The type of investment for an FHSA depends on a person’s timeline for buying a home – and whether they plan to buy a home at all.Sundaemorning/iStockPhoto / Getty Images
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Ryan Ferguson took to social media to deliver a message in late 2023: Canadians who are eligible to open a tax-free first home savings account (FHSA) before the end of the year should do so.
Mr. Ferguson, a financial advisor and insurance broker with World Financial Group Inc. in Toronto, says those who are only opening their FHSAs this year have already missed out on $8,000 of contribution room from 2023.
FHSAs, which became available on April 1 last year, allow Canadians who don’t yet own a home to contribute up to $8,000 a year to a lifetime maximum of $40,000.
A report from Investor Economics, an ISS Market Intelligence business, found that FHSA uptake was slow, with Canadians contributing about $4.4-billion to the accounts as of December 2023. Clients of financial advisors and full-service brokerages accounted for only about 5 per cent of FHSA assets.
Mr. Ferguson calls the figures disappointing. “My opinion around the FHSA is anyone who is not a homeowner in Canada should be opening one – whether they intend to buy a home or not,” he says.
But which investments are best suited for holding in an FHSA? Here’s what advisors are taking into account.
What’s the timeline?
Most advisors agree that a client’s timeline for purchasing a home is the biggest factor when determining what to hold in an FHSA.
Gesi Commisso, partner, certified financial planner and insurance representative with Vancea Financial Group at Investia Financial Services Inc. in Woodstock, Ont., says clients who plan to purchase a home in less than two years should keep their money in low-risk investments such as a money market mutual fund.
“With that timeline, we want to keep that money extremely safe,” he says.
These clients typically have most of their down payment saved, Mr. Commisso says, and the FHSA acts as a vehicle to save the money tax-free for a couple of years and potentially make some gains.
Some clients may prefer to deposit money in the account and reap some tax-return benefits, but he warns about the effect of inflation and diminishing purchasing power.
Mr. Ferguson prefers clients with short timelines use high-interest savings accounts (HISA), in which he says clients can still get liquidity and yields above 4 per cent. However, as interest rates come down, so will returns on HISAs, money market funds and guaranteed investment certificates (GICs).
According to Investor Economics, more than half of total funds in FHSAs were in deposit accounts last year, with about one-fifth (19.4 per cent) in exchange-traded funds (ETFs), 10.5 per cent in equities, 7.8 per cent in GICs and 5.1 per cent in mutual funds (although the ETFs and mutual funds could have included cash-like funds).
More aggressive options
Clients who can put off purchasing a home for three to five years can benefit from more aggressive investments, says Guillaume Girard, a financial advisor and investment coach with Millen Wealth Advisors in Victoria.
On a five-year time horizon, Mr. Girard recommends an asset allocation of 20 per cent cash or high-interest savings, 40 per cent fixed income and 40 per cent equities.
“The biggest missed opportunity for people is a portfolio that’s not aligned with their time horizon,” he says.
Mr. Girard says some clients may be wary of a portfolio that allocates 40 per cent of assets to stocks, but he says they can generally weather the risk when their purchase date is further out.
As for fixed-income products, Mr. Girard recommends government- and investment-grade bonds.
“By adding the term and credit risk, you can improve your returns conservatively … for your down payment, assuming that you have a time horizon that allows you to weather those fluctuations,” he says.
As his clients get within one to two years of purchasing a home, he recommends moving to cash.
“We gave the portfolio time to grow, and in those last two years, we’re going to save what will eventually become their down payment,” he says.
FHSAs for non-homebuyers
Clients who don’t purchase a home can transfer their unused FHSA contributions to their registered retirement savings plan or registered retirement income fund after 15 years. That means some who aren’t likely to become homebuyers may make use of FHSAs for the tax advantages.
If the client knows they won’t purchase a home and the goal is to roll the FHSA into an RRSP in 15 years and then continue investing for another five years to retirement, Mr. Girard says, that 20-year time horizon means a globally diversified portfolio of equities based on risk tolerance may be appropriate.
He recommends investing 100 per cent of the portfolio in funds such as Dimensional Fund Advisors Global Equity Portfolio or Vanguard All-Equity ETF Portfolio VEQT-T, which have shown steady annual returns of more than 8 per cent.
“People are usually afraid of market drawdowns, and I remind them that the U.S. stock market, represented by the S&P 500 index, was never negative over a 20-year period between 1919 and 2022,” Mr. Girard says.
“That means if you had invested in an S&P 500 index fund at any point and held it for 20 years, you would have made money no matter how volatile the market was.”
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
