All posts by Jonathan Chevreau

Retired Money: What can retirees do about GIC reinvestment sticker shock?

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My latest MoneySense Retired Money column looks at the vexing problem retirees and near-retirees face when their GICs have matured in recent months. Click on the highlighted text for the full column: Recovering from GIC sticker shock.

If before you were getting 2 to 3% on 2, 3, 4 or 5-year GICs, you may be shocked to discover you’ll be lucky to get 1% and only then by declining to take the first suggested GIC your brokerage has on offer. Going out 5 years may only gain you 0.5% or so, depending on provider.

Nor will matters improve any time soon. The Federal Reserve, Bank of Canada and other central banks have suggested interest rates will stay “lower for longer.” The Fed in particular has indicated rates are unlikely to rise for at least three years.

The piece passes on the views of financial advisors Adrian Mastracci and Matthew Ardrey on what to do about it. It amounts to grinning and bearing it and settling for lower guaranteed returns, or biting the bullet and taking a bit more risk with equities or alternative investments.

But what if you insist on what our family has done historically: leaving half your fixed-income allocation in GICs? Personally, I aim for roughly a 50/50 asset allocation and for the fixed-income portion historically have split it between laddered GICs and bond ETFs, or asset allocation ETFs with a healthy dose of bonds.

Odds are if you use the major discount brokerages of the big banks, you may need to leave them to find more generous GICs available from independent places like Oaken Financial, which has a 1-year registered GIC paying 1.4% and a 5-year GIC currently paying 2% through Home Trust and Home Equity Bank.

Personally, I have reinvested some GIC cash in 2- or 3-year maturities, on the hope rates start to rise three years from now. While 1% or so is pathetic at least it’s a positive number (ignoring inflation): with so many mentions of negative interest rates in Europe and sometimes floated by central bankers in North America, any positive return at is not to be sneezed at.

Conservative Asset Allocation ETFs are one possible alternative

Among the gambits I’ve tried is to raise risk slightly by moving some of this cash to ETFs like Vanguard’s Conservative Income ETF Portfolio [VCIP/TSX], which is 80% fixed income but provides a modest 20% equity kicker. Those who don’t wish to mess with their pre-existing asset allocation might consider the Vanguard Global Bond ETF [VGAB], roughly split between US and global bonds, all hedged back into the Canadian dollar. Continue Reading…

Time to add $6,000 to your TFSA but consider holding off investing it until after Jan 6th

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Happy New Year! However, this first business week of the new year promises to snap investors rudely out of their holiday moods, given political events south of the border.

As of last Friday, January 1st, Canadians could add another $6,000 to their TFSAs, taking their total cumulative lifetime contributions to $75,500. As I outlined in my latest MoneySense Retired Money column, it’s generally a good idea to do this early in January just to maximize the time value of money.

However, I’d hold off committing to particular equity investments until the dust settles, given that this morning’s headlines no doubt focus on the incredible political drama taking place in Georgia on Tuesday, Jan. 5th and then in Washington on Wednesday, Jan 6th.

After this weekend’s dramatic capturing on tape of soon-to-be-ex President Trump’s attempt to persuade the State of Georgia to “find” (aka steal) almost 12,000 votes, both the Georgia runoffs and Wednesday’s supposedly ceremonial formal certification of the state electors votes confirming Joe Biden’s victory promise to be full of fireworks.

Fireworks almost inevitable in Washington this Wednesday

Things were simmering even before Sunday’s saturation TV coverage of what seemed yet another impeachable offence from Trump. Violence from far right-groups fomented by Trump’s fanning the flames in anticipation of Wednesday’s ceremony in Washington already seemed to be in the cards even before this weekend. That can be hardly good for stock markets although pre-market Monday futures were strongly up in the three major US indices.

Add in the ongoing stress of the still-raging pandemic and recent euphoria over vaccines, and the fact US and many global stocks have been hovering near record highs: not to mention cryptocurrencies and Bitcoin, which this weekend smashed through US$30,000 for the first time.

So it hardly seems like there’s a need to rush to invest new TFSA money when all these portents mean prices could be cheaper later this week. Whether this creates yet another proverbial buying opportunity remains to be seen.

Some ideas for how to invest new TFSA money

Those in doubt who would rather invest sooner than later on any anticipated market downturns Monday could always hedge their bets with value-oriented balanced mutual funds or the Asset Allocation ETFs often mentioned on this site, from BlackRock iShares, BMO ETFs, Horizons ETFs or Vanguard Canada. Hard to believe it was just three years ago that the Hub published this blog about these “game-changers”  and they seem to me to make a lot of sense for the large “core” of most portfolios.  Continue Reading…

3 days or less left for key End-of-year Investing and Tax actions, CERB repayments

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While most people will be glad to put paid to the year 2020, there remain three business days and several actions on the investing or tax front must happen before December 31, or even today (Tue., Dec 29) if you want trades to settle in time to qualify as a year 2020 taxable event (capital gains or losses, chiefly).

Allow time for trade settlements

According to this piece from Taxtips.ca, the last trading date for 2020 for Canadian and US publicly traded stocks will be Tuesday December 29th in order to record the gain or loss in the 2020 taxation year.  Canadian stocks purchased or sold after this date are settled in 2021, so any capital gains or losses on sale apply to the 2021 tax year instead of to the 2020 tax year. 

The Canadian market was of course closed on Monday and reopens at 9:30 am today (Tuesday), although the US market was open on Monday too.

Courtesy RBC Direct Investing, where our family does much of our banking (with some editing):

2020 Year End Registered Retirement Savings Plan (RRSP) Withdrawals    

For an RBC Direct Investing RRSP withdrawal to be applied for the 2020 tax year, you must submit your online cash requests before Thursday, December 31 by 4:00 p.m. ET.

If you are requesting an in-kind withdrawal please ensure to call an Investment Services Representative prior to 3:00 p.m. ET on Thursday, December 31.

Note: RRSP withdrawals requested after these times will be applied to the 2021 tax year.

2020 Registered Education Savings Plan (RESP) Online Contributions Deadlines

Please note, to make a contribution to an RBC Direct Investing RESP account from an RBC bank account and still claim an applicable government grant for 2020, you must submit your request online before Thursday, December 31 by 7:30 p.m. ET.

If you are contributing from your non-registered RBC Direct Investing account to your RBC Direct Investing RESP account, the cut-off time is 4:00 p.m. ET on Thursday, December 31.

Kindly note online contributions are automatically split equally among plan beneficiaries.

2021 Tax Free Savings Account (TFSA) Contribution Limit
The annual TFSA contribution limit for 2021 is $6,000 Canadian dollars. Any unused contribution room from previous years carries forward.

Please be aware that due New Year’s Holiday, our normal trading hours will be impacted as follows:

Thursday, December 31
– GICs will close at 11:30 a.m. ET
– All other fixed income will close early at 1 p.m. ET

Friday, January 1
– Both Canadian and U.S. markets are closed
– Foreign exchange transactions will not be processed until Monday, January 4

Monday, January 4
– Markets resume normal trading hours

Last day to place trades for 2020 settlement
– Canadian and U.S. equities: Tuesday, December 29
– Canadian and U.S. options: Wednesday, December 30

That’s the input from RBC.

CERB repayment deadline

This year there are also some actions needed on the government grant Covid front, chiefly involving CERB and related programs. CIBC Wealth’s Jamie Golombek had a good summary of this in Saturday’s Financial Post: Click here.

Golombek says Canada Revenue Agency recently sent out 441,000 “educational letters” warning individuals that they may not be eligible for CERB:  individuals whom the CRA said it was “unable to confirm … employment and/or self-employment income of at least $5,000 in 2019, or in the 12 months prior to the date of their application.” Continue Reading…

Retired Money: RRSP must start winding down after you turn 71 but TFSA is a tax shelter that lasts as long as you do

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My latest MoneySense Retired Money column has just been published and looks at the twin topic of RRSPs that must start to be converted to a RRIF after you turn 71, and the related fact that the TFSA is a tax shelter you can keep adding to as long as you live. You can find the full column by clicking on the highlighted headline: How to make the most of your TFSAs in Retirement.

Unlike RRSPs, which must start winding down the end of the year you turn 71, you can keep contributing to TFSAs for as long as you live: even if you make it past age 100, you can keep adding $6,000 (plus any future inflation adjustments) every year. Also unlike RRSPs, contributions to Tax-free Savings Accounts are not calculated based on previous (or current) year’s earned income.  Any Canadian aged 18 or older with a Social Insurance Number can contribute to TFSAs.

Once you turn 71, there are three options for collapsing an RRSP, although most people think only of the one offering the most continuity with an RRSP; the Registered Retirement Income Fund or RRIF.  More on this below but you can also choose to transfer the RRSP into a registered annuity or take the rarely chosen option of withdrawing the whole RRSP at one fell swoop and paying tax at your top marginal rate.

Assuming you’re going the RRIF route, all your RRSP investments can move over to the RRIF intact, while interest, dividends and capital gains generated thereafter will continue to be tax-sheltered. The main difference from an RRSP is that each year you must withdraw a certain percentage of your RRIF and take it into your taxable income, where it will be taxed at your top marginal rate like earned income or interest income. This percentage start at 5.28%  the first year and rises steadily, reaching 6.82% at age 80 and ending at 20% at 95 and beyond.

Some may be upset they are required to withdraw the money even if it’s not needed to live on. After all, you’re gradually being forced to break into capital, assuming you abide by some version of the 4% Rule (see this article.)

in 2020 only, you can withdraw 25% less than usual in a RRIF

For 2020 only, one measure introduced to cushion seniors from the Covid crisis was a one-time option to withdraw 25% less than normal from a RRIF; so if you turned 72 in 2020 you can opt to withdraw 4.05% instead of 5.4%. Continue Reading…

Good timing for a Travel & Leisure Index ETF?

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Talk about nice timing!

Just as the first Covid vaccines are coming into widespread use, Harvest Portfolios Group Inc. has filed a preliminary prospectus for what it says will be Canada’s first Travel & Leisure Index ETF.

Travel and leisure stocks have of course been among the most hard-hit during the Covid-19 pandemic and are among the sectors that have started to move up as optimism over Covid vaccines and economic recovery builds.

When in January it begins trading on the TSX as TRVL, the Harvest Travel & Leisure Index ETF will provide investors with access to some of the most prominent Travel & Leisure companies in the world, says Michael Kovacs, President & CEO, Harvest Portfolios Group Inc.: “The ETF provides a low cost portfolio that will benefit from a rebound in international travel as the global economy recovers, as well as a demographic trend that was well established prior to the recent Industry shut downs.”

The ETF is based on the Solactive Travel & Leisure Index, which invests in large-cap issuers that own or operate travel-related businesses and are listed on regulated North American exchanges.

Clean Energy ETF also in the works

Harvest has also filed a preliminary prospectus for what it says will be “one of” Canada’s first clean energy ETFs: Harvest Clean Energy ETF (ticker HCLN). Kovacs says this is aagrowing space, an area that is “getting the proper political and societal attention it needs as more Canadians look to environmental factors when investing. There are large sources of Government and Private capital flowing into this space at unprecedented levels which we see continuing to grow into the future. With the changes going on in Energy generation, the future is definitely Clean.”

HCLN will invest in large-cap issuers engaged in clean energy related businesses listed on regulated stock exchanges in North America, Developed Asia or certain European countries. The preliminary prospectus has been filed with securities commissions in all Canadian provinces and territories, copies of which are available on SEDAR (www.sedar.com).

The ETFs’ Management Expense Ratios (MERs) have not yet been divulged but are expected to be in the range of .04, a company spokesperson said. That’s in line with its other passively managed index ETFs, and less than its actively managed ones.

Founded in 2009, Harvest is a Canadian Investment Fund Manager managing more than $1 billion in assets for Canadian investors.