Investment Q&A

Q: Hi Team,
When selling to open a put option position that expires in Jan 2018, is the premium received to be reported in 2018 tax return assuming it expires worthless in 2018?
Thank you.

Q: If the ex dividend date is the 19th can i put my order to buy and buy that day the 19th or do i buy 3 days before to collect the dividend for that month?

Q: Hi 5i,
Just a comment. For anyone looking at historical returns to evaluate the future prospects for a balanced (equity + fixed income) portfolio, it is extremely important to consider that the next 30 years of fixed income returns are virtually guaranteed to be significantly different than the past 30 to 40 years. Bond yields (interest returns) were in a generally declining trend, originally from nosebleed levels, for about 35 years from approximately 1980, during which even government bond yields dropped from double digit peaks to the negligible rates available over the past couple of years. The portfolios of investors who held bonds of significant duration early in that period reaped high interest rate bond returns while they watched the paper value of their bonds increase with each downward tick in interest rates. The fixed income component was potentially a tremendous contributor to very good portfolio returns over much of that extended period of declining interest rates.
Looking out over the next 30 years, the prospect is vastly different. Bonds don’t have anything remotely approaching the same kind of return potential. Current interest rate returns are still very low as rates are recently just beginning to move off what may later be viewed as ‘the bottom.’ The prospect for people who hold bonds of any significant duration while rates rise is that their holdings become less valuable. Low interest instruments may need to be held to maturity in order to avoid a loss of principal. In the meantime, those low interest bond returns will be a drag on any better portfolio returns that may be generated by equity holdings. If you have 50% of your portfolio in bonds that pay 2%, and you hope for an 8% overall portfolio return, you have to generate a return of 14% from your equities. Maybe bond yields will return to levels where they are not so detrimental to significant portfolio returns over the next 5 to 10 years but maybe they won’t. If they do, then holding bonds while the rates are rising can be painful. If they don’t, then they may go through an extended period where the chief value in bonds is the secure return of capital at maturity but the return prospects until maturity are relatively dismal.
The fact that someone buying a 10-year Canada Bond in 1982 got a 16% annual rate of return on it is not an indication of what anyone putting together a bond portfolio or balanced portfolio today can expect it to realize. It is completely irrelevant.
To assess the return prospects of a balanced portfolio today, you need to consider the relevant details and prospects for today's bonds, not the irrelevant details and portfolio contributions of bonds that have long since expired.

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Q: Hi 5i Team,

In the current environment, which sectors do you consider will be worth focussing on to add new positions - I am overweight financial, underweight most other sectors currently, attempting to resolve this.

Thanks

Q: Hello again. I’m interested to know how to consider currency when deciding between hedged, unhedged, and US dollar ETFs. In your answer to my last question, you mentioned that you prefer VPL over VAH; how was currency a factor in your judgment? Also wondering if you would approach European ETFs similarly, with respect to fluctuations between the Euro, USD and CAD (e.g. VEH, VE, VGK). Are there separate currency considerations I should take into account for each region, including EM? (e.g. VEE vs VWO)

When I hear professionals recommend CAD-hedged ETFs when the USD is falling, it sounds tactical but what if an investor has a long time horizon in mind? I’ve heard that unhedged ETFs yield better returns over time, say for a period of 15 years, but I’m wondering if US dollar ETFs are even more preferable, considering that I’ve already got some US cash ready to deploy.

Thanks for clearing up my confusion!

Q: Hi,
Further to your reply: "ENB pays its dividend in Canadian dollars. You could buy it in the US, in a US account, and dividends would be converted, but you would incur exchange fees.
Rather than looking at this strategy, we might instead holding some US exposure in general, for general diversification, and avoid trying to predict currency movements"

Since I'm seeking USD income, I'm looking for the biggest bang for my buck (so the Dividend Tax Credit is something I would want to take advantage of). Would my strategy work with something like a ENB.PR.U (USD preferred)? Or does the same currency conversion issue occur. Thanks again.

Q: You mention sectors, and list them on your portfolios. Is there a financial website that uses those same sectors? I'd like to go through my stocks, and note the sector of each. Thanks.

Q: Hi great team of yours, how important is the downgrade of a stock by analyst coming out suddenly . Usually follow by a drop of price. Should a long term investor worry about it ?

Q: Where one should look to find the asset location of a stock (e.g,financial,technology,oilland gas and etc).Both for Canadian and US stocks) ?Thanks

Q: Good morning
Peter: 1. When selling options, what is your preference ? Call or Put options
2. What is your favorite time frame for selling options? ( 2 weeks, 4 weeks etc. )
3. What is your approach for choosing a strike price?
Thank you for educating all of us.
M.F.

Q: Good morning
A fundamental question regarding rising interest rates. Does a period of increasing rates typically encourage an inflow of foreign investment into domestic equities or an outflow? Based on your past experience, how has the TSX performed under increasing rates?

Thank You
Clarence

Q: Hi 5i Team, when someone looks at the financials of a company for the sustainability of the dividends, should we concentrate on the earnings or the cash flow numbers? I have often read on this site that the cash flow is more important than the earnings. Would that be true for most companies or only the ones in some industries? Thank you. Mario.

Q: As a recent subscriber and investor, I note that several stocks that I own have the option of DRIP. My portfolio is large enough that the quarterly dividends allow for a substantial purchase of new or existing additions to stocks, like CAE or Boyd. As the cost of buying the stocks is not overly impactful to the purchase, is foregoing the drip, and the 5% discount, advisable, in order to allow a choice in selecting stock picks?

Thanks. KC

Q: Hi 5i team,

I am trying to save to retire early or if the doesnt happen then just have much more saved when I do. I know I should max both TFSA for my wife and I, but how much %-wise should I put in a registered vs a non-registered? I'm stilll 14 years away from my ideal retirement date and about 24 from my latest. Right now I have about 30% of my total saving in a non-registered account, and have yet to max out my wifes RRSP but should I just put it all in a registered account then use just the TFSA for liquidity? I'm sorry if the question is not quite within the purpose of 5i, but I do value you guy' opinion highly.

Thank you

Q: Hi Gang

Our parents are in there 80/90s , in fairly good health, and are just now moving to a retirement home, which will cost approx $5000 pm. Their assets are largely sitting in cash. Can you recommend investments to create more income for them? They have 300-400M to invest.

Thanks Mike B

Q: I currently have about 5%- 7% of my portfolio in materials - SJ and MX specifically. If you accept the thesis that worldwide economic growth is improving would it be wise to also have some metals representation in my holdings or would you expect all materials to grow at the same time - i.e. a rising tide lifts all ships. I was thinking of Teck.B for this purpose if you think it is warranted. I do realize that 3 stocks are usually better than two for diversification but I only want to add (or switch) if you think I would be missing out on an important sector.

Appreciate your insight.

Paul F.

Q: On June 28 you answered a question for me about using market/limit orders and suggested that I should use them for illiquid stocks. I was wondering if you could provide a concrete example of what you would do as I am having trouble understanding how best to buy/sell in these situations. If, for example, a stock had a bid of $34.61 and an ask of $34.90, at what prices might you submit for either a sell or a buy of that stock?

Thanks for your help.

Paul F.

Q: Hello 5i team,
When the US Fed or the BOC talk about raising rates, are they talking about the short term or longer term rates. Do they consider the effect of such a move on the shape of the yield curve?
Thanks,
Antoine

Q: The recent cashing in of my pension has left my account with a lot of cash that I have been hesitant to deploy in the current market environment. Rather than outright purchasing some of the names on my watch list, I am considering selling calls on the stocks I would like to hold. This way I can collect a premium which is a bit of compensation if the stock goes up and I miss out, and if it goes down to the exercise price I end up owning a stock I wanted anyway at a lower price and with the option premium. Does this strategy make sense to you? If yes what would be your guideline for expiry dates and strike prices and can you suggest any good candidates for this strategy from the BE and growth portfolio?

Q: Apparently there exists a ratio that gives a probability on accounting/financial manipulation. Could you tell us the name of that ratio and whether or not there is a website that shows what it is for any company? If there isn't, is the problem that the variables it is based on are not always public? Otherwise, it seems a great metric for any site (Google Finance, Globe Watchlist) to add. A quick search seems to show that there is quite a lot of interest in detection methods. There is even a professor at the Toronto Rotman School of Business who works in the area. Some call it forensic accounting.