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Tag: invest

  • How to talk to your parents about crypto  – MoneySense

    How to talk to your parents about crypto  – MoneySense

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    While younger investors tend to be more optimistic about and willing to invest in crypto, according to the Chartered Financial Analyst (CFA) Institute, their family members may have concerns about it—especially given the fall of a few major crypto firms, including FTX—last November, its founder was found guilty of stealing from customers. Crypto is a highly volatile asset type with wide-ranging risks, so it can be a divisive topic. How can you have conversations about crypto with your family members so that both sides feel comfortable? 

    Before you explain cryptocurrencies to anyone, make sure you understand them yourself. Here’s a quick guide.

    1. Start with crypto basics 

    Start with the basics: Crypto is both an asset and a new technology. It is meant to be a digital currency. (Some companies and contractors will get paid in bitcoin, for example.) However, at the moment, it’s more of a tradable asset, whether on crypto exchanges or as part of crypto exchange-traded funds (ETFs) listed on stock exchanges.

    2. Explain how it’s used

    Then, you can get into the more complicated bits. Cryptocurrencies are built on blockchain technology, which is a digital ledger (your parents should know what that is). It logs the ownership of the crypto, and it’s spread across a network of computers that permanently and transparently records transactions. No one can alter the blockchains, and anyone can view them. See, simple enough.

    3. Be open to their questions

    Don’t get flustered when questions come up. “Why the need for new money?” they might ask. What sets cryptocurrencies apart from traditional fiat currencies, besides being virtual, is that they’re not backed by a central bank or government. Explain that cryptocurrencies carry both benefits and risks. Crypto transactions can be faster and cheaper, but if something goes wrong—say, your digital coins end up in the wrong wallet—there’s no one to intervene (get back your money). And investors treat them more like assets than as actual currencies.

    Your parents might also ask about the differences between virtual coins. There are thousands of cryptocurrencies on the market, available via crypto exchanges and crypto trading platforms. Keep it simple by explaining that the three largest coins by market capitalization are bitcoin, ethereum and tether. (We cover more questions below.)

    4. Be aware (and communicate that you’re aware) of its volatility and risk

    For your own financial literacy and credibility with the fam, you need to know that crypto isn’t instant growth. There may be stories of investors who “got rich quick,” but there are many more stories of those who lost their money. If you express you understand how serious investing in crypto is, it’s more likely your parents will trust your knowledge.
    Taub cautions that cryptocurrencies are “alternative” investments, and even within that broad category, they are considered extremely volatile and high-risk. 
    And Simmons suggests researching Canadian crypto trading platforms and demonstrating how to use one. Showing your parents how you plan to invest may help ease any anxiety they feel about crypto scams, which are common (more on this below). Read our tips on choosing a crypto trading platform.

    5. Explain how you will (and won’t) use crypto

    Once you’ve started a family dialogue about crypto, Taub says, “As with any investment, the conversation should be about how it fits into your existing portfolio(s) and how it aligns with your goals and investment objectives, your time horizon and your appetite for risk.” 

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    Sandy Yong

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  • How to start saving for retirement at 45 in Canada – MoneySense

    How to start saving for retirement at 45 in Canada – MoneySense

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    Are you on track, or are you playing catch up?

    For some Canadians, that may feel like plenty of time to ramp up their retirement savings, especially if expensive childcare years are behind them. For others, starting to save for retirement at 45 can feel like they missed the window on savings growth.

    I’ll turn 45 this summer, and so I felt compelled to take on the assignment about saving for retirement at this age. While I’d like to think I’m in a better financial position than most Canadians my age (Lake Wobegon effect, perhaps?), I’m also keenly aware that I’m closer to my 60s than I am to my 20s. Retirement planning is a chief concern.

    Indeed, according to the latest annual retirement study conducted by IG Wealth Management, while 72% of Canadians aged 35- and over have started saving for retirement, 42% of them are doing so without a retirement plan, and 45% are confident they know how much money they will need for retirement—granted, that’s a tough question to answer.

    Saving for retirement

    If you’ve read David Chilton’s classic, The Wealthy Barber (Stoddart Publishing, 2002), you’ll know a popular rule of thumb is to save and invest 10% of your gross (pre-tax) income for retirement. Simply “pay yourself first” with automatic contributions to your retirement accounts and you’ll be in good shape for retirement. (You can download The Wealthy Barber Returns for free.)

    But not everyone has the ability to save in this linear fashion. For instance, those who work in public service as a nurse or a teacher already have a significant portion of their paycheques automatically deducted to fund a defined benefit pension plan. Should they also save 10% of their gross income for retirement? Of course not! In fact, they might find it impossible to do so.

    Similarly, couples in their 20s and 30s who are raising a family are faced with a host of competing financial priorities such as childcare (albeit temporarily) and more expensive housing costs. 

    What this means is a 45-year-old with little to no retirement savings might actually have 15 to 20 years of pensionable service in their workplace pension plan. It might mean that a 45-year-old with little to no retirement savings just got out of the expensive childcare years and now finds themselves flush with extra cash flow to start catching up on their retirement savings.

    The “rule of 30” for retirement savings

    That’s why I like the “rule of 30,” popularized by retirement expert Fred Vettese in his book of the same title (ECW Press, 2021). Vettese suggests that the amount you can save for retirement should work in tandem with childcare and housing costs. (Read a review of Vettese’s latest book, Retirement Income For Life.) 

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    Robb Engen, QAFP

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  • Reddit is preparing to sell shares to the public – MoneySense

    Reddit is preparing to sell shares to the public – MoneySense

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    While it’s not clear from the perspective just how many of those 1.76 million shares will end up in the hands of Reddit users, the number is likely large enough for those users to exert meaningful pressure on Reddit’s share price. The main concern is that a surge of demand for shares that aren’t locked up could create a sudden run-up in the share price, followed by an equally sharp decline once the initial excitement wears off and short-sellers—investors who effectively place bets that a stock will decline—begin to gather.

    That’s pretty much what happened with Robinhood Markets, which operates a simple-to-use and low cost trading platform aimed at novice investors that also offered IPO shares to its users. The company’s stock opened at $38 on its first day of trading in July 2021, shot up to $85 five days later, then plunged back to roughly $40 after just six weeks. Robinhood closed Monday at $16.86.

    “Mishandling this process could result in [Reddit] alienating their most ardent supporters, potentially turning them into critics,” warned Deiya Pernas, co-founder of Pernas Research.

    But, Don Montanaro, president of the trading platform Firstrade, argues that Reddit may not have had much choice but to go this route.

    “They’ve been running a business where their clients, their users, are their product,” he said. “It’s a case of, ‘What else could we do? This is who we are, how could we not offer this to these people?’ ”

    Can I get in on this offering?

    If you don’t already have a Reddit account, you’re probably out of luck. The offering is only available to users who had established accounts as of January 1, 2024.

    Beyond that, shares will be distributed to Redditors and moderators via a formula that accounts for their measurable contributions to the discussion boards. Redditors with high “karma” scores—a measure of their contributions to the community, such as posts that other Redditors find useful, amusing or insightful—will be grouped into six priority tiers for access to the stock offering.

    Moderators who have taken significant numbers of “moderator actions” will likewise be sorted into those tiers. Such actions can include anything from designing a new discussion group—a.k.a. a “subreddit” in the jargon of the site—to removing spam or duplicate posts, to enforcing subreddit rules. Moderators will also be rated on membership trends in their subreddits.

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    The Canadian Press

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  • Making sense of the markets this week: March 10, 2024 – MoneySense

    Making sense of the markets this week: March 10, 2024 – MoneySense

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    Right now, the U.S. economy is strong. There is no reason to cut interest rates. In my view, this is a win-win situation. If the economy were to falter quickly, the Federal Reserve would cut rates to help businesses. If the economy continues to grow at 3% to 4%—which is the current prediction for the first quarter of 2024 in the U.S.—the central bank won’t have to act. In both cases, the stock market will go up. We’ll see on March 28, when the U.S. Bureau of Economic Analysis will announce the U.S. 2023 Q4 GDP.

    Bitcoin is skyrocketing thanks to the SEC

    Wow. Just wow. For a brief moment on March 5, 2024, bitcoin recently hit an all-time high slightly above USD$69,200, beating its previous peak of USD$69,010 in November 2021. The cryptocurrency has been rising since October 2023, but prices really started to surge in January after the U.S. Securities and Exchange Commission (SEC) approved bitcoin exchange-traded funds (ETFs). American retail investors have been waiting a long time for a way to invest in cryptocurrency without having to own the digital tokens themselves. Now they can choose from 10 bitcoin ETFs, including funds from investment giants BlackRock and Fidelity. Collectively, the new bitcoin ETFs have already attracted billions of dollars. An ethereum ETF is likely around the corner. (Canadian investors already had access to bitcoin ETFs—Purpose Investment’s bitcoin ETF launched in February 2021, and at least three ethereum ETFs were launched by various Canadian firms a few months later.)

    Source: Wall Street Journal

    For me, this is an asset class that is still speculative. I’m not alone. Executives from Vanguard say they are not offering crypto products because they don’t see an “enduring” role for them in long-term portfolios. SEC chair Gary Gensler made a point of saying the approval of bitcoin ETFs was not an endorsement, and that he views crypto as a “speculative, volatile asset.”

    Right now, there is no government body or country backing digital currencies—at least, not yet. Until this happens, I don’t know where they fit into the economy. My view: At this point, crypto represents too much risk for most investors. It’s certainly not a core holding for the investors I work with.

    Gold also has been rising of late, and I met with David Garofalo of Gold Royalty Corp. about the rise of gold on March 6, 2024.

    TSX significantly underperforming the S&P 500 

    The TSX Composite Index is up just 5% year over year compared to nearly 30% for the S&P 500. Why has the TSX fallen short? Primarily because of which economic sectors it focuses on. Specifically, there is a lack of high-growth technology stocks in Canada. The majority of the TSX is made up of banking, oil and gold stocks. For a while now, banking has been flat at best. Oil stocks have dropped in price. Even though gold is at an all-time high, gold stocks have not fared as well. Meanwhile, 40% of the companies on the S&P 500 are in the technology sector, which led to its strong performance. BMO senior economist Robert Kavcic points out that just “five [tech companies]—Nvidia, Microsoft, Amazon, Meta and Apple—have alone accounted for almost half of the net 1,200 point increase in the S&P 500 over the past year.” More than half the companies on the Nasdaq are also technology stocks. Even the Dow Jones Industrial Average has a growing number of technology stocks, including Apple, Salesforce and Amazon.

    Two tables show S&P 500 and TSX stock index performance as of March 1, 2024
    Source: BMO Global Equity Weekly

    The TSX did very well during the China-driven metals super-cycle, when that country was buying up all the copper, aluminum and iron ore it could to build infrastructure. Those days are over. China’s economy is slowing, and that’s impacting Canadian companies and the TSX. 

    Canada’s economy is the secondary reason the TSX isn’t doing as well as U.S. indexes. Canadian GDP grew by 1% over the last year, while U.S. GDP grew by 3.2%. As a result, Canada is not as attractive to foreign investment as the U.S. We discussed the TSX’s underperformance on the Allan Small Financial Show.

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    Allan Small

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  • Making sense of the markets this week: March 3, 2024 – MoneySense

    Making sense of the markets this week: March 3, 2024 – MoneySense

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    Nvidia doesn’t have much room left for multiple expansion when it comes to an increased share price for the stock. After accounting for its incredible earnings day, Nvidia is still trading at a P/E ratio of 66x. Even fellow tech heavyweights Microsoft and Apple are only at 36x and 28x respectively. Consequently, if Nvidia continues its incredible bull run, one would have to believe that the demand for chips will continue to skyrocket and that Nvidia will be able to hold off competitors like AMD and Intel. —K.P.

    RRSPs are not a scam or a rip-off

    With the deadline to contribute to registered retirement savings plan (RRSP) officially passed as of February 29, we wanted to quickly address the becoming prominent idea that RRSPs are some sort of scam.

    We’ve noticed an increasing number of inquiries from friends and family over the last few years that go something along the lines of, “RRSPs are just a rip-off because you have to pay tax on them anyway.”

    Since you’re reading a column called “Making sense of the markets,” you’re probably aware that RRSPs are not in fact an asset. The fact that some Canadians don’t understand is shocking. It’s important to understand precisely what RRSPs are.

    RRSPs are a type of investment account—one that’s registered. It’s a place where you can hold investments, and it has powers that protect investments from taxation. If you think you’re purchasing RRSPs as an asset, then you might have gone to a bad wealth management company. A good financial advisor helps you understand what asset you were investing in. A bad financial advisor will be vague by using phrases such as “invest in RRSPs.” Investment information is often murky so money can be put into whatever high-fee investments (such as mutual funds) they wanted to sell that day. (Need an advisor? Check out MoneySense’s Find A Qualified Advisor tool.)

    Of course, an RRSP doesn’t avoid taxes entirely. It defers tax on the contributed amount from when you relatively earn a lot of money (while working) to when you earn less money (when retired). If you get a tax refund when you contribute or owe less taxes when you contributed to a RRSP, that’s essentially the government saying, “Since you contributed to your RRSP, your taxable income this year is not as high as it would’ve been. So you don’t owe us that money now. Oh, and if you have children, we’ll likely increase your Child Care Benefit cheque, as well.” 

    If you get a refund, then invest it and let all of that money compound in low-fee investments for the next several decades, you’re very likely to be happy with the results. But those people who say “RRSPs are scams” are usually salespeople pedalling life insurance for higher commissions. 

    Yes, for some Canadians investing within a tax-free savings account (TFSA), it means they could come out ahead of investing within an RRSP. Yet, for the vast majority of Canadians, they could end up in a pretty similar place. Don’t forget, if you invest inside a TFSA, you don’t get that tax refund to stuff right back into your investment account—you’re contributing after-tax income. When deciding on a TFSA or an RRSP, you would need to know exactly how much income you and your spouse will have when you retire. 

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    Kyle Prevost

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  • Making sense of the markets this week: February 25, 2024 – MoneySense

    Making sense of the markets this week: February 25, 2024 – MoneySense

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    Retail earnings highlights

    All numbers below are in U.S. dollars.

    • Walmart (WMT/NYSE): Earnings per share of $1.80 (versus $1.65 predicted). Revenue of $173.39 billion (versus $170.71 billion predicted).

    • Home Depot (HD/NYSE): Earnings per share of $2.82 (versus $2.77 predicted). Revenue of $34.79 billion (versus $34.64 billion predicted).

    Walmart continued to show why it deserves its best-in-class status for mass retailers. Quarterly revenue was up 6% and e-commerce sales were up a massive 23%. No doubt shareholders were excited about the 9% dividend raise the company announced.

    The big news from “the big blue retailer,” a.k.a. Walmart, was that it’s buying TV manufacturer Vizio for $2.3 billion. The move makes sense given how many Vizio TVs Walmart sells. The company pointed out that the acquisition would be a major boost for its advertising business, as it could now better track customer data. Look forward to massive Black Friday Vizio sales for years to come.

    “Our market is on its way back to normal demand conditions. We’re not quite there yet, but the pressures we saw in 2023 are receding.”

    —Richard McPhail, Walmart CFO

    Home Depot announced that its sales were down about 3% from 2022’s fourth quarter, but that was significantly less of a pullback than it had been expecting, given the current high interest rate environment.

    Canadian earnings: who needs profits anyway?

    Sometimes you have to wonder if the analysts who predict quarterly earnings know what they’re talking about. Take Nutrien, Suncor and Loblaw, which all reported their earnings. Loblaw’s quarter was predictably boring, and the stock moved up slightly, score one for the analysts. However, Nutrien came in way below earnings expectations, yet the stock went up 7%. Suncor on the other hand had a great earnings report, but shares were down slightly on the day.

    Canadian earnings highlights

    Here are the numbers released this week. Note: Nutrien is a Canadian company based in Saskatoon, but trades on the New York Stock Exchange and reports in U.S. dollars.

    • Suncor Energy Inc. (SU/TSX): Earnings per share of $1.26 (versus $1.07 predicted). Revenue of $14.14 billion (versus $12.69 billion predicted).
    • Nutrien (NTR/TSX, NYSE): Earnings per share of USD$0.37 (versus $0.65 predicted). Revenue of USD$5.40 billion (versus $5.20 billion predicted).
    • Loblaw (L/TSX): Earnings per share of $2.00 (versus $1.90 predicted). Revenue of $14.53 billion (versus $14.53 billion predicted).

    Analysts usually point to anticipated forward guidance being the key in instances like this. So, because the future doesn’t look great for oil prices (recessions, supply increases, etc.) and Nutrien believes potash demand will increase going forward, the stock market is looking ahead and not simply reacting to last quarter’s news.

    Nutrien shareholders definitely miss the days of sanctions crippling the supply of Russian potash to the market, despite the bump on Thursday. The fourth quarter price was USD$235 per tonne, compared to USD$526 per tonne a year earlier.

    In more positive news, Nutrien’s CEO Ken Seitz said, “We do see potential for firming of potash prices,” and went on to add that Red Sea logistics issues were likely to continue to add to cost pressures for the foreseeable future.

    Suncor announced that it had set a new oilsands production record at 757,400 barrels per day, however, profit margins were down on lower oil prices. The oil giant also announced it would be bringing in a familiar corporate face as its next board chair, as Russ Girling (former CEO of TC Energy Corp) would be taking over fromMichael Wilson.

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    Kyle Prevost

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  • What’s new in the latest edition of Retirement Income for Life? – MoneySense

    What’s new in the latest edition of Retirement Income for Life? – MoneySense

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    1. “Mine is probably the only calculator that assumes one’s spending does not quite keep pace with inflation in our later years.” 
    2. “My calculator is one of the few out there that isn’t sponsored by a bank or investment company. I’m not selling anything other than the best income estimate possible. Also, it is the only calculator to my knowledge that explicitly shows how much better you do if you buy an annuity or defer CPP (Canada Pension Plan).”

    Deferring CPP: Sometimes people shouldn’t wait until age 70

    For me, deferring the CPP ship has already sailed. I took it at 66 when my wife retired, although she waited until 68 to take hers. We had initially planned for her to wait until age 70, but we did it sooner because Vettese’s articles argued for an exception to his usual recommendation to wait until age 70. In 2022 and in 2023, he suggested that those on the cusp of turning 70 might take CPP a year or two early, owing to the high inflation adjustments Ottawa made to CPP and Old Age Security (OAS) in those years. 

    But partial annuitization is very much still a possibility. My wife’s locked-in retirement account (LIRA)—which she opened when working—is likely to turn into a life income fund (LIF) sometime this year or the next. She has no employer pension, and I have only what I have dubbed a “mini” pension and an even smaller “micro” pension from previous employers. 

    How to use annuities in retirement

    So, I’ve always read, with interest, Vettese’s views about annuitizing at least part of RRSPs once they must be wound up at the end of the year one turns 71. At one point he suggested annuitizing 30% of RRSP assets, though the current book lowers that to 20%. (See also this Retired Money column on that very subject, written early in 2018 entitled: RRIF or Annuity? How about both?)

    Incidentally, the third edition of the book also mentions a couple of annuity-like innovations that weren’t available when the first two editions were published. In chapter 16, entitled “Can we do even better?” Vettese described Purpose Investments’ Longevity Pension Fund and Guardian Capital’s Guardpath Modern Tontine Trust. 

    He says that instead of annuities issued by Canadian insurance companies, these two new longevity financial products are offered by investment companies, thus chiefly use stocks and bonds for income. 

    One difference is that, unlike with traditional annuities, the income is not guaranteed. Also, there are no survivor benefits. He concludes the chapter, stating both are “like a less nerdy version of annuities for retirees prepared to take a small amount of risk.”

    But back to PERC

    You can try a stripped-down version for free and with no obligation. In fact, you’ll have to print out the results because of privacy concerns: “The data from PERC is stored, but it’s not attached to anything that could reveal one’s identity,” he told me. 

    If you want the full treatment with multiple scenarios, the price for a one-year subscription to a Canadian customized PERC is a reasonable $135 plus tax. You can enter the basics of your financial situation and that of your spouse (which Vettese recommends) and, in less than a half an hour, the PERC generates a summary of your likely future retirement income. You enter pre-tax amounts for pensions and other income and PERC handles the tax side of it automatically. 

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    Jonathan Chevreau

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  • Making sense of the markets this week: February 18, 2024 – MoneySense

    Making sense of the markets this week: February 18, 2024 – MoneySense

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    Shopify struggles

    Canada’s second-largest company (or third, depending on the day) had a relatively strong earnings day on Tuesday, but the company’s share price took a beating based mostly on decreased earnings expectations going forward.

    Shopify earnings highlights

    Shopify is listed on both the Toronto and New York Stock exchanges, and it announces earnings in U.S. dollars.

    • Shopify (SHOP/TSX): Earnings per share of $0.34 (versus $0.31 predicted), and revenues of $2.14 (versus $2.08 predicted).

    Shares of Canada’s tech darling were down over 13% on Tuesday, but even with the massive pullback, the share price is still up 14% year to date (YTD).

    Shopify’s CFO Jeff Hoffmeister reported the good news that more products were sold on the Shopify platform than ever before. The fourth quarter included the all-important holiday shopping activity, and Hoffmeister announced that Shopify has moved $75.1 billion-worth of merchandise. That was a 23% increase on last year’s numbers. Net earnings came in at $657 million, compared to a loss of $623 million during the fourth quarter in 2022.

    President Harley Finkelstein said Shopify handled the orders for 61 million customers worldwide on the Black Friday weekend. 

    “Our platform handled a staggering 967,000 requests per second, which is the same as 58 million requests per minute, nearly 80% higher than our peak traffic just two years ago.”

    —Harley Finkelstein

    So, where’s the struggle? Growth is not the same as profitability. With Shopify stating its free cash flow is going to be substantially lower than previously indicated, investors were quick to pounce on the bad news.

    Finkelstein tried his best to put a positive spin on future growth opportunities.

     “There are opportunities for us to go beyond Europe. Of course, we’ve talked about Latin America and the Asia-Pacific in the past, but we definitely see a lot of opportunity there[…] I mean, we’ve captured less than 1% of market share in global retail sales, even as our product and geographies have expanded.”

    There’s no question Shopify’s been an incredibly innovative company, and it is all the more noteworthy for keeping its home base in Canada, despite many tech companies moving shop. It’s very likely the company will be consistently profitable, but trying to forecast the “when” and the “how much” of that long-term profitability is a very difficult endeavour. In this age of higher-for-longer interest rates, investors appear to be demanding durable profits sooner rather than later, and consequently, shareholders will have to buckle up for a bit of a volatile rollercoaster.

    Can Shopify keep up the growth momentum while controlling costs? Investors are betting on it. But Tuesday’s dip would indicate that it’s not at all certain about those bets.

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    Kyle Prevost

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  • How do dividends work for Canadian ETFs? – MoneySense

    How do dividends work for Canadian ETFs? – MoneySense

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    What are ETF dividends?

    Dividends are a portion of profits that a company shares with its shareholders, typically paid quarterly. Canadian stock markets include many companies that pay a high dividend. The dividend yield is the annual dividend per share divided by the price per share.

    Selecting and managing your own dividend stocks can be time-consuming, however. Here’s where Canadian dividend exchange-traded funds (ETFs) enter the scene. They offer investors a diversified stock portfolio, which could include dividend-paying companies, that’s easy to manage. For example, the Fidelity Canadian High Dividend ETF (FCCD) holds 65 dividend-paying stocks, as at Jan. 15, 2024.

    There are several varieties of dividend ETFs, including ETFs comprising U.S. or international stocks—for example, Fidelity’s U.S. High Dividend ETF or International High Dividend ETF.

    How do dividends work in Canada?

    Not all companies pay dividends—it isn’t mandatory to do so. However, paying a healthy dividend can make a company’s stock attractive to income-seeking investors. A company’s board of directors decides the amount to be paid to shareholders based on factors such as profitability, cash flow and the company’s future investment plans. Many companies aim to pay a consistent dividend, which often grows over time.

    To be eligible to receive the dividend, an investor must own shares on what’s referred to as the “ex-dividend date”—the first date that the stock trades without the right to receive the dividend. The actual list of those who will receive dividends is prepared on the “record date,” which is typically the business day after the ex-dividend date.

    Dividends are paid on a per-share basis, so the amount of money shareholders receive depends on the number of shares they own. For example, if a company announces a dividend of 10 cents per share, and you own 100 shares, then you would receive $10 of dividends.

    In the case of ETFs, since the fund owns the underlying shares, it receives all the dividends it is eligible for. After receiving the dividends and subtracting expenses, the ETF could either distribute the net dividends to unit holders or reinvest them. To help maximize the effect of compounding, you could choose the dividend reinvestment plan (DRIP), where the dividend distributions you receive from a fund are used to purchase additional units of the same fund at the current market price. For example, FCCD distributes dividends monthly, and investors can opt into a DRIP to automatically purchase more units.

    When do dividend hikes, cuts and pauses happen?

    Consistent and increasing dividends are often viewed as a sign of a company’s financial health. Investors often read into changes—or lack thereof—in a company’s dividend policy.

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    Aditya Nain

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  • How to model retirement income in Canada – MoneySense

    How to model retirement income in Canada – MoneySense

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    Mike, you are at risk of leaving too much money after you die, and it may not be until you reach age 70, 75 or 80 when you realize it. You could think, “I have all this money, and only so much time and energy left. If I had known, I would have done more.” 

    Lucky for you Mike, you are already thinking about it. Now, it is time for you to engage in some serious play and run some “what ifs” with the projection model you created. Experiment by finding the maximum you can spend each year until your deaths, and then do the same thing again but to the end of your expected health span, when you are too old to enjoy yourself.

    When the money runs out in the model you created, find out the value of your house and farm. Would you sell these to support your retired lifestyle? How much money, if any, do you want to leave your beneficiaries? Play with a few different combinations to see what spending patterns are possible.

    Don’t worry about how you will draw any funds, taxes or other planning strategies. Just get a good sense of what is possible for you.

    Then you will know how much you can spend each year. It’s up to you to decide how you are going to spend or gift your money, which is easier said than done.

    Don’t worry if you can’t identify future plans. Instead, make this year a good one, and do the same next year. If you string together a good year after another and after another, and so on, over your lifetime, you will have lived a full and rich life, with no regrets. Once you have a good sense of how you want to live in your retirement, that’s when you can apply tax and planning strategies. 

    How to model out retirement income

    Mike for some people, the risk of dying with too much money is all-too real. For all the emphasis Canadians place on investments and on tax and planning strategies, there’s very little on the important thing: maximizing life satisfaction.

    Using the model as I have described will give you a glimpse into your future, so you can make confident spending decisions today. Updating the model annually will keep your assumptions honest, keep you on track and allow you to enjoy yourself without feeling guilty spending your money.

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    Allan Norman, MSc, CFP, CIM

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  • Making sense of the markets this week: February 11, 2024 – MoneySense

    Making sense of the markets this week: February 11, 2024 – MoneySense

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    Disney is back on track

    Even with all the iconic brands under its corporate umbrella, Disney has struggled the last few years, as its share price is down 11% since February 2019.

    Things might be looking up now that CEO-extraordinaire Bob Iger is back in the captain’s seat after “retiring” back in 2020.

    Disney earnings highlights

    All earnings and revenues for Disney, PayPal, McDonalds, and Eli Lilly below are in U.S. dollars.

    • Disney (DIS/NYSE): Earnings per share of $1.22 (versus $0.99 predicted), and revenues of $23.55 billion (versus $23.64 billion predicted). 

    Disney shares were up over 7% in extended trading on Wednesday after the earnings call. And the call highlighted the following reasons for increased profit guidance in 2024:

    • Disney will meet or surpass its goal of cutting costs by $7.5 billion this year.
    • The House of Mouse company will also invest $1.5 billion into a partnership with game software developer Epic Games.
    • Disney’s “experiences” division (think theme parks and cruises) saw a 7% increase in revenues versus last year. 

    Yet, the biggest Disney revelation this week came from its sports streaming division.

    With Amazon trying live football broadcasts this year, it appears the more traditional names in media have decided to fight back. 

    Disney (through its ESPN subsidiary), Fox and Warner Bros. Discovery announced joining forces to create a new sports streaming service. The planned platform has yet to be named, but it would feature current sports programming from ESPN, ESPN2, ESPNU, SECN, ACCN, ESPNEWS, TNT, TBS, TruTV, FS1, FS2, BTN, UFC, as well as the main ABC and Fox broadcasts. 

    Iger stated, “The launch of this new streaming sports service is a significant moment for Disney and ESPN, a major win for sports fans and an important step forward for the media business.”

    When you think about the possibilities of bundling a new live sports service with current Disney+, Hulu, and Max (the HBO streamer), you will have re-created a substantial amount of the old American cable bundle, plus streaming of classic movies and TV shows. Now, all we need to know is the price, and if and when it would be made available to Canadians.

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    Kyle Prevost

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  • How to navigate market risk from interest rates, the economy and politics in 2024

    How to navigate market risk from interest rates, the economy and politics in 2024

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    As the U.S. Federal Reserve’s three-year reign in the headlines potentially comes to an end, an analysis of this year’s market themes can offer valuable insights for predicting trends and ensuring attractive returns in 2024.

    Beyond the central bank’s actions, pivotal factors shaping the investment landscape this year include fiscal policies, election outcomes, interest rates and earnings prospects.

    Throughout 2023, a prominent theme emerged: that equities are influenced by factors beyond monetary policy. That trend is likely to persist. 

    A decline in interest rates could significantly increase the relative valuations of equities while simultaneously reducing interest expenses, potentially transforming market dynamics. Contrary to consensus estimates, 2023 brought a more robust earnings rebound, leaving analysts optimistic about 2024.

    The 2024 U.S. presidential election, meanwhile, introduces a new element of uncertainty with the potential to cast a shadow over the market during much of the coming year. 

    Choppy trading, modest earnings growth

    Anticipating a choppy first half of the year due to sluggish economic growth, we see a better opportunity for cyclicals and small-cap stocks to rebound in the latter part of the year. As uncertainty around the election and recession fears dissipate, a broad rally that includes previously ignored cyclicals and small-caps should help propel the S&P 500
    SPX
    higher. 

    Broader macroeconomic conditions support mid-single-digit growth in earnings per share throughout 2024. Factors such as moderate economic expansion, controlled inflation and stable interest rates are expected to provide a conducive environment for companies, enabling them to sustain and potentially improve their earnings performance. We estimate EPS growth of 6.5%. This projected growth aligns with the broader market sentiment indicating a steady upward trajectory in earnings for the upcoming year, fostering investor confidence and supporting valuation expectations across various sectors.

    “ If the economy has not been in recession at the time of the first rate cut but enters one within a year, the Dow enters a bear market.”

    When it comes to U.S. stock-market performance around rate cuts, the phase of the economic cycle matters. When there has been no recession, lower rates have juiced the markets, with the Dow Jones Industrial Average
    DJIA
    rallying by an average of 23.8% one year later.

    If the economy has not been in recession at the time of the first cut but enters one within a year, the Dow has entered a bear market every time, declining by an average of 4.9% one year later. Our base case is a soft landing, but history shows how critical avoiding recession is for the bull market as the Fed prepares to ease policy.   

    Big on small-caps

    This past year has posed a hurdle for small-cap stocks due to the absence of a driving force. These stocks typically perform better as the economy emerges from a recession. While they are currently undervalued, their earnings growth has been notably lacking. If concerns about a recession diminish, a normal yield curve could serve as a potential catalyst for small-cap stocks.

    Growth vs. value

    The ongoing outperformance of megacap growth stocks that we saw in 2023 might hinge on their ability to sustain superior earnings growth, validating their current valuations. Defensive sectors in the value category, meanwhile, are notably oversold and might exhibit strong performance, particularly toward the latter part of the first quarter. Should concerns about a recession dissipate, cyclical sectors within the value category could outperform, particularly if broader market conditions turn favorable in the latter half of the year.

    Handling uncertainty

    The Fed’s enduring influence regarding the prospect of a soft landing in 2024 remains a pivotal point in the market’s focus. Considering the themes of the past year and the multifaceted influences on equities beyond monetary policy, investors are advised to navigate through uncertainties stemming from unintended fiscal shifts, upcoming elections and the impact of fluctuating interest rates. While a potentially choppy start to the year is anticipated, it could create opportunities for cyclical and small-cap stocks later in the year.

    Ed Clissold is chief of U.S. strategies at Ned Davis Research.

    Also read: Mortgage rates dip after Fed meeting. Freddie Mac expects rates to decline more.

    More: After the Fed’s comments, grab these CD rates while you still can

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  • Making sense of the markets this week: February 4, 2024 – MoneySense

    Making sense of the markets this week: February 4, 2024 – MoneySense

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    Facebook thrives—the rest of tech, not so much

    While all four of the tech titans that announced quarterly earnings this week managed to beat their predicted earnings and revenue targets, only Facebook announced earnings that really got investors excited.

    Big tech earnings highlights

    All numbers below are in U.S. currency.

    • Microsoft (MSFT/NASDAQ): Earnings per share of $2.93 (versus expected of $2.78) and revenues of $62.02 billion (versus $61.12 billion predicted).
    • Alphabet (GOOGL/NASDAQ): Earnings per share of $1.64 (versus expected of $1.59) and revenues of $86.31 billion (versus $85.33 billion predicted).
    • Meta (META/NASDAQ): Earnings per share of $5.33 (versus $4.96 predicted) and revenues of $40.1 billion (versus $39.18 billion predicted). 
    • Apple (AAPL/NASDAQ): Earnings per share of $2.18 (versus $2.10 predicted) and revenue of $119.58 billion (versus $117.91 billion predicted).
    Source: CNBC

    With Meta, often referred to as Facebook, announcing excellent ad revenue growth, decreased expenses, and even introducing its first-ever dividend ($0.50 a share, paid in March), it was no surprise to see share prices pop in after-hours trading on Thursday. That said, the 14% surge (on top of a 12% year-to-date gain) caps off an incredible run for Facebook that has seen the share price quadruple since November 2022. This good news comes despite the virtual reality unit at Facebook losing $4.65 billion this quarter (which is about what the entire company of Air Canada is worth as a comparison).

    When Microsoft and Alphabet released earnings on Tuesday, it was puzzling to see the solid earnings results lead to substantial drops in share prices for both companies. This price movement was likely due to sky-high expectations that led to outsized price run-ups in 2023 and the first month of 2024. 

    Considering that bigger picture is important, as Microsoft is still up over 7% year to date, and Google (despite an 8% loss on Wednesday) is up nearly 2% so far in 2024.

    Both Google and Microsoft announced that their cloud computing services were large growth vectors, and that layoffs were in the works in the name of cost-cutting and efficiency.

    Apple had similar earnings results to Google and Microsoft, as they beat their earnings projections but share prices were down 4% in after hours trading on Thursday, as several red flags were apparent in their quarterly earnings numbers. Most notably, a 13% sales decrease in China, and decreased revenue guidance for iPhones going forward. The stock is basically flat year-to-date.

    CP and Brookfield keep a steady hand on the profit tiller

    On our side of the border this week, the notable earnings calls included Brookfield Infrastructure and CP Rail.

    Canadian earnings highlights

    All figures in Canadian dollars, unless otherwise stated.

    • Brookfield Infrastructure Corp (BIP/TSX): Earnings per share came in at a loss of USD$0.20 (versus positive USD$0.11 predicted) and revenues were USD$4.97 billion (versus USD$2.03 billion predicted).
    • Canadian Pacific Kansas City Ltd. (CP/TSX): Earnings per share came in at $1.18 (versus $1.12 predicted) and revenues were $3.78 billion (versus $3.68 billion predicted).

    Before you get too worried about those wonky results from Brookfield, keep in mind that their reported numbers are often quite complicated to make sense out of due to their unique corporate structure and accounting practices. Given that the massive infrastructure conglomerate is often buying and selling large utilities, its quarterly numbers can look misleading. In this instance, the market took the news in stride, as BIP was up over 1% on the day.

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    Kyle Prevost

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  • Making sense of the markets this week: January 28, 2024 – MoneySense

    Making sense of the markets this week: January 28, 2024 – MoneySense

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    As their shareholders expected, Johnson & Johnson and Procter & Gamble had solid, if unspectacular, earnings reporting days. These companies aren’t strangers to predictable growth, as J&J and P&G have raised their dividend payout for 61 and 67 consecutive years, respectively.

    GE shares were more or less flat, despite the earnings beat, as shareholders await the results of the company breakup. The plan is to break away both GE’s aerospace and energy divisions into their own companies.

    CNR keeps profits on the right track

    Canadian National Railway (CNR/TSX) announced earnings per share of $2.02 (versus $1.98 predicted) and revenue of $4.47 billion (versus $4.38 predicted) on Tuesday. Share prices were up slightly on this news. Shareholders appear to largely agree with management’s prediction that increased Canadian economic activity in the second half of the year will lead to a profit boost.

    Gross ton miles (GTM) came in at 118,687 million versus 118,272.3 million estimated by analysts. 

    Management painted a very positive picture when it came to future projections. CNR chief executive officer Tracy Robinson stated, “Through 2023, our team of dedicated railroaders leveraged our scheduled operating model to deliver exceptional service for our customers and remained resilient in the face of numerous external challenges. Looking forward, we are optimistic as CN-specific growth initiatives are producing volumes. While economic uncertainty persists, we have the momentum to deliver sustainable profitable growth in 2024.”

    The current guidance for management states that 2024 will see a 10% increase in earnings per share, with record revenues from potash, refund petroleum and propane. International volume is back to pre-pandemic levels, fully recovering from the British Columbia dockworkers’ strike last summer. For more details on CNR, please check my article on Canadian railway stocks at MillionDollarJourney.ca.

    Bank of Canada HODLs—ahem, hangs on for dear life

    As most economy experts predicted, the Bank of Canada (BoC) decided to hold the policy interest rate steady at 5% this week. It was the fourth consecutive time the BoC has decided not to increase or decrease the rate. There appears to be a growing consensus that the Bank will be forced to cut rates in April or March, but BoC governor Tiff Macklem did hedge everyone’s bets by stating that the BoC isn’t taking future rate increases off the table, in case inflation pressures persist. He added that it would be “premature” to discuss interest rate cuts.

    Takeaways from the BoC announcement include:

    • Where rates may go: Macklem stated that BoC discussions around the interest rate are now shifting from “how high will it go?” to “how long will they stay at the current level before being reduced?”
    • Housing prices are high: An admission that “Shelter costs remain the biggest contributor to above-target inflation” means the BoC is semi-responsible for a solid chunk of the relatively high CPI numbers that we’re seeing.
    • No recession… maybe: “We don’t think we need a deep recession to get inflation back to target. But we do need this period of weak growth,” Macklem also stated.
    • Inflation’s moving target: Given that December’s CPI increase was 3.4%, it wasn’t a surprise to hear the BoC governor say, “Inflation is still too high, and underlying inflationary pressures persist. We need to give these higher rates time to do their work.”
    • Unemployment rates: Job vacancies are trending upward and are now close to pre-pandemic levels.
    • GDP growth expectations: The BoC expects zero GDP growth in the first quarter, and only 0.8% for the year.

    While Canadian borrowers are likely to grimace at the idea of inflation rates “doing their work,” the recent core inflation figures have backed the BoC into a bit of a corner. If a rate-cutting cycle started, only for inflation to once again trend upward, it could have devastating effects on people’s confidence that the BoC will eventually get inflation back in line. Once that confidence goes… it’s very difficult and economically painful to get it back. Options markets now believe there is about a 50% chance of a rate cut in April, with a very low probability of a cut in March, and a high probability of at least one cut by June.

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    Kyle Prevost

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  • Are GICs worth it for Canadian retirees? – MoneySense

    Are GICs worth it for Canadian retirees? – MoneySense

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    In other words, during the near-zero interest rates that prevailed until recently, investors wanting real inflation-adjusted returns had almost no choice but to embrace stocks. (Read more about TINA and other investing acronyms).  

    GICs have a place in locking in some real-returns, especially if inflation tracks down further. But Raina says investing in bonds offer opportunities to lock in healthy coupon returns, with the prospect of higher capital appreciation opportunities if interest rates fall further, since bonds currently trade at a discount. The risk is the unknown: when interest rates will start falling. Based on what the Bank of Canada (BoC) announced in the fall, Raina feels that could be some time in 2024. (On Dec. 6, the BoC announced it was holding its target for the overnight rate at 5%, with the bank rate at 5.25% and deposit rate at 5%.)

    CFA Anita Bruinsma, of Clarity Personal Finance, is more enthusiastic about GICs for retirees in Canada. “I love GICs right now,” she says. “It’s a great time to use GICs.” For clients who need a portion of their money within the next three years, she says, “GICs are the best place for that money as long as they know they won’t need the money before maturity.”

    Other advisors may argue bond funds could have good returns in the coming years, if rates decline. However, “I would never make a bet either way,” Bruinsma says, “I think retirees looking for a balanced portfolio should still use bond ETFs and not entirely replace the bond component with GICs. However, I do think that allocating a portion of the bond slice to GICs would be a good idea, especially for more nervous/conservative people.” For Bruinsma’s clients with a medium-term time horizon, she recommends laddering GICs so they can be reinvested every year at whatever rates then prevail. 

    GICs vs HISAs

    An alternative is the HISA ETFs. (HISA is the high-interest savings accounts Small referred to above). HISA ETFs are paying a slightly lower yield than GICs and also do not guarantee the yield. “I also like this product but GICs win for the ability to lock in the rate,” says Bruinsma.

    When investing in a GIC may not make sense

    Another consideration is that GICs are relatively illiquid if you lock in your money for three, four or five years or any other term. “If you are uncertain if you will need those funds in the near future, you can look at a high interest savings account ETF like Horizon’s CASH,” says Matthew Ardrey, wealth advisor with Toronto-based TriDelta Financial. “This ETF is currently yielding 5.40% gross—less a 0.11% MER.”

    Apart from inflation, taxation is another reason for not being too overweight in GICs, especially in taxable portfolios. Even though GIC yields are now roughly similar to “bond-equivalent” dividend stocks (typically found in Canadian bank stocks, utilities and telcos), the latter are taxed less than interest income in non-registered accounts because of the dividend tax credit. In Ontario, dividend income is taxed at 39.34% versus 53.53% for interest income at the top rate in Ontario, according to Ardrey. This is why, personally, I still prefer locating GICs in TFSAs and registered retirement plans (RRSPs). 

    When GICs are right for retirees

    Ardrey says GICs can be a valuable diversifier when it’s difficult to find strong returns in both the stock and bond markets. “This is especially true for income investors who would often have more of a focus on dividend stocks.” Using iShares ETFs as market proxies, Ardrey cites the return of XDV as -0.54% YTD and XBB is 1.52% year to date (YTD). “Beside those numbers a 5%-plus return looks very attractive.”

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    Jonathan Chevreau

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  • Making sense of the markets this week: January 21, 2024 – MoneySense

    Making sense of the markets this week: January 21, 2024 – MoneySense

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    The acquisition looks to be turning out quite well for America’s largest bank, as it claimed that the former First Republic Bank contributed $4.1 billion in profit in 2023.

    Dimon provided some macroeconomic context in forward guidance. “The U.S. economy continues to be resilient, with consumers still spending, and markets currently expect a soft landing.” 

    Of course, being a banking CEO, he then had to hedge his position by saying deficit spending “may lead inflation to be stickier and rates to be higher than markets expect.” 

    New Morgan Stanley CEO Ted Pick cited two “major downside risks” as reasons for concern: geopolitical conflicts and the U.S. economy. 

    Mirroring Dimon’s “on one hand, and on the other hand” PR formula, Pick stated, “The base case is benign, namely that of a soft landing. But, if the economy weakens dramatically in the quarters to come and the [U.S. Federal Reserve] has to move rapidly to avoid a hard landing, that would likely result in lower asset prices and activity levels.”

    Like their Canadian banking brethren, the U.S. banks all reported substantial increased provisions for credit losses. This money, set aside to cover the inevitable increase in interest-led loan delinquencies, also weighs on banks’ bottom lines.

    Canadians looking for exposure to U.S. banks can get it through TSX-listed ETFs, such as the Harvest US Bank Leaders Income ETF (HUBL), RBC U.S. Banks Yield Index ETF (RUBY) and BMO Equal Weight US Banks Index ETF (ZBK). Investors can also get single-stock exposure to JPMorgan, Bank of America and Goldman Sachs in Canadian dollars through Canadian Depository Receipts (CDRs) listed on the Cboe Canada Exchange.

    Check MoneySense’s ETF screener for all ETF options in Canada.

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    Kyle Prevost

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  • Webull Canada Review 2024 – MoneySense

    Webull Canada Review 2024 – MoneySense

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    Is Webull available in Canada? 

    Yes. Webull Corporation, a popular Cayman Islands-owned and -operated digital brokerage, opened for business in Canada in January 2024. Prospective clients are invited to join a waitlist to set up an account at webull.ca. Like some other providers, Webull uses a waitlist to manage the pace of new client onboarding and avoid glitches. Generally after two business days, you can access the app and website with your account.

    Can you use Webull in Canada?

    The big difference between Webull Canada and the Webull version in the U.S., where it’s been operating since 2018, is the commission structure. Whereas basic trades in the U.S. are free, Webull Canada will charge $2.99 per trade for Canadian-listed stocks and USD$2.99 for stocks listed on American exchanges following a 90-day commission-free period for new clients. 

    “Canada, as a whole, is… more expensive (in the broker/dealer world) in terms of costs and fees to do business than the U.S.,” explains Michael Constantino, CEO of Webull Securities (Canada) Limited. He also noted that Webull charges commissions in most of the countries where it operates. Still, the commissions were a disappointment to a lot of Canadian investors commenting on Reddit. 

    Webull desktop vs. Webull app

    Webull has a phone app you can download via Apple’s App Store and Google Play, and the login process is easy. You get the sense it’s geared for wireless generally. You can also access your account by desktop, which boasts bigger, more readable graphics, but the pages can take a bit of time to load.

    Webull promises 24/7 support by email and phone.

    Webull trading

    Webull Canada only supports stock trading for now, not the award-winning options trading platform available stateside. (Also, cryptocurrency trading is available through a separate app called Webull Pay.) On the positive side, there are no charges for deposits and withdrawals from your Webull Canada account. The company’s clearing firm charges a fee for wire transfers, however. On margin accounts, it charges interest rates a tad below 10%.

    In addition to equity trading, Webull offers users real-time quotes and market data, more than 20 charting widgets and 60 indicators and paper trading for practice.

    Webull is a member of the Canadian Investor Protection Fund, meaning any cash or assets sitting in your account are insured in case the firm becomes insolvent.

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    Michael McCullough

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  • Why actor Isabel Kanaan says overnight success and wealth are similar – MoneySense

    Why actor Isabel Kanaan says overnight success and wealth are similar – MoneySense

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    What’s the worst money advice you’ve ever received?

    “What’s the point in saving, you could die tomorrow.” 

    Although this is the worst advice I’ve received, it still taught me that I can let go and not keep thinking about the future but live in the present as well.

    Would you rather receive a large sum of money all at once or a smaller amount of money regularly?

    I’d rather receive a smaller amount of money every week or month for life.

    What do you think is the most underrated financial tip?

    Financial literacy is your friend. We live in a day and age where the internet has all the answers. Use that to your advantage. How to spend and save is going to differ from person to person, so it’s best to learn what strategies work for you.

    What is the biggest misconception people have about growing money?

    Believing in overnight wealth or success. There’s this misconception that as soon as you start investing, or as soon as you get a job with a big paycheque, or even if you win the lottery, all your money problems will go away. No, not at all. It takes time and effort. You need to keep working to sustain that lifestyle.

    Can you share a money regret?

    Not investing sooner.

    What does the word “value” mean to you?

    Value to me is usage, plus time, plus experience. For example, someone might rather save money by opting for cheaper winter boots. I would rather buy a sturdy quality pair. The lower-quality boots would have lower usage since they would break faster, use up my time more because then I’d have to buy new ones, and limit me from experiencing winter by being cautious of breaking the cheap boots. The higher-quality winter boots would have more usage and save me time, and I can maximize my experience with it with no hesitations.

    What’s the first major purchase you made as an adult? 

    I’ve been saving for most of my life and have refrained from making any luxurious purchases, and that put me in a position where I was able to buy my first house.

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    Lisa Hannam

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  • Making sense of the markets this week: January 14, 2024 – MoneySense

    Making sense of the markets this week: January 14, 2024 – MoneySense

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    2023 asset returns versus the last 10 years

    As we enter the New Year and investing columnists write their prediction columns, it’s also a worthwhile exercise to take a look back at the history of just how varied returns have been across various asset classes. The chart below comes from Wealth of Common Sense blogger Ben Carlson. It shows and the equities shown were available on the major U.S. stock exchanges.

    Source: A Wealth of Common Sense

    Here’s the Canadian total market data below for comparison. Slide the columns right or left using your fingers or trackpad, or hover your mouse over the table to reveal a scroll bar below.

    2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 10-year
    CAD total market 10.55% -8.32% 21.08% 9.10% -8.89% 22.88% 5.60% 25.09% -5.84% 11.75% 7.62%
    Source: SPG Global

    My main takeaways from Carlson’s data:

    • The year 2022 was really bad for the value of most assets; 2023 was really good.
    • Commodities saw a real drop from 2022.
    • Despite excellent years for commodities in 2021 and 2022, the 10-year returns remain negative.
    • Reversion to the mean is pretty clear if you look at the last 10 years across all the asset classes.
    • If we go all the way back to the end of 2008, the S&P 500 is up nearly 350%. That’s a pretty incredible run.
    • Bonds have had a pretty rough stretch the last 10 years, only outpacing cash by 0.7% per year.

    I couldn’t track down the total return of Canadian stocks over the past 15 years, but the S&P/TSX Composite Index has increased by more than $2.75 trillion since 1998, when SPG Global started keeping track. That’s a total return of nearly 600%! (Exclamation point warranted.)

    So, despite some bad years, for every $1 you invested in the broad Canadian stock market as far back back in 1998, you’d have $6 today. Sure, inflation would have eaten up some of that gain, but that’s still a great run.

    Any time we look at these types of charts, we know that people who forecast based on trends of the preceding year are rarely correct. Returns over one-year timeframes are mostly “a random walk.” That said, equities (large-cap, small-cap, U.S. or Canadian) come out on top more often than not.

    Speaking of asset classes, bitcoin exchange-traded funds (ETFs) started trading Thursday, after the U.S. Securities & Exchange Commission approved 11 ETFs tied to the spot price of bitcoin. I’ll have more to say about this next week.

    The small short? The big long?

    Much of the world was introduced to short selling via the movie The Big Short, based on the book by Michael Lewis of the same name (WW Norton, 2011). When you “short” a stock, you’re essentially placing a bet that the stock’s price will go down within a given period of time. The more it goes down, the more money you make. If it goes up though, the losses can pile up quickly.

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    Kyle Prevost

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  • ETFs and RESPs: It’s always a good time to invest in education – MoneySense

    ETFs and RESPs: It’s always a good time to invest in education – MoneySense

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    With that in mind, here’s a key date to circle on your calendar: Dec. 31. That’s the deadline for making RESP contributions to maximize government RESP grants each year. The Canada Education Savings Grant (CESG) matches 20% of what you put in, up to a limit of $500 annually. To receive the full $500, your contributions must total at least $2,500 by the end of December. The lifetime CESG maximum per beneficiary (child) is $7,200, and you can only catch up one year at a time—so, you can see why that annual deadline merits attention. That’s especially true if you only have a few years to save before your child heads off to school.

    Now is a great time to plan your contributions for this year. Here are some things to consider.

    Despite its name, an RESP is much more than just a cash savings account. In fact, just holding cash in an RESP may not always be the best strategy, as inflation can erode its value over time. It’s worth looking into different ways to grow that money.

    There’s no one-size-fits-all answer for the best RESP investment options. The right mix for your family will depend on several factors, including your financial circumstances, how much time you have, and how comfortable you are with risk. To help you make the most of your RESP, the Canada Revenue Agency (CRA) provides a list of “qualified investments” for this account, including the following:

    • Bonds: These can be either government-issued or corporate-issued. Bonds are generally seen as a safer investment compared to stocks, offering fixed interest payments over time.
    • Guaranteed investment certificates: GICs are issued by financial institutions, and you can choose terms such as one, two, three or five years. At the end of the term, you’ll receive a guaranteed amount of interest. Generally, you must wait until then to access your money.
    • Stocks: Investing in individual stocks can offer high returns, but they generally come with higher volatility than bonds and GICs. It’s essential to thoroughly research the companies you’re thinking about investing in—and remember, picking stocks can be risky!
    • Mutual funds: These funds can hold a mix of stocks, bonds and other assets. They offer diversification and are managed by financial professionals. Investors pay a percentage of the value of their investment towards annual management fees.
    • Exchange-traded funds: ETFs are similar to mutual funds in that they can hold a mix of assets like stocks and bonds. However, ETF shares trade on stock exchanges, just like individual stocks. Most ETFs are passively managed, but more active ETFs are coming onto the market.

    ETFs are a fast-growing asset class in Canada. They offer investors numerous benefits, including:

    • Built-in diversification: ETFs may bundle various assets, providing wide exposure across different sectors, asset classes and geographies, which helps in reducing investment risk.
    • Professional management: With ETFs, a fund manager oversees the selection and rebalancing of holdings, often trying to replicate specific stock market indices (such as the S&P 500), thus reducing the complexity of managing individual stocks and bonds.
    • Ease of transactions: ETFs are traded on stock exchanges and are accessible through financial advisors and online brokers.
    • Flexible asset allocation: ETFs offer a spectrum of asset allocation options, so they may be suitable for investors with different risk tolerances and investment timelines.

    Choosing the best ETF for your RESP largely depends on two variables: your time horizon (how long until your child needs the funds) and your risk tolerance (how much market fluctuation and potential losses you can comfortably handle).

    To simplify this decision-making process, one option to consider is an all-in-one ETF, such as those offered by Fidelity. These ETFs offer different asset allocations and risk classifications. Fidelity’s All-in-One ETFs have the following target asset allocations and risk classifications (as at Oct. 31, 2023):

    Fidelity All-in-One ETFs Conservative Balanced Growth Equity
    Risk classification Low to medium Low to medium Medium   Medium
    Ticker FCNS FBAL FGRO FEQT
    Equity 40% 59% 82% 97%
    Fixed income 59% 39% 15% 0%
    Crypto 1% 2% 3% 3%
    Source: Fidelity Investments Canada ULC

    Fidelity’s suite of All-in-One ETFs offers strategic diversification, with most of them giving you exposure to global bonds and stocks from all market sectors. Interestingly, they even include a small exposure to cryptocurrency (1% to 3% depending on the fund), adding a modern twist to traditional investment portfolios. (Read more about crypto in Fidelity ETFs.)

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    Tony Dong

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