Globe Advisor's Best of RRSP season: Strategies that make the most of retirement investments – The Globe and Mail
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Whether investors contribute to registered retirement savings plans (RRSPs) year-round or in the lead-up to the March 1 contribution deadline, determining when and where to allocate remains top of mind for many wanting to grow their investments and get a tax break.
The need for advice on how to invest in RRSPs has also become more acute in the past year as turbulent market conditions and spiking inflation have a put focus on protecting income for the future.
Here’s a list of some recent Globe Advisor articles that tackle some of the key issues that clients face this RRSP season and how experts are strategizing to make the most of the investment vehicles.
How to strategize RRIF withdrawals when markets are down
Mandatory annual withdrawals from registered retirement income funds (RRIF) in a down market can be tricky, but with some planning, clients can ease through without issue. Having a dedicated amount of cash holdings in a RRIF portfolio can prevent clients from having to collapse investments, some advisors say. Also, the sooner clients can withdraw from the RRIF, the less they will be required to withdraw later on. Deanne Gage speaks with advisors about how they mitigate down markets when clients need to withdraw income.
Stocks and ETFs to consider this RRSP season
Most investors were happy to see 2022 in their rearview mirrors. It was a rare year in which most major equity indexes lost ground while fixed-income returns were also negative. This year, though, looks to be off to a more encouraging start. So, what does that mean for investors who are considering how to deploy their money – in particular – for RRSPs? Terry Cain speaks with three portfolio managers to get their top picks for client portfolios.
Can you have too much invested in RRSPs?
At this time of year, investors are bombarded with reminders to load up their RRSPs for the tax deduction and deferral benefits – and, of course, to save for retirement. But is it possible to have too much in your RRSPs? Many older investors are asking this question after being forced to take out more money than they may want or need from their RRSPs, especially when they’re converted into RRIFs and the mandatory withdrawal rates kick in. Brenda Bouw looks at the tax hit that retirees face along with the potential clawback of government benefits and how advisors plan for this.
How to manage RRIF withdrawals tax-efficiently to avoid ‘a hefty penalty’
What goes into an RRSP must eventually come out and be taxed as income. Still, advisors employ many strategies to reduce taxes on RRIF withdrawals at or above the minimum – something that may be especially important as retired clients seek more income to meet higher costs driven by inflation. Alison MacAlpine looks at how advisors are helping clients take advantage of their marginal tax rate so they see more of their retirement savings.
The best long-haul RRSP investments from three veteran money managers
How RRSPs will be affected decades from now by an escalating global military buildup or higher interest rates are probably the last things investors are thinking about as they rush to make a contribution before the March 1 deadline. But beyond that tax refund in the spring, the long-term investments inside RRSPs ultimately determine how people live in retirement. That means choosing the right mix of investments that grow over time is paramount. Dale Jackson speaks with three veteran money managers about their best long-haul RRSP investment picks.
Are RRSPs enough to generate lasting income in retirement?
The majority of Canadians believe they need $1.7-million to retire confidently and comfortably, according to a new survey from Bank of Montreal. Yet, the survey also reports that “the average amount held in RRSPs nationally is $144,613, a 2 per cent increase from 2021.” That begs the question – are RRSP contributions enough to retire on? There are many factors to consider when looking at a client’s retirement savings, advisors say. Daina Lawrence looks at the options available to generate income in retirement.
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Trends in The Cryptocurrency Market in 2023
Cryptocurrency, a decentralized digital or virtual currency protected by cryptography, is taking the world by storm. Since Bitcoin’s debut in 2009, its popularity has been steadily increasing – and now, with no sign of slowing down! In 2023 there will be several exciting cryptocurrency trends to keep an eye on.
Crypto markets are maturing at a rapid rate. With the adoption of digital crypto assets by governments and institutional investors on the rise, 2023 looks to be an exciting year for crypto enthusiasts! We’ll explore developments in decentralized finance, key regulatory moves that are helping shape this expanding domain, as well as how more countries continue to adopt their forms of digital currency.
Cryptocurrency in the DeFi Sector
In recent years, the cryptocurrency industry has seen explosive growth as it evolves at a rapid pace. Cryptocurrencies are virtual assets that use cryptography to protect their transactions and regulate the production of new currencies. These digital coins do not succumb to any centralized power or government body since they are fully decentralized in nature.
Cryptocurrency has experienced a surge of growth in the DeFi crypto sector, and this trend is predicted to blossom further in 2023. The power behind decentralized finance lies within blockchain technology. It allows for financial services to be delivered without any third-party intermediation. This essentially cuts out banks or other institutions from being involved, which offers people greater accessibility and control over their finances!
As cryptocurrency continues to grow and evolve, 2023 is set to be a groundbreaking year for the industry. Thanks in part to advancements making DeFi applications more user-friendly, we can expect an abundance of new financial products and services offered by decentralized crypto exchange (DEX), lending platforms, stablecoins, and much more! What’s also exciting is the increasing number of regulatory frameworks being developed worldwide – indicating that governments are beginning their journey towards embracing cryptocurrencies while ensuring they remain safe from misuse. All eyes will surely be on what further developments emerge this coming year!
Crypto Regulations Increased
Recently, the European Union and the United States have made moves to bring cryptocurrencies under closer regulatory oversight. The EU has proposed a framework designed to combat money laundering and terrorism activities while the SEC is focused on cracking down by way of Initial Coin Offerings (ICOs) as well as other measures. These steps are aimed at creating an environment where investors can feel secure in digital asset investments both locally and internationally.
Increased regulation of cryptocurrency has been met with mixed reactions in the industry, but it is an important step for greater legitimacy and stability. Not only does this assure existing investors, but it also encourages institutional investment that would otherwise remain hesitant due to a lack of regulatory clarity. With better oversight over the crypto market comes stronger confidence in its future – both from individual traders and major financial organizations alike.
As digital currencies become more and more mainstream, governments across the world are taking note. China has been leading this charge with its innovative Digital Yuan – a revolutionary financial toolset to challenge traditional banking systems as we know them. Currently, in test-mode, it’s expected that the Digital Yuan will be fully rolled out by 2023 and could potentially have an immense impact on global finance!
In 2023, the world of digital currencies is expected to undergo a sweeping transformation with exciting innovations. Governments around the globe will continue to explore ways in which digital currency can revolutionize financial accessibility while simultaneously reducing costs typically associated with traditional payment systems.
Crypto Trends – The FTX Collapse
The crypto industry has been dealt a disastrous blow with the collapse of one of its largest exchanges, FTX. Its repercussions have sent shockwaves throughout the market and shaken investor confidence in digital assets to its core. With overall market capitalization on a downward trajectory and liquidity issues afflicting many firms, 2023 promises only further turmoil as regulatory clarity is still lacking. This could cause difficulties for DeFi protocols too while potentially hampering NFTs’ growth opportunities this year – there’s no doubt that cryptocurrencies are facing an uphill battle ahead!
Dogecoin may have been born out of an Internet joke, but 2021 proved it to be a serious contender within the cryptocurrency space. Influencers like Elon Musk and Mark Cuban along with Naomi Osaka’s co-signs aided its rise in popularity this year. As crypto continues evolving on the verge of mass adoption, we can expect some seismic changes happening across all financial markets around the world – making for one exciting era indeed!
Crypto Betting on the Rise
In today’s rapidly changing digital landscape, crypto betting has become the latest trend. As more and more people seek out quicker ways to get their bets in on sports events, politics, or entertainment news – cryptocurrency has surged as a preferred option for quick transactions with the ease of accessibility. 2023 saw an unprecedented increase in demand across all areas related to crypto gambling due largely to advancements within technology which enabled these assets as payment methods that are now accepted worldwide by many industries. Betting is no longer what it used to be: its evolution reflects how far we’ve come since then! Therefore, nothing prevents you from betting on your favorite sport or playing online roulette with real money using any cryptocurrency.
18 Mutual Funds with Clearly Defined Investment Processess
What are we looking for?
Top-rated mutual funds with top-rated investment processes.
When investors look at the performance of mutual funds, they are likely looking for something simple – are those performance numbers positive or negative? Considering why those numbers are positive or negative is also important. Why a fund performs a certain way can be the direct result of its investment philosophy and process. An understanding of these components can help investors better gauge if performance results are expected given the goal and method applied. This can be particularly helpful during periods of volatility, such as the one we have experienced since the collapse of Silicon Valley Bank earlier this month. A strong investment process is well-defined and consistently executed, and generally able to withstand short-term market shocks and reward investors over the long term.
A fund’s investment process can be nuanced. To help guide investors, Morningstar’s manager research team assigns ratings to Canadian funds and ETFs that include an explicit component focused on understanding their investment philosophy and process. We refer to this component as the “Process” pillar and rate each asset manager as either Low, Below Average, Average, Above Average or High, depending on the efficacy of their practices. To highlight a few great mutual funds available to Canadians with top-rated investment processes, I used Morningstar Direct to screen more than 3,400 Canadian-domiciled mutual funds and ETFs to find a selection of options to consider. The criteria include:
- A Morningstar Quantitative or Analyst Process Pillar rating of High, indicating the fund has a clearly defined investment process and performance objective that is repeatable and implemented effectively.
- A Morningstar star rating of five stars. The star rating is an objective look back at a fund’s after-fee, risk-adjusted returns relative to the category to which the fund belongs. Though the measure is backward-looking, Morningstar’s research shows that over time and on aggregate, five-star funds continue to outperform four-star funds, three-star funds, etc., after receiving the rating.
- A top quintile category rank month-to-date indicating the funds selected have outperformed their peers since March 1, 2023.
*Data as of March 23, 2023
What we found
The list above highlights funds from 13 different mutual fund categories (as defined by the Canadian Investment Fund Standards Committee) from six different asset managers, indicating strong processes are not confined to a specific asset class or investment style. Although not explicitly screened for, each of these funds also earned a Bronze, Silver or Gold Morningstar Analyst or Quantitative Rating indicating a forward-looking view of the fund’s ability to outperform its peer group and/or relevant benchmark on a risk-adjusted basis over a full market cycle. Every fund on the list has delivered, with all but two ranking in the top decile of their respective categories over the past five years.
Note that the management expense ratios listed here are reflective of the f-share class. In the table, f-class (also known as fee-based share classes) shares exclude the cost of advice and are held in fee-based accounts where the adviser charges separately for advice.
This article does not constitute financial advice. Investors are encouraged to conduct their own independent research before purchasing any of the investments listed here.
Danielle LeClair, MFin, is director of manager research, Canada for Morningstar Research Inc.
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For the ultimate in cheap investing, check out the Freedom .08 ETF Portfolio
Fee competition in the exchange-traded fund business is driving down the cost of investing to new lows.
A simple little ETF strategy I call the Freedom .08 Portfolio proves it. Some previous names for this portfolio included Freedom 0.15 and Freedom 0.11. The numbers are based on the aggregate management expense ratio for the portfolio, which has fallen ever lower through the years. That’s how we get to Freedom .08 in early 2023. That’s 8 cents in fees for every $100 you have invested.
Here’s how the Freedom .08 Portfolio is put together using a 70:30 asset mix of stocks and bonds.:
-30 per cent in the Desjardins Canadian Universe Bond Index ETF (DCU-T): The MER for this fund is 0.08 per cent, which is at the low end for aggregate bond ETFs covering the broad Canadian market for government and corporate bonds. It tracks the Solactive Canadian Bond Universe total return Index, which is a relative newcomer to the Canadian market. You can compare returns to competitors using the bond fund installment of the 2023 Globe and Mail ETF Buyer’s Guide, but they’re very similar to more established indexes.
-30 per cent in the iShares Core S&P/TSX Capped Composite Index ETF (XIC-T): The MER for this fund is 0.06 per cent and the underlying index is the ultimate benchmark for Canadian stocks.
-20 per cent in the Franklin International Equity Index ETF (FLUR-NE): The MER here is 0.1 per cent, which is strikingly low for the international equity category. That’s markets outside North America, by the way. Solactive is again the index provider. In doing your research, compare returns against international equity ETFs tracking the more traditional MSCI EAFE index.
-20 per cent in the Vanguard S&P 500 Index ETF (VFV-T): The MER is 0.09 per cent and the index is one you know and love, the S&P 500.
ETFs trade like stocks, which means you’ll need a digital brokerage account to build a portfolio. For extreme frugal investing, consider the zero-commission brokers Wealthsimple, National Bank Direct Brokerage, and Desjardins Online Investing. CI Direct Trading and Questrade offer ETF purchases at no cost, but you pay the usual commission to sell.
A final point of comparison for the Freedom 0.08 Portfolio is a popular kind of exchange-trade fund called the asset allocation fund. You can buy these fully diversified portfolios with MERs of 0.2 to 0.24 per cent.
— Rob Carrick, personal finance columnist
This is the Globe Investor newsletter, published three times each week. If someone has forwarded this e-mail newsletter to you or you’re reading this on the web, you can sign up for the newsletter and others on our newsletter signup page.
Stocks to ponder
Bombardier Inc. (BBD-B-T) The plane maker is generating cash, paying down debt and raising its financial targets. Investors are paying attention, too: The share price has rallied more than 250 per cent over the past eight months. David Berman asks: Has the stock become relevant again?
WELL Health Technologies Corp. (WELL-T) After this health-care company reported record quarterly financial results last week, the share price rallied nearly 16 per cent on high volume. Analysts believe this positive price momentum will continue. The average one-year target price implies a 61 per cent potential gain for the stock. Jennifer Dowty takes a look at the investment case.
Banking woes, Fed keep investors on edge in nervous stock market
Investors are settling in for a long slog in the U.S. stock market in coming months, braced for more tumult in the banking sector and worries over how the Federal Reserve’s tightening will ripple through the economy. As David Randall of Reuters reports, many worry that other nasty surprises are lurking as the rapid series of interest rate hikes the Fed has delivered over the past year dry up cheap money and widen fissures in the economy.
Grocery REITs are a safe harbour in the market storm
Feeling gouged by high grocery prices? Bummed out by bank runs? Sick of stock market volatility? With inflation and rising interest rates creating turmoil in the economy and financial markets, these are tough times to be a consumer – or an investor. John Heinzl is here to offer some help by profiling some real estate investment trusts in the grocery sector. The goal: put some of that grocery money back in your pocket while enabling you to sleep better even as markets gyrate.
Throw caution to the wind with the Free Cash portfolio
It’s time to catch up on the value stock race. Norman Rothery pitted 14 popular measures of value against each other in the U.S. market. Each measure was used to form a tracking portfolio containing the cheapest 10 per cent of the stocks in the S&P 500 index based on that measure. The 14 tracking portfolios were equally weighted and rebalanced annually. So far, the trend favours investors who keep an eye on debt while hunting for bargains.
Read more from Norman Rothery: Portfolios for Value and Dividend Investors
Canadian bank stocks may not be quite as special as we think
Canadians are used to thinking of bank stocks as a safe, nearly guaranteed way to bet the market. They may want to think again. As Ian McGugan tell us, investors would be wise then to consider the prospect of a future in which Canadian banks no longer churn out market-beating results with clockwork regularity.
Strength in megacap stocks masks broader U.S. market woes
Investors are relying on an old strategy to navigate the current tumult in asset prices: buying shares of the massive U.S. companies that led markets higher for years. Shares of the top five companies by market value — Apple , Microsoft, Alphabet, Amazon and Nvidia — have gained between 4.5% and 12% since March 8, when troubles at Silicon Valley Bank set off banking system worries. In that period, the S&P 500 has fallen 0.5%. Lewis Krauskopf of Reuters tells us more.
Others (for subscribers)
Monday’s analyst upgrades and downgrades
Where investors put their money in this year’s RRSP season
How to play the demand for microprocessors as chatbots, robots and EVs disrupt sectors
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Ask Globe Investor
Question: Harvest Healthcare Leaders has units that trade in U.S. dollars on the TSX. For tax purposes, is the income considered foreign income or Canadian? For example, can donations to registered charities in the U.S. be deducted against the income from HHL.U? – Michael K.
Answer: Only a small amount (9.26 per cent) of the income from this ETF was classified as foreign income in 2022, according to the Harvest Funds website. Most of the distributions (about 94 per cent) are treated as return of capital. So, you won’t get much help here for U.S. charitable contributions.
–Gordon Pape (Send questions to email@example.com and write Globe Question in the subject line.)
What’s up in the days ahead
Bond markets are suggesting interest rate cuts loom for this summer in both Canada and the U.S. But central bankers are dropping few hints. Who should we believe? Veteran bond fund manager Tom Czitron will provide some insight.
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