rrsp
Bank of Montreal, $49.82, symbol BMO on Toronto (Shares outstanding: 548.2 million; Market cap: $27.3 billion), is still a buy recommendation of our Successful Investor newsletter. So we recommend holding your shares, unless they make up too large a part of your portfolio. It’s a good idea not to let any one stock take up more than, say, 10% of your total portfolio. If the stock makes up an uncomfortably large proportion of your total portfolio, then consider selling some. Begin by selling the portion that’s in your RRSP, to avoid paying capital gains taxes on your gain....
Opening a brokerage account is often one of the first steps beginning investors take when they start investing in the stock market. You’ll first have to choose whether a full-service or discount broker is right for you. (This is one of the questions we help you answer in our new special report, “Canadian Stock Market Basics: How to Trade Stocks and Make Good Investments in Canada.”) If you choose to use a full-service broker for investing in the stock market, you’ll have to fill out an application form to set up your account. When you do, we think you should pay special attention to two sections: “risk level” and “investment objectives.” (You don’t need to fill these out with a discount broker, but the answers are well worth thinking about nonetheless.)...
On his Wealthy Boomer web site, Financial Post personal-finance columnist Jonathan Chevreau recently made the link between the time you start saving for retirement and when you will be able to start your retirement in earnest. Click here to read the full article on the Wealthy Boomer. Chevreau has been the personal-finance columnist at the Financial Post since 1996, and is the author or co-author of eight financial books, including The Wealthy Boomer and Findependence Day, released last fall. His Wealthy Boomer blog features interviews with investment experts (including Pat McKeough)....
Index-linked GICs are just one of a variety of investment products that propose to provide the holder with guaranteed income plus capital gains linked to growth in one or more stock-market indexes, commodities or whatever. Index-linked GICs are marketed as offering all of the advantages of stock-market investing with none of the risk. But banks and trusts aren’t in the business of giving customers something for nothing. The capital gain that holders get depends on an ingenious formula, spelled out in the fine print, which is cleverly designed to sound generous while minimizing the potential payout. Returns on index-linked GICs or bonds are taxed as interest. That’s because you’re not actually investing in the stock indexes themselves; you’re just getting paid interest based on the change in the indexes. That’s a drawback, because interest is the highest taxed of all investment returns. Usually, stock-market investing yields capital gains and dividend income, both of which are taxed at a lower rate than interest. Of course, if you hold the GICs in an RRSP, all income is tax deferred....
Lately we’ve heard from some investors who are unhappy with some of their investments, particularly their more aggressive investing picks. They want to rebuild their portfolios, but are reluctant to sell anything at today’s lower prices. We think that’s a mistake. Obviously you want to think things through and make sure you are not holding low-quality investments, or investments that are wrong for your portfolio. Once you’ve done that, our view is that you should switch to higher quality and more appropriate investments right away. You have nothing to gain by making back any losses you may have in the same aggressive investing selections that gave you those losses. Nor are you any more likely to regain your losses by holding on to the same stocks. In fact, if your investments are genuinely poor quality (rather than simply a bad aggressive investing choice for you), there’s a risk that they will cost you even more money, the longer you hold them....
Right now, Canadian income trusts pay out a high percentage of their cash flows to their unitholders. This lets them avoid paying corporate taxes. It also gives many of them significantly higher yields than a lot of dividend-paying common stocks.
Canadian income trusts face tax changes in 2011
In 2011, the Canadian government will begin taxing income trusts (with the exception of real estate investment trusts or REITs)....
Long-time Successful Investor readers may recall that a decade or two ago, we regularly reminded them that dividends could contribute up to a third of their long-term investment returns, without even considering the tax-cutting effects of the dividend tax credit (see below). Earlier in this decade, yields of dividend paying stocks were generally too low to provide a third of investment returns. But now that yields of dividend paying stocks have moved back up to their current level, it’s realistic to assume they will once again contribute as much as a third of your total return. That’s a good thing for investors, since dividends are more dependable than capital gains as a source of investment income.
Tax credits add to your gains
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Ottawa’s new Tax-Free Savings Accounts (or TFSAs) let you earn investment income — including interest, dividends and capital gains — tax free. A tax-free savings account can generally hold the same investments as an RRSP. This includes cash, mutual funds, publicly traded stocks, GICs and bonds. However, you are best to hold lower-risk investments in your TFSA. That’s because you don’t want to suffer big losses in your TFSA. If you do, you can’t use those losses to offset capital gains. 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....
As a general rule, it’s better to borrow to buy stocks after a drop, rather than when the market has steadily risen for several years. We think you’ll benefit most from this buying opportunity by sticking with the kind of stocks we recommend, as well as the mutual funds and ETFs we recommend in Canadian Wealth Advisor.
These include the iUnits Dividend Index Fund $15.50, symbol XDV on Toronto, (Shares outstanding: 21.4 million; Market cap: $332.5 million), which holds the 30 highest-yielding Canadian stocks. These stocks are included in the index based on their proportionate dividend-per-share weight. The weight of any one stock is limited to 10% of the fund’s assets. iUnits’ MER is 0.50%, and it has a dividend yield of 4.7%.
Dividend-paying stocks or funds that invest in high-quality, dividend-paying stocks will give you regular dividend income and cash flow to pay the interest on your investment loan. They’ll also benefit most from a stock market rebound.
Today, you can borrow for as little as 3.25% if you use your home as collateral. Over long periods, the total return on well-diversified, high-quality stocks and mutual funds runs between 10% and 11%. So, in addition to the tax advantages, you can expect to earn more than your borrowing cost.
But borrowing to invest is not without risks, including the risk of increasing your leverage. The amount you owe on your investment loan will stay the same, regardless of what the market does, but every dollar your portfolio gains or loses will come out of your equity. In addition, if you take out a variable rate loan, the interest rate you pay could eventually rise about the return on the fund.
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These include the iUnits Dividend Index Fund $15.50, symbol XDV on Toronto, (Shares outstanding: 21.4 million; Market cap: $332.5 million), which holds the 30 highest-yielding Canadian stocks. These stocks are included in the index based on their proportionate dividend-per-share weight. The weight of any one stock is limited to 10% of the fund’s assets. iUnits’ MER is 0.50%, and it has a dividend yield of 4.7%.
Dividend-paying stocks or funds that invest in high-quality, dividend-paying stocks will give you regular dividend income and cash flow to pay the interest on your investment loan. They’ll also benefit most from a stock market rebound.
Today, you can borrow for as little as 3.25% if you use your home as collateral. Over long periods, the total return on well-diversified, high-quality stocks and mutual funds runs between 10% and 11%. So, in addition to the tax advantages, you can expect to earn more than your borrowing cost.
But borrowing to invest is not without risks, including the risk of increasing your leverage. The amount you owe on your investment loan will stay the same, regardless of what the market does, but every dollar your portfolio gains or loses will come out of your equity. In addition, if you take out a variable rate loan, the interest rate you pay could eventually rise about the return on the fund.
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Here are two simple retirement investing strategies that can help you maximize your investments in RRSPs.