Building Wealth

For the first 30 or so years of working, saving and investing, you’ll be first in the mode of getting out of the hole (paying down debt), and then building your net worth (that’s wealth accumulation.). But don’t forget, wealth accumulation isn’t the ultimate goal. Decumulation is! (a separate category here at the Hub).

Getting your investments into the green

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By Dale Roberts

Special to the Financial Independence Hub 

I would get this question quite often when I was an adviser with Tangerine.

“Do you have any Green investments?”

Of course, when one offers broad-market index based portfolios the investment is environmentally agnostic. It makes no judgement on how the company operates or how it makes its profits. Company behaviour will be determined by the regulators and shareholders and the company’s board and management. And largely the demand for the products or services will be determined by the consumer: that’s you.

Now I would certainly direct clients to the green investment options in Canada, it’s not up to me to tell you to leave your values or principles at the door, but I would also suggest that one might have a greater chance to effect change by addressing the way they live compared to how they invest. Largely, lifestyle choices trump investment choices when it comes to having a positive impact on the environment. To be consistent and transparent, I still believe that to be true.

That said, there is an investment option that appears to fit the bill for enabling that change. That investment is the CoPower Green Bond.

Greenbond LogoYes, it’s a bond, and that means that an investor is loaning money that is used by developers to fund clean energy infrastructure. For that loan, an investor would be paid 4% annual for a 4-year bond and 5% annual for a 6-year bond. In today’s low-rate environment that’s a very good rate of return.

There are 3 types of projects that your monies (your loan) will fund.

CoPower Green Bond Portfolio Investments Table (Oct 2018)We might consider this a truly green investment because the at the core (geothermal pun intended) we have Canadians who are making a choice to ‘Go Green’, or their version of green. As an investor, you are enabling those projects. Your monies will fund projects that will reduce CO2 emissions, and perhaps reduce polluting particulates that are a by-product of traditional energy generation. You will be an ‘investor agent of change’.

These green projects are very successful and there is great demand from potential partners to start more geothermal, solar and LED bulb replacement projects. The demand is there, the projects simply need more funding. The more Green Bonds that can be issued, the more projects that can be funded. Quite simply, they need your monies, your loans.

If you look into the projects that are funded you’ll discover that they are more grass-roots and small-scale. Individual home geothermal conversion projects don’t attract interest and traditional loans from large financial institutions. These are individual Canadian homeowners who are largely being funded by individual Canadians (that’s you, potentially). What might be appealing to many is the small scale and clear transparency in where your monies are directed and how the effect can be measured.

How do you get your Green Bonds?

You can sign up through the CoPower website, where you would complete an online application. As part of the process you would also have a phone conversation with a CoPower investment representative to ensure suitability and to ensure that you do understand the investment and the associated risks.

You can also obtain the CoPower Green bonds with the discount brokerage Questrade and through Olympia Trust. Keep in mind that when you access the bonds through a third party, those institutions will charge fees. Ensure that your investment is large enough (the returns are large enough) to more than compensate for any fees that are applied. Through those third party options you can invest in RSP and TFSA and RIFF accounts.

How is CoPower different from a bond fund?

A SRI Socially Responsible Investment bond fund will hold dozens to hundreds of individual bonds. As a mutual fund it will change in price every day. There are management fees associated with mutual funds as well. The CoPower bonds are offered directly to you and carry no fees. You receive your interest payments and the effect of compound interest in full.

You will be owning an individual bond and you will be required to hold the bond to maturity. That means that if you purchase a 6-year bond, you will have to wait for 6 years to see that return of your initial investment amount. You may choose to have the bond pay you your interest payments ‘along the way’. Continue Reading…

How (not) to trade US midterm elections: you can’t Trump staying the course

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Investors should avoid making major portfolio changes in advance of the US midterm elections, says former advisor Dale Roberts

By Dale Roberts

Special to the Financial Independence Hub

When I was an advisor at Tangerine Investments I would have many more-than-interesting conversations with clients about short-term economic and political events; especially over Donald Trump. For those of you who do not live under a rock, Donald Trump is the more than controversial President of The United States. Mr. Trump went from real estate magnate and reality TV show host to the most important chair in the world. Many will write and say that the President who resides over the world’s largest and most influential economy and the world’s most powerful armed forces (by many times over) is the most ‘powerful person’ in the world.

So as investors, and for those who manage money, we should pay attention to what the most powerful person on earth does and says, right?

Nope.

As investors, we don’t invest in Presidents or Prime Ministers, we invest in economies and the companies that help drive those economies. With respect to investing in the U.S. the world’s greatest investor, Warren Buffett, often writes …

Never bet against America.

And heading into the Presidential elections of 2016 Mr. Buffett (a vocal Democrat and Hillary Clinton supporter) offered in a Nasdaq interview …

“America works … I’ve said this before, it’ll work wonderfully under Hillary Clinton, and I think it’ll work fine under Donald Trump … For 240 years it’s been a terrible mistake to bet against America, and now is no time to start.”

Ahhh, and there’s the very powerful and destructive key phrase tucked into that sentience; the two words “bet against.” If you make a short-term move, make a guess on a short term event, you’ve just turned investing into betting/gambling. You’ve turned investing into trading. As the saying goes, on the list of the world’s most successful investors you won’t find any traders.

Successful investors have a long-term outlook and a long-term holding period. Boring works. Excitement is for the casino. When asked what is his favourite holding period for a stock or investment Mr. Buffett will reply “forever.”

So don’t listen to me, but you might listen to the word’s greatest investor: who often states that he has never invested based on a short-term economic event or economic prediction or political event or political commentary.

An investor with a well-balanced portfolio will likely invest in US and International markets. When we invest in America we often own market-leading companies such as Apple, Microsoft, Johnson & Johnson, Walmart, Home Depot, McDonald’s, Coke and Pepsico, Costco, Amazon, Google, Netflix, AT &T, Exxon Mobil, Clorox, Facebook, Colgate-Palmolive, Goldman Sachs, and even Mr. Buffett’s conglomerate Berkshire Hathaway.

You’re not investing in Donald Trump, you’re investing in McDonald’s.

Investors can ignore the midterm elections

If you now understand that you don’t need to pay attention to the current President of the United States, you also do not need to pay attention to the next President of the United States, nor do you need to pay attention to the next group of Congresswomen and Congressmen and Senators who will fill the seats of The House of Representatives. You can ignore the midterm elections on Tuesday November 6th, 2018. You can ignore the Presidential election that will follow two years later. Continue Reading…

Questrade pushes envelope on lower fees with Questwealth Portfolios

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Questrade’s TV commercials put pressure on fees, as do its new Questwealth Portfolios

As my latest MoneySense Retired Money column explained when it was published early Saturday morning, Questrade Inc., the leading independent Canadian online brokerage, is laying down the gauntlet on fees. You can find the full story by clicking on the highlighted headline here: Questrade’s new robo advisor service showcases rockbottom fees.

For consumers, it’s good news that the new iteration of Questrade’s Portfolio IQ robo adviser service — rebranded Questwealth Portfolios — pushes fees down to around the level of the new Vanguard Asset Allocation ETFs.

That’s somewhere between 0.20% and 0.25%, which is roughly half of what most other robo services charge, and about a tenth of what most retail mutual funds charge.

Questrade Wealth Management was one of three early entrants to the Canadian robo advisor space in 2014 (along with NestWealth.com and Wealthsimple). Until now, its robo service was called Portfolio IQ (PIQ henceforth) but the latter has been rebranded, relaunched and indeed replaced as of Saturday under the new trademarked name Questwealth Portfolios. Questwealth replaces PIQ accounts, according to a press release issued on Nov. 3.

The management fee is 0.25% for Questwealth Portfolios between $1,000 and $99,999, dropping to a very competitive 0.20% for $100,000 or more. These fees are significantly lower than for PIQ, which charged 0.7% under $100,000, 0.6% between $100,000 and $249,000, 0.5% up to $500,000, 0.4% up to $1 million and 0.35% for accounts of a million dollars or more. The average asset-weighted PIQ fee was 0.62%, versus 0.23% for Questwealth Portfolios, lower by a whopping 63%.

For consumers it’s good news that Questrade is slashing its own fees and putting more pressure on the rest of the industry, which is evident from its edgy TV commercials. (With the launch it is releasing a new batch of these often-humorous ads. The screen shot at the top of this blog is from the earlier ads.

How Questwealth Portfolios compare to other Robo services

As I note in the MoneySense column it’s not hard to show how ETFs and robe-based portfolios of ETFs can undercut the notoriously high MERs of Canada’s mutual funds, so the real contest is how the Questwealth Portfolios stack up against the rest of the robo advisors (or indeed, against DIY ETF portfolios held at discount brokers like Questrade itself or any of its (mostly) bank-owned online brokerage arms. Continue Reading…

TFSA room may jump to $6,000 in 2019 but is the TFSA right for you?

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By David Miller, CFP, RFP

Special to the Financial Independence Hub

2019 TFSA limits will likely see an increase to $6,000 for 2019, up $500 from $5,500 in 2018. But is taking advantage of the TFSA the right choice for you?

The big story

Most Canadians still don’t understand the TFSA or know if it’s the right type of account for them. More room is great but according to the CRA in 2015, only 10% of Canadians are currently maximizing their TFSA limits1.  Also, the CRA has looked to collect over $75 million in past audit penalties over improper use of the TFSA2.

The history

Starting in January 2019, annual TFSA room of $6,000 will be provided to each Canadian resident over the age of 18. Since 2009, Canadian residents have been able to contribute a small portion of their after-tax savings into this tax-free account. If you still are paying taxes on interest, dividends or capital gains on your investments in a non-registered account, it’s time to review the TFSA. If no contributions had been previously made, your TFSA room accumulates over time and a full $63,500 contribution could be made January 1, 2019.

The contribution you make today can grow without any tax implications in the future. If you over contribute, the CRA will penalize you 1% per month on any amount over the approved threshold. A best practice is to check first with the CRA to determine your personal TFSA limit for the calendar year.

Improper use

If you accidently, or purposefully, over-contribute to your TFSA, the CRA will impose a 1% per month penalty on the overage. This may be overstating the obvious, but over-contributing is a bad idea. You would have to reasonably expect your investments to grow higher than 12%/year (assuming simple math with a January 1stcontribution) to break even. Having TFSAs at two or more institutions may be a way you lose track of your contribution room. Ensure you check with the CRA to understand your annual TFSA contribution limit.

Another example of improper use could be frequently trading stocks within the TFSA, aka ‘day trading.’This may be considered a  ‘business activity,’ as perceived by the CRA and you could be taxed personally on all the income, dividends and capital gains.

Spousal successor

An important but often overlooked benefit to utilizing a TFSA is as an estate planning feature: the spousal successor declaration. Continue Reading…

Closed-end funds vs. actively managed ETFs

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Zagreb, capital of Croatia, HQ for closed-end fund manager OTP Bank.

By Tony Porcheron

Special to the Financial Independence Hub

The current popular conversation in investments is about Exchange Traded Funds (ETF) versus normal mutual funds. The conversation is always about low fees vs high fees. The one version that never seems to come up is about Closed-end Funds, which are the granddaddy of all managed money.

The brief history of the modern managed money industry — which included mutual fund, hedge fund, and exchange-traded fund (ETF) industries — started formally with The Investment Company Act of 1940.

It clearly defines the responsibilities and requirements of investment companies as well as the requirements for publicly traded investment product offerings including open-end mutual funds, closed-end mutual funds and unit investment trusts. It primarily targets publicly traded retail investment products.

The next major development was the first index fund. This was a Wells Fargo fund formed in 1971. In 1974, the first mutual fund index shares were offered to retail investors.

Finally, exchange-traded funds came along in 1993 with the invention of TIPs (Toronto Index Participation Units) on the TSX.

The ETF is now growing tremendously globally with investors looking for lower fees during strong market cycles.

You can now get ETFs in a variety of investment focuses, types, industries, countries, security selection bias, etc.

The majority of ETFs are passive, where the manager simply follows the direction of the fund outline with no or extremely little input from the manager. These ETFs are usually with the smallest fees down to less than 0.1% on large US Indexes or Fixed Income Funds. As the funds are very large and need little management input, they can still be very profitable for the fund companies to manage.

Actively managed ETFs

There are also ETFs that have an active management approach. The manager then has some or a tremendous amount of involvement in stock selection and management of the fund. Active ETFs are usually in sectors where it is difficult to get an index return or average. These would be in situations such as emerging markets, small or microcap stocks or sub investor grade fixed income. Continue Reading…