The Globe and Mail - 11.09.2019

WEDNESDAY,SEPTEMBER11,2019| THEGLOBEANDMAILO B 7

GLOBEINVESTOR

REPORTONBUSINESS|

H

aving an updated will
could be the all-time most
ignored piece of personal-
finance advice.
In the digital age, that’s a big-
ger problem than it ever was in
the past. Without a well-drafted
will, your loved ones may never
find some of your most impor-
tant assets and possessions, and
they may not be able to wind up
your affairs the way you want.
Your loyalty points could be
squandered, while your social-
media presence persists as
though you’re alive and well.
“If you look at a traditional es-
tate plan, you go into a lawyer’s
office, you get a will, you divide
your stuff and then assume the
executor is going to just pick up
your will, find the paper in your
home office and carry on and do
the job,” said Sharon Hartung, au-
thor of the bookYour Digital Un-
dertaker: Exploring Death in the
Digital Age in Canada. “In today’s
home office, there’s no more pa-
per trail.”
So true. Are you keeping a pa-
per file of your loyalty reward
point hoard or your monthly
bank and investment state-
ments? Me neither. All of this in-
formation is online, which is to
say it’s invisible to the executor of
your will and family members
unless you specify otherwise.
Ms. Hartung is a former aero-
space engineering officer with
the Canadian Armed Forces and a
former technology executive
with IBM. She came to write her
book after dealing with her own

mother’s estate, a job that was

complicated by the fact that her

mom had no will. In a clear and

slightly bemused way, Ms. Har-

tung guides you through the

complexities of having your as-

sets wound up in the digital age.

Estate-planning experts have

long suggested that you make an

inventory of your assets in pre-

paring a will. Ms. Hartung sug-

gests listing both your physical

assets and your digital ones, and

then discussing with your lawyer

that you want your executor to

have the power to look after dig-

ital assets.

A digital asset is an electronic

record, she explains. “It’s your e-

mail, it’s your social media, it’s

your travel rewards, your fre-

quent-flyer points, all your online

accounts, your banking apps,

your gaming tokens.”

Ms. Hartung strongly advises

against including account num-

bers and passwords when listing

your bank and investment ac-

counts. Instead, provide enough

information to help your execu-

tor find his or her way to your ac-

counts. This might include the

name of the financial institution,

the division if it’s a bank (it’s a

good idea to specify whether your

account is at a branch or held at

an online brokerage, in mutual

funds and so forth) and a contact

person if appropriate.

“It’s against the terms and con-

ditions that you signed for online

banking to give someone your

password,” Ms. Hartung said.

“The executor should not be log-

ging in at all.”

For loyalty points, Ms. Hartung

suggests picking your three most-

used programs and checking the

terms of service to see what the

policy is for transferring points af-

ter death. Some quick examples:

Aeroplan and Air Miles allow

points to be transferred or

merged with another account,

while PC Optimum and Canadian

Tire Triangle points are not trans-

ferable.

Other digital assets to consider

in your estate planning include

your e-mail account and social

media. Facebook, for example, of-

fers the option of having your ac-

count permanently deleted after

you die or “memorialized” under

the direction of a legacy contact

such as a family member or close

friend.

Photos are one more digital as-

set to consider. If you have photos

you treasure and want to share

them, Ms. Hartung advises pass-

ing them along before you die.

While you’re at it, she suggests

picking a photo for your obituary

rather than leaving your family

scrambling to find a usable pic-

ture. “No one will want their

mid-1970s or mid-1980s prom pic-

ture to be used for their obituary,”

she writes in the book. “It was not

a good time for fashion.”

We probably wouldn’t have Ms.

Hartung’s book if her mother

hadn’t passed away without a

will. It took two years to settle her

estate, which offers a lesson to the

many people who have neglected

to have a will drafted. If you love

your family, do them the courtesy

of having a properly drafted will

that covers all your assets, digital

and otherwise.

Yetanotherreasontogetyourwillinorder

Inthedigitalage,

it’simportanttomake

sureyouwindup

yourloyaltypoints

andonlinepresence

ROB
CARRICK

OPINION

PERSONALFINANCE

ISTOCK

R

egistered education savings
plans (RESPs) are a no-
brainer for Canadians who
are saving for their children’s
postsecondary education be-
cause of the tax-free withdrawals
and the federal government’s
matching of contributions. But
deciding what to invest in for an
RESP is a trickier task. Those de-
cisions become even more com-
plicated as the beneficiary ad-
vances from being a young child
to a postsecondary student.
When a client’s child is in pri-
mary and middle school, the
main objective should be on
making investing choices that
maximize returns in an RESP be-
cause the money won’t be need-
ed for a long time, says Kash
Pashootan, chief executive and
chief investment officer at First
Avenue Investment Counsel Inc.
in Toronto.
Adrian Mastracci, senior port-
folio manager at Lycos Asset
Management Inc. in Vancouver,
shares that sentiment. “The pri-
mary mission at this point is to
grow the account, not capital
preservation.”
Equities have provided the
highest long-term rates of return,
historically, even though their
value can fluctuate significantly
in the short term, Mr. Pashootan
says. So, investing in equities
through stocks, equities-focused
mutual funds and exchange-
traded funds (ETFs) is a good
choice for a younger child’s RESP
because they provide the great-
est opportunity for long-term
growth.
However, he has one caveat:
“Never compromise quality
when investing. Even with a long
time horizon, speculating when
investing is not suitable.”
Mr. Pashootan says a mix of 80
per cent equities and 20 per cent
fixed-income for an RESP at this
stage of a child’s life is ideal. Sim-
ilarly, Mr. Mastracci says the ini-
tial RESP asset mix could easily
be as high as 100 per cent equi-
ties because the assets will not
be required for a long time.
His preference is an asset mix

ranging between 80 per cent and

100 per cent equities.

For the equities component,

Mr. Pashootan recommends divi-

dend-paying companies in North

America – but not necessarily

household names such as banks

and utilities. Given the relatively

long time horizon, focusing on

growth-oriented, dividend-pay-

ing equities is more appropriate.

He points to Best Buy Co. Inc.

(BBY-N) as a good example be-

cause of its impressive transition

from a bricks-and-mortar retailer

into a powerful online retailer

and its track record of raising its

dividend at an average of 13 per

cent a year for the past decade.

Mr. Mastracci takes a broader

approach and suggests that ini-

tial equities targets may be 25 per

cent allocated to Canada, 30 per

cent to the United States, 15 per

cent globally and 10 per cent to

emerging markets. The fixed-in-

come component may include

guaranteed investment certifi-

cates (GICs).

He prefers starting with ETFs

because one or two of these

products will fulfill the desired

mix and rebalance the assets pe-

riodically.

As clients’ children get older

and the date upon which the

education funds will be with-

drawn approaches, RESP invest-

ments should be shifted gradual-

ly to those that have less short-

term volatility, namely fixed-in-

come assets such as bonds, GICs

and money market funds, Mr.

Pashootan suggests.

This strategy helps to reduce

downward swings in value and

ensures the money will be there

when it’s needed.

He suggests that when a child

turns 16, at least 20 per cent of

the RESP should be in cash or

GICs and no more than 40 per

cent should be allocated to equi-

ties. Even then, he recommends

shifting to “boring” dividend-

paying names, such as Canadian

banks and utility companies

such as Emera Inc. (EMA-T).

“Many people forget, especial-

ly after a decade of fruitful equi-

ties markets, that even the high-

est-quality dividend-paying com-

panies can have their share price

decline in the short term,” Mr.

Pashootan says. “[These declines

are] not a concern if [clients and

their children] have the years to

let equities take their course, but

[are] rather problematic if the

capital is required for paying tui-

tion.”

In Mr. Mastracci’s view, the in-

vestments within an RESP

should begin to be transferred to

short-term cash instruments

from equities about three years

before the student begins with-

drawing the assets to pay for

postsecondary school.

He recommends a three-year

ladder of fixed-income selec-

tions, such as GICs, starting

when the student is 15 or 16 years

old.

Once a client’s child is en-

rolled in an eligible postsecond-

ary institution, the assets in an

RESP will begin to be withdrawn.

Mr. Pashootan says that expo-

sure to volatility will need to be

minimized because of the RESP’s

very short-term time horizon.

Thus, he suggests clients avoid

any investment in equities and

stick to very stable and short-

term cash and fixed-income se-

curities such as savings accounts,

GICs and high-quality short-term

bonds.

Although it may seem coun-

terintuitive to retreat from the

stock market, he says that “you

can’t have your cake and eat it,

too.”

The benefit of earning a few

extra percentage points from be-

ing invested in equities is far out-

weighed by the risks that the

capital would decline significant-

ly in value when the child needs

it to pay for school.

Special to The Globe and Mail

TimelyinvestingstrategiesneededforRESPs

TERRYCAIN

OPINION

Manypeopleforget,

especiallyafteradecadeof

fruitfulequitiesmarkets,that

eventhehighest-quality

dividend-payingcompanies

canhavetheirshareprice

declineintheshortterm.

KASHPASHOOTAN

CHIEFEXECUTIVEANDCHIEF

INVESTMENTOFFICERATFIRSTAVENUE

INVESTMENTCOUNSEL

T

he most common type of preferred share is devel-

oping a reputation for being a liability when interest

rates are falling.

Don’t entirely write off rate-reset preferreds in a

falling rate world, though. A small slice of the rate-reset mar-

ket offers a minimum dividend, a sweetener that helps these

shares weather rate declines better than other rate-reset

shares.

Preferred-share specialist John Nagel of Leede Jones Ga-

ble said there are about 30 minimum dividend rate-reset

preferred-share issues, which amounts to between 12 per

cent and 15 per cent of the preferred-share universe he fol-

lows.

“These shares have a relatively low sensitivity to interest

rates,” he said. “If interest rates go down, which they have,

you have something to rely on–afloor.”

Rate-reset preferreds were invented about 10 years ago,

when there was an expectation that interest rates would rise

sharply from the historic lows of the day. Resetting the divi-

dend every five years was thought to be a way to help in-

vestors get the benefit of rising rates. Rates never did spike

higher – in fact, they have frequently fallen. The net result is

that rate resets have, in some cases, had their dividends ad-

justed lower, not higher, and share prices have fallen hard.

Here’s how the minimum dividend defends against a low-

er dividend: At each five-year reset of the dividend, investors

get the greater of the five-year Government of Canada bond

yield plus a premium or a floor yield. The floor ranges

roughly from 4.5 per cent to 6.5 per cent in the minimum-

dividend rate-reset universe, with higher floors offered by

companies with weaker credit ratings.

To provide a sample of what’s available in minimum divi-

dend rate-reset preferred shares, Mr. Nagel highlighted five

different issues. Let’s zero in on one of them, BAM.PF.I, from

Brookfield Asset Management. At reset on March 31, 2022,

the dividend would be pegged to the greater of the five-year

Canada bond yield plus 3.85 per cent or a floor of 4.8 per cent.

Over the past year, BAM.PF.I’s share price has fallen about

5.4 per cent, and in early September was trading just below

its $25 issue price at $24.65. Exchange-traded funds holding a

broad spectrum of rate resets or preferred shares of all types

have fallen roughly 18 per cent to 20 per cent in the past year.

The other minimum-dividend rate resets highlighted by

Mr. Nagel were issued by:

Brookfield Office Properties (BPO.PR.C)

Enbridge (ENB.PF.I)

Pembina Pipeline (PPL.PF.A)

TC Energy (TRP.PR.K)

There are no ETFs tracking minimum-dividend rate-reset

preferred shares, so investors will have to buy individual

securities. One way to find them is to find a non-financial

issuer you’re interested in and then check their list of pre-

ferred share issues to see if any have a minimum dividend at

reset time.

Notallrate-resetpreferred

sharesgethammered

byfallinginterestrates

ROBCARRICK

OPINION

PERSONALFINANCE