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

The US Fed announcement today went according to script with a 25-point cut to interest rates. Powell delivered a dovish message and it was important that he said that rates would NOT fall to zero. He's relieved he said that. The market wants cuts like a spoiled child which keeps asking for more and more. What must happen long-term is a fundamental change that strengthens the economy, built on productivity, good trade and fiscal policy and an educated population. It's like exercising as opposed to drinking. Remember: things change, like the trade better and changed by people who have a better understanding of the economy. He's become more defensive after the past 18 months.

How to build a portfolio Hold 20 stocks, equally valued, including those that are growthier with a higher valuation, but can produce above-average cash flows. You also want some cyclical stocks like banks, tech and consumer stocks. Add to that stable stocks, like consumer staples. Then, you re Caveat: Most of the time your timing will be wrong, like momentum stocks losing favour to growth stocks.

2019 has been a pretty good year for North American stocks, though there's no shortage of things that have scared people. Investors are bidding up companies that can grow. Watch for market pullbacks, since it's getting harder to find things to buy. Low bond yields are pushing people into buying stocks. Meanwhile, volatility has gone up. Pick your stocks, set a price and jump on them when the pullbacks happen.

How do dividends work? Companies pay dividends out of profits. It's small enough and paid quarterly, so paying out won't detract the value of the company. But if a company pays 20% of its earnings, that's a red flag. A yield above 6% risks a cut and could be a red flag.

The market expects a 25-point cut tomorrow by the US Fed's Powell. All these cuts are staving off the recession, which he expects 12 months from now. He hopes to keep selling in 2019. We will have trade uncertainty as long as Trump is President. (FedEx just reduced its forecast due to trade tensions.) Don't invest by guessing the outcome of the trade war; it's a moving target. That said, markets are relatively benign now.

Passive vs. active investing in US stocks He's shocked that Canada is 90% active vs. the US. There's increasingly more money going into passive investing. Active investing doesn't add value, so lower your cast by buying passive investing. Canadians have to catch to America where passive is far more popular.

How to protect an RESP with the coming recession with a child who just started university? Some of the RESP is in GICs with the rest in ETFs? That's a good strategy and asset mix. He has made his RESP more conservative as his child approaches university with fewer (riskier) stocks. He went from 60/40 stocks/bonds to 40/60 and this trend will continue for him.

What are the best stocks for a TFSA? It depends what you need the TFSA for, like a house. Otherwise, find something global, like VXC-T, and broadly diversified.

Portfolio building (in general) Build one according to your circumstances. Advisors have clients fill out a questionnaire to determine risk profile (bonds vs. stocks ratio) and advisors must create a portfolio close to that risk profile, like 70/30 with a 10% variance, like 60/40 or 80/20. Then, stick to that ratio.

A good ETF? What is your objective? Risk profile? Do not look at past performance. Find an ETF that tracks the benchmark. Instead of one ETF, find five to diversify.

Market. The attacks on Saudi oil facilities. The markets are under reacting because they don’t know what the policy response will be but Trump does not want a war. From an investment standpoint, we have to watch crack spreads because a spike in oil pricing puts up refining costs. We are seeing a weakness globally in demand for the refined products. The ETF CRAK-N is up a small percent today which is a material difference from the broader energy sector. This is a key thing to watch. Last week we saw a massive reversal in bonds. The question now is where the buyers step in. We are still heading for recession and this is just a technical correction. People should learn how to work this asset class into their portfolios. Gold is a tremendous asset class and nothing has changed recently.

Canadian Dollar 3 to 6 months out. We are probably going to hang out at $0.75 give or take a bit. 3 to 6 months out he thinks the global economy will weaken and the Canadian economy is headed for recession. Use strength in the Canadian dollar to buy snow bird dollars.

Saudi Arabia. This is a shock and more temporary than permanent. This is not good for anything globally. Oil prices go up and supply is constrained. This is not a reason to be excited about Canadian banks [as caller asked].

Index funds being a bubble. There is a battle between the managers that are tracking indexes and those actively managing. It is not in a bubble because it is money coming from a mutual fund because of higher costs. It does not matter whether you sell an ETF or a mutual fund, to the market.

US Investment with Growth Potential but good tax treatment in a Canadian based account. Horizons' has a new structure called Corporate Class and you can defer your taxes as they are done with total return swaps and no annual distributions.