A Comment -- General Comments From an Expert (A Commentary)

What should low to mid-net worth people do to find financial advice? Presuming that low net worth is anything under $100,000 in investable assets, you’re not going to find many financial advisors, or if you do they’ll probably limit you to mutual funds or things that might not be in your best interest. Try to find a “fee for service” planner or someone who can actually make recommendations. This might cost a couple of hundred dollars for 2 hours of work. On the other hand, you might have to work with a bank.

RESP. For every $2500/year you contribute, the government gives a corresponding grant. Is it possible to contribute more money earlier to get the power of compounding. Yes and the tax-deferred compounding may very well be worth it but with a pretty big caveat in that when you put in big lump sums at the beginning, you will not get any grant beyond the first $500.

TFSA. How does a person take the maximum tax advantage? It doesn’t matter how you do it, stocks, bonds, dividends, capital appreciation. There is no tax on anything put into a TFSA.

How should a person best deploy $200,000 that is in an RRSP for maximum benefit? If you have a defined benefit pension plan, this is like having a big wad of cash in bonds because it’s guaranteed, indexed to inflation and is going to pay out as long as you live. You can put your $200,000 into equities but divide it up using products that are cost effective, tax effective and broadly diversified. Make sure you diversify into Canada, US, international emerging markets and tangibles, maybe 40,000 into each.

Developing an efficient bond strategy for Canadian bonds? There are some Canadian products on the bond side that costs about 10 basis points. Some products you could consider are such things as iShares 1-5 yr Government Bond ETF (CLF-T).

Should you go hedged or unhedged when buying a US ETF? What you are talking about here is whether the Cdn$ will appreciate, depreciate or hold its value vis-à-vis the US. If you think the Cdn$ will stay around parity, you may as well stay unhedged. If you think the Cdn$ is going to lose value, you probably want a hedged version. Hedged typically costs about 10 or 12 basis points more than unhedged.

Nonregistered investments held under a corporate class structure? There are pros and cons with this. When you buy into a corporate structure, you can switch from one product to another without there being a deemed disposition because you are under the same corporate umbrella. You don’t pay taxes until you ultimately sell. However, if you switch from one fund to another fund in the same corporate class structure, you are deferring your tax liability to a later point.

Advantages of designating a successor holder for a TFSA? If you name of beneficiary, those assets avoid your estate and go directly to the named beneficiary and thereby avoid probate costs.

What do you think of DRIPS? These are great for people who are really “buy it and put it in a drawer and don’t look at it again” kind of people. Otherwise he is not really in favour of them but really in favour of being able to diversify into different asset classes

Oil. Inventories in the US went up shockingly in the wintertime. Normally you have massive drawdowns on a weekly basis. We had 5.9 million barrels growth in total inventory and we are now at 97.5 days. Normally at this time of year you would be low 90s and, after winter is over (February & March), you would be in the low 80s. Also, we may be facing the fiscal cliff in the US. Near-term price range he expects, would be maybe $75 on the downside and maybe $95 if there is any Middle East ruptures or concerns.

Natural gas. Inventories are at record levels and the supply continues to grow. Demand, however, is growing very rapidly in the US, especially from the electricity side of it. With coal at under $4, natural gas wins the market share. There is quite a bit of demand growth here.

Markets. Whatever happens, we are going to continue to be in a low growth economic environment into 2013 and we need to accept that. Whether the driver comes out of the US, out of Europe or out of China, there are some positive things that we can look to in each of those different scenarios. Global growth is going to remain slow and we are going to have to deal with that environment. People need to be very cautious in this environment about precisely what kind of companies they own and what the yield represents. However, they also need to be cognizant of the alternatives to the equity market of very low yielding fixed incomes.

Caller is thinking of putting 30% (3 of his stocks) of his RRIF into Singapore. Notion of putting 3 stocks as 30% of your portfolio seems excessive. He would much prefer to see a portfolio that was diversified with no more than 3%-5% in each holding. No problem with putting 30% of your portfolio outside of Canada.

(A Top Pick Nov 22/11. Up 16.63%.) Videotron 6.875% bonds maturing July 15/21.

Markets. Fiscal cliff is a little bit of a red herring. Feels that everything is baked in prior to that. There has been a shift towards more defensive names. We have long bonds in Canada and US jumping up to the top of the asset class categories. 2013 is going to be a bit of a slower year. We have a shorter-term cycle from June to September ahead of the Fed and then a longer-term cycle from 2010. Both are kind of getting a little soft.