Hey friends! Warm welcome to all new subscribers. You are joining an incredible group, just about 1,000 strong, with 18 year old’s fresh out of high school, to seasoned investment bankers, entrepreneurs, mom’s and dad’s, and retirees.

Before we get started, a quick personal note:

This past week I was blessed to witness a classical music concert at the Orpheum in Vancouver, put on for elementary students. 2,500 kids showed up to listen and watch an Orchestra perform. What I saw was no less than extraordinary: kids laughing, awing, clapping, and cheering.

The history here starts with my Great Grandfather Jan Cherniavsky who started a foundation called the Cherniavsky Junior Club nearly 60 years ago with a vision to bring classical music to young people. What began as a small foundation has grown into a remarkable success, reaching hundreds of thousands in the community.

As a new board member, I’m excited to be part of the next chapter, in partnership with the Vancouver Symphony Orchestra. Though Jan passed before I was born, his memory has greatly impacted my life through music. I stopped playing piano in high school, but after meeting some musically gifted Israeli’s in South America, I was inspired to return to the piano. Fifteen years later, I play almost every day.

Music, especially classical, connects us across borders, languages, and generations. Thank you to my great-grandfather, the VSO, and the kids for helping us carry out Jan’s vision.

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Personal Finance

Do you donate to Charity?

Stop writing cheques or giving cash—there’s a better way.

I was working with a retiree who gives generously:

$10,000–$20,000 every year. $500 cheque here, $1,000 cheque there. That’s awesome!

But he was also giving a big donation…

…to the CRA.

Let me explain:

What most people do (don’t do this):

1. Investor owns $10,000 of Apple stock (original cost = $5,000).

2. Wants to donate $1,000.

3. Sells $1,000 of stock → receives $1,000 cash.

4. Gives $1,000 to charity.

5. Gets a tax credit ~$500.

Sounds good, right?

Wrong.

Because next year, CRA knocks:

1. $1,000 stock sale = $500 gain → $250 taxable gain.

2. If your marginal tax rate is 50%, that’s $125 tax owing.

So instead of a $500 cost to donate $1,000…

It actually cost $625, $125 more than he thought.

Now do that twenty times a year (20 x $125) = $2,500 wasted to taxes.

Better method:

1. Investor calls broker: “Please donate $1,000 of my Apple stock directly to [Charity Name].”

2. Broker transfers the shares.

3. Charity receives the $1,000 value.

4. Investor gets the full ~$500 tax credit.

5. And NO capital gains tax!

Thanks CRA, but you ain’t gettin’ nada más.

Result:

• Full donation.

• No capital gains tax.

• Lower out-of-pocket cost.

• Bypass CRA.

When I was managing portfolios at Richardson, we would always insist clients (if possible) donate this way. While a savings of $2,500/yr may seem trivial to some folks, it adds up: investing and compounding that $2,500/yr at 8% over a 30 year retirement period equals $300,000. Big money!

Soooo, if you have a broker—they should easily be able to complete this for you. Furthermore, if you have a broker and they HAVEN’T told you about donating appreciated stocks, well, you should educate them—if you like them—or use this as your excuse to move on.

If you DIY i.e. with Wealth Simple, you can also easily do this, they have a simple instruction page here: donate shares to a charity.

To conclude:

CRA isn’t a Charity, so make sure you aren’t giving them anything more than legally required.

Instead, donate appreciated investments to the Charity that most deserves it.

Your dollars will go much further, for them and for you.

💝 Newsletter subscribers get 10% off the Simply Investing course with the code: SIMPLYINVEST

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Stock Markets

Talking to a relative the other day who has just set up Wealth Simple after following along the Journal for a while, and she has diligently been adding to the broad market every week (great job!).

She definitely presents a bit emotional, laughing nervously that her portfolio is ‘down’ from the original purchase.

But that’s just how it goes! In my experience, the second I buy a stock, it goes down. The Market Gods always have a way of making you second guess yourself.

The key is to continually add to your position so it can transcend your finances through time. Because, eventually, markets go up.

One glitch thing I saw in her portfolio was a single stock position that her friend recommended. She told me it’s been doing well, I looked at the chart, and indeed it has been—that’s great.

While the stock itself has been doing well and fortuitous that her friend had suggested buying it before the appreciation, what happens next?

• When will my relative know when to sell out of the stock?

• What happens if her friend and her stop being friends?

• Who will advise her on the position then? I won’t, I know nothing about the company.

• Does my relative have the technical ability to forecast future business prospects and earnings growth?

Did you know the average length of time a company stays in the S&P500 is ~15-20 years?

That means you could pick the top 10 blue chip companies today and in 20 years from now, 1 of them might still be in the top 10, and more than likely, many of them will cease to exist.

So if the best companies today only survive for so long, let’s be fair and assume this one single stock position probably won’t exist eventually either.

When will that happen? And what will have been made of my relatives investment?

You catch my drift…

Now, don’t get me wrong, I come from the stock picking world, and I love it. There’s definitely a place for it. And some people are very good at it.

But most people and even professional money managers will severely underperform the market index over time.

If you have to “scratch the stock picking itch”, just keep it to a relatively small size of your overall stock market portfolio, say 5-10%.

The rest should be in diversified index funds.

Real Estate

The past 40 years or so has been marked by a structural decline in interest rates which has brought down cap rates along with them.

In other words, real estate valuations have increased as the multiplier of income has gone up. Note: Please see Issue #32, Issue #42, Issue #43, and Issue #44 for the series on Cap Rates.

Why? When the cost of money (interest rates) declines, the value of your future cash flows go up. Therefore, property value increases.

We have seen this across virtually all asset classes. And while there are many factors that will contribute to an increase in property value (i.e. location, supply and demand, increasing rents, lowering expenses, upgrading a C- building to an A+ asset, demographic trends, etc), it is undeniable the benefit investors received due to what we call “cap rate compression”.

As an investor I know always like to say, you could have bought just about anything and hit a home run.

Today is different. Since the COVID Pandemic era of zero interest rates, the cost of money has increased. Less “home runs”, more like singles and doubles with the occasional strike out. As such, you can’t just buy real estate hoping it goes up. Hope is no longer a strategy.

Ultimately, each asset we invest in must have a clear path to increasing the income generated by the property.

In other words, finding an asset that is not performing at its full potential that you can “improve”:

• poor tenant mix

• under market rents

• under-utilized space

• in need of capital or facade improvements

• identifying PAD/development opportunities

• etc

Therefore, value increase.

At Narland, we won’t just buy real estate to buy real estate.

There has to be a “story”.

1 Quote

“Remember, there are no bad questions and if there are you did not ask it.”

My Dad.

A Question

Are you a stock picker? What % of your net worth is in individual stocks vs ETFs?

_____________

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Thank you

Eddie Gudewill, CFA

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