The Amazon effect could still benefit the following companies

The “Amazon effect” is the ongoing evolution and disruption of the retail market, resulting in increased e-commerce. The major manifestation of the Amazon effect is the ongoing consumer shift to shopping online.

You don’t have to be a financial analyst to realize that card credit usage has gone up. Most brick and mortar retail establishments allow the consumer the choice of paying with cash, debit or credit card. Almost 90 % of all purchases that happen on line are with credit cards. Credit card companies are a popular choice because they will reverse any fraudulent purchases plus some offer extended warranties and all of them have reward programs.

The three most popular credit card cards world-wide are Visa (V), MasterCard (MC) and American Express (AXP). The chart below compares all three to Amazon over a five year period. It appears that investors think that Visa will benefit the most from the “Amazon effect”.

Keep in mind that Amazon has a rewards Visa card which earns users a rebate on all their purchases. Cardholders get 3% back for purchases made at Amazon.com, 2% cash back at gas stations, restaurants and drugstores, and 1% back on all other purchases which earns users a rebate on all their purchases.

Despite news that Amazon is buying trucks and planes to better service their prime customers, delivery companies FedEx and UPS will still benefit from the “Amazon Effect.” The chart below compares these two companies to Amazon over a five year period. FedEx is by far the clear winner for investors.

While there is a glut of malls in America, there aren’t nearly enough warehouses across the U.S. to support internet retailers like Amazon. Retail sales are not in decline, but rather shifting toward e-commerce so all retailers will require large amounts of warehouse space.”

When retailers reconfigure their supply chain to accommodate the shift in consumer behavior, the requirement for warehousing space will increase substantially. This is true incremental demand and not a displacement of existing demand for warehouse square footage. Companies like Wal-Mart, Alibaba and Wayfair will also have to invest in new warehouses to try to compete with Amazon over the next few years.

Industrial REITs such as Rexford Industrial (REXR), Terreno (TRNO) and Stag Industrial (STAG) are at the top of most buy lists. Other industrial REITs that you should consider include First Industrial (FR) and Monmouth (MNR). 

Amazon’s deal for Whole Foods will likely spur a “last mile” investment by the internet giant and its competitors, Jefferies’ Petersen has predicted. “Last mile” is a reference to the warehouse that is closest to a store, a crucial point of the distribution chain that makes same-day delivery possible.

“By analyzing all of Amazon’s ‘last mile’ facilities by size and population demographics against the Industrial REIT portfolios, we found that REXR and TRNO are best positioned to serve the ‘last mile,'” Petersen said.

Then, Amazon investing in so-called secondary and tertiary markets will benefit a REIT like STAG, he added.

One of the biggest risks in owning REITs is rising interest rates. Higher borrowing costs can reduce cash flow and effect their ability to pay dividends. It also makes the financing of new projects less profitable.

A lot of the “Amazon effect” is already priced in to all of these stocks but the long term upward trend is still there.

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Still doing tax returns for my adult children & their spouses

Every year I ask myself, should I continue to offer to do tax returns for my adult children and their spouses? All of them have university degrees and are smart enough to file their own tax returns. My daughter was willing to do it one year using tax preparation software with only a little help from me.

Part of my problem is Canadians are not even aware of how much tax they pay. Plus we keep voting for governments that buy votes using our tax dollars. The average Canadian family will pay 42.9% of their income in taxes imposed by all three levels of government in 2016. (Federal, provincial and local) Tax freedom day was June 7, 2016 if Canadians paid their total tax bill up front. Our U.S. neighbours tax freedom day was April 24th and they will only pay 31% of their income in taxes.

There are a number of reasons why I continue to offer to do tax returns for the whole family. Having worked as a financial advisor, tax planning is a key element when putting a financial plan together. My tax knowledge and skill comes from working many years with accountants and tax lawyers ensuring that my whole family pays the least amount of tax.

Plus, the Canadian tax system is very complicated and is constantly changing with every federal and provincial budget. For example: many tax credits that were given by the Conservative government have been taken away completely by a new Liberal government.

For the 2015 tax year, the Liberals cancelled income splitting for families, a maximum tax credit of $2,000 for transferring up to $50,000 of income to a spouse with a lower income if they had a child under 18 years of age.

Some changes for 2017 include the elimination of the following credits:

  1. Education and textbooks credit
  2. Children’s fitness credit
  3. Children’s arts credit
  4. Public transit tax credit

Now, most retired Canadian seniors who don’t have a pension from their former employer are not even aware of a $2,000 pension credit. It requires opening a RRIF account, transferring $2,000 from their RRSP and then taking it out. They don’t have to wait until they reach the age of 71 in order to open a RRIF account. Plus, RRIF income can be split with your spouse if both of you are 65 years of age which could potentially add up to $4,000 of income tax free per year.

The Federal Liberal government will introduce a new budget on March 22 and there are rumors of more tax increases. Three things that Canadians should worry about;

  1. Higher capital gains inclusion rate from 50% to 75%
  2. Reducing the dividend tax credit
  3. Taxing your principal residency 

I will end this post with two well known proverbs. ” In this world nothing can be said to be certain, except death and taxes.” & “A penny saved is a penny earned.”