Category Archives: Edge

The TSX Is In Freefall: Time to Buy!

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Oh, boy, Santa came early this December! Based largely on fear and possibly on eggnog overdose, the TSX is diving for the deeps today. And, lucky me!, I have new money to invest! But what to buy? Enbridge just raised its dividend to within 2 cents of TD and ENB has dropped more than $2.50 today to bring it back down from the artificial high the announcement created. TD itself is still smarting from the effect of investors who weren’t happy they increased their profits because they didn’t increase their profits enough. But perhaps the best bargain of all is the entire TSX is down to bringing things like the index-fund ETF XIC down more than 65 cents to $22.20 (so far.) So what should I buy now the market is falling?

Should I Buy More Dividend Paying Stock?

I have some of our money invested into individual dividend paying stocks. The ones I’ve picked in the past are not expected to make any significant capital gains. Instead, they are expected to withstand market drops without losing huge amounts of capital and to keep their dividend payments steadily rolling out even during the lean years.

By accident, since all stocks took a hammering in the 2008/9 zone, all our dividend stocks have actually made substantial capital gains on paper in the few years we’ve owned them. But we only track whether their value has stayed above their purchased cost plus inflation. We don’t count on ever realizing that capital gain because we don’t expect to ever sell them unless the companies themselves become a bad risk. And if that happens, we’d expect to lose not only the capital gain but probably the initial purchase price.

Instead, what we watch with curiousity is the growth in the dividends. So far, it has been growing at a rate much greater than inflation. That’s necessary if we are to find them a good long-term investment. If the dividends lose ground to inflation we would have to sell part of our position to generate income in retirement, something we are hoping to avoid.

We are looking on these stocks as surrogates for long-term bonds or GICs. They are much MUCH riskier! However given the low rates offered for fixed income investments for the past few years we felt we had to start putting some money into equities.

So what about today with this pullback? Should I put my new investment money into more of these defensive dividend stocks? Or ….

Should I Buy More Units of a TSX Index-Mirroring ETF?

I like XIC. It’s the iShares S&P/TSX Capped Composite Index ETF.  It tries to replicate the performance of a lot of the TSX. It has almost 2 billion dollars invested in it and it has a MER of 0.27%. It pays a distribution of about $0.45-0.55 a year depending on what goes on with the underlying companies. Morningstar predicts that means it has a 2.25% yield. (TD and ENB, by the way, currently have a yield of over 3%.)

There are other index funds that track the TSX. Some have lower MERs. Some are not capped. VCN from Vanguard, for example, has a MER of 0.05%. I’m not recommending XIC I’m just saying I happen to own some of it. In fact, my current position in XIC is suffering from a non-realized capital loss. It’s the only thing I own that’s in the red.

What are some of the benefits of buying an index fund with my new money during this slump? Well, it ensures I’m buying a portion of whatever is down in value that shouldn’t be. (because I do believe that the market doesn’t deserve to be down and that it will rebound.) It does pay that tidy annual distribution so I won’t be left with buyer’s remorse if I buy just before the market really goes down and stays down for a few years. (Getting a distribution or dividend makes it easier to hang tough and wait out dips.) It decreases the risk that I am putting all my money on a lame horse. And it will not upset MjonM. (Although he might question why XIC.)

All excellent points to consider.

And the Winner Is–

Well, fortunately I’m expecting to have some more money to put in later this month. And I still have some free trades in our non-registered account. So for now I pick: XIC.

But if ENB goes back down to where it should be, I might just wander by and buy some more with my next infusion of cash. That dividend increase is very attractive to an income investor. Or I might want some more TD. Or…..

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Are you enjoying some early Boxing Day sales on your favourite ETFs or stocks? What stock do you hope to find stocking your stocking this month? Please share your gloating with a comment.

Simplifying and Improving Our RRSPs: a Review of the Progress Made Over 4 Years

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It’s amazing how much more time you have once your children are in school and the eldest is old enough to be left “home alone” even if only for a 5-minute bike ride to the mailbox. When we reached this milestone in parenthood, I finally had the time to start looking at where our money was and why and deciding what changes were needed. One of the first messes that needed to be cleaned up was our RRSPs: It’s taken 4 years to simplify and improve our RRSP holdings but things are progressing well.

What We Started With

Four years ago I wasn’t even sure

  • where our RRSP money was,
  • how much was in each place,
  • what the rate of return was on the money, and
  • whether we should be doing something differently with it.

I read a few books about RRSPs and one piece of advice struck home immediately.

Why You Should Always Designate a Beneficiary for Your RRSP

Four years ago, we already had our wills and the wills designated that my husband and I will inherit each other’s assets if one of us dies. What I didn’t know, though, was that if a RRSP has a designated beneficiary, the value of the RRSP is not included in the amount that the government uses to calculate the probate fee or, as Ontario now calls it, the Estate Administration Tax.

For example, say I had $100 000 in my RRSP and I died. If my RRSP did not have a beneficiary named, that $100 000 would be added to my other assets and that total amount would be taxed by the Ontario government as a condition of probating my estate. If my other assets were worth, say, $50 000, the government would charge an Estate Administration Tax of $1 750.

If I had designated my husband as the beneficiary of my RRSP, he would not have to include the $100 000 value of my RRSP in the amount used to calculate the estate administration tax. That means the tax would be calculated based on the other $50 000 in my estate. The total payable would be $250.

That’s right. He would not have to pay $1 500 in tax.

Just for having his name on a slip of paper filed at the bank!

So the first thing I did was get a Beneficiary form filled out and properly filed for each of our RRSPs.

Neither of us has died yet but it still feels like we’ve saved thousands of dollars.

Where Our RRSP Money Was

We had quite a collection of RRSP accounts 4 years ago.

I eventually determined we had

  • a RRSP invested in mutual funds and GICs at CIBC
  • another RRSP in a GIC at CIBC
  • a RRSP each holding Canada Premium Savings Bonds in the Canada Retirement Savings Plan
  • a RRSP each in GICs and cash at ING Direct (now Tangerine)
  • a spousal RRSP in GICs at ING Direct (now Tangerine)
  • a locked-in RRSP at BMO in GICs and high interest savings accounts
  • a RRSP at BMO in mutual funds and GICs
  • a RRSP at BMO in a high interest savings account

Argh! Can you see why I desperately needed to fix this up?

For anyone who is deadly curious, the mutual funds included

  • index funds mirroring the performance of the TSX and the NYSE (purchased before ETFs existed)
  • funds holding mortgages
  • funds holding bonds in Canada, the USA and internationally

Where Our RRSP Money Is

We are not finished consolidating our RRSP holdings yet. Unfortunately, you cannot simply transfer GICs from, say, CIBC to CIBC Investor’s Edge. Don’t ask me why. I’m pretty sure it has to do with making the bank more money at our expense, though.

Still, it’s looking a bit better:

  • a RRSP each at BMO InvestorLine
  • a LIRA at BMO InvestorLine
  • a RRSP at CIBC Investor’s Edge
  • a spousal RRSP at RBC Direct Investing
  • a GIC RRSP at CIBC that we will be able to transfer to Investor’s Edge in 2015 on maturity
  • a GIC RRSP at Tangerine that we will be able to transfer to BMO InvestorLine in 2015 on maturity

The CIBC Investor’s Edge RRSP could be consolidated with one of the BMO InvestorLine ones, but to avoid paying transfer fees it’s best to wait till the GICs at CIBC mature and the money can transfer fee-free up to the Investor’s Edge account. Then, if desired, the entire amount can transfer out to InvestorLine. Or, conversely, the InvestorLine account could transfer in to Investor’s Edge. That would bring us down from 10 accounts to 4.

The spousal RRSP is at RBC Direct Investing primarily so I could investigate their trading platform in more depth! It could be transferred out at any time but I’m happy to keep it there. As a spousal it cannot combine with any other RRSP so it really makes little difference which brokerage it is kept at. (All of our RRSPs qualify for the lowest trading commissions etc at their respective brokerages.)

The optimization of the holdings within the RRSPs continues. I’m sure it will be the subject of more articles in the future.

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Did you make the mistake of opening a new RRSP at a different bank each time you moved? Did you ever despair and refuse to read your RRSP mutual fund statements for over a year? Please share your RRSP escapades and foibles with a comment.