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  • Making sense of the markets this week: January 7, 2024 – MoneySense

    Making sense of the markets this week: January 7, 2024 – MoneySense

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    A look at 2024

    Since we made this crystal ball thing look pretty easy last year with our 2023 markets forecast, we’re at it again for 2024. And, it’s always good to begin a market predictions column with the caveat that this stuff is really hard to do.

    It’s impossible to make accurate predictions consistently, especially about the markets, as there are just too many variables at play to always get it right. I mean, if you could tell me the outcomes of wars, upcoming elections, more pandemics and unexpected natural disasters of 2024, then I could give my some predictions with a little more confidence. 

    All that said, there are some big-picture trends and general rules of thumb that Canadian investors can apply to their thinking about the year ahead. 

    So, with those caveats out of the way, here’s a look at how we see the markets playing out this year.

    Canada’s TSX 60 will gain 15%, outperforming the 8% gain for the S&P 500

    It’s not that Canada’s economy is going to do better than America’s, or that our domestic companies have any hidden advantages. A prediction for TSX 60 outperformance is simply a bet that lower valuations may suffer less from the negative headlines than any higher-priced valuations of the S&P 500 composite index.

    The 500 biggest companies in the U.S. had a fabulous 2023 and finished up 23% for the year. The markets always look ahead, true, and I think they foresaw sunny skies for late 2024 as early as spring 2023. Consequently, there would have to be additional excellent news coming to light for a repeat of such a strong year.

    Canada, on the other hand, saw its TSX 60 index go up about 8%. There were a lot of negative headlines about lack of economic growth in Canada, and no equivalent of an “AI bubble” to drive a positive narrative for boring companies like Canadian railways or pipelines.

    Right now, a TSX 60 exchange-traded fund (ETF), such as XIU, trades at about a price-to-earnings (P/E) ratio of 13x. An S&P 500 ETF, like SPY, clocks in at about 24x. I don’t think there’s any debate that the U.S. has more world-beating companies and a much more favourable tax environment than Canada. But are American companies that much better that they should be valued so much higher? Based on historical averages, we’re betting no.

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    Kyle Prevost

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  • Will GIC rates keep going up in 2024? – MoneySense

    Will GIC rates keep going up in 2024? – MoneySense

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    As a result of these rate hikes, the interest rates available on guaranteed investment certificates (GICs) have risen as well—leading to renewed interest from savers and investors. In fact, over the past 12 months, the average one-year Canadian GIC rate has shot up from 2% to 4.90%. As a result of this move-up in rates, even market-linked GICs—which offer a lower guaranteed interest rate because of higher potential gains linked to the stock market—are offering a minimum guaranteed rate over 2%, as of mid-December 2023.

    How high will GIC interest rates go?

    The interest rates you pay on various types of debt, like a mortgage or a line of credit, depends mainly on the benchmark rate set by the BoC. This, in turn, depends on the prevailing rate of inflation. Simply put, the higher inflation is in Canada, the higher the BoC’s benchmark rate, and the higher the interest rate you pay on your loans. On the bright side, a high-rate environment also offers high GIC interest rates—a boon for Canadian investors.

    When you buy a GIC, you lend money to a bank or other GIC issuer in exchange for a guaranteed amount of interest at the end of an agreed-upon period (such as one, two or five years). 

    We can’t predict future interest rates, but for now, here are some interest rates you can get on long-term non-redeemable GICs at Scotiabank as of mid-December 2023.

    Term Interest rate
    1-year 5%
    2-year 4.3%
    3-year 4.1%
    4-year 4.45%
    5-year 4.35%
    Rates are provided for information purposes only and are subject to change at any time.

    It’s notoriously tricky to pinpoint precisely where interest rates will go, but we can expect that GIC rates will remain relatively high as long as inflation persists in Canada. While inflation is down from the scary heights of 8% in June 2022, it’s still above the BoC’s target rate of 2%. So, rates may remain flat until we see significant cooling in the Canadian economy. This means that while GIC rates may not spike further, the current rates could persist for a while.

    GIC vs. high-interest savings account (HISA)

    Just as the rates for GICs are up, so are those offered on high-interest savings accounts (HISAs). As a result, Canadians are exploring HISAs and drawing comparisons between these and GICs to determine the better investment. While a HISA may be more flexible than a GIC, if you’re looking for higher guaranteed rates of return, GICs could be the way to go. For example, as of early December 2023, money held in a Scotiabank HISA for 360 days will offer you 2.55% to 2.65%.

      HISA Cashable GIC Non-redeemable GIC
    Term 360 days 1 year 1 year
    Interest rate 2.55% to 2.65% 2.85% 5%
    Rates are provided for information purposes only and are subject to change at any time.

    Choosing a GIC

    If you’re considering investing in a GIC, here are the various types on offer:

    • Non-redeemable GICs: You buy a GIC for a set period (called the “term”), with a fixed and guaranteed annual interest rate. At the end of the term, you get your principal back, along with the interest earned. These GICs cannot be cashed in prematurely.
    • Cashable GICs: Unlike non-redeemable GICs, cashable GICs can be cashed in prematurely—before the term of the GIC is complete. You must hold this GIC for at least 30 days, and you can keep the interest earned up to the date you redeem it.
    • Personable redeemable GICs: At Scotiabank, these GICs are currently available for a two-year term. They offer a higher rate of interest than a cashable GIC, and they can be redeemed early, either partially or fully.
    • Market-linked GICs: Market-linked GICs offer investors the safety of traditional GICs and the potential to earn higher returns linked to the stock market. Like a conventional GIC, your principal is protected, and you get a minimum guaranteed interest rate (though it is typically lower than for other GIC types). Additionally, the GIC is linked to a major U.S. or Canadian stock market index—such as the S&P 500 or the S&P/TSX 60. For example, if the index rises 8%, you will get 8% on your GIC instead of the minimum guaranteed rate of about 2.4%.

    Market-linked GICs: pros and cons

    Before you buy a market-linked GIC, here are some points to consider:

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    Aditya Nain

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  • Making sense of the markets this week: December 24, 2023 – MoneySense

    Making sense of the markets this week: December 24, 2023 – MoneySense

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    So, given that context, we’re pretty proud of how these predictions held up.

    Inflation will continue to dominate the news

    “People who are unemployed feel the unemployment rate: but everyone feels the inflation rate.

    “Nothing gets people’s attention faster than paying higher prices for housing, gas and groceries. That’s what makes it such a tempting news story to keep reporting on. It also makes it almost impossible for politicians and policy makers to ignore.

    “Until the inflation rate comes down, to at least 4% (it’s currently 6.8%), I don’t see most investment commentators talking about much else.”

    Making sense of the markets this week: January 1, 2023

    Grade: A

    OK, admittedly, I started with a layup. Given how important inflation and interest rates are to the pricing of assets in almost every market, it was a high-probability bet that this would dominate markets in 2023. That said, it’s undeniable that the rapid pace of interest-rate rises took up most of the oxygen in the room this year. Over the last few months inflation has been coming down to the 3% to 4% level. And, as predicted, we’re finally seeing some other stories emerge. This week, for example, the Bank of Canada (BoC) announced a headline inflation rate of 3.1% and it failed to lead the news anywhere I looked (despite being slightly higher than predicted).

    The Russian invasion remains predictably unpredictable

    “None of the experts I read about a year ago predicted Russia would invade its neighbours and send geopolitical shockwaves reaching every corner of the planet.

    “None of the experts I read about 10 months ago predicted the Ukrainian military response would be able to stand up to the Russian war machine for more than a few days.

    “At some point maybe it would be best to admit that the experts really have no idea where this conflict is headed. Despite the tragic loss of life and catastrophic disruption of society, it seems to me that there is little evidence that either side will back down as we enter 2023. 

    “If—and this appears the more likely situation—the war drags on or escalates, it becomes difficult to quantify the damage inflicted on economies, like Germany’s, which are so dependent on Russia’s energy. 

    “Sure, demand destruction and the Green Revolution are coming… eventually… and at substantial cost. Even scarier is the unpredictable nature of the response to food shortages in desperate countries around the world. Generally speaking, food riots aren’t good for business (or humanity).”

    Making sense of the markets this week: January 1, 2023

    Grade: B+

    It’s not fun predicting that war will be awful. The tragedy taking place in Ukraine continues to be a struggle for all parties involved, and I don’t think we’re much closer to a long-term peace than we were at this time last year. The war has definitely contributed to high food costs around the world and continues to be quite disruptive within specific industries.

    That said, much of Europe adapted to new energy supply chains more quickly than originally anticipated. A new market equilibrium appears to have been established, but there is no question that the war continues to be a worldwide drain on resources and, more importantly, an absolute tragedy.

    The much-talked-about recession will continue to be talked about

    “At this point, I feel like we might forecast a recession forever.

    “Whether a recession will ever actually arrive or not is another story. 

    “With inflation in the U.S. falling to an annualized rate of 3.7% over the last three months, I’d argue we’re not only past peak inflation, but are actually well on our way to some sort of ‘new normal.’ With a substantial lag between when monetary policy is announced, and when its full effects are felt, we might not need a recession to lower inflation despite all of the headlines.

    “Of course, I continue to refer to the fact that whether we see two quarters of -0.1%, and -0.1% GDP shrinkage, or a quarter of -0.3% growth followed by a quarter of 0.2% growth, the distinction of ‘recession or not’ is irrelevant. The first scenario is a technical recession by most definitions. The second scenario is just a bad quarter followed by a less bad quarter. Whether we have a recession or not really isn’t that important in the long term.

    “Have the asset markets (such as stock or property markets) in which I’ve invested my money already anticipated the bad stuff coming by ‘pricing it in’?

    “Almost assuredly.

    “Remember that the stock market and the economy are not the same thing. Professional investors look past current events—they’re aware of the recency bias. They foresaw some rough waters ahead throughout 2022, but that doesn’t mean 2023 will also be so bleak.”

    Making sense of the markets this week: January 1, 2023

    Grade: A+

    Given the gross domestic product (GDP) situation Canada announced two weeks ago, we’re comfortable saying we knocked this one out of the park. Considering how many experts were predicting a recession at the end of 2022 and calling for falling markets, the theory that markets had priced in a pretty rough ride was the correct one.

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    Kyle Prevost

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  • Should you consider ETFs that include crypto? – MoneySense

    Should you consider ETFs that include crypto? – MoneySense

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    But 2023 has been different. Aside from a few prominent scandals, it’s been a year of resurgence and renewed investor interest. The price of bitcoin (BTC) has risen from about $16,500 at the start of the year to about $41,300, as of Dec. 18, 2023—an eye-popping gain of about 150%. But is crypto too volatile to invest in—especially if you’re a conservative investor? Is it worth exploring, or should you stay away from all the hype?

    What are cryptocurrencies? A quick refresher for Canadian investors

    Cryptocurrency is a form of digital money based on blockchain technology, which securely and permanently records transactions in a digital ledger. Unlike traditional fiat currency, crypto isn’t created, managed or backed by banks. Bitcoin, for example, operates on a multitude of computers around the world (called “nodes”) that run a specific algorithm. Together, they contribute massive amounts of computing power to create new coins, process transactions and maintain the decentralized ledger of these transactions.

    In the past, Canadian crypto investors bought coins, or fractions of coins, via crypto exchanges. Today, you can invest in exchange-traded funds (ETFs) that hold bitcoin and ethereum, making crypto more accessible to a wide range of investors.

    The potential benefits of investing in crypto

    Many Canadian investors remain cautious about crypto, wary of the dizzying volatility of crypto prices. Nonetheless, crypto is quickly emerging as an asset class for some long-term investors, exemplified by Fidelity’s All-in-One ETFs—which blend a small yet potentially impactful allocation of 1% to 3% of cryptocurrency into diversified portfolios of stocks and bonds. Adding a sprinkling of crypto assets to your portfolio could have these advantages:

    Diversification and hedging against traditional markets

    Diversification has typically meant allocating your portfolio to a certain percentage of stocks and bonds. However, bonds have had a torrid couple of years, and high inflation rates are spooking stock markets. So, investors are seeking fresh ideas. Diversifying with crypto could be promising because—although volatile and risky in itself—crypto does not suffer from all the same systemic risks that some stocks and bonds do. However, investors need to consider other crypto risks, such as regulatory uncertainty and technology risks.

    Potential for higher returns

    In diversified portfolios, stocks have so far been the growth engine. But, with crypto offering higher historical returns over the past 10 years, even a small allocation of 1% to 3% to crypto can potentially enhance an ETF’s returns.

    A slice of the future

    A small allocation to crypto gives you a slice of (what could be) the future of money and investments. Nobody knows how big the crypto market will be in 10 years and what role crypto will play in the future. A Fidelity All-in-One ETF with a small 1% to 3% allocation to crypto allows you to participate in the (possible) future without managing or storing it yourself. 

    Pure crypto ETFs vs. all-in-one ETFs

    Fidelity’s All-in-One ETFs allocate 1% to 3% to crypto. It’s a low percentage, but BTC has delivered annualized gains of over 50% over the last five years, so even a small allocation can give your investments a big boost. While many Canadian investors will be content with this 1% to 3% crypto allocation, some experienced investors may want to manage their crypto allocation themselves—with the ability to increase or decrease their crypto allocation independently. For these investors, there’s the Fidelity Advantage Bitcoin ETF, which invests substantially all of its holdings in bitcoin. In fact, Fidelity’s All-in-One ETFs gain exposure to BTC through this very ETF. Here’s an overview of Fidelity’s All-in-One ETFs that include crypto in their neutral asset allocation mix (as at Oct. 31, 2023).

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    Aditya Nain

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  • Bitcoin is surging—what’s the prediction for crypto in 2024? – MoneySense

    Bitcoin is surging—what’s the prediction for crypto in 2024? – MoneySense

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    In Canada, spot bitcoin ETFs were approved in 2021. (The first North American bitcoin ETF, the Purpose Bitcoin ETF, launched in February 2021.) However, approval of these funds in the U.S. holds greater significance due to the larger market size and broader investor accessibility. It would also signal crypto’s continued progress towards mainstream acceptance.

    Growing institutional interest in crypto

    Bitcoin is gaining mainstream acceptance, as institutional investors continue to warm up to cryptocurrencies, particularly BTC and ethereum (ETH). Bitcoin’s limited supply, its upcoming halving event (expected in April 2024), and the possibility of a spot bitcoin ETF have further added to the digital currency’s allure for institutional investors, which have poured more than $1 billion into BTC this year.

    Scarcity-seeking institutional investors are particularly enthused by the prospect of bitcoin halving, a process that halves the reward for mining, or validating, new blocks on bitcoin’s blockchain, thereby reducing the supply of the coin. A halving event happens once every four years and effectively makes the asset more attractive to investors.

    Falling bond yields

    Bitcoin’s fortunes are closely tied to U.S. bond yields. Bitcoin and bonds move in opposite directions due to their sensitivity to market sentiment regarding economic stability and inflation.

    The inverse relationship means that at a time when bond yields are trending lower, bitcoin prices are ticking higher. However, when yields are rising, as they did in the first half of the year, investors have less incentive to chase returns from other assets, including cryptocurrencies and equities.

    What to expect for bitcoin in 2024

    Looking forward, the consensus among analysts is overwhelmingly positive for bitcoin. However, their degrees of optimism and price forecasts vary widely. Some crypto watchers are expecting the digital currency to return to its 2021 all-time-high price of more than $69,000. Considerably wilder predictions for 2024 call for bitcoin to hit $120,000 and even $250,000.

    However, the usual warnings apply. Investors should proceed with cautious optimism. Any unforeseen geopolitical, financial or regulatory events could derail investor sentiment yet again and send bitcoin’s price tumbling, bringing with it the value of the broader crypto market. Crypto analysts remind investors that cryptocurrencies remain a risky bet.

    If the short history of bitcoin has proved anything, it is that the digital coin’s value tends to be highly volatile, and its fluctuations can wipe out millions of dollars in minutes. As a digital asset, bitcoin also continues to exhibit sharp sensitivity to a host of factors including, but not limited to, geopolitical events, regulatory oversight, high-profile lawsuits, crypto scams and cybercrime. Investors seeking to gain bitcoin exposure should invest only what they can afford to lose. To borrow from a universally acknowledged gambling caveat: know your limit, play within it.

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    Vikram Barhat

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  • How to buy Fidelity ETFs in Canada – MoneySense

    How to buy Fidelity ETFs in Canada – MoneySense

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    ETFs may have lower management fees than comparable mutual funds. And, with such a wide variety of ETFs with different asset allocations to choose from—including funds that combine equities with fixed income and even cryptocurrency—there are ETFs for a range of investors, from conservative to aggressive. You can choose ETFs that try to replicate an entire stock index, such as the S&P 500, or focus on a specific sector or geographical region. Most ETFs are passively managed, but a growing number of funds are actively managed.

    Plus, you can hold ETFs in both non-registered and registered investment accounts. Examples of registered accounts include the registered retirement savings plan (RRSP), tax-free savings account (TFSA) and first home savings account (FHSA).

    Investing in Fidelity ETFs

    In Canada, Fidelity Investments offers a variety of ETFs for investors with different investment objectives, time horizons and tolerance for risk. Investors can consider ETFs in the following categories:

    • Equity ETFs invest in stocks across a broad range of sectors, market capitalizations and geographies.
    • Fixed income ETFs invest in bonds and can be used to generate income, with the potential for capital preservation. 
    • Balanced or multi-asset ETFs invest across asset classes, including stocks and bonds.
    • A sustainable ETF that invests in companies with favourable environmental, social and governance characteristics.
    • Digital asset ETFs have direct exposure to cryptocurrency, such as bitcoin and ether.

    Fidelity ETFs are available through financial advisors and online brokerages. Learn more about Fidelity ETFs.

    Learn more about ETFs

    On this page, we’ll share articles to help you learn about and evaluate ETFs for your investment portfolio. Check back often for more insights.

    • How many ETFs can Canadian investors own?
      ETFs offer Canadian investors an appealing combination of convenience, diversification and low fees. But how many ETFs should you own, and which ones?
    • What investments can I put in my TFSA?
      The TFSA contribution limit for 2024 was recently announced. TFSAs can hold more than just cash. Get to know your TFSA investment options, including some Fidelity All-in-One ETFs that offer portfolio diversification.

    Know your investing terms

    Brush up on investing basics with helpful definitions from the MoneySense Glossary.

    This article is sponsored.

    This is a paid post that is informative but also may feature a client’s product or service. These posts are written, edited and produced by MoneySense with assigned freelancers and approved by the client.

    Commissions, trailing commissions, management fees, brokerage fees and expenses may be associated with investments in mutual funds and ETFs. Please read the mutual funds or ETF’s prospectus, which contains detailed investment information, before investing. Mutual funds and ETFs are not guaranteed. Their values change frequently, and investors may experience a gain or a loss. Past performance may not be repeated.

    The statements contained herein are based on information believed to be reliable and are provided for information purposes only. Where such information is based in whole or in part on information provided by third parties, we cannot guarantee that it is accurate, complete or current at all times. It does not provide investment, tax or legal advice, and is not an offer or solicitation to buy. Graphs and charts are used for illustrative purposes only and do not reflect future values or returns on investment of any fund or portfolio. Particular investment strategies should be evaluated according to an investor’s investment objectives and tolerance for risk. Fidelity Investments Canada ULC and its affiliates and related entities are not liable for any errors or omissions in the information or for any loss or damage suffered.

    Portions © 2023 Fidelity Investments Canada ULC. All rights reserved. Fidelity Investments is a registered trademark of Fidelity Investments Canada ULC.

    The presenter is not registered with any securities commission and therefore cannot provide advice regarding securities.




    About Jaclyn Law

    Jaclyn Law is MoneySense’s managing editor. She has worked in Canadian media for over 20 years, including editor roles at Chatelaine and Abilities and freelancing for The Globe and Mail, Report on Business, Profit, Reader’s Digest and more. She completed the Canadian Securities Course in 2022.

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    Jaclyn Law

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  • ’Tis the season for tax-loss selling in Canada – MoneySense

    ’Tis the season for tax-loss selling in Canada – MoneySense

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    For Canadian investors who have achieved significant taxable capital gains, now is the time to implement a tax-loss selling strategy—the most effective way to find tax savings.

    What is tax-loss selling in Canada?

    Tax-loss selling is an investing strategy designed to offset taxable capital gains and reduce your tax bill. It involves selling investments to trigger a capital loss and claiming them against capital gains.

    Definition of tax-loss harvesting

    Tax-loss harvesting, or tax-loss selling, is a strategy for reducing tax in non-registered accounts. Investors sell money-losing investments, triggering capital losses they can use to offset capital gains incurred the same year. Tax losses can also be carried back three years or carried forward indefinitely. When using this strategy to save on taxes, take care to avoid triggering the superficial loss rule.

    Read the full definition of tax-loss harvesting in the MoneySense Glossary.

    Capital gains and capital losses

    In Canada, when you sell appreciable assets such as stocks, bonds, precious metals, real estate, or other property for more than the purchase price of the investment plus any acquisition costs—a.k.a. the adjusted cost base (ACB)—this is called a capital gain.

    The math is pretty straightforward. If you bought a stock for $100 and sold it for $200, the capital gain is $100. The Canada Revenue Agency (CRA) requires you to report the capital gain as income on your tax return for the year the asset was sold. And, 50% of its value is considered taxable, based on the rate of your income tax bracket.

    In this example, the taxable income is $50 ($100 x 50%), which is taxed at your marginal tax rate. The CRA does not tax capital gains inside registered accounts such as registered retirement savings plans (RRSPs) and tax-free savings accounts (TFSAs).

    On the flip side, when you sell an investment for less than its ACB, this is considered a capital loss. The CRA allows Canadian taxpayers to use capital losses to offset any capital gains.

    Unlike capital gains, capital losses can be reported on your tax return in any of the three years prior to the loss or to offset future capital gains. Capital losses have no expiration date.

    As an investment advisor in Canada, I track my clients’ portfolios throughout the year to have a clear view of their capital gains’ position and opportunities to minimize tax. That’s when tax-loss selling comes into play.

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    Allan Small

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  • Making sense of the markets this week: December 10, 2023 – MoneySense

    Making sense of the markets this week: December 10, 2023 – MoneySense

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    The S&P 500 (index of the 500 largest U.S. stocks) was up over 8%. That’s significantly better than its November average of 1.54% going back to 1950. November is historically the best month in the U.S. stock market.

    The Toronto Stock Exchange’s S&P/TSX composite index was up 7.2% in November. There are only five single months since 2002 when there was a higher return: November 2020, April 2020, January 2019, May 2009, March 2009. By the way, January 2023 was pretty great too at 7.13%.

    Stock markets across the globe also did pretty well in November, with an all-world index up 9%.

    Remember, the stock market goes up most of the time.  

    It pays to be an optimist!

    Forget “girl math,” here’s “old man math”

    One of the most popular personal finance gurus of all time is Dave Ramsey. He’s incredible at promotion, and he’s written more books than the number of times a Canadian NHL team has ever won the Stanley Cup. Ramsey hosts radio shows, appears constantly on network TV, and is generally a one-man financial content machine.

    But, does any of this mean that Ramsey actually gives good advice?

    I’m sure there is someone somewhere who Ramsey has helped. But the number of times he makes absolutely outlandish, nonsensical claims is incredible. Thanks to Dollars and Data for the assist, here’s his latest take, which is an unedited quote from Ramsey’s show. 

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    Kyle Prevost

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  • Will Canadian HISA ETFs survive the new rule change? – MoneySense

    Will Canadian HISA ETFs survive the new rule change? – MoneySense

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    The Office of the Superintendent of Financial Institutions (OSFI) issued a ruling on Oct. 31, 2023, that requires banks taking deposits from ETF issuers to have 100% of the capital needed to support those deposits in case they get rapidly withdrawn.

    The most popular HISA ETFs 

    The reason for HISA ETFs’ popularity with investors is not hard to see. After a couple of the worst years ever for fixed income, they present a place to park your money with essentially zero volatility, combined with yields tracking ever-higher interest rates (now more than 5%). Not only do these funds find some of the best deals in savings accounts for you, but you can also buy and sell them on a whim.

    As of Oct. 31, the CI High Interest Savings ETF (CSAV) ranked as the fourth largest ETF in Canada, with $8.7 billion in assets under management, CEFTA figures show. And HISA ETFs’ appeal seems undiminished, even as fixed income reasserts its position in investors’ portfolios with interest rates expected to top out soon, if they haven’t done so already. Over the month of October, the Horizons High Interest Savings ETF (CASH) and CSAV were the number two and number three ETFs in Canada, respectively, in net inflows.

    Are HISA ETFs safe?

    The sudden shift of capital into HISA ETFs caught the attention of the OSFI, which oversees banks operating across the country. The regulator was concerned about the potential for instability in the banking system should investors withdraw their money as fast as, or faster than, they deposited it, as the ETF format enables them to do. The OSFI undertook a public consultation process last spring, considering “systemic concerns with contagion, potential for regulatory arbitrage, and the absence of guarantees or deposit insurance typically found with traditional savings accounts,” it said in its ruling on Hallowe’en.

    When new regulations around HISA ETFs take effect

    The OSFI ruled that, as of Jan. 31, 2024, “any deposit-taking institutions exposed to such funding must hold sufficient high-quality, liquid assets, such as government bonds, to support all HISA ETF balances that can be withdrawn within 30 days.” 

    What it means for Canadian investors

    While the decision is directed at the banks offering HISAs, it will have indirect effects on the ETFs holding these savings accounts. Some Canadian investors have expressed concern that the new rules might restrict the number of banks taking deposits from fund companies and might constrain yields as a result. 

    An analysis by TD Securities suggested yields would drop around half a percentage point come January. However, Naseem Husain, senior vice president and ETF strategist at Horizons ETFs, emphasizes the upside of regulatory clarity.

    “At the end of the day, the OSFI decision regulates and confirms the ongoing viability of HISA ETFs, ensuring they’re here to stay and will continue to be a viable investment option,” says Husain. “This decision will likely lead to greater competition in the space from a product perspective, and that could incentivize more investors to consider using HISA ETFs in their portfolios.”

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    Michael McCullough

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  • Top 5 questions about family RESPs – MoneySense

    Top 5 questions about family RESPs – MoneySense

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    What is a family RESP? 

    Canadians can choose from two types of RESPs: individual and family. Both are registered accounts, meaning that they’re registered with the federal government, and they allow your savings and investments to grow on a tax-sheltered basis. 

    Here are the key features you should know about for both types of RESPs:

    • The lifetime RESP contribution limit per beneficiary (child) is $50,000. 
    • A beneficiary can have more than one RESP (for example, if a parent opens one and a grandparent opens one), however, the maximum contribution is still $50,000. 
    • The Canada Education Savings Grant (CESG) matches 20% of the first $2,500 in RESP contributions per year. That’s $500 in free money per year! 
    • If your family’s adjusted income is below a certain amount (for 2023, it was $106,717), you can also receive the “Additional CESG,” which adds up to $100 more, after you contribute your first $500 per year. 
    • The CESG’s lifetime maximum, including Additional CESG, is $7,200 per child. 
    • Low-income families also receive the Canada Learning Bond (CLB), with no personal contribution required, to a lifetime maximum of $2,000 per child.
    • Families in British Columbia and Quebec have access to additional grants: $1,200 in British Columbia and up to $3,600 in Quebec. (Read more about these provincial RESP grants.)
    • You won’t get a tax deduction for contributing to an RESP like you would with a registered retirement savings plan (RRSP), but your contributions won’t be taxed when withdrawn.
    • Government grants and growth inside an RESP are taxed when withdrawn, but they’ll be taxed at the child’s marginal tax rate—which will likely be very low. 
    • You can turn an individual RESP into a family RESP anytime, as well as add and remove beneficiaries from the plan. 

    Now that we’ve covered RESP basics, let’s tackle five of the most common questions about family RESPs we get at Embark. 

    1. How are funds in a family RESP divided among beneficiaries? 

    Here’s where the flexibility of a family RESP comes into play. Outside of the CLB, government grants and the growth on the investments can be shared among the plan’s beneficiaries—and the amounts don’t have to be equal. So, if one child’s education costs more than another’s, you can divide the funds accordingly. You can also start using RESP funds for one child’s post-secondary education while another is still in grade school and collecting grant money. It’s nice to have that flexibility.

    2. What if one or more beneficiaries do not use their RESP funds?

    In a family RESP, one child’s unused funds can be allocated to another child’s education. If none of the beneficiaries attend school, you could keep the plan open in case they change their mind. 

    You could also transfer any unused income in the RESP to your or your partner’s RRSP as an Accumulated Income Payment (AIP). The transfer limit is $50,000, and you would have to return any government grants. Three other requirements to be aware of: You must have enough RRSP contribution room to make the transfer; the RESP must have been open for a minimum of 10 years; and the beneficiaries must be age 21 or older and not pursuing further education.

    If you don’t intend to add any more beneficiaries to the plan, and you don’t need the RESP any longer, you could close it. If eligible, your original contributions will be withdrawn tax-free, but you will pay taxes on any investment gains—unless they’re transferred to your RRSP as an AIP.

    3. Can you add another generation of beneficiaries to an existing family RESP?

    The short answer is no. Within a family RESP, all beneficiaries must be related by blood or adoption, meaning only siblings can be added to a family RESP. This would prohibit a grandparent from adding their grandchildren to a family RESP that was previously opened for their children. Additionally, since an RESP can only be open for 35 years, adding a younger sibling to a plan initially opened for someone close to or at withdrawal age would significantly cut down the time the younger beneficiary has to accumulate savings before the RESP would be closed.

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    Andrew Lo

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  • Making sense of the markets this week: December 3, 2023 – MoneySense

    Making sense of the markets this week: December 3, 2023 – MoneySense

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    When a recession is not a recession

    This week saw a perfect example of why the word “recession” has now largely been rendered irrelevant. 

    Recession notes

    Before we get to why all this recession talk can be misleading, here are the facts:

    • A recession means two consecutive quarters of negative gross domestic product, GDP. (Read my recession explainer from a year ago). 
    • In the past few years, several economists argued about whether the definition of recession should be that simple. Now, there’s also the term “technical recession” to describe two consecutive quarters of a contracting GDP, while reserving the generalized term “recession” for a vague set of parameters that include unemployment and whatever else they want to include. 
    • Three months ago, Statistics Canada told us that our GDP had contracted 0.2% from April to June.
    • On Thursday, Statistics Canada said our GDP had contracted 0.3% from July to September.

    So, obviously we’re in a recession, or at least we’re in a technical recession, right?!

    Nope.

    In its Q3 announcement, Statistics Canada revised its second-quarter GDP measure. To me, it says: “Yeah, so we had another look at the numbers, and, uh, it turns out instead of a slight contraction of GDP, we actually had a very small growth in GDP. So, if you look at the six months from April to September, there was a very small overall shrinkage in Canada’s GDP, we’re not in a ‘technical recession’.”

    Source: CBC News

    The much bigger story here could be that Canada’s large immigration numbers are creating an overall GDP number irrelevant to the average Canadian. After all, most people want economic reporting to explain if their own personal situation is likely to get better or worse.

    When you look at our GDP-per-capita and overall production-per-capita numbers, Canada is right where it was in 2017. 

    That’s not to say that increased immigration is a problem or that it has a negative economic effect. I personally feel quite the opposite. 

    It’s simply a question of how to explain math to Canadians. Whether Canada’s economy grows by 0.2% or shrinks by 0.2% from quarter to quarter is much less important than the fact we’re increasing population by 2.7% per year, and getting nowhere near the level of GDP growth. If our collective economic pie is staying essentially the same size (or perhaps growing very slowly), but we’re cutting it into more and more pieces at an increasing rate, then the most relevant statistic isn’t GDP. Rather it’s the real GDP per capita.

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    Kyle Prevost

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  • What is a market-linked GIC? – MoneySense

    What is a market-linked GIC? – MoneySense

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    If you like the safety of GICs but also want exposure to the stock market, there’s a type of investment for that: market-linked GICs. These investments guarantee the return of your principal along with a minimum interest rate, while also providing limited exposure to stock market movements.

    How market-linked GICs work

    Unlike a traditional GIC, a market-linked GIC is tied to a particular stock market index—like the Canadian S&P/TSX 60 or the American S&P 500. This gives investors an opportunity to benefit from market gains to a limited extent. We say “limited” because even if the S&P 500 index gains 50% over a three-year period, a GIC linked to that index may limit your gains to, say, 35%.

    Any gain isn’t guaranteed, as no one can predict what the markets will do, but the potential upside is there—and your principal is protected regardless of what the stock market does.

    Of course, you can invest in the stock market by buying individual shares, mutual funds and exchange-traded funds (ETFs). Unlike these, however, a market-linked GIC ensures that you won’t lose any of your principal if there’s a market downturn. Market-linked GICs offer:

    • A guaranteed minimum rate of interest
    • Canada Deposit Insurance Corporation (CDIC) coverage of the GIC’s principal and interest, up to $100,000, in case of a bank failure, if the GIC issuer is a CDIC member institution

    Additionally, there is no fee to invest in a market-linked GIC or other types of GICs.

    How do market-linked GICs and ETFs compare?

    Consider this comparison of a traditional Scotiabank three-year non-redeemable GIC with Scotiabank’s US Tracker Index ETF (SITU) and Scotiabank’s three-year market-linked GIC—both tied to the S&P 500 index. (GIC rates current as of Nov. 20, 2023.)

    Term Minimum guaranteed interest rate Maximum full-term return Principal guarantee Linked index Fee
    Traditional GIC 3 years 4.1% Not applicable Yes None None
    Market-linked GIC 3 years 2.44% Limited to 35% Yes S&P 500 None
    Scotiabank ETF (SITU) None None Matches the index without limit No S&P 500 0.08%

    Are market-linked GICs a good investment?

    Market-linked GICs have several things going for them:

    • They’re eligible for both non-registered and registered investment accounts, including the registered education savings plan (RESP), registered retirement savings plan (RRSP), registered retirement income fund (RRIF), tax-free savings account (TFSA) and registered disability savings plan (RDSP).
    • They have a low minimum investment amount—as low as $500, in the case of Scotiabank’s GICs.
    • Market-linked GICs are eligible for CDIC protection, up to $100,000 per depositor, at CDIC member institutions.

    Are market-linked GICs right for you?

    Like all investments, a market-linked GIC could be a good investment if it aligns with your financial situation, financial goals, risk profile and investment time horizon. Typically, these GICs could suit Canadian investors who:

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    Aditya Nain

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  • Making sense of the markets this week: November 26, 2023 – MoneySense

    Making sense of the markets this week: November 26, 2023 – MoneySense

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    Source: Google Finance

    In a report full of positive figures, perhaps the most impressive highlight was that data centre revenue (mostly from cloud infrastructure providers like Amazon and Microsoft) was up 279%, to USD$14.51 billion. Only a few years ago, Nvidia was basically known as a fairly simple (albeit still profitable) company that made computer chips for video games. As long as it maintained its competitive advantage on AI chips, it essentially has license to print ever-increasing amounts of money. We’ll see how long it takes the other chip heavyweights to catch up.

    The fly in the ointment of Nvidia’s earnings report, though, was a warning that export restrictions from China and other countries were going to have a negative effect on the fourth quarter’s bottom line.

    When should we expect the stock market to hit new highs?

    Ben Carlson is back, on A Wealth of Common Sense, with an interesting look at how often the U.S. stock market breaks its previous all-time high.

    With all the negative news headlines these days, you might be forgiven for assuming things must be pretty rough at the moment. Heck, you might even have thought we were a long way away from a new market high.

    The truth is the U.S. stock market is fast approaching its all-time high. And it looks like this gap between market peaks will be the fifth longest on record. In other words, the recent bear market has caused substantial pain, but it’a far from the worst-case scenario.

    In Canada, the TSX Composite index index hit 22,213 in April of 2022. Today, we sit at about 20,114, so we’re still down about 10% from all-time highs. That said, we wouldn’t bet against the Canadian stock market crashing through that ceiling in early 2024. (Predictions column to come soon!)

    It’s also important to remember that the companies that make up Canada’s stock market index pay out higher annual dividends than their U.S. counterparts. That isn’t reflected in these index comparisons.

    Of course, one might want to consider that while stock prices are bouncing back they’re still pretty far away on a “real” basis if we adjust for inflation. In other words, if you’re selling stocks to pay for life’s expenses, then you will have to sell more of those stocks (even if they’re back up to 2022 levels) to buy the same stuff that you used to. That price difference is obviously due to the high inflation rates the last couple of years.

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    Kyle Prevost

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  • What to expect for GICs in 2024 – MoneySense

    What to expect for GICs in 2024 – MoneySense

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    The point? If a GIC investor is looking to lock in a good long-term interest rate, they may want to consider some bond exposure as well to diversify. If rates do in fact fall, bonds could do very well.

    Regardless, for a conservative investor, earning a return in the 6% range from a GIC is pretty enticing.

    Tax paid on GIC returns in 2024

    If you’re buying a GIC or bond in a tax-sheltered account, the tax implications do not matter. Interest income in a registered retirement savings plan (RRSP) or tax-free savings account (TFSA) is tax-free, although RRSP withdrawals are eventually taxable.

    If you are considering a GIC in a taxable account like a personal non-registered account or a corporate investment account, tax is a factor.

    If an Ontario investor with $100,000 of income earns a dollar of interest income, they pay a marginal tax rate on that dollar of about 31%. So, buying a 6% GIC leaves only about 4.1% after tax.

    If that same investor bought Canadian stocks and earned a 6% return with 2% from dividends and 4% from capital gains, selling after a year, the tax would be less. The tax rate on the dividend income would be about 9% and on the capital gain would be about 16%. The after-tax return would be about 5.2%, over 1% higher than the GIC investor earning the same 6%.

    Depending on the dollar value of the GIC or stock, the income could push the investor into a higher tax bracket than the marginal rates referenced above, but the outcome would be similar, with stocks being more tax efficient. The tax savings for stocks over GICs would also apply in other provinces.

    As a result, a stock investor could earn a lower rate of return than a GIC investor in a taxable account and still keep more of their after-tax return. Stocks generally return more than GICs or bonds over the long run, despite the year to year volatility. This is an important consideration for a GIC investor when tax is considered. After all, it is your after-tax return that really matters.

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    Jason Heath, CFP

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  • Making sense of the markets this week: November 19, 2023 – MoneySense

    Making sense of the markets this week: November 19, 2023 – MoneySense

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    Target shareholders finally avoid slings and arrows

    The big headlines in U.S. retail this week centred around Target shares seeing a massive 18% spike, while Walmart shares came down over 8% after Thursday’s earnings announcement. However, we look behind those headlines to the context of those moves to get the real story.

    U.S. Retail earnings highlights

    All earnings numbers in this section are in USD.

    • Walmart (WMT/NYSE): Earnings per share of $1.53 (versus $1.52 predicted). Revenue of $160.80 billion (versus $159.72 billion estimate).
    • Home Depot (HD/NYSE): Earnings per share of $3.81 (versus $3.76 predicted). Revenue of $37.71 billion (versus $37.6 billion estimate).
    • Target (TGT/NYSE): Earnings per share of $2.10 (versus $1.48 predicted). Revenue of $25.4 billion (versus $25.24 billion estimate).
    • Macy’s (M/NYSE): Earnings per share of $0.21 (versus $0.00 predicted). Revenue of $4.86 billion (versus $4.82 billion estimate).

    While the quarter was obviously a great redemption story for Target, these volatile stock moves were based on sky-high expectations for Walmart (the stock hit an all-time high this week before the earnings announcement) and a relatively terrible year for Target so far. It’s still down over 14% year to date even after the earnings bump.

    Target’s C-suite commented that its improved margins were due to progress made on inventory management and reducing expenses, as well as reduced shrinkage (theft).

    Walmart’s team stated the company is still worried about pressure on the U.S. consumer despite higher online sales (24% increase in the U.S. and 15% worldwide this year) and increased grocery revenues. 

    Walmart CEO Doug McMillon believes price relief might soon be in the cards, saying that general merchandise and grocery prices should, “start to deflate in the coming weeks and months.” He said, “In the U.S., we may be managing through a period of deflation in the months to come. And while that would put more unit pressure on us, we welcome it, because it’s better for our customers.”

    We’re fairly certain that Walmart will be able to resist that “unit pressure” and that it will manage to satisfy both shareholders and customers, given its track record over the years.

    CPI goes down, stocks go up

    If you needed confirmation that U.S. interest rates are still foremost on investors’ minds, this week’s Consumer Price Index (CPI) from the U.S. Department of Labor was a big checkmark. Stocks rallied after Wednesday’s news that headline CPI was down to 3.2% annually (before coming down slightly later in the day’s trading session).

    Source: CNBC

    CPI summary index report highlights

    The main takeaways from the CPI report included:

    • Core CPI (which excludes food and energy prices) is still at a 4% annual rate of increase.
    • Both the headline CPI and core CPI numbers were lower than anticipated Wall Street estimates, which led to market optimism. 
    • Gasoline costs were down 5.3% annually.
    • Shelter costs were up 6.7% annually and were a major part of the overall headline inflation raise.
    • Travel-related categories ,such as hotel pricing and air travel, were also down substantially.
    • Used vehicles are down 7.1% from a year ago.
    • With unemployment rising from 3.2% to 3.9%, there should be less pressure to increase wages in most sectors going forward, thus contributing to a reduction in both headline CPI and core CPI.

    Market watchers at CME Group report that the chances of any immediate interest rate hikes by the U.S. Fed have declined to nil. As you might expect, this confidence drove down long-term bond rates and raised future expectations for corporate earnings (and share prices).

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    Kyle Prevost

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  • What Canadian investors can do in times of world crisis and war – MoneySense

    What Canadian investors can do in times of world crisis and war – MoneySense

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    Emotions in investing

    The humanitarian crises taking lives and garnering headlines are heart-wrenching—particularly for Canadians who have family and friends in the affected regions. More broadly, no one knows for sure how these crises will affect global economies, access to resources and financial markets. It’s understandable that investors are scared and making investment decisions based on their fear. Some people are selling their equities and leaving the markets. As an advisor, it’s my job to help take the emotion out of investing.

    We know from previous wars, terrorist attacks, pandemics and other terrible events that people, governments and markets are resilient, and can even become stronger than they were before. This happened after 9/11, the global financial crisis and the global COVID-19 pandemic. The historical evidence suggests that the best thing investors can do when the world experiences a crisis is to separate feelings about the tragedy from the facts about the businesses you’re invested in and look for buying opportunities. 

    Impact of global crises on investments

    The impact of wars and other traumatic events on the markets tend to be relatively short-lived. That’s because unlike fiscal policy—such as raising interest rates—the events themselves are not “economic” in nature.

    For example, if war breaks out in an oil-producing country, will that affect the price of oil? Theoretically, it shouldn’t, because other, larger producers can offset any lost supply from the war-torn country.

    But, as we know, perception can be more powerful than reality when it comes to the stock market. The initial, automatic reaction could be a spike in oil prices—and then prices should adjust with time.

    What is a Canadian investor to do?

    So, what do you do as an investor in Canada? Not an awful lot. As investment advisors, we get paid to grow people’s wealth. When markets sell off for reasons that are more temporary than related to economics and performance, it’s important to take emotion out of decision-making and not go into panic mode about your investments.

    Markets may dip, but they don’t usually collapse. It’s possible your portfolio’s value may drop for a period of time. In the past, after a crisis has ended—and regardless of the outcome—the markets have regained stability, and investment returns have bounced back.

    A crisis investment strategy

    My best advice in the face of a world crisis: Stay calm, take a deep breath and focus on the fundamentals. Keep your risk profile front and centre, and think about where you want to put your money. My approach is to be sector agnostic and look for good value wherever I can find it.

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    Allan Small

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  • Making sense of the markets this week: November 12, 2023 – MoneySense

    Making sense of the markets this week: November 12, 2023 – MoneySense

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    Disney (and most U.S. companies) surprise to the upside

    With 88% of companies in the S&P 500 having now reported results, nearly 9 in 10 have surpassed earnings estimates. Consumers continue to feel worse about the economy, and companies just continue to make more money. It’s quite an odd time to try to make sense of the markets.

    U.S. earnings highlights

    This is what two American companies reported this week. All figures below are in U.S. dollars.

    • Uber (UBER/NASDAQ): Earnings per share of $0.10 (versus $0.12 predicted), and revenues of $9.29 billion (versus $9.52 billion predicted). 
    • Disney (DIS/NYSE): Earnings per share of $0.82 (versus $0.70 predicted), and revenues of $21.24 billion (versus $21.33 billion predicted).

    Disney’s outperformance was chiefly due to ESPN+ subscriptions and continued revenue increases at theme parks. Investors appear to be big supporters of CEO Bob Iger’s announcement that Disney will “aggressively manage” its costs and will now be targeting $7.5 billion in cost reductions (up from a $5.5 billion target earlier in the year). Shares were up 4% in after-hours trading on Wednesday. 

    “As we look forward, there are four key building opportunities that will be central to our success: achieving significant and sustained profitability in our streaming business, building ESPN into the preeminent digital sports platform, improving the output and economics of our film studios, and turbocharging growth in our parks and experiences business.” 

    — Disney CEO Bob Iger

    Uber, on the other hand, had a more subdued day. The earnings miss was contextualized by CEO Dara Khosrowshahi, when he pointed out that gross bookings for people-moving mobility were up 31% year over year (YOY), while UberEats gross bookings were up 18% YOY. The markets appeared to agree with Khosrowshahi’s spin, as shares were up 3% on Tuesday, despite the earnings news.

    Canadian fossil fuels profitable—for now

    Despite a United Nations report stating that Canadian fossil fuels should be kept in the ground, the sector continued right on pumping out profits this quarter. 

    Canadian earnings highlights

    Here’s what came out of the earnings report. 

    • Keyera Corp. (KEY/TSX): Earnings per share of $0.36 (versus $0.50 predicted). Revenue of $1.46 billion (versus $1.60 billion estimate).
    • TC Energy Corp. (TRP/TSX): Earnings per share of $1.00 (versus $0.98 predicted). Revenue of $3.94 billion (versus $3.91 billion estimate).
    • Suncor Energy Inc. (SU/TSX): Earnings per share of $1.52 (versus $1.36 predicted). Revenue of $12.64 billion (versus $12.85 billion estimate).

    While accounting changes at Keyera resulted in an earnings-per-share miss, shareholders appeared to take the news in stride. Share prices were down less than 1% on Wednesday. Management highlighted the Pipestone expansion being on track and to be completed in the next two months, as well as a recent credit upgrade. The company was in great shape going forward. With net debt to adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) at 2.5 times, the company is on the conservative side of its 2.5- to 3-times target range.

    TC Energy was up nearly 1% on the day after positive earnings news and the announcement that the new Coastal GasLink was completed ahead of the year-end target. Management also stated that it is taking steps to strengthen the company’s balance sheet, including selling off $5.3 billion in asset sales that will be used to pay down debt.

    Despite total barrels of oil produced falling from 724,100 to 690,500 in last year’s third quarter, Suncor outperformed expectations and shares rose 3.7% on Thursday. Investors were forgiving in the decrease of adjusted earnings due to lower crude oil prices and increased royalties.

    The company attributed the decrease in adjusted earnings to lower crude prices and a weaker business environment, as well as increased royalties and decreased sales volumes due to international asset divestments.

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    Kyle Prevost

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