E37: First Quarter Letter 2024 - Free Money Edition

Foreign. This podcast is brought to you by Gensler Wealth. The information discussed today is meant to be general in nature and not tailored to your specific investing circumstances. This means that you should talk to your regular Gensler wealth advisor or your own advisor before acting on any information we discuss today. Nothing in this podcast is intended to be a solicitation, and past performance does not guarantee future returns. Today on the podcast, we challenge conventional wisdom that says there is no free money to be had. Well, we'll see about that. Today on the unlimited podcast, I read my first quarter of 2024 client letter and we talk about the search for free money. Well, we found some and I'll tell you how and where and why. Taking advantage of free money can get you one step closer to your finish line. Let's go. Well, hey everybody, welcome to the unlimited podcast. I do this four times a year when I read my quarterly letter to our clients, just in case you want to listen to the smooth sounds of my voice as opposed to reading it yourself, which I think is a good decision. So here we go with our first quarter of 2024 client letter and I call this the Free Money Edition to Gensler Wells clients. You may have heard the joke about two economists walking down the street and seeing a $20 bill lying on the sidewalk. The first economist says, look at the $20 bill. The second says, that can't really be a $20 bill lying there because if it were, someone would have picked it up already. So they walk on, leaving the $20 bill undisturbed. The notion above is that there can't be free money lying around in plain sight. The markets are efficient and opportunities like the above cannot exist. Well, I beg to differ. A few weeks ago, I was in a long line at the Burger Shack, our family's favorite burger joint, to pick up food for dinner. There were at least six people ahead of me placing and collecting their orders. As I waited for my turn to order, my eyes gazed at the floor directly in front of the cashier and I saw a loony and a quarter lying in plain sight on the ground. With that old economist joke in my head, I watched in disbelief as person after person completely missed or ignored the free money lying on the ground. When it was my turn to order, I promptly reached down and picked up the free money and placed it in the tip jar for the staff. Clearly, $1.25 is not a large sum of money, but if you can find $1.25 in many places, it can add up. At Gensler wealth, we believe a critical part of our job is to find you free Money the Search for Free Money Investing is hard this is a hyperlink by the way, in the letter that will get you to another article I wrote on that very topic. And by the way, this will be the last time I note hyperlinks or footnotes or anything. Just encourage you to go to the website. You can see this letter and see all the disclaimers and footnotes. So let's start that again. The search for Free Money Investing is Hard what I've learned in 25 years in the business is that you should jump at opportunities to earn a risk free return, which is the investing equivalent of free money. As we oversee your finances and investments. Here are examples of what we are doing and have done to seek out free money for your benefit. 1. Tax and investment Holding Structuring the first step is to ensure your family has the appropriate tax structure in place to conduct your activities with a goal of the highest after tax investment and financial outcomes. For example, we have helped many of you set up holding companies and family trusts. These structures aim to either defer the payment of taxes or reduce a family's overall tax burden. Similarly, simply making use of government provided registered accounts like the RSP, TFSA, RESP, etc. Can save a dramatic amount of taxes over time. In the case of the resp, the Registered Education Saving Plan, the government literally gives you free money when you contribute. When you structure or maximize the use of registered accounts to defer safe taxes, the result is money you get to keep instead of handing it over to the cra. Number two Negotiating Fee Reductions we are very conscious of the investment management fees you pay and we strive to keep them as low as possible. Once we have determined that an investment strategy is a suitable addition to our roster, where possible we go to work negotiating the fee structure and sometimes other terms. Our investing scale often results in our clients paying a substantially discounted management fee. For example, with one of the strategies we use, the management fee is reduced by 0.75% for Gensler wealth clients. This equates to an Additional risk free 0.75% return on this investment in your portfolio. This fee reduction has on average represented an annual 8% enhancement to the return on that investment over the past three years, and we utilize several strategies with discounted fee structures to benefit our clients. Number three taking advantage of discounted dividend reinvestment programs, also called DRIPs, similar to a fee reduction. We love finding investment funds that enable our clients to automatically reinvest monthly distributions at a discount to their market value. A number of the strategies we use offer a 2% or 3% reinvestment discount. This means that you earn an immediate risk free return on each distribution that is reinvested, like the small change on the Burger Shack floor. It may not seem like a lot of money, but and there's a chart here. As the chart in the letter shows, if you can collect small amounts of money every month in perpetuity, they can add up. And again, I encourage you to look at the letter online and you'll see the chart. In addition, certain strategies we use will pay distributions not in the form of income which is taxable, but rather as a return of capital which are not taxable in the year received. Instead, the investor will incur a higher but more favorably taxed capital gain at a later point when the holding is sold. This return of capital acts as a tax deferral and tax reduction mechanism, which leads us into the next item below. Number four Recharacterizing Income into Dividends or Capital Gains as you likely know, interest income is taxed at the highest rates in Canada. That is why, in addition to the prospect for high returns, investing in equities whose returns come in the form of capital gains only when sold tends to be the most tax effective way to grow wealth inside a taxable investment account. But for those who wish to invest in other potentially less volatile or less risky asset classes for a portion of their portfolios, we have found a few select investment strategies that either pay dividends instead of interest or have a legacy legal structure that enables all returns of any type to be treated as capital gains. The above strategies can potentially reduce your taxes between 25% to 50% on each dollar of income. Put another way, a 5% return on the aforementioned tax advantage strategy would be equivalent to a regular bond portfolio that returns 8% in the form of income. While 8% sounds better than 5%, ultimately the net return after taxes is the true measure of portfolio performance and our effectiveness as portfolio managers. Number five the use of whole life insurance, especially inside a corporation. Whole life insurance is a permanent insurance policy that grows in value over time by participating in distributions from the insurance company's pool of investments. This type of policy offers a significant opportunity to boost wealth and estate value for two key reasons. Number one, the policy's value grows tax free and is typically distributed tax free upon death. And number two, when held within a corporation, the proceeds can be paid to your estate on a tax free basis without being subject to additional taxes. Like most other corporate assets. For for someone with a corporation, the additional after tax value of dollars invested in a whole life insurance policy can be potentially double what could be achieved without the use of insurance. Now that's what I call free money. For a deep dive into whole life insurance along with a more concrete example of the above, please listen to the latest episode of the Unlimited Podcast Insurance 201 with Sterling Park. I I will say for that last section on insurance, there are a few footnotes that are important to read, so encourage you to go see that on the website. Why am I telling you about all this? First, we want to ensure you know what we are doing and how we are thinking around meeting your long term wealth and investing goals. Second, we have always been clear that we don't have a crystal ball and can't predict the future. To mitigate this limitation which we believe all investors and forecasters have, whether they admit it or not, by by the way, we want to stack the deck in your favor by taking advantage of as much risk free money and opportunities that we can find. This approach is akin to shifting the starting line of a race closer to the finish line. Now if I could only get that line at Burger Shack moving a bit more quickly. The only thing limited about your Ginsler Wealth Experience like most other businesses, Ginsler wealth can be found on popular social media platforms including LinkedIn, Instagram, Facebook and X, formerly Twitter. And of course we have the unlimited podcast that's available to all as well. While we are active on those platforms, over the past few months I've realized that I have a lot I would like to share with our clients and closest friends of the firm, but not necessarily with our large number of public followers. And I wanted to do so in a way that would not bombard your email inboxes. So, contrary to prevailing social media wisdom, we have created at Gensler Wealth X a private X account to provide you with inside access to what we are thinking about and working on on your behalf. Please note that while the account is private, once you follow it and we let you in, you will be able to see other followers and vice versa. Think of it as the only thing limited about your Gensler wealth experience. And again, you can go to the website or click on the link to access this private account and of course only for clients and closest friends. Finally, I would like to congratulate my colleague Safal Badarai, who many of you know well, on becoming registered by our regulator, the Ontario Securities Commission, as a Portfolio Manager and as such his promotion to Portfolio Manager at Gensler wealth. Thank you for your trust, support and confidence. We are available 247 should you need us. Sincerely, me, Brian Gensler, President and CEO so there you have it. That's my quarterly letter for the first quarter of 2024. More interesting guests and topics to come on the podcast. More letters to come. And for those special clients and special friends, you can really see what's going on inside my wild mind on our private X account that I mentioned. Thank you and we'll talk to you soon.

The unlimited podcast is hosted and produced by Brian Ginsler and is edited and mixed by myself, David McMillan. This podcast is not to be taken as investment advice. If you like what you heard, don't forget to rate the podcast and follow us on social medianslerwealth. Thanks for listening and see you next time.

Sam.