Investment
A cheap and easy investing strategy for your FHSA. Plus, where to find GICs still paying rates of at least 5%
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Kudos to the digital broker Questrade for getting the jump on its competitors in offering a First Home Savings Account, the new and best way to save for a home down payment.
FHSAs combine the best elements of tax-free savings accounts and registered retirement savings plans in that investment gains and withdrawals are not taxed, and you get a tax deduction for contributions. Let’s take a look at a cheap and simple FHSA investing strategy you could put into effect at Questrade, or any other broker.
Questrade has zero commissions for buying exchange-traded funds, so we’ll use those as a portfolio building block. Normal commissions apply when selling, but you’ll be doing a lot more buying than selling in the years you own an FHSA.
To minimize the work involved, asset allocation ETFS will be used for the FHSA portfolio. These ETFs are pre-fab portfolios tuned to different levels of risk tolerance. There are conservative, balanced, growth and all-stock versions, each with a different mix of underlying fund holding bonds and stocks from Canada, the United States and other parts of the world. You don’t need anything else in your FHSA than one well chosen asset allocation ETF.
Go with the risk level that suits you when choosing an asset allocation ETF. For many people, a growth fund weighted 80 per cent stocks and 20 per cent bonds will make sense initially. Investors more comfortable with stock market risk could go with an all-equity fund.
FHSAs can remain open for as long as 15 years, or until the end of the year you turn 71. If you don’t buy a house at some point, you can transfer your FHSA into your RRSP tax-free or withdraw the money and pay tax.
Assuming you buy a house, you’ll want to tamp down some of the risk in your FHSA at some point. If you plan to keep the FHSA for 15 years, you could think about lowering the risk level around Year 12.
If you decide suddenly to start looking for a home, then de-risk your FHSA immediately. One way to do this would be to sell your aggressive asset allocation fund holdings and put the money into high interest savings account ETFs or mutual funds, or cashable guaranteed investment certificates.
Someone who is seriously looking to buy a home wants an FHSA that is both liquid and safe. You don’t want to be worrying about what the stock market is doing on the day you make an offer to buy a first home.
— Rob Carrick, personal finance columnist
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Ask Globe Investor
Question: In a recent article, there were references to meme stocks. I don’t have a clue what that term means. What is a meme stock? – Jane R.
Answer: A meme stock is one that becomes popular with retail investors through social media. They become the topic of on-line discussion groups, who sometimes use their collective buying power to purchase shares in a company to drive up the price. The results can be astounding. On Jan. 27, 2020, shares in GameStop (GME-N) reached a high of US$86.88, up 134 per cent from the day before. The company wasn’t worth anything like that, either from a financial or business perspective. Needless to say, the inflated price didn’t last long. Investors took profits and the shares plunged. By year-end, they were down to US$4.82.
We still see periodic social media activity around GameStop and other meme stocks. GME traded as high as US$49.85 in 2022. As I write, it’s at US$23.98. I don’t recommend GME or any other meme stock but some young investors love playing them, as if they were video games. The U.S. Securities and Exchange Commission has investigated but took no action, beyond issuing a report.
–Gordon Pape (Send questions to gordonpape@hotmail.com and write Globe Question in the subject line)
What’s up in the days ahead
U.S. inflation data to test market’s bets on future Fed easing
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In Part 3 of its Downtown Decay series, CTV News Toronto examines the path forward for the city’s slumping core—and what can be done to reverse the troubling trend.
It is lunch hour in Toronto’s core, and the Front Street patio tables are set. It’s midweek, it’s May, and the skies are clear—but the office crowd is scarce, and the chairs sit empty.
It’s a tell-tale sign that fewer people are downtown these days, with plenty of reasons to avoid the area.
“Transportation has been a hot mess,” said Jay Daye, who lives downtown. “It has been a struggle to get around.”
“I have never seen this much construction at a single time,” said Akash Thomas, who moved here from India three years ago.
Improving the commute into the core, and the ease with which people can move around within it, is key to revitalizing a slumping city centre, said Matti Siemiatycki, director of the Infrastructure Institute at the University of Toronto’s School of Cities.
A ‘for sale’ sign in the window of a commercial building in downtown Toronto. (CTV News Toronto)
“It’s just like a litany of transportation challenges in that area, to the point where politicians are in some cases saying ‘Don’t come into downtown,’ which is the opposite of what we need right now,” he said.
“We’re talking about a downtown core that is struggling, and needs huge numbers of people to come in and out, and be able to do that easily.”
With activity levels at just 47 per cent of what they were in the core pre-pandemic, the data suggests a downtown decline spurred by a lockdown-led drop in the nine-to-five office crowd. But with hybrid and remote work here to stay in at least some capacity, some experts suggest reorganizing the role of Toronto’s core in the city’s economy.
“If you’re not able to attract people to work, attract people for amenities,” said William Strange, who teaches urban economics at the University of Toronto. “The stronger are the amenities, the happier people are going to be to go into their office anyway.”
“What I see is a huge opportunity for downtown Toronto to remake itself,” Karen Chapple, director of the University of Toronto’s School of Cities, told CTV News Toronto.
The key, she said, would be to reinvent the area as a mixed-use community, a model other urban centres have demonstrated to be successful.
“What I just hope, though, as we’re attracting sectors back, is that they are not nine-to-five sectors, because that’s what killed some of these downtowns.”
People passing by an empty patio on a sunny day in downtown Toronto. (CTV News Toronto)
The revitalization of the core will be a critical challenge for the city’s next mayor, Siemiatycki said, who warned service cuts could worsen an already-spiralling problem.
But investment won’t be possible without a rethink of the city’s fiscal framework, according to Matt Elliott, publisher of City Hall Watcher.
“If you look at the city’s budget hole and you say, ‘We’re just going to keep doing what we’re doing,’ and you’re not going to have a real plan to fill that budget hole, that gets into some really dicey territory,” Elliott said. “Because that’s when you start looking at really deep cuts.”
It’s not ideology, he said—it’s math.
“I don’t think we’ve realized that we’ve fallen down this ladder in terms of our prosperity,” Giles Gherson, incoming Toronto Region Board of Trade president, told CTV News Toronto.
Gherson warned that without a new financial deal for the city, which heavily supports services that should be the responsibility of Ottawa and the province, Toronto’s downtown would fall further behind.
“We’re poor,” he said. “We’re a poorer place than we used to be.”
The core, he argued, is in need of a correction, if the city is to salvage its productivity, maintain job growth, and remain competitive globally.
“We haven’t been paying attention,” he said. “We’ve been sleeping, and it’s falling off. So that’s what we need to fix—and that’s a big deal.”
Singapore state-owned investment fund Temasek Holdings says it has cut the pay of staff responsible for its investment in cryptocurrency exchange FTX, which collapsed last year.
In November, the fund wrote off all of the $275m (£222.8m) it invested in FTX.
Prosecutors have accused FTX’s former chief executive Sam Bankman-Fried of orchestrating an “epic” fraud which may cost investors billions of dollars.
Mr Bankman-Fried has pleaded not guilty to the charges.
“The investment team and senior management, who are ultimately responsible for the investment decisions made, took collective accountability and had their compensation reduced,” Temasek said in a statement on Monday.
The sovereign wealth fund also said it was “disappointed with the outcome of our investment, and the negative impact on our reputation.”
Temasek did not indicate how much salaries were reduced by.
It had invested $210m and then another $65m in FTX in two funding rounds between October 2021 and January 2022.
Last year, the state-owned fund said that before making those investments it had spent eight months evaluating the cryptocurrency exchange. This included the review of an audited financial statement “which showed it to be profitable.”
As of March 2022, Temasek was worth more than S$403bn ($298.1bn; £241.3bn), so the money it had put into the cryptocurrency platform accounted for a small percentage of its investments.
However, Singapore’s deputy prime minister Lawrence Wong said in December that Temasek’s losses in FTX had caused damage to the fund’s reputation.
“The fact that other leading global institutional investors like BlackRock and Sequoia Capital also invested in FTX does not mitigate this,” added Mr Wong, who is also the country’s finance minister.
Sovereign wealth funds are like a savings account for a country, and they typically invest in shares, currencies, property or other assets.
FTX, which a year ago was valued at $32bn, filed for bankruptcy protection in November. It has been estimated that $8bn of customer’s funds was missing.
Mr Bankman-Fried, who co-founded FTX in 2019, was one of the most high-profile figures in the cryptocurrency industry, known for his political ties, celebrity endorsements and bailouts of other struggling firms.
US federal prosecutors have accused Mr Bankman-Fried of stealing billions of dollars from FTX users to pay debts at his other firm, Alameda Research, and to make other investments.
In December, prosecutors announced eight criminal charges against Mr Bankman-Fried, including wire fraud, money laundering and campaign finance violations. Another five charges were levied against him in March. Financial regulators have also brought claims against Mr Bankman-Fried.
FTX co-founder Gary Wang and Caroline Ellison, the former head of Alameda, have also been charged over their alleged roles in the company’s collapse.
Mr Bankman-Fried was arrested in December in the Bahamas, where he lived and FTX was based.
In an interview with BBC News just days before his arrest, he said: “I didn’t knowingly commit fraud. I don’t think I committed fraud. I didn’t want any of this to happen. I was certainly not nearly as competent as I thought I was.”
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May 29 (Reuters) – Singapore state investor Temasek Holdings (TEM.UL) said on Monday it had cut compensation for the team that recommended its investment in the now-bankrupt FTX cryptocurrency exchange, as well as for its senior management team.
The move comes around six months after Temasek initiated an internal review of its investment in FTX, which resulted in a writedown of $275 million.
“Although there was no misconduct by the investment team in reaching their investment recommendation, the investment team and senior management, who are ultimately responsible for investment decisions made, took collective accountability and had their compensation reduced,” Temasek Chairman Lim Boon Heng said in a statement posted on Temasek’s website on Monday.
Temasek did not detail the amount of compensation cut.
Temasek had said its cost of investment in FTX was 0.09% of its net portfolio value of S$403 billion ($304 billion) as of March 31, 2022, and that it currently had no direct exposure in cryptocurrencies.
Temasek also said last year it had conducted “extensive due diligence” on FTX, with its audited financial statement then “showed it to be profitable”.
FTX’s other backers such as SoftBank Group Corp’s (9984.T) Vision Fund and Sequoia Capital had also marked down their investment to zero after FTX, founded by Sam Bankman Fried, filed for bankruptcy protection in the U.S. last year.
“With FTX, as alleged by prosecutors and as admitted by key executives at FTX and its affiliates, there was fraudulent conduct intentionally hidden from investors, including Temasek,” Lim said in the statement on Monday. “Nevertheless, we are disappointed with the outcome of our investment, and the negative impact on our reputation.”
Temasek seeks to deliver sustainable returns over the long term by investing into early-stage companies, Lim said.
“While there are inherent risks whenever we invest, we believe that we have to invest in new sectors and emerging technologies to understand how these areas may impact the business and financial models of our existing portfolio, and whether they would be drivers of future value in an ever changing world,” Lim added.
($1 = 1.3245 Singapore dollars)
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