Monthly Archives: June 2016

Index mutual funds or ETFs?

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Pat McKeough

By Pat McKeough, TSINetwork.ca

Special to the Financial Independence Hub

Index mutual funds can provide a low-cost way to invest in the stock market. However, they have disadvantages and there are better alternatives.

Index mutual funds are among the better financial innovations to come along in the past few decades. These are specialized mutual funds that invest so as to come close to equaling the performance of a market index, such as the S&P/TSX 60.

Index mutual funds do show better long-run performance than more than half of all actively managed mutual funds with long-term track records. That’s partly because index fund fees run around 1.0% of assets per year, compared to 2.5% or more on many broker-sold mutual funds.

One big advantage of index mutual funds is that they can help you avoid the risk of choosing a fund with a management style that virtually guarantees below-average long-term performance.

For example, mutual funds that pursue a trading or sector-rotation approach to investing belong in this can’t-win category. Managers of these funds try to out-perform the market by betting on relatively short-term trends, rather than putting their investors in a position to profit near automatically from long-term growth in the economy. This can work, but only for limited periods.

In any one year, the top fund is often run by a market timer who is having his or her proverbial “day in the sun.” In any one decade, however, the top funds are generally run by conservative managers who focus on long-term growth in the economy.

Spread investments across five main economic sectors

Continue Reading…

BMO slashes fees on bond ETFs

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BMO’s Kevin Gopaul

BMO Asset Management Inc. says it is slashing fees on its flagship bond ETFs, and that after they are implemented on or about June 22 BMO ETFs will sport some of the lowest-cost fixed-income ETFs in Canada.

Some of the fee cuts on its broad fixed-income products are more than 50%: Given the minuscule interest rates being paid out on bonds these days, that should get investors’ collective attention.

Here’s the new fee structure BMO issued in a press release today:

BMO ETFs

Ticker

Current Maximum Annual Management Fee (%)

New Maximum Annual Management Fee (%)
BMO Aggregate Bond Index ETF

ZAG

0.20

0.09
BMO Discount Bond Index ETF

ZDB

0.20

0.09
BMO S&P 500 Hedged to CAD Index ETF

ZUE

0.10

0.08
BMO S&P 500 Index ETF

ZSP/ZSP.U

0.10

0.08
BMO Short Corporate Bond Index ETF

ZCS

0.12

0.10

Kevin Gopaul, Global Head of ETFs for BMO Asset Management says the move follows earlier fee reductions in 2012, 2013 and 2014. “Clients are recognizing the value and liquidity of using low-cost ETFs for fixed income exposures in their portfolios.”

The 50% cut on the broad-market  ZAG and ZDB makes them the lowest-cost fixed-income ETFs in the country, at nine basis points. As the chart shows, it has also reduced fees on its currency hedged and non-hedged S&P500 ETFs (ZUE and ZSP/ZSP.U respectively) to 8 basis points from the previous 10 basis points.

8 things you need to know about hiring millennials

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Portrait of young workersBy Angela McDonald

Special to the Financial Independence Hub

Thinking about hiring or recruiting millennials? As more baby boomers (born from 1940s to 1960s) are retiring, the global workforce landscape is expected to slowly start changing as the millennials (born from the early 1980s to the early 2000s) start entering into the scene.

It is imperative for employers to know and understand these Generation Y-ers, as millennials are expected to make up the workforce by 46% by 2020. Just recently, the new Pew Research Center analysis in the US said that more than 1 in 3 American workers today are millennials (adults ages 18 to 34 by 2015), and have surpassed baby boomers as the largest member of the American workforce.

Here are eight things backed with statistics that executive search firms or job recruitment agencies need to know about the perceptions and expectations of millennials in the workplace and how they are at work: Continue Reading…

Polling financial literacy: results both encouraging and worrisome

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Graham Bodel

By Graham Bodel, Chalten Advisors

Special to the Financial Independence Hub

The Canadian Securities Administrators (CSA) just released its 2016 CSA Investor Education Study, an assessment of financial literacy across the country.

Some of the findings are encouraging while others are a little bit worrying.

There are clearly still key gaps in investor knowledge and behaviour.  For example, while many investors rely exclusively on advisors for investment information and knowledge very few investors actually check to see that their advisor has the appropriate registrations.  Some other key points:

Risk Tolerance

To begin with, findings show that more and more people seem to be paying attention to their risk tolerance, which is great!  Risk tolerance is what should drive the mix of different investments that you hold, often referred to as asset allocation.  Risk tolerance is driven by your need, ability and willingness to take risk and should be informed by your current financial situation as well as near and longer term financial planning goals.  Risk tolerance can definitely change as your circumstances change or as you enter different stages of life so it is worthwhile checking periodically to ensure your investments are suitable for your risk tolerance.

Investment Knowledge

Survey respondents were asked to answer seven questions to assess general investment knowledge.  6 of 10 people answered 4 or more questions correctly, which is about the same as in previous surveys.  25% of respondents answered 6 of 7 questions correctly indicating a “high” level of investment knowledge.

Continue Reading…

Leave an inheritance of cottage relaxation, not taxation

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Cottage On The Carpenter Lake, CanadaBy Tarsem Basraon, TD Wealth 

Special to the Financial Independence Hub

The summer is quickly approaching and for many Canadians that means one thing: cottage season.

While many parents envision leaving the family cottage as part of their inheritance one day, with the value of cottages often appreciating since purchase, there’s also the risk of bestowing the legacy of a large tax bill.

To help make sure you’re leaving an inheritance of cottage relaxation and not taxation, here are three strategies you can discuss with your financial advisor when planning your cottage legacy. These strategies are available to you while you are alive, and there are various other strategies that can be implemented on your death in your will.

• Co-own with your Kids

Adding your children to the deed and making them co-owners of your cottage could help defer capital gains tax and save money. For example, if your cottage value has increased over time, it would trigger a capital gain on the portion of the cottage that your children now own and you would pay the tax on that now. Down the road, your kids would only pay tax on the capital gains owing on the remaining portion of the cottage you own when you die. There is,  however, a risk with this approach. Continue Reading…