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Investment Q&A

Not investment advice or solicitation to buy/sell securities. Do your own due diligence and/or consult an advisor.

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
Read Answer Asked by Don on October 30, 2017
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.
Read Answer Asked by Walter on October 30, 2017
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?
Read Answer Asked by Gary on October 30, 2017
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
Read Answer Asked by Jimmy on October 30, 2017
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?
Read Answer Asked by Peter on October 27, 2017
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?
Read Answer Asked by david on October 27, 2017
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
Read Answer Asked by Milan on October 26, 2017
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
Read Answer Asked by Phil on October 25, 2017
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.
Read Answer Asked by Mario on October 25, 2017
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
Read Answer Asked by Margaret on October 25, 2017
Q: I seem to have a ...bad... habit of selling my winners and keeping my losers, especially Cdn resource co's, waiting for them to turn around.

Forest Co's under perform, constantly under U.S tariff threat.
Gold Co's and base metals ...who knows where commodity prices will go ?
Oil and gas ...Regulatory and fed govt is a disaster compared to U.S investment climate.

Are Cdn resource Co's only for stock pickers and short term traders in todays economic climate ?
Read Answer Asked by Bernie on October 25, 2017
Q: I am approaching my TFSA contribution limit and have opened a cash account. I'd appreciate your advice on how I should allocate stocks between the two accounts.

Currently my account consists primarily of micro/small/mid cap growth stocks and high dividend stocks. I am planning on adding some high dividend etfs.
I'd like to separate high growth stocks from dividend stocks/etfs.

My initial thought is to use my TFSA as a tax free income generator with the dividend stocks/etfs. As these stocks produce somewhat guaranteed gains I will definitely be utilizing the tax free incentive of the account.

While having my riskier growth stocks in a cash account where I am more likely to incur loses and can take advantage of tax loss rules. Also, if Im lucky enough to have a multi bagged I hope I wouldn't be too upset paying a bit of tax on the gain.

Does that make sense? Would you suggest otherwise and if so why?

Thanks
Read Answer Asked by EVAN on October 25, 2017
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