Investment Q&A

Q: I have recently sold my cottage and wanted to know where to invest the money to get the best safe return. I already have reached my comfort level in stock investments so in today's low rate environment where would I find the highest rate of bond gic etc as I plan to retire in 3 years and this money is my safety net thanks.

Q: I own equal amounts of these bond funds in an RSP. While CBO has a 2.3% return over the last year, and is considered one of 5Si"s "core" holdings, I am thinking that I should retain this position. XSB is off about 1% in the last 12 months, and its return over the last 5 years is dismal. XSH has about a 0.4% return in the last 12 months , with a 3 year return of 2.1%. Is there a benefit to selling any or all of these positions, and purchasing higher yielding bond etf's? If I were to sell, should I seek US or Canadian bonds fund, and which specific etf's might you recommend?
Thank you for your consistently good advice.

Q: Can you please give me your thoughts (or alternative recommendations) on the following Funds for a 64 year old heading into retirement within the next year.

RBC Select Balanced Portfolio - Series A . (RBF460)
EdgePoint Cdn Growth & Income Port Sr A (CAD). - (EDG188)
EdgePoint Global Growth & Inc Port Sr A (CAD). - (EDG180)
PIMCO Monthly Income A (CAD). - (PMO005)

Please deduct as many credits as required.

As always, thank you for your invaluable service.

Micheal

Q: To help out the member who was asking about crytpocurrencies, I may be able to help. I have been trading cryptos since April. There is definitely a learning curve.

There are two kinds of exchanges; fiat-to-crypto, and crypto-to-crypto.

Fiat-to-crypto allow you trade dollars for Bitcoin (or ether). Bitcoin is the reserve currency; you need it (or ether) to get the other cryptos. In Canada, there is QuadrigaCx. It’s based out of Vancouver, and I think it’s okay. I used Kraken, which is based in San Francisco. I seem to get Bitcoin for about $100 less on Kraken than I see quoted on QuadrigaCx. As best I can tell, Kraken has a good reputation, and I think it also has insurance in the event of fraud. I got a Tier 3 clearance, so I can transfer about $30,000 per day, and about $250,000 per month. In order to transfer, I needed to wire it to a bank in Japan (!), so the wire cost me $50, then another $35 was taken by the bank in Japan. My first transfer took about a week, and I was nervous, not really sure if my $20,000 would actually show up. But it did. My last two transfers have been much slower, about 2 weeks, and I am still waiting for my last. I have heard there has been a surge in activity which has slowed things down.

Once you have your Bitcoin, although you can trade a few cryptos with Kraken, the selection is limited. So if you want a broad selection, you need to open an account at a crypto-to-crypto exchange. I use Bittrex. It has a good reputation. Poloniex used to be okay, but I think they have had some problems recently. I also had to open an account with Binance, which is a China-based exchange because I wanted to buy GAS, which at the time was only available on that exchange. (GAS is necessary for NEO, which will likely be the Chinese equivalent of ether, so hopefully good prospects.)

A few important things to be aware of. First, you should not store your cryptos on the exchanges, because crytos stored on exchanges have been stolen. Cryptos they should be stored on a wallet. A wallet is just a program on your computer to store your cryptos. Be careful what wallets you use, because some of them are scams, and they will steal your cryptos. I use Jaxx. It’s okay, but has been slow to update their wallet for Bitcoin Cash. There are different wallets for different coins. Don’t keep a lot of cryptos in wallets on your smartphone, because smartphones are not secure enough. If you have a lot money in cryptos, use a device like a Trezor. Very secure, and off the grid.

Be careful when transferring cryptos. If you accidentally send Bitcoin to a Bitcoin Cash wallet or a wallet for Dash or Monera, it will be gone forever. Also, the abbreviation for cryptos can vary between exchanges. Bitcoin is XBT on Kraken, but BTC on Bittrex. Finally, make sure to enable all the security options, like two-factor authentication, and make sure you write down and store all the passwords, etc, and store them in at least two separate locations, in the event of a fire.

Cryptos took me a while to figure out, but they have been very profitable for me. If someone is thinking of getting into cryptos, now is a good time, because there is tremendous institutional interest. None of the big money, such as mutual funds, has been allowed to get in, because it is new and undefined, but some ETFs should be approved in the near future, which should push the price up. And the hassles and learning curve is preventing a lot of individual investors from getting in.

I firmly believe crytptos are here to stay; the genie can’t be put back in the bottle. The more I have learned about them, I think they will radically transform the world of finance. But be prepared for major volatility. Every week somebody will say they are a bubble, or a fraud, or a pyramid scheme. Despite all this negative publicity, Bitcoin continues to hit new highs.

Finally, if you are going to invest in cryptos besides the big ones, like Bitcoin, ether, etc, you should subscribe to a newsletter like I did. There aren’t many of them, and they are expensive, but worth it.

Q: I am an avid reader on the Q&A daily and find I get most of my thoughts clarified by using the history of the questions. A great service. But I am trying to sort out which investments are best held in an RRSP for my personal situation. I am 67 ,retired with no pension and live on the income from my investments which is sufficient to maintain my lifestyle. I do not believe in owning interest bearing investments because of the low yield/risk relationship and tax treatment. I prefer to buy preferreds from blue chip companies like the banks as my "fixed income" because of the obvious tax treatment. I also like covered call ETFs like ZWB, ZWC etc. for the income and downside risk mitigation. I do not invest in US stocks preferring to diversify into the USA using Canadian companies that benefit from their big US presence(TD etc.). It seems to me that given this situation, holding anything in an RRSP has a tax disadvantage. Any tax on dividends earned in the RRSP is delayed until I take the money out but then I will be taxed at the full rate instead of enjoying the "discounted" tax rate on dividends. ROC is even worse because in a non-registered account I effectively pay capital gains when sold but the ROC would be fully taxable when I take it out.
If my reasoning is correct, it really does not matter much what is kept in a registered vs. a non registered fund. Can you tell me if I am looking at this correctly?

Thanks
Don

Q: Curious if you could recommend a reputable crypto-currency exchange in Canada.

Q: Can you please further my understanding of enterprise value. I think it is the name that throws me off.

I fully understand how its calculation works, I fully understand how the ratios work but I have difficulty with the term. I feel like things are backwards.

For example: If we have a company that has a Market Cap of $1M, it has an enterprise VALUE of $1M (assuming no debt, no cash,...). If the company has a Market Cap of $1M and $1M in debt, it has an enterprise VALUE of $2M. This company has a VALUE of $2M vs the other company that has a VALUE of $1M. If these were 2 competitors, I would prefer the company with the LOWER VALUE (and that is the way it is but the numbers actually reflect the opposite). If I was buying the business, I would probably want to pay $0 for the company with the debt ($1M market cap - $1m Debt) and $1M for the company with no debt.

If a company has cash, I would want to pay market cap PLUS its cash / cash equivalent but in determining VALUE we deduct the amount. Once again it appears backwards.

I must be missing something here. Personally, per my understanding, I would have deducted debt and added cash to determine the VALUE of the enterprise.

It is the word VALUE that throws me off. Can you please shed some light on this. Thank You.

Q: Question about index returns, and whether individuals can exactly replicate. How does delisting one company and introducing a new company work? For an individual, we would have to sell a loser at presumably a loss, and buy a very small amount of a new company and wait quite a while to recover. But the index is market weighted. So how much of the new company is "bought" on introduction. A lot has been made of the importance of low fees on returns as they compound over decades. Is there a discrepancy here that might amount to 0.5% annual gain that real world investing cannot access?

Q: My question is on diversification for my kids. With smaller amounts of money I find it a struggle. My daughters are 4 and 6. In one RESP there is 155 shares of DR. In the other RESP there is 155 shares of CRT.UN I also have a TFSA account where I keep there money from birthdays Christmas etc. There they have 543 shares of DIV and 90 shares of KWH.UN Cash for them is starting to add up again for them. Thinking very long term do I add a new position for them or sell all and start fresh? What do you recommend?

Thanks Jimmy

Q: The TSX reached 15625 in late August 2014. Three years later we are only just surpassing that level again. In the meantime I have a return of 35% by following mostly BE with a handful from the GP. A testament to the active management provided by 5i.
Thank you.
Peter

PS. Please share this comment. Although I always tick the share box my questions are often returned privately?

Q: ARE DIV. & CAP GAINS NOT TAXED ON BOTH THESE ACTS
TNXS

Q: What would you pick as the best handful of etfs to own to build a beginner, well balanced portfolio for building up investment dollars? At what dollar amount would you see it to be more beneficial to split the money among 20-30 individual stocks rather than a few funds?

Q: i really like the Cdn focused 5iR portfolios. In the past there was talk of a US equity portfolio. Wondering...it is going to happen? and what is the likelihood before this coming year end?...Just had to ask, eh?!......Tom

Q: This is a recently released security that seems to have some good prospects over the next 5 years,with some good potential returns and some protection .Can you explain how this works ?
Than you,
Philip

Q: Good morning Peter and team,

In the 10th anniversary edition of his book The Little Book of Common Sense Investing John Bogle states:

"My own total portfolio holds about 50/50 indexed stocks and bonds, largely indexed short- and intermediate-term."

Warren Buffett famously wants a 90/10 indexed stocks/government bonds mix for the trust fund he is leaving to his wife.

Given that interest rates will certainly go up from today's levels which will drive bond values down, wouldn't an investor be better off holding cash instead of bonds, cash drag notwithstanding?

Thank you.

Milan

Q: Peter and team:
I read a question from someone this morning about a TFSA for their 18 yr. old daughter. I had just been thinking about this prior to turning on the computer. I too am in the same position. I had been thinking RRSP. Which vehicle (RRSP vs. TFSA) do you feel is best for a young investor to start with? Also, for an RRSP, what would you think of a low MER high quality Mutual Fund such as MAW 104.

Thanks as always for a great service.

Phil

Q: Hi 5i team, I know that you are not promoting market timing but I was just wondering what your thoughts are on the following; I am a young retired person with most of my financial needs met with my defined benefit pension. My investments are 100% in equities as I consider my pension to be the fixed income portion. Where the market has been so strong lately and with no recent correction do you think it would be wise for a conservative retired income investor to take approximately 25-50% of his investments and purchase good quality rate reset preferred shares with the belief that during a period of extreme volatility and market correction that these instruments would be affected far less than common shares? The only preferred shares I hold currently is ECN.PR.C. Please tell me if you believe my logic is flawed and if it is not could you recommend a few other good yielding preferreds or other instruments you believe would hold up well during volatile markets. Thanks again for all you do. Mario.

Q: Hello,
I would like your opinion on this. Do you feel it is important to try and keep a certain number of stocks in your portfolio, based on the size of it of course. If you do, could you advise what "approximate number" you would have for each of following sizes of portfolios to give me a sense of how you would handle this:
-$100,000 portfolio
-$500,000 portfolio
-$1,000,000. portfolio
-$1,500,000. portfolio

Thank you
Margaret

Q: Occasionally you receive questions asking your thoughts on stock evaluation software. I am wondering if you have any thoughts on the stock analyzing software that VectorVest offers. At Toronto’s September Money Show VectorVest’s presentation drew a lot of interest. Thanks … Cal

Q: If the US dollar loses its status as reserve currency, could the US economy slip into a pattern similar to what we witnessed in Japan in the 90's? Is stagflation a possible outcome? Your work is greatly appreciated. Gaston