I recently read an article about a man who liquidated his entire investment portfolio in 2008, just after Lehman Brothers collapsed. He was convinced this was the end of capitalism and that currency would be worthless. To protect himself he converted everything into gold.
While I can understand the fear that drives someone to sell their holdings when the value of their stocks is rapidly declining, I fail to see why some people perceive that certain world events would possibly put them into financial danger with no hope for the future.
Related: 5 Common Mistakes Investors Make
I witnessed completely irrational behavior (to me, anyway) on two occasions.
Quebec referendum
On October 30, 1995 the separatist government of the province of Quebec – the Parti Quebecois – held a referendum to ask voters in Quebec whether they should secede from Canada to become an independent state.
Several days previously, a customer of the bank I worked in, afraid of a “yes” vote, cashed in all his holdings and purchased gold at around US$400 per ounce. He probably would have made out like a bandit if he would have held on to the gold, but instead, he sold it at a loss a few months later.
Related: How To Add Gold To Your Portfolio
Y2K
The late months of 1999 had everyone in a panic. People thought that all the computers in the world would crash the instant the year 2000 began.
TV infomercials sold millions of gadgets that you could attach to your kitchen appliances so that your toaster or coffee pot wouldn’t implode on January 1st. Canadian Tire sold out of generators before fall.
The media were in a frenzy of predicting doomsday scenarios and let’s face it, people were worried.
Related: Investment Strategies – Tune Out The Noise, Stick To The Plan
In late December a customer of ours liquidated everything he had, purchased a bank draft for the total amount (including what was in his chequing and savings accounts), and placed the draft in his safety deposit box.
The end of the world
According to the ancient Mayan calendar, our world will end in December of 2012. The media loves a disaster story, and no doubt will soon be interviewing the doom and gloom experts and reporting on every perceived change in climate and the environment with a “chicken little” fanaticism.
Related: Market Corrections – Buy, Sell or Ignore?
Will people again start to panic, convinced of the impending Armageddon? Will they attempt to protect their families by converting all their assets into gold? Will they rationalize their actions and consider them to be perfectly reasonable?
Maybe I’m just a fatalist, but for me it will just be business as usual. What about you?
Many people like the idea of using a rewards program to collect points and save money on travel. Some of the best credit cards are travel rewards credit cards, which can help you earn points faster and enjoy perks like free airfare, or upgrades when you travel.
I use the MBNA Smart Cash MasterCard as my preferred credit card because I like getting cash back on my every day spending. However, I’m really impressed with the lucrative rewards and flexible redemption options being offered by the top travel rewards credit cards.
Related: Top Cash Back Credit Cards in Canada
Best Travel Rewards Credit Cards
I looked into the best travel rewards credit cards in Canada, and the only way to earn more rewards is to use a premium credit card with an annual fee. I calculated the travel rewards based on spending an average of $2,500 a month – $30,000 annually on your credit card.
Here are the best credit cards for travel rewards:
Capital One Aspire Travel World MasterCard
- 2 reward miles for every $1 spent
- 35,000 bonus reward miles on your first purchase
- 10,000 anniversary bonus reward miles every year
- Redeem points for travel, cash back or merchandise
- Trip interruption or cancellation insurance
- $500,000 travel accident insurance
- $120 annual fee
The Capital One Aspire Travel World MasterCard sets the bar high when it comes to earning travel rewards. Double miles on every dollar spent, plus generous bonus reward miles on your first purchase and an additional 10,000 anniversary bonus reward miles every year.
Calculating points with the Capital One Aspire Travel World MasterCard is straightforward. Every 10,000 points is equivalent to $100 in travel rewards.
- 2 miles for every $1 in purchases – 60,000 points
- 35,000 bonus miles with first purchase – 35,000 points
- 10,000 bonus anniversary miles – 10,000 points
With this credit card from Capital One, you can earn up to $1,050 in travel rewards in the first year. After subtracting the $120 annual fee you’re still left with $930 worth of free travel. However, without the 35,000 bonus miles in subsequent years your total travel rewards drops to $580 a year.
BMO World Elite MasterCard
- 1 BMO ELITE Rewards point for every $1 spent
- Welcome bonus of 15,000 ELITE Rewards points
- No black-out periods & points cover all charges when redeeming for flights
- Best-in-class travel insurance
- Free access to VIP airport lounges
- $150 annual fee
The BMO World Elite MasterCard claims to have the highest credit card travel redemption rate in the industry – every 10,000 points is equivalent to a $190 travel credit that can be used on the booking of your choice.
- 1 mile for every $1 in purchases = 30,000 points
- 15,000 welcome bonus miles = 15,000 points
With this credit card, you can earn up to $855 in travel rewards in the first year. After subtracting the annual fee of $150, you’re still left with $705 worth of free travel. In subsequent years – without the welcome bonus – your total travel rewards drops to $570 a year.
CIBC Aventura World MasterCard
- 1.5 Aventura Points for every $1 spent at grocery stores, gas stations and drug stores
- 1 Aventura Point for every $1 spent anywhere else
- Welcome bonus of 15,000 Aventura Points
- No blackout periods, fees or restrictions
- Comprehensive insurance benefits, including Out-Of-Province Emergency Travel Medical Insurance
- $120 annual fee
The CIBC Aventura World MasterCard has a set reward chart for flights that allows you to earn up to 4% return at the highest level. This card also allows members to convert Aventura points to Aeroplan Miles.
The travel rewards calculation here is based on spending $600 a month on gas, groceries and drug store purchases, and $1,900 a month on everything else.
- 1.5 points for every $1 in gas/grocery/drug store purchases = 10,800 points
- 1 point for every $1 spent everywhere else = 22,800 points
- 15,000 welcome bonus points = 15,000 points
With this credit card, you can earn up to $1,000 in travel rewards in the first year. After subtracting the annual fee of $120, you’re still left with up to $880 worth of free travel. In subsequent years – without the welcome bonus – your total travel rewards can be worth up to $530 a year.
TD First Class Travel Visa Infinite
- 3 TD Points for every $1 you spend
- Welcome bonus of 20,000 TD Points
- Automatically receive Trip Cancellation and Trip Interruption Insurance when you purchase travel
- Automatically receive Travel Medical Insurance whether or not you purchase travel using your Card. You’ll be covered for 8-day trips if you’re under 65 and 2-day trips if you’re 65 or older
- Access to exclusive hotel and dining privileges including hotel upgrades, concierge service and restaurant reviews
- Triple rewards when booking your travel through Expedia for TD using your TD First Class Travel Visa Infinite Card
- Annual Fee: $120
Unlike other travel rewards credit cards, you don’t have to book your travel with a particular travel agency in order to redeem TD Points. The TD First Class Travel Visa Infinite Card lets you book your trip through any travel agency or travel provider you choose.
Every 10,000 TD Points is worth $50 in free travel. Here’s how your TD Travel Rewards add up with the TD First Class Travel Visa Infinite Card:
- 3 points for every $1 spent = 90,000 points
- Welcome bonus = 20,000 points
With this card, you can earn up to $550 in travel rewards in the first year. After subtracting the annual fee of $120, you’re left with $430 worth of free travel. In subsequent years – without the welcome bonus – your total travel rewards are only worth $330 a year.
Final Thoughts
An important factor to consider when comparing travel rewards credit cards is how much money you can spend each month on your card. The best travel rewards credit cards all come with an annual fee. It doesn’t make sense to use a premium credit card unless you have a good income and spend at least $2,500 per month on your card.
Related: Best No-Fee Rewards Credit Cards
Since these credit cards all come with a generous welcome bonus in the first year, here’s a look at how they stack up after three years:
| Travel Rewards Credit Card | Rewards in 1st year | Rewards after 3 years |
| Capital One Aspire | $930 | $2,090 |
| BMO World Elite | $705 | $1,845 |
| CIBC Aventura | $530 – $880* | $1,090 – $1,940* |
| TD First Class Travel | $430 | $1,090 |
*based on redeeming at the highest level
The Capital One Aspire Travel World MasterCard is by far the best credit card in Canada for travel rewards. The generous first year welcome bonus, 10,000 point anniversary bonus and flexibility to redeem your points for cash or travel rewards make this card worth carrying.
My new approach to using rewards credit cards now is to use the Smart Cash card for gas and grocery purchases and earn 2% back for the first $600 spent. All of my other monthly purchases will go on the Capital One Aspire Travel card, earning 2% back.
Segregated funds – or seg funds – consist of a pool of investments in securities such as bonds and stocks, similar to mutual funds, but sold by life insurance companies.
Segregated funds are owned by the life insurance company – not the investor – and must be kept separate (segregated) from the company’s other assets.
Related: How Index Funds Compare To Equity Mutual Funds
Unlike regular mutual funds, the company does not issue units. The investor is the holder of a segregated fund contract. All contracts have a maturity date, which is the date at which the maturity guarantee is available to the contract holder – usually after 10 years.
Segregated Funds: The insurance guarantee
The value of the funds fluctuates according to the market. The segregated funds come with an insurance guarantee.
Most come with two forms of guarantee:
- If you hold your money in the fund for 10 years and the portfolio goes down, you get at least a partial refund.
- If you die within 10 years of putting your money in, your heirs will get the greater of the guaranteed death benefit, or the market value.
You are guaranteed at least 75% of the original investment. Manulife was the first to offer a 100% guarantee. This means when a deposit matures and is redeemed, or the annuitant dies, a top-up payment is made (less any previous withdrawals and fees) if the market value is less than the guaranteed amount.
Related: Fund Facts About Mutual Funds
A reset option allows the contract holder to lock in investment gains if the market value increases. This resets the deposit value and restarts the contract term and extends the maturity date. You are usually limited to one or two resets per calendar year.
Cost of the guarantee
Not surprisingly, this guarantee comes with a price. Segregated funds are up to 30% more expensive than regular mutual funds.
Related: Mutual Fund Fees: The High Cost Of Canadian Funds
Is the guarantee worth the extra cost? It depends on whether you think your investment will drop in price over a 10-year period. In most cases the guarantee will be a waste of money, especially if the fund holds bonds. Taking a 75% guarantee is considerably cheaper, of course, than the 100% guarantee.
There may also be hefty fees if the fund is redeemed prior to maturity, so lack of liquidity can be a concern.
Tax treatment
Taxation differs from regular mutual funds (if not in a registered account):
- You are only taxed on income you actually receive.
- You can use capital losses to offset capital gains from other sources.
So, if you buy units one day before the fixed date, you are assessed for one day’s income. With mutual funds you are assessed for all income earned in the period even if you didn’t benefit. Also with mutual funds, capital losses are carried forward by the fund and you are taxed on capital gains.
Legal status
Segregated funds have a unique legal status compared to regular mutual funds:
- They can’t be claimed by creditors.
- Protection of assets in case of a lawsuit.
- Exempt from probate fees, so may be good for estate planning.
Who would benefit?
Segregated funds would appeal to:
- people who are self-employed, or have a professional corporation, or are at risk of declaring bankruptcy, as their assets are protected.
- people approaching retirement who need equity returns but don’t like the risk and want to be well protected with the security of a guarantee.
- someone who thinks the odds are high that they will die within the next decade.
In conclusion
Segregated funds became popular in the 1990’s. For the insurance companies who run them they represent a lucrative part of their business. However, they are one of the most expensive mutual funds you can buy.
There are many alternative ways to protect your capital without paying such hefty fees, which will take a large bite out of your returns.