It's Your Money  

The intricacies of socially responsible investing

Invest responsibly

In recent years, Canadians have increasingly embraced the concept of socially responsible investing (SRI) as a means to align their investment decisions with their personal values.

SRI offers an opportunity to make a positive impact on society and the environment while still generating financial returns.

Socially responsible investing, also known as sustainable or ethical investing, refers to the practice of incorporating environmental, social, and governance (ESG) factors into investment decisions.

Instead of solely focusing on financial returns, SRI considers the broader impact of a company's activities on society, the environment, and corporate governance practices. This approach allows investors to support companies that are committed to sustainable practices and positive social outcomes.

When engaging in socially responsible investing, investors should consider a range of ESG factors. Environmental considerations encompass a company's impact on climate change, resource usage, pollution, and conservation efforts. Social factors may include labor practices, diversity and inclusion, community engagement, and consumer protection. Governance factors assess a company's leadership, executive compensation, board independence, and transparency. By evaluating these factors, investors can identify companies that align with their personal values and contribute to a more sustainable and equitable future.

Canadians have several options to participate in socially responsible investing.

One approach is to invest in companies with strong ESG practices and policies. These companies actively manage their environmental impact, embrace fair labor practices, promote diversity and inclusion, and prioritize good governance.

Investors can also choose funds that focus specifically on SRI, known as socially responsible funds or ESG funds. These funds typically incorporate rigorous screening criteria to ensure that investments align with established ESG principles.

A third avenue for socially responsible investing is impact investing. Impact investments are made with the intention of generating measurable positive social and environmental outcomes alongside financial returns. These investments are often targeted towards sectors such as renewable energy, affordable housing, clean technology, and healthcare. Impact investing enables Canadians to actively contribute to specific causes and directly support organizations working towards positive change.

Engaging in socially responsible investing can yield numerous benefits. First and foremost, it allows individuals to align their investments with their values and contribute to issues they care about deeply. It can also provide long-term financial benefits as companies with strong ESG practices are more likely to be well-managed and resilient, potentially leading to sustainable returns. Additionally, by investing in sustainable solutions, Canadians can help drive positive change and encourage companies to adopt responsible practices, creating a ripple effect in the investment landscape.

While SRI offers many advantages, it's important to acknowledge the challenges and considerations involved. One challenge is the lack of standardized ESG metrics and reporting, making it difficult for investors to assess and compare companies accurately. However, various organizations are working towards developing consistent frameworks and standards, such as the Global Reporting Initiative and the Sustainability Accounting Standards Board, to address this issue.

It's also crucial to thoroughly research and understand the investment options available to them. Not all SRI funds are created equal, and investors should review the fund's screening criteria, performance track record, and management team to ensure alignment with their values and financial goals. Consulting with a financial advisor who properly understands SRI can provide valuable guidance and support.

Socially responsible investing can empower investors to make a positive impact on society and the environment through their investment decisions. But the most important factor when selecting investment options is still ensuring that they are appropriate for you and your situation.

Don’t let its principles take priority over your own investment needs and goals.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

Protection against the rising cost of long term care

Long term care insurance

As inflation rates continue to increase, individuals are becoming more and more concerned about the rising costs of everyday life. But one rising cost that isn’t being discussed enough is the increased expenses people may face for their long-term care.

According to a 2021 report by the Canadian Institute of Actuaries, the average annual cost of a semi-private room in a Canadian nursing home is over $80,000, which represents a significant increase from just a few years ago.

The report also noted that the cost of in-home care has also been increasing, with the average hourly rate for a home health aide in Canada now around $30 per hour.

The rising cost of long-term care is a significant concern for many Canadians, particularly those who are nearing retirement age. As individuals age, their risk of needing long-term care increases, and with the rising costs associated with this care, many individuals are finding it difficult to afford without depleting their life savings.

Long-term care insurance (LTCI) is not overly popular in Canada but with inflation climbing dramatically, now is the time to give it a second look. LTCI is an important financial tool for those who want to protect themselves from the high costs associated with long-term care.

LTCI provides coverage for a wide range of services and supports for individuals who need assistance with activities of daily living, such as bathing, dressing, and eating. These services can be provided in a variety of settings, including nursing homes, assisted living facilities, and in-home care.

One of the challenges facing Canadians who are considering LTCI is the impact of inflation on their coverage. Traditional long-term care insurance policies provide coverage for a fixed amount of money, which may not be sufficient to cover the rising costs of long-term care due to inflation. As a result, many individuals are finding that their coverage is not keeping pace with the actual cost of care.

To address this issue, individuals should consider purchasing long-term care insurance policies that offer inflation protection. These policies provide coverage that increases over time to keep pace with the rising costs of long-term care. There are several types of inflation protection available, including:

• Simple inflation protection: This type of policy provides coverage that increases by a fixed percentage each year. For example, a policy with three per cent simple inflation protection would provide coverage that increases by three per cent of the base amount each year regardless of what inflation is actually doing.

• Compound inflation protection: This type of policy provides coverage that increases by a percentage that is based on the previous year's coverage. For example, a policy with three per cent compound inflation protection would provide coverage that increases by 3% of the previous year's coverage and not the initial amount.

• Consumer price index (CPI) protection: This type of policy provides coverage that increases based on changes in the consumer price index. This is a measure of the average price of goods and services purchased by consumers.

In addition to considering policies with inflation protection, individuals should also be aware of the potential risks associated with traditional long-term care insurance policies. These policies may have strict underwriting requirements, which can make them difficult to obtain for individuals with pre-existing conditions. Additionally, some policies may have high premiums, which may be unaffordable for some individuals.

One alternative to traditional long-term care insurance policies is a hybrid policy that combines long-term care insurance with life insurance or an annuity. These types of policies provide a death benefit if long-term care is not needed, while also providing coverage for long-term care if it is needed. Hybrid policies may be a good option for individuals who are concerned about the risks associated with traditional long-term care insurance policies.

The rising cost of long-term care in Canada is (or should be) a significant concern for many individuals. As inflation rates continue to increase, it is important to reconsider the type of long-term care insurance coverage that is needed.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

Financial lessons for your children

Learning early about money

Teaching kids about money is one of the most valuable lessons we can impart on them. It is crucial to help them understand the value of money and how to manage it properly.

By starting early, we can set our children up for a lifetime of financial stability and success. And unfortunately, these are lessons they just aren’t learning in school (yet).

So since it’s up to you, here are six money lessons that you can teach kids that will stick with them through adulthood:

Start with the basics—saving and budgeting

One of the most important things kids need to learn about money is how to save and budget. It's important to teach them to prioritize their spending, set financial goals, and save for them. This could be something as simple as teaching them to put aside a portion of their allowance or earnings for their future needs or wants. They can also learn how to make a budget by identifying their needs and wants and then allocating their money accordingly.

You can help them understand the concept of compound interest and how even small amounts of savings can grow significantly over time. By starting early, they will learn the value of delayed gratification and the importance of planning ahead.

Teach them to be responsible borrowers

As kids grow up, they will encounter situations where they need to borrow money—whether it's for a car, a home, or even college. It's essential to teach them how to be responsible borrowers by understanding the different types of loans, interest rates, and repayment terms.

You can also teach them about credit scores and how they are impacted by missed payments, high debt levels, and other financial missteps. By teaching them the importance of responsible borrowing, they will learn to manage their finances more effectively and avoid financial pitfalls.

Encourage entrepreneurship and teach them about investing

Another essential money lesson that kids should learn is how to start a business and what running a business entails. Encourage your children to start a small business, such as a lemonade stand or a lawn mowing service, to teach them about entrepreneurship and the value of hard work.

Help them write up a miniature business plan that outlines the costs to deliver their product or service (cost of lemonade, upkeep and gas for the lawnmower, etc) and how much they will charge customers to determine their net profit. A simple marketing plan should be built in here too!

Introduce your children to investing

You can also introduce them to the stock market by teaching them about basic investment principles, such as diversification, risk management, and long-term investing. This will help them develop a better understanding of the economy and the financial markets, as well as the power of compounding.

Consider helping them open a small self-managed portfolio online and hold different asset types in there so they learn how each one behaves. The amount they invest is not important but instead focus on the learning potential.

Teach them to differentiate between wants and needs

One of the biggest challenges that adults face when it comes to managing their finances is differentiating between wants and needs. Kids need to learn this distinction early on so that they can make wise financial decisions throughout their lives.

Teach them to prioritize their needs over their wants and to save for the things they truly want, rather than relying on credit or borrowing to purchase things they can't afford. By teaching them to delay gratification, they will learn to be more disciplined and make better financial choices in the long run.

If they are earning money through a job, small business or even an allowance—divide this money into different want and need “pots” to keep it separate and the future use clear.

Be a good role model

Finally, one of the most important ways to teach kids about money is by being a good role model. If you live beyond your means, carry debt, or make poor financial decisions, your kids are likely to pick up on these habits. Instead, show them how to live within your means, save for the future, and make wise financial choices.

Involve them in household budgeting decisions and teach them to be mindful of their spending habits. By being a good financial role model, you will give your children the tools they need to succeed financially in adulthood.

Teaching kids about money is one of the most important things we can do as parents. By starting early and teaching them the basics, we can set them up for a lifetime of financial stability and success. By being a good financial role model ourselves, we can help our children develop the skills they need to make wise financial choices throughout their lives.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.


Deferring your inheritance

Complexities of inheritance

Inheritance can be a complex and sensitive matter, and it’s important to ensure that your assets are distributed in accordance with your wishes after you pass away.

One way to do this is by using “graduated inheritance” insurance beneficiary designations. This type of financial planning strategy is very under-utilized in Canada, but it is certainly worth a closer look.

So, what is a graduated inheritance insurance beneficiary designation? Essentially, it’s a way to distribute your assets to your beneficiaries over time rather than all at once. This can be particularly beneficial if you have beneficiaries who are minors, are not financially responsible or have special needs, as it ensures that they will receive their inheritance in a responsible and controlled manner.

There are several benefits to using this strategy. Firstly, it can provide a sense of financial security for your beneficiaries. By spreading out the inheritance over time, you can help ensure that your beneficiaries won’t squander their inheritance all at once or become overwhelmed by a sudden influx of wealth. This can be particularly important if you have beneficiaries who are not financially savvy or who may be prone to making impulsive decisions.

Another benefit of using graduated inheritance insurance beneficiary designations is that it can help reduce the tax burden on your beneficiaries. In Canada, when someone inherits assets, they are generally not required to pay income tax on the inheritance itself. However, if they subsequently sell those assets and realize a capital gain, they may be required to pay capital gains tax. By spreading out the inheritance over time, you can help minimize the amount of capital gains tax that your beneficiaries will have to pay.

In addition, using graduated inheritance insurance beneficiary designations can provide a level of flexibility in your estate planning. For example, if you have a beneficiary who is currently going through a divorce or who is facing significant debts, you may want to delay their inheritance until their financial situation has stabilized. Similarly, if you have a beneficiary who is still in school or who is just starting their career, you may want to stagger their inheritance to help support them during their early years.

Of course, there are some potential downsides to using graduated inheritance insurance beneficiary designations as well. For example, if your beneficiaries are expecting to receive a large inheritance all at once, they may be disappointed or frustrated by the staggered distribution. Similarly, if you have a large number of beneficiaries, the process of distributing your assets over time can become quite complex and time-consuming.

Overall, however, the benefits of using graduated inheritance insurance beneficiary designations can outweigh the potential drawbacks. By providing a sense of financial security for your beneficiaries, minimizing their tax burden, and providing flexibility in your estate planning, you can help ensure that your assets are distributed in accordance with your wishes and in a responsible and controlled manner.

If you’re considering using graduated inheritance insurance beneficiary designations as part of your estate planning strategy, it’s important to work with a certified financial planner who can help you navigate the process.

They can help you determine the best approach for your specific situation and ensure that all of the necessary legal requirements are met.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

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About the Author

Brett has worked in the financial advice industry for over 15 years and is designated as a chartered investment manager(CIM) and certified financial planner (CFP).

In 2014, Brett was appointed to the board of directors of FP Canada (the national professional body for financial planning) and spent seven years on the board, including his final two as board chair. More recently, he was appointed to the Financial Planning Standards Board (FPSB), which is the international professional body for this industry with a three-year term beginning in April 2023.

Brett has been writing a weekly financial planning column since 2012 and provides his readers with easy-to-understand explanations of the complex financial challenges that they face in every stage of life.

Enhancing the financial literacy of Canadian consumers is a top priority of Brett’s and his ongoing efforts as a finance writer and on the regulatory side through the national and global boards focus on this initiative.   

Please let Brett know if you have any topics that you’d like him to cover in future columns or if you’d like a referral to a qualified CFP professional in your area by emailing him at [email protected].


The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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