Daily Gains Letter

What Retirees Wary of U.S. Banks Need to Know

By for Daily Gains Letter | Mar 22, 2013

Piggy Bank and canadian dollarsThose on the cusp of retirement are an untrusting lot. Apparently, you’re not getting the message that you need to save more for retirement. At least, that’s according to the financial services industry.

In 2011, U.S. financial services firms spent over $1.0 billion advertising investment and retirement services. Despite the advertising blitz imploring us to entrust them with our retirement funds, roughly 58% of investors are turning a blind eye and don’t have a retirement plan. A full 39% don’t think investment returns will be high enough to provide decent retirement income regardless of how much they sock away. (Source: “Meeting the Retirement Challenge: New Approaches and Solutions for the Financial Services Industry,” Deloitte Center for Financial Services web site, March 7, 2013.)

According to a report by the Deloitte Center for Financial Services, pre-retirees either don’t want to think or they don’t believe that they’ll need professional advice with retirement planning. For many, the report contends, “This might be a short-sighted decision, given the complexity of retirement finances and the potential value an advisor could offer.”

Maybe; maybe not.

While it’s astounding to learn that 58% of investors don’t have a retirement plan, it’s not hard to see why so many distrust banks and other financial service providers. It’s tough to have faith in a system that was, by and large, responsible for the Great Recession.

It’s also tough to think that a sector that helped bring the nation to its knees can have the foresight to provide objective retirement planning advice and deliver on their promise to serve an individual’s retirement planning needs.

In this tough economic climate, this could be an excellent time to play by the old adage, “If you can’t beat them, join them.” Someone wondering where to plunk part of their retirement fund may actually want to consider investing in banking—but not just any old bank.

U.S. investors wanting to diversify their holdings may want to consider investing in Canadian bank stocks. Why? Because between 2007 and 2013, the Federal Deposit Insurance Corporation (FDIC) closed more than 460 American banks. But not a single bank closed in Canada. (Source: “Failed Bank List,” Federal Deposit Insurance Corporation web site, last accessed March 21, 2013.)

In fact, Canadian banks are collectively the strongest in the world; crowding the top-10 list are the Canadian Imperial Bank of Commerce (NYSE/CM;TSX/CM) in third, The Toronto-Dominion Bank (NYSE/TD) in fourth, National Bank of Canada in fifth, and Royal Bank of Canada (NYSE/RY;TSX/RY) in sixth. (Source: Alexander, D. and Pasternak, S.B., “Canadians Dominate World’s 10 Strongest Banks,” Bloomberg, March 2, 2012, last accessed March 21, 2013.)

Canadian Imperial Bank of Commerce (CIBC), The Toronto-Dominion Bank (TD), and Royal Bank of Canada (RBC) are all trading at or above their pre-recession highs, climbing 200%, on average, since 2009. CIBC, TD, and RBC also provide annual dividends of 4.6%, 3.8%, and 4.1%, respectively.

Taking control of your own retirement planning doesn’t mean that independent financial advisors, brokerage firms, or banks can’t provide you with excellent advice when it comes to retirement planning.

At the same time, the last five years have given the average American more than enough reason to pause and reflect when it comes to thinking about planning for retirement and who to trust with handling their assets. Canadian banks might be able to provide your retirement fund with the right shelter from the financial storm that continues to brew in the U.S.

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