I Want Tax free Income

The LinkedIn discussion considered ROTH vehicles invested in equities and “cash value” Life Insurance as two ways to obtain Tax Free Income… something was missing.

Why not buy tax free muni bonds in the form of Closed End Funds (CEFs)…. more than 6% tax free, in monthly increments, plus the opportunity to take profits (taxable, yes) and compound the income until it is needed. Or spend it right away, for that matter.

The vast majority of Tax Free CEFs continued (raised even) their monthly payouts during the financial crisis, and no payments were missed.

ROTHs have a “lock up” period, and cash value life insurance…. someone please tell me how this provides tax free income and when.

If left in the ROTH vehicle, should one still be buying equities? or investing in income producers?

Experienced, taxable CEFs pay in the 7% to 8% range right now… and seemed to be financial crisis proof in 2008 through 2010.

Growing income portfolios is my business… can’t be done nearly as well with funds and insurance policies. For over 6% tax free income right now, create a diversified portfolio of tax free CEFs.

Yes, market value fluctuates, but with little or no impact on income production. I want tax free income too… and this is how I get it, both personally and for my managed portfolios.

The principles explained in this video webinar are equally applicable to the Tax Free Income building portfolio:


Price Does Not Indicate Value

bitterness of poor quality
Price, by itself, is a poor indicator of value.  Things have a lower price for a reason and the reason is that you are buying less.  If you do not know the excluded parts, there is no way to assess value


The result of the “price describes value” mistake is in this common wisdom, often forgotten.  Everyone should know it by now.

Best known for his work as an art critic and social critic, Englishman John Ruskin, expressed it clearly 175 years ago.  Nothing has changed since.

Its unwise to pay too much, but its also unwise to pay too little.  When you pay too much, you lose a little money ….. that is all.  When you pay too little, you sometimes lose everything because the thing you bought was incapable of doing the thing it was bought to do.   The Common Law of business balance prohibits paying a little and getting a lot … it can’t be done. If you deal with the lowest bidder, it is well to add something for the risk you run, and if you do that, you will have enough to pay for something better.

The essential point is this.  Cost is what you pay and value is what you get.

Price is one part of cost, but not the only part.  As Ruskin points out, the risk of loss because of an absent aspect is another part of cost.  What could be taken away?   Durability, support after sale, ease of use, difficulty in maintaining, or any of a hundred other things.  Maybe it was stolen.

For example, Renewable Term 10 life insurance is about the lowest priced form that there is.  The reason is two-fold.  People who can pass a medical are nearly certain to live 10 years.  If they live more than 10 years and their health deteriorates in the interim, the price of the renewal will be high enough that the insurance company is okay.  They are saying to themselves, “Anyone who keeps this policy at this price, knows something about their health that we do not and that thing is adverse.”  If they had no problems they would just do a medical and buy new again.  You give up the right to keep the insurance at a reasonable price.

All life insurance costs the same.  It is the package that changes the price.  For more premium, you get more value.  For less, you get less.

Furniture is another category where the “price is not value” rule applies.  Good furniture is not cheap and cheap furniture is not good.

Before you make a decision based solely on price, notice this idea, also from Ruskin.

There is hardly anything in the world that some man cannot make a little worse and sell a little cheaper, and  people who consider price only are this man’s lawful prey.

Being prey rarely ends well.

Don Shaughnessy is a retired partner in an international public accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.

What Does Insurance Do?

An interesting question and if you ask 50 people, I doubt you will get 50 coherent answers. Maybe not 20. People often own insurance because they think they are supposed to, or because their spouse thinks they are supposed to, or because the government requires it, (car insurance) or because the bank requires it (fire insurance.)

While these may be true, and the motivator, for many, it is possible to rationally decide to buy insurance because it has value to you.

People usually think about insurance in two ways:

  1. Insurance protects wealth that exists. The fire insurance, the lawsuit for negligent driving, the all-peril loss of your 40 carat diamond, your errors and omissions coverage. or,
  2. Insurance creates wealth where none exists. Typically life insurance although some make the case for critical illness or disability income insurance.

While these are a little true they are very limiting.

First of all, 2) is almost always not the case. Life and other like forms of insurance protect an intangible asset. Your career value, the ability to earn income. Just because you cannot sell it to someone else does not alter its nature as wealth. Later on, these forms of insurance protect the wealth you have from being used to pay debts or taxes or medical bills.

So most simply, insurance protects wealth from loss. More true, but still not the complete reason that people should own insurance. Besides most people will not buy the proper insurance for that reason. It has no feelings attached.

With life insurance, there is nothing in it for them. It is like betting against the home team. There is a loss no matter the outcome. If the home team wins, (live a long time) then I lose the premiums. If I collect the benefit, I died.

Most people do not own life insurance for what it is. Actually that would be an odd reason to own anything. Value is in use.

Salespeople usually suggest that people own it for what it does. Create liquidity, protect assets from forced sale, liquidate actual and implied liabilities and in some cases a way to accumulate wealth. Again limiting although possible to explain.

People should not own insurance only for what it is, that is just silly, or only for what it does, that is just the adult decision. People should own insurance because it allows them to do things they can do only if they have it. It offers them choices previously unavailable.

For example, suppose I owe the government $2 million upon my death. I could own some assets specifically for this liability. Those assets have limits, principally they must be liquid and secure. That is a very restrictive start. They cannot be business assets because those are neither liquid nor secure. They cannot be things like development properties or personal real estate. Again not predictable enough. The limitations dominate.

Suppose instead, I set aside $1million in a secure and somewhat liquid account to pay premiums on a $2 million life insurance policy. Maybe even buy an annuity. Now my tax liability is liquidated, whenever I may die, and I have $1 million in my hand to do with as I please. Maybe educate grandchildren, or payoff mortgages, or make down-payments, or buy a nice Hennessey Venom GT Spyder like Steven Tyler’s, or invest in a very speculative, completely illiquid investment, like a farm 5 miles out of town. Maybe some seed money for the kid’s business or a nice condo in the Caribbean.

No matter my tastes, the insurance allows me to do something I could not have done without it.

With insurance done right and for the right reasons, the home team always wins.

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. don.s@protectorsgroup.com

Liquidity Matters In Your Estate

Lynne Butler is the purveyor of useful estate planning information. Her Blog “Estate Law Canada” provides good answers to questions that come up regularly and for some others that are rare. There is an extensive and searchable archive. You will benefit from her collection.

A recent one caught my attention. It deals with taxation and covers the ground for the majority of people. Taxes due when the second parent passes away.

It would be useful as a client handout and might help reduce the inevitable surprise that taxes payable by an estate engender in the previously uninformed heirs. A younger client might want to forward a copy to Mom and Dad.

In the client situation, facts, problems and opportunities are interesting. People will need to have an idea how to fix it as well as how to know about it. Offering implementable solutions is always welcomed.

A planner should help create the “irreducible minimum” for all of the demands in the estate. This means take the steps that are cost and/or cash reducing that are consistent with your preferred lifestyle, your tolerance for complexity and other life goals. Spending a two dollars to save one is not smart, even if it eliminates a tax dollar due.

Once the irreducible minimum cost is known, you can find ways to deal with it.

An adviser should address the matter of funding the liabilities that arises. In addition to taxes there are fees to myriad people. Lawyers, accountants, business and property evaluators, the courts and executors are some. These can often be 10% of an estate and should not be overlooked. There are some minimizing techniques available.

With income taxes, things like an RRSP or mutual fund can self fund the liability, but for other assets like cottages, rental properties and businesses, the liquidity must be created. Watch for promises, preferences, pledges and guarantees while estimating the needed cash.

Do not make the mistake of treating the irreducible debt, fees or taxes as problems. These are not problems, they are merely facts. The problem in an estate is finding cash to deposit so that the executors can write the necessary checks.

All estate plans need to address liquidity and the distribution plan of any estate needs to be based on what is likely to remain after costs and taxes and the liquidation of other obligations.

Be prepared. The net amount is, not infrequently, much less than people expect.

Your will gives you the necessary clue to how things will work out. Follow the logic. The form of your will shows that the executors are to find the assets, pay the liabilities, costs, and legacies like charitable donations, and then distribute the rest to the heirs. Despite the clarity, many people intuitively plan around the idea that they can distribute what they own intact. Seldom true and that rarity can, does, and will in the future, create problems.

Every estate distribution plan is multipart. 1) Discover the assets owned, 2) go through the hoops imposed by the courts, 3) liquidate the liabilities, fees and specific bequests that arise, and finally 4) distribute to heirs.

Miscalculations or inability to meet step 3 will delay and probably reduce step 4. No executor has ever complained about having more cash than they need, but many have problems with a shortfall.

Understand how liquidity will come to be. There are only four ways the executor will have that cash to meet the obligations. (Exactly four.)

Two are controlled by the deceased and two are controlled by the executor.

Controlled By The Executor

  1. Sell Something . Typically, time is of the essence and they will need to sell the best and keep the rest. Does “Estate Sale” imply a bargain? Then there are the costs and the time it takes to sell complex assets for full value. Estate shrink and added costs.
  2. Borrow tends to tie up the estate for much longer than the heirs might prefer. You will need to pledge almost the whole estate to get 25% of it as a loan. The interest will be non-deductible for taxes. Delay and some shrink.

Controlled by the Deceased

  1. Own liquid assets before death. This method has high tax costs and low yields while living. There is a material opportunity cost with this one. Owning liquidity is typically the most expensive way to solve the problem.
  2. Own life insurance, possibly second to die life insurance. When you arrange life insurance, it is merely a post-dated check with an unknown date of payment. In the estate need situation, the date is, coincidentally, the same day the executor needs the money. In almost every case, it is less costly than any of the other three alternatives. Provably so. You might want to check it out.

You can try to anticipate what is likely to occur and find good ways to deal with the deficiencies. If your estate is more than minimally complicated, then you might usefully work with your accountant or other advisers and “Test your will.” Preferably pre-mortem. It is a bit technical but in the end little more than a big arithmetic question.

Get busy. You have the information at hand and know your wishes. Your executor and your heirs will know less. Guaranteed.

Well prepared usually leads to well done.

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. don.s@protectorsgroup.com

Ben Franklin Was Wrong

On the 13th of November 1789, Benjamin Franklin wrote a letter to French scientist, Jean-Baptiste LeRoy.  A famous, but erroneous, maxim is found therein.  Translated from the French, “Nothing is certain except death and taxes.”

Why is that erroneous?

The reality is that taxes are not payable if you organize your affairs correctly and you are willing to die.  The maxim should read, “Nothing is certain except death and or taxes.”

Here is how you create the “properly organized affairs” situation.

The tool.  A permanent life insurance plan.  Could be any of Term to 100, Universal life or participating whole life.  The choice will depend on your circumstances so talk to someone who knows.  The point is the policy must be in force on the date of death.

The mechanism.  In Canada the proceeds of a life insurance policy on death, where the policy is “exempt” as defined, are not subject to taxation of any gain that may have accrued.    That means the money invested in the policy will grow without taxation of accruing income, also a definitional restriction, and will eventually be received by the beneficiary without tax.

The result while living.  In respect to a participating policy (PAR), thought of solely as an investment, perhaps even a different asset class, the assets are held in what is called the PAR pool and they have some interesting attributes.  These include:

  1. A nicely balanced portfolio of secure assets.  Highly secure bonds, high quality mortgages and comparatively high rate loans against policy values, (Fully secured.  You borrow your own money.  Hard to have a default) are typically  more than 80% of all assets in the pool.  The other 20% includes cash, some high quality equities and possibly a little real estate.
  2. Exceptionally small management expense ratio.  Typically less than 0.20% of assets.  Better yet the management fee is limited by the government and is a percentage of earnings not assets.  The insurer has billions of assets and they have skilled people who treat this pool as only part of their overall management task.  Think economies of scale.  A large insurer buys huge quantities of fixed income assets.  Per dollar of principal, their costs are insignificant compared to the costs an individual will incur.
  3. Growth in the policy is a function of two things.  Guarantees and experience.  First the growth in cash value that is guaranteed is usually not large.  Second, add to that the “dividend.”  This is not like a dividend on a stock but is more like a patronage dividend at a co-op or credit union.  A share of the profit.  It is the policy owners share of the excess profit that was earned above the guarantee.  It arises because the insurer’s “experience” was better than that guaranteed in the policy.  Death benefits paid were a bit less, expenses were a bit less, income was more, some people lapsed their plan and lost some money in so doing.

The Asset Class.  So what are the characteristics?  An asset class that:

  • grows but does not produce taxable income to the owner while doing so
  • the proceeds of which, avoid probate, thus saving costs and providing privacy
  • that is capable of being used as security since it is highly liquid,
  • provides fixed-income-like performance
  • has very low volatility
  • provides a little mix of equity
  • provides it all at very low cost
  • includes a performance kicker based on bio-tech developments

Kicker based on bio-tech developments?  Say what?

Let’s suppose the company has assumed that a given person will live 35 years when they initiate the policy.  Let’s suppose that there are thousands of these policyholders.  Let’s suppose that 35 years from now there is a PAR pool of $1 billion to support the liability.  Let’s suppose interest is 4% and by 35 years from now, life expectancy has become 2 years longer because of bio-tech advances.  4% of a billion for two years is about $81 million of extra return because people live longer.  If you just bought identical bonds and other assets, and incurred almost no expense to do so, you could not have this $81 million.  Thus a bio-tech kicker.

If bond rates go up sharply, returns on the PAR pool will follow, but not as quickly.  Over time, the average rate on the portfolio will be the same as the average rate of a similar bond fund.  But rates don’t change with market conditions.  They change as new bonds and mortgages are acquired.  Accounting for the pool includes a smoothing factor so rates will parallel but not exactly match the bond market.  Plus large insurers have a significant unallocated reserve to cushion changes.

What’s the downside?

You might be one of the unfortunates who poorly estimated their ability to pay premiums for the required duration. Other than that, not much unless you are using policies issued by a company that is not big enough to perform or who may leave the market.

A recent case involved cutting out part of a fixed income asset portfolio and investing it over time into the policy.  If the insured lives 5 years past life expectancy, the projected return on the money invested is more than 5% after taxes.  At death 5 years before life expectancy it is more than 6% after taxes.  Assuming no change in the underlying yield on bonds and mortgages.  Higher if rates go up.  less if they go down.

Pretty difficult to get that anywhere in the real world.

The client pointed out that prior to now, he had thought Ben Franklin a skilled commentator so maybe he was also wrong about death being certain.  I hate to tell him that if death is avoidable, then the taxes become certain again.  Thus the “or”

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. don.s@protectorsgroup.com

The 30-Second Life Insurance Interview

If you work in the family market for life insurance, you might want to try this interview.  Since it only takes about 30 seconds, you could theoretically have a lot of rejection and still be okay. 

Do you have a will?

If No, “If you had one, what would it say?’

If Yes, ‘What does it say.”

Expected answer.  “I leave everything to my wife.”

What’s everything?

Expected answer,

“House, car, cottage, retirement plan, some investments, ……  “

Would she become responsible for any debts?

Either yes or no, next question follows.

Do you think she will want some cash?

You will be quiet as a mouse here.

If Yes

Would you like to see the provably least expensive way to get it for her?

If no

Life is complicated and changing.  Would you have any objection to me:

  • reviewing your current insurance portfolio and making some recommendations
  • working up a capital needs analysis just to confirm that everything would be okay,
  • working up a capital needs analysis for your wife,
  • reviewing your will to look for efficiencies if there is a will, or
  • making some suggestions about what should be in a will, and why you need one, if there is not.

This will be more effective if you can modify it to suit your particular style.  The questions to deal with the final no should be in your comfort zone.

You might also consider printing the interview form on a piece about three times bigger than a business card.  Your contact material on one side.  The interview questions and answers or check-boxes on the other.  Leave it with all people who answer no.  You can never be sure that the endangered spouse won’t notice it.  The “No” to the “Do you think she will want some cash?” may get some positive calls.

This does not work every time by any means, but it works more often than you might think.

 Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. don.s@protectorsgroup.com


Bank Offered Life Insurance

There was a sign in a variety store near my old home.  “We have a deal with the bank.  We don’t cash checks or give credit and they don’t sell groceries”  That seems a fair division of duties.

However, unlike groceries, banks  will get involved with any financial service.  Sadly, many people find out that banks are not much better at these extra services than they would have been selling groceries.

Take, for instance, life insurance.

It is unlikely that you can get a business loan without the loans officer suggesting that you add life insurance.  “Just in case.  Besides its group insurance, so there is no messy paperwork and it’s cheap, right?”  I suppose they mean well, but you would be better off buying broccoli from them.

There are important differences between coverages issued to you personally and to you as a member of the bank’s creditor group plan.

  • You do not own the coverage.  If the bank stops offering it, you are without.  If the insurance company decides they do not want it anymore, you are without.  If you change banks you are without.  No problem with personally owned insurance.
  • You do not control the coverage.  Group coverage can be re-priced, the terms of the contract can change and it can be cancelled.  None of these are possible with an individual policy.
  • If you are not in perfect health, the group plan may not be available.  With group coverages,  you are healthy or you are not.  With individually owned insurance, there are intermediate prices.  Even if you are not “standard” you can get coverage.  Better a somewhat higher price than no coverage.
  • At the bank, coverage will expire at 65 or maybe 70.  Well before you will expire.
  • You cannot be sure the insurer will pay.  Most of these coverages have a pre-existing condition clause that could make it possible for the insurer to avoid payment.  There have been cases where the bank did not forward the paperwork to the insurer.  Not surprising that they refused to pay when that happens.  With individual coverages, the insurer does their serious underwriting when they get the application.  With group coverages, some of them do it when they get a claim.

Given these differences, you would think bank insurance would be cheap.  You would, of course, be wrong.

For business loans, bank creditor insurance is frequently more than twice as much as individual insurance.  For a 40-year-old male non-smoker life insurance to cover a $1,000,000 loan would cost $115 per month, including the provincial sales tax with the cheapest of the major banks.  It would increase by 85% at age 45.  Over 10 years you would pay about $20,000.

Individual life insurance for a standard risk, would cost $8,100 over the same 10 years.  The coverage is renewable until 85 and no element of it can be changed by the insurer.  It could be changed to another form of coverage if you wished to do so.

There is no technical problem regarding pledging the policy as security for the loan.  You merely assign the death benefit to the bank to the extent their interest may appear.  Under current tax law in Canada, if the insurance is a requirement of making the loan, the interest is deductible in the same way as it would be if the bank provided the insurance.

Despite the high price and unattractive terms of bank insurance, the worst could be yet to come.

Suppose you die and the bank’s group insurer actually pays.  The bank loan of $1,000,000 would disappear and the assets of your debt free business could be distributed to your family.

There is a catch if you use the bank insurance.  The distribution of the $1,000,000 gain from the insurance could be taxable.  About $310,000 of tax.  There is presently some doubt about this because of a case that appears flawed but nonetheless may be the law.  It might get out of the corporation tax free but I don’t know anyone who would guarantee that.

If you had owned the individual life insurance instead of being a member of a group, the bank would have used the pledged insurance money to pay the loan and your business would still be debt free.  In this case, the $1,000,000 distribution to your family will be tax free.  Ask your accountant how the “Capital Dividend Account” works.

So, we have this result.  Using bank insurance, you pay more to get less and end up owing the government 31% of what you collect on your insurance.

Nice  deal!  Better to buy the groceries from them.  At least you can recognize a damaged tomato.

If a bank is supplying you with creditor group insurance call an adviser and explore the advantages of individually owned insurance.

All numerical examples are based on bank offered insurance rates, individual insurance rates and tax treatment in Ontario, Canada as I understand them at the date of publication.  Specific individual results may be different.

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. don.s@protectorsgroup.com

Insurance Helps You Be Neat

Will Rogers once said that, “Just because a thing is common sense, does not mean it will be common practice.” Not much has changed in the 80 years since.

As an example, the most valuable asset most people have is the ability to earn income. They have other valuable assets too. Their home, their household goods, their jewelry, their car, and their teeth.

How many of these are fully insured against loss or damage?

All but their income.

We can agree that it is common sense to insure the things you value. After 30 years in the business, I can assure you that it is not common practice.

Maybe it is because people don’t know what their income is worth. Here is a handy chart showing the net present value of $1,000 worth of monthly after tax income. It assumes your capital will earn, after tax, 1% more than inflation.

Per $1,000 Income After Tax / Month
To Earn Capital
Remaining Value
15 188,614
20 238,284
25 285,542
30 330,507
35 356,432
40 397,956

For example, a 35 year old retiring at 60 (25 years) and bringing in $5,000 per month now would need capital of $1,427,712 to be financially indifferent to being unable to work.

It is not the insurance answer. The table merely tells you what your job is worth. It tells you nothing about how much insurance you need. Whether it is for disability income insurance or for life insurance, it is not a bad place to start keeping things in perspective.

Your adviser can help you integrate other factors like debt, savings, new expenses like childcare, education savings, inflation and tax effects, government programs like CPP, new expenditures needed like house purchase or expenditure that might go away like clothing, work expenses, and recreation. One-income flexibility is very limited so risks are greater. You need to provide some of the big things.

Your amount of your reasonable insurance need is just a big arithmetic question.

Disability insurance has a capital value you can calculate too. For young people the premium is a tiny percentage of the capital value. If you don’t have the insurance and you don’t have the capital, what exactly are you planning to do if you get sick or hurt?

Both life and disability insurance needs change over time. That fact can influence the kind of insurance you buy but it should not influence the amount you buy now.

Almost everyone is under-insured when you relate the coverage to the value of the asset. Under-insured will not matter if you do not leave a financial footprint when something adverse occurs. Like you have neither debt nor dependents nor a need to spend money.  For the other people, the ones with obligations and expectations, rethink the amount.

Everyone has an untidy financial life. You are never finished everything. There are always half-done plans and plans not yet started. If you don’t get the time, you will still need the money.

Insurance lets you be neat.

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. don.s@protectorsgroup.com

Life Insurance For the Business Owner

Let us suppose you have a business worth $3,000,000 and other assets worth $1,000,000.  Everything is looking good.  I approach you about life insurance.  You suggest that the business is your estate.  The wife and children will have $4,000,000 in the event of your death.

What should I do next?  I propose that we look at the problem from another perspective.

Suppose I have a client who is a young widow with children.  She has no experience running a business.  She has $3,000,000 cash and another $1,000,000 in other assets.  She comes to me for investment advice.  I tell her that I have an opportunity.  I know a business that is young but growing and prosperous and worth $3,000,000.

The business is worth $3,000,000 but the founder, principal decision maker, customer relations person, inventor, and the person the bank and suppliers trust will not be available to manage it, but maybe the employees can look after that.  I recommend that she buy and she does.

Do you think I am guilty of malpractice and should be held financially responsible when the business eventually fails or is sold, under pressure, for a low price?

You will answer yes and you will be right.

Why then does it make sense for you to force your hypothetical young widow into the exact same situation?  Except for the ability to sue me, that is.

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. don.s@protectorsgroup.com

And a Happy New Year to all!

, T-bnAs we finally close 2012, there are many things on which we can reflect. The sad, the inexplicable, the disappointing and yes, some good things too – from an investment perspective anyway!

Canadian banks and other financial institutions, despite a credit downgrade late in the year, are among the safest in the world and investors continue to benefit from holding their preferred shares, common stocks and various debt instruments. The same appears true for the utility industry, despite the contretemps of the Northern Gateway (or maybe Arctic Gateway or Eastern Gateway) oil pipeline in Canada and the US side of the Canada/US Keystone XL pipeline project. Oil is a key utility input in all of it’s many forms as is natural gas. I will stay out of the debate on fracking!

The world needs power – from any and all sources so I believe that for long-term holdings, exposure to this part of the economy is important. Short-term, be prepared for some storms in all of the energy sector, and I suspect they will all be of a political making. So some inclusion of energy and utlities makes some sense – the amount you include depends on your investment comfort level and time-horizon.

Communications in all of it’s forms will continue to grow although I suspect it too will be choppy due to anti-trust, patent issues and regulatory meddling on one level or another. Manufacturing and transportation industries should experience reasonable grow as I believe that deficit and national debts will gradually be controlled allowing economies to begin expanding again.

Whether doing your equities on a do-it-yourself basis or using some form of managed funds or ETFs, I would be staying blue-chip common shares and preferreds particularly for the risk-adverse.

Short-term interest rates (10 years and less), I believe will stay within about 1% to 1.5% of curent levels, which is positive for everyone including companies loooking to expand their operations. If doing things on your own, I recommend GIC or GIA ladders and if you are going the managed fund or ETF route, then I would be looking at average term-to-maturity south of 10 years and only A or better ratings – BBB if you feel adventurous.

On the pure cash side of things, whether in a bank account, T-bill account or some life insurance cash values, it seems to make sense to hold somewhere in the 5% to 7% range – both for protection and any buying opportunities that present themselves.

On Precious Metals – flip a coin! From everything I can find, the “experts” are about evenly divided on direction and potential upside/downside movement. Some level of exposure would seem reasonable if you can tolerate the earthquake-style market reactions but for these I would personally stay on the managed money side and look for broad diversification across countries keeping in mind political situations and I wouldn’t be comfortable holding more than 4% to 5% and only then if I was looking in the 10 plus-year holding range.

Think positive about yourself and your family, keep personal debts going DOWN and by wise in your discretionary spending in 2013!