initially racing, my mind worked quickly to calculate what my next moves should be:

  • Are our client portfolios overly exposed to the “Mag 7”? No.
  • Are our client portfolios sufficiently diversified to handle an equity market pullback? Yes.
  • In our actively managed equity and hedge strategies, will the underlying managers take steps to maximize opportunity or minimize loss? Yes.
  • With a long-term lens, did that morning’s market action change anything we have implemented in client portfolios? No.

I very quickly concluded that the best course of action was to do nothing.

Having done the necessary work in advance, and knowing that we had carefully and diligently constructed our clients’ portfolios to handle market volatility[iii], the only thing left for my wife and me to do was to turn around, drive back to the lake, and hit the water…where things were much calmer…

—————–

All that being said, there’s actually a lot of activity – investment and other – going on at Ginsler Wealth, and I look forward to sharing it with you in next quarter’s letter. Maybe I’ll call it the “Do Something Edition”.

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

Sincerely,

Brian singnature

Brian Ginsler
President & CEO

 

 

—————–

[i] The term “Magnificent Seven” in the context of the stock market refers to the seven leading technology or tech-related companies in the United States, known for their significant impact on the market due to their large market capitalizations and influence. The Magnificent Seven typically includes: Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOGL), NVIDIA (NVDA), Meta Platforms (META): formerly Facebook, and Tesla (TSLA). These companies are noted for driving substantial market trends and innovation, often serving as a barometer for the technology sector and broader stock market performance.

[ii] Source: J.P. Morgan Guide to the Markets 2021-03-31. Average asset allocation investor return is based on an analysis by Dalbar Inc., which utilizes the net of aggregate mutual fund sales, redemptions and exchanges each month as a measure of investor behavior. Returns are annualized (and total return where applicable) and represent the
20-year period ending 2019-12-31 to match Dalbar’s most recent analysis.

[iii] As always, each client’s portfolio is constructed for their particular needs, goals, and objectives, and as such, may react differently under varying market conditions.

Trailblazers, Heroes, & Crooks with Stephen Foerster on The Unlimited Podcast

During his first year at Ivey Business School, Brian’s career plan changed significantly after taking an Introduction to Finance & Investing course. The insights gained from that class inspired him to pivot from a career in accounting to a focus on finance and investing.

Twenty-five years later, Brian reconnects with Stephen Foerster, the professor who sparked his interest in finance, to discuss Foerster’s latest book: “Trailblazers, Heroes, & Crooks: Stories to Make You a Smarter Investor”.

Brian and Steve discuss trailblazers Quintus Fabius and Muhammad Ali; heroes Warren Buffett and Harry Markopolos; and crooks Bernie Madoff, Sam Bankman-Fried and Tino DeAngelis; among others. You don’t want to miss these stories, which could make you a smarter investor.

Stephen Foerster is an award-winning author and Professor of Finance at Ivey Business School, where he has taught since 1987. He received a BA (Honors Business Administration) from Western University, and an MA and PhD from the Wharton School, University of Pennsylvania. He obtained the Chartered Financial Analyst (CFA) designation in 1997 and has taught Financial Management, Investments, and Portfolio Management courses in the HBA, MBA, and Executive MBA Programs. He has won numerous teaching and research awards.

Foerster has also written two textbooks and over 100 case studies and technical notes in the areas of investments and financial management. He has published over 50 articles including in the Journal of Financial Economics, the Journal of Finance and Financial Analysts Journal. Foerster has served on pension and endowment fund boards as well as not-for-profit investment committees.

This episode can be found here or find us in your favourite podcasting app, including Apple Podcasts, Spotify, and Amazon Music.

If you like what you hear, please don’t hesitate to rate us kindly. And if there are particular topics you’d like covered, please let us know.

Who is Juveria Zaheer? on The Unlimited Podcast

What does it take to be a Jeopardy! champion? After winning over Canadians’ hearts and minds with her standout performance on Jeopardy!’s Tournament of Champions, Dr. Juveria Zaheer returns to The Unlimited Podcast to share her journey. In this episode, Brian and Juveria talk about her road to Jeopardy!, the importance of developing new skills and embracing risks, and the incredible work Dr. Zaheer is doing with the Centre for Addiction and Mental Health (CAMH). Tune in for inspiring life lessons, fascinating stories, and more!

Dr. Juveria Zaheer is an associate professor of psychiatry at the University of Toronto’s Temerty Faculty of Medicine, and a clinician scientist at CAMH. As the medical head of CAMH’s emergency department, she plays a critical role in providing urgent psychiatric care to individuals in crisis. Dr. Zaheer is also a renowned researcher and a leading authority on suicide risk assessment and prevention.

In addition to her medical achievements, Juveria recently garnered international attention for her expertise in a different field—trivia! Despite a tough loss on her Jeopardy! debut in May 2023, her strong performance earned her a spot in the Second Chance Tournament later that year. Dr. Zaheer won that tournament, advancing to the Champions Wildcard Tournament, where another victory allowed her to compete in the prestigious Tournament of Champions earlier this year. To learn more about Juveria’s Jeopardy! journey, watch the video below.

Juveria’s first appearance on The Unlimited Podcast can be found as Episode 9: The Future of Mental Health Care.

To learn more about or to donate to CAMH’s “No One Left Behind” campaign, click here.

This episode can be found here or find us in your favourite podcasting app, including Apple Podcasts, Spotify, and Amazon Music.

If you like what you hear, please don’t hesitate to rate us kindly. And if there are particular topics you’d like covered, please let us know.

Private Equity & Life Lessons with Brent Belzberg on The Unlimited Podcast

In this special episode of the Unlimited Podcast, Brian welcomes Brent Belzberg, founder and Senior Managing Partner of TorQuest – one of Canada’s original private equity firms – to discuss leadership, culture, and the keys to success in both life and business.

Brent has been a supporter and mentor to Brian for almost two decades and we were honoured to have the chance to bring our listeners his story and his wisdom.

Brent founded TorQuest in 2002 after selling Harrowston, Inc., a publicly traded investment fund he started in 1992 to invest in and build businesses. Beyond TorQuest, Brent serves as a Director of Sinai Health System, where he was previously Chair. He is a member of the Investment Advisory Committee at the University of Toronto. His past directorships include CIBC, O&Y REIT, and Four Seasons Hotels. In 2018, he was appointed a Member of the Order of Canada for his work as a business leader and philanthropist. Brent received Queen Elizabeth II’s Platinum Jubilee Medal in 2023 for his significant contribution to Canada and the province of Alberta. Brent received a B.Comm. (Honours) from Queen’s University in 1972 and a J.D. from the University of Toronto in 1975. In 2023, Brent received an honorary Doctorate of Laws (LLD) from Queen’s University.

TorQuest is a private equity firm that focuses on middle-market companies in North America, investing across various industries. The firm collaborates closely with family owners, founders, and management teams, and specializes in entrepreneurship/family succession, corporate carve-outs, recapitalizations, and management buyouts.

This episode can be found here or find us in your favourite podcasting app, including Apple Podcasts, Spotify, Google Podcasts and Amazon Music.

If you like what you hear, please don’t hesitate to rate us kindly. And if there are particular topics you’d like covered, please let us know.

Ginsler Wealth Second Quarter 2024 Client Letter – Financial Literacy Edition

(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.

—————–

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 singnature

Brian Ginsler
President & CEO

 

—————–

[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.

 

Ginsler Wealth Named one of The Best Wealth Management Firms in Canada by Wealth Professional

Ginsler Wealth is pleased to have been named one of “The Best Wealth Management Firms in Canada | 2024 5-Star Wealth Management Firms” by Wealth Professional.

According to Wealth Professional, “The list recognizes all the work wealth management firms do to advance the industry and ensure that advisors can provide the highest level of quality service to their clients. The firms recognized on this list represent some of the best wealth management firms in Canada, who are constantly finding new and innovative ways to drive returns for clients.”

“We are very pleased to be named a 5-Star Wealth Management Firm,” said Brian Ginsler, CEO of Ginsler Wealth. “We are just days away from our three year anniversary of the launch of Ginsler Wealth and I am very proud of what we have accomplished – so far – for the benefit of our clients”.

Wealth Professional recognizes Canada’s best wealth management firms devising innovative and creative ways to provide returns for their clients.

Ginsler Wealth Named Excellence Awardee for Holistic Advisory Team of the Year

Ginsler Wealth is pleased to have been named an Excellence Awardee in the category of “Holistic Advisory Team of the Year” for the 2024 Wealth Professional Awards.

This award recognizes the advisory team that has best displayed excellence over the last 12 months offering a full suite of services including, but not limited to, investments, tax and estate planning, insurance advisory, succession planning, etc.

The criteria for this award include:
– Overall client service and relationship management
– Ability to demonstrate the variety of products and services available to clients
– Industry reputation

“We are very pleased to be named an Excellence Awardee for the second year in a row,” said Brian Ginsler, CEO of Ginsler Wealth. “I am especially pleased that this year it was in recognition of the whole Ginsler Wealth team’s unlimited focus on delivering the best wealth management experience to our clients”.

For 10 years now, the annual Wealth Professional Awards (WPAs) has been recognized as the leading independent awards program for the wealth management and financial planning profession.* Winners will be revealed at the celebratory awards show on June 6, 2024 at the Liberty Grand, Toronto. We would like to thank Wealth Professional and wish the best of luck to the other nominees!

 

*According to Wealth Professional’s website: https://wealthprofessionalawards.ca/

Ginsler Wealth First Quarter 2024 Client Letter – Free Money Edition

(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.

  1. 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.

  1. 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…

  1. 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.

  1. 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.

—————–

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.

—————–

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 singnature

Brian Ginsler
President & CEO

 

 

 

 

——————————

[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.

Charlie is the “Real” Architect: Lessons from Buffett’s 2023 Annual Letter

On February 24, 2024, Warren Buffett issued his always-anticipated, and widely read annual letter to shareholders. This letter, began with a special tribute to Charlie Munger, who passed away on November 28, 2023, just 33 days shy of his 100th birthday.

Of note, Buffett very clearly, and without any reservation admitted (or revealed) that Charlie was and has always been the brains behind Berkshire’s entire strategy (Buffett calls him the “architect”), while Buffett was (in his own words) simply the “construction crew”.

In other words, while for decades the world has lavished enormous praise on Buffett for being the world’s genius and best investor, it appears that all along, the accolades should have been going to Charlie.

Each year Buffett uses his letter to provide an update on Berkshire’s activities, but – we believe – it is really a platform for him to attempt to educate other investors on how to achieve success. Here are four top themes and lessons that we’ve identified from his latest letter. (All quotes below are from this years letter).

  1. Buy Wonderful Businesses at Fair Prices, Not Fair Businesses at Wonderful Prices

Perhaps Charlie’s most important strategic instruction to Buffett, or as Buffett says “abandon everything you learned from your hero, Ben Graham”. Does this mean value investing is not the right approach? We don’t think so – it just means having an intense focus on the “value” you are paying when buying what you believe to be great companies.

  1. Buy, Hold and Measure for the Long Term

When you do find these wonderful companies, buy and hold them for the long term, with little focus for the daily “and, yes, even year-by-year movements of the stock market.” For individual investors, this means: don’t trade frequently (or speculate), and don’t have an intense focus on short-term results. At Ginsler Wealth, we also believe that even yearly reviews of performance can be too short-term. Investing is a very long-term pursuit. As our Q4 2023 Quarterly Letter pointed out, if U.S. equity investors (as measured by the S&P500 returns) reviewed their investments based on 2023 calendar year results, they would be ecstatic. But looking back just one further year to 2022, their overall 2-year results would be less than mediocre.

  1. Don’t Expect Home-Runs (from Berkshire)

Buffett goes to great lengths in this year’s letter to make clear that Berkshire’s size and lack of options of “moving the needle” means “no possibility of eye-popping performance”. He instead suggests that the future for Berkshire looks like “a bit better than the average American corporation and, more important, should also operate with materially less risk of permanent loss of capital. Anything beyond ‘slightly better,’ though, is wishful thinking.”

(Secretly, I believe Buffett is trying to signal to readers the type of investor he welcomes at Berkshire, and the type that should invest, or speculate, elsewhere.)

But his forecast doesn’t sound very optimistic. Or does it? You may recall from Ginsler Wealth’s Q2 2022 Quarterly Letter, if an investor can achieve average returns but avoid major losses, resulting longer-term returns could likely be great. In fact, we believe that is the formula for investing success. We advise our clients to expect “reasonable” long-term returns (not homeruns), but with a likely lower chance of large drawdowns. When this approach compounds over many years—not scrutinized over every single month, quarter or even year, as per #2 above—we expect our clients to come out ahead.[1]

  1. Ignore Pundits, Forecasters and the Like

Buffett says “pundits should always be ignored”. As an example, he later says “Neither Greg nor I believe we can forecast market prices of major currencies. We also don’t believe we can hire anyone [emphasis added] with this ability.” Anyone! At Ginsler Wealth, when asked to make any predictions of the future, our answer is always the same: “We don’t know”.

 

Our approach to “not knowing”, is to build diversified portfolios that we believe should perform well, held over the long-term, with less chance of capital loss or impairment. Seems like we’ve been listening to Buffett all along![2]

 

You can read Ginsler Wealth’s summaries of Buffett’s 2022 (last year’s) Letter and 2021 Letter at the links provided.

 

[1] Investing is inherently risky and nothing above should be viewed as a guarantee or promise.

[2] Nothing in this article should be deemed investment advice.

 

Image Credits:

A. Costanza: Dave Quiggle
B. Mosby: Architect Magazine
C. Munger: Lane Hickenbottom/Reuters from Business Insider