Here’s a Look at the Best Investments to Hold in a TFSA – and Why
Image via Deposit Photos
We recently had a question from a member of Pat McKeough’s Inner Circle that asked:
“Pat, I hold Intel in a non-registered account with a capital loss showing and am thinking of transferring it to my TFSA “in kind” with no tax penalty. Is Intel a suitable stock to hold in a TFSA?”
We’re not tax experts, so you might want to consider talking to an expert, especially if there are large funds involved.
However, transferring shares in kind into a TFSA does trigger a capital gain or loss for income tax purposes.
If the investment is in a capital gains position, you will have to declare it as a capital gain on your income tax return. But if there is a capital loss, you will not be able to declare the loss for tax purposes. This is because the government still sees you as the beneficial owner of the security.
Note that if you sell the shares in a non-registered account, you can deduct your loss against capital gains. For example, if he were to sell his Intel shares in 2023, he’d get to deduct the loss against his 2023 capital gains.
If you still have capital losses left over, you can carry them back up to three years (2022, 2021 and 2020), or forward indefinitely to offset future capital gains.
Hold Lower-Risk Investments in a TFSA
We think it is best to hold lower-risk investments (such as blue-chip stocks we see as buys like Intel) in your TFSA. That’s because you don’t want to suffer big losses in these accounts. If you do, you can’t use those losses to offset capital gains, as is the case with taxable (non-registered) accounts. You’ll also lose the main advantage of a TFSA: sheltering gains from tax. You won’t have gains to shelter if the value of your investments falls. Continue Reading…
Conservative investors: Follow our three-part Successful Investor if you want to maximize your portfolio returns with the least amount of risk
Pixabay: Gerd Altmann
The surest way for conservative investors to make money in stocks is to start out by following our three Successful Investor rules for sound investing. They are the foundation of our Successful Investor system.
The first of these three Successful Investor rules is to invest mainly in well-established, profitable, dividend-paying companies. This rule goes first because it’s a simple and effective way of controlling the risk in your portfolio. Needless to say, that control is especially important when you have retired and you depend on your investments for income.
If a stock lacks one of these signs of investment quality, it may be riskier than you realize, yet still offer long-term potential. If it lacks two of the three, it exposes you to above-average risk and is suitable mainly for aggressive investors. If it lacks all three, it’s a high-risk speculation.
If you want to buy stocks missing all three of these qualifiers, it’s best to do so only with money you can afford to lose.
Avoid the urge to diversify into junior or riskier stock groups, just because they might offer the possibility of bigger gains. Stick with stocks that leave you feeling comfortable.
Diversification across sectors is also key for conservative investors
The second rule for conservative investors in our system is to spread your investments out across most if not all of the five main economic sectors: Manufacturing & Industry; Resources & Commodities; Consumer; Finance; and Utilities.
When you follow this rule, you are taking note of the fact that a large random element is at work throughout the financial universe.
When you spread your holdings out like this, you diversify in a way that helps you avoid overloading yourself with stocks that are about to slump.
Unpredictable slumps may be due to weak industry conditions, changes in investor fashion, or other random factors. That’s a bigger risk if you concentrate your stock holdings in one or two of the five main sectors.
Simply staying aware of the concept of diversification can put you ahead of inexperienced investors who take a casual approach. But, beware of half-hearted diversification. It can hurt your investment results, rather than help.
For instance, beginners may zero in on investments that seem to have huge growth potential. Today’s examples might include concept stocks that focus on lithium mining, say, or AI (artificial intelligence), or cryptocurrency. If you disregard our first Successful Investor rule (see above), you’ll mainly wind up buying high-risk speculations that pay off sporadically at best. Continue Reading…
Are CDRs the better way to hold U.S. investments? What are the pros and cons?
TSInetwork.ca
Canadian Imperial Bank of Commerce (CIBC)’s Canadian Depositary Receipts (CDRs) give investors the opportunity to buy shares and/or fractions of shares in any of a number of U.S. or other foreign companies, in bundles that start out trading at a price of about $20 Cdn. each.
CDRs come with a built-in hedging feature that reduces exchange-rate fluctuations. This feature costs you 0.60% of your investment yearly.
CDRs let you invest small sums in U.S. or other foreign stocks, some of which have exceptionally high per-share prices. (For instance, Nvidia recently was trading for $475.06 a share.) Note, though, that with highly liquid stocks like Nvidia, or the other shares underlying CIBC’s CDRs, investors can easily buy, say, just one or two shares if they want.
CDRs represent shares of U.S. or other foreign companies but are traded on a Canadian stock exchange in Canadian dollars.
CIBC currently offers about 47 CDRs that trade on Cboe Canada (formerly NEO Exchange). Here’s just a few of them:
Alphabet Canadian Depositary Receipts – GOOG
Amazon.com Canadian Depositary Receipts – AMZN
Apple Canadian Depositary Receipts – AAPL
Meta Platforms Canadian Depositary Receipts – META
Microsoft Canadian Depositary Receipts – MSFT
Netflix Canadian Depositary Receipts – NFLX
Nvidia Canadian Depositary Receipts – NVDA
PayPal Canadian Depositary Receipts – PYPL
Starbucks Canadian Depositary Receipts – SBUX
Tesla Canadian Depositary Receipts – TSLA
Visa Canadian Depositary Receipts – VISA
Walt Disney Canadian Depositary Receipts – DIS
Cboe Canada is recognized by the Ontario Securities Commission.
An individual CDR is not intended to equal the cost of a single share. Instead, each new CDR started out trading at around $20 Cdn., representing ownership of one or more shares and/or a fraction of one share of the underlying stock, depending on the stock’s price. As mentioned, shares of many of the largest companies in the world trade at significantly higher prices, although some trade much lower as well.
Dividends paid on the shares underlying CDRs will be passed through to CDR investors in Canadian dollars when received, based on the current foreign exchange rates.
The main negative about CDRs is the Fees
CIBC charges no direct management fees for CDRs. However, the CDRs are hedged against movements of the U.S. dollar relative to the Canadian dollar. That means the Canadian-dollar value of the CDRs rises and falls solely with the movements of the underlying stock.
Of course, hedging has costs: and hedging against changes in the U.S. dollar only works in your favour when the value of the U.S. dollar drops in relation to the Canadian currency. If the U.S. dollar rises while your investment is hedged, that reduces any gain you’d otherwise enjoy, or expands any loss. Continue Reading…
Investing in Artificial Intelligence: We feel it could have a huge positive potential, but watch for these risks and rewards
Deposit Photos
Artificial Intelligence (AI) only crossed the fiction-to-news barrier in recent years, after decades as a staple of Arnold Schwarzenegger films, but it’s already influencing the economy and is likely to increase its impact. We feel it could have a huge positive potential. This development has also caught the attention of many investors who are contemplating the prospects of investing in AI.
Media comments on this subject abound, as do surveys. The average person seems fascinated with AI’s potential for good, but wary of its potential for harm. You might say this resembles the atmosphere a decade or so ago when self-driving cars started appearing in the news.
In both cases, middle-of-the-roaders were in the majority. Extreme types came up with much different outlooks.
Negative observers said self-driving vehicles would lead to an economic collapse because multitudes of drivers of trucks, taxis, buses and so on would lose their jobs.
At the other end of the spectrum, a smaller extreme felt driver-less vehicles would balloon human productivity and expand wealth around the world. After all, people could do valuable work in traffic, just as well as in an office, or use the time for a nap. They looked forward to a day when owning your own car would be a needless extravagance. When you needed a lift, you’d just summon a driver-less limo on your cellphone. A little further along, new homes will be available with or without garages or parking spots. Your self-driver will be able to valet itself to a community parking lot.
Looking a little further still, your car might be able to take itself out for maintenance, service, fuel, or any number of errands. Artificial Intelligence just might speed the arrival of these advances.
However, there’s an even wider opinion spectrum on Artificial Intelligence. Rather than a booming jobless rate, the negative side foresees Armageddon: humans versus machines.
It seems conflicts of interest are playing a role, along with honest differences of opinion, in disputes over Artificial Intelligence. This reminds me of the debate over Y2K.
The Y2K debate showed there is big money in alarmism. Some of the top Y2K promoters used Y2K fears to build a following and boost their incomes from writing, consulting or public speaking. Pessimists worried needlessly about Y2K and made a lot of money. I expect the same reaction to AI.
Mainstream opinion or Al Gore on steroids?
Ratings for cable news pioneer CNN have been slumping for a decade. Coincidentally, CNN.com recently published an essay entitled: “Experts are warning AI could lead to human extinction. Are we taking it seriously enough?”
The essay begins: “Think about it for a second … The erasure of the human race from planet Earth. That is what top industry leaders are frantically sounding the alarm about … potential dangers artificial intelligence poses to the very existence of civilization.”
It passes along a warning: “… hundreds of top AI scientists, researchers, and others … voiced deep concern for the future of humanity, signing a one-sentence (italics added) open letter to the public … mitigating the risk of extinction from AI should be a global priority alongside other societal-scale risks such as pandemics and nuclear war …”
You have to give them credit for leaving climate change off the list.
Read MarcAndreessen’s essay on AI
If you’re investing in AI and Artificial Intelligence fears keep you awake at night, I’d suggest a 7,000-word remedy by Marc Andreessen, entitled, “Why AI will save the world.”
In all I’ve read about AI, this is the best comment I’ve seen. It describes AI in plain English; explains how AI can expand human intelligence; how we have used human intelligence over millennia to create today’s world. It also speculates about the gains we may see in the new era of AI. Continue Reading…
Recently one of our Inner Circle members asked, “You mentioned recently that TSI recommends a handful of ADRs (American Depositary Receipts) providing exposure to European and Japanese stocks. One question: What are the ADR fees charged to investors by U.S.-listed ADRs?” An American Depositary Receipt, or ADR, is a proxy for a foreign stock that trades in the U.S. and represents a specified number of shares in the foreign corporation. ADRs are bought and sold on U.S. stock markets, just like regular stocks, and are issued or sponsored in the U.S. by a bank or brokerage firm. If you own an ADR, you have the right to obtain the foreign stock it represents. However, investors usually find it more convenient to continue to hold the ADR.
One ADR certificate may represent one or more shares of the foreign stock. Or, if the stock is expensive, the ADR may represent a fraction of a share; that way the ADR will start out trading at a moderate price or be in the range of similar securities on the exchange where it trades.
The price of an ADR is usually close to the price of the foreign stock in its home market. There are no redemption dates on ADRs.
When an investor owns an ADR, a custodian — Citi, Bank of New York Mellon, and J.P. Morgan Chase are among the largest — is in charge of holding it. The custodian also maintains the records and collects the dividends paid out by the foreign issuer. It then converts those payments into U.S. dollars and deposits them into stockholders’ accounts. For all these services, the custodian charges an ADR fee.
The custodian may deduct that ADR fee from the dividends, or it may charge the ADR holder separately. If the ADR doesn’t pay a dividend, the custodian will charge the ADR fee directly to the brokerage, which in turn will charge it to a client’s account.
We feel you can find all the foreign investment variety and exposure you need by confining your purchases to U.S. and Canadian stocks, plus low-fee ETFs (exchange traded funds). However, if you want to invest in a particular foreign stock, it’s generally more convenient and economic to hold ADRs of foreign stocks, rather than the foreign stocks themselves.
Bonus: What are CDRs?
CIBC
While I’m on the topic, some investors confuse ADRs, with CDRs. Canadian Imperial Bank of Commerce (CIBC)’s Canadian Depository Receipts (CDRs) give investors the opportunity to buy shares and/or fractions of shares in any of a number of U.S. or other foreign companies, in bundles that start out trading at a price of about $20 Cdn. each. CDRs come with a built-in hedging feature that reduces exchange-rate fluctuations. This feature costs you 0.60% of your investment yearly.
CDRs let you invest small sums in U.S. or other foreign stocks, some of which have exceptionally high per-share prices. (For instance, Nvidia currently trades for $610 a share.) Note, though, that with highly liquid stocks like Nvidia, or the other shares underlying CIBC’s CDRs, investors can easily buy, say, just one or two shares if they want. Continue Reading…
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