It’s been a while since we checked the inbox so let’s see what questions are on readers’ minds.
Advisor wants to move some assets overseas
Q – I am retired with a large cash cushion in ISA (individual savings account), GICs, and high interest savings accounts – enough to last us five years. The rest of our assets are 100 per cent equities, and we earn a decent dividend income from these, not to mention capital appreciation as we are long-term holders and not prone to sell in a downturn.
My question: Our for-fee advisor (who does not manage our portfolio) wants us to shift from mostly U.S. and Canadian stocks to 45 per cent international and emerging market stocks. We are not comfortable with that. Our current exposure is around 10 per cent and seems more than sufficient.
We are not seeking stellar, swing for the fences returns – just steady eddy returns. Our portfolio has done that.
The U.S. market has done much better on a compounded after inflation basis than EAFE or EM, so why shift to those markets for one of their possibly brief outperformance periods over the S&P 500 only to revert soon thereafter to returns that lag the TSX or S&P 500? Many thanks. – Peter H.
A – You answered your own question when you wrote: “We are not comfortable with that.” I would never advise anyone to do something they weren’t comfortable with, even if I thought it was a world-beating strategy. Being able to sleep well at night far outweighs the few extra dollars you might earn.
That said, your advisor isn’t talking complete nonsense when it comes to the markets he recommends. The iShares MSCI EAFE Index ETF (CAD-Hedged), which trades under the symbol XIN, has gained 17.25 per cent this year (as of Dec. 15). The 10-year average annual compound rate of return to Nov. 30 is 6.61 per cent.
The iShares MSCI Emerging Markets Index ETF (XEM-T) is less impressive, with a gain of 5.7 per cent year-to-date. The 10-year average is only 3.55 per cent.
There is speculation that both could do better in 2024. But that’s what it is – speculation.
Meantime, the U.S. market has done better, both short and long term. The iShares Core S&P 500 Index ETF (XSP-T) has gained 23.25 per cent this year and shows a 10-year average annual compound rate of return of 10.45 per cent to Nov. 30,
Canada hasn’t fared as well. The iShares Core S&P/TSX Capped Composite Index ETF (XIC-T) is ahead 10.55 per cent this year and has gained 7.39 per cent on average over the last decade. But it has done better than EAFE over the long haul.
You currently have 10 per cent exposure to international stocks. If you are comfortable moving 5 per cent of your Canadian holdings over to EAFE, your asset allocation would be better. But if even a small move like that makes you nervous, stay where you are. – G.P.
Death of a spouse
Q – If a spouse is contributing a monthly sum to a TFSA and passes away, can the surviving spouse contribute to plan for the remainder of the year? What happens if the passing spouse has contributed the yearly maximum of $6,500 prior to their death? – Pete M.
A – If the surviving spouse has been designated as the “successor holder” of the TFSA, then the plan continues uninterrupted. All contributions to date stand, but any unused contribution room expires at the time of death. Profits continue to be tax-sheltered.
If the surviving spouse is designated as a beneficiary, instead of a successor holder, the plan is deemed to be terminated. The survivor will inherit the assets tax free, but any gains made after death will be subject to tax.
In neither situation can the survivor continue contributing to the plan. – G.P.
What do the banks know?
Q – The banks are offering us high interest rates, 5 per cent plus in some cases. They obviously make more somewhere in the market.
What is it they know that we don’t? – Adam P.
A – I don’t think there are any secrets. Banks lend the money at a higher rate and profit from the spread. For example, Royal Bank of Canada recently posted a two-year fixed mortgage rate for 7.09 per cent. At the same time, they offered a two-year non-redeemable GIC for 5.3 per cent. That’s a spread of 1.79 percentage points. It’s not hard to make money with those numbers. – G.P.
Paying CPP after retirement
Q – I retired in June of 2021 from SAIT Polytechnic and started collecting CPP in August of 2022 after turning 62 in July. I’ve since returned to work with SAIT on a 10-month contract. As a result, I’m contributing to CPP again, approximately $510 per month. Does this eventually top up my CPP a bit? Or should I not be contributing to CPP? – Tom B.
A – It used to be that when you retired, that was it for CPP contributions. That changed in 2012 when the post-retirement benefit (PRB) was launched.
The plan requires that people aged 60 to 65 who work while receiving a CPP retirement pension continue to make contributions, which employers must match. Those aged 65 to 70 can choose whether or not they want to contribute.
The calculation of the benefit is complicated. It’s based on the amount of your earnings and contributions the previous year and your age as of Jan. 1 of the year the post-retirement benefit starts. Service Canada says the maximum PRB amount is equal to 2.5 per cent (1/40th) of the maximum CPP retirement pension. This is because the post-retirement benefit is generated by a single year’s contributions, rather than all the contributions made from age 18 until a person started collecting the pension.
As an illustration, the Service Canada website shows a maximum PRB for a 65-year-old to be $40.25 in 2023.
Q – Several months ago, based on the suggestion you gave, I decided to invest in UBIL.U-T. I decided to do that with the hope that I could preserve the capital if and when the market went down. So far, I’ve lost very little. But I am concerned about the future given the turbulence in the bond market. What are your thoughts about UBIL.U in the near- and long-term future given current market conditions? Thanks. – Robert P.
A – UBIL.U is the trading symbol for Horizons 0-3 Month US T-Bill ETF. It invests in short-term U.S. Treasury Bills, one of the safest forms of investments in the world. However, that doesn’t mean it’s completely risk-free. Nothing is.
The units trade on the TSX within a tight range that so far this year has varied from a high of $50.31 to a low of $49.96. Based on those numbers, there is a potential for a fractional capital loss, depending on the time of purchase. But many investors don’t seem to care about that. They look at the current yield (7.7 per cent, based on the November distribution of $0.31987 per unit), and that’s all they need to know.
But there are some reasons to be wary. For starters, the monthly payments have varied considerably since the fund started trading last spring, ranging from a high of over $0.40 to a low of $0.27. This makes it problematic to project yields based on a single month’s distributions, especially when we don’t even have a full year with which to work.
Also, the fund has a short history. It’s well-suited for the current interest rate climate, but what will happen when rates start to fall, and the fund’s yield declines? Will investors rush to dump their units? If so, what will be the effect on the market price?
We have no answers to those questions. We do know that there is little appetite for more rate hikes and that an easing by the central banks is likely in 2024. The Federal Reserve Board recently signaled the possibility of three cuts in the coming year. When that happens, this and other comparable funds will be put to the test. – G.P.
If you have a money question you’d like to ask me, send it to gordonpape@hotmail.com and write Globe Question in the subject line. I can’t guarantee a personal answer, but I’ll reply to as many questions as possible in this space.
Gordon Pape is Editor and Publisher of the Internet Wealth Builder and Income Investor newsletters.
NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.
Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.
“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”
Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.
Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.
Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.
Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.
In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.
The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.
And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.
TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 103.40 points at 24,542.48.
In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.
The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.
The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.
The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.
This report by The Canadian Press was first published Oct. 16, 2024.
TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
