I have said in a number of past Marche Monthly’s that in the long run, elections don’t matter to our portfolios. In the September 2020 issue, 53 days before the US federal election, here was my prediction as to the outcome of that contest:
“I predict that not a single stock we own will be affected one way or the other, long-term, by the result of the US presidential election."
“…Our critical success factor on November 3rd, for the next four years and beyond will not relate to who’s in the White House, but whether we own the right companies and the price at which we bought them.”
This still holds true, including for the Canadian election we’re in right now. But: what about the taxation policies the candidates are running on? Because after all, the ultimate concern is not what your returns are, but what your returns are after tax.
WEALTH TAX?
There has been talk, for example, about a “wealth tax,” possibly applied on family net wealth of $20 million or more. Will it be brought in after the election? It’s possible, but as common sense, and its failure in other countries suggest (see this Globe article), it can also be very unfair and will definitely be highly complicated for government to administer.
As an example: what about the farmer sitting on $20 million of land which only produces $200,000 of annual income? If he is taxed 1% on the value of his property (the percentage that has been levied in other countries), it will kill his business, which does not seem fair at all, especially considering he is feeding the rest of us.
Speaking of real estate, how – and by whom – is its value determined in the first place? And are there applicable deductions as with other taxable investments? As the Globe article points out, “If a wealth tax included [someone’s] house, there would have to be valuations, record-keeping, and a (baseline) valuation to start the whole process. It would be complicated and costly to collect.”
SIMPLE IS BETTER
Here at Marche Wealth Management, our brand is about uncomplicating our clients’ lives. We think that government should take the same approach to its citizens. Instead, the candidates in our current federal election, because they are essentially trying to buy votes, are complicating things with proposed tax credits targeted to specific audiences. There are proposed credits for childcare, housing, seniors, small business, and even vacation expenses, for example.
It would be cheaper and more efficient to decrease taxes on everyone across the board, making administration simpler – but that doesn’t allow someone running for public office to court the specific votes they seek.
THE BIG ISSUES
On the bright side, we appear to be emerging from the pandemic. On the not-so-bright side, we are emerging with record deficit and debt levels due to COVID-19 (deficit refers to the annual amount borrowed and debt is the total accumulated amount). As a result, monetary policy is a very important issue now and will be in the decades to come, and all candidates should be focusing on it in this election campaign.
Instead, not nearly enough attention is being paid by the candidates to the deficit, debt and other major structural issues including our lack of competitiveness, all of which affect our future as a country. Not to mention climate change, which has not been a major issue in this campaign so far, but is the largest threat of all to the global economy, as we pointed out in the May edition of this blog.
In April of this year, our national debt surpassed $1 trillion for the first time in our history. As of 2019, before the pandemic hit, Prime Minister Justin Trudeau had already raised the debt per person more than any prime minister in Canadian history, outside of a world war or recession.
My team and I are always focused on the futures of our client families, many of whom are multigenerational. So we worry about the prosperity of our future generations if they are anchored with paying for our enormous levels of debt, which are continuing to balloon. What incentive will they have to be successful – if decades from now, they are paying taxes higher than anything we can imagine here in 2021?
INFLATION
In the June edition of this blog, I shared my expectation that inflation will be temporary. I still think it will be. This view is supported by strength in the bond markets, where the return on a Canadian 10-year bond is below 1.2%, and is at 1.3% for a US 10-year. What does this mean? It means that the market is not presently concerned about inflation persisting and we believe our current investment strategy remains the right approach in this environment.
OUR STRATEGY
To say it again, what matters most in financial matters is what our clients keep after tax. That is why our investing strategy is always driven by the in-depth, customized financial planning we do for you, which embodies our understanding of what is most important to you. The more deeply we understand those priorities, the better portfolio managers we can be.
And what is our investing strategy? If you have been a regular reader of this blog, you may recognize what follows.
Our proven investment philosophy is founded on the principles of Warren Buffett and Berkshire Hathaway, in that we only provide investment solutions we deeply understand.
Our equity strategy is to own predominantly high-quality, dividend-paying companies in regulated industries. That is how we design concentrated portfolios that withstand the unpredictability of the political and economic environments.
Specifically, we focus on owning companies which:
• Have a track record of creating shareholder value
• Have management that treats shareholders as partners
• Are trading below intrinsic value
• Have a simple, easy-to-understand business model
We tend to manage concentrated portfolios composed of quality businesses we want to own for many years. We believe this approach will maximize long-term performance, improve after-tax returns, and keep fees to a minimum.
Because your portfolio is carefully hand-selected, it is not the market – and so it continues to outperform the market, with less risk than the market.
In our fixed income strategy, we continue to focus on preservation of capital, emphasis on risk relative to return and strict management of credit quality.
SUMMER QUIET
Things at the office have been quieter in recent weeks. The markets have also been quieter, and volatility has been lower. We are happy to learn from the discussions we have been having with our client families that they are busy – enjoying the summer weather and focusing on the great things in life that financial security can bring.
If you have a colleague, friend or family member who would appreciate our commitment to strategic discipline and the simplicity it brings to life, we would always appreciate hearing from you or them – because we have been having great success lowering costs, decreasing risks and increasing returns for many people referred to us.
In the meantime, on behalf of the entire team here at Marche Wealth Management, I wish you the happiest of times in this final month of summer.
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We don’t speak jargon. We’re all about uncomplicating your life, so we speak plain English. If there is someone you care about – someone who would appreciate this simple and straightforward approach – please feel free to share this message with them or put us in touch.
Want to discuss any aspect of this month’s blog, or any other issue on your mind? Have a story idea? I am always happy to receive your call or email.
Tyler Marche, MBA, CFP, FCSI
Your life, uncomplicated
tyler.marche@rbc.com
1-416-974-4810
www.tylermarche.com