Understanding Financial Concepts

As we move forward into the New Year, many of us are in the process of reviewing our financial plans. During this process we are often faced with new concepts and terms that some of us may not be familiar with. As your financial advisors here at Continuum II, we have compiled a list of concepts that we feel are essential to understand when building and effective financial plan.

Diversification: In financial terms, diversification means that you invest in a variety of assets to reduce risk, in other words diversification promotes not putting all of your eggs in one basket. One may even compare it to the following; remember the Atkins diet, high in protein and low in carbohydrates? It promises fast weight loss, but stick to it too long and you may end up with high cholesterol and kidney problems. Basically, too much of a good thing can be bad for you!  Now compare that to the Weight Watchers diet by eating from diversified food groups in moderation you will reach your weight goals, be healthier and the results will last. So to better reach your financial goal, keep your investments diversified to include Cash, Fixed Income, Canadian Equities, and U.S Equities and for a little spice some Global Equities. Your financial planner at Continuum II can help you select the right mix to meet your individual goals.

Chasing Returns: Chasing returns is the act of switching from a poorly performing investment, to one that has recent return success. It is comparable to waiting until after Lance Armstrong has won all 7 Tour de France titles to place a bet on his winning the next one. However, much like Lance, buying into last year’s top fund(s) is never a guarantee and it is unlikely to stay on top. In respect to your finances, it is better to choose a fund with at least a 5-year history of stability and decent returns. Added tip, if it looks too good to be true, it probably is.

The concept of Buy low and Sell high: Think back to grade 5 math.  You buy a bushel of tomatoes from your local farmer in August. The bushel weighs 65lbs and costs $10.00. In December you go to Whole Foods and buy 1 pound of tomatoes at $2.99 a pound. How much would a bushel cost? (65x $2.99 = $194.35). Based on these figures, the time to buy tomatoes is in August. The time to sell tomatoes is in December. The same type of formula applies to your investments. It is all about figuring out when the time is right, and when you will receive the biggest, or best possible, return. This is what your fund manager does, so you don’t have to.

Dollar Cost Averaging: Dollar cost averaging is an important concept for everyone to understand. The idea behind dollar cost averaging is that by averaging costs over a specific period, it may lessen the risk of investing a large amount in a single investment at the wrong time. Stocks aside, dollar cost averaging is a concept that can be applied in your day-to-day lives. For example: Take the mundane investment of filling your car up with gas. Every week, on Monday you buy $50 of gas for your car. Some weeks you fill your tank, other weeks it’s a little less than full. With the cost of gas constantly fluctuating it makes it hard to decide on how much you want to invest (put into your car) at any given time. So what should you do?  Why buy gas every Monday of course! Think about it like this. In January you have no idea what the price of gas will be during the year and you cannot buy a years worth of gas all at once. By buying gas every week, the average price of gas for the year is $1.24. Treat your savings the same way, invest regularly and your average cost will lower, you will surely avoid buying a years worth of investments at the years high.

Compound Interest: Compound interest is the idea that any added interest that you may accumulate produces such benefits that it to may also collect interest going forward. Think of it like this. You buy a plant from your local garden center. The plant begins to blossom beautiful flowers-these flowers are what can be considered the interest on your investment. Eventually, those flowers begin to spread seeds, and before you know it you have a garden full of flowers. In other words, your original investment provided you with interest, which then spread to provide even more interest. When working with your investment advisor look for stocks that have the potential to snowball and get the most out of your money. Happy investing!

Credentials are important: When choosing a family Doctor it is reasonable to look for and expect to see MD after their name. When choosing a financial planner it only makes sense to look for, and expect, your financial planner to have the Certified Financial Planner (CFP) designation after their name. The CFP designation is one of the most rigorous and well-respected designations, signifying competence and high ethics. Insist on it!

If you have any further questions regarding any of these concepts, or others, contact your financial advisor at Continuum II today.

Drafting HR Policies

No matter how big the business, Human Resource (HR) policies are a must!

Jodi Posavad, an expert in HR services and owner of Grassroots HR Consulting, has provided us with the following information on drafting HR policies. Below Jodi outlines 6 different areas in which HR policies can be developed.

Regardless of your head count, both small and medium sized businesses alike are required to have a number of policies in the eye of the law. When drafting your HR policies, it is important to ensure the following areas are covered;

Health and Safety: Each province defines obligations to ensure workplace safety. The Ontario Health and Safety Act, for example, establishes processes and obligations to ensure safe workplaces. Depending on the size of the business, the requirements could involve forming a Health and Safety Committee and/or electing a representative, scheduling regular workplace inspections and training staff on safe work practices.

Workplace violence and bullying: Provincial Health and Safety Acts, such as a 2010 amendment to the Ontario Health and Safety Act, Bill 168, imposes obligations on employers to establish policies and train employees concerning workplace violence and bullying.

Discrimination and harassment: Employment policies must comply with human rights laws, such as the Ontario Human Rights Code, to ensure businesses operate in an environment free of discrimination.

Accessibility: The Charter of Rights and Freedoms, as well as the provincial legislation, impose different obligations and requirements for businesses depending on the province and the number of employees.

In addition, comprehensive policy documents must be clearly communicated to all employees in order to produce significant productivity benefits. To achieve them, business owners need to make sure their employment terms address the following areas, among others:

• Hours of work, overtime entitlement and paid time off, including vacation.
• Performance management, promotions and compensation structure.
• Benefits and perks.
• Appropriate conduct and general employee expectations

Confidentiality & Non-disclosure agreements: Every organization should have a written confidentiality policy describing both the type of information considered confidential and the procedures employees must follow for protecting confidential information. Non-disclosure agreements, sometimes referred to as proprietary information agreements, are contracts designed to protect the confidential business information. These agreements are an essential component of businesses today, especially since the electronic transfer of information is just a click away. One slip of the finger and information could end up in the hands of a competitor.   

Technology: Telephones, computers and smartphones, as well as social media and Internet access that a company provides to their employees all present potential business risks. Therefore, the terms of their use should be clearly defined. All businesses should have a social media policy that draws the line between proper and improper use of social media channels. Such policies should also illustrate what is considered professionally appropriate, in the context of their business, and what’s not.

Often small and medium business owners are so busy managing their business that they don’t invest the time or resources required to ensure legislative compliance and operational efficiency.

Building HR practices into your business plan doesn’t need to be difficult. Neither should it negate all that makes small- or medium-sized businesses so attractive. Good HR practices make businesses stronger and workplaces better.

Willing Wisdom; 7 Questions Successful Families Ask

Willing Wisdom

 Seven Questions Successful Families Ask

By Thomas William Deans Ph.D.

A Book Review

Recently Lise received a copy of the book  “Willing Wisdom” by Mr. Thomas William Deans- a public speaker to the wealthy and their professional advisors. Having just completed her own book on inheritance she was curious to see what Deans had to say on the subject of preparing heirs for an inheritance. In writing “Willing Wisdom” Mr. Deans' wanted to help readers improve family relationships through communication and help children to become better stewards of wealth. This book will be of interest to readers who have not updated their wills for several years, for families of young children and for those who have not communicated to their executors their wishes or where to locate the will.

“Willing Wisdom” is written in a folksy style with less than 150 pages. Deans makes a good case for the importance of having an up to date will. Did you know less than 50% of the American population has a current will at the time of their death?  Even for those of us in the financial planning profession, this is a shocking statistic. Dying intestate (without a will) can, and does, cause numerous problems. These problems include delays in transferring wealth and additional costs from not taking advantage of tax savings provided to those who plan their affairs better. During his years as a speaker Deans was shocked to discover how few people have talked to their families about their wealth and their plans for distributing that wealth during their lifetime and after their death. “Willing Wisdom” is his response to those who have not had the inheritance talk with their families.

With various areas of focus, the book is essentially divided into two parts. The first part of the book explores Deans own family’ story of how they were able to successfully pass on the family wealth to the next generation through early and ongoing communication. Contrasting Deans success story, the book also highlights the stories of other’s whose estate plans were not so successful. The second part of the book focuses on what Deans has called the 7 questions. These 7 questions outline the most important things to ask yourself, and your family, in preparation for dealing with all things in a will.

Personally, most interesting to read are the 7 questions; after all, we all want to enjoy the benefits of successful wealth transfer. Here are the questions; I will leave it to you to read the book to discover the answers. Hopefully the questions themselves will spark your interest in beginning a meaningful conversation with your loved ones.

1. What word best describes our family?  Share a family story that helps to      explain the word you selected

2. Describe how your parents acquired their wealth. Share a memory about something your parents did to provide for you that left a lasting impression

3. How would an inheritance advance your dreams for yourself, your family, and your community?

4. In the context of planning for the division of your assets, does fair mean fair or does it mean equal?  Who are you planning to leave your wealth to and will you share a copy of your will with  me?

5. Describe how your parents divided their assets and when you first learned of the contents of their will?  What would you do the same and what would you do differently?

6. Describe the role you play or played in the final care of your parents.  Can you name one thing that was or is being done well, and one thing you could change or wish you had done differently?

7. Describe in detail your last wishes.

If you have any questions regarding your will, or the will of a loved one- please contact the office at 
info@c2inc.com.

To order a copy of Deans book Willing Wisdom; Seven Quesions Successful Families Ask: Click Here

Reviewing Contracts; What you need to know!

When it comes to reviewing contracts, it isn’t always as simple as dotting your i’s and crossing your t’s. Before signing any type of document it is important to read everything carefully, paying close attention to the little things that can often get overlooked. Guiding us through the topic of reviewing contracts, Murray Gottheil and his colleagues at Pallett Valo LLP have developed a list of the most common issues to consider;the following highlights 5. For the full list follow the link at the bottom of this blog.

1. What is the Context?

Context is everything. Before jumping into any contract, consider the following;

• What is the other side’s reputation for honest dealing? 
• How much money is involved? 
• How important is the contract to you? 
• How important is the contract to the other side? 
• How much do you have to invest to perform your obligations or to reap the benefits of the contract? 

• How does the “golden rule” apply? (For those of you who are unfamiliar with the golden rule, it is “He who has the gold, rules”.)

• Interest stated at a monthly rate is not enforceable at more than 5% per annum in Canada unless an annual equivalent rate is stated. The annual equivalent rate of 1% per month is not 12% per annum, but 12.68% per annum.

• Charging more interest after default than before default is enforceable in Canada, unless the contract pertains to real estate, in which case it is not enforceable.

• Non-competition agreements are often unenforceable, but may be enforceable if carefully structured and appropriately limited both in geographic and temporal scope. Whether or not enforceable in court, their mere inclusion may persuade a party not to compete, or a third party not to deal with another for fear of incurring liability to the party in whose favour the non-compete provisions are included in the contract.

• In commercial leases, there is often a restoration clause tucked away in fine print that requires the tenant to restore the premises to base building standards at the end of the lease. This can prove quite costly and many tenants are not aware of the obligation until the lease is terminated.

• In commercial leases there is sometimes a hidden security interest which allows the landlord to register its security and interfere with the tenant’s ability to obtain financing.

• Penalty clauses are usually unenforceable, but if carefully structured may be enforceable.

• In software development contracts, often what is missing is a provision that says that the customer owns the copyright in the software and the source-code and that the developer has waived its moral rights.

• In promissory notes, an acceleration clause on default is often missing. Consideration should also be given as to whether it is appropriate to provide for penalty-free prepayment of the balance owing, or whether or not the note is to be treated as a negotiable instrument.

• In employment agreements, the right to change the employee’s responsibilities or transfer the employee among offices is often missing, as are provisions that address ownership of intellectual property.

• In order to determine what is missing from any particular contract, the best approach is to look at checklists and examples, which are readily available from many sources, including legal publishers and law firms.

For Example: 
Promises such as these raise questions as to specifically how much effort or expense a party is required to devote and what happens if its efforts are unsuccessful; so be sure to read carefully and ask questions if it is unclear.

 2. Tricks and Traps

Contracts have tricks and traps. Here are some of them;

3. What is missing?

The most difficult part of reviewing a contract is identifying what is missing. Watch for the omission of the following;

4. Agreements to Agree

Contracts often have various “agreements to agree” scattered throughout them, and they are not typically legally enforceable. To avoid agreeing to something that you may not want to, or be conscious of, be sure to read everything carefully, and slowly-don't rush.

An agreement to agree on future price changes or quotas in a distributorship agreement or agreements to agree on rent payable during the renewal term of a lease. Sometimes the “agreements to agree” are so fundamental to the contract that they may render the entire agreement unenforceable.

5. What is the level of commitment?

There are some agreements in which the promises made by one party are always stated as "mandatory" obligations while the promises of the other party are always stated to require the party to "attempt" to do things. In acknowledging this, it is imperative when reviewing a contract that you pay close attention to the way it is written-even the slightest change in phrasing can make a huge difference. 

“The Purchaser shall” is different than “The Purchaser shall use its best efforts to” which is different from “The Purchaser shall use reasonable commercial efforts to” which is different from “The Purchaser shall use efforts to”. 

In all, before dotting your i’s and crossing your t's consider the above prior to signing any contract or legal document. Don't get yourself into a bind, be cautious before you sign. 

Read the full list for more advice on reviewing contracts!

For other information regarding Pallett Valo LLP visit their website

http://pallettvalo.com/

Note: Before writing, reviewing or negotiating your own contract, you should speak with a experienced commercial lawyer who can help you navigate your way through these and other issues.