Colored Diamonds: What to Know When Making Your First Investment

Like the old song says, “Diamonds are a girl’s best friend.” These days, the beautiful and increasingly rare colored diamond can be an investor’s best friend, too.

Many investment counselors recommend including hard assets like diamonds in one’s portfolio.

Hard assets, which include things like oil, natural gas, gold, silver and real estate, can be an excellent inflation hedge.

Fancy colored diamonds have historically outperformed other hard asset classes. They’re recession-proof and they’re a good option for people looking for assets to hold on to for long-term growth.

Prices for the higher grade categories of colored diamonds have increased in the past 12 years, and the price for pink diamonds in the Fancy Intense color category has increased 1,000 percent for the same period.

Most people picture the traditional clear, colorless stone when they think of diamonds. But, diamonds come in a spectrum of colors — pink, blue, orange, purple, black and other shades. The colors are formed by trace chemical elements and particulates during the crystallization process: the presence of boron creates the blue diamond, while nitrogen produces orange and yellow ones.

The Argyle Diamond Mine in Western Australia is one of the world’s largest diamond producers. It’s the major source for the extremely rare and valuable pink diamond. Less than 1 percent of the Argyle diamonds are pink, making them highly desirable to collectors and diamond connoisseurs.

The Argyle supply of diamonds is being rapidly depleted and the mine is expected to cease operation in 2018. This in turn is driving global demand for colored diamonds — especially the pink diamond — and prices are expected to increase tenfold by the time the mine shuts down.

There are several key points to consider when investing in colored diamonds.

Grading A Colored Diamond

Color grading is one of the most important factors when appraising the value of a colored diamond. There are three criteria. Hue is the main color of the diamond: there are 27 hues. Tone refers to how light or dark the color is. Saturation, or strength of the color, is ranked in nine categories, from Faint to Fancy Vivid.

Physical Characteristics That Determine Value

Color diamonds are rated for clarity, which is a term that refers to the absence or presence of imperfections in the stone.

The price of a diamond is proportional to its carat weight.

The cut of a colored diamond isn’t a factor in pricing, but it does have an effect on color and carat weight. For example, the radiant cut produces a more even distribution of color.

Growing Your Investment’s Value

Setting an investment diamond into jewelry can increase its value. Higher demand for jewelry pieces drives up the resale price.

Although no two diamonds are alike, two that appear to be very similar can be sold as a pair at a higher value.

Authenticating Your Investment’s Grading

When buying a colored diamond, make sure that it has a grading report certificate from a reputable gemological organization.

Every company needs a money manager and so might every wealthy investor

The Canadian Dollar and MONEY.CA
Money in Canada

Managing an investment portfolio was relatively easy in the 1980s and 1990s, but there has been a significant increase in complexity over the past decade. The investment climate and markets is more volatile and demanding, and today’s low interest rate and returns don’t look like they are going to change anytime soon. To get better returns, the wealthy are adding non-traditional investments such as private equity, real estate and hedge funds to their portfolios, as well as diversifying globally, which just increases the potential complications.

It’s tempting then to turn the whole thing over to someone else to manage if you can get through the sheer volume of asset managers, products and strategies to pick someone. But even among wealthy investors, there is still a lot of confusion about whether they should have discretionary or non-discretionary investment portfolios. In other words, should you and your family manage the investments, or outsource the decisions to an individual or a firm of experienced professionals? For those who lack the investment experience, time or discipline to be involved with dayto-day decision making, discretionary investment management services are a popular option. Firms that provide this are called outsourced chief investment officers and should be licensed as portfolio managers with a provincial securities regulator such as the Ontario Securities Commission.

But not all discretionary services offered by the country’s myriad banks, brokers and portfolio managers are the same and there are at least eight important factors to consider when choosing one. Does the firm: Have the skill, experience and resources to evaluate and manage assets across public and private markets? Have an “open architecture” approach, or the ability to allocate capital without conflict-of-interest to any independent asset manager from around the world in areas such as direct lending, real estate, private equity and hedge funds? Have the ability to access “best-in-class” institutional quality traditional and alternative asset managers? Provide a culture centred on client relationship management and strong communication? Offer robust performance reporting along with relevant custom benchmarks? Allow for clients to meet or speak with underlying asset managers? Take tax considerations into account to optimize returns on an after-tax basis? Offer more than a one-size-fits-all approach that utilizes just one or a few asset classes, such as stocks and bonds?

If the answer to any of these questions is no, you should probably look elsewhere, or, at the very least, realize you’ll have to compensate for that lack of ability in some other way at your own expense and time. But if your family hires an outsourced CIO, you and the advising representative (a registered individual who can provide investment advice at a portfolio management firm) will start your relationship by discussing and documenting your unique investment objectives and constraints. Topics covered should include how much investment risk you are willing to take, the desired level of return for taking on that risk, liquidity needs, tax considerations, performance reporting and benchmarks, and the asset classes and markets you will allow your portfolio to be invested in. A written investment policy statement is then provided as a best practice that documents all of the above.

Your advising representative is then authorized to make all the necessary investment decisions (within the agreedupon guidelines) and will not require consent for individual transactions. This service, which also consists of regular communication through methods that best suit your family — whether it’s in-person meetings, webcam meetings, telephone conversations, emails and newsletters — forms an important part of the ongoing relationship. The relationship is of prime importance, since your investment objectives and strategy may need to change to provide a tailored fit as conditions within your family change.

Original publication: 

21 Questions with Value Investor Steve Nyvik

‘Risk management, when done poorly or not at all, can cost you a fortune’ – Steve Nyvik

My interview with P.J. Pahygiannis of

1. What is the best investment advice you have ever been given?

Risk management, when done poorly or not at all, can cost you a fortune. In other words, “Don’t put all your eggs in one basket.”  You should diversify away, to the extent reasonable, non-systematic risk (this being company-specific or industry risk).

So for common stocks, we limit the amount of company risk and the amount of industry risk through buying enough stocks which we diversify well by industry (that are not highly correlated to each other).

For example, if we invest the same dollar amount into each of 40 stocks, our risk is that if one company disappears, we’ve lost 2.5% of the value of our stocks. We want them diversified by industry as stocks within the same industry tend to move up and down to a similar degree (i.e., in other words, stocks in the same industry tend to be correlated to each other). This will help us to build a stock portfolio that becomes more stable.

2. What level of math is needed in order to understand the entirety of finance and investing?

If I can define the question in terms of “what knowledge one needs to be successful with investing,” the answer depends on the type of investing one is considering.

For example, if one is going to stick with large-cap market exchange traded funds, like the iShares S&P 500 ETF (IVV), one really doesn’t need a high level of math. An alternative to making a big lump sum purchase is when you establish an equity target between cash and the stock ETF, and you stick to that target over time.

If the stock market goes down, by sticking to the target, you are guided to top up equities to your target. Similarly, if the stock market goes up, you are guided to trim equities to bring your portfolio back down to your target. So in summary, by sticking to your target, you are buying stocks when they go down and selling when they go up. This technique helps you to make rational buying and selling decisions with the potential result of better risk-adjusted returns.

One will need to be mindful of commissions as well as managing foreign exchange costs. For small additions to equities each month, to manage commissions, you might choose a no-load diversified large-cap U.S. stock fund with a low MER that attempts to mimic the returns of the Standard & Poor’s 500 Index.

You might also allow some level of fluctuation so you are not trading all the time and find your profits go toward commissions. For example, if your equity target is 75%, then you might not rebalance and buy until equities drop to 70% of your portfolio value or you might not sell until equities rise to 80%.

If you are going to move beyond indexes to individual stocks, there is an opportunity for you to avoid the expensive stocks and the crappy businesses within the stock market index. And you can possibly generate even better risk-adjusted returns through equal weighting your stocks as opposed to market-cap weighting which normally occurs in market indexes.

As soon as you stray away from buying stock market indexes, you have to be mindful as to how to control non-systematic (e.g., company and industry) risk, and you need to be disciplined as to how you buy and sell stocks. For example, you should use a strategy to help you select stocks where there is a direct cause and effect relationship between the strategy variables and a stock’s price, and the stock variables you are using to select stocks should be statistically significant. This will help you to make more rational selections as opposed to being lured into buying sexy overpriced risky stocks.

But we’ve digressed a bit here. With selecting stocks, it is helpful to have an appreciation of statistics as well as grade 10 math (e.g., one should develop a comfort with financial ratios as to relative price attractiveness, profitability, liquidity, debt and efficiency. If you are going to attempt to try to calculate a company’s intrinsic value (which many investors don’t do), then you need to understand present value and some corporate finance to figure out a reasonable discount rate.

Your education should go well beyond that to also include business strategy and competitive advantage, economics with respect to economies of scale, industry structure and life cycles and the impact of interest rates, inflation and business cycles. You might also spend some time reading stuff on Warren Buffett and Benjamin Graham to develop an appreciation of value investing.

3. Is “value investing” (Buffett and Graham approach) a good investment strategy for long-term goals like investing for retirement?

To answer this question, one needs to have an understanding of the Buffett approach. My understanding is that Buffett seeks ownership in quality companies capable of generating earnings that are on sale, but he is not looking for just any type of company. He needs to be able to understand the business to model its cash flow and arrive at its intrinsic value. My understanding is that he limits companies for consideration to those where

  • The company has performed well in terms of return on shareholder equity (ROE) (net income/shareholder’s equity) relative to other companies in the same industry, that the company has consistently done so for at least the last five to 10 years.
  • The company does not carry an excessive amount of debt. For example, Buffett seeks companies with a low debt/equity ratio (total liabilities/shareholders’ equity).
  • The company has high profit margins (even better if they are increasing) and should be consistently high for at least the last five years.
  • The company has been public for at least 10 years. If it has not been around for at least that long, one may have less confidence in attempting to determine future cash flows or future dividends for discounting to arrive at its intrinsic value.
  • The company possesses some competitive advantages as opposed to being a commodity-type business where its products are indistinguishable from those of competitors’ products.  Any characteristic that is hard to replicate is what Buffett calls a company’s economic moat or competitive advantage. The wider the moat, the tougher it is for a competitor to gain market share.
  • The stock is selling at a discount of at least 25% compared to its intrinsic value.

To me, these look like very reasonable criteria in which to search for businesses.

4. What should I know before I start value investing?

Here is my brief checklist.

  • If you have debt, your first investment goal should be to pay it off as quickly as possible.
  • Once your debt is paid off, establish an “emergency fund.”
  • If not retired, you need to save every month and know the amount you are saving is enough so you can afford to retire.
  • Set and stick to an equity target (a percentage of your portfolio that will be invested in common shares).
  • Don’t put all your eggs in one basket.
  • When you invest, seek cash flow (dividend and interest income) – otherwise you are gambling.
  • For stocks, stick with large blue-chip dividend payers.
  • The best opportunity for outperforming is to buy when a quality investment (that is not impaired as to its future ability to generate earnings) is substantially down.
  • Patience.
  • If you can’t do it yourself, hire someone with experience who can.

5. How should one invest in a bear market?

A bear market is when investments go on sale. It is the time to be buying. Use your equity target to give you guidance as to how much to buy. For your living needs within three years, those funds should not be invested in common stocks. You want to avoid the pressure of having to sell when investments are down which can create permanent losses.

During a bear market, you might stick with the highest quality large-cap stocks that pay a good dividend (so you are paid to wait). These types of large companies are supported by their dividend yield and tend not to drop as much. They are much less risky but are also more likely to recover when the market recovers. Smaller companies, emerging market securities, cyclical companies and commodities are much more volatile and can drop to levels that you might not think possible.

Be mindful not to put too much into any one stock so you manage company risk.

6. What are examples of sustainable competitive advantages?

Competitive advantage may exist where a business is able to provide a customer with a product at a lower cost than competitors or provide better value to the customer at a comparable cost. When a company can sustain such advantages through time, this can result in the business generating a high level of return.

One would typically examine the competitive forces that determine industry profitability including: the bargaining power of suppliers, threat of new entrants, bargaining power of buyers, threat of substitute products or services and the rivalry among existing firms.

For example, for entry barriers, we might consider economies of scale, proprietary product differences, brand identity, switching costs, capital requirements, access to distribution, absolute cost advantages, proprietary learning curve, access to necessary inputs, proprietary low-cost product design, government policy and expected retaliation.

In Canada, the banking industry operates in an oligopoly market structure with the six big banks dominating over 90% of the banking business. As such, these banks don’t have to compete as intensively and can generate excess returns through time. Their returns through time have generally been better than the S&P/TSX Composite Index.

7. What are the absolute best, most crucial tips/ideas to succeed in long-term investing?

We should seek to own a portfolio of investments that generate enough income to meet our living needs without having to rely on those investments going up in price.

8. What are the essentials of due diligence when investing?

  • To know your clients – including their personal and family backgrounds, financial situations, financial goals, cash needs through time, liquidity requirements, investment experiences and risk tolerances.
  • To know your product – to understand the investment, to make sure that investments are suitable, that the percentage of investment is reasonable and that risk is controlled.

9. What kind of stocks would you rather avoid holding because they are riskier than others?

As most of my clients are retired or near retirement, capital preservation and the development of stable dependable cash flow from their portfolios to meet their needs are typically key objectives.

For common stocks, I focus on high quality income-generating businesses that:

  • Produce goods and services needed for our economy in good or bad times (like banking, insurance, pipelines, energy, electricity, telephone and television [telecom], food, etc.).
  • Are dominant where they operate.
  • Are profitable.
  • Don’t employ an excessive level of debt.
  • Produce a good dividend yield where the company income is more than sufficient to cover the dividends.

Stocks that don’t possess these attributes are those I tend to avoid. These include:

  • Small-cap companies.
  • High growth companies with high price-earnings (P/E) multiples.
  • Stocks that don’t pay dividends.
  • Stocks with very high levels of debt.
  • Poor businesses.

10. What are some investment lessons you learned in 2016?

In 2016, I had no exposure to materials and very little exposure to energy which were industry sectors that performed extremely well. Generally these sectors tend to be more volatile than the market, don’t typically pay decent dividend yields, and their earnings tend to be cyclical and vary from one year to the next.

I learned that in sticking with my investment philosophy, it means there could be times when I could underperform. But straying can mean introducing added risk to clients which my experience has found over the years not to be worth it. Fortunately though in 2016, there were other industry sectors, like the financials, that performed very well so that we were still able to generate good returns.

11. What discount rate do you use in your valuation?

I rely on relative valuations in screening to find stocks of interest. I’ll then look at research reports as to their indicated intrinsic value (which might be called price target or fair value) as opposed to trying to calculate them myself. Ideally I would like the stocks for consideration to have a market price with a good discount to its intrinsic value. The amount of discount can vary – like today it is tough to find good businesses selling at significant discount.

12. Which is more useful, earnings yield or P/E ratio? Why?

Earnings yield (earnings per share divided by stock’s market price) is basically the inverse of the P/E ratio. The P/E ratio equals stock market price divided by earnings per share. So they are equally useful.

13. With just public information, how can you be confident that your valuation is correct while the market is wrong?

Your thesis in investing in a stock may be correct, but because of the human behavior of others, your identified stock price can remain under its fair value for years. There is no certainty when it comes to investing. For this reason we must buy enough stocks under a strategy in order to get the strategy returns.

14. What are the key attributes of a great investor?

A great investor is someone who

  • Has spent a lifetime building up educational and professional investing credentials.
  • Has gone through a period of articling or training with a seasoned financial adviser.
  • Has been investing for more than 10 years.
  • Uses one or more stock strategies to identify stocks for selection.
  • Understands your needs of cash from your portfolio through time.
  • Pays great attention to risk management.
  • You trust implicitly.
  • Provides advice that is always in your best interest.

15. What are the best books on investing?

Read “The Richest Man in Babylon” by George S. Classon.

16. What skills are needed to succeed in distressed debt/special situations investing?

By definition, distressed securities are experiencing financial or operational distress, default or are under bankruptcy. There is a very real possibility that any investment could result in a loss of most or all of your investment. For these reasons, I would likely not invest in this type of investment as it does not exhibit the risk and return profile I seek that would be suited to my clients.

The skills to succeed come down to spending enough time to really understand this type of product. But given the time commitment required, you might better use it toward investigating other types of investments.

17. What are the best books about special situations investing?

As I don’t have much interest in this high risk area as these investments likely aren’t suitable for my clients, I don’t know offhand any books on special situation investing to recommend.

18. What are the best web sites to follow for value investing-oriented investment ideas?

Morningstar, Value Line and Zacks might be good places where they write about stocks as well as provide you with resources to help you in stock selection.

19. Who are the best value investors in the U.S. with under $1 billion in capital?

I don’t typically use third-party managers. You might look at a Credit Suisse article called “On Streaks, Perception, Probability and Skill.” It discusses identifying skilled managers versus those that are just lucky.

You might also read an article by Ernst Gronblom called “Choosing Money Managers.”

20. What are the best mutual funds for value investors?

I don’t sell mutual funds. Mutual funds tend to be more expensive and more appropriate for retail investors.

With more money to invest – at least $100,000 to get in the door, but most will want at least $500,000 – you can hire a portfolio manager at a competitive cost who can help you through

  • Generating higher returns and/or lower risk by selecting the right asset mix, selecting good investments, sheltering income from taxation, controlling risk and setting aside funds for anticipated needs (so you are not forced to have to sell investments when they are down). An experienced investment professional may also help you avoid making costly emotional or irrational investment decisions.
  • Eliminating, reducing and deferring income taxes so you’ll have more money growing faster to meet your goals.
  • Protecting your family against devastating financial losses – like the death, disability or illness of the family breadwinner, property loss, theft or damage, and liability claims. Without such protection, your lifetime of savings could get wiped out.
  • Design an effective estate plan so your estate will be distributed according to your wishes, minimize tax and transfer costs, and protect your legacy from a variety of creditors. This not only gives you peace of mind but hopefully will ensure your life savings is there to take care of your loved ones throughout their lifetime.

21. For an individual relatively unsophisticated nonprofessional investor, what are the most undervalued asset classes today and what are the best funds or mechanisms to invest in them with a buy-and-hold mentality?

An unsophisticated nonprofessional investor should not buy individual stocks but rather stick with large-cap stock market index investments through either exchange traded funds or mutual funds formats. They should also not put all their money in the stock market. Take a look at iShares S&P 500 ETF with an MER of 0.04%.

Impact Investing

“If the head has been making investments and the heart giving it away, it’s time to unite the head and heart and make money more” – The Case Foundation

The following is a brief summary of the panel discussion entitled Families Embracing the Future at The Campden North American Family Office Conference held in Boston this past November. The moderator was Northland Wealth Management’s CEO, Arthur Salzer. Arthur’s panellists were Justin Rockefeller and Antonio Ermirio de Moraes Neto.

An estimated 60% of families lose their wealth by the second generation and 90% by the third. Many multi-generational families are exploring what they can do in order to improve these odds by uniting families around values and positive legacies, thereby more closely involving family members in responsible long-term investing. Over the past few years, “impact investing” has gained in awareness and popularity with families of significant wealth. 

Impact investing is when investments are made into companies , organizations, and funds with the intention to generate measurable social and/or environmental impact alongside a financial return. The key is that the impact gets measured along with the financial component, because, as the saying goes, “what gets measured gets done”.

Mr. Moraes,  27 years old, and a member of the Brazilian family that the industrial conglomerate, Votorantim, believes that impact investing can be one of the crucial components to generate financial wealth for families. Done prudently, impact investing can deliver the required financial return but at the same time have the potential to excite the passion and dedication of the next generation.  By encouraging the participation  of the next generation impact investing attempts to create an environment  conducive to fostering the commitment necessary    for maintaining the wealth of the family.   

Antonio shared his thoughts on why he was drawn to impact investing and how it  lead him to form his firm, Vox Capital.

“Being a 4th generation member of a large family business in Brazil, I was since young inspired by the example of great entrepreneurs and innovators. As my own path, it became absolutely clear, when I was 16, that my purpose in life is to reduce social inequalities in the world. And nothing better to do this than an innovative and scalable business model, with a new mindset to serve society”.

Vox is targeting investment in companies that serve Brazil’s household with  a monthly income of less than $1,500 USD – this demographic represents  nearly 160 million people or 85% of Brazil’s population. Vox is investing in companies that operate in the healthcare, education and the housing sectors. So far, it has made 4 private equity investments and 5 convertible debt investments. While the track record of Vox is just under 4 years, it has been generating more than acceptable double digit returns since its founding.

Mr. Rockefeller, at 36 is a member of the Board of Trustees for the Rockefeller Brothers Fund – an international philanthropic organization. The fund  was formed in 1940 in New York City by Mr. Rockerfeller’s grandfather and great uncles.   The Rockefeller Brothers Fund drew some large media attention recently as it divested of its oil & gas investments this past fall – this is a monumental change as the Rockefeller wealth came largely due to its ownership of Standard Oil. Standard Oil  was the largest oil refiner and first multinational company in the world during the early 1900s. Before its divestiture, Standard Oil eventually gained control of nearly 90 percent of theUnited States’ oil production.

However, it is Justin’s new venture, The ImPact (, which he co-founded, to which Mr. Rockerfeller is dedicating much of his attention.

“The ImPact is a non-profit/NGO membership organization comprised of investors who pledge to make impact investments, track their social impact and financial performance, and share that data with others who have made The Pact. The mission of The ImPact is to increase the probability and pace of solving social problems by improving the flow of capital to businesses that have measurable social impact.”

While every family’s motivations, operational context and goals are unique, impact investing may not fit every family. Therefore, rather than prescribing a single approach, there are many approaches available. Using groups such as The Impact, or investing in private equity funds that specialize in this area may be a start.   

Rest assured that impact investing will be an area that Northland Wealth will be exploring further and sharing its findings as to how it may benefit your family.

5 Ways To Find Money For Your New Business

When it comes to trying to start a new business, the toughest part, without fail, is going to be trying to get the necessary money in order. Typically you won’t be making any money before you start, which mean you need to get an initial sunk investment into the venture, and that means pulling cash out of thin air in most cases.

But, there is a method for this procurement of thin air when you begin to look more closely at the possibilities. Common ways include working to get a credit line, asking friends and family for an investment, minimizing and selling belongings you don’t need, looking into getting grants (if you’re a non-profit), or looking for sponsorships from established companies or brands.

Getting a Credit Line

If you don’t automatically have all of the cash you’re going to require to run and maintain your business, your next best bet is to start getting a business credit line. This is going to involve a few steps, and it’s important that you have things in order in advance like having a separate bank account for business transactions, and all of your licenses in order as well.

Asking Friends and Family

Especially if you don’t have a lot of collateral, or maybe you don’t have a lot of experience in the business field, your friends and family can potentially be you best early financial collaborators. Now, there are definitely best practices for asking for money from family and friends, because you don’t want to get in legal or familial issues because of details that weren’t discussed when the initial lone happened. Families can either succeed together in business deals, or get torn apart.

Minimizing and Selling

Sometimes the problem with trying to find new money is that you haven’t totally exhausted your available resources. And by this I mean, before starting a new business venture, you should minimize your personal stuff, selling anything valuable you have that you don’t need or use anymore. You’d be amazed at how much upfront cash you can get for things like unused electronics, video games, music, or exercise equipment.

Grants For Nonprofits

If you’re starting a business that can be considered non-profit, there are a ton of options that you have in terms of trying to get grants from state or federal governments. Especially if your company has anything to do with children or with education, see what your options are for requesting money or reduced interest rate loans.


And finally, if your idea is good enough, you might be able to get some sponsorship money from individual donors or possibly even companies that are willing to invest in your concept. Sometimes you’ll have to give up some of your management independence, but having early financial support might be worth that consideration.

4 Ways To Spend Less Money During Retirement

Your retirement years are meant to be a time of restful relaxation. This is your opportunity to pursue the hobbies and activities that you just haven’t made time for yet. Retirees typically have a set income from investments, pensions, and other sources that needs to stretch to cover their remaining years. Don’t let money matters put a damper on your retirement. Use these simple tricks to keep your spending under control without sacrificing the things you love.

Create a Budget


Image via Flickr by 401(K) 2013

Budgeting your funds mindfully is essential to both managing and saving money. It’s impossible to trim your spending if you don’t know exactly how it’s happening. Sit down and determine a reasonable amount for all of your monthly expenses. Make sure you include not only your fixed spending, such as a mortgage or car payment, but your variable spending, as well. Budget for entertainment, eating out, cosmetics, clothing, and anything else you like to purchase.

Go through your bank and credit card statements and tally up every penny over the course of at least three months. Are you staying within your means? If not, it’s time to reconsider your lifestyle habits and see where you can cut back.

Downsize Your Home

Your mortgage payment is probably the largest single expense that you have each month. If you want to minimize your expenses in retirement, downsizing your home is an efficient way to do it. Do you still maintain bedrooms for children who have moved out? Do you have a spacious yard with high upkeep costs? Exchange those empty childhood bedrooms for a single guest room. Consider a smaller lot of land that’s easier to maintain. Downsizing your home can cut back on both your expenses and your work.

Protect Yourself Against the Unexpected

While there are many places that you can safely trim expenses, insurance and warranties aren’t among them. Protect yourself against the unexpected in retirement so you don’t have to worry about a massive expense from illness, injury, natural disaster, or home repair.

Insure yourself, your vehicles, and your home appropriately. Top this off with a home warranty from a company like TotalProtect to cover additional incidences. While insurance covers you in certain disasters, a home warranty helps you manage repair and replacement costs associated with everyday use. With a combination of both, you’re safe from a variety of high expenses.

Watch for Senior Discounts

You may be surprised at the number of places that offer senior discounts. Stores like Ross, Kohl’s, and even Goodwill host special senior discount days when you’ll enjoy additional savings on your purchases. Entertainment discounts are available everywhere from movie theaters to cruise lines to national parks. Gyms, salons, grocery stores, and restaurants are all known to offer discounted rates. When in doubt, always ask. There’s no harm in checking for a discount before you pay your bill.

With smart strategies like these, you can stretch your retirement funds to offer ample enjoyment, covering all the things you love most during these golden years.

Managing today’s investment risks

“The way to crush the bourgeoisie is to grind them between the millstones of taxation and inflation.”
– Vladimir Lenin


Written by Steve Nyvik, BBA, MBA, CIM, CFP, R.F.P.
Financial Planner and Portfolio Manager, Lycos Asset Management Inc.


Not too many years ago, there was a type of investor commonly called a “GIC Refugee”. The rates on Guaranteed Investment Certificates (GICs) once upon a time generated a decent income; but the interest rates on renewal kept dropping. Dropping rates meant dropping income which eventually meant they would have to eat into their capital to maintain their living standard. So GIC Refugees eventually stopped renewing their GICs and moved their money into stocks and bonds seeking higher returns.

Although bonds suffered some of the same problems as GICs, one could get higher interest through extending the term to maturity or by buying non-government guaranteed company bonds that are little more than IOUs. But in an environment where interest rates were declining and the economy was doing well, not only did you get the decent interest, but you also benefitted from the rise in price of the bonds.

Declining interest rates not only helped lift bonds, but companies that borrow also found their interest expense dropped and their after-tax income rise. This has helped to support stock prices which have climbed to record highs and now trade at historically high P/Es. And declining interest rates have also helped people to afford to borrow more to buy real estate. So we’ve been seeing massive asset bubbles in real estate.

Our government has pursued a fiscal path of running deficits to support the economy which may continue for several more years. And we’ve seen our Canadian dollar shrink in value against the US dollar.

To help partially fund government deficits, we’ve also been seeing income taxes rise – directly on those of high income and indirectly through limiting deductions, credits and exemptions for businesses and on estates and Trusts. Of course, there have been some tax reductions for the lower income to middle class to make income tax rises more politically palatable.

The longer term impact of higher income taxes have yet to be felt. But we may see individuals and businesses moving south where tax rates are in process of declining from levels near 35% down to 20%. As a result, their taxes may be quite lower both corporately and personally than in Canada. And if a US border adjustment tax gets implemented, the Canadian economy could be at risk of going into a recession.

A drain of people and businesses to the US may result in relatively less job creation in Canada and less innovation or incentive to create products that can lift our economy.

Rising inflation, rising interest rates, and rising taxes are dangers to meeting our living needs; especially those that are retired. Highly priced and volatile stock markets, like what we experienced in 2008/09, can be extremely scary. There are no longer any worthwhile guarantees and no safe place to put most of your retirement nest egg. It certainly makes my job of investing to help meet my clients living needs more challenging.

The traditional asset allocation view of holding a diversified portfolio of stocks and bonds to manage risk and develop a more stable return doesn’t hold the way it used to. That’s because bonds now do not generate enough income to help meet client needs and bonds are at risk to rising interest rates. So in a rising interest rate environment, bonds may generate inadequate income or suffer losses in value.

Mathematics on Bond Returns

Let’s open up the newspaper and look at 5 Year GICs – see:  The more competitive GIC rates are about 2.25%.  Assuming you buy the GIC and hold it in your personal investment account, the interest is going to be taxable.

Assuming you live in British Columbia, your combined BC and Federal personal marginal tax rates are summarized below:

2017 Marginal Tax Rates


Let’s make an assumption you are in the $45,916 to $77,797 bracket having a marginal tax rate of 28.2%.

Now let’s take a look at Canadian inflation:

Consumer Price Index


As an aside, the actual level of inflation you are experiencing is likely much higher than this unless the goods and services you buy are similar and in similar proportions to those used by Statistics Canada to measure inflation.  But let’s assume future inflation of 2.0%.

So if you have $100 invested in an annual pay GIC held personally, your situation is as follows:

GIC Return

As a result, you’ve lost purchasing power and will continue to do so as your capital remains locked away for another four years of the five year term. Buying investments that lose purchasing power is a bad investment.

So GICs are a money losing proposition if held personally. But what if they are held in a Tax Free Savings Account or an RRSP/RRIF? Trouble is that they provide a return similar to inflation so you’re not gaining much.

How about bonds? They are generating low returns like GICs see: To make matters worse, long term bonds are subject to a high level of risk in a rising interest rate environment. To appreciate this risk, the table below shows that the longer the term to maturity, the greater the potential loss in rising interest rates:

Rising Bond Interest Rates

But what about high yield bonds (“poorer quality loans”)? The trouble with these is that in a poor economic environment, like if we go into a recession, the rate of defaults may rise. Cyclical businesses and poor quality businesses can see their credit quality decline with declines in revenues and/or earnings. Similarly, going to emerging market bond funds may result in high volatility and expose you to currency devaluation risks.



There is a solution to helping retired GIC Refugees achieve a livable standard of living. But one cannot ignore the huge risks now faced.  The search for good risk-adjusted returns in a low interest and highly priced market is that much more difficult today.  And we must be vigilant as ever in diversifying your investments to control risk.  Lastly, we must consider your cash needs through time to develop the right asset mix so you are not exposed to an unnecessarily high level of risk.  This is not the time for the uneducated or inexperienced investor.  The risk of getting it wrong can be a loss of a good chunk of your life savings – that means a lower achievable future retirement living standard.

If you are interested in working with an experienced investment adviser to help you navigate these tough times, please call me, Steve Nyvik, at (604) 288-2083 Extension 2 or email me at:

Hiring an Outsourced Chief Investment Officer

Within wealth management there is still a lot of confusion with respect to whether or not an investor should have a discretionary or non-discretionary investment portfolio.  In other words, should your family manage its investments by itself, or outsource the decisions to an individual or a firm of experienced professionals?

Discretionary investment management services are a popular option for those who lack the investment experience, time or discipline to be involved with day-to-day decision making. However, not all discretionary services offered by banks, brokers, or portfolio managers are the same.

Here are some important factors to consider – does the advisor or firm:

  • Have the skill, experience and resources to evaluate and manage assets across public and private markets? 
  • Only offer a one-size-fits all approach that only utilizes one or few asset classes, such as stocks and bonds? If so, look elsewhere.
  • Have the ability to allocate capital without conflict-of-interest, to any independent asset managers from around the world in areas such as direct lending, real estate, private equity and hedge funds? This is known as an “open architecture” approach.
  • Have the ability to access “best-in-class” institutional quality traditional and alternative asset managers?
  • Provide a culture centered on client relationship management and strong communication?
  • Offer robust performance reporting along with relevant custom benchmarks?
  • Allow for clients to meet or speak with underlying asset managers?
  • Take tax considerations into account to optimize returns on an after-tax basis? 

Firms that provide this comprehensive style of discretionary management are called “outsourced Chief Investment Officers”, or “OCIOs” for short. These firms should be licensed as a Portfolio Manager with a provincial securities regulator such as the Ontario Securities Commission. 

If your family opts for hiring an outsourced CIO, you and the Advising Representative (a registered individual who can provide investment advice at a Portfolio Manager firm) will start your relationship by discussing and documenting your unique investment objectives and constraints. Topics covered should include how much investment risk you are willing to take, the desired level of return to receive for taking on that risk, liquidity needs, tax considerations, performance reporting and benchmarks, and the asset classes and markets you will allow your portfolio to be invested will be addressed. A written investment policy statement is then provided as a best practice which documents all of the above.

Your Advising Representative is then authorized to make all of the necessary investment decisions (within the agreed upon guidelines) and will not require consent for individual transactions. This service, which also consists of regular communication through methods which best suit your family whether it’s in-person meetings, web cam meetings, telephone conversations, emails and newsletters form an important part of the ongoing relationship. What should be understood is that this ongoing relationship is of prime importance as conditions within your family change, the investment objectives and strategy may need to change as well to provide a tailored fit.

Northland Wealth Management is an internationally recognized multi-award winning wealth manager who provides outsourced CIO and family office services to successful business families and their members. The firm was built with the purpose of advising families in an unconflicted manner on their financial and human capital with the objective of preserving and growing the wealth over generations. 

CETA, NAFTA and Trump – what’s in scope for Canada?

bond-marketTrump’s presidency was unprecedented across the world judging by the polls and media campaigns that had  predicted a guaranteed Hillary victory. As it became clear that Donald Trump was winning on US election night, markets across the world reacted to the shocking news with sudden drops in key indices; with the Dow dropping by about 800 points that night.

Post-election market volatility

US bond markets also experienced a volatile reaction with the interest rates spiking up in high margins; something which has only happened three times in the last decade. The interest rates on the 10-Year Treasury note spiked to 2.3% after the election from 1.77% before the election, partly due to the expected high development expenditure by the Trump government as implied in his victory speech. However, as the reality of a Trump presidency sunk in the markets started rallying back up. On Wednesday the day after the Trump victory, the Toronto Stock Exchange also rose by 103.07 points to close the day at 14,759.91. Three days following the Election Day, the Dow surged up again by about 2.81%, the S&P 500 rose by 1.16% and NASDAQ rose by about 0.84%.

The future looks stable for Canada, but a lot of uncertainty still lingers in the markets. The uncertainty then creates volatility, as experienced during and immediately thereafter the US Election Day. For active traders in the financial and commodity markets, the increased fluctuations pose a higher risk, hence leaning more on options trading helps in hedging the risks to mitigate potential huge loses.

Effects of NAFTA on Canada

The global financial markets had priced in a Hillary presidency and the unexpected US election outcome has left many people speculating on a global recession as a result of Trump’s proposed radical policy changes. However, all is not gloom and doom for the global economy and Canada in particular. Under the North America Free Trade Agreement (NAFTA) that includes the US, Canada, and Mexico, bilateral trade between the US and Canada has experienced high growth over the past two decades. Foreign Direct Investments (FDI) in Canada from the US has grown from about $70 billion in 1993 to about $368 billion.

Being Canada the leading importer of agricultural products from the US, the bilateral trade deals between the two countries can only be strengthened as president-elect Donald Trump assumes office in January 20th, 2017. Trump is focused on growing the US economy by boosting local production and encouraging exports of US products. In this regard his presidency is most likely to advocate for better trade ties with Canada going forward; as compared to the restrictive policies he promised to impose on Mexico during his campaigns.

Applying discriminative trade restrictions to Mexico will, however, have implications on NAFTA which binds the US, Canada, and Mexico under common trade agreements. During his campaigns, president elect Donald Trump promised to overhaul or cancel the current NAFTA trade deal saying that it has led to a loss of jobs for US citizens. A study on NAFTA’s effects show that every year the US loses about 15,000 jobs as a result of the trade deal; however, the report shows that the SU economy gains about $450,000 in value from higher productivity and lower consumer prices. Reversing NAFTA will, therefore, result in volatility in the markets as all the three countries in the trade deal start to re-orient their international trade to other friendly partners. The economic shocks that will arise throughout the transition period will also result in high fluctuations in financial markets across the world; and hence, in pulling global markets into a potential recession.

CETA an alternative for NAFTA

As the world waits to see which of the radical economic policy changes proposed by Trump will be implemented, Canada is on a path to securing yet another free trade agreement with the European Union (EU). The Comprehensive Economic and Trade Agreement (CETA) open a new free trade agreement between Canada and the EU; hence providing a safe landing spot for Canada in case president-elect Trump reverses NAFTA. Under CETA, custom duties between the EU and Canada will be removed, restrictions on access to public contracts will be removed, the service sector will be open for both economies to trade freely, investors will be provided with a favorable environment to invest in both economies and intellectual property rights will be protected in both the EU and Canada.

Canada will waive tariffs worth 500 million euros after CETA becomes effective once it is approved and passed by the European Union parliament. This will open new markets for exports from Canada as well as boost FDI in Canada from the EU. With the EU being the second largest source of FDI in Canada, the streamlined investor conditions will boost more investment in Canada by EU investors hence contributing to the economic growth locally. Local private companies in Canada will also be able to bid directly for government contracts in the EU, hence complementing other exports from Canada to the EU such as machinery and equipment. On the other hand, if NAFTA is reversed, Canada will still have a huge supply of agricultural products from the EU exporters, hence covering up for the lost US market.

Whether or not NAFTA will be reversed under a Trump presidency will be confirmed after he assumes office on January 20th, 2017. However, regardless of the outcome, Canada seem to be covered from potential trade shocks by CETA which was signed on 16th October 2016. If NAFTA is not reversed, then Canada stands out as a winner from both free trade agreements.

Best Asset Mix Depends on Your Time Horizon

“Time in the market is more important than timing the market.”
– Unknown

Written by Steve Nyvik, BBA, MBA, CIM, CFP, R.F.P.
Financial Planner and Portfolio Manager, Lycos Asset Management Inc.


One of the key decisions investors must make is choosing their “Asset Mix”: the percentage of investment assets they hold in the major “asset classes” – Equities and Fixed Income.  For most people, this decision will have the greatest impact on their portfolio’s return… and its risk (or volatility).

Conventional wisdom holds that equities are “riskier” than fixed income investments and that the more equities you hold, the riskier your portfolio becomes.  However, conventional wisdom fails to take into account some key real world factors: the impact of inflation and your investment time horizon.  Let’s take a look at this and then see how we can invest better!


Volatility of Stocks where Investor Time Horizon Increases

Chart 1 below shows the annual total return, after-inflation, for a U.S. Large Company Stock Index from 1926 to 2015.  Notice that there are several periods where the real returns are negative.


Now let’s increase the holding period (Chart 2 for 5 year holding period; Chart 3 for 10 year holding period and Chart 4 for 15 year holding period) and observe the drop in the number of negative holding periods.




For those math people out there who want to see numbers, Chart 5 summarizes Charts 1 through 4 by showing the percentage of holding periods where the returns were negative.




























So if we hold the U.S. Large Company Stock Index, 31.1% of the time, we would have lost money over a 1 year holding period.  But if our holding period increases to 20 years, we would not have lost money!  One conclusion we can draw from this is that if we are going to invest in U.S. Large Company Stock Index and we don’t want to lose money, our holding period should be at least 20 years.

The implication then might be for holding periods less than 20 years, if we don’t want to lose money, you might think that we should then hold 100% in Fixed Income.  So let’s look at the percentage of down years for 100% in Fixed Income:



















To me, this was the stunning chart.  What this tells us is that when we take inflation into account or rises in interest rates, we’ll lose purchasing power of our Fixed Income investment about 30% of the time regardless of how long we hold bonds.

I thought maybe having 60% U.S. Long Term Corporate Bonds (and 40% U.S. Government TBills) was skewing the results.  So I then tried different combinations of U.S. Government Long Term, Intermediate Term and TBills and found the percentage of down years didn’t improve.

I felt why should we invest in bonds at all when they are so risky?  It took me some time to figure out how to deal with this issue.

I focused on the nature of bonds being loans for a fixed return over a fixed time period.  I like fixed returns, but we need to reduce risk for inflation or rising interest rates.  So to reduce those risks, we might need to add some amount in stocks.  And as the time horizon increases, those risks are greater, so we might have to add a greater amount in stocks.


Minimum Risk

To help address how much should be in stocks for a particular holding period, I had to consider how bad can a return be?  And if we knew that the worst could happen, let’s choose the asset mix between stocks and bonds that gives us the greatest of the “Worst Returns”.

I also acknowledged that the absolute worst return could be an outlier result that might not be likely to repeat.  So I defined the average of the worst 5 returns as the “Worst Return”.

Table 1 is a simplified summary that looks at asset mixes from 0% equities to 100% equities at 10% increments for different holding periods (1 year, 3 years, 5 years, 10 years, 20 years and 30 years).  I’ve highlighted in yellow the asset mix that gives us the highest of the Worst Returns for each holding period.


So, with this table, it suggests that for cash needs one year from now, 100% should be invested in Fixed Income.  For needs that are 5 years away, we should invest 30% in Equities and 70% in Fixed Income.  Ok, but does this help really produce the results of reducing risk or improving returns?


Minimum Risk and Average Returns Through Time

Table 2 and its summarized graphs shows for each holding period the Minimum Risk Equity Percentage, the Worst Returns for 100% Bonds, 100% Stocks and Minimum Risk Returns under both the Worst Returns and Under the Average Returns scenarios.

Under the Worst Returns scenario, for each holding period, we find that the Minimum Risk Equity Percent gives the highest returns.

Under the Average Returns scenario, for each holding period, we find that for holding periods less than 14 years, the Minimum Risk Percentage gives better returns than 100% Bonds.  For Years 15 and higher the Minimum Risk Percentage is 100% equities.

In conclusion, Minimum Risk percentages for each holding period gives us better returns than bonds and does so with less risk.







How to Apply the Results

To experience the results, we need to figure out your cash needs through time.  Then for each need, we discount that amount to today and invest that amount to grow to meet that need.  Of that amount, we invest the Minimum Risk Percentage for that holding period in stocks.

Table 3 below shows how much, per $100 of future need at a particular time in the future, we have to invest today and of that amount how much in equities.






















The Next Step

A knowledgeable investment advisor who spends time to determine your cash needs through your lifetime is able to calculate your percentage of your portfolio that should be invested in Stocks – like the S&P 500 Index to achieve a portfolio that gives you good returns with less risk.

In other words, you should have a custom tailored portfolio as your needs through time and your risk tolerance is unique to you.  You shouldn’t be pigeonholed into one of a small number of pooled portfolio profiles!  You can do better than that.

If you are interested in working with an investment adviser that can help you find the right asset mix that’s geared toward the returns you need and do so with a level of risk that you may be able to tolerate, please call me, Steve Nyvik, at (604) 288-2083 Extension 2 or email me at: